Greetings, and welcome to the Lincoln Electric 2016 First Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode, and this call is being recorded. It is now my pleasure to introduce your host, Ms. Amanda Butler, Director of Investor Relations. Ma'am, please go ahead.

Thank you, Michelle, and good morning, everyone. Welcome to Lincoln Electric's 2016 first quarter conference call. We released our financial results earlier today and you can find our release as an attachment to this call's slide presentation as well as on the Lincoln Electric Web site at lincolnelectric.com in the Investor Relations section. Joining me on the call today is Chris Mapes, Lincoln's Chairman, President and Chief Executive Officer; and our Chief Financial Officer, Vince Petrella. Chris will begin the discussion this morning with an overview of the year, and -- excuse me, with the first quarter, and Vince will cover the quarterly numbers in more detail as well as our uses of cash. Following our prepared remarks, we will take your questions. But before we start our discussion, please note though that certain statements made during this call may be forward-looking and actual results may differ materially from our expectations due to a number of risk factors. A discussion of some of the risks and uncertainties that may affect our results are provided in our press release and in our SEC filings on Forms 10-K and 10-Q. In addition, we discuss financial measures that do not conform to U.S. GAAP. A reconciliation of non-GAAP measures to the most comparable GAAP measure is found in the financial tables. With that, I'll turn the call over to Chris Mapes. Chris?

Thank you, Amanda. Good morning, everyone. Moving to slide three, we achieved solid margin performance and returns in a challenging quarter, with sales declining 16.3% to $551 million in the quarter. The benefits of our cost reduction actions, diligent price management, and day-to-day cost control and productivity initiatives delivered steady operating margin performance at 13.7%. A 14.2% decremental margin effectively mitigated the impact of a 14.2% decline in volumes. EPS was $0.76 in the quarter, reflecting lower volumes and higher interest expense, partially offset by the benefit of share purchases. Returns on invested capital remain strong at 20.4%. Given good cash flow generation and a solid balance sheet profile, we continue to accelerate returns of cash to shareholders through a $102 million in share buybacks, and a 10% higher payout rate of our dividend. Turning to slide four, broad end market weakness has continued to be our greatest challenge. While we believe our diversified end market exposure is an advantage long-term, we are navigating through a challenging portion of the cycle due to the persistent weakness in industrial production, volatility in oil and gas, and commodity prices, and slowing emerging market economies. Combined with our own challenging year-over-year comparisons due to the relative strength in oil and gas, U.S. exports and strong billings in automation last year, approximately one-third of our revenue exposure was flat-to-growing in the first quarter, whereas over two-thirds of our revenue exposure was contracting, but at a year-over-year rate that appears to have stabilized. This has resulted in year-over-year volume declines across all product areas in our two welding segments. In Harris Products Group, we achieved 2% volume growth from new commercial programs in the retail channel largely focused on equipment. End markets showing ongoing strength and resilience were largely consumer-oriented, where transportation and automotive achieved…

Thank you, Chris. Looking at our first quarter income statement highlights on slide six, our consolidated first quarter sales decreased 16% compared with the prior year. Volumes decreased 14.2%, and acquisitions contributed 1.6% to the top line. Excluding the results of our Venezuelan operation, which are impacted by hyperinflationary conditions, the company incurred a modest 1% decline in pricing, and a 2.2% unfavorable impact from foreign exchange translation. Our first quarter gross profit margin increased 80 basis points, to 34.3%, compared with 33.5% in the prior year period from cost reduction actions, and lower input costs. Our SG&A expense improved 12.4% due to foreign currency translation, lower bonus and pension costs, and lower foreign exchange losses. SG&A as a percentage of sales increased 100 basis points, to 20.7% primarily reflecting the unfavorable impact of lower volumes. Our operating income declined approximately 17% in the quarter, to $75 million, reflecting the impact of lower sales. Operating income margins were resilient, at 13.7%, which was 10 basis points lower than the prior year on 14% lower volumes. Our decremental margin was about 14%, reflecting the benefits of our prior cost reduction actions, ongoing cost controls, as well as price cost management. Our interest expense was $3.8 million in the quarter, from interest accrued on higher borrowings. We expect our full-year 2016 interest expense to be approximately 20 million, which includes current and expected future 2016 borrowings, as well as anticipated contingent consideration for the year. Contingent consideration is subject to changes due to actual performance compared with the forecasted performance plan. Our first quarter effective tax rate was 26.7% due to a higher mix of foreign earnings. For 2016, we expect our effective tax rate to be in the high 20% range. But this expectation is subject to the future mix of…

Ladies and gentlemen, at this time we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Matt McConnell with RBC Capital Markets. Your line is open. Please go ahead.

