Shares of Lincoln Electric Holdings Inc. LECO rose as much as 5.4% since the company reported second-quarter 2015 results on Jul 27. Lincoln Electric’s adjusted earnings declined 5.9% year over year to 95 cents per share, but beat the Zacks Consensus Estimate of 91 cents.
Quarter earnings were negatively impacted by the influence that a strong U.S. dollar had on its exports. Contraction in oil and gas which offset the benefits from diversified end-market coverage, a broad portfolio of solutions and operational initiatives through cost cutting efforts also hit the bottom line.
Including one-time items, earnings per share dropped 2.1% to 94 cents in the reported quarter from 96 cents in the year-ago quarter. Earnings in the reported quarter accounted for a rationalization and asset impairment charge of 1 cent, while the year-ago quarter included rationalization and asset impairment charges along with Venezuela foreign exchange losses of 5 cents.
Total revenue decreased 8.8% year over year to $665 million mainly due to lower volumes and unfavorable foreign currency translation. The reported figure also missed the Zacks Consensus Estimate of $672 million.
Cost and Margins
Cost of goods sold decreased 8% year over year to $439 million. Gross profit also declined 9.8% to $225.8 million from $250.3 million in the year-ago quarter. Gross margin declined 40 basis points (bps) year over year to 34%. Lower volumes resulted in the margin decline.
Selling, general and administrative expenses decreased 6.8% to $127.8 million from $137 million in the year-ago quarter. Adjusted operating profit also decreased 16% year over year to $98 million in the quarter. Adjusted operating margin fell 120 bps year over year to 14.8%.
Financial Updates
Lincoln Electric had cash and cash equivalents of $312.7 million at the end of the second quarter compared with $278 million as of 2014-end. Cash flow from operations came in at $77.3 million in the reported quarter compared with $105 million in the year-ago quarter.
Debt-to-capitalization ratio was 15.2% as of Jun 30, 2015, higher than 5.2% as of Dec 31, 2014. The company returned $55.6 million to shareholders through share repurchases during the quarter. Lincoln Electric’s 2015 share repurchase target is $400 million.
Outlook
For 2015, Lincoln Electric remains cautious about demand trends. Strength of the U.S. dollar, weakness in the oil and gas sector and its related industries will negatively impact revenues and earnings for the full year.
However, the company expects to benefit from its focus on margin improvement and cash flow generation. Lincoln Electric continues to invest in strategic programs which will help it to maximize profitability and shareholder returns.
Currently, Lincoln Electric carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the industrial products sector are Sealed Air Corporation SEE, Avery Dennison Corporation AVY and Apogee Enterprises, Inc. APOG. All these stocks carry a Zacks Rank #2 (Buy).
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