Good morning, everyone. Welcome to day three of the 21st Annual Oppenheimer Industrial Growth Conference. Next up, we have the Lincoln Electric team, led by CFO, Gabe Bruno. Gabe, great to see you as always.
Great to see you too also, Brian.
And thank you for joining us. I guess to kick things off for anyone newer to the LECO story, maybe introduce the history, at least the recent history of the company. what really drives your business and how you differentiate strategically. And even for those who, you know, have experience with LECO, perhaps dive into the recently launched RISE strategy.
Yeah, so Brian, it'd be great to start that way. So just to remind those who are interested in our story is that we are the global leaders in arc welding solutions. And we also are the leader in an industry in fabrication and automation types of technologies. And so think of us as one of the broad-based offerings in our portfolio that is eager to solve our customers' challenges, pain points, and differentiate ourselves through technology. And that's an automation where the heavy invested in automation capabilities and then broad base of leveraging technologies and metals and in power sources and in software to be able to differentiate our footprint. As you mentioned, Brian, we just recently launched what we're calling our rise strategy. And it truly is anchored on the foundation that we have now in 130 years in business. And how do we accelerate our growth as well as shaping the operating model for the long term? And so just to go through what the R stands for, the R stands for reimagining how work gets done. And that's challenging how we engage throughout our businesses. And are there, for example, center-led opportunities that we could introduce best practices and capabilities that we can leverage across all of our businesses around the globe? The I stands for, as I mentioned, we lead by technology. And how do we continue to innovate and differentiate ourselves in the marketplace? And so we are investing, you know, we're the market leaders in technology, the welding experts, and we want to continue to accelerate our ability to differentiate our offering, our products, to position ourselves for enhanced growth. And then the S stands for serving customers and differentiating how we go to market with our customers and improving supply chain practices, improving how we serve our customers and being that market leader in our industry and service. And then lastly, the E stands for elevating our team and focused on developing our organization to improve the level of engagement and foster an environment that our teams, our employees around the world want to drive the kind of performance that our objectives are set on. And so we think about objectives. So the rise is a strategy. We have established new 2030 objectives that anchor on the fundamentals of our strategy. And then first first of all is to drive accelerated growth. So our objectives top line is to drive CAGR and high single digits, low double digits. that is both organic and inorganic type of growth on the organic side we look to 300 to 400 basis points of CAGR through bolt-on strategies that have served us well in broadening our footprint it could be a technology could be a footprint in region could be across different parts of the markets and it's broad based on the operating side you know we've got a long track record of improving the operating margin profile of our business if you go through each cycle on average we have improved operating margins by 200 basis points per cycle our 2030 objectives are to accelerate that to 300 basis points of improved margins through the cycle on top of that historically our incrementals have hovered around mid-20s and so our objective is to move to a high 20s type of incremental margin and a lot of the work we're doing around center led or enterprise initiatives we expect to provide about a third little more than a third of the improvement in our operating model and then the balance through positioning in the markets as well as growth and that would take us to a plus 20 operating profit for our business and so that is what anchors on the acceleration from the rise strategy. Then on top of that, be very disciplined around managing our balance sheet, cash flows, our 100% cash conversion is our objective. We have a very balanced capital allocation strategy where we want to focus on first growth. We've more than doubled the level of internal investment over the last five years. And so we're looking for opportunities to invest in our business, to introduce new products, to drive capacity, drive operational improvements so we want to prioritize growth uh through uh internal investment as well as through acquisitions and then we as you know we've been increasing our dividend rate consistently since going public in 1995 and then returning any excess uh strategic cash to our shareholders through repurchases and so very balanced capital allocation strategy and lastly that translates into mid-teens type compounder and earnings and that's how we think about objectives and think about our EPS disciplines around that as well. Those are objectives for
2030, Brian. All right, excellent walkthrough. That sets the stage well. Your team has exposure across pretty diverse end markets, and you are global in the end. Maybe touch on what you saw in Q1 and what's contemplated in your 26 outlook across key end markets.
