Lincoln Electric Beats Consensus - Analyst Blog
April 28 2011 - 2:45PM
Zacks
Lincoln Electric Holdings
Inc. (LECO) delivered adjusted earnings
per share (EPS) of $1.00 in its first quarter ended March 31, 2011,
ahead of the Zacks Consensus Estimate of 88 cents and 72% above EPS
of 58 cents in the year-ago quarter.
Adjusted EPS for both
quarters excludes the per share effect of special items, such as
charges associated with severance and other costs related to the
consolidation of manufacturing operations initiated in 2009. These
were excluded from the results of both periods, and so were the
impact of the change in the functional currency of the company's
Venezuelan operation to the U.S. dollar and the devaluation of the
Venezuelan currency in the year-ago quarter.
Including these items, EPS
in the quarter was $1.11, compared with 55 cents in the year-ago
quarter.
Revenues climbed 27% to
$599 million, outpacing the Zacks Consensus Estimate of $555
million as demand levels remained strong in most markets and
geographic regions. All of its segments posted positive growth with
South America Welding leading the pack as revenue grew
49.8%.
Cost & Margin
Performance
Cost of sales spiked 26% to
$437.7 million in the quarter. However, based on revenue, it
improved 70 basis points to 73.1%. Gross profit rose 31% to $161.4
million whereas gross margin expanded 70 basis points to
26.9%.
Selling, general,
administrative and engineering expenses went up 16% to $101.6
million in the quarter, but it dipped 160 basis points to
17% as a
percentage of revenue. Lincoln Electric’s
adjusted operating income was $59.8 million, compared with $35.5
million in the prior-year quarter. Adjusted operating margin
increased 250 basis points to 10% in the quarter.
Financial
Position
As of March 31, 2011,
Lincoln Electric had cash and cash equivalents of $341.4 million,
down from $366.2 million as of December 31, 2010. During the
quarter, the company generated operating cash flows of $16.7
million compared with $15.6 million in the prior-year
quarter.
As of March 31, 2011, the
debt-to-capitalization ratio marginally dropped to 7.4% from 7.8%
as of December 31, 2010.
Our
Take
Lincoln Electric is
pursuing a multi-year strategy to become more cost competitive by
building manufacturing facilities in Eastern Europe and Asia.
Recently, the company entered the Russian market with the
acquisition of Mezhgosmetiz-Mtsensk OAO and OOO
Severstal-metiz.
These acquisitions are
likely to strengthen Lincoln's presence in the Russian market. In
addition to the above acquisitions, the company also partnered with
IPG Photonics Corporation to explore global opportunities in the
high-power laser welding and cutting market.
Allied with its aim of
turning cost competitive, Lincoln Electric is implementing various
cost-control measures. Further, the demand for its products is on
the rise, leading us to believe that the company will post strong
growth on the heels of an economic recovery and investments in the
emerging markets. We currently have a Zacks #2 Rank (short-term
'Buy' recommendation) on the stock.
Cleveland, Ohio-based
Lincoln Electric designs, develops and manufactures arc welding
products, robotic arc-welding systems, plasma and oxyfuel cutting
equipment and commands a leading position in the brazing and
soldering alloys market. Lincoln Electric competes with
Illinois Tool Works
Inc. (ITW), Charter International
Plc and ESAB Group Holdings Ltd.
ILL TOOL WORKS (ITW): Free Stock Analysis Report
LINCOLN ELECTRC (LECO): Free Stock Analysis Report
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