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spk07: Thank you, Lisa, and good morning, everyone. Welcome to Lincoln Electric's fourth quarter and full year 2023 conference call. We released our financial results earlier today, and you can find our release in this call's slide presentation at lincolnelectric.com in the investor relations section. Joining me on the call today is Steve Headland, President and Chief Executive Officer, and Gabe Bruno, our Chief Financial Officer. Following our prepared remarks, we're 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 10K and 10Q. 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 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 Steve Headland. Steve?
spk11: Thank you, Amanda. Good morning, everyone. Turning to slide three, I am pleased to report record full-year results for our key financial metrics. These results demonstrate the power of our people, products, and processes to serve the needs of our customers. They also highlight the benefit of our broad and diverse exposure to different end markets and regions, our prior investments to build an industry-leading automation business, and our disciplined capital allocation strategy. We generated record sales from solid organic growth and strong performance from our acquisitions. Our automation portfolio sales are now $941 million, and we are on track to exceed our $1 billion 2025 automation sales target ahead of schedule. We achieved record profitability with all three segments delivering profit margins within their higher standard target ranges, and automation is now at a low teens margin. This improvement reflects operating leverage, diligent price cost management, and productivity initiatives. We achieved record adjusted earnings performance at $9.41 per share, and our cash flows from operations also accelerated to a record. Higher earnings and improved working capital efficiency delivered a 105% free cash flow conversion to net income. These achievements contributed to record ROIC, demonstrating gains from our strategic initiatives as well as our disciplined approach to capital allocation and our M&A strategy. Heading into 2024, we maintained an investment grade balance sheet profile with strong free cash flow, which allows us to continue to invest in the business through the cycle while also returning capital to shareholders. Turning to slide four, we are completing the last two years of our higher standard 2025 strategy and are on pace to achieve our targets. Looking at the financial metrics, our sales performance is on track and we will continue to focus on organic and inorganic growth to capitalize on the favorable secular trends, such as the shortage of skilled welders, labor inflation, reshoring, civil and energy infrastructure investments, and electrification, all of which create demand for our solutions. Operationally, we will continue to drive continuous improvement throughout the business, enhance our safety and environmental performance, and further realize the benefits from investments we have made in shared services, process automation, and most recently, centralized global procurement. We are especially focused on improving the margin performance of both our international welding segment and automation portfolio by 200 to 300 basis points, which will bring our 2020 to 2025 average consolidated operating income margin up to 16%, which is our 2025 target. We have more opportunity to improve working capital efficiency and bring our average operating working capital to sales performance closer to 15% by the end of 2025. We have made strong progress as inventory levels normalize and we're pursuing additional initiatives to reposition ourselves as a top decile operator in this area. We are also committed to our balanced capital allocation strategy. Under our higher standard strategy, we've invested over $900 million in growth and have returned approximately $1.2 billion to shareholders. We intend on continuing a balanced approach in the years ahead. So as I start my initial year as CEO, I could not be more confident in Lincoln Electric's position entering 2024. We have a strong core business and operational platform, an expanding automation portfolio, market leading innovation and two new long-term growth initiatives, additive manufacturing and our DC fast charger, which are both in early commercialization phase and offer attractive long-term upside options for the business. Before we turn to fourth quarter results, I would like to thank Chris Mapes for his strong leadership and the Lincoln Electric team for their exceptional work in 2023. I would also like to extend my gratitude to our customers, partners and shareholders who have put their trust in us and have supported our higher standard 2025 strategy and all who are critical to our success. With that, let's move to slide five to discuss fourth quarter demand trends. We achieved strong sales growth in the fourth quarter to a record $1.1 billion. Organic sales grew .6% from solid growth momentum across four of our five primary end markets and in two of our three main product categories, led by continued investments in capital equipment across our automation and equipment solutions. Fourth quarter sales were stronger than expected in automation, both organically and from acquisition as our teams completed projects ahead of schedule while feeling high quoting activity. This has positioned the portfolio for growth in 2024, most likely accelerating in the second quarter based on project timing. Our consumable organic sales contracted at low single digit percent rate in the fourth quarter on decelerating industrial production activity in South America, Europe and portions of Asia Pacific. Consumable organic sales were up slightly in North America with choppy order patterns, which we expect to continue in 2024. End market growth broadened in the fourth quarter to four of five markets or approximately 80% of our revenue exposure. Construction infrastructure led the improvement on strong automation demand and favorable prior year comparisons. Energy and general industry sectors both increased mid teens percent as project activity in midstream oil and gas and in power generation continued to remain strong globally. General industry growth reflects strength and automation demand in the quarter, including the continued success of our Cooper Cobots and standardized automation cells. Heavy industry demand remained strong, uploaded double digit percent, primarily from strength in America's welding. Automotive continued to contract on challenging prior year comparisons and slower production activity in the quarter. Residential oriented applications like HVAC and the retail channel, both in our Harris products group, remain challenged on weak residential sector trends. While a dynamic environment, our diversified end market and regional profile allowed us to successfully navigate through this portion of the cycle and will ensure we capture growth opportunities ahead. I will now pass the call to Gabe Bruno to cover fourth quarter financial results and our 2024 assumptions in more detail.
