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Lincoln Electric (LECO) Down 8% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Lincoln Electric Holdings (LECO - Free Report) . Shares have lost about 8% 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 the most recent earnings report in order to get a better handle on the important drivers.

Lincoln Electric Q2 Earnings & Sales Lag Estimates

Lincoln Electric delivered adjusted earnings of $1.28 per share in second-quarter 2019, up 4.9% year over year. The reported figure, however, missed the Zacks Consensus Estimate of $1.30.

Including one-time items, earnings in the reported quarter came in at $1.36 compared with $1.04 recorded in the prior-year quarter.

Total revenues edged down 1.7% year over year to $777 million, with 3.5% decrease in organic sales and 1.7% from unfavorable foreign-currency translation in the reported quarter. However, the revenue decline was partly offset by 3.4% benefit from acquisitions. Sales figure also missed the Zacks Consensus Estimate of $790 million.

Costs and Margins

Cost of goods sold was down 2.5% to $507 million from $520 million recorded in the prior-year quarter. Gross profit inched down to $269.9 million from the prior-year quarter’s $270.1 million. Gross margin came in at 34.7% compared with the prior-year quarter’s 34.2%.

Selling, general and administrative expenses slipped 0.6% to $163.4 million from the year-earlier quarter. Adjusted operating profit edged down 1% year over year to $105.9 million in the quarter. Operating margin came in at 13.6% compared with 13.5% witnessed in the year-ago quarter.

Financial Update

Lincoln Electric had cash and cash equivalents of $189.8 million at the end of the second quarter compared with $357 million at the end of the prior-year quarter. The company recorded cash flow from operations of $126 million during the April-June quarter compared with $79.8 million witnessed in the year-earlier period.

During the second quarter, Lincoln Electric returned $115 million to shareholders through dividend and share repurchases.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Lincoln Electric has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Lincoln Electric has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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