Lincoln Electric Holdings, Inc.

and welcome to Lincoln Electric's 2020 Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode 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, Michelle, and good morning, everyone. Welcome to Lincoln Electric's 2020 Fourth 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 website at lincolnelectric.com in the Investor Relations section. Joining me on the call today is Chris Mates, Lincoln's Chairman, President, and Chief Executive Officer, and Gabe Bruno, our Chief Financial Officer. Chris will begin the discussion with an overview of our annual sales results and business trends, and Gabe will cover our fourth quarter financial performance in more detail. Following our prepared remarks, we're happy to take your questions. Before we start our discussion, though, 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. 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 discussed 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 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 Chris Mapes. Chris?

Thank you, Amanda. Good morning, everyone. I'm pleased to report that we ended a challenging year with good recovery momentum and solid positioning for growth in 2021. At Lincoln Electric, we're guided by the golden rule, treating others as you would like to be treated. The challenges of 2020 exemplified how we live our values and lead our company. We remain committed to delivering for our customers as an essential business. We focused on supporting one another internally. and executing on our higher standard 2025 strategy to drive long-term value for all of our stakeholders. In 2020, I'm proud to report we achieved record safety and environmental performance. We safeguarded wages, benefits, and bonus programs to minimize the impact of COVID-19 on our employees. We amplified our community engagement and outreach We were recognized for our initiatives and our culture, being named as a top global employer in 2020, and were again named as one of the world's most ethical organizations by Ethisphere. Turning to slide four, solid recovery momentum off an April trough resulted in a 12% decline in 2020 organic sales. By aggressively deploying our Lincoln Cost Savings Playbook early in the year and executing on planned permanent cost reduction initiatives, we achieved $88 million of cost saving benefits. These actions, combined with lower incentive compensation, largely offset the impact of lower sales. Our adjusted operating income margin compressed 50 basis points to 12.4% in 2020. Adjusted earnings per share declined approximately 12% to $4.15, but represented our third highest earnings performance in our history. We achieved return on invested capital at 17.7% and strong cash flows from operations, free cash flow, and 117% cash conversions. We also continued to return cash to shareholders in 2020 through $113 million in share repurchases and the 25th consecutive increase in our dividend program. Looking at demand trends in the fourth quarter on slide five, we achieved good sequential demand improvement in our two welding segments as end markets continued to recover in the fourth quarter. we saw ongoing recovery in all geographic regions and across most end sectors. Geographically, Asia Pacific improved to a low single-digit percent decline, Europe improved to a low to mid-single-digit percent decline, and North America's decline narrowed to a high single-digit percent rate in the fourth quarter. Globally, consumable and equipment organic sales improved with consumable demand exceeding equipment for the first time in 2020. As expected, automation weakened to a mid-teens percent decline and was at or near trough levels, as an acceleration in fourth quarter automation orders will translate to growth for that portfolio by mid-2021. We're encouraged by these trends and the opportunity to benefit from the resumption of capital spending. Looking at end markets, approximately 50% of our fourth quarter sales were from growing end sectors, up from 45% in the third quarter. General industries and transportation automotive grew in the fourth quarter, and heavy industry sales declines narrowed as demand started to improve in that market. We would expect oil and gas, which is approximately 15% of sales, to remain challenged through 2021. Moving to slide six. Looking at January, I'm pleased to report that order rates have continued to improve across all segments, and we expect first quarter organic sales to be flat to modestly higher compared with prior year levels. While we remain cautious on conditions given customer supply chain risks and general COVID-19 uncertainties, Current demand trends suggest high single-digit organic sales growth for 2021. Our cost savings actions yielded $28 million of benefits in the fourth quarter and we exited the year with a $12 million per quarter run rate in permanent cost savings. As conditions improve in 2021, we would expect temporary cost savings to ease as we service growth. We continue to expect incremental cost savings for full year 2021 of $20 to $5 to $30 million, primarily from permanent cost actions, and these benefits will substantially occur in the first half of the year. We are seeing inflationary headwinds in 2021 from rising labor, freight, and raw material costs. we expect higher labor costs to be offset by the incremental cost savings. Pricing actions will mitigate raw material and freight inflation and we anticipate achieving neutral to positive price costs for the full year. We have already issued price increases globally and are preparing further pricing actions to address these inflationary pressures across our markets. Given our assumption for high single-digit percent organic growth, we expect our incremental margin will average in the mid to high 20% range for full year 2021. While we expect to continue to operate the business through an uncertain COVID environment through much of 2021, we are encouraged by our growth prospects as markets rebound. We're confident in our strategy, the strength of our balance sheet, and our team's ability to deliver sales, profit, and earnings growth this year. And now I'll pass the call to Gabe to cover fourth quarter financials in more detail.