Lincoln Electric Holdings, Inc.

in the Investor Relations section. Joining me on the call today is Steve Hedlund, Chairman, President, and Chief Executive Officer, as well as Gabe Bruno, our Chief Financial Officer. 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 and uncertainties. which 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 statements 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, we reported solid execution in the first quarter despite a softer industrial cycle. We are well positioned to manage evolving market conditions while still investing in long-term growth, advancing our strategic operational initiatives, which are focused on driving margin improvement, and increasing our returns to shareholders. Looking at our first quarter highlights, top-line sales increased on benefits from acquisition and price, while volumes were a bit softer than we expected. Half of the volume decline was due to labor negotiations in our turkey facility, which impacted sales. We successfully concluded negotiations mid-March, and orders started to normalize in April. Our first quarter price included our initial response to announced tariffs, and we have since implemented additional pricing. Together, these actions are expected to yield mid-single-digit percent higher price in the second quarter, we are prepared to take further pricing actions if other tariffs come into effect the team did a great job maintaining diligent cost management and generated an incremental 16 million dollars from our saving actions in the quarter our adjusted operating income margin declined by 60 basis points to 16.9 acquisitions which we are still integrating and the impact from turkey at an unfavorable 110 basis point impact to our adjusted operating income margin. Our adjusted earnings per share of $2.16 was slightly lower than expected, but included a $0.05 headwind from the combination of Turkey and unfavorable foreign exchange. ROIC remained top quartile at 21.5%, and we generated record cash flows with a 130% cash conversion ratio. We returned $150 million to shareholders through our higher dividend and share repurchases. In this period of uncertainty, we are staying agile and are working diligently to serve customers with our innovative solutions while leveraging our global supply chain to minimize costs wherever possible. We are continuing our savings actions until we have better confidence in improving fundamentals and demand. We continue to expect to generate an incremental $15 to $20 million in year-over-year savings in the second quarter, and we expect some easing in our savings rate in the third quarter as we anniversary the program, but are committed to limiting discretionary spending until volume performance improves. We have also decided to temporarily suspend merit increases, which are normally implemented April 1st. This delays an increase in employee cost of approximately $5 million per quarter until we better understand customer demand trends as trade policies evolve. While a difficult decision, we felt this was the prudent position to take in the near term. Turning to slide four, reported organic sales declined 1.2% in the quarter, which includes a 190 basis point unfavorable impact from Turkey. we continued to see better resilience in consumable organic sales as customer order rates improved through the quarter. Automation's organic sales remained steady year-over-year as double-digit international growth was offset by ongoing compression in the American region this quarter. Long lead-time automotive projects and energy were sources of growth for automation, while all other end markets continued to compress as customers defer capital spending. Automation reported sales increased mid single digit percent to $215 million. The automation team continues to see strong quoting activity as customers hedge different investment scenarios, but order rates and backlog have not yet normalized, which puts what is normally a seasonally strong back half of the year at risk. Looking at end sector direct channel sales trends across the company, We were pleased to see that four of our five end markets achieved organic sales growth. This was led by global growth in both non-residential construction infrastructure applications and in automotive. General industry has also improved with momentum in HVAC within the Harris Products Group and international due to select automation projects. Heavy industries remains challenged and we expect this trend through year end until production activity normalizes in the agricultural sector. Our domestic rental and industrial distribution channels, which predominantly serve commercial and light industrial solutions, also performed well as compared to industrial demand. To conclude, before passing the call to Gabe, while this is a more dynamic environment to navigate, we are continuing to prioritize our customers, are implementing short-term actions to mitigate inflation, and are progressing towards our higher standard strategic targets. We are focused on executing what we can control and staying agile to adapt quickly to evolving conditions. Our strong balance sheet, ample levels of liquidity, and confidence in cash generation allows us to pursue our capital allocation strategy through the cycle to continue to compound earnings and position ourselves for superior returns once growth returns. I will now pass the call to Gabe Reno to cover first quarter financials in more detail.

