Greetings and welcome to the Lincoln Electric 2024 4th Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise and this call is being recorded. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star 1 on your touchstone phone and to withdraw, you may press star 1 again. It is my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you. Ma'am, you may begin.

Thank you, Janine, and good morning, everyone. Welcome to Lincoln Electric's fourth quarter and full year 2024 conference call. We released our financial results earlier today, and you can find our release and this call slide presentation at lincolnelectric.com in the Investor Relations section. Joining me on the call today is Steve Hedlund, Chair 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, 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 dollars in sales and the portfolio remains on pace to hit our 1 billion dollar 2025 sales target despite the 6.5 percent decline in organic sales we achieved record profitability with a 17.6 percent 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 a 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 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've 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 and 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%. Disciplined 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 7, 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. dollars. This increases our quarterly savings run rate to 15 to 20 million dollars from an initial estimate of 10 to 14 million dollars. We expect to recognize 40 to 55 million dollars of incremental cost savings in 2025 before fully anniversary-ing in the fourth quarter. Moving to our reportable segments on slide 8. 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 Forry 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% on 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 and 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. 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, simply press star one again. To ensure that everyone has an opportunity to participate, we ask that you ask one question, one follow-up, and then return to the queue. Our first question comes from the line of Angel Castillo from Morgan Stanley. Ma'am, please go ahead.

Hello. Thank you for taking my question. This is actually Stefan Diaz. I'm sitting in for Angel. Maybe to start, can you just talk about your welding business in a bit more detail as it pertains to competitive dynamics? I believe at a high level, it looks like your organic growth in welding has lagged your biggest direct competitor for the last four quarters, which seems to be a reversal of trends seen in 2022 and 2023. You know, obviously end market mix and geographic mix can sort of cause divergence, but basically any insight into, you know, what might be causing organic growth underperformance versus peers and, you know, whether you've seen any shifts in competitive dynamics in that business would be helpful.

Yeah, so Stephan, let me just kind of highlight some of the key differences in our business So first I'd point to our automation business, right? So then we talk about the mix of automation. Now we're pushing a billion dollars in revenues, largely invested in heavy industries and automotive and that. So you've got to consider that dynamic separate from the other large two competitors in our industry. We're pleased with the progression of our automation business. I pointed to 200 basis points of improvement in overall EBIT margins. while we pointed to continued softness in capital investment, and our automation business was down mid-teens. But we're starting to see some strength in some of the longer-term drivers to order, so that's positive. I'd also point to the mix of our business between our international and America's scope. We did mention that on the distribution side of the Americas, we held pretty well. We were down single digits. So the mix of business has a relevant difference in how each of the models are structured. A large part of OEMs are tied into heavy industries and automotive investment and demand, and that's the kind of mix that you see progressively in our business.

Angel, I'll just echo Gabe's comments that really when we look at the business portfolio, there is a significant difference in channel mix in the U.S., So we have a much stronger concentration of business with OEMs than some of our competitors do. And we mentioned earlier on the call that we see a disparate impact of OEM demand versus the distribution channel. So that has an impact on the business. And then within international, the relative mix of our business in places like Europe, where we have very challenging market conditions versus India, Middle East, and other places, South America that are growing more rapidly. I think that's what presents some of the challenges for us in looking at the comps versus the other leading competitors. I will add that we are very closely engaged with the majority of our customers, both at an end user and at a distributor level, and do not believe that we're losing share. In fact, if we look at the distribution channel in the Americas, we believe we're gaining share.

Great. That's very helpful. Thanks for the color. And then maybe as a follow-on, what does your guidance assume for first quarter organic sales by segment? I know you went a little bit into, you know, first half versus second half dynamics, but any additional color you could provide there would be helpful. Thanks.

Yes, Stephan. So we don't provide that level of detail by segment in our comments, in the assumptions that we shared. But I would point to that we would expect for the first half of the year more pressure on volumes. So I would point to low single-digit declines progressively in this first half of the year until we start to anniversary some of the dynamics that we experience, particularly in heavy industries and automotive in the back half of the year.

Our next question comes from the line of Sari Boroditsky from Jeffries. Please go ahead.

Good morning. This is James Sun for Sari. Thanks for taking the question this morning. Hi. I wanted to kind of touch on the outlook, the flat organic sales growth. Can you kind of provide more color on your expectation by kind of end markets and how you're thinking about the contribution from consumables, equipment, and automation?

