Lincoln Electric Holdings, Inc. Q1 2017 Earnings Conference Call April 18, 2017 Christopher L. Mapes Chairman, President & Chief Executive Officer Vincent K. Petrella Executive Vice President & Chief Financial Officer
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 www.sec.gov or on www.lincolnelectric.com. 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
Q1 2017 Highlights Improving demand trends, mix and operating performance generate solid results Reported sales increase 5.5%, or 6.4% excluding Venezuela, from improving demand and favorable prior year comparisons Adjusted Operating Income Margin increases 90 basis points to 14.6% Diluted EPS of $0.84, Adjusted EPS increases 16% to $0.88 Generated $76 million of cash flow from operations and 110% cash conversion 1 ROIC of 16.2% 3 1 Cash conversion is defined as Net cash provided by operating activities less Capital expenditures divided by Adjusted Net income.
End Markets Improving in Q1 Volumes continued to improve in Q1: up 2.9% vs. PY; up 3.9% excluding Venezuela Consumables (ex-venezuela), equipment and automation achieved growth U.S. export growth Q1 2017 End Sector Performance: Higher demand vs. PY: Transportation (auto), Structural (non-residential construction), Maintenance & Repair, General Fabrication, and portions of Energy (most oil & gas applications) Lower demand vs. PY: Portions of Energy (offshore, power generation) and Shipbuilding 4
Income Statement Q1 2017 Q1 % of Q1 % of YoY % $ in Millions 2017 Sales 2016 Sales Change Sales Mix Fav/(Unfav) Net Sales $ 580.9 $ 550.7 5.5% Volume 2.9% Gross Profit 203.9 35.1% 189.1 34.3% 7.8% Price 2.1% SG&A 122.4 21.1% 113.8 20.7% (7.5%) Acquisitions 0.6% Operating Income 2 81.5 14.0% 75.3 13.7% 8.2% FX (0.1%) Adjusted Operating Income 1 85.1 14.6% 75.3 13.7% 13.0% Total 5.5% Interest Expense 6.1 1.1% 3.8 0.7% (59.8%) Ex-Venezuela Income Taxes 22.1 3.8% 19.6 3.6% (12.8%) Volume 3.9% Price 2.1% Effective Tax Rate 28.3% 26.7% (160) bps Acquisitions 0.6% FX (0.1%) Net Income $ 55.8 9.6% $ 53.6 9.7% 4.1% Total 6.4% Adjusted Net Income 1 $ 58.6 10.1% $ 53.6 9.7% 9.2% Diluted EPS $ 0.84 $ 0.76 10.5% Adjusted Diluted EPS 1 $ 0.88 $ 0.76 15.8% 5 1 Please review the appendix for reconciliation of non-gaap measures. 2 Q1-2017 Operating Income includes $3.6 million ($2.7 million after-tax or $0.04 EPS) related to the proposed acquisition of Air Liquide Welding.
Americas Welding Segment ($ in Millions) Q1 2017 Q1 % YoY 2016 2 Change Sales Mix 1 Ex-VZ Net Sales $ 383.3 $ 359.0 6.8% Volume 4.1% 5.6% Price 1.5% 1.6% Adjusted EBIT $ 68.7 $ 61.4 11.9% Acq/Div 0.9% 0.9% FX 0.2% 0.2% Adjusted EBIT 16.9% 16.0% +90 bps Total 6.8% 8.3% Margin 3 Volumes increased on improving demand trends and easier prior year comparisons. Margin expanded on higher volumes and favorable mix. 1 Figures may not sum due to rounding 6 2 Q1-2016 results include $5.0 million in Net Sales from our Venezuela operation, which was deconsolidated from the financial statements on 6/30/2016. 3 Adjusted EBIT Margin is calculated using Total Sales, which includes Inter-segment sales.
International Welding Segment ($ in Millions) Q1 2017 Q1 2016 % YoY Change Sales Mix 1 Net Sales $ 128.9 $ 124.3 3.7% Volume 2.7% Price 2.6% Adjusted EBIT $ 9.6 $ 6.2 54.1 % Acq/Div - FX (1.6%) Adjusted EBIT 7.2% 4.8% +240 bps Total 3.7% Margin 2 Volumes increased on rising demand within the Asia Pacific region. Margin performance reflects improved volumes and mix. 7 1 Figures may not sum due to rounding 2 Adjusted EBIT Margin is calculated using Total Sales, which includes Inter-segment sales.
