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Why Is Lincoln Electric (LECO) Down 1.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Lincoln Electric Holdings (LECO - Free Report) . Shares have lost about 1.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Lincoln Electric due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Lincoln Electric Q1 Earnings Beat Estimates, Up Y/Y

Lincoln Electric Holdings reported record first-quarter 2021 adjusted earnings of $1.37 per share, which beat the Zacks Consensus Estimate of $1.18. The bottom line also improved 37% year over year. The upbeat performance can be attributed to the company’s execution of strategic initiatives, cost reduction actions and recovery in its end markets.

Including one-time items, the bottom line was $1.23 compared with 91 cents in the prior-year quarter.

Total revenues increased 7.8% year over year to $757 million. Moreover, the top line surpassed the Zacks Consensus Estimate of $724 million. The improvement in revenues was owing to growth of 6.4% in organic sales and a favorable impact of 1.4% from foreign exchange.

Costs and Margins

Cost of goods sold went up 8% to $503 million from the prior-year quarter. Gross profit rose 7% to $254 million from $237 million reported in the prior-year quarter. Gross margin came in at 33.5% compared with 33.8% in the year-ago quarter.

Selling, general and administrative expenses declined 3% year over year to $146 million from the prior-year quarter. Adjusted operating profit increased 24% year over year to $109 million in the quarter. Adjusted operating margin was 14.4% in the reported quarter compared with 12.6% in the year-ago quarter.

Segment Performance

Americas Welding: Sales in the segment increased to $456 million from $443 million reported in the year-earlier period. Adjusted operating for the segment totaled $76 million in the quarter compared with $71 million witnessed in the prior-year quarter.

International Welding: This segment’s revenues increased 12% year over year to $227 million in the reported quarter. The segment reported adjusted operating profit of $19 million compared with the year-ago quarter’s $6.6 million.

The Harris Products Group: The segment’s first-quarter sales amounted to around $111 million, indicating year-over-year improvement of 27%. The segment’s adjusted operating profit was $18.7 million compared with $12.5 million in the prior-year quarter.

Financial Update

Lincoln Electric had cash and cash equivalents of around $242 million at the end of the first quarter of 2021 compared with $257 million at the end of the 2020. The company generated cash flow from operations of $45 million during the reported quarter compared with $22 million in the prior-year quarter. The company’s debt to invested capital was at 47.2% at the end of the first quarter of 2021 compared with 47.6% as of the end of 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 14.72% due to these changes.

VGM Scores

At this time, Lincoln Electric has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Lincoln Electric has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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