Thank you. Good morning.

Hi, good morning, Matt.

I wonder if we can talk about the Americas margin a bit. Even with the 9 million of restructuring saving, it was quite strong, and I know you probably saw a mixed headwind with oil and gas, and export pressure. So, are there any other –- what else might be contributing to that? You still have price cost benefits or –- what might be driving that relatively good performance there?

Matt, at the top of the list are raw input cost declines. So those had a significant impact on the quarter on a year-over-year basis. So I'd put that at the top of the list. We've also continued to drive productivity improvements through the business, and also we've been aided by year-over-year improvement in pension cost reductions. That's running at about a $2.5 million quarterly pace. So, all those factors together led to a good performance in our Americas segment.

Okay. And then on the raw material benefit that you've been seeing. Steel has gone higher year-to-date. Would you have to take LIFO charges at any point over the coming quarters or what's your expectation for the raw materials price cost situation over the coming quarters?

That's a good question, Matt. At this point in time we did see a continuing easing of raw material costs in the first quarter, but that trend is abating, and was relatively slight in terms of a longer term trend. Our expectations right now are that we're not booking any LIFO credits or charges at the present time, waiting to see what transpires, and at least as the first half finishes out and we move into the second half of the year. So again, we did not book any LIFO credits or charges in the first quarter of 2016.

Okay, great. Thank you very much.

You're welcome.

Thank you. And our next question comes from the line of Mig Dobre with Baird. Your line is open. Please go ahead.

Yes, good morning everyone. I guess sticking with the Americas for me, I understand that we have some tough comps in the first quarter, which to some extent maybe distorts things a bit, but if we're thinking about volumes sequentially, can you give us a sense for how volumes have progressed versus the fourth quarter? And what's sort of the normal seasonality here from the fourth to the first quarter in terms of volume?

Okay, Mig. Normally, we would see a little bit of a decline or almost a similar type of Q1-Q4 type of transition. This past year, we're down in overall sales about 3% from the fourth quarter to the first quarter. In the prior year, moving from the fourth quarter of '14 to the first quarter of '15, we were actually down about 4% in overall sales. So that's a little bit –- a little slight better performance on a sequential basis between '14 to '15 and '15 to '16. Moving out of the first quarter to the second quarter, we would normally see a little bit of an improvement. Our second quarter tends to be from a seasonality perspective our best quarter of the year and that's sort of the sequential nature of fourth-to-first and first-to-second.

Got it, that's really helpful. Thank you. And is there any way you can comment in terms of how you saw demand progress through the quarter. I mean, when we're listening to the distributors, for instance, they've certainly see a little bit of unusual movement from, say, January all the way through March. I don't know if there is anything that you can add to that, any perspective, that is?

No, I wouldn't say that we saw any unique attributes within the quarter relative to demand. It's also very difficult to talk about that through the various segments. The only comment I would make about demand in general around the world is that we did see in our international segment some improvement in our European business as we were moving through the quarter, but outside of that particular attribute I wouldn't really point towards anything being material from a trending perspective for the business.

I see, nothing standing out in North America though?

Nothing standing out for us in North America, certainly a little bit of movement within the various segments, but nothing Mig that I would identify as being material enough to point out.

Thank you.

You're welcome.

Thank you. And our next question comes from the line of Joe O'Dea with Vertical Research. Your line is open. Please go ahead.

Hi, good morning. First…

Good morning, Joe.

[Technical difficulty] with the planned buybacks and some of the sort of cash considerations over the course of the year, and you commented on interest expense, but could you just talk a little bit about the financing plans for the buybacks and maybe when we should anticipate from a timing perspective seeing some activity there?

Yes. So we now have about $220 million of cash on the balance sheet. Substantially all of that cash is overseas. There's really very little left in the U.S. to deploy. So we will be borrowing, taking down our line of credit for the second quarter, and then we will be looking at placing some additional long-term debt on the balance sheet sometime in the third quarter of this year.

