Greetings and welcome to the Lincoln Electric 2025 First Quarter Financial Results Conference Call. All lines have been placed on mute and this call is being recorded. It is my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you. You may begin.

Thank you, Selena and good morning everyone. Welcome to Lincoln Electric's first quarter 2025 conference call. We released our financial results earlier today and you can find our release and this call slide presentation at lincolnelectric.com in the Investor Relations' section. Joining me on the call today is Steve Hedlund, Chairman, President and Chief Executive Officer; as well as Gabe Bruno, our Chief Financial Officer. Following our prepared remarks, we're happy to take your questions. Before we start our discussion, please note 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 and uncertainties, which 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, and a reconciliation of non-GAAP measures to the most comparable GAAP measure is found in the financial statements in our earnings release, which again is available in the Investor Relations section of our website at lincolnelectric.com. And with that, I'll turn the call over to Steve Hedlund. Steve?

Thank you, Amanda. Good morning everyone. Turning to Slide 3. We reported solid execution in the first quarter despite a softer industrial cycle. We are well-positioned to manage evolving market conditions, while still investing in long-term growth, advancing our strategic operational initiatives, which are focused on driving margin improvement, and increasing our returns to shareholders. Looking at our first quarter highlights, top line sales increased on benefits from acquisition and price, while volumes were a bit softer than we expected. Half of the volume decline was due to labor negotiations in our Turkey facility, which impacted sales. We successfully concluded negotiations mid-March and orders started to normalize in April. Our first quarter price included our initial response to announced tariffs and we have since implemented additional pricing. Together, these actions are expected to yield mid-single-digit percent higher price in the second quarter and we are prepared to take further pricing actions if other tariffs come into effect. The team did a great job maintaining diligent cost management and generated an incremental $16 million from our saving actions in the quarter. Our adjusted operating income margin declined by 60 basis points to 16.9%. Acquisitions, which we are still integrating and the impact from Turkey, had an unfavorable 110 basis point impact to our adjusted operating income margin. Our adjusted earnings per share of $2.16 was slightly lower than expected, but included a $0.05 headwind from the combination of Turkey and unfavorable foreign exchange. ROIC remained top quartile at 21.5% and we generated record cash flows with a 130% cash conversion ratio. We returned $150 million to shareholders through our higher dividend and share repurchases. In this period of uncertainty, we are staying agile and are working diligently to serve customers with our innovative solutions, while leveraging our global supply chain to…

Thank you, Steve. Moving to slide 5. Our first quarter sales increased approximately 2.4% to $1.04 billion from a 4.9% benefit from acquisitions and 2.6% from higher prices. These increases were partially offset by 130 basis points from unfavorable foreign exchange translation and 3.8% lower volumes. Turkey had a 200 basis point unfavorable impact to net sales. Gross profit dollars declined by approximately 1% to $365 million as a $4 million benefit from our savings actions as well as benefits from cost management and operational initiatives were offset by the impact of lower volumes, Turkey acquisitions and an approximate $2 million LIFO charge in the quarter. Our gross profit margin declined 110 basis points to 36.4% versus the prior year's record results. Acquisitions and Turkey combined had a 90 basis point unfavorable impact to gross profit margin results. Our SG&A expense decreased 1% as $11 million expense from acquisitions was offset by approximately $12 million of savings benefits and $6 million of favorable foreign exchange. SG&A as a percent of sales improved 60 basis points to 19.5% of sales. For analysts closely following our EBIT schedule, we reported corporate expense of approximately $1.7 million, which was substantially lower than prior year. The decline was primarily due to a lower level of accelerated stock compensation and equity awards, as well as an update to corporate allocations in mid-2024, which decreases the distribution of corporate costs to reportable segments. This lowered corporate expense by approximately $4 million in the quarter. Looking ahead, we expect corporate expense of approximately $2 million to $3 million per quarter for the balance of the year. Reported operating income held relatively steady versus prior year. Excluding special items, adjusted operating income declined 1% to $160 million with an adjusted operating income margin of 16.9%, 60 basis points…

[Operator Instructions] Your first question comes from the line of Saree Boroditsky with Jefferies. Please go ahead.

Thanks for taking my question. You talked about growth in all markets, excluding heavy industries. I believe that includes price. Could you just talk through what you saw on those end markets on a volume base and then how you're thinking about that for the remainder of the year?

