Lincoln Electric FY Conference Summary Company Overview - **Company**: Lincoln Electric (NasdaqGS:LECO) - **Event**: FY Conference held on February 17, 2026 Key Points Strategic Initiatives - **RISE Strategy**: An evolution of the existing strategy aimed at enhancing safety, productivity, and quality in operations. The acronym stands for: - **R**: Reimagine work processes - **I**: Innovate to differentiate from competitors - **S**: Serve customers better - **E**: Elevate team members' career aspirations [6][7] - **Focus on M&A**: The company aims for 300-400 basis points of growth through mergers and acquisitions, targeting both legacy welding and automation businesses [17][19]. Market Position and Growth - **Market Share**: The company is experiencing stable market share, with gains particularly in North America due to a balanced go-to-market strategy [45][47]. - **End Markets**: Greater visibility in automotive, heavy fabrication, and construction sectors, with a strong position in the Americas region [33][34]. Financial Performance and Outlook - **Volume Growth**: Anticipated mid-single-digit sales growth, with a focus on automation and core welding business [29][32]. - **Pricing Strategy**: Pricing is expected to remain flat in the second half of the year, with no incremental pricing built into forecasts [35][38]. - **Cost Management**: The company has successfully reduced finance costs by approximately 50 basis points as a percentage of sales [15]. Automation Business - **Short vs. Long Cycle**: About 20% of the automation business is short cycle, with margins more reflective of proprietary technology rather than project duration [48][49]. - **M&A Focus**: The company is looking to expand proprietary content in automation through targeted acquisitions [50][55]. Economic Indicators - **PMI Monitoring**: The company is closely watching the Purchasing Managers' Index (PMI) as a proxy for customer confidence in capital investments, which typically influences consumable volume growth [27][28]. Challenges and Risks - **European Market**: Facing challenges due to high fixed costs and competitive pricing pressures, particularly in the European market [46][75]. - **Economic Uncertainty**: The transition from internal combustion engines to electric vehicles has created headwinds in capital planning cycles for automotive clients [54]. Technology and Innovation - **AI Integration**: The company is leveraging AI to enhance internal operations and improve product value propositions, focusing on managing variability in factory environments [85][86]. Conclusion - **Future Outlook**: The company is cautiously optimistic about growth in 2026, emphasizing customer service and productivity improvements while preparing for potential market challenges [92][93].

Financial Data and Key Metrics Changes - The company reported record sales of $4.2 billion for 2025, a 6% increase from the previous year, driven by acquisitions and price increases [5] - Adjusted EPS reached a record $9.87, with strong cash flows from operations leading to record cash returns to shareholders [5] - The adjusted operating income margin remained stable at last year's record levels, with a reported operating income of $184 million, a 4% increase [12] Business Line Data and Key Metrics Changes - Americas Welding sales increased approximately 4%, driven by a 10.4% price increase, while volumes declined about 7% [14] - International Welding segment sales rose approximately 7%, aided by a 5% benefit from an acquisition and favorable foreign exchange, despite a 4% decline in volumes [16] - Harris Products Group saw an 11% sales increase, primarily due to an 18% price rise, although volumes compressed by 9% [17] Market Data and Key Metrics Changes - Three of the five end markets experienced growth, particularly in energy and general industries, with double-digit growth in Americas [9] - The automation sector faced challenges, with sales declining 11% in Q4 and a mid-single-digit decline for the full year, but strong order rates and backlog are expected to drive growth in 2026 [8][10] - The manufacturing PMI is showing signs of growth, indicating potential recovery in the industrial sector [9] Company Strategy and Development Direction - The company is transitioning to a new strategy named RISE, focusing on efficiency, agility, and innovation to drive growth [25] - The 2030 targets include maintaining a high single-digit to low double-digit sales growth rate, with a focus on organic growth and strategic acquisitions [28] - The company aims to achieve a peak consolidated operating income margin of over 20% and an average operating income margin of 19% across the cycle [35] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about an early-stage industrial recovery, supported by OEM commentary on capital spending plans [19] - The company anticipates a mid-single-digit sales growth rate for 2026, with expectations for volume growth to improve starting in the second quarter [20] - There is confidence in strong cash flow generation, which will support capital allocation strategies and compound earnings performance [21] Other Important Information - The company generated solid cash flows from operations, with a target of $3.7 billion in cash flows by 2030 [37] - A balanced capital allocation strategy is in place, with approximately 48% of investments directed towards growth and 52% returned to shareholders [38] - The company remains committed to its dividend program, having a history of 30 consecutive years of annual dividend increases [39] Q&A Session Summary Question: Long-term dynamics regarding incremental margins - Management discussed the timeline for achieving higher incremental margins, indicating steady benefits from enterprise initiatives over the five-year period [42][45] Question: Expectations for organic growth and order trends - Management expects mid-single-digit organic growth, split evenly between price and volume, with a pivot to growth anticipated in the second quarter [47][49] Question: Automation business expectations for 2026 - The automation business is expected to recover with mid-single-digit growth, driven by improved order levels and backlog [59] Question: Center-led functions and their benefits - The company aims to standardize processes across regions to enhance efficiency while retaining local agility [61][62] Question: Impact of metal inflation on pricing - Management confirmed that pricing actions will be taken as market conditions require, with a mechanical adder in place for metal costs [66][67]

