Improving End Markets To Aid Lincoln Electric Amid Inflation
Zacks Investment Research | May 28, 2018 08:52AM ET
On May 25, we issued an updated research report on Lincoln Electric Holdings, Inc. (NASDAQ:LECO) . The company is poised to gain from improving end markets, global pricing actions and acquisitions. However, raw material price inflation is expected to dent its performance in the near future.
Let’s illustrate the factors in detail.
Improving End Markets to Drive Growth
Lincoln Electric achieved solid growth momentum in first-quarter 2018 as most end markets continued to expand, including the company’s two largest sectors — heavy industries and general fabrication — which grew at a double-digit pace. Further, organic sales increased across all reportable segments, led by the Americas Welding and The Harris Products Group. The company also achieved double-digit percent growth from U.S. exports and the global automation portfolio.
The company expects to benefit from improved end-sector demand. By product area, consumable organic sales increased at a double-digit rate and equipment increased at mid-to-high single digit rate. Lincoln Electric continues to expect mid-to-high single digit percent organic sales growth in 2018. Further, the company continues to invest in portfolio solutions to drive growth.
Pricing Actions to Offset Inflationary Pressures
Lincoln Electric remains confident that its global pricing actions and productivity initiatives will offset inflationary pressures. Pricing in the welding business during the first quarter in the Americas business was up 4.6% and International business was up 5.4%, in line with the market. The company will continue to aggressively manage the business against inflationary headwinds by implying more pricing actions in second-quarter 2018 on a global basis.
Acquisitions to Fuel Growth
In the first quarter, Lincoln Electric acquired a small technology company which will support its fifth generation of software-based IoT solutions for well processed control and monitoring. The company also completed a small bolt-on acquisition that supports hardfacing solutions and services in the Asia Pacific region. It is also well ahead of plan on the Air Liquide (PA:AIRP) Welding integration activities, as the team continues to frame the business into a more efficient and successful enterprise in the region.
Raw Material Price Inflation to Impede Near-Term Margins
Raw material inflation will remain a headwind in 2018. Even though the company continues to announce new pricing actions, incremental margins could be choppy from quarter to quarter due to the timing of its response.
Share Price Performance
Lincoln Electric’s shares have underperformed the Zacks Investment Research
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