Okay, thank you. And then you talked about not really seeing any shift I guess in trends through the course of the quarter, but when you think about some of the sharp movement we've seen in commodities and particularly in oil, has that changed the tone of conversations with customers at all, when you think about having seen the bounce that we've had off the bottom in oil, whether or not that triggers some improvement in demand when you would expect to see that to start to flow through, just kind of a general backdrop given these sharp swings?

Well, I would say that certainly the rise in a host of the commodity prices and maybe the outlook that there potentially is some stability at higher prices creates an environment of more favorable conversations. I think the challenge is that, quite frankly, we just need to have an elongated perspective of those markets before we'll see that have those types of activities maybe changed the buying behavior. So, is there a little bit more of a positive discussion around it, because of some of the changes we've seen in those underlying commodity prices and how it impacts some of those markets? Yes. I just wouldn't say that we've seen that for a long enough period of time that it's necessarily impacting behavior within those segments at this point. And we're certainly optimistic that if we can continue to see some of those favorable attributes of those commodity pricings that we'll see some of that activity migrate into those segments as we move through the rest of '16.

Great. Thanks very much.

You're welcome.

Thank you. And our next question comes from the line of Schon Williams with BB&T Capital Markets. Your line is open, please go ahead.

Hi, good morning.

Good morning, Schon.

If we could maybe come back to the price cost dynamic. Pricing did decelerate Q1 versus Q4, if you exclude Venezuela. I'm just wondering when, given some of the raw material moves we've seen, when -- I don't know, when would you go back out to the market, whether it's Americas or international, when could you potentially go back out to the market and start actually getting that pricing component positive again?

Schon, we've been managing this process, this cycle very closely. Obviously we are concerned with the risks associated with inflationary input costs as we're moving further in to 2016, and will have to make relative management decisions around that in various markets around the world. I'm not sure that I'm comfortable in identifying an inflection point, but certainly, I think the confidence I have is that we've managed ourselves well through the cycle, and shown, historically, an ability to continue to manage that piece as we drive solutions into the marketplace. And we certainly see some of those challenges ahead of us if we see inflationary input costs moving into '16.

All right. And then maybe if we could talk just about the cost reduction actions, those would start to anniversary in Q3. I'm just wondering though, what makes you feel comfortable, Chris, that you can go ahead and start to list some of those? Is it just stopping kind of the accelerating declines? Is that enough to make you want to basically to pull back there, or are you actually looking for, I guess, positive volume growth going forward in order to start to lift some of those reductions?

No, it's probably, Schon, probably some place in the middle. I mean, certainly we've talked about the rate of decline decelerating. We'd love to see stability in those markets, especially in our Americas segment, but we've been actively working on various plans relative to what happens if these markets were to shift more negatively. And if necessary, then we'd have to enact further actions within the business to mitigate that impact. But we said in the fourth quarter and in the first quarter, we thought we'd taken actions to be able to allow us to migrate through this portion of the cycle. I actually think that the business has performed as we had expected it to. I know that we had a host of questions around whether we were too pessimistic about the market, and our perspectives of the market over the last four or five months. But I believe the market and our business is actually performed as we expected, and actually performed very well from a margin profile. So we'll evaluate the next 60 to 90 days to see if we continue to see some of that deceleration, and evaluate whether we need to make any further actions with the business as we're managing it through '16.

All right, thanks. That was good. I'll get back in the queue.

Thank you. And our next question comes from the line of Eli Lustgarten with Longbow Securities. Your line is open. Please go ahead.

Thank you. Good morning everyone.

Good morning, Eli.

Can we talk a little bit, as some of your markets, particularly in Americas, as you look at -- you cited, I guess, positive gains in transportation and construction. Construction, I understand, will get seasonally better in the second quarter. But there seems to be some of the flow with spending here is probably a little disappointing. Car sales have peaked. There's been some postponement of projects. Are we hearing anything from the major markets that have been going of a stretch out of deferrals, and probably you might see more in the second half of the year than in the first half of the year. Particularly automotive is the one that we're hearing a lot of stories about.

