Lincoln Electric Reports Fourth Quarter and Full Year 2018 Results

CLEVELAND, Feb. 14, 2019 (GLOBE NEWSWIRE) — Lincoln Electric Holdings, Inc. (the “Company”) (Nasdaq: LECO) today reported fourth quarter 2018 net income of $86.8 million, or diluted earnings per share (EPS) of $1.35, which includes special item after-tax income of $3.3 million, or $0.06 EPS.  This compares with prior year net income of $24.2 million, or $0.36 EPS, which included special item after-tax charges of $43.3 million, or $0.65 EPS. Excluding these items, fourth quarter 2018 adjusted net income increased 23.7% to $83.5 million, or $1.29 EPS, as compared with $67.5 million, or $1.01 EPS in the prior year period.  The effective tax rate for the fourth quarter 2018 was 8.1% due to special items and discrete items.  Excluding special items, the adjusted effective tax rate was 14.7%, which compares to 25.8% in the comparable 2017 period.

Fourth quarter 2018 sales decreased 0.4% to $743.8 million with a 1.6% increase in organic sales.  Operating income for the fourth quarter 2018 was $94.9 million, or 12.8% of sales.  This compares with operating income of $76.3 million, or 10.2% of sales, in the comparable 2017 period.  On an adjusted basis, operating income increased 6.6% to $96.7 million and 90 basis points to 13.0% of sales, as compared with $90.7 million, or 12.1% of sales, in the prior year period.

“We achieved good profit improvement and solid cash flow generation in the fourth quarter, as we continued to successfully manage price/cost while investing in growth,” stated Christopher L. Mapes, Chairman, President and Chief Executive Officer.  “We capitalized on strong industrial growth in 2018, yielding record sales and earnings, and I remain confident in the long-term, sustainable value we are creating through our new technologies and solutions.  We are well positioned to drive margin growth and higher returns for our shareholders in 2019 as we continue to execute on our strategic initiatives.”

Twelve Months 2018 Summary

Net income for the twelve months ended December 31, 2018 was $287.1 million, or $4.37 EPS, which includes special item after-tax net charges of $29.6 million or $0.45 EPS.  This compares with $247.5 million, or $3.71 EPS, in the comparable 2017 period.  The prior year included special item after-tax net charges of $5.2 million, or $0.08 EPS.  Excluding these items, adjusted net income for the twelve months ended December 31, 2018 increased 25.3% to $316.6 million, or $4.82 EPS, compared with $252.7 million, or $3.79 EPS, in the comparable 2017 period.  The effective tax rate for the twelve months ended December 31, 2018 was 22.2% due to special items.  Excluding special items, the adjusted effective tax rate was 21.9%, which compares to 28.0% in the comparable 2017 period.

Sales increased 15.4% to $3.0 billion in the twelve months ended December 31, 2018 from a 9.1% benefit from acquisitions and 6.7% higher organic sales.  Operating income for the twelve months ended December 31, 2018 was $375.5 million, or 12.4% of sales.  This compares with operating income of $376.9 million, or 14.4% of sales, in the comparable 2017 period.  On an adjusted basis, 2018 operating income increased 14.7% to $405.3 million, or 13.4% of sales, as compared with $353.5 million, or 13.5% of sales, in the comparable 2017 period.

Webcast Information

A conference call to discuss fourth quarter 2018 financial results will be webcast live today, February 14, 2019, at 10:00 a.m., Eastern Time.  This webcast is accessible at http://ir.lincolnelectric.com.  Listeners should go to the web site prior to the call to register, download and install any necessary audio software.  A replay of the webcast will be available on the Company’s web site.

Investors who are unable to access the webcast may listen to the conference call live by telephone by dialing (877) 344-3899 (domestic) or (315) 625-3087 (international) and use confirmation code 5292068.  Telephone participants are asked to dial in 10 – 15 minutes prior to the start of the conference call.

Financial results for the fourth quarter 2018 can also be obtained at http://ir.lincolnelectric.com.

About Lincoln Electric

Lincoln Electric is the world leader in the design, development and manufacture of arc welding products, robotic arc welding systems, plasma and oxy-fuel cutting equipment and has a leading global position in the brazing and soldering alloys market.  Headquartered in Cleveland, Ohio, Lincoln has 60 manufacturing locations, including operations and joint ventures in 19 countries and a worldwide network of distributors and sales offices covering more than 160 countries.  For more information about Lincoln Electric and its products and services, visit the Company’s website at http://www.lincolnelectric.com.

