Back to top

Analyst Blog

Lincoln Electric Holdings Inc. recently reported its second quarter earnings. EPS of 68 cents is up from 38 cents in the year-earlier quarter and ahead of the Zacks Consensus Estimate of 55 cents.

The reported quarter did not note any special item. However, the prior-year quarter noted a charge of one cent. Excluding this, adjusted EPS amounted to 68 cents versus 39 cents in the year-over-year quarter.

Total revenue, as reported by the company, increased 35.6% year over year to $699.3 million. The company’s continued focus on new products accounted for an increase in sales and market share gains.

Cost and Margins

Lincoln reported cost of goods sold of $503.8 million in the reported quarter versus $367.0 million in the year-ago quarter. Gross profit also increased to $195.5 million from $148.6 million in the prior-year quarter. Consequently, gross margins went up 100 basis points year over year to 28.0% in the quarter.

Selling, general & administrative expenses increased to $115.5 million from $101.1 million in the year-ago quarter. Operating income showed a drastic improvement and soared to $80.0 million from $51.1 million in the prior-year quarter.

Financial Position

As of June 30, 2011, cash and cash equivalents were $337.9 million versus $366.2 million as of December 31, 2010.

Cash from operating activities decreased to $28.8 million during the quarter from $32.1 million during the prior-year quarter.

As of June 30, 2011, the debt-to-capitalization ratio improved after dropping drastically to 0.1% compared with 7.4% as of March 31, 2011 and 7.8% as of December 31, 2010.

Outlook

Management believes that its constant focus on productivity improvement and cost reduction will continue to offer operating leverage and will be helpful in implementing its long-term strategy and extend its benefits to its stakeholders.

Our Take

Lincoln Electric is pursuing a multi-year strategy to become more cost competitive by building manufacturing facilities in Eastern Europe and Asia. Recently, the company entered the Russian market with the acquisition of Mezhgosmetiz-Mtsensk OAO and OOO Severstal-metiz.

These acquisitions are likely to strengthen Lincoln's presence in the Russian market. In addition to the above acquisitions, the company also partnered with IPG Photonics Corporation to explore global opportunities in the high-power laser welding and cutting market.

Allied with its aim of turning cost-competitive, Lincoln Electric is implementing various cost-control measures. Further, the demand for its products is on the rise, leading us to believe that the company will post strong growth on the heels of an economic recovery and investments in the emerging markets. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

Cleveland, Ohio-based Lincoln Electric designs, develops and manufactures arc welding products, robotic arc-welding systems, plasma and oxyfuel cutting equipment and commands a leading position in the brazing and soldering alloys market. Lincoln Electric competes with Illinois Tool Works Inc. , Charter International Plc and ESAB Group Holdings Ltd.

Please login to Zacks.com or register to post a comment.