Lincoln Electric Holdings Q3 Sales Decline, but EPS Beat Estimates (LECO)

Welding products manufacturer Lincoln Electric reported a decline in its fiscal 2012 third-quarter revenue compared to the year-ago corresponding quarter. However, net income for the quarter increased from the similar period last year and beat estimates.

The Ohio-based company is engaged in the manufacture of welding, cutting and brazing products. The products are offered to industries involved in metal fabrication, power generation, shipbuilding, automotive manufacturing and offshore oil and gas exploration.

Net sales for the fiscal 2012 third-quarter declined to $697.55 million from $701.62 million in the third quarter of last year. The consensus estimate of analysts is $718.86 million for the third quarter of 2012.

Net income for the third quarter increased 16.6% to $64.76 million, or $0.77 per share, from $55.53 million, or $0.66 per share, in the similar period of 2011. The earnings per share estimate of analysts stood at $0.72 for the reported quarter. The increase in net income was primarily due to a decrease in the cost of goods sold and a decline in the interest expense compared to the prior-year similar quarter.

Adjusted net income for the fiscal third quarter increased 21.5% to $67.5 million, or $0.80 per share, from $55.5 million, or $0.66 per share, in the third quarter 2011.

After trading between $30.00 and $40.00 per share for most of 2011, the company’s share price rose above the upper price of the trading range on the first week of January 2012 when Zacks Equity Research reiterated its “outperform” rating with a target price of $46.00 per share. By the second week of February, the share price of Lincoln Electric touched the $46.00 mark. The fiscal 2011 fourth-quarter results reported on February 17 stabilized the price at the $46.00 level by mid-March. On April 24, the reported fiscal 2012 first-quarter results beat estimates, triggering a quick rally in the share price to a four-year high of $50.36 on May 2. After trading at around $49.00 for most of May 2012, the last few days of the month saw the share price declining to $47.58. The correction, which extended into the next month, pulled the share price down to $41.59 on June 25. A downgrade by Zacks Equity Research from “outperform” to “neutral”, followed by the disappointing fiscal 2012 second-quarter numbers, took the share price down to $39.88 on July 31. The same day saw Longbow research downgrading Lincoln Electric from a rating of “buy” to “neutral”. Following a fire accident at one of the four manufacturing facilities in China earlier this month, the share price of Lincoln Electric touched $38.24 on October 9.

Buoyed by the earnings that beat estimates, the share price opened today with an upside gap of approximately 2% at $40.85 and made sharp gains to reach $46.17 per share within half an hour of trading. By this time, the trading volume had touched the three-month average of around 400,000 shares. By noon, the share price had comfortably stabilized at around $44.50 with more than 1.16 million shares changing hands.

Earlier on October 15, the company had paid a quarterly cash dividend of $0.17 per share to the shareholders of record on September 28.

Commenting on the results, John Stropki, Chairman and CEO, stated, “We expanded margins significantly, drove our return on invested capital to almost 19% and generated strong operating cash flows which we will continue to deploy to increase shareholder value.”

Lincoln Electric ended the day at $43.37 per share, up $4.37 or 11.2% on a volume of 1.7 million shares.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.