Lincoln Electric Holdings, Inc.

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 and uncertainties, which 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 Steve Hedlund. Steve?

Thank you, Amanda. Good morning, everyone. Turning to slide three, I am pleased to report strong full-year results across key financial metrics despite challenging demand trends. The team did an excellent job staying focused on serving customers and accelerating innovation with one of the largest new product introductions in recent years, along with a solid 50% vitality index of new product sales and equipment. We also successfully added three acquisitions, which expands our engineering and application expertise, further differentiates our technology platforms, and will extend our brand in under-penetrated channels in the years ahead. Operationally, we continue to drive efficiency improvements, most notably in our automation portfolio and in Harris Products Group, where margins improved over 100 basis points each despite top-line headwinds. These achievements would not have been possible without the focus and commitment of our global Lincoln Electric team, our distribution partners, and our customers who collaborate globally to help build a better world. So thank you. Turning back to our highlights, we achieved $4 billion in net sales, reflecting manufacturing weakness and deferred capital spending across most end markets and regions. Our automation portfolio achieved $911 million in sales, and the portfolio remains on pace to hit our $1 billion 2025 sales target. Despite the 6.5% decline in organic sales, we achieved record profitability with a 17.6% adjusted operating income margin. Both America's Welding and Harris Products Group outperformed their 2025 higher standard strategy profit margin ranges. This reflects strong execution of our strategic initiatives coupled with diligent cost management with approximately $21 million from our targeted saving actions, which outperformed our expectations. We achieved our second highest adjusted earnings per share performance at $9.29 and maintained strong cash flow generation with over 90% cash conversion. These achievements contributed to strong ROIC performance and a 23% increase in returns to shareholders through our higher dividend payout rate and $264 million in share repurchases. Heading into 2025, we have a solid balance sheet and ample liquidity to fund growth investments and continue to return cash to shareholders as we navigate the cycle. Turning to slide four, looking at our interim progress to our higher standard 2025 strategy goals, I am very pleased by our performance, which positions us to achieve or even exceed most targets across our financial and sustainability metrics. Looking at financials, our sales growth is pacing within target. Profit performance continues to improve annually and we have averaged a 15.7% adjusted operating income margin with a 28% incremental margin from 2020 to 2024. We are on track to achieve our 2025 16% average profit margin goal. This is a 200 basis point improvement of our average operating margin from the prior cycle. This year's record margin performance in a down cycle reinforces how strong execution of our strategic initiatives will continue to drive margin expansion in the next growth cycle. In addition, our working capital efficiency continues to improve as average operating working capital to sales performance advances closer to 15% by the end of 2025. We are also committed to a balanced capital allocation strategy. Under our higher standard strategy, we have invested over $1.3 billion in growth and have returned approximately $1.6 billion to shareholders, reinforcing our confidence in cash generation and the sustainability of the business's improved margin profile. Moving to slide five for year-end demand trends. Fourth quarter organic sales performance continued to reflect softer manufacturing activity across most end markets, predominantly driven by large OEMs who continued to curtail production levels to right-size inventories in their dealer channels. In addition, we saw ongoing deferred capital spending across large industrial customers, which impacted equipment and automation demand. These declines were further impacted by challenging prior year comparisons in automation sales and energy project activity across Asia Pacific and the Middle East in 2023. Consumable demand remained more resilient, aided by strength in HVAC. From a channel perspective, retail continued to grow and our industrial distribution channel in Americas was more resilient as compared to a low double-digit percent decline in direct OEM sales in the region. We are encouraged to see the beginning of a pickup in the longest cycle automation projects serving the automotive industry. which should result in continued momentum in capital investments starting mid-year for mid and short cycle projects needed to support upcoming model launches. So as we look ahead to 2025, we are ready to capitalize on growth opportunities and drive margin expansion. And now I'll pass the call to Gabe Bruno to cover fourth quarter financial results and our 2025 assumptions in more detail.

