Lincoln Electric Reports Second Quarter 2019 Results

CLEVELAND, July 23, 2019 (GLOBE NEWSWIRE) -- Lincoln Electric Holdings, Inc. (the "Company") LECO today reported second quarter 2019 net income of $85.5 million, or diluted earnings per share (EPS) of $1.36, which includes special item after-tax net benefits of $4.6 million, or $0.08 EPS. This compares with prior year net income of $68.9 million, or $1.04 EPS, which included special item after-tax charges of $11.5 million, or $0.18 EPS. Excluding these items, second quarter 2019 adjusted net income was $80.9 million, or $1.28 EPS, as compared with $80.4 million, or $1.22 EPS in the prior year period. The effective tax rate was 17.4% in the second quarter 2019 as compared with 27.0% in the prior year period. Excluding special items, the adjusted effective tax rate was 22.0%, which compares to 24.6% in the comparable 2018 period.

Second quarter 2019 sales decreased 1.7% to $777.0 million from a 3.5% decrease in organic sales and 1.7% unfavorable foreign exchange, partially offset by a 3.4% benefit from acquisitions. Operating income for the second quarter 2019 was $105.2 million, or 13.5% of sales. This compares with operating income of $94.6 million, or 12.0% of sales, in the prior year period. On an adjusted basis, operating income was $105.9 million, or 13.6% of sales, as compared with $107.0 million, or 13.5% of sales, in the prior year period.

"We maintained strong margin performance and improved cash generation, cash conversion and returns in a slowing economic environment," stated Christopher L. Mapes, Chairman, President and Chief Executive Officer. "As we navigate through the cycle, we are focused on the successful execution of our growth initiatives, achieving operational excellence and maintaining diligent cost controls to mitigate the impact of moderating growth."

Six Months 2019 Summary

Net income for the six months ended June 30, 2019 was $156.9 million, or $2.47 EPS. This compares with $129.7 million, or $1.96 EPS, in the comparable 2018 period. Reported EPS includes special item after-tax net benefits of $1.1 million or $0.01 EPS, as compared with special item after-tax charges of $24.0 million, or $0.36 EPS in the prior year period. Excluding these items, adjusted net income for the six months ended June 30, 2019 increased 1.4% to $155.9 million, or $2.46 EPS, compared with $153.7 million, or $2.32 EPS, in the comparable 2018 period. The effective tax rate was 20.1% for the six months ended June 30, 2019 as compared with 27.3% in the prior year period. Excluding special items, the adjusted effective tax rate was 22.4%, which compares to 24.5% in the comparable 2018 period.

Sales decreased 0.7% to $1.5 billion in the six months ended June 30, 2019 from a 1.3% decrease in organic sales, 2.4% unfavorable foreign exchange, partially offset by a 3.0% benefit from acquisitions. Operating income for the six months ended June 30, 2019 was $199.7 million, or 13.0% of sales. This compares with operating income of $179.8 million, or 11.6% of sales, in the comparable 2018 period. On an adjusted basis, operating income was $204.7 million, or 13.3% of sales, as compared with $204.2 million, or 13.2% of sales, in the comparable 2018 period.

Webcast Information

A conference call to discuss second quarter 2019 financial results will be webcast live today, July 23, 2019, at 10:00 a.m., Eastern Time. This webcast is accessible at https://ir.lincolnelectric.com. Listeners should go to the web site prior to the call to register, download and install any necessary audio software. A replay of the webcast will be available on the Company's web site.

Investors who are unable to access the webcast may listen to the conference call live by telephone by dialing (877) 344-3899 (domestic) or (315) 625-3087 (international) and use confirmation code 3041829. Telephone participants are asked to dial in 10 - 15 minutes prior to the start of the conference call.

Financial results for the second quarter 2019 can also be obtained at https://ir.lincolnelectric.com.

About Lincoln Electric

Lincoln Electric is the world leader in the design, development and manufacture of arc welding products, robotic arc welding systems, plasma and oxy-fuel cutting equipment and has a leading global position in the brazing and soldering alloys market. Headquartered in Cleveland, Ohio, Lincoln has 60 manufacturing locations, including operations and joint ventures in 19 countries and a worldwide network of distributors and sales offices covering more than 160 countries. For more information about Lincoln Electric and its products and services, visit the Company's website at https://www.lincolnelectric.com.

Non-GAAP Information

Adjusted operating income, Adjusted net income, Adjusted EBIT, Adjusted effective tax rate, Adjusted diluted earnings per share, Organic sales and Return on invested capital are non-GAAP financial measures. Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business. Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully. Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly. Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently.

