Lincoln Electric's (LECO) Q3 Earnings In Line, Revenues Beat

Lincoln Electric Holdings, Inc. (NASDAQ:LECO) reported adjusted earnings of 93 cents per share in third-quarter 2017, up 4.5% year over year. Earnings came in line with the Zacks Consensus Estimate.

Including one-time items, earnings in the reported quarter came in at $1.59 compared with 89 cents recorded in the prior-year quarter. The reported quarter’s earnings per share include special items of 66 cents per share, while the prior-year quarter has no such adjustments.

Total revenues climbed 17.9% year over year to $669.5 million with 5.6% higher organic sales as industrial demand improved. The year-over-year growth was driven by 11% benefit from acquisitions, 3.8% higher volumes, a 1.8% increase in price and 1.4% from favorable foreign exchange. Sales also beat the Zacks Consensus Estimate of $650 million.

Lincoln Electric’s third-quarter results were driven by the improving end-market demand and successful accomplishment of the Air Liquide (PA:AIRP) Welding transaction.

Costs and Margins

Cost of goods sold escalated 22% year over year to $450 million. Gross profit advanced 9.9% year over year to $219.5 million. Gross margin contracted 240 basis points (bps) year over year to 34.7%.

Selling, general and administrative expenses flared up 12.5% to $132.7 million from $118 million recorded in the year-earlier quarter. Adjusted operating profit rose 12.9% year over year to $92.4 million in the reported quarter. Operating margin, however, descended 60 bps year over year to 13.8%. The acquisition of Air Liquide Welding had an unfavorable 140 bps impact to the adjusted operating income margin.

Financial Update

Lincoln Electric had cash and cash equivalents of $299.5 million at the end of third-quarter 2017 compared with $379.2 million recorded at the end of 2016. Cash flow from operations came in at $93.7 million in the reported quarter compared with $113.3 million witnessed in the year-ago quarter.

Lincoln Electric hiked its quarterly dividend by 11.4%, from 35 cents per share to 39 cents, or $1.56 per share on an annual basis. The dividend is payable on Jan 12, 2018 to shareholders of record as of Dec 29, 2017.

Outlook

Lincoln Electric is anticipated to gain from the Air Liquide Welding acquisition. The integration process of Air Liquide Welding is progressing well. The company expects to benefit from an ongoing global recovery in most end markets. Further, it continues to focus on executing its 2020 Vision and Strategy.

Share Price Performance

In the last year, Lincoln Electric has underperformed the industry with respect to price performance. The stock has gained around 39.8%, while the industry recorded growth of 44.7%.

Zacks Rank & Other Key Picks

Lincoln Electric currently carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the same sector are Sandvik AB (OTC:SDVKY) , Kennametal Inc. (NYSE:KMT) and Stanley Black & Decker, Inc. (NYSE:SWK) . While Sandvik sports a Zacks Rank of 1 (Strong Buy), Kennametal and Stanley Black & Decker carry the same rank as Lincoln Electric. You can see the complete list of today’s Zacks #1 Rank stocks here.

Sandvik has an expected long-term earnings growth rate of 7.5%.

Kennametal has an expected long-term earnings growth rate of 8.3%.

Stanley Black & Decker has an expected long-term earnings growth rate of 10.3%.

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