Shares of Lincoln Electric Holdings Inc. LECO hit a 52-week low of $60.68 on Jul 1, before closing a notch higher at $60.91. The company’s performance continues to be impacted by foreign exchange volatility, particularly due to devaluation of the Venezuelan currency. Weakening energy sector and falling oil prices also remain headwinds for Lincoln Electric.
What Led to the Drop?
This manufacturer and reseller of welding and cutting products, witnessed a year-over-year decline of 2% in first-quarter 2015 earnings due to weakness in South American end-markets and unfavorable foreign exchange translation.
Notably, the economic and political environment in Venezuela exposes Lincoln Electric to various risks. Currency exchange restrictions limit its ability to convert bolivars to U.S. dollars, which, in turn, impacts the company’s ability to repatriate earnings and to purchase goods and services necessary to operate the Venezuelan business. The restrictions could cause a slowdown, temporary shutdown or complete shutdown of operations at Lincoln Electric’s Venezuelan subsidiary, which could negatively affect earnings and cash flows.
Falling oil prices remains a headwind for Lincoln Electric in 2015. The company expects the energy sector to contract in 2015 as lower oil prices will impact capital projects in up and midstream sectors. Approximately 15% of Lincoln Electric’s consolidated sales are attributable to upstream and midstream energy end markets.
Agricultural equipment is expected to contract slightly year over year. Further, concerns remain regarding any substantial improvement in the mining sector in 2015. Foreign exchange volatility will also continue to affect sales and earnings due to the recent strengthening of the dollar.
These bearish factors have triggered a downward tendency for this Zacks Rank #4 (Sell) company’s estimates in the past 90 days. The Zacks Consensus Estimate for 2015 has decreased 4.6% to $3.73 per share and for 2016 the same went down 5.3% to $4.08.
Stocks to Consider
Some stocks worth considering in the same sector include AGCO Corporation AGCO, Albany International Corp. AIN and AO Smith Corp. AOS. All of these carry a Zacks Rank #2 (Buy).
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