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Lincoln Electric Reports First Quarter 2016 Results

First Quarter 2016 Key Metric Highlights

  • Sales declined 16.3% reflecting unfavorable foreign exchange translation and lower volumes
  • Operating margin held stable at 13.7% of sales
  • ROIC of 20.4%
  • Returned $125 million to shareholders through dividends and share repurchases

CLEVELAND, April 19, 2016 (GLOBE NEWSWIRE) -- Lincoln Electric Holdings, Inc. (the “Company”) (Nasdaq:LECO) today reported first quarter 2016 net income of $53.6 million, or diluted earnings per share (EPS) of $0.76. This compares with net income of $68.4 million, or EPS of $0.89 in the comparable 2015 period.

First quarter 2016 sales decreased 16.3% to $550.7 million. An 11.4% benefit from price and a 1.6% increase from acquisitions was offset by a 15.0% decline from unfavorable foreign exchange translation and 14.2% lower volumes. Excluding Venezuela, pricing and foreign exchange had 1.0% and 2.2% unfavorable impacts, respectively, on sales in the quarter. Operating income for the first quarter 2016 was $75.3 million, or 13.7% of sales reflecting operational and commercial initiatives focused on managing margins, as well as the benefit of cost reduction actions. This compared with $90.5 million, or 13.8% of sales, in the comparable 2015 period.

“We achieved solid margins and returns this quarter,” stated Christopher L. Mapes, Chairman, President and Chief Executive Officer. “While volumes continued to compress on weak industrial demand and challenging year-over-year comparisons, cost reduction actions and solid execution of our operational and commercial initiatives significantly mitigated the impact of year-over-year declines. In this part of the cycle, we continue to invest in innovation, our long-term growth strategies and returning cash to shareholders. We are diligently managing costs and margin performance and are looking for sustainable improvement in industrial sector conditions to drive increased customer demand.”

Dividend and Share Repurchases

The Company’s Board of Directors declared a quarterly cash dividend of $0.32 per share, which was paid on April 15, 2016 to shareholders of record as of March 31, 2016.

During the quarter, the Company returned $125.1 million to shareholders through dividends and the repurchase of 1.9 million of the Company’s common shares. The Company is maintaining its 2016 share repurchase target of $400 million of the Company’s common shares.

Webcast Information

A conference call to discuss first quarter 2016 financial results will be webcast live today, April 19, 2016, at 10:00 a.m., Eastern Time. This webcast is accessible at http://ir.lincolnelectric.com. Listeners should go to the web site prior to the call to register, download and install any necessary audio software. A replay of the webcast will be available on the Company's web site.

Investors who are unable to access the webcast may listen to the conference call live by telephone by dialing (877) 344-3899 (domestic) or (315) 625-3087 (international) and use confirmation code 77332044. Telephone participants are asked to dial in 10-15 minutes prior to the start of the conference call.

Financial results for the first quarter 2016 can also be obtained at http://ir.lincolnelectric.com.

About Lincoln Electric

Lincoln Electric is the world leader in the design, development and manufacture of arc welding products, robotic arc welding systems, plasma and oxy-fuel cutting equipment and has a leading global position in the brazing and soldering alloys market. Headquartered in Cleveland, Ohio, Lincoln has 48 manufacturing locations, including operations and joint ventures in 19 countries and a worldwide network of distributors and sales offices covering more than 160 countries. For more information about Lincoln Electric and its products and services, visit the Company’s website at www.lincolnelectric.com.

Non-GAAP Information

Adjusted operating income, Adjusted net income, Adjusted diluted earnings per share and Return on invested capital are non-GAAP financial measures that management believes are important to investors to evaluate and compare the Company’s financial performance from period to period. Management uses this information in assessing and evaluating the Company’s underlying operating performance. Non-GAAP financial measures should be read in conjunction with the GAAP financial measures, as non-GAAP measures are a supplement to, and not a replacement for, GAAP financial measures. Please refer to the attached schedule for a reconciliation of non-GAAP financial measures to the related GAAP financial measures.