We've also heard some of rhetoric or the context around the automotive space. That certainly there's some risks associated with that relative to the consumer, especially here in the U.S. market. But we certainly didn't see that in our performance in Q1. So, I know the recent economic data that I saw, saw the consumer actually holding up relatively well and certainly automotive is at a very high unit volume production schedule. So we are also watching it, but quite frankly not seeing that currently in our discussions or our activities with larger OEMs. I would also say that potentially our visibility to that may not be as aligned as other market participants, we have a host of new products that we've been driving especially into the automotive space, relative to new solutions to support them in aluminum as well as thin-gauge galvanized products. So it could be that those technologies are providing us an overall lift versus where their build rates might be within the automotive space particularly.

Thank you. And a follow-up question; you had been exceptionally impressive in decremental margin in the first quarter, and you know, some of that ask your abilities to sustain that or what kind of variability should we expect as we go forward for the rest of the year?

Well, look, I appreciate the comment. I thought our performance on the margin line was exceptional in the quarter, and I think our leadership team and broad management team across the world was actively working to mitigate the challenges that we have in the business today. But I would share with you, we still believe strongly that the decremental margins for this business are between 25 and the high 20's or 30%, and although we performed in exceptional level in Q1, I don't think our perspective on our ability to achieve through the cycle decremental margins has changed from our prior comments on the subject.

Do you expect the rest of the year to possibly trend towards more normal as opposed to the outstanding results in the first quarter, is that a fair way of looking at it?

That would be a fair way of looking at it.

All right, thank you very much.

Thank you. And our next question comes from the line of Robert Wertheimer with Barclays. Your line is open. Please go ahead.

Good morning.

Good morning.

So, steel has been obviously volatile, in the U.S. particularly. Can you maybe mark to market the basket of steel that you do? And is cost, price cost, already flipping to a headwind based on where the various grades are going? Or -- I mean your comments have been a little more moderate than that with a little more pressure coming up, but not dramatic, but obviously hot-rolled at least is up sharply. So I'm thinking about the basket of stuff that you use. Has it already flip-flopped to a headwind or not?

So, the bulk of what we buy is what will be referred to as long steel. So, rod, and we buy significant amounts of that form of steel. We have not seen to-date significant increases in the cost of that steel, but we're aware of the broader steel markets and those movements. So that leads us to be a little bit more cautious about the trending in steel costs as the year unfolds, but I would say that we've not been impacted at least so far in 2016 by the kinds of increases that you might see in the broader rolled markets. But we're growing more cautious over the trends for the rest of 2016.

Perfect, thank you. And if you don't mind, are you able to give any commentary on where you're on flexible labor cost and how far down you can flex if relatively steel volume declines continue?

Well, as many of you are aware, especially in our large equipment and consumables manufacturing facilities in the Americas here in Cleveland, Ohio, we have a very flexible workforce model. We've been addressing that model throughout this cycle. And as we move into 2016, we had brought that employment base much higher back up to the number of hours that we would be expecting, let's just say, the average hours per employees were back up to 38-40 hours on a basis -- on a work week basis. So, we've done that through obviously attrition, the VSIP program that we announced that we ray in earlier in the year, in 2015. So we have now brought that workforce back up to certainly high our component of hours a week, and if unfortunately we were to see declines, material declines in the business, then we could use that flexible work system that we have here to adjust to those lower demands.

Very helpful, thank you.

You are welcome.

Thank you. And our next question comes from the line of Walter Liptak with Seaport Global. Your line is open. Please go ahead.

Hi, thanks. Good morning everyone.

Hi, good morning.

I wanted to ask about, you know, on the left page of your press release you've got the pricing number, and you've got 80.3 million in price in the Americas segment. I think you already went into some of this, but I wonder if you could just talk about the parts within that pricing, how much is hyperinflation-related, how much is normal price increases, how much is -- I don't know if there's lower rods that impacts that number, but what's your net 80 million?

Yes. So, Walt, 81 million of the number is related to Venezuela. So, the mechanics of translating year-over-year of Venezuelan business due to the significant devaluation that we initiated at the end of the third quarter last year creates distortions in both price and foreign exchange, and so, if you look to the right of that price column you'll see a very large number in the Americas for foreign exchange and the bulk of that number is Venezuela as well. And that's why we've disclosed the line below the table, which is consolidated excluding Venezuela, and if you look at the next table below that, that shows the percentages, you will see that the consolidated excluding Venezuela pricing impact is 1% unfavorable.

Okay, got it.

And in the America region, it's basis points, it's about 20 bips. So, our pricing ex-Venezuela only down ever so slightly in the Americas, which is a very good result in the environment that we're operating in currently.

