Lincoln Electric(LECO) - 2024 Q2 - Quarterly Results

Financial Performance Summary Lincoln Electric reported sales and net income declines in Q2 and H1 2024, maintaining stable adjusted operating margins amidst financing activities Second Quarter 2024 Performance Q2 2024 Financial Performance | Financial Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,022.0 million | $1,060.6 million | -3.7% | | Net Income | $101.7 million | $137.3 million | -25.9% | | Diluted EPS | $1.77 | $2.36 | -25.0% | | Adjusted Net Income | $134.3 million | $142.2 million | -5.6% | | Adjusted EPS | $2.34 | $2.44 | -4.1% | | Operating Income Margin | 14.6% | 16.8% | -220 bps | | Adjusted Operating Income Margin | 17.4% | 17.4% | 0 bps | - The 3.7% decrease in Q2 sales was driven by a 4.4% decline in organic sales, which was partially offset by a 1.2% benefit from acquisitions[3] - Management attributed the solid profit and earnings results to effective cost management and execution of strategic initiatives while navigating a challenging part of the cycle[4] - The company returned $91 million to shareholders during the quarter through dividends and share repurchases[7] Six Months 2024 Performance H1 2024 Financial Performance | Financial Metric | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,002.9 million | $2,099.9 million | -4.6% | | Net Income | $225.1 million | $259.3 million | -13.2% | | Diluted EPS | $3.91 | $4.44 | -11.9% | | Adjusted Net Income | $262.9 million | $266.5 million | -1.3% | | Adjusted EPS | $4.57 | $4.57 | 0.0% | | Operating Income Margin | 15.7% | 16.3% | -60 bps | | Adjusted Operating Income Margin | 17.4% | 16.8% | +60 bps | - The 4.6% sales decrease for the first six months was primarily due to a 5.3% decline in organic sales[6] Financing Activities - On June 20, 2024, the company agreed to issue $550 million in new senior unsecured private placement notes with maturities ranging from 5 to 10 years[8] - Proceeds from the notes were used to repay a $400 million term loan. Once fully issued, total debt will be $1.25 billion with a weighted average effective interest rate of 4.08%[8] - The company also entered into a new $1 billion revolving credit facility, with initial interest at SOFR plus 1.10%[8] Consolidated Financial Statements Consolidated financial statements show decreased net sales and income for Q2 and H1 2024, impacted by charges, with stable balance sheet and reduced operating cash flow Consolidated Statements of Income Q2 2024 Consolidated Statements of Income | Metric (Q2) | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,021.7 million | $1,060.6 million | -3.7% | | Gross Profit | $383.8 million | $373.4 million | +2.8% | | Operating Income | $148.8 million | $178.0 million | -16.4% | | Net Income | $101.7 million | $137.3 million | -25.9% | H1 2024 Consolidated Statements of Income | Metric (Six Months) | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $2,002.9 million | $2,099.9 million | -4.6% | | Gross Profit | $752.2 million | $728.8 million | +3.2% | | Operating Income | $313.9 million | $342.4 million | -8.3% | | Net Income | $225.1 million | $259.3 million | -13.2% | - Rationalization and asset impairment charges significantly increased to $26.5 million in Q2 2024 from $2.7 million in Q2 2023, negatively impacting operating income[14] Balance Sheet Highlights Selected Balance Sheet Data | Selected Balance Sheet Data | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $272.7 million | $393.8 million | | Total assets | $3,415.2 million | $3,377.3 million | | Total debt | $1,104.7 million | $1,105.2 million | | Total equity | $1,312.9 million | $1,308.9 million | | Total debt / invested capital | 45.7% | 45.8% | - Average operating working capital as a percentage of Net sales increased to 18.0% at the end of Q2 2024 from 17.1% at the end of 2023[16][17] Condensed Consolidated Statements of Cash Flows Q2 2024 Cash Flow Activities | Cash Flow Activity (Q2) | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $170.7 million | $198.8 million | | Net Cash used by Investing Activities | ($174.8 million) | ($60.3 million) | | Net Cash used by Financing Activities | ($93.1 million) | ($115.6 million) | | Decrease in Cash | ($102.3 million) | $21.7 million (Increase) | H1 2024 Cash Flow Activities | Cash Flow Activity (Six Months) | 2024 | 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $304.0 million | $322.8 million | | Net Cash used by Investing Activities | ($200.7 million) | ($76.3 million) | | Net Cash used by Financing