Yeah, James, let me just kind of give really high-level comments on the trajectory of how we see our business. As you saw that we ended the year with general industries down mid-single digits, you know, we do point to it was good to see PMI turn positive in January, but we need to see more trajectory there before we can anchor on a consistent trend. So, you know, as we've talked in general, you know, we do expect volumes to be more compressed in the first half of the year and then flattening out in the back half of the General industry, you can see, continue to see probably that low to mid-single digit type perspective. On the automotive side, you know, I would expect a little bit more stability on the consumable side of the business and then continued pressure on the capital investment side of automotive. So I would point to, so while broadly we were down mid-teens percent in the fourth quarter, I would look to that to moderate somewhat as we progress throughout the year. Heavy industries, you know, we were down low double digit for the fourth quarter, and that's driven by what we all read about in terms of what's going on in ag and construction. We expect that to continue in the same levels that we saw. Fourth quarter actually lined up pretty closely to the third quarter, so I would continue to expect pressure in the first half of the year and then flattish type of outlook in heavy industries. Energy, energy was down low 20% in the Q4. We're bullish on energy, prospectively, but I would expect them for the full year to be into positive range for the full year. And then lastly, construction infrastructure, you know, that was down mid-teens. That's a choppy part of our business. So, again, I would expect to see some pressure in that part of the markets as we progress the year. I would look to low, maybe mid-single-digit down in that part of the market.

Great. That's a great color. Very helpful. And I guess kind of just wanted to touch on kind of the, what is it? Industrial OEM cautiousness here. I think we're kind of seeing like cautious optimism, like with the new administrations, like still, but there are still many uncertainties. So can you provide like more insights on what you're hearing from like industrial OEM customers, like after the like new admin took office? And when do you expect kind of OEM business to trend with the distribution channel?

James, it's very early for us to have a definitive position on it. I would point to the fact that the PMI recently turned positive in the U.S. market as an encouraging sign. But you have really the wild card of trade policy and the potential impact as highly integrated as supply chains are in North America. If we do move forward with significant tariffs and we get into retaliatory tariffs between the U.S., Canada and Mexico, So, you know, that really presents a wild card that's difficult to plan around at this point in time. So, as we mentioned during our prepared marks, our watchword for the organization is agility and to respond quickly to those challenges. But it's very hard to have a crystal ball as to how this is all going to play out.

Great. Thanks for taking questions.

Our next question comes from the line of MIG Dobre from Baird. Please go ahead.

Hey, good morning, guys. It's Joe Grabowski on for MIG this morning.

Hey, Joe. Good morning.

Good morning. I just wanted to get a little bit more color on the green shoots you're seeing in the automation order trends. And then it seems like if automation is going to get to a billion dollars this year, that would imply at least modest organic growth for the year. I just wanted to confirm that is true. So just kind of a little more color on what you're seeing in automation.

Yeah, particularly the long cycle part of our business, which we think of as primarily 4E, but some of the organic business that we had historically, is focused on very long projects, cycles that are tied to model changeovers and refreshes in the automotive industry. And as we were talking about about six months ago, we were starting to see some indecisiveness in our customers around which projects they wanted to move forward with and in what sequence, responding really to the changing market demand for electric vehicles and the balance of EV versus hybrid versus ICE projects. projects. We're now starting to see customers make those decisions and release projects to us, which is encouraging for us in terms of the long cycle nature of the business. And we expect the mid and short cycle portions to have it.

Okay, great. Thanks for that color. And then my follow up question, I wondered if you could tell us a little more about the five to seven million of quarterly permanent cost savings, you know, considering you've got flat organic sales guidance for the year, kind of maybe, you know, give us a little color there and how it positions a company for the next demand upturn.

Yeah, so, Joe, I would just emphasize that, you know, the permanent cost actions that we take, they're actions that structurally shape our business. And these are ongoing opportunities for us to continue to develop our business model. And so those are examples that we've done over the years that have yielded an improvement in our operating margin profile. So Steve's comment on is during the current strategy cycle, we've increased our operating margins on average by 200 basis points. So those are permanent changes in our model that give us confidence that we'll continue to build out the operational model to value proposition that we've consistently expanded on throughout cycles.

Yeah, I would think about some of the permanent savings as being things like manufacturing footprint optimization as we look to better utilize the footprint that we have and continue some of the evolution of our European business from Western Europe to Eastern Europe manufacturing. And as we look at the automation business, being able to more effectively share work across sites so we can improve our utilization of those facilities. those are those combined with looking at some of the spans and layers in our organization and trying to get leaner and more efficient those are the things that yield yield permanent cost savings that should not impact our ability to respond to a market rebounded demand and then on the temporary side you have things like projects and travel and discretionary spending where we just decide we're going to take a pause we know that some of those costs will come back into the business when demand improves. But during a down cycle, we go through a belt tightening process around the things that we can control.

