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Lincoln Electric Holdings Inc. (LECO - Analyst Report) recently reported second-quarter 2012 earnings of 81 cents per share, up 19% from 68 cents in the year-earlier quarter. Earnings missed the Zacks Consensus Estimate of 85 cents.

Adjusted income excluded some special items of 2 cents per share in the reported quarter. Including these special items, earnings as reported by the company were 79 cents per share compared with 68 cents in the year-ago quarter.

Total revenues increased 6.4% year over year to $744 million, although missing the Zacks Consensus Estimate of $799 million. The improvement mainly stemmed from the strong performance in the North America welding segment during the quarter.

Cost and Margins

Cost of goods sold increased 3% to $519 million in the reported quarter versus $503.8 million in the year-ago quarter. Gross profit also increased 15.1% to $225 million from $195.5 million in the prior-year quarter. Gross margins expanded 220 basis points year over year to 30.2% in the quarter.

Selling, general & administrative expenses increased 10.5% to $127.7 million from $115.5 million in the year-ago quarter. Adjusted operating profit improved 23.4% to $98.7 million in the quarter.

Financial Position

As of June 30, 2012, cash and cash equivalents were $308 million versus $361.1 million as of December 31, 2011. Cash from operating activities increased substantially to $81.7 million during the quarter from $28.8 million during the prior-year quarter.

As of June 30, 2012, the debt-to-capitalization ratio was 1.7% compared with 8% as of December 31, 2011. During the first six months of 2012, Lincoln Electric repaid its $80 million senior unsecured notes and returned $68.5 million to shareholders through the payment of $28.4 million as dividends and share repurchases worth $40.1 million.

Our Take

During the second quarter, demand for Lincoln Electric’s products in the North American market remained robust. However, demand trends in the international market including Europe, Asia Pacific and South America suffered and worsened, owing to the ongoing weak global economic conditions.

We believe that Lincoln Electric’s global growth strategy which entails acquisitions, introducing new products and increasing its footprint in the global arena will help it fare well through the depressed economic conditions in the long run.

Lincoln Electric faces competition from companies like Illinois Tool Works Inc. (ITW - Analyst Report) and privately held Charter International Plc. The company retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.

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