Thank you, Steve. Moving to slide five, our first quarter sales increased approximately 2.4% to $1 billion, $4 million from a 4.9% benefit from acquisitions and 2.6% from higher prices. These increases were partially offset by 130 basis points from unfavorable foreign exchange translation and 3.8% lower volumes. Turkey had a 200 basis point unfavorable impact to net sales. Gross profit dollars declined by approximately 1% to $365 million as a $4 million benefit from our savings actions, as well as benefits from cost management and operational initiatives were offset by the impact of lower volumes, Turkey, acquisitions, and an approximate $2 million LIFO charge in the quarter. Our gross profit margin declined 110 basis points to 36.4% versus the prior year's record results. Acquisitions and Turkey combined had a 90 basis point unfavorable impact to gross profit margin results. Our SG&A expense decreased 1% as $11 million of expense from acquisitions was offset by approximately $12 million of savings benefits and $6 million of favorable foreign exchange. SG&A as a percent of sales improved 60 basis points to 19.5% of sales. For analysts closely following our EBIT schedule, we reported corporate expense of approximately $1.7 million, which was substantially lower than prior year. The decline was primarily due to a lower level of accelerated stock compensation and equity awards, as well as an update to corporate allocations in mid-2024 which decreases the distribution of corporate costs to reportable segments. This lowered corporate expense by approximately $4 million in the quarter. Looking ahead, we expect corporate expense of approximately $2 to $3 million per quarter for the balance of the year. Reported operating income held relatively steady versus prior year. Excluding special items, adjusted operating income declined 1%, to $160 million with an adjusted operating income margin of 16.9%, 60 basis points lower than prior year. As Steve mentioned, Turkey and acquisitions had a combined unfavorable impact of 110 basis points, the margin. We reported first quarter diluted earnings per share of $2.10 or $2.16 on an adjusted basis. We incurred a $0.05 headwind to EPS this quarter from the combined impact of Turkey and unfavorable foreign exchange. Moving to our reportable segments on slide six. America's welding sales increased approximately 5% in the quarter, driven by a nearly 8% contribution from acquisitions and 2% higher prices. These increases were partially offset by 4% lower volumes and 1% unfavorable foreign exchange. Pricing reflects benefits of prior 2024 pricing actions, which anniversary at the end of the first quarter and new first quarter pricing implemented to address rising material costs and tariffs. As Steve mentioned, we have also announced additional pricing in the second quarter, including surcharges to mitigate the impact of the announced tariffs. We will continue to monitor the dynamic situation and respond as trade policies evolve. First quarter volume softness reflected customers' cautious capital investment spending with automation representing just under half of the decline due to soft second half 2024 order rates, which we've previously discussed. Consumer demand was relatively steady as order rates improved progressively through the quarter. This was most notable in our industrial distribution channel and in non-residential construction and energy. We expect acquisition contributions to narrow starting in the second quarter, reflecting the April 1st anniversary of the Red Viking acquisition. Van Aere will event anniversary on August 1st. America's welding segment's first quarter adjusted EBIT decreased approximately 9% to $124 million. The adjusted EBIT margin declined 260 basis points to 18.2%, primarily due to the impact of lower volumes as well as an 80 basis point unfavorable impact from acquisitions and a 40 basis point impact from the higher allocation of corporate expenses. These factors offset the benefits of cost management and our savings actions. We expect America's welding to continue to operate in their 17 to 19% EBIT margin target for the remainder of the year. Moving to slide seven, the international welding segment sales declined approximately 7%, primarily due to 6% lower volumes. Excluding the impact of Turkey, international welding volumes would have increased 3% on strong volume growth in Asia Pacific and a modest decline in EMEA. The overall improved demand was seen across four or five end markets, excluding heavy industries. Adjusted EBIT decreased approximately 17%, to $23 million. Margin declined 120 basis points to 10.2%, which includes a 30 basis point unfavorable impact from corporate allocations and 140 basis point compression from Turkey. We expect international welding's margin performance to improve sequentially and should be within 11 to 12% for the balance of the year. Moving to the Harris Products Group on slide 8. First quarter sales increased 9% with a 9.5% higher price and 60 basis points of higher volumes. Price increased on metal costs, and volume growth reflected ongoing strength in the HVAC industry, which was partially offset by softer retail trends. Adjusted EBIT increased approximately 22% to $24 million, and margin improved 190 basis points to 17.9 percent. Improved profitability reflects effective cost management and strategic initiatives in the segment. We expect the Harris segment to operate in the 17 to 18 percent margin range for the full year 2025. Moving to slide nine, we generated a record $186 million in cash flows from operations in the quarter, resulting in a 130 percent cash conversion ratio. Average operating working capital improved 100 basis points to 17.8% versus the comparable prior year period due to continued improvement in operating disciplines in the business and timing. Moving to slide 10. We invested $27 million in CapEx and cash returns to shareholders were strong at $150 million in the quarter through a higher dividend payout and approximately $107 million of share repurchases. we maintained a solid adjusted return on invested capital of 21.5 percent moving to slide 11 to discuss our operating assumptions for 2025 we have adjusted our full year framework to incorporate u.s tariffs enacted through april at this early stage in the year We are assuming our full-year 2025 organic sales will be relatively flat year-over-year, which is consistent with our prior position. However, we have updated the drivers. To maintain a neutral price-cost position on enacted tariffs, we have estimated our full-year consolidated price will be in the mid-single-digit percent range, as compared with our original estimate of 50 to 100 basis points. We are assuming that higher prices and the possibility of incremental tariffs in the months ahead will lead to lower volumes. We are expecting to see this starting in the second quarter. Our framework assumes that we are able to substantially mitigate the impact of enacted tariffs and mid-single-digit percent lower volumes through a combination of price, supply chain, and operational initiatives in our savings actions, which is in line with our track record. This would result in a full year adjusted operating income margin that is flat to down 50 basis points versus the prior year at a high teens percent decremental margin. While April demand has been relatively steady sequentially, this stability may not reflect improved fundamentals nor the impact of all of our pricing actions. We also recognize that evolving trade policies and tariffs will continue to shape market conditions and uncertainty in the quarters ahead, which could prompt customers to further defer capital spending and lower production levels until conditions stabilize. We will monitor trade and demand conditions as the year progresses and aggressively manage conditions as warranted. Looking further down the income statement, we now expect a contribution of approximately $1 million in other income per quarter from a recent equity investment. While we are continuing to pursue M&A, the sluggish deal environment in our own valuation favors in an elevated level of opportunistic share repurchases. We are now estimating our full year 2025 share repurchases to be in the range of $300 to $400 million. We are maintaining our other assumptions on interest expense, tax, capex, and cash conversion. And now I would like to turn the call over for questions.