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

Good morning, everyone. I'm going to start on the tariff question. And obviously, nobody knows what's going to happen from here. But Lincoln and the industry have been through many inflationary periods before, and the industry and Lincoln have a very good track record of passing increased costs through its customers. During COVID, Lincoln not only passed the cost increases, but also did it with a gross margin on top of it and talked about being gross margin neutral during that inflationary period. So I guess my question is, if we do see inflation caused by tariffs, would it be your perspective that you'll pass that through on a dollar-for-dollar basis? You'll be able to pass it through with a margin on it, that the markets are in a little bit different position than they were during COVID, obviously. So just any color you could give us on how you think the business will be able to react in terms of neutral at margins, neutral at EPS.

Yeah, Nate, I'm disappointed you weren't going to give us some clarity on the tariffs. I thought, given your opening preamble, I thought you were going to instruct us. But I would say, look, Nate, our job as management is to grow the business and expand margins over the cycle. We've got many different levers for doing that. When we think about margin, there's productivity initiatives that we're driving through the There's innovation. And there's managing price cost. and we've got a very good track record of being diligent and managing price costs so that we protect the profitability of the business. We don't like to rely on price. It's very disruptive to our customers and to the market. One of the concerns that we have as we look forward is to the degree that the tariffs get piled on tariffs and we get into a tit-for-tat situation. As widgets get more expensive, people tend to buy less widgets, so there's volume impact to it. So So we're not eager to jump on the price lever, but it's a lever we'll pull when we have to.

Fair enough. And I have no insight into what's going to happen. I'm not that smart. I guess a question on M&A. Balance Sheets is obviously in pretty good shape. And you talked about new acquisitions as a potential for upside. The business over the last few years has concentrated on acquisitions in automation. you've maybe potentially built that business out to where you want it to be. So I guess the question is, is automation still a big focus for acquisitions or have you moved strategically to some kind of other part of the business?

Yeah, Nate, I would just clarify that the entire business portfolio has always been the focus for us for acquisitions. And you saw last year we acquired the Van Aire business to improve our position in the work truck channel, which we saw as a critical route to market where we were not as strong as we would like to be from a core business standpoint we've done acquisitions in the past to support the expansion of the harris products group business in hvac so it's not that we've been solely focused on automation it's been a more productive hunting ground for us in the last couple years just due to the fragmented nature of that industry and we continue to look for investment opportunities and automation so we can continue to expand the types of solutions that we provide to our customers and grow the addressable market for us.

So I think you'll continue to see more of the same from us. Just to add, Nate, you know what our long-term objectives are, and we've been very much aligned to that, is to drive long-term sales CAGR at 300 to 400 basis points. So we have a very disciplined acquisition strategy, and we'll continue to maintain that posture.

Our next question comes from Diana Wong, the tech from Seacort Research Partners. Please go ahead.

Hi, thanks. Good morning, guys. Hey, let me try one on the tariffs, too. You know, I think everyone's, you know, trying to figure out how these tariffs could impact the business in 2025. But what are your customers saying? Do you think they've slowed demand? You know, are they – does it look like the funnels, you know, building are going to move some of these projects forward? But, you know, I guess what are the customers saying? And, you know, maybe around the channel inventory, too, usually I think see some seasonal channel inventory built going into, you know, the construction season.

Yeah, well, what I would say is the leadership that I talk to is doing the same thing I'm doing, which is we're glued to Twitter waiting for the next announcement of a tariff policy. The challenge for us is that it's incredibly dynamic. As you know, Trump announced 25% tariffs on Canada and Mexico a week or 10 days ago. We were gearing up to have a response to that, and then immediately they were paused for 30 days. So I think everyone is really bemoaning the lack of clarity around what the trade policy is going to be. I understand it's a dynamic environment, and this administration is trying to flex its muscle from a negotiating standpoint. So the watchword of the day, again, is agility. When we look at pre-buys, we didn't see a lot of pre-buys from our customers. Obviously, we're trying to take advantage where we can on things like steel and aluminum and other things that we know are in the president's crosshairs. But it's trying to manage through the business as best we can. I would note that when you look at the automotive industry, the amount of inventory that's on dealers lots right now is actually fairly light. So absent, you know, a catastrophic trade policy, we expect that there should be some nice demand ahead of us in 2025 from an automotive production standpoint.

Okay, great. And just switching over to the savings actions, what changed? Where did you find more annual savings? And then in, you know, I guess that range that we've got now, you know, what do you think, you know, impacts you for meeting the high end or the low end of that range?

Well, Walt, I mean, entering into the fourth quarter, I mean, we were pulling the levers across discretionary spending and looking at our model and areas that we can hold as examples and projects and things that we don't have to move immediately on. So we just had a much better impact than we anticipated, and it was really across our business, but largely in the Americas. So increasing those estimates in almost twofold and then increasing the going-forward estimates are just strong execution across our team. So whether it's in the lower end or higher end of the range, it's going to be dependent upon what happens in the level of travel or customer engagement and other activities that we want to make sure that we're focused on. But that's a fair range in how we look at the temporary cost actions that we see, which are significantly higher than what we thought going into the fourth quarter.