yeah so i'll start uh broadly on end markets and maybe touch on a little bit on the geographies so um i start off with general industries general industries is uh about a third of our business uh you saw that our performance in the first quarter was a high 30s percent type of growth and that was across capital investment projects equipment as well as on the consumable side and and so we're excited about what we're seeing we're cautiously optimistic that some of the key trends within general industry are going to lead to to growth and so we're optimistic what it means particularly in the america's side of our business so one of the measures that i like to share i shared last week brian on our ernie's call is that within the general industry segment in americas the consumable volumes were up low double digits and now you've seen pmi with the with the readings and this past friday is the fourth month in a row where the sentiment around pmi has been positive in an expanding type of territories as well as seeing steadiness in growth on the industrial production side so good drivers in general industries we did in the month of April turned positive on standard equipment and volumes. So that was a good trajectory. We do see that as positive drivers within general industries in general. Then think about heavy industries. Heavy industries was up mid-single digits. You know, we've been navigating, as you know, de-stocking across ag and construction. And it looks as though we have hit the trough and now our position for growth and we've pointed to growth and in the back half of uh 2026 the comps are easier but it appears that the market particularly heavy industries off-road type of investment are starting to turn more positive so um we're excited about that on the energy side you know in first quarter we saw more of a flattish steady type performance We're bullish on energy. We look at across all the markets, whether it's in oil and gas or power generation. Those are opportunities for us. In the Americas component in energy, we were up mid to high teens. So we remain bullish, and we do expect that volumes will improve on energy as the year progresses. And then we were down mid-teens in transportation, automotive, as well as structural. And that's driven by a lot of project activity. And so the timing, for example, the comps last year were more challenged on the automotive side first quarter. So that was a driver there. But we expect more choppiness across project activity in both structural and transportation as the year progresses. on industrial production within the automotive end market we expect to follow kind of what the market is describing as production and that's a low single digit down in production levels across the automotive industry so that's kind of a walk through end markets in terms of geographies you know we're more bullish on the america segment not only in core welding as i pointed to a couple of key drivers there and general industries in the sort but also the automation component of which 80 percent of our automation portfolio is within the america's segment and we had talked about strength and backlog coming into 2026 some of the longer cycle projects positioning for growth in the back half of the year we're optimistic that as we exit the second quarter the level of activity would point to some modest growth overall so the automation business is positioned for growth in in 2026 and the hair side we talked about some tough comps in q2 you know we had the initial stocking of new customer and q2 of last year so we expect some tough comps on the hair side but we do expect progressively improving volumes particularly in the back half of the year on the air side on the international side uh more bullish on asia uh project activity whether it's in energy in southeast asia or india and australia are more positive um and on the emea side more less constructive about kind of where we see consistency and demand we did point to within core europe some uh pockets of improving order trends just not sure whether or not that's pre mind going on with inflationary supply chain challenges and we just want to see more consistency there as well and then you have the middle east type of conflict that had an impact to us in the first quarter and so we're monitoring how that progresses and the impacts on the media region as
well okay it all makes sense you quickly touched on our automation we'll certainly you get back to that topic and driver for your team. You stressed cautious optimism as you began the walkthrough of markets. Maybe speak to that a little bit more and if you're willing to share, what data points your team is really watching to see whether the perspective or potential volume inflection into the back half is real across your core markets.
Yeah, so you appreciate, Brian, we're actively monitoring daily order rates, shipments, and just normal activity day to day. And as we exited the first quarter, we saw an increasing level of daily orders activity, particularly in the Americas segment and into April. And I pointed to volume improvements in consumables, and that typically leads to improvements in standard equipment investment. And so we saw an improvement in volumes in April also on the equipment side. So that leads us to some optimism progressively. Now, same time, we talked about the impact of the conflict in the Middle East being about $8 million to $10 million type of an impact. and so that's what gives us a little bit of maybe some more strength on the america side but maybe some cautious in terms of how this progresses so monitoring daily order activity monitoring the progression of real volume versus pricing that's pretty key for us then on the equipment the capital investment side of things looking for consistency and seeing how the quoting activity translates into real orders and the positioning for capital investment across the automation portfolio as we progress into the year. Strong backlogs coming into the year. I want to continue to see the strength of transition from coding activity towards, and those are internal metrics, but obviously we're looking to the macros as well. I mean, confidence from investment standpoint, from a ceo confidence perspective or from a consumer confidence expensive perspective those are important for seeing the trajectory of real activity and then monitoring you know what's happening in the automotive industry and production and investment what's happening across different the pmi indices industrial production and indices and are we seeing consistency and is that lined up to what our business activity is so you got the internal You got the macro and and staying really on top of that to see what that means for us as we progress throughout this year.
All makes sense again. It's quite the mosaic. I'd be remiss if I didn't quickly ask about tariffs. Given the current framework, at least assuming it stays as it now is, what's the net impact to lego operations relative to what was in place prior to the latest change?
Yeah, so very, very modest type impact. So don't look at that as a driver to how we've positioned pricing, for example. The broader implications are in our pricing strategy have been about inflationary pressures more broadly. We saw that accelerate as we exited the first quarter. That's what drove a lot of the pricing action. So think of tariffs at this point, the actions that have been introduced in the markets as having a modest impact to our business.