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, think you press start followed by the number one on your telephone keypad. If you would like to withdraw your question, press the found key. To ensure that everyone has an opportunity to participate, you ask one question and one follow-up question only, and then return to the queue. Your first question comes from the line of Sari Borotsky with Jefferies. Please go ahead.

Thanks for taking the question. You talked about growth in all markets excluding heavy industries. I believe that includes price. If you just talk through what you saw from those end markets on a volume basis and then how you're thinking about that for the remainder of the year.

Yeah, just to give you some clarity, Sheree, while the four out of the five end markets were stronger than they had been, we do have an unclear picture as the year progresses, as you can appreciate. You know, as we've talked in the past, construction infrastructure, while it was up mid to high single digits, pretty choppy. So we've got good momentum there, but depending on where we see activity levels, we'll progress in how we – We've used that part of the market. Smaller part of our business, as you know, it's about 13% of our overall sales. Automotive, general industries, we're positive. We're good to see that they're up mid-single digit. When you see the mix of our business and general industries, we did see strength in the consumable side of our business, and we saw that not only in the international markets, but also in the U.S. We did have some strength on the HVAC, as we've mentioned, and so while we had positive trends there, again, pretty difficult to assert whether or not that momentum will continue in the balance of the year, and that's why our cautious position on volume activity. On automotive, as we've mentioned, we were up mid-single-digit. And while we're trending favorable on the capital side, automation as well as standard equipment, consumables were down mid-single-digit. That reflects production activity, and as you know, there's some caution on where production activity goes across the automotive industry, but we'll continue to monitor that. The comps on the automation side, as you know, were easier. and we're looking to see quotes to translate it to orders as we've commented on how that impacts us for the second half of the year. Lastly, I'd just comment on heavy industries. Heavy industries down high teams, you know, that's the same progression that we've noted throughout the last year. Ag continues to be the most challenged. We are seeing some positive reports on the destocking, but we're still cautious as we progress throughout the year in And we positioned our expectation to see soft and softening production levels to the balance of the year. I should comment lastly on energy. Energy was was up low single digits. And as we've talked, we're bullish on oil and gas, but there were some tough comparisons beginning part of 2024 and we do see easier comps in the back half. So that's kind of an outlook that we would have a lot of uncertainty, as you know. which is dependent upon how the end markets progress on production levels, as well as decisions on capital investment.

