Lincoln Electric(LECO) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements for the three and six months ended June 30, 2022, and 2021, including the Statements of Income, Comprehensive Income, Balance Sheets, Equity, and Cash Flows, along with accompanying notes Consolidated Statements of Income (Unaudited) For Q2 2022, net sales reached $969.6 million and net income was $127.8 million, marking a 17.3% and 33.0% year-over-year increase, respectively, with diluted EPS rising to $2.18 Consolidated Statements of Income (in thousands, except per share amounts) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2022 | 2021 | 2022 | 2021 | | Net sales | $969,589 | $826,454 | $1,895,037 | $1,583,475 | | Gross profit | $333,481 | $274,009 | $663,258 | $527,776 | | Operating income | $167,533 | $121,822 | $328,739 | $225,750 | | Net income | $127,823 | $96,105 | $253,853 | $170,282 | | Diluted earnings per share | $2.18 | $1.60 | $4.30 | $2.83 | Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Comprehensive income attributable to shareholders was $102.1 million for Q2 2022, a slight decrease from $103.3 million in the prior-year period, primarily due to a $34.6 million negative currency translation adjustment Consolidated Statements of Comprehensive Income (in thousands) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2022 | 2021 | 2022 | 2021 | | Net income | $127,822 | $96,280 | $253,853 | $170,413 | | Other comprehensive income (loss) | $(25,709) | $7,123 | $(27,696) | $(3,270) | | Currency translation adjustment | $(34,615) | $13,579 | $(42,064) | $(9,164) | | Comprehensive income attributable to shareholders | $102,133 | $103,338 | $226,042 | $167,281 | Condensed Consolidated Balance Sheets (Unaudited) As of June 30, 2022, total assets increased to $2.74 billion from $2.59 billion at year-end 2021, driven by higher inventories and accounts receivable, while total liabilities rose to $1.83 billion and total shareholders' equity increased to $913.1 million Condensed Consolidated Balance Sheet Highlights (in thousands) | | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $1,465,203 | $1,289,593 | | Total Assets | $2,741,813 | $2,592,307 | | Total Current Liabilities | $903,683 | $755,905 | | Total Liabilities | $1,828,830 | $1,728,398 | | Total Shareholders' Equity | $913,061 | $864,102 | Consolidated Statements of Equity (Unaudited) Total equity increased from $863.9 million at the end of 2021 to $913.0 million at June 30, 2022, primarily driven by $253.9 million in net income, partially offset by $129.7 million in share repurchases and $65.2 million in cash dividends Changes in Equity - Six Months Ended June 30, 2022 (in thousands) | | Amount | | :--- | :--- | | Balance at December 31, 2021 | $863,909 | | Net income | $253,853 | | Other comprehensive loss | $(27,811) | | Cash dividends declared | $(65,203) | | Purchase of shares for treasury | $(129,698) | | Balance at June 30, 2022 | $912,983 | Consolidated Statements of Cash Flows (Unaudited) For the six months ended June 30, 2022, net cash provided by operating activities was $141.3 million, a slight decrease from $145.2 million in the prior year, mainly due to increased investment in working capital, while investing activities used $55.0 million and financing activities used $122.4 million Consolidated Statements of Cash Flows (in thousands) | | Six Months Ended June 30, | | :--- | :--- | | | 2022 | 2021 | | Net Cash Provided by Operating Activities | $141,301 | $145,234 | | Net Cash Used by Investing Activities | $(55,005) | $(102,434) | | Net Cash Used by Financing Activities | $(122,366) | $(108,995) | | Decrease in Cash and Cash Equivalents | $(40,162) | $(66,395) | | Cash and Cash Equivalents at End of Period | $152,796 | $190,884 | Notes to Unaudited Consolidated Financial Statements The notes detail significant accounting policies, including the impact of the Russia-Ukraine conflict and hyperinflationary accounting in Turkey, disaggregate revenue by product line, and outline debt structure, derivatives, and share repurchase activities - In response to the Russia-Ukraine conflict, the company ceased operations in Russia in March 2022, with the financial impact not expected to be material as Russia represented less than 1% of consolidated Net Sales and Total Assets in 2021[27] - Due to Turkey's economy becoming highly inflationary in Q2 2022, the financial statements of the Turkish operation are now remeasured into U.S. dollars, with exchange gains/losses reflected in