Okay. And to level set on your team's response to other inflationary pressures, how should we think about price realization, Q2, Q3, or the back half, however it's best to frame that?
yeah so i'll first um just remind us that we increase our operating assumptions on sales so we went from mid single digit type growth to high single digit type uh growth for 2026 and that was driven by pricing and so think about that as between 300 to 400 basis points of increase in top line sales driven by pricing now a lot of that is on the hair side you saw the uptick driven by metals silver copper on the hair side so i'd say three quarters of that is a harris a quarter of that are for the other actions we took we exited the first quarter being behind price cost by about 90 basis points so we took pricing actions are those are now taking hold now in may and that will mature throughout the second quarter into a full impact and it pointed to the america's segment about 150 basis points on a quarterly type trajectory starting in q3 so we take what we've seen in metals and harris what we've to actions we've taken to bring our costs price cost position back to neutral by q3 that's what drove the increase in the uh in pricing is part of our overall assumptions for the year now if you think about it quarter by quarter you saw in first quarter we were in excess of 10 percent think about second quarter as being kind of mid to high single digits in terms of uh pricing think about mid single digits as we have anniversary then all the pricing actions for 2025 into q3 and then low single digits into q4 and that's how we see the progression of pricing uh this year which drove the increase in our assumptions
got it very helpful thank you uh and that remind us what the impact of middle east conflict was on on q1 and it was relatively modest but what what was that what is your team watching over the near
term what are the key watch items going forward yeah so top line uh impacts about eight million dollars in q1 five million of that is within the international segment the balance is driven by exports coming out of the americas into the middle east uh type region um so progressively you know as the conflict uh persists you know we expect about eight ten million dollars a quarter type of an impact and that split again between international and the americas segment and that's top line type of impact uh we all know the other impacts and supply chain and inflation uh so those are areas that also we're monitoring closely and part of our pricing dynamics that we've introduced into the markets but it's really broad inflation that we're trying to address and then just seeing
how the conflict persists okay understood and circling back to uh strategy you know high level question we've always thought of of lincoln as very technology driven in the end i think there's been more appreciation of that over recent past by by investors as we look forward what are the you know standout opportunities for your team to further accelerate growth you know meet the kind of uh financial targets that you've put out with rise is there anything that really stands out on
the front yeah so so think about as you mentioned brian we're a technology driven uh business and And the I in RISE is all about innovation and to differentiate ourselves. And so think about heavy experience, expertise in metals, in power sources, in software, and what that means for us, not only in growing our core welding business. For example, we talk about Vitality Index, our Vitality Index, for example, equipment from 2025 was 58 percent so that's new product new products introduced in equipment over the last five years in 2025 that represented 58 percent of our sales so you can see the velocity of technology investment uh within our business but we've taken that and we've looked at adjacencies and i'll use a couple examples you had the acquisition uh last year alloy steel of australia that's in wear solutions so that's leveraging our our inherent knowledge into materials into metals and how do we now expand a footprint that's attractive for us and this is a mid-20s type of an ebit profile which gives us a lot of opportunity for growth in power we invested we acquired a business called van air a couple of years ago that was into mobile power so we had already had done some joint development uh with fan air and it was just a great opportunity to expand our footprint into a channel in leveraging all of our technology and know-how and how do we continue to develop our presence in the market so that's been key for us is leveraging the core capabilities the expertise we have as welding experts as being deep into solutions within our customers and then using that as an avenue for growth. Same thing with our 3D printing and additives. So we're very excited about the potential in this business and its leveraging key capabilities. Then think about automation. Automation, its footprint had originated in welding fabrication and robotic capabilities, and we have been expanding our footprint and capabilities within the automation portfolio we've expanded now where about 40 percent of our offering is tied to welding fabrication the other the balance is is about other ways that we solve and provide solutions for our customers well whether it's material handling and maybe agvs or end-of-line testing but we continue to broaden the footprint within our automation space we're introducing uh what uh it now incorporates vision capabilities ai capabilities and what we're calling leap and those are part of a tech position that we made a couple years ago and we continue to enhance with our own welding knowledge experience and in technology to enhance the our welding offering within an automation space so very much uh uh technology driven organization and that eye for innovation is a key part of our strategy.
Understood. You just mentioned techquisitions, and within the RISE strategy, you're targeting 300 to 400 basis points annualized revenue contribution from inorganic sales, techquisitions, and others. Maybe speak to the confidence in being able to drive that going forward.