So, Reed, just to add, as you look at the consumable demand in the first quarter, I think the question on everybody's mind is how much of that reflects pre-buy activities by our customers. And through both our analysis of demand trends and conversations with many of our large customers, The feedback is they're not pre-buying. There may be some opportunistic purchases here and there, but in general, our customers are very reluctant to get stuck with inventory they don't need given the uncertainty of demand in the future. So while there may be a little bit of pre-buying in the first quarter numbers and in the April order trends, we don't believe it's significant at this point in time.

That would be my next question, so I appreciate that. I'll add one more, just kind of high level. You mentioned customers deferring capital spending a couple times in the career marks, impacting automation demand. Can you just provide some color on just what you're hearing from customers, you know, and what they're really looking to see to start resuming some of those projects?

Thank you. As we commented, we continue to see a lot of quotation activity, so a lot of customers trying to figure out how they're going to respond to the shifting trade policies. And I believe long term there will be a lot of good growth opportunity for us as a result of that. It's the near term where, given the uncertainty of where the trade policies are finally going to shake out, the general uncertainty over macroeconomic conditions, impact on demand and the like, the customers are just taking a little longer to make decisions than we would like to see.

And I would just add, Cherie, when you translate applause and decision-making on capital investment, we can see up to another quarter, and that's the risk that we see in the second half of the year. So we had been pointing to, if you recall, throughout the second half of last year of softening order trends that would impact the first half of this year. we're more cautious because of the pause in making capital investment decision on what it means to our second half. And that's why we posture our dialogue on volumes to be offset with the pricing impacts that we've announced.

Your next question comes from the line with Brian Bleer with Oppenheimer. Please go ahead.

Thank you. Good morning, everyone. I just wanted to level set on announced pricing. In terms of the mid-single-digit incremental pricing, what is the split between direct price and search artist? And then if you're willing to share, what was price cost in Q1 and given the moving parts and timing of those moving parts? And how's your team thinking about price cost impact in Q2? and throughout 2H to net to the roughly neutral full-year level.

Yes, O'Brien, on the price-cost, we're essentially flattish in the first quarter, and you know that is our strategy to be price-cost neutral. We're not disclosing the split between surcharges and absolute price changes, but we're looking at that balance to be able to respond to tariffs. So you can see a mix of that being this more traditional pricing that's reflective of inflationary

uh pressures and then the surcharge uh to tie into some of the tariff actions okay understood and maybe offer quick updates on uh red viking and then air integration red like obviously you know um you owned for around a year now i'm just curious how those deals are progressing relative to you know plan the impact of the operating environments and just overall macro uncertainty on that progression, and then any quick comments you could offer on the deal pipeline and how this unique backdrop is affecting the development of the pipeline, actionability, et cetera. Thank you.

Yeah, so generally, Brian, the integration work on both Red Viking and Van Air are doing great. They're right on schedule. We've deployed new systems at Red Viking. We've integrated them within our Lincoln business system. That's progressing nicely. The Van Air strategy is also driven by growth in that, so that's also progressing right on schedule. But just keep in mind that the first three years of any integration, the results are expected to be diluted to the overall business. So it's running right on track. The Red Viking business is a little bit more choppy because of the project level of activity. For example, fourth quarter was pretty strong, and yet first quarter, while we had incremental sales contributions, we did have some margin pressure issues. on the Red Viking side of things. So we're very pleased with the progression of both businesses, and they're very much on schedule. The pipeline, you've heard our comments around a sluggish environment. We have, as you know, a very active pipeline, but we do anticipate some slowness in being able to complete deals, and that's why we pressed on our dialogue around share repurchases as we think about capital allocation.