spk08: Thank you, Steve. Moving to slide six, our consolidated fourth quarter sales increased approximately 14% to a record ,000,000. We recognized a .8% increase from acquisitions, which included an approximate 270 basis point benefit from both ,000,000 of revenue from the extra month of four reacquisition sales reported in the fourth quarter, as well as an incremental ,000,000 of revenue from projects the automation team completed ahead of schedule. Organic sales increased .6% from a 2% increase in volumes and a 60 basis points of higher price. Foreign exchange translation was favorable by .3% versus the prior year. Gross profit dollars increased approximately 21% or $63 million versus the prior year on higher sales, price cost management and operational improvements. We recognized a $5.1 million life-fill benefit in the quarter reflecting the progression of material costs and lower inventory levels. Our fourth quarter gross profit margin increased 200 basis points to .1% with a modest positive price cost position on a full year basis. Our SG&A expense increased approximately 15% or $25 million. The increase is primarily due to higher incentive compensation and employee related costs, as well as acquisitions. SG&A as a percent of sales was relatively steady at 17.8%. Reported operating income increased 44% to $204 million. Operating income benefited from approximately $22 million of special items from a gain on the sale of property associated with rationalization activities initiated in Europe several years ago. Excluding special items, our adjusted operating income increased 24% to $182 million. Diligent price cost management, operational improvements and contributions from acquisitions drove profit dollar growth. Our adjusted operating income margin increased 140 basis points to a record 17.2%, generating a 28% incremental margin. Our incremental margin reflects price cost management, operational improvements and easier prior year comparisons in international welding and the Harris Products Group segments. Moving to earnings, our fourth quarter diluted earnings per share increased 44% to $2.70. Excluding special items, adjusted diluted earnings per share increased 26% to $2.45, which included a two cent benefit from favorable foreign exchange translation. Moving to our reportable segments on slide seven. America's welding sales increased 14% in the quarter from approximately 11% benefit from our automation acquisitions and a 3% increase in organic sales led by volume growth. Acquisition performance exceeded expectations on efficient project execution. We are pleased with the progression of integration activities. America's welding's 3% organic sales growth reflected a low double digit percent increase in automation and a mid single digit percent rate in equipment systems reinforcing the continued momentum in capital spending. Consumables were relatively steady in the region due to challenge industrial activity in South America as Steve mentioned earlier. America's welding segments fourth quarter adjusted EBIT increased approximately 13% to $130 million. They achieved an adjusted EBIT margin of .8% as benefits from effective price cost management and operational initiatives were partially offset by higher employee costs and lower margin automation mix. Moving to slide eight, the international welding segment sales increased 20% with approximately 4% higher organic sales. We achieved 5% volume growth from higher automation sales and a mid single digit percent increase in equipment. This increase reflects strong project activity in the Middle East, portions of Southeast Asia Pacific as well as pockets of strength in Europe. Consumables declined modestly on challenge industrial activity in Europe and portions of Asia Pacific. Acquisitions contributed 12% sales growth as far as international teams exceeded plan on efficient project completion. Adjusted EBIT increased approximately 88% to $43 million with the 490 basis point improvement in their adjusted EBIT margin to 14.1%. Higher volumes, favorable mix and productivity improvements drove strong margin performance in the segment. Moving to the Harris Products Group on slide nine, fourth quarter organic sales declined approximately 3% on 7% lower volumes and 4% higher price performance. Volumes remain challenged on persistently weak residential construction trends. Harris' price performance reflects higher metal costs primarily from silver and the benefits of prior pricing actions. Fourth quarter adjusted EBIT increased 27% to $50 million. Their adjusted EBIT margin increased 300 basis points to 13.3%. The increase was driven by effective price cost management and operational efficiencies, which were unfavorably impacted by lower operating leverage from volumes. Moving to slide 10, cash flows from operations increased 9% to $122 million with the 68% cash conversion ratio on free cash flow to adjust the net income. Cash conversion is seasonally lower in the fourth quarter due to higher uses of cash for incentive compensation