Okay. Well, I would just add that there tends to be a little bit more discretionary spending in the fourth quarter, particularly around things like travel as we're getting ready for planning for the following year, the budgeting season and the like. And part of our original projections assumed that there would be some ramp up in the cost savings as we went through the quarter, and I just said the team did a remarkable job responding to the directive and the direction we set and doing their best to avoid unnecessary expenditures and rely on other technologies and other vehicles to be able to communicate with each other, and so I think the team just did an incredible job, and we thank them for all the hard work. We're going to continue to keep the focus on cost given the uncertain market environment we're participating in. We just think a little bit of the cost is going to start to come back up from a sequential basis as we do need to do some travel to get out and visit customers and the like.

Again, should you have a question, please press star followed by the number one. Our next question comes from the line with Steve Barker from Keyband Capital Markets.

Thanks. First one for Gabe. Going back to the conversation on margin improvement, the high end of operating margin for the 2025 target range is 17.5%, and you just beat that on an almost 7% organic revenue decline. So is it reasonable to just run the math forward a couple of years on what an upcycle could look like at your normal incremental? I mean, it seems like the conclusion should be that there's another couple hundred basis points of expansion from here, similar to what you've done over the last four or five years.

Yeah, just as you know, Steve. We've been very consistent over the last 20 years in the related cycles in expanding our margins to 200 basis points. So, yes, we're on the higher end of the range with the average right on top of our average of 16 percent, which is what we plan for for this cycle. So, I would expect that we would continue to develop our model, and you see the opportunities shaping across all of our segments, including our targets to improve the automation profile to the corporate average. So we know there's upside. You see that we're performing on the high end with compression on volumes. So we're excited of where the business is headed.

So no reason to think that there would be any change to kind of your normal incremental as you think about an organic growth-driven upcycle and the internal initiatives that you would have? Is there upside to the mid-20% or is that where you would expect to run?

Now, we'll talk more further as we launch our 2030 strategy, but you could expect us to continue to shape our business model with expanding margins.

Great. And then one for Steve. Really good to hear you talk about the uptick in the long-cycle automation projects. Is that primarily with customers you already had relationships with, or are you getting inquiries from new customers thinking about increasing their investments in automation? And maybe can you expand that to medium-sized customers as well?

Yes, Steve. Let me sort of unpack your question a little bit. So the comments I was making about the long cycle really are around automotive projects. They're the ones that are typically driven by a product refresh cycle and the nature of those projects tend to be 18 months on average, a little bit more, a little bit less. We were already doing business with all the customers that do those types of projects. So from that perspective on the business, it's not us getting an exposure to new customers. It's the customer base now having more confidence in their product plans to release investment. When we look at the medium and short cycle parts of the business, there the growth strategy is around serving the customers we've already got and gaining new customers, and particularly through technology, making automation more applicable and more economically feasible for customers that have more of a high-mix, low-volume manufacturing model. Because again, the fixed cost historically of setting up and programming a robot were very high, and so people would only use it if they had long production runs in the same part. And through things like software and cobots and other things, we're making automation much more applicable to medium-sized companies that are more job shop nature in their production. So I think as you look forward for the automation strategy, it's continuing to win and grow with the customers we've got and continuing to expand the relevant market through technology and innovation.

Our last question comes from the line of Chris Dankert from Loop Capital.

Hi, morning. Thanks for taking the question. I guess just a point of clarification on the cost savings. Given the step up in actions in the fourth quarter, is the new guide here for $40 to $55 million of incremental savings in 2025, just given how that kind of rolls through the year? I mean, again, first half makes sense, but back half should roll off almost completely by 4Q, correct?

Yes, that's right, Chris. That's incremental. And that's all built into the incremental margin assumptions that we provided as well.

Got it. Thank you for the clarification there. And then just on the incentive comp impact, forgive me if I missed it, but just how did that impact 4Q here?

Yeah. When you look at, for example, the incentive accruals, that was pretty consistent. It was $7 million in the fourth quarter. That's consistent throughout the year. So the thing to note with incentive comp and also the changes in employee costs, we'll reset our objectives. And so you'll have lesser of an impact on incentives, but that's already built into the incremental. Just know how our objectives are set. They're based on what the budgets are for the current year, and that ends up being the driver to incentive compensation. So, that will be resod and that has already been built into the increment models that are part of the model.

Thanks so much, guys.

This concludes our Q&A session. I will now turn the call over back to Gray Bruno for closing remarks.

Thank you. I would like to thank you all for joining us on the call today and for your continued interest in Lincoln Electric. Thank you very much.

I would like to thank everyone for joining us on the call today. and for your continued interest in Lincoln Electric. Thank you very much.