Okay, fair enough. And then on the pension, I wanted to ask about the 2.5 million in the quarter, I think you said that that's going to carry through in the second quarter at that same rate and throughout 2016, is that right?

Yes, that's a combination of our defined benefit pension plan, reduction in cost, as well as our 401(k) match that was suspended last year. So, it's the combination of both of those. Part of that $2.5 million will come back to expense, because it's viewed as temporary when we restore the 401(k) match.

Okay, got it. All right, thank you.

Thank you. And our next question comes from the line of Stanley Elliott with Stifel. Your line is open. Please go ahead.

Good morning guys, and congratulations.

Good morning.

Help me from a timing perspective, when does the export business in the oil and gas comparisons start to become a little more favorable on a year-over-year basis? My recollection was Q1 was a very, very strong for you all and then the rest of the year was kind of more in line with what the typical industry was seeing?

It's awfully difficult for us to pinpoint that point. Certainly I'm expecting to see more favorability in those comparisons as we're moving throughout '16, in Q2 and Q3, but we are certainly seeing where our export business has been closely tied to some of the challenges we've seen globally in the oil and gas segments. But again, I guess we would begin to hope to see some more favorable correlations to that as we're moving through the rest of the '16, hopefully Q2, Q3.

And could you remind us kind of when the rail markets have started really to soften for you all, as part of that context of the portfolio?

Well, I would say that we were cautious about the rail markets as we were exiting Q4, and started to see more material some of that softness now that we're in the first quarter of 2016.

Great, thank you.

You are welcome.

And our next question comes from the line of Liam Burke with Wunderlich. Your line is open. Please go ahead.

Thank you. Good morning, Chris. Good morning, Vince.

Good morning.

Good morning, Liam.

Chris, you mentioned new product introductions, especially in the automotive space, have you maintained the R&D budget with all the other related expense cuts in the business?

I would say we've been very committed to the R&D budget. In fact, in 2015, our R&D expense from a ratio basis was actually ahead of the prior year. So we continue to be focused on driving solutions, and the investment in R&D and the continued investment in evaluating whether we can bring in new solutions and technologies through our M&A strategy continues to be a priority. So we're not mitigating those expenses as we try to drive our 2020 Strategy.

And then on the automation, you had tough comps from a year ago, as we look to the balance of the year, has the automation business changed, or you still have the same positive view or the outlook for the business?

No, I absolutely have the same positive outlook for the business. At its current state, there is no question that at about $350 million, it's a little choppier than I would like, just because of the size of the business within the broad portfolio, but we're still expecting and strategically believe that the automation business is growing at a rate of at least two times the broad welding market on a global basis. We see it's continuing to bring us closer to our customers as it relates to providing welding solutions. I just came back from the welding show in Japan last week in Osaka, and talking to customers there and talking to customers about automation and our solutions, and continue to believe it's a strong differentiator for Lincoln. I like our first mover advantage as it relates to providing those solutions in the automation space. So, very committed to that strategy, and excited about what we build at this point of our 2020 Strategy.

Great. Thanks, Chris.

You are welcome.

Thank you. And our next question comes from the line of Joe Mondillo with Sidoti & Company. Your line is open. Please go ahead.

Hi, good morning guys.

Good morning.

Just wondering if you could talk about the competitive landscape, any changing of share over the last couple of quarters, and do you anticipate any consolidation just given the stress on the market overall?

You know, you like to think that the stress on the market would create more consolidation in the space, but we're not really seeing a lot of that activity. Some of that could come from the structural dynamics in the different regions, not a lot of opportunity for consolidation in the Americas market when you think about North America and Latin America. It could be some opportunities for consolidation in the international space. Certainly we would want to participate as a consolidator possible, but not seeing a lot of that activity yet at this point in the cycle. We've been very committed that we don't talk about share relative to changes within quarters or periods for the business. We think share shifts have to be accomplished over a much longer window of time to really be able to say that there has been a market share dynamic within the business. That being said, I'm not necessarily seeing anything in the markets, which lead me to believe that there is any large share shifts within the broad welding space. My only probably comment would be as I do believe that the larger players in the space are probably performing better than the smaller players in the space by region. And this dynamic generally provides some opportunities for those firms to be able to maintain their positioning within the markets, but not broad share perspectives at this point.

