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We have downgraded our recommendation on Lincoln Electric Holdings Inc. (LECO - Analyst Report) from Outperform to Neutral. We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

Lincoln Electric reported fiscal 2012 first quarter adjusted earnings per share of 76 cents, versus 50 cents in the year-earlier quarter. Total revenue increased 21% year over year to a record $727 million. Both outperformed the respective Zacks Consensus Estimates.

North America contributes more than 50% to the company’s business and is the strongest geographic region. Demand continues to be strong despite the ongoing uncertainty in the macroeconomic environment. In 2011, Lincoln Electric acquired three businesses in the United States – Torchmate, Techalloy, and Arc Products – and all of them have good upside potential with current performance superseding expectation.

The company’s recent acquisition of Weartech, a major producer of specialized cobalt and wear-resistant welding consumables, is expected to generate comparable synergies. These acquisitions will complement Lincoln’s ability to serve its global customers in the nuclear, power generation and process industries.

We believe the company is well positioned to take advantage of the expected long-term growth in its key global markets including power generation, offshore drilling and automotive sectors.

In power generation, new nuclear plants are being planned in many countries. Demand for nuclear power generation is growing in China, India, Poland, Lithuania and Finland. In the United States, Lincoln Electric is the preferred supplier of arc-welding equipment and consumable products for planned nuclear plants in South Carolina and Georgia.

In the wind energy sector, wind farms are expected to become an increasingly important source of energy in Europe. Further, in the United States, the Department of Interior is planning to issue offshore wind energy leases for regions along the East Coast.

In the offshore drilling industry, emerging countries such as Brazil are focused on exploring their own oil and gas reserves, leading to new offshore construction, while drilling continues to expand in the more mature regions of North America and Western Europe.

The automotive sector is also rising, with most of the growth coming from China and India. In the United States, the average age of cars and trucks on the road is increasing, which bodes well for the demand for new cars in the coming years.

Lincoln Electric has appreciably increased its sales volume in the pipeline sector and maintained profitability and market leadership. According to the U.S. Energy Information Agency, energy consumption is projected to increase by 53% globally through 2035, using 2008 as a baseline.

Consequently, new pipeline construction is expected to increase approximately 6% annually. Lincoln is well-positioned globally to capitalize on this, and offers a complete line of welding solutions for pipeline projects both onshore and offshore.

Lincoln has successfully maintained its product leadership by investing heavily in product development. The company’s goal is to generate 50% of its annual sales from products introduced in the past five years.

On the flipside, around 32% of Lincoln Electric’s revenue is generated from Europe and Asia. We remain cautious about Europe's persistent debt problems and the slowing Chinese economy.

Raw material costs are also steadily on the rise and the company has thus far been successful in passing it on to the customers. However, competitive pricing may prevent the company to implement  price hikes thereby affecting margins.

Headquartered in Cleveland, Ohio, Lincoln Electric is a full-line manufacturer and reseller of welding and cutting products. The company’s welding products range from welding power sources, wire feeding systems, robotic welding packages, fume extraction equipment, consumables and fluxes to regulators and torches used in cutting. It competes with Illinois Tool Works Inc. (ITW - Analyst Report).

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