Lincoln Electric Holdings, Inc.

Transcription

1 Lincoln Electric Holdings, Inc. and Full Year 2015 Earnings Conference Call February 23, 2016 Christopher L. Mapes Chairman, President & Chief Executive Officer Vincent K. Petrella Executive Vice President & Chief Financial Officer

2 Safe Harbor and Regulation G Disclosures Forward-Looking Statements: Statements made during this presentation which are not historical facts may be considered forward-looking statements. Forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied. 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. For further information concerning issues that could materially affect financial performance related to forward-looking statements, please refer to Lincoln Electric s quarterly earnings releases and periodic filings with the Securities and Exchange Commission, which can be found on or on Non-GAAP Measures: Our management uses non-gaap financial measures in assessing and evaluating the Company s performance, which exclude items we consider unusual or special items. We believe the use of such financial measures and information may be useful to investors. 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. 2

3 Full Year 2015 Highlights Solid margin and cash flow performance with record returns to shareholders Reported sales declined 9.9%; organic sales down 4% on lower volumes Margins resilient: 14.7% Adjusted operating income margin (vs. 15.1% in 2014) Adjusted EPS of $3.48 which includes a $(0.15) impact from FX and ($0.16) impact from contingent consideration. Reported EPS of $1.70 Net Operating Working Capital to Net Sales Ratio steady at 17.1% $311 million cash flow from operations (100% free cash flow conversion of net income) RECORD $486 million returned to shareholders (shares & dividends) ROIC at 21.1% Results reflect strong execution, aggressive cost reduction actions and the benefits of our capital allocation strategy 3

4 End Markets Challenged Through Fourth Quarter Volumes continued to soften in : down 14.4% vs. PY Automation continued to show growth, while consumables and equipment declined across all regions on: Lower industrial demand Reduced oil and gas, heavy fabrication and export demand South American macro s and ongoing strategic repositioning in China Full Year 2015 End Sector Performance: Flat-to-Modest Growth Rates (growth rates decelerated through 2015): General Industrial Fabrication, Transportation, Structural (non-residential construction), Shipbuilding, Pipe Mills and Pipelines and Midstream applications Lower demand through 2015 on declining oil and commodity costs: Energy (includes offshore, power generation, chemical processing) and Heavy Fabrication (includes construction, mining and agricultural equipment) 4

5 Staying Focused on Long Term Growth & Margin Performance Continuing to Invest for Long-term Growth: Cost Reduction Actions Have Aligned the Business with Market Conditions: Global growth initiatives include: Automation, Aluminum and Education New actions taken in -2015: Reduced global executive salaries by 5% Product development focus with 31% of 2015 sales from new products Cost reduction actions are similar to our program Focused on the M&A pipeline Total annualized cost savings are now expected to be: $25 million in annualized temporary benefits, and $12 million in annualized structural cost savings Benefits anniversary in Q

6 Income Statement 2015 % of % of YoY % $ in Millions 2015 Sales 2014 Sales Change Fav/(Unfav) Sales Mix Net Sales $ $ (17.0%) Volume (14.4%) Gross Profit % % (15.1%) Price 8.2% SG&A % % (12.1%) Acquisitions 2.1% Operating Income % % (25.2%) FX (12.9%) Operating Income, as Adjusted 1, % % (18.2%) Total (17.0%) Interest Expense 3 (9.8) (1.7%) (6.7) (1.0%) (46.0%) Income Taxes % % (11.5%) Price (ex-vz) 0.5% Effective Tax Rate 31.6% 25.2% 640 bps Total (ex-vz) (15.5%) Net Income 2,4 $ % $ % (35.3%) Net Income, as Adjusted 1,2 $ % $ % (28.6%) Diluted EPS 2 $ 0.68 $ 0.96 (29.2%) Diluted EPS, as Adjusted 1,2 $ 0.75 $ 0.96 (21.9%) 1 Please refer to the appendix for reconciliation of non-gaap measures results include $0.4 million of pre-tax non-cash rationalization charges, a $0.7 million pre-tax non-cash charge related to the Venezuelan currency remeasurement, and a $6.4 million pre-tax non-cash charge related to pension settlement charges. 3 Interest expense in and 2014 includes adjustments of $6.4 million and $5.9 million, respectively, for contingent consideration related to an acquisition results include $3.7 million in Net Sales and $0.2 million in Adjusted net income from our Venezuelan operation. This compares with 2014 results which include $ million in Net Sales and $0.2 million in Adjusted net income.