So in terms of your acquisition strategy, you guys have been over the last several years have been much more sort of strategic, focusing on automation, smaller type acquisitions; does that strategy shift at all towards consolidation, wherever it maybe, you said international, is that more of a possibility going forward?

Well, I think probably the important point would be we've been executing on an acquisition strategy, and certainly that strategy is focused around building out an automation business, but it hasn't been accomplished by not being willing to consider or entertain broader acquisitions if they were available. So we've been executing on acquisitions around automation, and then the other acquisitions we've been accomplishing have tended to be smaller bolt-on technologies. But during this window, it's not as if we've not been interested in broader transactions that were available. So I really don't think that our perspective, our strategy has shifted any over the last several years relative to acquisitions.

Okay, great. And then, I don't know if I missed it, but what do you anticipate for CapEx this year?

We are sticking by our $65 million to $75 million range. I said in my prepared remarks that we were light in the first quarter at 9 million, but we have couple of big projects that are unfolding in 2016 and '17. I think we will likely bump that number up as we move through the year. So, right now, 65 million to 75 million.

Okay, great. Thanks for taking my questions.

You are welcome.

Thank you. And our next question comes from the line of Justin Bergner with Gabelli & Company. Your line is open. Please go ahead.

Good morning, Chris. Good morning, Vince.

Good morning.

Good morning.

It looks like a good quarter, you have been considering some of the price cost benefits that helped out in the first quarter, I guess maybe if you could expand a bit more on the retail initiatives that are helping the performance in the Harris products group, that would be helpful.

Sure. Thanks, Justin for your comments. I would say I think it more than looks like a good quarter, I'm very happy with the performance of the business considering the volume challenges we had in Q1. In our Harris business, we have a very strong position in the retail channels. Here in the domestic market we've been working with those channel partners to provide heightened improvement in the sets providing some new sets for certain customers in that space. We've also identified some new product introductions on our equipment side that we've been driving into that particular channel, and we've seen the benefits of that continue to accrete. We were strong with retail in 2015, and we continue that as we migrated into 2016. And it's primarily been just from that new products and enhancement of those sets for the retail space.

Great. Was there anything about sort of selling into retail that would make the first quarter volume standout, or should we expect the benefit to processed throughout the rest of 2016 on a year-on-year basis?

Oh, look, we have expected our Harris business in the aggregate to continue to make improvements, and we've had a very nice improvement in that business over the last several quarters. Certainly when you are providing new sets, there might be a little bit of an inventory draw initially to be able to -- to provide that inventory to the various stores. So it might not accrete at the same rate, but we certainly like our positioning in that space, and expect continued improvement in our retail channel throughout 2016, although it might not be at the level that it was in Q1.

Great, thank you. I do have one question on price cost, if I look at the decrementals in Europe and trying to ex-out through the FX effect in the gain on sale from first quarter of '15, it looks like you were running about 25% decremental in Europe, is that still the right ballpark, or are the decrementals in Europe sort of already at that decremental rate that you expect the Americas to gravitate to as we continue throughout 2016?

Yes, that's a good range for our International Welding Group, about 25% that includes Europe, which is the bulk of that segment currently. And then as far as the Americas are concerned, I think decrementals are maybe a tad, but better than that, I'd give it a range of 20% to 25%.

Okay, great. And I mean is it the FIFO versus LIFO inventory accounting that has caused the decrementals in Europe to sort of be reflective in the first quarter of what you expect for the year as a whole, whereas LIFO sort of delayed that in the Americas, or is that some other driver?

No, I don't think it has to deal with inventory accounting or whether on LIFO or FIFO in those respective regions. The businesses are distinctively different in terms of the structure, how they are managed; we have a great deal, more flexible in our biggest operating unit in the Americas being the U.S. business that we've highlighted here in our conversations surrounding the incentive management system. We also have a much higher incentive pay component in our compensation structures in the Americas and that gives us a little bit greater cushioning on the downside that it improves our decrementals over how we can perform in other parts of our business, outside of the U.S.

Okay, thank you for taking my questions. Good luck for the rest of the year.

You are welcome. Thank you.

Thank you. And our next question comes from the line of Steve Barger with KeyBanc Capital Markets. Your line is open. Please go ahead.

Hi, good morning guys.

