Lincoln Electric Holdings, Inc.

Greetings, and welcome to the Lincoln Electric 2023 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, Liz, and good morning, everyone. Welcome to Lincoln Electric's third quarter 2023 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, Gabe Bruno, our chief financial officer, and Steve Hedlund, chief operating officer. Chris will begin with quarterly highlights Steve will provide a discussion of end market trends and Gabe will cover our quarterly financial performance in more detail, as well as comments on our full year 2023 assumptions. Following our prepared remarks, we are 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. 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 measures found in the financial table in our earnings release, which, again, is available in the investor relations section of our website at lincolnledger.com. And with that, I'll turn the call over to Chris Mapes.

Chris? Thank you, Amanda. Good morning, everyone. Turning to slide three, we maintain strong performance in the third quarter and continue to generate record sales, profitability, earnings, and cash flow performance. We also maintain top decile returns and are positioned to continue to fund long-term growth and drive higher shareholder returns with our solid balance sheet profile. We remain well positioned in the market. What is unique in the quarter is the mix and drivers of our 10.5% sales growth. Our automation acquisitions led by 4E Automation accelerated in the quarter and generated approximately 9% sales growth or $83 million. This increased our global automation portfolio sales to $238 million in the quarter as we work to exceed our $1 billion automation 2025 sales target. The balance of our business delivered 40 basis points of organic growth, volumes compressed slightly at 70 basis points, and we achieved 110 points of higher price. Volume performance reflected a challenging prior year comparison in our Harris Products Group segment and fewer shipping days across our segments, which Steve and Gabe will comment on in more detail. In addition, automation's volume performance was relatively steady in the quarter, ahead of a strong delivery schedule in the fourth quarter. We generated superior value in the quarter with a high tease to low 20% increase in gross profit and adjusted operating income, respectively. This yielded a record 17.7% adjusted operating profit margin with a 31% incremental margin. Two of our three reportable segments generated EBIT profit margins that exceed their 2025 higher standard strategy EBIT margin target. In addition, our automation portfolio continued to advance its margin profile year over year. We also delivered an approximate 18% increase in our adjusted earnings per share, achieving a record $2.40 in the quarter. These significant improvements in performance demonstrate our track record of effective price-cost management through the cycle, and our ability to successfully mitigate higher employee costs through continuous improvement programs and Lincoln Business System initiatives. This also translated into record cash generation in the quarter with 141% cash conversion. Our team remains focused on growth and executing our strategic initiatives to continue to deliver compounding long-term values through the cycle. Now, I will pass the call to Steve Hedlund to share more details on the third quarter sales performance. Thank you, Chris, and good morning, everyone. Turning to slide four, as Chris discussed, our reported 40 basis point organic sales growth rate does not fully reflect the more resilient welding and market trends we are seeing due to fewer shipping days in the quarter, which had a 230 basis point unfavorable impact to our organic sales growth rate. Normalizing for this effect, our two welding segments would have reported low to mid-single-digit organic sales growth in the quarter, driven by growth in both consumables and equipment, with relatively steady organic sales performance and automation due to project timing. Harris Products Group had unseasonally strong HVAC sales in the prior year, which was the primary driver of our consolidated 70 basis point volume declines. Geographically, we saw the greatest growth in the non-European portions of our international welding segment, particularly in India, Turkey, and the Middle East. In the Americas, demand remained strong while demand in Europe continued to be soft. From an end market perspective, three of our five end markets, energy, heavy industries, and general industries, which represent approximately two-thirds of our revenue, continued to grow in the quarters. Energy-related demand was up globally, led by strong midstream project activity. Looking at consumable demand as a barometer of factory activity, four of our five end markets were up, representing approximately 85% of our revenue. Organic sales and construction infrastructure remained soft due to challenging prior year comparisons and weak market conditions, as reflected in benchmarks such as the Architectural Billings Index. Excluding 4E's strong growth in automotive sales in the quarter, organic sales in the automotive transportation sector were down due to timing of deliveries in our automation businesses. We continue to see growth in automotive consumable volumes globally as the OEMs and their suppliers maintain production activity to restore inventory levels. The labor disruptions in the U.S. automotive sector did not have a significant impact on consumable demand in the third quarter and we continue to see solid demand in this sector for our standard equipment and automation solutions. Looking ahead, we expect a strong finish to the year despite increasingly dynamic environment. We are seeing solid momentum in America's welding October order rates given the resilience in many of our end markets and continued strength in capital spending. In fact, we were pleased to see strong orders for our new equipment and automation solutions showcased at the recent Fabtech trade show with record orders for our new Cooper Cobot solution. We will also see an acceleration of scheduled automation deliveries in the fourth quarter that will lift automation's organic sales performance compared to the third quarter, and we continue to maintain high backlog levels. This positions us for mid-single-digit percent organic sales growth in the fourth quarter. The fourth quarter will also be a milestone for our newest growth initiative as we will officially start up production and launch our new Bellion VC Fast Charger at a national EV charging testing festival, which we are proudly hosting at our Cleveland headquarters in late November. And now I will pass the call to Gabe Bruno to cover third quarter financial results in more detail.