Lincoln Electric Holdings, Inc.

Greetings and welcome to the Lincoln Electric 2021 Third 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, Angelica, and good morning, everyone. Welcome to Lincoln Electric's third 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 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 results and business trends, and Gabe will cover our third quarter financial performance in more detail. Following our prepared remarks, we're happy to take your questions. But 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 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, and 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. Turning to slide three, I'm pleased to report that we generated record sales and earnings in the third quarter. Our team continues to do an excellent job servicing strong underlying demand from our global customers while navigating a challenging operating environment and advancing our long-term strategic commercial and operational initiatives. Our third quarter sales increased 21%, led by 18% organic growth. Profitability increased on a year-over-year basis and sequentially with a 15.2% adjusted operating margin and a strong 28% incremental margin. Volume growth, price management, expense control, and benefits of our structural cost reduction actions delivered strong results. We also improved our return on invested capital up 440 basis points to 22.8%. Cash flow generation remained strong, up 23% to $110 million, with a 97% cash conversion. Capital allocation was balanced in the quarter, with approximately $94 million invested in growth, led by $75 million in the Harris business. We returned approximately $80 million to our shareholders, including $50 million in share repurchases and $30 million in dividends. As previously announced, the Board approved a near 10% increase in our dividend payout, marking our 26th consecutive annual increase. So despite near-term headwinds, the business is performing at or near record levels across key metrics, and we're focused on capitalizing on an industrial expansion and our higher standard strategy. Turning to slide four, to cover underlying growth trends in more detail. Third quarter organic growth of approximately 18% remained solid across all product areas and regions. Both consumables and equipment system organic sales increased approximately 20% and our automation portfolio increased at a high single digit percent pace. With a portion of automation revenue pushed out into late fourth quarter or early 2022 due to robotic arm supply delays. With customers accelerating capital spending in this space, we continue to see strong order activity and backlog levels in automation. Geographically, growth rates slowed internationally due to challenging prior year comparisons as that region rebounded faster than America's last year. Looking at end markets, Underlying demand remains strong across all of our end sectors, with organic sales now flat to growing in the third quarter despite challenged automotive production levels and a slow recovery in energy. Heavy industry sector growth accelerated in the third quarter by a low to mid 30% rate, while automotive, general industries and construction, and infrastructure organic sales increased in the mid-teens to 20% rate. Energy was steady with the prior year as comparisons eased, oil and gas fundamentals improved, and customers cautiously began to reinvest in the sector. This segment should trend positive as we move into 2022. While there is some choppiness in our end markets due to supply conditions, we see healthy underlying demand and backlog. In our operations, we expect inflation and tight supply chain conditions to persist through mid-2022 and are managing the business accordingly with elevated inventory levels. We're leveraging our international footprint and supply network for increased agility to maintain ample product availability. Our customer-first approach has positioned us well in the market. We're also continuing to operate safely given COVID risks and launched a vaccine incentive program in the quarter across our U.S. operations to encourage employees to be fully vaccinated. We believe this is a good investment in our business, employees, and for our communities. Our operations around the world have managed through and migrated to a more flexible work environment. As an example, we rolled out our Work Appropriately program across our headquarters campus, which provides managers and employees with a more flexible work approach at Lincoln Electric. I believe programs like these, commitment to our employees, and our strong culture are why Lincoln Electric was recognized again this month by Forbes as one of the world's best employers in 2021. So as we finish the year, We continue to expect growth in our business with standard volume seasonality in our segments, as well as accelerated contributions from our acquisitions. We also expect pricing to remain elevated due to additional actions that we've announced to recover rising raw material costs and achieve neutral price costs by year end. As we look into 2022, we expect continued favorable demand trends as the industrial cycle remains positive. We're well positioned to excel in this environment. And now I'll pass the call to Gabe to cover the third quarter financials in more detail.