payments. We improved our average operating working capital sales ratio to .1% on lower inventory levels. Moving to slide 11, we invested $25 million in capex in the quarter, bringing full year capex spend to $91 million. We returned $105 million to shareholders in the quarter through approximately $68 million of share purchases in our higher dividend payout. We generated a record return on invested capital of 24.1%. Turning to slide 12 in our full year 2024 assumptions. We remain in growth mode and expect to expand organic sales margins and earnings in 2024. Coming into 2024, we have seen several months of choppy order trends and dynamic operating conditions. Given this environment, we are assuming a more conservative full year 2024 organic sales growth rate range and the low to mid single digits, half from volume and half from price. We're assuming continued volume momentum in Americas, partially offset by weakness in Europe, residential construction and in the retail channel. Our team is encouraged by improving PMI trends, elevated quoting activity and automation and growth from our 2023 new product launches. As we start the year in this first quarter, we are expecting steady to slightly lower sales performance versus a prior year with an inflection to growth in the second quarter as automation sales accelerate towards a seasonally stronger back half of the year. We're continuing to manage to a neutral price cost position and have taken modest pricing actions in our welding segments in this first quarter to mitigate inflation. We expect these benefits to fully mature in the second quarter. Diligent price cost management combined with operating leverage and continuous improvement initiatives are anticipated to deliver full year incremental margins in the low to mid 20% range. In the first quarter, we expect an incremental $3 million in corporate expense versus the prior year from long-term incentive compensation costs associated with our CEO transition. We're expecting a consistent interest expense range of $45 to $50 million and a tax rate in the low to mid 20% range. We're planning on 90 to $110 million of CapEx investments to fund both growth initiatives and investments in operational efficiencies. Given expectations of continued strong margin in earnings performance and working capital efficiencies, we are targeting full year cash conversion at 100 plus percent of adjusted net income. Our assumptions do not include contributions from possible upside growth in our two newest technology platforms, our DC Fast Charger Bellion nor our 3D printing additive manufacturing business as we are still commercializing these early stage growth initiatives. Overall, we are very confident in our market position and our ability to successfully navigate the year ahead. We have a solid track record of managing and delivering long-term value while remaining agile in the short term. We are excited to capture the many growth opportunities ahead of us and build upon our record results as we progress towards our higher standard 2025 strategy targets. And now I would like to turn the call over for questions.
spk05: Thank you, sir. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the town key. To ensure that everyone has an opportunity to participate, we ask that you ask one question and one follow-up question and then return to the queue. We'll take our first question today from Saree Boroditsky-Jeffreys. So
spk01: could you provide any details on just how you thought about the guidance for the low to mid incremental margins? I guess I would have thought easier comps from older 4A contracts and potentially less headwinds from Harris, maybe we could have seen some higher incremental margins there. So what are the offsets?
spk08: So Saree, obviously it's early in the year. And I mentioned some of the full forward of activity in automation, in our automation business. And the fourth quarter from 4A. So it's just conservative posture. We're optimistic of potential short cycle activity, but being early in the year, we wanna keep a conservative posture as we progress.
spk01: Conservatism is always good. So you also highlighted some strong growth from capital investments in the quarter. I believe a lot of that came from the backlog, although you did cite some positive quote and activity. So just could you expand on what you're seeing or hearing from customers on the capital investment side for 2024? Thank you.
spk08: Yeah, so we've got, as I mentioned, as Steve mentioned, a lot of quoting activities. So it's fairly broad based. And we think about the strength we saw in general industry, for example, is driven by automation activity. So we're bullish on a level of continued capital investment. And that was one of the growth drivers we point to as we progress into this year.
spk11: And Saree, it's not only the quoting activity, but also the water intake on the capital equipment side is signaling to us that people are still spending money to invest in productivity, despite the higher interest rates.