Hi, Steve.

Good morning, Steve.

We know the automotive sector has embraced automated solutions a lot more than other industries, are you making progress selling into other industrial sectors, or can you talk about how that is progressing?

Yes, Steve, and you are accurate, but when we look at the various industrial segments that we participate in, that automotive has a higher concentration of automation than the other segments. I would also tell you though when we look at our automation business, our concentration of automation is less than the average. So we're already beginning to diversify from that, and we've got a multitude of solutions and acquisitions that we've been making to continue to diversify that. An example would be the Wolf Robotics business that we acquired in 2015. That business was really concentrated in the heavy industry space. It was not automotive-centric. It's got heavy industry. It's got some aerospace that's active within that business. So we not are penetrating, but we also use this strategically as we are evaluating options for us from an acquisition perspective as we continue to build out the automation business on a global basis.

And when you look across the industrial sectors, is it really heavy machining and that sort of thing, where you see the most opportunity, or what sectors do you think are really ripe for adoption of automation?

I would say, Steve, we can actually build a case around nearly all of our segments to be looking at levels of automation. So, whether it's automation that we might have in a structural steel facility for our python solutions, or whether it's automation from orbital welding with our new product technologies that we have for that space, we believe that it's easy for us to identify a level of automation. We certainly see automotive as the most material. We see, quite frankly, heavy industry as having applications, but we believe that quite frankly a multitude of our segments will have opportunities for us to provide automated solutions and continue to evaluate all of them to be able to provide an offering into the space.

Got it. And Chris, in the release you talked about good execution and your commercial initiatives helping to mitigate volume declines, is that all in the automation side, or are there some new product wins from the traditional welding equipment or anything notable there?

No, it's not just automation. Quite frankly, we are exiting 2015 with a very high vitality index, especially the vitality index for our equipment offering. So we're driving a multitude of those solutions in the marketplace. In fact, we had a couple of releases, where the demand has been greater than we expected, and have a little bit longer lead times on some of those filler rates than what I would like to see within the business right now. We've got a new offering that we launched in 2015 for equipments specialized in aluminum, I'm very excited about. So we've got a multitude of new products beyond automation that we are moving to the marketplace, and need to continue to drive those solutions throughout the year.

Thanks for that, and then just one more for Vince, even with the revenue decline year-over-year, free cash flow was about equivalent with the prior year ex the tax refund, do you -- just as you look over the next few quarters, do you expect free cash flow generation will stay on track to meet or exceed 2015?

Well, I think that's going to be difficult in this environment with the kind of volume declines that we've experienced early in the year, in the first quarter. It is fair to say that the volume declines will be somewhat mitigated by the freeing up of working capital as the business contracts. It's also fair to say that in the second half of the year that those declines will moderate. At this point in time I wouldn't be predicting an equivalent cash flow from ops for the full year as compared to 2015. I think it will be somewhat less than that.

Got it. I do have one more; maybe I missed this, but when you are looking at the 2Q revenue walk versus the prior year, I know it's your strongest seasonally, but do you expect that revenue will be down single-digit or double-digit versus the prior year?

Steve, I don't have any expectations on that right now that I could delineate to you. I think the best we can say at this point is that the rate of decline has decelerated, we've see some stabilization in the business. We did have difficult first quarter comps, but early in the second quarter we're seeing a similar type of order pattern on a year-over-year basis that we saw in the first quarter of 2016.

The same kind of trending volumes?

Right.

Okay.

In terms of year-over-year declines.

Got it.

Also only -- we're not even three weeks in, but we're seeing some continuing softening on a year-over-year basis.

Understood. Thanks.

You're welcome.

Thank you. And our next question comes from the line of Paul Dircks with William Blair. Your line is open. Please go ahead.

So, briefly on oil and gas, I just wanted to drill down on this. Obviously you'd mentioned that the business is down about 30% year-over-year in the first quarter, maybe you could delineate for us how your businesses are trending? Is midstream still relatively outperforming your upstream and downstream businesses and have you seen any sorts of inflections and changes in those individual oil and gas markets through the quarter?

You know, they're all down fairly significantly on a year-over-year basis. If there's one of those segments that's performing just modestly better with the downstream in the quarter, it is one quarter -- it's not something that we could draw conclusions from, but certainly it's not unexpectedly, the upstream business is down the most on a year-over-year basis.

