Lincoln Electric (LECO) Rides on Solid Demand & Innovation
Lincoln Electric (LECO) is well-poised for growth backed by demand in its end markets, acquisitions and innovative product launches.
Lincoln Electric Holdings, Inc. LECO is benefiting from improving demand across its end markets, robust backlog levels, acquisitions and pricing actions. Focus on developing new products, and utilization of digital platforms to engage customers will continue to drive the company’s top-line performance. It has been implementing cost control measures, which will boost margins.
Solid Demand to Aid Fiscal 2021 Results
On Jul 27, 2021, Lincoln Electric reported record second-quarter 2021 adjusted earnings of $1.67 per share, which marked a 109% year-over-year improvement. This was driven by strong demand across end markets and improved productivity.
Around 80% of second-quarter 2021 revenues were generated by end markets that witnessed growth in double digit percentage. Automotive/Transportation led the pack, followed by Heavy industries, General Industries and Construction/Infrastructure. Backlog at the end of the quarter was even higher than the pre-pandemic levels, positioning it well for improved results in the back half. Benefits from acquisitions and its pricing actions to counter cost inflation will contribute to the results. Incremental margin is expected to average in the high 20% range for 2021, reflecting increasing volume levels and operating leverage.
The Zacks Consensus Estimate for the company’s earnings for third-quarter 2021 is currently pegged at $1.56, suggesting year-over-year growth of 42%. The same for 2021 stands at $6.17, indicating year-over-year improvement of 49%.
Innovation, Acquisitions to Fuel Growth
The company is committed to new product development and utilizing digital platforms to engage customers. Lincoln Electric’s product launches in the automation solutions market are likely to aid growth. Focus on its new additive services business will position the company as a manufacturer of large-scale 3D-printed metal spell parts, prototypes and tooling for industrial customers, which is a major growth prospect.
Meanwhile, the company is continuously evaluating acquisition options focused primarily on tuck-in assets, supporting its Higher Standard 2025 strategy. Lincoln Electric’s recent acquisition of Fabricated Tube Products and Shoals positions it well to capitalize on the growth prospects in the HVAC (Heating, ventilation and air conditioning) market. Earlier this year, the company acquired Zeman Bauelemente Produktionsgesellschaftm.b.H., a Zeman Group unit, to drive automation growth in structural steel applications. The buyout will boost the company’s annual automation sales by around 10% and expand its international automation capabilities.
Cost Control Actions, Solid Balance Sheet Bode Well
Lincoln Electric is focused on its cost-reduction actions to sustain margins. After yielding cost-saving benefits of $88 million in 2020, the company anticipates incremental cost savings between $25 million and $30 million in the current year. It is implementing pricing actions to mitigate raw material and freight inflation.
The company’s efforts to reduce debt is encouraging. Lincoln Electric has a balanced capital allocation strategy, prioritizing growth investment while returning cash to shareholders. As of Jun 30, 2021, Lincoln Electric had liquidity of $767 million. Its total debt to total capital ratio was 0.46 as of Jun 30, 2021, lower than 0.48 as of Dec 31, 2020. Its times interest earned ratio was 18.1 at the end of second-quarter 2021.
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Lincoln Electric’s shares have gained 41.8% over the past year compared with the industry’s growth of 8.7%.
Zacks Rank & Other Stocks to Consider
The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some other top-ranked stocks in the Industrial Products sector include Kadant Inc. KAI, Columbus McKinnon Corporation CMCO and Valmont Industries, Inc. VMI. While Kadant and Columbus McKinnon sport a Zacks Rank #1, Valmont Industries carries a Zacks Rank #2.
Kadant has an anticipated earnings growth rate of 48.2% for fiscal 2021. The company’s shares have gained 65%, in the past year.
Columbus McKinnon has a projected earnings growth rate of 155% for 2021. The stock has appreciated 23% over the past year.
Valmont Industries has an estimated earnings growth rate of 32.1% for the ongoing fiscal year. In a year's time, the company’s shares have rallied 91%.
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