Non-GAAP Information

Adjusted operating income, Adjusted EBIT, Adjusted net income, Adjusted effective tax rate, Adjusted diluted earnings per share 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.

Forward-Looking Statements

The Company’s expectations and beliefs concerning the future contained in this news release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  These statements reflect management’s current expectations and involve a number of risks and uncertainties.  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.  Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company’s operating results.  The factors include, but are not limited to: general economic and market conditions; the effectiveness of operating initiatives; completion of planned divestitures; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; currency exchange rates and devaluations; adverse outcome of pending or potential litigation; actual costs of the Company’s rationalization plans; possible acquisitions, including the Company’s ability to successfully integrate the Air Liquide Welding business acquisition; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; the effects of changes in tax law; tariff rates in the countries where the Company conducts business; and the possible effects of events beyond our control, such as political unrest, acts of terror and natural disasters, on the Company or its customers, suppliers and the economy in general.  For additional discussion, see “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

Contact

Amanda Butler
Vice President, Investor Relations & Communications
Tel: 216.383.2534
Email: Amanda_Butler@lincolnelectric.com

Lincoln Electric Holdings, Inc.
Financial Highlights
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Consolidated Statements of Income

Lincoln Electric Holdings, Inc.
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Balance Sheet Highlights

1. Includes current portion of long-term debt.
2. Average operating working capital to Net sales is defined as operating working capital as of period end divided by annualized rolling three months of Net sales. 

Lincoln Electric Holdings, Inc.
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Non-GAAP Financial Measures

1. Adjusted operating income, Adjusted EBIT, Adjusted net income, Adjusted effective tax rate 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.
2. Primarily related to severance, asset impairments and gains or losses on the disposal of assets.
3. Related to the acquisition of Air Liquide Welding.
4. Related to lump sum pension payments.
5. Includes the net tax impact of Special items recorded during the respective periods, including a credit of $4,424 and a net charge of $399 related to the U.S. Tax Act in the three and twelve months ended December 31, 2018, respectively, as well as a charge of $28,616 in the three and twelve month period ended December 31, 2017. The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate.  The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.

Lincoln Electric Holdings, Inc.
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Non-GAAP Financial Measures

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 before tax-effected interest income and expense divided by invested capital.
3. Includes the net tax impact of Special items recorded during the respective periods, including the net impact of the U.S. Tax Act of $399 and $28,616 in the twelve months ended December 31, 2018 and 2017, respectively. The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate.  The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.

Lincoln Electric Holdings, Inc.
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Condensed Consolidated Statements of Cash Flows

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1. EBIT is defined as Operating income plus Other income (expense).
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.
3. Special items in 2018 reflect pension settlement charges of $1,696 in Americas Welding, rationalization and asset impairment charges of $932 in International Welding and acquisition transaction and integration costs of $833 in Corporate/Eliminations related to the acquisition of Air Liquide Welding.
4. Special items in 2017 reflect pension settlement charges of $2,867 in Americas Welding, rationalization and asset impairment charges of $6,590 in Americas Welding and International Welding, amortization of step up in value of acquired inventories of $2,264 in International Welding and acquisition transaction and integration costs of $3,616 and an adjustment to the bargain purchase gain of $1,935 in Corporate/Eliminations related to the acquisition of Air Liquide Welding.

Lincoln Electric Holdings, Inc.
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1. EBIT is defined as Operating income plus Other income (expense).
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.
3. Special items in 2018 reflect pension settlement charges of $6,686 in Americas Welding, rationalization and asset impairment charges of $25,285 in International Welding and acquisition transaction and integration costs of $4,498 in Corporate/Eliminations related to the acquisition of Air Liquide Welding.
4. Special items in 2017 reflect pension settlement charges of $8,150 in Americas Welding, rationalization and asset impairment charges of $6,590 in Americas Welding and International Welding, amortization of step up in value of acquired inventories of $4,578 in International Welding and acquisition transaction and integration costs of $15,002 and a bargain purchase gain of $49,650 in Corporate/Eliminations related to the acquisition of Air Liquide Welding.

Lincoln Electric Holdings, Inc.
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