Your next question comes from the line of Angel Castillo with Morgan Stanley. Please go ahead.

Hello. Thanks for taking my question. This is actually Stefan Diaz sitting in for Angel. I was wondering if you could just speak to your America's margin performance for the quarter. I know in the slides you mentioned, you know, impact of lower volumes and some impact from acquisitions and then, you know, also that corporate reallocation. But maybe if you could also just mention how quickly you expect the integration of Nair and Red Viking. I know you just mentioned maybe some margin impact this quarter, but maybe how quickly do you expect the integration of those two to progress to the point where it's not margin decretive?

Yeah, so Stefan, thanks for that question. So in general, as I just mentioned on acquisitions, we look to up to three years to get to our normalized margins. So both Van Air and Red Viking are progressing on schedule. A little bit more choppiness from Red Viking and more accelerated growth on the Van Air side is what we expect. In terms of the margins for the Americas, you know, we've talked about the impact of acquisitions being diluted, the impact of 80 basis points, kind of resetting corporate allocations, decreased the EBIT margins for Americas at 40 basis points. But the larger driver is volumes. And on behalf of that, we noted that was in the automation side of our business. So we're looking at mid to high single-digit types of decline in growth in the first quarter. And America is overall stable in automation, but the other offset is in the strength on the international side. So we do expect America, though, to stay within our target range of 17% to 19%. And you can see that's how we ended the first quarter. But those are the drivers. We'll need to see progression around automation orders. to have more confidence that volumes will improve in the second half of the year.

Thanks. That's really helpful. Maybe just sticking with automation, you know, given all the uncertainty and maybe the reluctance of capital spend that you're mentioning, particularly in America, are you still expecting that business to sort of hit $1 billion this year? Because I know you were expecting some organic growth from the automation business last quarter.

Thanks. Stefan, so I would say the core of our business, all the fundamentals are there to achieve our long-term targets. But this year, I don't expect us to hit the billion based on everything that we see now. The order patterns and the trends around capital investment are going to put a lot of pressure on our automation business. But I'm pretty excited about how the business is positioned in the long term. When you just take the core business and the acquisitions we've completed on a normalized basis, we're exceeding the $1 billion objective.

Yes, Stefan, it really comes back to the comments we made about customers delaying decision-making. So given the mix of our business in terms of project lifecycle, You know, we need to be getting orders in this part of the quarter and the second quarter to have greater confidence in the third and fourth quarter of this year. And what we've seen so far gives us an indication that customers are still delaying decision-making, which puts the back half at risk for us.

And your next question comes from the line of Steve Parker with KeyBank Capital Markets. Please go ahead.

Good morning, everyone. This is actually Christian Zylow on for Steve Barger. Thank you for taking the questions. First question, on automation and robotics, solid performance on a tough comp. Given your prepared remarks, has your visibility improved or changed since 4Q, especially in the auto end market? And I know it's fresh, but is there any indication that the stacked tariff relief helps your outlook or your customer's outlook on automotive-related automation?

There's an issue there.

Chris, are you still with us there?

Yeah, can you hear me? Do you need me to repeat the question?

If you could just clarify your first question. The second one is pretty easy, right? I mean, it's a very, very fluid, dynamic environment.

uh administration's policy around double stacking of tariffs i think just occurred yesterday so it's a little bit too early to see any impact of that that understood and i guess the question was has visibility changed in the automotive um related automation segment just given you know from 4q to 1q has any visibility changed

No, I think, Christian, what you're referring to are longer lead time parts of our business. We would comment that the forward portion of our business, we had good activity into this first quarter. So that gives us some positive indication of some decisions on the longer 2026, 2027 program years. And that drove some of the automotive strength in the first quarter. But I think it's important for us to really monitor, as Steve mentions, you know, how the automotive industry then positions a response to tariffs. So we'll stay very close to that.