Yeah. Just to give you some clarity, sure, while the four out of the five end markets were stronger than they had been. We do have an unclear picture as the year progresses, as you can appreciate. As we've talked in the past, construction and infrastructure, while it was up mid- to high single digits, pretty choppy. So we've got good momentum there. But depending on where we see activity levels will progress in how we view that part of the market. A smaller part of our business, as you know, it's about 13% of our overall sales. Automotive, general industries were positive. We were good to see that they're up mid-single digit. When you see the mix of our business in general industries, we did see strength in the consumable side of our business. And you saw that not only in the international markets, but also in the US. We did have some strength on the HVAC, as we've mentioned. And so while we had positive trends there, again, pretty difficult to assert whether or not that momentum will continue in the balance of the year, and that's why our cautious position on volume activity. On automotive, as we mentioned, we were up mid-single digit. And while we're trending favorably on the capital side, automation as well as standard equipment, consumables were down mid-single digit that reflects production activity. And there's -- as you know, there's some caution on where production activity goes across automotive industry, but we'll continue to monitor that. The comps on the automation side, as you know, we're easier, and we're looking to see quotes to translate into orders, as we've commented on how that impacts the second half of the year. And lastly, I'll just comment on Heavy Industries. Heavy industry is down high teens. That's the same progression that we've noted throughout the last year. Ag continues to be the most challenged. We are seeing some positive reports on the destocking, but we're still cautious as we progress throughout the year, and we've positioned our expectation to see softening production levels through the balance of the year. And I should comment lastly on energy. Energy was up low single digits. And as we've talked, we're bullish on oil and gas, but there were some tough comparisons at the beginning part of 2024, and we do see easier comps in the back half. So that's kind of an outlook that we would have. A lot of uncertainty, as you know, which is dependent upon how the end markets progress on production levels as well as decisions on capital investment.

So just to add, as you look at the consumable demand in the first quarter, I think the question on everybody's mind is how much of that reflects prebuy activities by our customers. And through both our analysis of demand trends and conversations with many of our large customers, the feedback is they're not pre-buying. There may be some opportunistic purchases here and there, but in general, our customers are very reluctant to get stuck with inventory they don't need given the uncertainty of demand in the future. So while there may be a little bit of prebuying in the first quarter and numbers and in the April quarter, we don't believe it's significant at this point in time.

It's going to be my next question, so I appreciate that. I'll add one more just kind of high level. You mentioned customers deferring capital spending a couple of times in the remarks impacting automation demand. Can you just provide some color on just what you're hearing from customers? And what they're really looking to see to start reviewing some of those projects? Thank you.

Yes, Saree. As we commented, we continue to see a lot of quotation act. So, a lot of customers trying to figure out how they're going to respond to the shifting trade policies and I believe long term, there will be a lot of good growth opportunity for us as a result of that. It's the near term where given the uncertainty of where the trade policies are finally going to shake out, the general uncertainty over macroeconomic conditions impact on demand and the like, the customers are just taking a little longer to make decisions and we would like to see.

Yes. And I would just add, Saree, when you translate in the decision-making on capital investment, we can see up to another quarter, and that's the rest that we see in the second half of the year. So we have been pointing to, if you recall, throughout the second half of last year of softening order trends that would impact the first half of this year. And so, we're more cautious because of the pause in making capital investment decision and what it means to our second half. And that's our -- that's why we posture our dialogue on volumes to be offset with the pricing impacts that we've announced.

Your next question comes from the line with Bryan Blair with Oppenheimer. Please go ahead.

Thank you. Good morning, everyone. I just wanted to level set on announced pricing. In terms of the mid-single-digit incremental pricing, what is the split between direct price and surcharges? And then if you're willing to share, what was price cost in Q1 and given the moving parts and timing of those moving parts and -- has your team thinking about price cost impact in Q2 and throughout 2H to net to the roughly neutral full year level?

Yes. So Brian, on the price/cost, we're essentially flattish in the first quarter. And you know that is our strategy to be price cost neutral. We're not disclosing the split between surcharges and absolute price changes. But we're looking at that balance to be able to respond to tariffs. So you can see a mix of that being -- is more traditional pricing that's reflective of inflationary pressures and then the surcharge to tie into some of the tariff actions.

Okay. Understood. And maybe offer quick updates on RedViking and an integration of -- obviously owned for around a year now. Just curious how those deals are progressing relative to plan the impact of the operating environment and just overall macro uncertainty on that progression? And then any quick comments you could offer on the deal pipeline and how this unique backdrop is affecting the development of the pipeline, actionability, et cetera? Thank you.

