Lincoln Electric Holdings Inc. (LECO) delivered adjusted earnings per share (EPS) of 79 cents, a penny above the Zacks Consensus Estimate, and 25% above the year-ago quarter’s EPS of 63 cents. During the quarter, the company managed to deliver robust sales and operating profit growth despite weak results throughout Europe.
Adjusted EPS in the reported quarter included rationalization charges and impact of the change in the functional currency of the company’s Venezuelan operation to the dollar and the devaluation of the Venezuelan currency. The year-ago quarter was affected by rationalization charges and a loss in disposal of equity investment. Including these items, EPS came in at 76 cents, an increase from 30 cents in the prior-year period.
Net sales as reported by the company increased 18% to $519.3 million from $441.8 million during the year-ago quarter. Lincoln Electric’s net sales outperformed the Zacks Consensus Estimate of $508 million.
Cost and Margins
The cost of sales for Lincoln increased 19% year over year to $375.3 million from $316.7 million during the year-ago quarter. Gross profit shot up 15% year over year to $144 million while gross margin contracted 60 basis points to 27.7%.
Selling, general and administrative expenses spiked 13% year over year to $95.6 million. Adjusted operating income amounted to $49.3 million, up 22% year over year. Operating margin expanded 30 basis points year over year to 9.5%.
Financial Position
Cash flow from operating activities for the quarter was $56 million, down from $97 million in the year-ago quarter. Cash and cash equivalents were $382.5 million as of September 30, 2010, up from $373.9 million as of June 30, 2009.
Debt-to-capital ratio improved to 8% as of September 30, 2010, compared with 9.2% as of June 30, 2010.
Outlook
Lincoln Electric believes that the demand remains stable in most of its markets and geographical regions. The company’s continuous focus to increase market share and its international presence coupled with an economic recovery would boost its profitability in the near future.
Our Take
Lincoln Electric is pursuing a multi-year strategy to become more cost competitive by building manufacturing facilities in Eastern Europe, India, China and South East Asia. The company is resorting to acquisitions for expanding its manufacturing capabilities, broaden its distribution networks and access growth markets
Also, Lincoln Electric is implementing various cost-control measures to keep up with the current demand. Demand for Lincoln Electric products is on the rise, leading us to believe that the company will post strong growth with an economic recovery and given its investments in the emerging markets. We currently have a Zacks #2 Rank (short-term Buy recommendation) on the stock.
Cleveland, Ohio-based Lincoln Electric is a full-line manufacturer and reseller of welding and cutting products. The company’s welding products range from welding power sources, wire feeding systems, robotic welding packages, fume extraction equipment, consumables and fluxes to regulators and torches used in cutting.
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