Got it. Understood. And then second question. If we go back to early 2018, Euro America's segment had solid margin expansion from tariff-related price increases and surcharges. but then contracted in 2019 because of broader industrial weakness and volume declines. So the question is, if we fast forward to today, do you expect a similar playbook? And do you see opportunities in America's margin, you know, longer term, given we started this time at lower volumes? Or are you anticipating a lower leg down in volumes? Thank you.

No, I think the longer term picture for America's margins are to continue to improve. I mean, you know that we've operated above the range. We need to see more contribution volumes from our automation business, but our Americas EBIT is solid, and the acquisition contributions will improve over time as well as volumes. So we're well-positioned to continue to improve the EBIT profile for Americas.

Your next question comes from the line of Nick Dobry with Beard. Please go ahead.

All right. Thank you. Good morning. I must admit, I am a little bit confused with all the moving pieces here. So I just want to make sure that I understand this clearly, because when you're talking about Q1, right, four out of five in markets reported growth. Then you mentioned that at least in April, what you've seen is demand was stable sequentially. yet your commentary points to uncertainty about the back half of the year. So I'm sort of trying to understand here, is it a function of automation primarily and the backlog sort of depletion and the push out that you're seeing there that gives you this sort of more cautious tone about the back half? Or is it that you're sort of saying Yeah, there's that, but there's also the maybe the consumables business that has been studied that could potentially deteriorate as customer production levels yet take another step down in the back half. So maybe we can parse this out. That'd be helpful to me at least.

At a high level, there are two things that give us concern over the second half of the year. The first and the easy one to understand is automation, right? As customers continue to delay decision-making, That puts the revenue recognition in the second half of the year at risk for projects that we're hoping they will award soon that we can start working on, recognize the revenue under percent complete accounting. But if they don't award it, we can't start, we can't recognize the revenue, right? So that's pretty straightforward. The core part of our business, what we're seeing so far is that as we take price in response to material inflation and tariffs, There's an offset in volume, and we're assuming for second quarter that the price volume offset is effectively neutral. As we have to take further pricing actions, depending on how all the Liberation Day tariff announcements get resolved, there's a concern that as that price gets further elevated, there might be a more – a demand elastic response from a volume standpoint. And then you've got the general uncertainty in macroeconomic conditions. You see falling consumer confidence, PMIs, et cetera. So it just makes us very cautious about the back half of the year based on what we can see at this particular point in time.

Okay, that's helpful. And I think it would also be useful to talk a little bit about where your business is experiencing cost headwinds from tariffs? Is it certain countries where you're sourcing components? Is it primarily in equipment, anything on a consumable side? And I ask really because as this tariff picture continues to evolve from a policy standpoint, it'd be helpful to know if certain deals are reached with certain countries or whatnot. if that would have a more immediate or direct effect on your cost structure as well.

So I would maybe emphasize that, yeah, we have pressure on steel. You have some on components, some on accessories. We have about just less than 20% of our overall COGS that are exposed to where we believe tariff actions have an impact. You have a mix between when it's sourcing from Mexico, Canada, China, me, and the rest of the world. But that's what drives the visibility that we have in responding with a mid-single-digit average price impact. So it's simply understanding the supply chains and the exposures of risk. And it's broad-based, but there are definitely areas that we're working through with components and accessories, particularly within the supply chain to mitigate. But that's kind of how we think about it big picture wise.

Your next question comes from the line of Nathan Jones . Please go ahead.

Yeah, thanks. Good morning. This is Adam Farley on for Nathan. I wanted to clarify the price-cost discussion. You know, historically you pass through cost to customers with a margin. I know this environment is very different, but are you looking to drive margin with your price increases?

Adam, we're maintaining our same posture that we've had historically, and that's price-cost neutral. And we'll continue with that posture in the markets.

Adam, our goal is to manage and maintain and defend the profitability of business through a combination of pricing, productivity actions in our factories, the cost savings initiatives that we've taken, and really being aggressive on trying to find alternative sources of supply that aren't subject to tariffs or subject to lower tariffs. So it's a combination of all those effects that lead us to have an objective of trying to maintain the even margin of the business to flat to down 50 basis points over the course of the year.