7 Welding Segment North America ($ in Millions) % YoY Change Sales Mix 2 Net Sales $ $ (13.0%) Volume (14.9%) Price 1.2% Adjusted EBIT 1 $ 78.3 $ 88.5 (11.5%) Acq/Div 2.6% FX (1.9%) Adj EBIT Margin % 19.3% +50 bps Total (13.0%) Volumes reflect slowing industrial end markets. Margin performance primarily reflects benefits of cost reduction actions and lower material costs. 7 1 Please refer to the appendix for reconciliation of non-gaap measures 2 Figures may not sum due to rounding

8 Welding Segment Europe ($ in Millions) % YoY Change Sales Mix 2 Net Sales $ 76.9 $ 97.3 (20.9%) Volume (8.0%) Price (0.5%) Adjusted EBIT 1 $ 4.8 $ 9.4 (49.5%) Acq/Div - FX (12.4%) Adj EBIT Margin 1 5.9% 9.3% (340) bps Total (20.9%) Lower volumes and margin performance reflect the impact of declining oil and gas demand across EMEA markets. 8 1 Please refer to the appendix for reconciliation of non-gaap measures 2 Figures may not sum due to rounding

9 Welding Segment Asia Pacific ($ in Millions) % YoY Change Sales Mix 2 Net Sales $ 42.8 $ 58.1 (26.3%) Volume (26.7%) Price (1.1%) Adjusted EBIT 1 $ 0.0 $ 1.9 (99.3%) Acq/Div 6.0% FX (4.5%) Adj EBIT Margin 1 0.0% 3.1% (310) bps Total (26.3%) Lower volumes due to weak end markets and strategic repositioning. Break even margin performance reflects impact of lower volumes. 9 1 Please refer to the appendix for reconciliation of non-gaap measures 2 Figures may not sum due to rounding

10 Welding Segment South America ($ in Millions) % YoY Change Sales Mix 2 Net Sales $ 15.0 $ 32.7 (54.3%) Volume (27.2%) Price 163.5% Adjusted EBIT 1 $ (0.8) $ (0.2) - Acq/Div - FX (190.7%) Adj EBIT Margin 1 (5.4%) (0.7%) (470) bps Total (54.3%) Volumes lower on soft macros in key markets. Pricing and margin results primarily reflect conditions in Venezuela and Brazil Please refer to the appendix for reconciliation of non-gaap measures 2 Figures may not sum due to rounding

11 The Harris Products Group ($ in Millions) % YoY Change Sales Mix 2 Net Sales $ 59.4 $ 66.0 (9.9%) Volume (2.8%) Price (2.7%) Adjusted EBIT 1 $ 5.7 $ 6.4 (11.3%) Acq/Div - FX (4.5%) Adj EBIT Margin 1 9.2% 9.4% (20) bps Total (9.9%) Volumes declined primarily on international macro s and lower prices reflect declining raw material prices. Margin held relatively steady on cost reduction actions Please refer to the appendix for reconciliation of non-gaap measures 2 Figures may not sum due to rounding

12 Cash Flow from Operations Metrics Cash Flow from Operations ($ in millions) Average Operating Working Capital Ratio $402 1,2 (23%) $311 1,2 17.1% 17.1% $134 1 $75 (44%) FY 2014 FY 2015 Dec Dec and FY2015 cash flow from operations remain solid with 100% free cash flow 3 to net income conversion 12 1 The Company received a refund of a Canadian tax deposit of $25 million in Q and $50 million in The Company contributed $47.1 million to the U.S. pension plans in 2015 as compared with $21.2 million in Free cash flow defined as cash flow from operations less capital expenditures.

13 Capital Allocation ($ in millions) Capital Allocation FY 2015 Results Acquisitions Cap Ex Share Repurchases Dividends $117 $136 $3 $10 $477 $24 $73 $574 $37 $51 Dividends: +19% to $87M Share Repurchases: +30% to $399M Capital Expenditures: (31%) to $51M $23 $18 $58 $102 $307 $399 Net Debt Position: $(50)M at 12/31/15 Return on Invested Capital: 21.1% $18 $ $73 $87 FY 2014 FY 2015 Returned approximately 155% cash flow from operations to shareholders (shares & dividends) in