Forward-Looking Statements

The Company’s expectations and beliefs concerning the future contained in this news release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management’s current expectations and involve a number of risks and uncertainties. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “guidance” or words of similar meaning. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company’s operating results. The factors include, but are not limited to: general economic and market conditions; the effectiveness of operating initiatives; completion of planned divestitures; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; currency exchange rates and devaluations, including in highly inflationary countries such as Venezuela; adverse outcome of pending or potential litigation; actual costs of the Company’s rationalization plans; possible acquisitions; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; and the possible effects of events beyond our control, such as political unrest, acts of terror and natural disasters, on the Company or its customers, suppliers and the economy in general. For additional discussion, see “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands, except per share amounts)
(Unaudited)
Consolidated Statements of Income
Three Months Ended March 31, Fav (Unfav) to Prior Year
2016 % of Sales 2015 % of Sales $ %
Net sales $550,722 100.0% $657,900 100.0% $(107,178) (16.3%)
Cost of goods sold 361,620 65.7% 437,510 66.5% 75,890 17.3%
Gross profit 189,102 34.3% 220,390 33.5% (31,288) (14.2%)
Selling, general & administrative expenses 113,810 20.7% 129,891 19.7% 16,081 12.4%
Operating income 75,292 13.7% 90,499 13.8% (15,207) (16.8%)
Interest income 430 0.1% 593 0.1% (163) (27.5%)
Equity earnings in affiliates 626 0.1% 849 0.1% (223) (26.3%)
Other income 661 0.1% 2,610 0.4% (1,949) (74.7%)
Interest expense (3,827) (0.7%) (1,844) (0.3%) (1,983) (107.5%)
Income before income taxes 73,182 13.3% 92,707 14.1% (19,525) (21.1%)
Income taxes 19,558 3.6% 24,389 3.7% 4,831 19.8%
Effective tax rate 26.7% 26.3% (0.4%)
Net income including non-controlling interests 53,624 9.7% 68,318 10.4% (14,694) (21.5%)
Non-controlling interests in subsidiaries’ loss (14) (36) 22 61.1%
Net income $53,638 9.7% $68,354 10.4% $(14,716) (21.5%)
Basic earnings per share $0.77 $0.90 $(0.13) (14.4%)
Diluted earnings per share $0.76 $0.89 $(0.13) (14.6%)
Weighted average shares (basic) 69,585 76,242
Weighted average shares (diluted) 70,246 77,059


Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands)
(Unaudited)
Balance Sheet Highlights
Selected Consolidated Balance Sheet Data March 31, 2016 December 31, 2015
Cash and cash equivalents $220,996 $304,183
Total current assets 902,347 935,995
Property, plant and equipment, net 413,826 411,323
Total assets 1,777,095 1,784,171
Total current liabilities 401,455 370,122
Short-term debt (1) 24,844 4,278
Long-term debt 350,106 350,347
Total equity 892,669 932,448
Net Operating Working Capital March 31, 2016 December 31, 2015
Accounts receivable $286,120 $264,715
Inventory 292,709 275,930
Trade accounts payable 159,590 152,620
Net operating working capital $419,239 $388,025
Net operating working capital to net sales (2) 19.0% 17.1%
Invested Capital March 31, 2016 December 31, 2015
Short-term debt (1) $24,844 $4,278
Long-term debt 350,106 350,347
Total debt 374,950 354,625
Total equity 892,669 932,448
Invested capital $1,267,619 $1,287,073
Total debt / invested capital 29.6% 27.6%

(1) Includes current portion of long-term debt.

(2) Net operating working capital to net sales is defined as net operating working capital divided by annualized rolling three months of sales.

Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands, except per share amounts)
(Unaudited)
Non-GAAP Financial Measures
Three Months Ended March 31,
2016 2015
Operating income as reported $75,292 $90,499
Special items (pre-tax):
Adjusted operating income (1) $75,292 $90,499
As a percent of total sales 13.7% 13.8%
Net income as reported $53,638 $68,354
Special items (after-tax):
Adjusted net income (1) $53,638 $68,354
Diluted earnings per share as reported $0.76 $0.89
Special items
Adjusted diluted earnings per share (1) $0.76 $0.89
Weighted average shares (diluted) 70,246 77,059
Return on Invested Capital Twelve Months Ended March 31,
2016 2015
Adjusted net income (1)(2) $245,467 $300,170
Plus: Interest expense (after-tax) 14,693 6,608
Less: Interest income (after-tax) 1,574 1,711
Adjusted net income before tax effected interest $258,586 $305,067
Invested capital 1,267,619 1,351,822
Return on invested capital (1)(3) 20.4% 22.6%

(1) Adjusted operating income, Adjusted net income, Adjusted diluted earnings per share and Return on invested capital are non-GAAP financial measures that management believes are important to investors to evaluate and compare the Company’s financial performance from period to period. Management uses this information in assessing and evaluating the Company’s underlying operating performance. Non-GAAP financial measures should be read in conjunction with the GAAP financial measures, as non-GAAP measures are a supplement to, and not a replacement for, GAAP financial measures.

(2) Adjusted net income for the twelve months ended March 31, 2016 excludes the after-tax impact of $132.7 million from special items including pension settlement charges, rationalization and asset impairment charges and Venezuelan remeasurement losses related to the adoption of new foreign exchange mechanisms. Adjusted net income for the twelve months ended March 31, 2015 excludes the after-tax impact of $33.6 million from special items including rationalization and asset impairment charges and Venezuelan remeasurement losses related to the adoption of new foreign exchange mechanisms.

(3) Return on invested capital is defined as rolling 12 months of Adjusted net income excluding tax-effected interest income and expense divided by invested capital.