current earnings[28] Net Sales by Product Line (in thousands) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2022 | 2021 | 2022 | 2021 | | Consumables | $568,855 | $475,559 | $1,108,017 | $909,738 | | Equipment | $400,734 | $350,895 | $787,020 | $673,737 | - During the first half of 2022, the company purchased 1.0 million shares at an average cost of $130.31 per share, with 9.3 million shares remaining available for repurchase as of June 30, 2022[52] Management's Discussion and Analysis of Financial Condition and Results of Operations Net sales for Q2 2022 increased 17.3% to $969.6 million, driven by a 17.1% pricing increase and 3.4% volume growth, partially offset by a 6.1% negative foreign exchange impact, with gross profit margin improving to 34.4% and ROIC increasing to 26.3% Net Sales Change Analysis - Q2 2022 vs Q2 2021 | | % Change | | :--- | :--- | | Volume | 3.4% | | Acquisitions | 2.9% | | Price | 17.1% | | Foreign Exchange | (6.1)% | | Total Net Sales Change | 17.3% | Segment Adjusted EBIT - Q2 2022 vs Q2 2021 (in thousands) | Segment | Q2 2022 Adjusted EBIT | Q2 2021 Adjusted EBIT | % Change | | :--- | :--- | :--- | :--- | | Americas Welding | $118,067 | $84,134 | 40.3% | | International Welding | $35,009 | $29,997 | 16.7% | | The Harris Products Group | $17,922 | $18,212 | (1.6)% | - Cash from operations decreased slightly in H1 2022 to $141.3 million from $145.2 million in H1 2021, primarily due to increased investment in working capital to minimize potential supply chain disruptions[118][127] Reconciliation to Adjusted Diluted EPS | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2022 | 2021 | 2022 | 2021 | | Diluted EPS as reported | $2.18 | $1.60 | $4.30 | $2.83 | | Special items per share | $0.00 | $0.07 | $(0.01) | $0.21 | | Adjusted diluted EPS | $2.18 | $1.67 | $4.29 | $3.04 | - Return on Invested Capital (ROIC), a non-GAAP measure, increased to 26.3% for the twelve months ended June 30, 2022, compared to 21.4% for the same period in 2021[124][125] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in its exposure to market risk since December 31, 2021, referring to its Annual Report on Form 10-K for detailed discussion - There have been no material changes in the Company's exposure to market risk since December 31, 2021[136] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2022[137] - No changes in the Company's internal control over financial reporting occurred during the quarter ended June 30, 2022, that materially affected, or are reasonably likely to materially affect, internal controls[138] PART II. OTHER INFORMATION Legal Proceedings As of June 30, 2022, the company is a co-defendant in approximately 1,501 asbestos-related illness cases, representing a net decrease of 23 claims from the prior period - As of June 30, 2022, the Company was a co-defendant in cases alleging asbestos induced illness involving claims by approximately 1,501 plaintiffs, a net decrease of 23 claims from the prior period[141] Risk Factors This section directs readers to the risk factors detailed in the company's Annual Report on Form 10-K for the year ended December 31, 2021, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 - The report refers readers to the 'Risk Factors' section in the Annual Report on Form 10-K for the year ended December 31, 2021, and the 10-Q for the quarter ended March 31, 2022, for a discussion of factors that could materially affect the business[142] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company repurchased 190,714 common shares at an average price of $131.71 per share, with approximately 9.3 million shares remaining authorized for repurchase under the existing program Issuer Purchases of Common Shares - Q2 2022 | Period | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 1 - 30, 2022 | 61,516 | $131.77 | | May 1 - 31, 2022 | 52,721 | $132.78 | | June 1 - 30, 2022 | 76,477 | $130.93 | | Total | 190,714 | $131.71 | - As of June 30, 2022, 9.3 million shares may yet be purchased under the company's 10 million share repurchase program authorized on February 12, 2020[143][144] Mine Safety Disclosures This item is reported as not applicable for the period - Not applicable[144] Exhibits This section lists the exhibits filed with the report, including CEO and CFO certifications pursuant to the Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002, as well as Inline XBRL documents - Exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1) and various Inline XBRL documents (101 series)[145]