spk01: That's great to hear. Congrats on the quarter.
spk11: Thanks, Saree.
spk05: Next up, we'll hear from Brian Blair, Oppenheimer.
spk09: Thank you. Morning, everyone. Hey, Brian. Morning, Brian. I'd love to hear some more about the automation momentum and the outlook. You know, growth there against a rather healthy comp was impressive. Off of the 940 million or so revenue base, what kind of growth does your team expect in 2024? And based on backlog order trends, what you see in the project pipeline, how should we think about the end market mix for the strategy going forward?
spk08: Yeah, so Brian, I would go back and just emphasize for 2023 organic growth and automation was 8%. And so that coupled with the impact of the acquisition just really postures for strength progressively. So the strength of orders and quoting would lead us to continue to be bullish about the automation growth opportunity in 2024.
spk09: Okay, fair enough. And if we were to nitpick a very strong quarter and constructive outlook, the trends in consumables, having a little bit of compression there, albeit versus
spk00: an
spk09: elevated comp, that would be the area. Maybe speak to what you're seeing, year to date specific to consumables. You mentioned kind of choppy trends in general, expecting flat FQ1 sales, but there's cautious optimism on short cycle activity. And that's understandable. Does there any additional color you can offer on the consumable side?
spk08: Yeah, so Brian, I would add that for the Americas segment, for an example, you heard our comments is that when you pull out some of the dynamics in South America, our actual North American business was slightly up in the fourth quarter. So a steady state in our biggest part of our business when you think about the consumables mix in the Americas. So as we start to see, and we're hopeful that PMI measures and new orders start to pull forward some short cycle activity, that's the area that we'll see growth in the consumable side. So as I've mentioned, we have a conservative posture, but as things open up and we start to see a little bit of expansion in general industry activity, particularly in consumables, that's a potential upside in our business.
spk09: Understood, appreciate the color.
spk05: Your next question comes from Meg Dobre-Baird.
spk04: Thank you and good morning, everyone. Just to clarify this discussion on automation, are we to understand here that automation growth in 2024 is going to exceed the low to mid single digit range that you've given overall? And then, I guess, my follow up to this is you think about 2020 and you think about your end markets. Where are you seeing growth versus potential contraction like auto firms that's been declining here? Do you expect that to return to growth? Is there some catch up in activity that you think you're gonna have post strike? And at the same time, heavy equipment, we're hearing from Deirdre today talking about production cuts. We heard from others. How do you think about that vertical as well?
spk08: Yeah, so maybe the first part of your question in terms of automation growth, we do expect more accelerated growth in our assumptions as we highlighted for 2024. If you just think about the mix of our business in 2023, our organic overall was up 4% and that was with automation being up 8%. So we do expect accelerated growth from automation. When you think about the end markets and you point to automotive, we've had some challenging counts with some large projects in the back half of 2022 versus 2023. But we still feel that we've got a lot of good, strong demand on capital investment when you look at both ICE and EV. So we're bullish around automotive investment. You do point to a few pockets of areas in heavy industries that we're more cautious of, whether it's ag or construction. But I think in balance, when you think about the exposure we have in so many end markets, that gives us confidence in the operating assumptions that we provide.
spk11: Yeah, Meg, I think you summarized it well. As we look at the automation business, we expect continued growth based on the activity we see in the market today. So that would be above the guidance for the overall business. So obviously there's parts of the business that are lagging. What are those parts? It's early innings in terms of seeing a turn in the macroeconomic indicators, particularly in Europe. So we're cautious on Europe. We're cautious on things that are consumer facing. So the Harris Porsche from our business that is retail and HVAC focused, we're cautious on that. And then as you pointed out, there are some large end users that are themselves being cautious about their outlook for 2024. And so that just tempers our overall conservatism approach to it. There's still a lot of pressure on our people and our teams to help perform our conservatism. And so we hope that as the global economy starts to accelerate, that we'll see our business improve as well.
spk04: Fair enough. Nobody has the fast charger question yet, and I'm surprised. So I'm gonna be the guy to ask it. We are yet to see sort of a quantifiable update from you in terms of how this opportunity is evolving. So what should our expectations be in 2024? At what point in time are you gonna be in a position where you can provide maybe a little more clarity on this? And yeah, maybe your thoughts on
spk11: it. Yeah, Meg, we're still in the commercialization process for this product. We're a new entrant into the market. I think we've done a very good job of cutting through the clutter and a lot of the vaporware that's out in the industry. We are engaged with dozens of large potential customers, all of whom you'd recognize. We're talking to the right people. We're working through their testing and validation protocols. It's a long selling cycle based on the capital spend that they need to make and the potential risk to them of making a wrong decision. So I expect that we'll take the balance of the first half of the year to get through that process, and then we should be able to provide you more clarity on how we think that will ramp up in the second half.