14 New Organizational Structure & Reportable Segments Net Sales FY 2015 Key Drivers for the Change: Americas Welding 69% Prior Segment Structure North America Welding South America Welding Europe Welding Asia Pacific Welding Harris Products Group 21% 10% International Welding Harris Products Group New Structure Americas Welding International Welding Harris Products Group Structure better aligns with our 2020 Vision & Strategy global growth initiatives Reduces organizational complexity and drives efficiencies Improves speed-to-market for our development and commercialization programs Leverages our core resources and centers of excellence in developing markets and applications and FY2015 results presented in the appendix 14

15 15 Amanda Butler Director, Investor Relations

16 Non-GAAP Financial Measures Non-GAAP Financial Measures: Reconciliation of Operating Income, Net Income and Earnings to Non-GAAP Adjusted Operating Income, Adjusted Net Income and Adjusted Earnings (In thousands, except per share amounts) (Unaudited) 16 (1) The three and twelve months ended December 31, 2015 and 2014 include net charges primarily related to severance and other related costs. The twelve months ended December 31, 2015 also include long-lived asset and goodwill impairment charges. Rationalization charges in 2014 are partially offset by gains related to the sale of assets at rationalized operations. (2) The three and twelve months ended December 31, 2015 and twelve months ended December 31, 2014 represent the impacts of Venezuelan remeasurement losses related to the adoption of new foreign exchange mechanisms. (3) The three and twelve months ended December 31, 2015 include pension settlement charges primarily related to the purchase of a group annuity contract. (4) 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.

17 Non-GAAP Financial Measures Non-GAAP Financial Measures: Return on Invested Capital (ROIC) (In thousands, except per share amounts) (Unaudited) Twelve Months Ended December 31, (4) 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. (5) 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. 17

18 Non-GAAP Financial Measures Non-GAAP Financial Measures: EBIT and Adjusted EBIT Three Months Ended December 31, 2015 (In thousands) (Unaudited) 18 (1) EBIT is defined as Operating income plus Equity earnings in affiliates and Other income. (2) Special items in the three and twelve months ended December 31, 2015 represent rationalization charges primarily related to employee severance, pension settlement charges and charges relating to a Venezuelan remeasurement loss resulting from the adoption of a new foreign exchange mechanism. Special items in the year ended December 31, 2015 also include charges related to the impairment of long-lived assets and goodwill. (3) Special items in the three and twelve months ended December 31, 2014 include non-cash asset impairment charges partially offset by net rationalization gains including a gain on the sale of real estate. Special items in the twelve months ended December 31, 2014 also include the impact of the Venezuelan remeasurement losses related to the adoption of a new foreign exchange mechanism in the first quarter. (4) 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.

19 and Full Year 2015 Results New segment structure (In thousands) (Unaudited) Americas Welding International Welding The Harris Products Group Corporate / Eliminations Consolidated Three months ended December 31, 2015 Net sales $ 387,340 $ 121,214 $ 59,431 $ 567,985 Inter-segment sales 20,042 3,009 2,278 (25,329) Total $ 407,382 $ 124,223 $ 61,709 $ (25,329) $ 567,985 EBIT (1) $ 72,027 $ 2,044 $ 5,661 $ 539 $ 80,271 As a percent of total sales 17.7 % 1.6% 9.2 % 14.1% Special items charge (2) $ 7,061 $ 488 $ $ $ 7,549 EBIT, as adjusted (3) $ 79,088 $ 2,532 $ 5,661 $ 539 $ 87,820 As a percent of total sales 19.4 % 2.0% 9.2 % 15.5% Twelve months ended December 31, 2015 Net sales $ 1,741,350 $ 530,460 $ 263,981 $ 2,535,791 Inter-segment sales 92,538 18,747 9,312 (120,597) Total $ 1,833,888 $ 549,207 $ 273,293 $ (120,597) $ 2,535,791 EBIT (1) $ 143,450 $ 17,080 $ 27,882 $ 485 $ 188,897 As a percent of total sales 7.8 % 3.1% 10.2 % 7.4% Special items charge (2) $ 173,239 $ 16,671 $ $ $ 189,910 EBIT, as adjusted (3) $ 316,689 $ 33,751 $ 27,882 $ 485 $ 378,807 As a percent of total sales 17.3 % 6.1% 10.2 % 14.9% 19 (1) EBIT is defined as Operating income plus Equity earnings in affiliates and Other income. (2) Special items in indicated periods include rationalization charges related to employee severance and other related costs. Special items in the three and twelve months ended December 31, 2015 also include charges related to pension settlements, charges related to the impairment of long-lived assets and goodwill and charges related to Venezuelan remeasurement losses upon the adoption of a new foreign exchange mechanism. (3) 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.