Thank you, Steve. Moving to slide six, our fourth quarter sales declined 3% to $1,022,000,000, primarily from 8.5% lower volumes. Pricing was 1% higher, and acquisitions contributed over 5% to sales. Foreign exchange translation had a 1% unfavorable impact. Gross profit dollars held relatively steady at $369 million, which included a $6 million benefit from our savings actions and a $5 million LIFO benefit in the quarter. Our gross profit margin increased 100 basis points to 36.1% as effective cost management, savings actions, and operational efficiencies offset lower volumes. Our SG&A expense held relatively steady at $187 million as higher SG&A from acquisitions was offset by $13 million in benefits from our savings actions and $7 million in lower incentive costs. SG&A as a percent of sales increased 50 basis points versus prior to 18.3% on lower sales. Reported operating income declined 13% to $177 million, primarily from lower sales, as well as a $5 million rationalization charge and $4 million in acquisition related items. Excluding special items, adjusted operating income increased 2% to $186 million as our adjusted operating income margin increased 100 basis points to a fourth quarter record of 18.2%. Discipline cost management, savings actions, lower employee costs, and strong operational execution in our automation portfolio all contributed to record performance. The strong execution in our automation portfolio resulted in a 17% EBIT margin, a 200 basis point improvement from the prior year. Interest expense net in the quarter increased 31% to $11 million, reflecting our refinancing completed in 2024. Our fourth quarter effective tax rate was 16.1% due to the mix of earnings and timing of discrete items which compares to 20.5% in the prior year. Excluding special items, our adjusted effective tax rate was 16.8% as compared with 19.3% in the prior year. Our full year 2024 adjusted effective tax rate was 20.8% in line with our full year assumption range. Fourth quarter diluted earnings per share was $2.47. Excluding special items, we achieved a record $2.57 adjusted diluted earnings per share in the quarter, which includes a favorable $0.10 benefit from the lower tax rate, partially offset by a $0.02 unfavorable impact from foreign exchange translation. Moving to slide seven, our cost savings actions launched in the third quarter have yielded better results than initially estimated due to higher temporary savings in America's welding. As these savings will be largely maintained until demand improves, we are now increasing our annualized savings rate to $60 to $75 million as compared with our initial range of $40 to $50 million. This increases our quarterly savings run rate to $15 to $20 million from the initial estimate of $10 to $14 million. We expect to recognize $40 to $55 million of incremental cost savings in 2025 before fully anniversaring in the fourth quarter. Moving to our reportable segments on slide eight. America's welding sales held steady versus prior year as an 8% benefit from our Red Viking and Van Air acquisitions and steady price offset 7% lower volumes and a 1% headwind from foreign exchange translation. Persistent weakness in North American manufacturing activity and capital spending as well as a challenging prior year comparison from FORE and the pull forward of automation projects contributed to results. America's welding segment's fourth quarter adjusted EBIT increased 2% to $132 million. The adjusted EBIT margin increased 30 basis points to 19.1% as effective cost management Strong execution in our automation portfolio and higher than expected temporary cost savings fully offset lower volumes. Moving to slide nine, international welding sales declined approximately 17% and 16% lower volumes. Industrial weakness in portions of Europe, Turkey, and Asia Pacific were amplified by challenging prior comparisons from strong project activity and automation demand in 2023. Price held steady. Adjusted EBIT compressed 24% on lower sales. Adjusted EBIT margin of 12.8% repositioned the segment back within their higher standard strategy target margin range. Effective cost management, savings actions, and operational initiatives contributed to improved margin performance. Moving to the Harris Products Group on slide 10. Fourth quarter sales increased 11%, benefiting from higher price and volume growth. Continued growth in HVAC and an increase in the retail channel offset continued compression from industrial sector applications. Adjusted EBIT increased 42% to $22 million and achieved a 370 basis point improvement to margin at 17%. This strong performance is a culmination of effective cost management and the ongoing operational improvements which have been advancing the business. Moving to slide 11. Cash flows from operations were $96 million and $599 million for the full year with a 91% cash conversion ratio of free cash flow to adjust to net income. Cash conversion is seasonally lower in the fourth quarter due to higher uses of cash for incentive compensation payments as we invested in higher levels of capital spending in the quarter. We improved our operating working capital to sales ratio to 16.9%. Moving to slide 12. We invested $31 million in CapEx in the quarter bringing full year CapEx to $117 million. We returned $93 million to shareholders in the quarter with $53 million of share repurchases in our higher dividend payout. We continue to generate a solid return on invested capital of 21.8%. Turning to slide 13 in our full year 2025 assumptions. The advancements we have made in the channel Our expanded innovative portfolio and improved cost profile positions us well as we head into 2025. Our initiatives have demonstrated that we can continue to optimize the business, invest in long-term growth, and compound earnings through a down cycle. Given how early it is in the year and pending clarity on the impact of federal policies, including recent tariff actions we are assessing, we are conservatively posturing for low single-digit sales growth in 2025. This contemplates 50 to 100 basis points of positive price starting in the first quarter as we issued price actions in our Americas and international welding segments earlier this year ahead of any tariffs. We also expect approximately 200 basis points of sales growth from our 2024 acquisitions. At current foreign exchange rates, We anticipate an approximate 150 basis point unfavorable foreign exchange impact to full year net sales. This cautious outlook does not contemplate volume growth. We expect first half volume performance to be more challenged versus the back half given lower production levels among heavy industry and automotive OEMs, soft manufacturing activity across key regions, and expectations for slower automation sales through the second quarter as previously discussed. This is likely to equate to a low single digit percent decline in volumes for the full year with America's welding and Harris being the most resilient. Despite challenging end market conditions, we expect a low 20% incremental margin rate with modest earnings growth. We will continue to benefit from diligent cost management an incremental $40 to $55 million from our savings actions, and our business units are continuing to pursue operational improvements through local and enterprise-level initiatives. We estimate interest expense net at $45 to $50 million and an effective tax rate in the low to mid-20% range. We are budgeting $100 to $120 million of CapEx investments to fund growth and operational efficiencies. we are anticipating full year cash conversion at 90 plus percent of adjusted net income. Again, our full year assumptions do not include the impact of pending tariffs. Our team is currently assessing the potential impact from trade and tariff headlines, and we will leverage our agile supply chain and issue new pricing actions to offset any margin impact, as we have done successfully in prior inflationary periods. overall we are very confident in our ability to successfully navigate the year ahead our customer first approach innovation pipeline and focus on staying agile to capitalize on growth opportunities and optimize operations will continue to drive superior value as we complete the final year of our higher standard 2025 strategy and now i would like to turn the call over for questions thank you