spk04: All right, thank you.
spk11: Thanks, Meg.
spk05: Chris Dankert from Loop Capital has the next question.
spk13: Hey, morning guys. I guess first off, nice execution on higher standards. So I'm glad you highlighted that. I guess just the one spot that still needs some work, international margin, how much volume do we really need to get that additional two, 300 basis points? Or how much of this is still kind of inside of Lincoln control excluding volume here?
spk08: Well, Chris, I would point to that, we executed 14% in this fourth quarter on the international side. So we're looking to more consistency. So for the full year 2023, we were in the range. So while we point to in the slide deck, that we're on average, we're at just over 10%, with current volumes, we're within the range. So improvements in volumes, as we continue to shape our business, just gives us more confidence that we'll be on the higher end of the range. And as we continue to navigate and think through the longer 2030 strategy that we've spent some time thinking about, we just continue to see improvement in shaping our model. So we're very much comfortable that with existing volumes, we're within that range.
spk13: Understood, I guess the concern I had here too, was when you cited some of the concerns around Europe and maybe just update us on the other international trends, kind of year to date here has India and the Middle East held up kind of with what we saw in the fourth quarter.
spk08: Yeah, Chris, what we've seen is continued strength and India, Middle East and energy sectors there just continue to drive strength in the demand profile.
spk13: Understood, thanks so much guys.
spk08: Thanks Chris.
spk05: We'll take the next question from Nathan Jones from Stiefel.
spk03: Good morning, everyone. Morning, Nathan. I've got to follow up on the EV charger stuff. You said in response to Meg's question that working through the testing procedures in the first half potentially could see some ramp up in the second half of 2024. Did I also hear you say that you've included none of that ramp up in the guidance in 2024?
spk08: Yep, that's correct.
spk03: And I mean, you guys have previously stated that you have 600 million of capacity to sell those EV chargers. Is there any expectation of when you might be at that kind of level? Are we looking at like 25, 26, 27, any kind of expectation for when you think you can get that capacity filled?
spk11: It's really hard for us to forecast that for you, Nathan, in particular because there are so many factors outside our control and so many factors outside even our prospective customers control in terms of grid connections and civil construction and permitting and their own capital deployment plans. So it's really premature for us to be able to give you a ramp up horizon, really. I expect that we would know more after the end of the first half as we work our way through this process. We're also fortunate that a lot of these prospective customers are enthusiastic about our value proposition. They've asked for us to execute NDAs with them so they can share with us in more detail their capital spending plan. So I'm hoping we will have more visibility later in the year. I just don't have that visibility to share with you now.
spk08: So Nathan, but we are confident, Nathan, that we're doing all the right things from a products, from a commercialization, from an operating capacity standpoint. So it really is about, as Steve's point to, to continuing to nurture the progression of the product offering and then by second half, people give a little bit more insight as to how that's progressing.
spk03: Thanks, and then maybe just one on capital allocation. Leverage less than one, strong pre-cash flow ahead. The automation portfolio has been a priority for capital deployment over the last few years. Do you feel like that portfolio is mostly complete and capital allocation priorities turned to somewhere else or is automation still really the outlet for M&A dollars?
spk08: Well, Nathan, as we've talked before, the market is very fragmented. We believe we have lots of opportunities to continue to drive inorganic growth through acquisitions, automation and outside of automation. So we'll continue to prioritize capital allocation through internal investment and acquisitions and then the balance to return cash to shareholders. But we think we have a lot of opportunities to have very robust pipeline of acquisitions that we're actively pursuing. And Nathan, I would just
spk11: add that in the clarification, it's not necessarily that automation has been the priority for M&A. It's just been the most fertile hunting ground for us in the last couple of years. We continue to be very active in the rest of our business and looking for M&A investment opportunities. And as Gabe mentioned, as we sit today, the pipeline looks fairly robust for us. So we're optimistic that we'll be able to deploy the capital effectively and productively consistent with our capital allocation strategy and our disciplined approach to investments.
