Shares of Lincoln Electric Holdings Inc. (LECO) gained around 3% and closed at $72.90 on Feb 14, after it reported a 38% year-on-year improvement in its fourth-quarter 2013 adjusted earnings to $1.09 per share (including 22 cents per share from Venezuelan operations). Results also beat the Zacks Consensus Estimate of 84 cents.
Adjusted income excluded a net effect of 2 cents pertaining to rationalization and asset impairment charges, along with special items attributable to non-controlling interests. The year-ago quarter excluded 5 cents with respect to rationalization and asset impairment charges, impact of the devaluation of the Venezuelan currency and special items attributable to non-controlling interests. Including these, reported earnings were $1.07 per share in the quarter versus 74 cents in the year-ago quarter.
Total revenue increased 4.4% year over year to $715 million, surpassing the Zacks Consensus Estimate of $697 million. A 2.2% benefit from acquisitions and 3.1% gain from increased volume were offset by a slightly unfavorable impact from foreign currency translation.
Cost and Margins
Cost of goods sold were flat at $471 million, as compared with the year-ago quarter. Gross profit increased 14% to $243 million. Gross margin expanded 290 basis points (bps) year over year to 34% in the quarter aided by improved volumes, a better sales mix and expanding margins in Venezuela.
Selling, general & administrative expenses increased 1.3% to $123.8 million from $122 million in the year-ago quarter. Adjusted operating profit rose 32% year over year to $119.9 million in the quarter. Adjusted operating margin inflated 350 bps to 16.7%.
Financial Updates
Lincoln Electric ended 2013 with cash and cash equivalents of $299.8 million, up from $286 million as of 2012-end. Cash flow from operations was $96.8 million in the reported quarter as against $84 million in the year-ago quarter
Debt-to-capitalization ratio was 1.2% as of Dec 31, 2013, compared with 1.5% as of Dec 31, 2012. The company repurchased 767,531 shares for $54.2 million in the quarter. Lincoln Electric’s board of directors had announced a quarterly cash dividend to 23 cents per share. The company paid dividends of $16.3 million in the quarter.
Full-Year 2013 Performance
For full-year 2013, Lincoln Electric reported adjusted earnings per share (EPS) of $3.77, up around 19% from $3.16 in 2012. The results were ahead of the Zacks Consensus Estimate of $3.54. Including one-time items, EPS was $3.54, up from $3.06 in the prior year.
Revenues for the year increased 3.2% year over year to $2.9 billion and beat the Zacks Consensus Estimate of $2.8 billion as well.
Our View
Though Lincoln Electric did not provide any specific guidance for 2013 or 2014, it believes that it will benefit from investment in business for growth, which includes an active acquisition program and development in manufacturing platforms. In addition, the company’s dividend program and share repurchases activity will be accretive, going forward.
Looking ahead to 2014, Lincoln Electric will focus on innovative solutions and margin improvements through the continued implementation of commercial and operational initiatives. The company continues to leverage its expertise and proprietary technologies to capitalize on the increasing technical and high performance requirements of OEMs and large scale engineering projects worldwide. In the quarter, it made new investments in these areas, which include a European robotic automation platform based in Germany.
Furthermore, the company recorded higher prices and earnings from Venezuelan operations during 2013. However, it believes that the operating environment in Venezuela will remain a challenge in 2014 due to the persistent economic uncertainty and limitation in converting bolivars to U.S. dollars. The various restrictions to effectively manage the Venezuelan operations could also affect the ability to pay obligations and maintain normal production levels
Notably, the heavy fabrication sector and agricultural sector have not performed well in 2013. The company is cautious about any substantial improvement in the global mining sector, going forward. Moreover, the slow pace of economic stabilization in Europe and volatility in raw material price remain headwinds in the near term.
Lincoln Electric currently carries a Zacks Rank #3 (Hold).
Peer Performance
Actuant Corporation (ATU) reported adjusted earnings per share of 44 cents in the first quarter of fiscal 2014, up 7.3% year over year. The results, however, missed the Zacks Consensus Estimate of 46 cents.
Kennametal Inc. (KMT) reported adjusted earnings per share of 52 cents in the second quarter of fiscal 2014. The reported figure missed the Zacks Consensus Estimate of 61 cents but was higher than 50 cents earned in the year-ago quarter.
Industrial tool maker Stanley Black & Decker, Inc. (SWK) reported earnings per share from continuing operations of $1.32 in the fourth quarter of 2013, down 6.4% from $1.41 in the year-ago quarter but a couple of cents ahead of the Zacks Consensus Estimate.
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