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Lincoln Electric (LECO) Rides on Solid Demand & Acquisitions

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Lincoln Electric Holdings, Inc. (LECO - Free Report) is benefiting from the improving demand in all its end markets, as reflected in solid order levels and record backlogs for equipment systems and automation solutions. Its pricing actions will help offset the escalating labor, freight and raw material costs. Acquisitions, focus on developing new products, and utilization of digital platforms to engage customers will continue to drive the company’s top-line performance.

Solid Demand Bodes Well For 2022 Results

Lincoln Electric Holdings reported record revenues, adjusted operating margin and earnings per share in the first quarter of 2022, driven by robust demand, favorable mix and solid operational execution. The company has been witnessing improving order rates across all end-market sectors, regions and products. It has been effectively countering raw material inflation through pricing actions and improved productivity. Robust backlog and acquisitions are expected to benefit the company’s performance through this year.

Lincoln Electric now expects organic growth in the mid-teens percent for 2022, up from the high-single-digit to low-double-digit percent stated previously. It anticipates an incremental margin in mid-20% compared with the previous guidance of low to mid-20%. The increase reflects operational improvements in the company’s automation portfolio and Americas Welding, as well as persistent structural savings in Europe.

The Zacks Consensus Estimate for the company’s earnings for 2022 is currently pegged at $7.91, suggesting year-over-year growth of 27%. The consensus mark for 2023 earnings stands at $8.56, indicating a year-over-year improvement of 8%.

Innovation, Acquisitions to Fuel Growth

The company is committed to new product development and utilizing digital platforms to engage customers. Lincoln Electric’s product launches in the automation solutions market are likely to aid growth. Focus on its new additive services business will position the company as a manufacturer of large-scale 3D-printed metal spell parts, prototypes and tooling for industrial customers, which is a major growth prospect.

Meanwhile, the company is continuously evaluating acquisition options focused primarily on tuck-in assets, in sync with its Higher Standard 2025 strategy. The company recently acquired Sao Paulo-based Kestra, which is a manufacturer and provider of specialty welding consumables, wear plates, as well as maintenance and repair services for alloy and wear-resistant products, generally utilized in agricultural, mining, steel, and industrial mill applications. It has expanded Lincoln Electric’s specialty alloy capabilities in South America. The company anticipates the acquisition to contribute $10-$15 million to annual sales of Americas Welding this year.

Balanced Capital Allocation Strategy

Lincoln Electric has a balanced capital allocation strategy, prioritizing growth investment while returning cash to shareholders. The company anticipates capital expenditures between $70 million and $80 million for 2022 and plans to repurchase shares opportunistically. LECO ended first-quarter 2022 with cash in hand of around $1543 million. Its total debt to total capital ratio was 0.50 as of Mar 31, 2022, and times interest earned ratio was 17.8. LECO expects strong cash flow generation and cash conversion of around 90% in 2022.

Price Performance

 

Zacks Investment Research
Image Source: Zacks Investment Research

Lincoln Electric’s shares have gained 0.3% over the past year against the industry’s decline of 0.8%.

Zacks Rank & Other Stocks to Consider

Lincoln Electric currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Some other top-ranked stocks in the Industrial Products sector are Titan International (TWI - Free Report) , Myers Industries (MYE - Free Report) and Packaging Corporation of America (PKG - Free Report) . All of these stocks sport a Zacks Rank #1 at present.

Titan International has an estimated earnings growth rate of 112% for the current year. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 55%.

Titan International pulled off a trailing four-quarter earnings surprise of 56.4%, on average. The company’s shares have soared 122% in the past year.

Myers Industries has an expected earnings growth rate of 67% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 27% in the past 60 days.

MYE has a trailing four-quarter earnings surprise of 20.1%, on average. Myers Industries’ shares have risen 8% over the past year.

Packaging Corporation has an expected earnings growth rate of 16.2% for 2022. The Zacks Consensus Estimate for the current year’s earnings rose 4.2% in the past 60 days.

PKG has a trailing four-quarter earnings surprise of 19.6%, on average. Packaging Corporation’s shares have risen 6% in the past year.