The Welding Experts. Lincoln Electric Holdings, Inc. Q Earnings Conference Call April 19, 2016

Transcription

1 The Welding Experts Lincoln Electric Holdings, Inc. Q Earnings Conference Call April 19, 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 Q Highlights Operational execution and cost actions driving solid margin and return performance Reported sales declined 16.3% on 14.2% lower volumes Lower unit volumes in the Americas and International Welding segments; Harris Products Group s volumes +2% Ex-Venezuela s impact to price and FX, price declined 1% and FX decreased 2% Operating income margin resilient at 13.7% (down 10 basis points vs. PY) Diluted EPS of $0.76 ROIC of 20.4% Returned $125 million in cash to shareholders (shares & dividends) 3

4 End Markets Remained Challenged in Q1 Volumes continued to soften in Q1: down 14.2% vs. PY Consumables, equipment and automation declined in the welding segments; equipment growth in the Harris Products Group Challenging year-over-year comparisons (automation, exports, oil and gas) Persistent headwinds: Lower industrial demand Oil and gas, heavy fabrication and export demand Developing regions Q End Sector Performance: Flat-to-Modest Growth Rates vs. PY: Transportation (auto), Structural (non-residential construction), Maintenance & Repair Lower demand vs. PY: Energy (all subsectors), Heavy Fabrication (includes construction, mining and agricultural equipment), General Fabrication and Shipbuilding 4

5 Staying Focused on Long Term Growth & Margin Performance Investing for Long-term Growth: Key global growth initiatives: Automation, Alloys/Aluminum, Equipment, Education Launched two new Application Solution Centers in Q1: Australia and Singapore Focused on the M&A pipeline Expanding our presence in targeted accounts and applications Cost Reduction Actions Have Aligned the Business with Market Conditions: Maintaining cost reduction actions initiated in 2015 Continue to expect total annualized cost savings to be $37 million, or approx. $9 million per quarter for Q1- and Q $25 million in annualized temporary benefits, and $12 million in annualized structural cost savings Benefit run-rate anniversaries in Q Australia Singapore 5

6 Income Statement Q Q1 % of Q1 % of YoY % $ in Millions 2016 Sales 2015 Sales Change Fav/(Unfav) Sales Mix Net Sales $ $ (16.3%) Volume (14.2%) Gross Profit % % (14.2%) Price 11.4% SG&A % % 12.4% Acq/Div 1.6% Operating Income % % (16.8%) FX (15.0%) Interest Expense (3.8) (0.7%) (1.8) (0.3%) (107.5%) TOTAL (16.3%) Income Taxes % % 19.8% Price ex-vz (1.0%) Effective Tax Rate 26.7% 26.3% (40) Bps FX ex-vz (2.2%) Net Income $ % $ % (21.5%) Total ex-vz (14.1%) Diluted EPS $ 0.76 $ 0.89 (14.6%) 6

7 Americas Welding Segment ($ in Millions) Q Q % YoY Change Sales Mix 1 Ex-VZ Net Sales $ $ (20.0%) Volume (19.0%) (16.6%) Price 17.9% (0.2%) EBIT $ 61.4 $ 75.4 (18.5%) Acq/Div 1.6% 1.6% FX (20.5%) (1.7%) EBIT Margin 16.0% 16.0% 0 bps Total (20.0%) (16.9%) Volumes impacted by continued weakness in end markets and challenging YoY comparisons (automation, oil and gas, and U.S. exports). Margins steady on cost reduction actions and price management. 7 1 Figures may not sum due to rounding

8 International Welding Segment ($ in Millions) Q Q % YoY Change Sales Mix 1 Net Sales $ $ (10.7%) Volume (7.1%) Price (2.2%) EBIT $ 6.2 $ 10.9 (43.0%) Acq/Div 2.5% FX (3.9%) EBIT Margin 4.8% 7.6% (280) bps Total (10.7%) Volumes impacted by end market weakness (oil and gas and heavy fabrication sectors). Margins reflect unfavorable cost absorption and a challenging YoY comparison including a prior year gain from the liquidation of a subsidiary. 8 1 Figures may not sum due to rounding

9 The Harris Products Group ($ in Millions) Q Q % YoY Change Sales Mix 1 Net Sales $ 67.4 $ 69.8 (3.4%) Volume 2.0% Price (3.4%) EBIT $ 7.7 $ % Acq/Div - FX (2.0%) EBIT Margin 11.1% 10.5% +60 bps Total (3.4%) Achieved solid Q1 margin on double-digit percent volume growth in the retail channel. Lower price reflects declining raw material prices impacting consumables. 9 1 Figures may not sum due to rounding

10 Cash Flow from Operations Metrics Cash Flow from Operations ($ in Millions) Average Operating Working Capital Ratio 1,2 $ % 19.0% 17.1% $24 Q Q Mar Dec Mar The Company received a refund of a Canadian tax deposit of $25 million in Q

11 Capital Allocation ($ in Millions) Capital Allocation Q Results vs. Prior Year Acquisitions Cap Ex Share Repurchases Dividends $137 $12 $134 $9 Capital Expenditures: (29%) to $9M Dividend Payout Rate Increase: +10% Share Repurchases: steady at $102M $103 $102 Net Debt Position: $(154)M at 3/31/16 $22 $23 Return on Invested Capital: 20.4% Q Q Cash returns to shareholders remains strong and aligns with our $400M share repurchase target and dividend program 11

12 12 Amanda Butler Director, Investor Relations