Lincoln Electric Holdings, Inc.

Greetings, and welcome to the Lincoln Electric 2021 Second Quarter Financial Results Conference Call. At this time, all participants are in 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.

Good morning, Cara, and good morning, everyone. Welcome to Lincoln Electric's second quarter 2021 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 Mapes, 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 results and business trends, and Gabe will cover our second 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 Mays. Chris?

Thank you, Amanda. Good morning, everyone. Turning to slide three. The second quarter marks the one-year anniversary of COVID's significant impact across our business, and our team has done a tremendous job persevering through this challenge. Many of the regions we operate in are starting to return to more normalized business activity. However, we remain vigilant on rising global COVID cases and are continuing to operate under stringent best practice health and wellness protocols to ensure our employees' safety. Turning to slide four for second quarter highlights. I'm pleased to report that we achieved record earnings in the quarter driven by record sales, diligent price cost management, increased productivity, and the benefits of our prior cost reduction actions. I would like to thank our employees, our customers, and our partners who continue to excel in such a challenging operating environment. Sales increased approximately 40% in the quarter or 36% on an organic basis on broad recovery momentum from the prior year trough. Consolidated sales, as well as international welding and Harris product group sales, trended above 2019 levels, and we expect America's welding to inflect positively in the third quarter. Our team did an outstanding job addressing supply chain constraints and inflationary headwinds in the quarter. We leveraged our elevated inventory levels and supply chain partners to maintain product availability across substantially all of our portfolio, reaffirming Lincoln as a trusted and reliable supplier during this challenging period. We also effectively managed raw material inflation through pricing actions and improved productivity, which resulted in neutral price cost year-to-date. We will continue to monitor inflationary pressures in the business as we move forward. Higher productivity, structural cost savings, and disciplined management of discretionary spending offset higher employee costs, which resulted in a near doubling of our adjusted operating income to $125 million and a 440 basis point increase to our adjusted operating income margin to 15.1%. I'm pleased to report that the international welding segment achieved their double-digit EBIT margin goal in the quarter with an 11.6% adjusted EBIT margin. Adjusted earnings per share increased approximately 109% to $1.67, a record second quarter performance. Return on invested capital improved 280 basis points to 21.4%, and cash flow from operations remained strong. We returned approximately $55 million to shareholders with $25 million in share repurchases and paid out $30 million in dividends. Looking at the second quarter demand in more detail on slide five, trends remain strong through the quarter, ending with backlogs above 2019 levels. Organic sales increased 36%, and all reportable segments, geographic regions, and main product families achieved improved performance year over year and sequentially. Equipment and consumable organic sales increased by approximately 40%, and are trending above 2019 levels. Automation organic sales inflected to high teens percent growth as customers begin to reinvest in capital equipment. With 80% of our revenue driven by growing end markets, we believe we are in the early stages of an industrial expansion. In the second quarter, we achieved a near doubling of organic sales in automotive transportation and strong double-digit percent growth in heavy industries, general industries, and construction infrastructure. Energy remained challenged, but declines continued to narrow, and we achieved modest growth in downstream applications. Moving to slide six. We're entering the third quarter expecting continued year-over-year growth in our welding segments with high backlog levels. Our Harris segment faces more challenging comparisons in the second half of the year due to a spike in prior year retail channel sales and higher price levels. But we expect continued momentum in the second half based on current order levels. Overall, customer sentiment continues to be positive, yet cautious on supply chain, labor constraints, and COVID-related disruptions, which may impact the timing of orders and deliveries. We remain focused on safety at Lincoln Electric and servicing customers with ample supply, which positions us well to capitalize on near-term growth opportunities in this early stage of an industrial growth cycle. Given the demand trends and the incremental pricing actions we've taken, We are adjusting our full year top line organic sales assumption to now be in the high teens percent range as compared with the previous low to mid teens percent range. As stated before, this range does not include any future pricing actions which may be warranted. We are still assuming standard seasonality in the business for volume performance with third quarter sales generally flat to slightly lower than second quarter results. We're also still expecting a full-year incremental adjusted operating income margin in the high 20% range. As we manage the business, we're focused on growth, innovation, and acquisitions that are core tenets of our higher standard 2025 strategy. We're currently integrating our recent Zeman automation acquisition, maintain a full M&A pipeline, and are looking forward to a series of product launches in the second half of the year including yesterday's launch of our industry-leading enhanced IoT solution, Check Point. And now, I'll pass the call to Gabe to cover second quarter financials in more detail.