Okay. That does make sense. That's understandable. You know, I guess if the tariff picture does hypothetically improve from here, would you look to maybe hold on to pricing gains or, again, with the tariff environment, it's easy to point to what the cost increases are. You know, should we maybe assume maybe a lag on the way down from price increases or does all that price kind of go away?

And I would just assume that we're going to manage the conditions and we'll be agile and responsive to what we see. And we want to predict outcomes and uncertainties progressively.

Your next question comes from the line of Walt Lipton with Seaport Research. Please go ahead.

Hey, Walt.

Hi, Mr. Walt. I think your line is on mute.

Oh, sorry about that. Good morning, everyone. So I just wanted to ask about the, you know, we get it on the, you know, surcharging and, you know, price increases and how that could hit volumes. But I wonder if you could talk a little bit more about some of the things you just mentioned about you know, finding, you know, new local suppliers, you know, if that's possible for, you know, electronics. Yet, you know, are you seeing opportunities for reshoring and automation as you're talking to your customers? Are some of the quotes on reshoring, especially around automation for the auto sector?

Sure. Well, as we go through the categories of products that we buy that Gabe mentioned earlier, we buy a lot of steel outside the U.S. That's largely a function of limited supply domestically of people that want to make welding grade products. Right. So reshoring steel buying is a very long cycle activity that requires significant investment on behalf of our suppliers. And then you look at electronics. The global electronics industry, a lot of the core components for transistors and blank circuit boards and the like has moved to China. And so while you can look at setting up operations, either our own or a supplier outside in other countries, you're still going to have an impact of buying the raw components from a country that's being heavily tariffed. And then on accessories, a lot of the things like welding guns and helmets and the like are sourced out of China because it's the only cost competitive source of supply for doing that. We're working with our suppliers to look at them setting up other operations in Vietnam and other places that are less subject to tariffs. But there's some lead time in doing that as well. So both we and they are racing to try to do that. But there's going to be a period of time where we're going to need to take pricing through to cover the tariffs to protect the business, right? So we're pulling all levers simultaneously, and it's really a question of trying to balance this interim period and manage through it.

Okay, great. And then just on the flip side of that, are you seeing, is it too early still? Are these longer, too long cycle to see? automation projects that are kind of tied to reshoring or bringing automotive manufacturing back into the U.S.?

Well, I think a lot of the quoting activity we see is tied to that. And part of the uncertainty is people not wanting to pull the trigger on a major capital investment if there's uncertainty and fluidity around whether the trade policies are going to stick or not. If you're looking at reshoring something in the U.S. to get out from under a 50% tariff and there's risk that the 50% tariff goes away or gets reduced significantly in the next 100 days, you're probably going to sit on the sidelines and wait to see how that gets resolved. So there is a lot of interest in reshoring, but whether that interest will translate into actual project activity is the open question.

Our final question comes from the line of Chris with Loop Capital Markets. Please go ahead.

Hey, morning, guys. Thanks for taking the questions. Forgive me if I missed it, but I believe you made a comment around the pricing offsetting volume for second quarter specifically. I guess, one, can you kind of walk through, you know, What kind of went into that algebra? Why that's the expectation in 2Q? And is that what you've seen through April to date here?

Yeah, Chris, the algebra is pretty straightforward. That's what we've seen through the month of April. So at this point, we don't know any better to say pricing will be an increment to volume or volume will overcome pricing. We just don't know at this point. But what we've seen through the month of April on the order intake side is they're roughly offsetting each other.

Got it. Super helpful. Thank you. And just following up, speaking to the automation portfolio, if I remember correctly, you guys do include both automation equipment and the consumables that go through that equipment, I guess. Can you remind us of that split today, just to try and get arms around what project delays could kind of impact on that business?

No, Chris, we do not include consumable activity within our automation business. So that's That's strictly the equipment components, the robots, the larger projects that are tied into our automation business.

Very helpful. Thanks so much, guys.

Thank you, Chris.

This concludes our question and answer session. I would like now to turn the call over to Gabe Bruno for closing remarks. Please go ahead.

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.

Ladies and gentlemen, that concludes