Lincoln Electric Keeps Growing Inorganically - Analyst Blog

On May 29, 2014, we issued an updated research report on Lincoln Electric Holdings Inc. LECO. The manufacturer and reseller of welding and cutting products recorded fall in revenues and earnings in first-quarter 2014 as benefits achieved from acquisitions and steady price-performance were offset by a decline in volumes.

Notably, Lincoln Electric's revenue decreased 4.7% year over year to $685 million in the first quarter. Though acquisitions contributed to an increase of 1.1% in sales, sales volumes decreased 5% and foreign exchange had a negative impact of 1.2% on sales.

Lincoln Electric's first-quarter earnings per share came in at 91 cents, a 1.1% decline from 92 cents per share in the year-ago quarter. The company did not provide any specific guidance for 2014 and hinted that top-line performance will remain sluggish, given its end-market exposure. Moreover, weakness within the global mining sector remains a headwind in the near term.

Additionally, Lincoln Electric recorded $17.7 million negative impact from foreign currency translation in the first quarter. On Mar, 2014, the company shifted Venezuelan exchange rate from 6.3 bolivars to the dollar to the SICAD I rate of 10.7. This will result in lower reported earnings from Venezuelan operations with additional charges of $3.5 million in the second quarter. The operating environment in Venezuela continues to remain a challenge in 2014.

Further, the company continues to experience weakness in Australia and China and remains uncertain about any near-term improvement. In addition, raw material costs have been escalating and margins will be affected due to competitive pricing within its various market sectors.

The only encouraging matter is that Lincoln Electric enhanced its product portfolio in many key high-growth areas through acquisitions. In Nov 2013, Lincoln Electric announced the acquisition of an ownership interest in Burlington Automation Corporation and also entered into a definitive agreement to acquire Robolution GmbH. Lincoln's global acquisition strategy will help in the expansion of its geographic reach.

Lincoln Electric currently carries a Zacks Rank #4 (Sell).

Other Stocks to Consider

Other players that are worth considering in the sector are AO Smith Corp. AOS, Atlas Copco AB (ATLKY) and Blount International Inc. BLT. All these carry a Zacks Rank #2 (Buy).

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