Okay, thanks. That's helpful. Also, I guess Chris you touched upon this a little bit earlier in the call, as far as your R&D investments and looking beyond automation, are there certain other markets whether it's continuing advancing into aluminum or other specialty materials or other areas where Lincoln could consider even ramping it's R&D investment in 2016 to kind of get out ahead of the next growth that you see in your markets?

I'm not sure that I can point towards an area that we need to be ramping. We certainly already have several strategic focal points within the strategy where we're investing in at a higher rate looking at technologies that might be next-gen technologies in our consumables, our equipment line. We continue to invest heavily in automation and education strategies, and as I'd mentioned earlier in the call we just launched a new specialty solutions equipment portfolio for the aluminum space. So, I think we're making those investments. I'm not thinking that we have an area like that that we've identified that we're not investing in, and quite frankly, I think we probably already have enhanced R&D schedules to try to provide investment behind what we believe will be some of those future opportunities.

Got it. And then finally from me, little bit of a housekeeping question, Vince, on tax for the year, the tax rate outlook is certainly lower than what you guys had conveyed previously. Were there certain, or are there certain credits you're anticipating that you received in the first quarter to change your full year outlook by such a large degree from the lower 30s down here into the high 20s?

Yes, we did have in the first quarter a little bit higher discrete items than what we -- what I've expected. Those discrete items will obviously not repeat themselves, or we're not at this point expecting the same kind of discrete items as we roll through the rest of the year. So we're expecting a higher tax rate as we look at our effective tax rate for the full year.

All right, great, that's all from me. Thank you.

You're welcome.

Thank you. And our last question comes from the line of Schon Williams with BB&T Capital Markets. Your line is open. Please go ahead.

Hi, thanks for the follow-up. I wonder if you could just comment what was the actual growth rate for automation in the quarter, I mean, last quarter you talked about some acceleration in growth; I'm just -- I'm interested where we wound up in the quarter, and then also Rimrock contributed a little bit less than what I was expecting, is that just normal seasonality or any reason that business would be kind of running below in the $40 million run rate that you talked about during the -- initially when you bought it?

So, Rimrock is a automation business that's a long-term contractor you're going to see a lumpiness in a quarter-to-quarter view of that. So I wouldn't say at this point, Schon, we see any distinctive trends there that would explain the first quarter acquisition revenue stream. As far as the overall automation business, it was actually -- that particular product line was down in the quarter on a year-over-year basis, and so, it did not contribute to increasing volumes and sales in the first quarter of 2016.

Is there anything specific you would attribute that downed volume too, I mean is it just the kind of the CapEx nature of automation, or is there a specific end market that maybe driving that year-over-year declines? I mean, anything you could highlight there?

No, I would emphasize again that we saw a very strong first quarter of 2015. So, our comps were challenging, and I would emphasize that one quarter we're not seeing any particular trends that are disconcerting or would lead us to believe that there's an inflection negatively in any meaningful way.

All right, that's helpful. And then I just noticed in the presentation last quarter you talked about kind of general fab and ship building being kind of flat-to-modest growth in 2015, you've now moved it to declining on a year-over-year basis. I'm just wondering what might be driving that, are you actually seeing some slowing there. I know ship building it sounded like you're actually making some maybe some market share gains on some new product introductions, but -- or some new applications, but I'm just wondering, I don't know, is there anything that's actually slowing there versus where we were in 2015?

Yes, Schon, that's a good question. I've got to say, we talked about it internally. We don't see anything materially that's happening. So when we did look at the date on a year-over-year basis, it could just be the choppiness within orders within that segment, but we're not seeing it -- we're not seeing material change in the way we're approaching the segment or the space. Certainly, it's one quarter. We'll have to see how those two particular end markets trend out here over the next quarter or two.

Hi, thanks guys. Appreciate it.

You're welcome, Schon.

Thank you. This concludes our Q&A session, and I would like to turn the call back to Mr. Vince Petrella for closing remarks.

Thank you, Michelle, and I would just like to thank everyone for joining us today on the call and for your continued interest in Lincoln Electric. We look forward to discussing the progression of our strategic programs on our 2020 Strategy and Vision at upcoming investor conferences and on our next earnings call in July. Again, thank you very much.

This concludes today's teleconference. You may now disconnect your line at this time. Thank you for your participation.