spk03: Thanks for taking the questions.
spk11: Thanks, Nathan.
spk05: We'll now take a question from Walt Liptak, Seaport Research Partners. Walt, your line is open. Please check your mute button.
spk12: Oh, sorry about that. Thanks, can you hear me now?
spk08: Yes, as well.
spk12: Great. So I wanted to ask you about the guidance, so low to mid-single digit. I wonder if you could run through the regions for us. We're seeing some, hearing about weakness in Europe and some of the international markets. I wonder if you just help us understand what your assumptions are.
spk08: Well, typically we don't give a lot of detail from the full year assumptions. I'll give you a couple of points of color. So we do expect to lead in the America side, and we have 75% of our automation business portfolio within America, so you can see that leading. We do expect continued pressure on residential construction and retail on the Harris side. So we've considered that. And on the international side, just a little bit of pockets of caution in Europe, but continued strength when we think about Middle East and parts of Asia.
spk12: Okay, great. And then Harris, the revenue was down in 2023, but there might be some signs that things are gonna start to turn. Just so I understand, you're expecting that the volume and price are gonna be down in 2024.
spk08: We put the volume while being down, coming into 2024. So that's a bit of caution just on the retail and residential construction. But you're right, if things potentially open up, particularly on HVAC type demand, that should be a positive for the Harris segment.
spk12: Okay, sounds great. And then I think you've talked a little bit about this or alluded to it, but how is January and February looking in terms of the trends, the orders, et cetera?
spk08: Well, as I've mentioned in my preparatory remarks, we expect coming into the year, first quarter to be flat to slightly down, just based on the mix of some of the points that we've highlighted.
spk12: Okay, and if I recall, last year in March, you guys had a strong march. Are we thinking that we're gonna see sort of that trend again where maybe weaker in January, February, than a pickup in March?
spk08: Well, that is typical as we go into the spring season to see the strength of the end of the first quarter. But we've built that all in into our considerations of how we're beginning the year.
spk12: Okay, sounds good, thank you.
spk05: We'll take the next question from Steve Barger, Keydink Capital Markets.
spk10: Hey, thanks. My question is around longer term customer attitudes for automation investment. I think in the past, we've talked about how that's a capex decision that slowed down in soft patches, but going forward, do you think that could be more resilient as some customers may be more proactive about investing for productivity through the cycle?
spk11: Yes, Steve, I would agree with that assessment. And I would base that really just looking at our view of our own operations, right? We continue to be challenged with labor wage inflation. We continue to be challenged with the need to make the hard jobs easier in our factories so we can reduce the demands on our employees. And when you look at the interest rate environment, yes, it's elevated from where it was two years ago, but it's not an obscenely high interest rate environment. So a lot of the projects that we look at for our own factory, and I'd say in parallel that our customers look for in their factories, are still very high return investments. It's really the ability to absorb those investments into your factory that becomes the rate limiting factor.
spk10: Understood. And Steve, I know you're just settling into the role, but are you thinking about any changes to organizational incentives for the sales teams or any other initiatives that you wanna pursue? Or do you like how things are organized now and it's running the way you like it?
spk11: Well, Steve, there's always room for improvement, right? We have a continuous improvement mindset. So we'll make tweaks to various elements of our organizational model as the business continues to grow and evolve. And in particular, as we look to capitalize more on our global scale and scope, particularly in things like R&D and as I alluded to in my comments, global procurement. But as we sit today, we've got very solid momentum. We've got many opportunities and catalysts for growth in front of us. We've got a strong and experienced team that can capitalize on that. So I really like the position we're in and it's really just fine tuning our approach to a few things to enable us to take the next step forward.
spk10: All right, thanks.
spk05: And next up, we'll go back to Robert Jamieson, UBS.
spk02: Hey, good morning. Congrats on the results and thanks for taking my questions. Hey, Robert. Hey, so just, you know, incrementals are really solid. It was above like the high end of the guidance that you gave for four year 23. Just curious if you could give us or provide us what, you know, incrementals would have been X4E and, you know, that would just be kind of helpful to kind of gauge, you know, how that looks versus what's baked into your guidance for next year.