Yes. So generally, Brian, the integration work on both RedViking and -- doing great, but right on schedule. We've deployed new systems at RedViking. We've integrated them within our Lincoln Business System. That's progressing nicely. The Van air strategy is also driven by growth in that. So that's also progressing right on schedule. But just keep in mind that the first three years of any integration, the results are expected to be dilutive to the overall business. So it's running right on track. The RedViking business is a little bit more choppy because of the project level of activity. For example, fourth quarter was pretty strong. And yet first quarter, while we had incremental sales contributions. We did have some margin pressure on the red biking side of things. So we're very pleased with the progression of both businesses, and they're very much on schedule. On the pipeline, you've heard our comments around a sluggish environment. We have, as you know, a very active pipeline, but we do anticipate some slowness in being able to complete deals, and that's why we pressed on our dialogue around share repurchases as we think about capital allocation.

Your next question comes from the line of Angel Castillo with Morgan Stanley. Please go ahead.

Hello. Thanks for taking question. This is actually Stefan Diaz sitting in for Angel. I was wondering if you could just speak to your Americas margin performance for the quarter. I know in the slides, you mentioned impact of lower volumes and some impact from acquisitions and then also that corporate reallocation. But maybe if you could also just mention how quickly you expect kind of the integration of Vanair and RedViking. I know you just mentioned maybe some margin impact this quarter. But maybe like how quickly do you expect the integration of those to progress to the point where it's not margin accretive.

Yes. So Stefan, thanks for that question. in general, as I just mentioned on acquisitions, we look to up to three years to get to our normalized margins. So both Vanair and RedViking are progressing on schedule. A little bit more choppiness from RedViking and more accelerated growth on the Vanair side is what we expect. In terms of the margins for the Americas, we've talked about the impact of acquisitions being a dilutive impact of 80 basis points kind of resetting corporate allocations, decreased the EBIT margins for America at 40 basis points. But the larger driver is volumes. And behalf of that, we noted that it was in the automation side of our business. So we're looking at mid- to high single-digit types of decline in growth in this -- in the first quarter in Americas. Overall stable in automation, but the other offsets and the strength on the international side. So we do expect Americas, though, to stay within our target range of 17% to 19%. And you can see that's how we ended the first quarter, but those are the drivers. We'll need to see progression around automation orders to have more confidence that volumes will improve in the second half of the year.

Thanks. That's really helpful. Maybe just sticking with automation, given all the uncertainty and maybe the reluctance of capital spend that you're mentioning, particularly in Americas, are you still expecting that business to sort of hit $1 billion this year? Because I know you were expecting some organic growth from the automation business last quarter. Thanks.

Stefan. So I would say the core of our business, all the fundamentals are there to achieve our long-term targets. But this year, I don't expect us to hit the $1 billion based on everything that we see now. The order patterns and the trends around capital investment are going to put a lot of pressure on our automation business. But I'm pretty excited about how the business is positioned in the long term. When you just take the core business and the acquisitions we've completed and on a normalized basis, we're exceeding the $1 billion objective.

Yes, Stefan, it really comes back to the comments we made about customers delaying decision-making. So given the mix of our business, in terms of project life cycle. We need to be getting orders in this part of the quarter in the second quarter to have greater confidence in the third and fourth quarter of this year. And what we've seen so far gives us an indication that customers are still delaying decision-making, which puts the back half at risk for us.

And your next question comes from the line of Steve Barger with KeyBanc Capital Markets. Please go ahead.

Good morning, everyone. This is actually Christian Zilo [ph] on for Steve Barger. Thank you for taking the questions. First question, on automation and robotics, solid performance on a tough comp given your prepared remarks, has your visibility improved or changed since 4Q, especially in the auto end market? And I know it's fresh, but is there any indication that the stack tariff relief helps your outlook or your customers' outlook on automotive-related automation.

There's an issue there, Chris, are you still with us there?

Yeah. Can you guys hear me -- do you need to repeat the question?

If you can just clarify your first question. The second one is pretty easy, right? I mean it's a very, very fluid dynamic environment. The administration's policy around double stacking of tariffs, I think, just occurred yesterday. So it's a little bit too early to see any impact of that.

