Strong Markets, New Products Aid Lincoln Electric, Costs Ail
Zacks Investment Research | Apr 03, 2019 10:36PM ET
On Apr 3, we issued an updated research report on Lincoln Electric Holdings, Inc. (NASDAQ:LECO) . Favorable end-markets, focus on product innovation and the ongoing strategic initiatives will steadily fuel the company’s growth.
Of late, the company has been active on the acquisition front, which will further boost its portfolio and results. However, raw material inflation and weak demand in Europe might impede its near-term growth.
Let's illustrate the factors in detail.
Favorable End Markets, New Products to Aid Results
Lincoln Electric consistently witnesses double-digit organic sales growth in its three major end markets, namely automotive, heavy industries, energy and construction infrastructure. The momentum is expected to continue in 2019 and drive Lincoln Electric’s revenues.
Also, the company’s focus on innovative products will be a growth driver. Lincoln Electric increased its investment in research and development, and continues to roll out several solutions in the automation solutions market. These product launches are likely to favor growth. The launch of the company’s new welding technology and training center, and the expansion of the two new Well Tech Centers in Dubai and Shanghai will help showcase and customize solutions for the global and regional customers.
The company is also gearing up for the launch of its new additive services business, which will position Lincoln Electric as a manufacturer of large scale 3D-printed metal spell parts, prototypes and tooling for industrial customers. This is likely to act as a catalyst for Lincoln Electric. It also continues to invest in long-term strategy for automation in support of its 2020 strategy initiatives.
Acquisitions: Key Growth Catalyst
Lincoln Electric has been actively ramping up its inorganic growth profile. In January 2017, the company completed its acquisition of Air Liquide (PA:AIRP) Welding, a subsidiary of Air Liquide. This buyout enhanced the company’s global specialty consumables portfolio and extended its channel reach for equipment systems and cutting, soldering and brazing solutions in Europe. The company is working rigorously on the Air Liquide integration activities.
Last December, Lincoln Electric acquired Inovatech Engineering Corporation and its related assets to boost its automated cutting solutions and application expertise for structural steel applications. During the same month, Lincoln Electric also acquired Coldwater Machine Company, Pro Systems LLC and the related assets for expanding its portfolio of automated cutting and joining solutions. This January, Lincoln Electric acquired the soldering business of Worthington Industries, Inc. (NYSE:WOR) . It has also agreed to buy certain brazing assets of Worthington. These transactions will enhance the company’s product portfolio, accelerate growth in the retail channel and uplift its Harris business. These three acquisitions consolidations are expected to contribute $85-$90 million to total revenues in the current year.
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Recently, Lincoln Electric completed the acquisition of Baker Industries, a provider of parts, fixtures and custom tooling for the automotive and aerospace markets. This integration is likely to boost Lincoln Electric’s automation revenues by roughly $500 million in annualized sales.
Inflation to Dampen Margins
Raw material inflation will persist in 2019 and consequently, drag margins. Although Lincoln Electric continues to announce new pricing actions, margin growth could vary from quarter to quarter due to the timing of its response.
Soft Volumes in International Welding a Concern
The company anticipates organic sales growth rate in 2019 to be at low to mid-single digit percentage. The lower expectations can be attributed to the challenging year-over-year comparisons and the ongoing volume compression in the International Welding segment due to the ongoing Air Liquide integration. Further, tepid European demand is still a downside for the segment.
Share Price Performance
Shares of the company have outperformed the Zacks Investment Research
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