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.