Got it. Understood. And I guess the question was, has visibility changed in the automotive-related automation segment just given from 4Q to 1Q, as I think visibility changed?

No. I think, Christian, what you're referring to are longer lead-time parts of our business, we would comment that the forward portion of our business, we had good activity into this first quarter. So, that gives us some positive indication of some decisions on the longer 2026, 2027 program years and that drove some of the automotive strength in the first quarter. But I think it's important for us to really monitor, as Steve mentions, how the automotive industry then positions the response to tariffs. So, we'll stay very close to that.

Got it, understood. And then second question, if we go back to early 2018, your Americas segment had solid margin expansion from tariff-related price increases and surcharges, but then contracted in 2019 because of broader industrial weakness and volume declines. So, the question is, if we fast forward to today, do you expect a similar playbook and do you see opportunities in Americas margin longer term given we started this time at lower volumes? Or are you anticipating a lower leg down in volumes? Thank you.

No, I think the longer-term picture Americas margins are to continue to improve. I mean you know that we've operated above the range. We need to see more contribution in volumes from our automation business but our Americas EBIT is solid, and the acquisition contributions will improve over time and as well as volume. So, we're well-positioned to continue to improve the EBIT profile for Americas.

Your next question comes from the line of Mig Dobre with Baird. Please go ahead.

All right. Thank you. Good morning. I must admit, I am a little bit confused with all the moving pieces here. So, I just want to make sure that I understand this clearly because when you're talking about Q1, right, four out of five end markets reported growth then you mentioned that at least in April, what you've seen is demand was stable sequentially yet your commentary points to uncertainty about the back half of the year. So, I'm sort of trying to understand here -- is it a function of automation, primarily and the backlog sort of depletion and the pushout that you're seeing there that gives you the sort of more cautious tone about the back half? Or is it that you're sort of saying, yes, there's that, but there's also the -- maybe the consumables business that has been studied that could potentially deteriorate as customer production levels yet take another step down in the back half. So, maybe we can parse this out, that would be helpful to me.

At a high level, there are two things that give us concern over the second half of the year. The first and the easy one to understand is automation, right, as customers continue to delay decision-making that puts the revenue recognition in the second half of the year at risk for projects that we're hoping they will award soon that we can start working on recognize the revenue under percent complete accounting. But if they don't award it, we can't start, we can't recognize the revenue, right? So, that's pretty straightforward. The core part of our business, what we're seeing so far is that as we take price in response to material inflation and tariffs, there's an offset in volume. And we're assuming for second quarter that the price volume offset is effectively neutral. As we have to take further pricing actions depending on how all the Liberation Day tariff announcements get resolved, there's a concern that as that price gets further elevated, there might be a more demand elastic response from a volume standpoint. And then you've got the general uncertainty in macroeconomic conditions. You see falling consumer confidence PMIs, et cetera. So it just makes us very cautious about the back half of the year based on what we can see at a particular point in time.

Okay. That's helpful. And -- useful to talk a little bit about, where your business is experiencing cost headwinds from tariffs, is it certain countries where you're sourcing components? Is it primarily in equipment, anything on the consumables side? And I ask really because as this tariff picture from a policy standpoint, it would be helpful to know if certain deals are reached with certain countries or whatnot, if that would have a more immediate or direct effect on your cost structure as well?

Mig, I emphasize that, yes, we have pressure on steel. You have some components, some on accessories. We have about just less than 20% of our overall COGS are exposed to where we believe tariff actions have an impact. You have a mix between when the sourcing from Mexico, Canada, China, and the rest of the world, but that's what drives the visibility that we have in responding with a mid-single-digit average price impact. So it's simply, understanding the supply chains and exposures of risk. And it's broad-based, but there are definitely areas that we're working through with components and accessories particularly within the supply chain to mitigate, but that's kind of how we think about it big picture wise.

Your next question comes from the line of Nathan Jones with Stifel. Please go ahead.

Yeah. Thanks. Good morning. This is Adam Farley on for Nathan. I wanted to clarify the price/cost discussion. Historically, you passed through cost to customers with a margin? I know this environment is very different. But are you looking to drive margin with your price increases?

Adam, we're maintaining our same posture that we've had historically. And that's price cost neutral. And we'll continue with that posture in the markets.