Activities | ($218.5 million) | ($226.9 million) | | Decrease in Cash | ($121.1 million) | $23.3 million (Increase) | - For the first six months of 2024, the company spent $160.8 million on share repurchases and $81.7 million on cash dividends[29] Segment Performance Segment performance varied in Q2 2024, with Americas Welding maintaining strong margins despite sales decline, International Welding facing significant drops, and Harris Products Group showing sales growth Segment Highlights Q2 2024 Segment Performance | Q2 2024 Segment Performance | Americas Welding | International Welding | Harris Products | | :--- | :--- | :--- | :--- | | Net Sales | $648.9 million | $238.8 million | $134.0 million | | % Change YoY | -4.1% | -5.8% | +2.9% | | Adjusted EBIT | $136.7 million | $25.7 million | $24.9 million | | Adjusted EBIT Margin | 19.9% | 10.4% | 18.2% | H1 2024 Segment Performance | Six Months 2024 Segment Performance | Americas Welding | International Welding | Harris Products | | :--- | :--- | :--- | :--- | | Net Sales | $1,273.0 million | $474.5 million | $255.3 million | | % Change YoY | -4.7% | -6.2% | -1.2% | | Adjusted EBIT | $272.8 million | $53.5 million | $44.8 million | | Adjusted EBIT Margin | 20.3% | 10.9% | 17.1% | - International Welding's Q2 reported EBIT was a loss of $(5.5) million, primarily due to $26.3 million in rationalization charges and a $5.0 million loss on asset disposal related to the disposition of its Russian entity[31][33] Change in Net Sales by Segment Q2 2024 Net Sales Change by Segment | Q2 2024 % Change in Net Sales vs. Q2 2023 | Volume | Acquisitions | Price | Foreign Exchange | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Americas Welding | (6.7)% | 1.8% | 1.0% | (0.2)% | (4.1)% | | International Welding | (3.8)% | 0.0% | (1.2)% | (0.8)% | (5.8)% | | The Harris Products Group | (1.9)% | — | 5.2% | (0.3)% | 2.9% | | Consolidated | (5.4)% | 1.2% | 1.0% | (0.4)% | (3.7)% | - Consolidated sales decline in Q2 was driven by a 5.4% decrease in volume, partially offset by positive contributions from acquisitions (1.2%) and pricing (1.0%)[41] - The Harris Products Group was the only segment to post sales growth in Q2, driven by a strong 5.2% price increase that more than offset a 1.9% volume decline[41] Non-GAAP Financial Measures Reconciliation The company provides detailed reconciliations of GAAP to non-GAAP measures, showing Q2 2024 adjusted EPS at $2.34, adjusted operating margin flat at 17.4%, and adjusted ROIC improved to 23.7% Reconciliation of Operating Income, Net Income, and EPS Q2 2024 Reconciliation of Operating Income, Net Income, and EPS | Q2 2024 Reconciliation | Reported (GAAP) | Special Items (pre-tax) | Adjusted (Non-GAAP) | | :--- | :--- | :--- | :--- | | Operating Income | $148.8 million | $28.8 million | $177.6 million | | Net Income | $101.7 million | $32.6 million (after-tax) | $134.3 million | | Diluted EPS | $1.77 | $0.57 | $2.34 | - Q2 2024 pre-tax special items included $26.5 million in rationalization charges, $2.2 million in acquisition costs, and a $5.0 million loss on asset disposal[19] - The adjusted effective tax rate for Q2 2024 was 21.2%, compared to the reported rate of 25.6%[19] Reconciliation of Return on Invested Capital (ROIC) Return on Invested Capital (TTM) | Return on Invested Capital (TTM) | June 30, 2024 | June 30, 2023 | | :--- | :--- | :--- | | Reported ROIC | 22.3% | 22.0% | | Adjusted ROIC | 23.7% | 22.9% | - Adjusted net operating profit after taxes (NOPAT) for the twelve months ending June 30, 2024 was $573.4 million, an increase from $530.5 million in the prior year period[24] Other Information This section provides standard corporate information, including Lincoln Electric's business description and legal disclaimers regarding forward-looking statements and non-GAAP measures About Lincoln Electric - Lincoln Electric is described as the world leader in the engineering, design, and manufacturing of advanced arc welding solutions, automated joining, assembly and cutting systems[10] - The company operates 71 manufacturing and automation system integration locations across 21 countries and serves customers in over 160 countries[10] Forward-Looking Statements - The press release contains forward-looking statements that involve risks and uncertainties, and actual results may differ materially from expectations[12] - Key risk factors cited include general economic conditions, interest rates, currency exchange rates, tariff rates, and geopolitical events such as the Russia-Ukraine conflict[12]