spk08: Yeah, so Robert, you're right. I mean, we did progress strongly on incrementals in this fourth quarter with and without four. I think we'd be mid thirties without four. But four, we just have executed very well. And the assumptions for 2024 being in that low to mid twenties that's within our traditional range. And that is with the four year business. We do expect to continue to drive improvements in our operating model for automation business. And I'll just remind you that our target is to be at the corporate average for automation. So we ended 2023 in the low teens in the EBIT profile of automation. So when you look at it holistically, you know, 300 basis points of potential there. So we feel really good about our posture coming into 2024 with continued focus on developing our business model.
spk02: That's helpful. Thank you very much for that. And then I guess one last one. I mean, you know, automation, the margins there continue to, you know, continue to expand, which is nice to see. I guess, can you just talk about some of the drivers that are, you know, underlying that? I know a lot of it's probably OBS and some of the issues there on efficiency and productivity, but just curious what else you're working on and where you're seeing other benefits. Thank you.
spk08: So I would point to our link in business system in automation and it is about that discipline on execution. When we think about Fory, if you remember, we were into low double digit type of EBIT profile. And we have a clear line of sight in developing the model that we acquired into our overall automation strategy. So it's about the discipline and managing projects and managing the cost and execution, the labor efficiency, the capacities around the group. So that's the driver. So we will continue to develop capabilities around our link in business system that gives us confidence that we're gonna drive to our long-term targets in automation.
spk13: That's great. It's super helpful. Thank you.
spk05: We'll now take a follow-up from Meg Dildo, there.
spk04: All right, thanks for taking a follow-up. I figured since this is your first call, Steve, I can't let you get off the hook earlier than normal. So I- I want to follow
spk11: up. I'm surprised you want to use it up so early in our relationship, but that's fine.
spk04: All right, well, I wanted to ask a question about Harris. So
spk03: you
spk04: had volume compression in 23 and we talked about consumer fee and the consumer portion being weak and HVAC being an issue as well. But the margins were actually pretty good, at least relative to my expectation and arguably speaking, relative to history too. So how should we think about this segment going forward? I mean, if we're getting back to volume growth, what's the margin potential here? Can we look somewhere above this high 14s, 15s? Can this be a high teams margin business?
spk08: Meg, we're very pleased with how our Harris team has developed improvements within our model. And you're right, even despite the softness and volumes, we have held up towards the low end of the range, but you've seen us pushing the high end throughout 2023. So our team is focused on exceeding those ranges and we're bullish that as we continue to shape our model, that yeah, we'll be moving that range in the long-term strategic discussions we're having.
spk04: I mean, have you had some structural costs take out? I mean, what happened here to essentially offset the volume compression? That's what I was really kind of trying to get at.
spk11: Yeah, Meg, the team in Harris has made a number of operational improvements in the business to make us more efficient. I would also point to you that there's different segments within the Harris business and the retail and consumable HVAC portions of the business that were down tend to be the lower margin drag in that business. So the part that was performing gas equipment tends to be higher margins. So there's some favorable mix in there as well.
spk04: Okay,
spk13: helpful, thank you.
spk05: And we'll take our final question today from Angel Castillo, Morgan Stanley.
spk06: Hi, this is Grace Song, I'm from Angel, thank you for the question. So what drove the sequential increase in acquisition contribution for the international voting business? I think you mentioned those from Ford International, but could you provide more color here? And was it just one time thing? And if so, will margins equally come off from the four Q levels for 2024? Thank you.
spk08: So Grace, I wanna make sure I understood your question. It seemed to focus on international acquisitions performance. That is driven by our four E acquisitions, as you note, and just very strong execution on projects within the backlog as we ended the year. So those are not one time types of projects, but they're progressively the execution of outstanding customer projects. So that's just an ongoing development of our international business. When you think about the acquisitions, and we expect that four E will continue to perform well. We did have, as I mentioned in my comments, the one month lag we caught up in the fourth quarter, and as I mentioned, $15 million of one month lag that we caught up, and I would estimate about 50-50 between international and the Americas business. But that's strong performance driven by level of business activity.
spk06: Got it, thank you so much.
spk05: And at this time, there are no further questions. I would like to turn the call back to Gabe Bruno for closing remarks.
spk08: I'd like to thank everyone for joining us on the call today and for your continued interest in Lincoln Electric. We look forward to discussing the progression of our strategic initiatives in the future. Thank you very much.
spk05: Again, that does conclude today's conference. Thank you all for your participation. You may now disconnect.
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