Forward-Looking Statements

The Company's expectations and beliefs concerning the future contained in this news release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management's current expectations and involve a number of risks and uncertainties. Forward-looking statements generally can be identified by the use of words such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "forecast," "guidance" or words of similar meaning. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company's operating results. The factors include, but are not limited to: general economic and market conditions; the effectiveness of operating initiatives; completion of planned divestitures; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; currency exchange rates and devaluations; adverse outcome of pending or potential litigation; actual costs of the Company's rationalization plans; possible acquisitions, including the Company's ability to successfully integrate acquisitions; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; the effects of changes in tax law; tariff rates in the countries where the Company conducts business; and the possible effects of events beyond our control, such as political unrest, acts of terror and natural disasters, on the Company or its customers, suppliers and the economy in general. For additional discussion, see "Item 1A. Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2018.

Contact

Amanda Butler
Vice President, Investor Relations & Communications
Tel: 216.383.2534
Email: Amanda_Butler@lincolnelectric.com

Lincoln Electric Holdings, Inc.
Financial Highlights
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Consolidated Statements of Income

Lincoln Electric Holdings, Inc.
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Balance Sheet Highlights

1. Includes current portion of long-term debt.
2. Average operating working capital to Net sales is defined as operating working capital as of period end divided by annualized rolling three months of Net sales. 

Lincoln Electric Holdings, Inc.
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 Non-GAAP Financial Measures

1. Adjusted operating income, Adjusted net income, Adjusted EBIT, Adjusted effective tax rate and Adjusted diluted earnings per share are non-GAAP financial measures. Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business. Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully. Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly. Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently.
2. Primarily related to severance, asset impairments and gains or losses on the disposal of assets.
3. Related to the acquisition of Air Liquide Welding and are included in Selling, general & administrative expenses.
4. Related to the acquisition of Baker Industries, Inc. and are included in Cost of goods sold.
5. Primarily included in Cost of goods sold.
6. Related to lump sum pension payments and are included in Other income (expense).
7. Includes the net tax impact of Special items recorded during the respective periods, including tax benefits of $4,852 for the settlement of a tax item as well as tax deductions associated with an investment in a subsidiary in the three and six months ended June 30, 2019.
   The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.

Lincoln Electric Holdings, Inc.
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Non-GAAP Financial Measures

1. Adjusted net income and Return on invested capital are non-GAAP financial measures. Management uses non-GAAP measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business. Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully. Furthermore, management believes that non-GAAP financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly. Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-GAAP measures differently.
2. Return on invested capital is defined as rolling 12 months of Adjusted net income before tax-effected interest income and expense divided by Invested capital.
3. Includes the net tax impact of Special items recorded during the respective periods, including tax benefits of $4,852 for the settlement of a tax item as well as tax deductions associated with an investment in a subsidiary in the twelve months ended June 30, 2019 and net charges of $31,116 related to the U.S. Tax Act in the twelve months ended June 30, 2018.
   The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.

Lincoln Electric Holdings, Inc.
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Condensed Consolidated Statements of Cash Flows

Lincoln Electric Holdings, Inc.
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1. EBIT is defined as Operating income plus Other income (expense).
2. The primary profit measure used by management to assess segment performance is Adjusted EBIT. EBIT for each operating segment is adjusted for special items to derive Adjusted EBIT.
3. Special items in 2019 reflect Rationalization and asset impairment charges of $380 in Americas Welding and $927 in International Welding, amortization of step up in value of acquired inventories of $1,399 in Americas Welding, gains on disposals of assets of $3,554 in International Welding and acquisition transaction and integration costs of $1,014 in Corporate/Eliminations related to the acquisition of Air Liquide Welding.
4. Special items in 2018 reflect rationalization and asset impairment charges of $11,542 in International Welding. Special items in 2018 also reflect acquisition transaction and integration costs of $788 in Corporate/Eliminations related to the acquisition of Air Liquide Welding.

Lincoln Electric Holdings, Inc.
Segment Highlights
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1. EBIT is defined as Operating income plus Other income (expense).
2. The primary profit measure used by management to assess segment performance is Adjusted EBIT. EBIT for each operating segment is adjusted for special items to derive Adjusted EBIT.
3. Special items in 2019 reflect Rationalization and asset impairment charges of $1,716 in Americas Welding and $3,126 in International Welding, amortization of step up in value of acquired inventories of $1,399 in Americas Welding, gains on disposals of assets of $3,554 in International Welding and acquisition transaction and integration costs of $1,804 in Corporate/Eliminations related to the acquisition of Air Liquide Welding.
4. Special items in 2018 reflect pension settlement charges of $758 in Americas Welding, rationalization and asset impairment charges of $21,717 in International Welding and acquisition transaction and integration costs of $2,695 in Corporate/Eliminations related to the acquisition of Air Liquide Welding.

Lincoln Electric Holdings, Inc.
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