Yeah. Adam, our goal is to manage and maintain and defend the profitability of the business through a combination of pricing, productivity actions in our factories, the cost savings initiatives that we've taken and really being aggressive on trying to find alternative sources of supply that aren't subject to tariffs are subject to lower tariffs. So it's a combination of all those effects that lead us to have an objective of trying to maintain the EBIT margin of the business to flat to down 50 basis points over the course of the year.

Okay. That does make sense. That's understandable. I guess, if the tariff fixture does hypothetically improve from here, would you look to maybe hold on to pricing gains? Or again, with the tariff environment, it's easy to point to what the -- concretes are. Should we maybe assume maybe a lag on the way down from price increases? Or does a price kind of go away?

Adam, we just assume that we're going to manage the conditions and we'll be agile and responsive to what we see. And we want to predict outcomes and uncertainties progressively.

Your next question comes from the line of Walt Liptak with Seaport Research. Please go ahead.

Hey, Walt?

Hi, Mr. Walt. I think your line is on mute.

Sorry about that. Good morning, everyone. So I just wanted to ask about the -- we get it on the surcharging and price increases now that could hit volumes. But I wonder if you talked a little bit more about some of the things you just mentioned about finding new local suppliers, if that's possible for electronics yet. Are you seeing opportunities for reshoring. And then in automation, as you're talking to your customers, are they -- are some of the quotes on reshoring, especially around automated -- automation for the auto sector.

Sure, Walt. As we go through the categories of products that we buy that Gabe mentioned earlier, we buy a lot of steel outside the US. That's largely a function of limited supply domestically of people that want to make welding grade products, right? So reshoring steel buying is a very long cycle activity that requires significant investment on behalf of our suppliers. And then you look at electronics, the global electronics industry, a lot of the core components for transistors and blank circuit boards and the like has moved to China. And so while you can look at setting up operations, either our own or a supplier outside in other countries, you're still going to have an impact of buying the raw components from a country that's being heavily tariffed. And then on accessories, a lot of the things like welding guns and helmets and the like are sourced out of China because it's the only cost competitive source of supply for doing that. We're working with our suppliers to look at them setting up other operations in Vietnam and other places that are less subject to tariffs, but there's some lead time in doing that as well. So both we and they are racing to try to do that. But there's going to be a period of time where we're going to need to take pricing through to cover the tariffs to protect the business, right? So we're pulling all levers simultaneously, and it's really a question of trying to balance this interim period and manage through it.

Okay. Great. And then just on the flip side of that, are you seeing -- is it too early still are these longer to long cycle to see automation projects that are kind of tied to reshoring or bringing automotive manufacturing back into the US?

Well, I think a lot of the quoting activity we see is tied to that. And part of the uncertainty is people not wanting to pull the trigger on a major capital investment if there's uncertainty and fluidity around whether the trade policies are going to stick or not. So if you're looking at reshoring something in the US to get out from under a 50% tariff, and there's a risk of 50% tariff goes away or gets used significantly in the next 100 days, you're probably going to sit on the sidelines and wait to see how that gets resolved. So there is a lot of interest in reshoring, but whether that interest will translate into actual project activity is the open question.

Our final question comes from the line of Chris Dankert with Loop Capital Markets. Please go ahead.

Hi. Good morning. Thanks for taking the questions. Forgive me if I missed it, I believe you made a comment around the pricing offsetting volume for the second quarter specifically, I guess, one, can you kind of walk through what kind of went into that -- that's the expectation in 2Q? And is that what you've seen through April to-date here?

Yes. Chris, the algebra is pretty straightforward. That's what we've seen through the month of April. So we are -- so at this point, we don't know any better to say pricing will be an increment to volume or volume will overcome pricing. We just don't know at this point. But what we've seen through the month of April on the order intake side is they're roughly offsetting each other.

Got it. Super, super helpful. And just following up, speaking to the automation portfolio. If I remember correctly, you guys do include both automation equipment and the consumables that go through that equipment, I guess. Can you remind us of that split today to try and to get arms around what project delays could kind of impact on that business?

No, Chris, we do not include consumable activity within our automation business. So that's as strictly the equipment components, the robots and the larger projects that are tied into our automation business.

Very helpful. Thanks so much guys.

Thank you, Chris.

This concludes our question-and-answer session. I would like now to turn the call over to Gabe Bruno for closing remarks. Please go ahead.

I'd like to thank everyone for joining us on the call today and for your continued interest in Lincoln Electric. We look forward to discussing the progression of our strategic initiatives in the future. Thank you very much.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.