Lincoln Electric Beats

Lincoln Electric Holdings Inc. (LECO - Analyst Report) recently reported third quarter EPS of 66 cents, up 69% from 39 cents in the year-earlier quarter and ahead of the Zacks Consensus Estimate of 62 cents.

The reported quarter did not note any special item. However, the prior-year quarter noted a charge of one cent. Including this, adjusted EPS amounted to 66 cents versus 38 cents in the year-over-year quarter.

Total revenue, as reported by the company, increased 35% year over year to $701.6 million, beating the Zacks Consensus Estimate of $664 million.

Cost and Margins

Lincoln reported cost of goods sold of $516 million in the reported quarter versus $375 million in the year-ago quarter. Gross profit also increased to $185 million from $144 million in the prior-year quarter. However, gross margins contracted 130 basis points year over year to 26.4% in the quarter.

Selling, general & administrative expenses increased 16% to $110.6 million from $95.6 1 million in the year-ago quarter. Operating profit improved 54% to $74.8 million in the quarter.

Financial Position

As of September 30, 2011, cash and cash equivalents were $321.5 million versus $337.9 million as of June 30, 2011. Cash from operating activities increased to $84.8 million during the quarter from $56 million during the prior-year quarter.

As of September 30, 2011, the debt-to-capitalization ratio remained flat at 7.1% compared with as of June 30, 2011.

Lincoln Electric’s board of directors has approved a 9.7% increase in its quarterly dividend to 17 cents. The increased dividend will be paid on January 13, 2012 to shareholders of record as of December 31, 2011.

Our Take

Lincoln Electric continues to focus on its growth strategies, which include acquisitions and new product introductions. The company has a multi-year plan in place to turn more cost-competitive by building manufacturing facilities in Eastern Europe.

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 #2 Rank (short-term Buy 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. (ITW - Analyst Report), Charter International Plc and ESAB Group Holdings Ltd.

Read the full analyst report on LECO

Read the full analyst report on ITW