Lincoln Electric Holdings, Inc.
Financial Highlights
(In thousands, except per share amounts)
(Unaudited)
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31,
2016 2015
OPERATING ACTIVITIES:
Net income $53,638 $68,354
Non-controlling interests in subsidiaries’ loss (14) (36)
Net income including non-controlling interests 53,624 68,318
Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities:
Rationalization and asset impairment charges 30
Depreciation and amortization 15,625 16,032
Equity earnings in affiliates, net (2) (216)
Pension expense 4,144 5,679
Pension contributions and payments (20,865) (21,234)
Other non-cash items, net (2,079) (18,562)
Changes in operating assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable (16,592) (25,377)
Increase in inventories (10,780) (16,233)
Increase (decrease) in trade accounts payable 4,657 (12,916)
Net change in other current assets and liabilities (1) (2,911) 55,069
Net change in other long-term assets and liabilities (460) 2,194
NET CASH PROVIDED BY OPERATING ACTIVITIES 24,361 52,784
INVESTING ACTIVITIES:
Capital expenditures (8,885) (12,456)
Proceeds from sale of property, plant and equipment 458 1,187
Other investing activities 2,024
NET CASH USED BY INVESTING ACTIVITIES (8,427) (9,245)
FINANCING ACTIVITIES:
Net change in borrowings 21,756 101,510
Proceeds from exercise of stock options 2,015 1,733
Excess tax benefits from stock-based compensation 357 537
Purchase of shares for treasury (102,488) (102,853)
Cash dividends paid to shareholders (22,625) (22,329)
Other financing activities (3,806) (20)
NET CASH USED BY FINANCING ACTIVITIES (104,791) (21,422)
Effect of exchange rate changes on Cash and cash equivalents 5,670 (11,479)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (83,187) 10,638
Cash and cash equivalents at beginning of period 304,183 278,379
Cash and cash equivalents at end of period $220,996 $289,017
Cash dividends paid per share $0.32 $0.29

(1) Net change in other current assets and liabilities in 2015 includes the receipt of a $25 million tax refund.

Lincoln Electric Holdings, Inc.
Segment Highlights (1)
(In thousands)
(Unaudited)
Americas
Welding
International
Welding
The Harris
Products
Group
Corporate /
Eliminations
Consolidated
Three months ended March 31, 2016
Net sales $359,008 $124,305 $67,409 $ $550,722
Inter-segment sales 23,831 4,426 2,303 (30,560)
Total $382,839 $128,731 $69,712 $(30,560) $550,722
EBIT (2) $61,438 $6,233 $7,711 $1,197 $76,579
As a percent of total sales 16.0% 4.8% 11.1% 13.9%
Special items charge (gain)
EBIT, as adjusted (3) $61,438 $6,233 $7,711 $1,197 $76,579
As a percent of total sales 16.0% 4.8% 11.1% 13.9%
Three months ended March 31, 2015
Net sales $448,837 $139,247 $69,816 $ $657,900
Inter-segment sales 23,023 5,027 2,011 (30,061)
Total $471,860 $144,274 $71,827 $(30,061) $657,900
EBIT (2) $75,415 $10,934 $7,549 $60 $93,958
As a percent of total sales 16.0% 7.6% 10.5% 14.3%
Special items charge (gain)
EBIT, as adjusted (3) $75,415 $10,934 $7,549 $60 $93,958
As a percent of total sales 16.0% 7.6% 10.5% 14.3%

(1) As previously announced on February 9, 2016, the Company realigned its organizational structure into three operating segments which was effective beginning in the first quarter of 2016.

(2) EBIT is defined as Operating income plus Equity earnings in affiliates and Other income.

(2) The primary profit measure used by management to assess segment performance is EBIT, as adjusted. EBIT for each operating segment is adjusted for special items to derive EBIT, as adjusted.

Lincoln Electric Holdings, Inc.
Change in Net Sales by Segment
(In thousands)
(Unaudited)
Three Months Ended March 31st Change in Net Sales by Segment
Change in Net Sales due to:
Net Sales
2015
Volume Acquisitions Price Foreign
Exchange
Net Sales
2016
Operating Segments
Americas Welding $448,837 $(85,063) $6,977 $80,320 $(92,063) $359,008
International Welding 139,247 (9,822) 3,465 (3,105) (5,480) 124,305
The Harris Products Group 69,816 1,390 (2,404) (1,393) 67,409
Consolidated $657,900 $(93,495) $10,442 $74,811 $(98,936) $550,722
Consolidated (excluding Venezuela) $635,021 $(79,236) $10,442 $(6,490) $(13,995) $545,742
% Change
Americas Welding (19.0%) 1.6% 17.9% (20.5%) (20.0%)
International Welding (7.1%) 2.5% (2.2%) (3.9%) (10.7%)
The Harris Products Group 2.0% (3.4%) (2.0%) (3.4%)
Consolidated (14.2%) 1.6% 11.4% (15.0%) (16.3%)
Consolidated (excluding Venezuela) (12.5%) 1.6% (1.0%) (2.2%) (14.1%)
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Contact Amanda Butler Director, Investor Relations Tel: 216.383.2534 Email: Amanda_Butler@lincolnelectric.com

Source:Lincoln Electric Co.