Financial Data and Key Metrics Changes - The company reported record performance for 2025, with sales increasing by 6% to a record $4.2 billion, driven by acquisitions and price increases [5] - Adjusted EPS rose to a record $9.87, and the company maintained last year's record adjusted operating income margin [5] - The effective tax rate increased to 21.2%, reflecting a special item tax expense [13] Business Line Data and Key Metrics Changes - Americas Welding sales increased by approximately 4%, driven by a 10.4% price increase, while volumes declined by approximately 7% [14] - International Welding segment sales increased by approximately 7%, with a 5% benefit from an acquisition and a 5% favorable foreign exchange translation, but volumes decreased by 4% [16] - Harris Products Group sales increased by 11%, driven by an 18% price increase, while volumes compressed by 9% [18] Market Data and Key Metrics Changes - Three of the five end markets grew, with notable acceleration in December, particularly in Americas Welding [8] - The Energy sector outperformed due to strong project activity in both Americas and Asia Pacific [9] - The Automotive and Heavy Industries sectors faced challenges, with transportation growth driven by consumable demand for vehicle production [10] Company Strategy and Development Direction - The company is transitioning to a new strategy named RISE, focusing on efficiency, agility, and innovation to drive growth [25][30] - The 2030 financial targets include maintaining a high single-digit to low double-digit sales growth rate, with a focus on organic sales and acquisitions [28][39] - The company aims to achieve a peak consolidated operating income margin of over 20% and an average operating income margin of 19% across the cycle [35] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about an early-stage industrial recovery, supported by OEM commentary on capital spending plans [19] - The company expects volume growth rates to improve starting in the second quarter of 2026, with a balanced approach to pricing and volume [20] - Management highlighted the importance of maintaining a neutral price-cost posture while targeting incremental operating income margin improvements [21] Other Important Information - The company generated strong cash flows from operations, with an adjusted return on invested capital of 21.3% [18] - A balanced capital allocation strategy was emphasized, with approximately 48% invested in growth and 52% returned to shareholders [38] Q&A Session Summary Question: Long-term dynamics regarding incremental margins - Management indicated that improvements in incremental margins will be driven by volume growth and enterprise initiatives, with benefits expected to flow steadily over the five-year period [42][45] Question: Expectations for organic growth and order trends - Management expects mid-single-digit organic growth, split 50/50 between price and volume, with confidence in order levels and backlog, particularly in automation [47][49] Question: Automation business expectations for 2026 - The automation business is expected to recover with a mid-single-digit growth trajectory based on order levels and backlog, with a focus on achieving a non-dilutive margin profile [58][74] Question: Impact of metal inflation on pricing - Management confirmed that pricing actions will be taken as market conditions require, with a mechanical adder in pricing methodology to address metal cost inflation [66][68] Question: Margin expansion in international markets - Management emphasized focusing on regions with favorable macroeconomic conditions for growth, with cautious expectations for core Europe [89]

Financial Data and Key Metrics Changes - The company reported record sales of $4.2 billion for 2025, a 6% increase from the previous year, driven by acquisitions and price increases [4] - Adjusted EPS rose to a record $9.87, with strong cash flows from operations leading to record cash returns to shareholders [4] - The adjusted operating income margin remained consistent with the previous year, and the company achieved top-quartile ROIC and total shareholder return performance compared to peers [4] Business Line Data and Key Metrics Changes - Americas Welding sales increased approximately 4%, driven by a 10.4% price increase, while volumes declined about 7% due to challenges in the automation portfolio [13] - International Welding segment sales rose approximately 7%, aided by a 5% benefit from an acquisition and favorable foreign exchange, despite a 4% decline in volumes [14] - Harris Products Group saw an 11% increase in sales, primarily due to an 18% rise in prices, although volumes compressed by 9% [15] Market Data and Key Metrics Changes - Three of the five end markets experienced growth, particularly in energy and general industries, while automotive and heavy industries faced challenges [6][8] - The company noted a return to more normalized customer production activity and an acceleration in capital spending plans for 2026, indicating potential early stages of an industrial recovery [7] Company Strategy and Development Direction - The company is transitioning to a new strategy named RISE, focusing on efficiency, agility, and innovation to drive growth and value for stakeholders [24][27] - The 2030 targets include maintaining a high single-digit to low double-digit sales growth rate, with a focus on organic sales and strategic acquisitions [27][37] - The company aims to achieve a peak operating income margin of over 20% and expects to generate over $3.7 billion in cash flows from operations by 2030 [35][37] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the industrial sector recovery, driven by increased capital spending and improved customer confidence [17] - The company anticipates mid-single-digit sales growth for 2026, with expectations for volume growth to improve starting in the second quarter [18] - Management highlighted the importance of maintaining a neutral price-cost posture while targeting incremental operating income margins in the mid-20% range [19] Other Important Information - The company generated solid cash flows from operations, with a focus on disciplined capital allocation strategies, including investments in growth and returning capital to shareholders [35][36] - The effective tax rate for the quarter was reported at 21.2%, reflecting a special item tax expense related to recent legislative changes [12] Q&A Session Summary Question: Long-term dynamics regarding incremental margins - Management indicated that improvements in incremental margins will be driven by volume growth and enterprise initiatives, with benefits expected to flow steadily over the five-year period [40][42] Question: Expectations for organic growth and order trends - Management clarified that the mid-single-digit growth expectation is split 50/50 between price and volume, with confidence in order levels and backlog, particularly in automation [45][46] Question: Automation business expectations for 2026 - The automation business is expected to recover with a mid-single-digit growth trajectory based on order levels and backlog, with a focus on returning to non-dilutive margins [56][57] Question: Center-led functions and operational structure - Management explained that the shift to center-led functions aims to standardize processes while retaining local agility, enhancing efficiency across the organization [58][60] Question: Impact of metal inflation on pricing and margins - Management confirmed that pricing actions will be responsive to market conditions, with a mechanical pricing methodology in place to address metal cost inflation [62][66]