The Harris Products Group ($ in Millions) Q1 2017 Q1 2016 % YoY Change Sales Mix 1 Net Sales $ 68.7 $ 67.4 1.9% Volume (2.9%) Price 4.0% Adjusted EBIT $ 8.5 $ 7.7 9.7% Acq/Div - FX 0.8% Adjusted EBIT 11.9% 11.1% +80 bps Total 1.9% Margin 2 Volumes impacted by challenging PY comparisons in the retail channel. Price reflects increased pricing on higher input costs. Margin improved on favorable mix and pricing actions. 8 1 Figures may not sum due to rounding 2 Adjusted EBIT Margin is calculated using Total Sales, which includes Inter-segment sales.
Cash Flow from Operations Metrics Cash Flow from Operations ($ in Millions) 1,2 $76 Average Operating Working Capital to Net Sales Ratio 19.0% 17.1% $25 15.6% Q1-2016 Q1-2017 March 31 2016 Dec 31 2016 March 31 2017 Strong cash flow from operations performance due to improved company operating performance and lower pension contributions. Achieved cash conversion 1 of 110% in the first quarter. 9 1 Cash conversion is defined as Net cash provided by operating activities less Capital expenditures divided by Adjusted Net income.
Capital Allocation ($ in Millions) Acquisitions Cap Ex Share Repurchases Dividends Capital Allocation 1 $134 $9 Q1 2017 Highlights Capital Expenditures: $12M Dividend Payout Rate Increase: +9% $102 $35 $12 $23 $23 Net Debt Position 2 :$(234)M Return on Invested Capital: 16.2% Q1-2016 Q1-2017 10 1 Figures may not sum due to rounding 2 Net Debt is defined as Total debt less Cash and cash equivalents and Marketable securities
Amanda Butler Director, Investor Relations Amanda_Butler@lincolnelectric.com 216.383.2534
Non-GAAP Financial Measures Non-GAAP Financial Measures: Reconciliation of Operating Income, Net Income and EPS to Non-GAAP Adjusted Operating Income, Adjusted Net Income and Adjusted EPS (In thousands, except per share amounts) (Unaudited) (1) Adjusted operating income, Adjusted net income and Adjusted diluted earnings per share are non-gaap financial measures. Management uses non-gaap measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business. Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully. Furthermore, management believes that non-gaap financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly. Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-gaap measures differently. 12 (2) Related to proposed acquisition of Air Liquide Welding.
Non-GAAP Financial Measures (In thousands, except per share amounts) (Unaudited) 13 Please see the following slide for corresponding footnotes
Non-GAAP Financial Measures Footnotes for Non-GAAP Financial Measure: Return on Invested Capital (ROIC) (1) Adjusted net income and Return on invested capital are non-gaap financial measures. Management uses non-gaap measures to assess the Company's operating performance by excluding certain disclosed special items that management believes are not representative of the Company's core business. Management believes that excluding these special items enables them to make better period-over-period comparisons and benchmark the Company's operational performance against other companies in its industry more meaningfully. Furthermore, management believes that non-gaap financial measures provide investors with meaningful information that provides a more complete understanding of Company operating results and enables investors to analyze financial and business trends more thoroughly. Non-GAAP financial measures should not be viewed in isolation, are not a substitute for GAAP measures and have limitations including, but not limited to, their usefulness as comparative measures as other companies may define their non-gaap measures differently. (2) 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. (3) Related to proposed acquisition of Air Liquide Welding. 14
Segment EBIT EBIT and Adjusted EBIT Reconciliation Three Months Ended March 31, 2017 (In thousands) (Unaudited) (1) EBIT is defined as Operating income plus Equity earnings in affiliates and Other income. (2) The primary profit measure used by management to assess segment performance is Adjusted EBIT. EBIT for each operating segment is adjusted for special items to derive Adjusted EBIT. 15 (3) Special items reflect acquisition transaction costs related to proposed acquisition of Air Liquide Welding.