Yeah, so you're right. So we have 300 to 400 basis points of CAGR incorporated into our long-term growth objectives. Over the last 10 years, we achieved 480 basis points. So you can say that we're kind of pulling back a little bit, but we're not because it's a law of larger numbers. But we're very much committed to broad-based investment for growth. And that includes whether it's in our core welding business or at Harris or within automation. is how do we leverage our capabilities to drive a footprint of expanding capabilities. The examples that I provided are in core welding. So I mentioned Van Ayer, that's part of our America's Welding business. I mentioned Alloy Steel, that's part of our international welding business. And at the same time, as you know, we've had a very consistent level of investment in automation targets that continue to broaden out our footprint within the automation space. That's acquisition, and we've coined that term, it seems, and it's really looking about how does technology and certain elements of technology that we can look to in an inorganic sense that would complement how we are introducing solutions. So I mentioned acquisition in real tech a couple of years now ago that had vision capabilities. And so our leadership across our automation business are looking at ways to continue to introduce technology. And maybe they're small types of businesses, but that can offer up capabilities to broaden our platform. And so that becomes an opportunity for us to drive growth through inorganic investment. So we're very much committed. There's a day go by where we're not having some level of dialogue on the pipeline and how each of our teams are engaging in opportunities. And so very much focused on driving that the 300, 400 basis points of CAGR. And we've been very successful at that.
Yeah. And now circling back to automation, very exciting aspect of the Lego story. Legitimate differentiator. We remain very bullish through the cycle on what it means for Lincoln Electric. um just stepping back what really differentiates your team's capabilities um you know how have you built out the you know product technology capability suite that that you have and you know what gives you confidence in you know continued outgrowth uh you know further scale
and then we'll get to profitability after okay so let's talk about growth and our footprint so So go back a few years ago. I mean, we were hovering around a $400 million business. We talked about driving to a billion-dollar objective. We went through some challenges in the market, you know, the EV ICE transition, and then you had some pause in commitment to capital in 2025. But we're very much committed to driving growth through our automation business. So that's the first place I would start off, our commitment to the execution of an automation strategy, which is market-leading in our industry. So we've got the largest footprint within our industry. Lots of deep experience. I mentioned we started off in welding fabrication. So think about the robotic capabilities, how we've then expanded into more deeper customer needs, and that's material handling or testing and the sort. So we have broadened the footprint to be able to engage with our customers in a broader sense. We also have been very intentional to broaden adoption within automation capabilities. And just a couple of years ago, we introduced Colbots. It's with our proprietary type software that makes it easier for small, midsize fabricators to get into automation capabilities. So we've been very intentional about leveraging technology, expanding our footprint, and looking for ways to differentiate within the markets. And as I mentioned, very much invested in growth. We see automation as an opportunity to accelerate growth at two times what we would define as core welding. And we continue to shape our model to be able to achieve the longer-term objectives we have for the business.
Very helpful. And you have the, you know, within the RISE strategy, targeted mid-teens, operating margin for automation. what are the key uh you know levers to get there and then as we think longer term there's a pretty heated debate as as to whether you know the strategy is kind of capped in that profitability range is that the case if not uh you know how do we see mid-teams progress to something even more robust and drive that much more value over time yeah so it's a great brian
And so I've taken steps, right? Our current objective is mid-teens type of EBIT for the automation business. And how we get there, you know, we weren't that far away from that as we had approached kind of the 940 plus million of sales a couple of years ago. And so we know the path to get there. One is the volume leverage. I mean, we have built out our fixed cost structure to achieve a billion dollars and plus. So we need to get some leverage. We need to increase the level of volume and pull through out of the business. And we'll do that with consistent growth. Then we also have strategic positioning. So there are pockets within our automation portfolio that are higher margin type opportunities from an organic perspective. We'll also look to inorganic opportunities to rich in kind of the mix of profitability within the portfolio. So that'd be another anchor that we'll focus on. And then the third point I make is on execution. You know, that we've talked about our Lincoln business system and the disciplines around project management and from quote to execution, how well are we managing the portfolio? And so we'll continue to put a lot of pressure on our teams to sharpen the level of execution across the projects that we engage in. And so those three elements will define us getting to that mid-teams type of EBIT profile. from there you know that we have a continuous improvement type of focus i mentioned kind of big picture the expansion in our operating margins through each cycle and that goes for all of our businesses and so we'll think through the same thing once we are consistently in that mid-teens performance with an automation of how do we continue to increase that and the same way that we do for each of our segments and our businesses we expect to continuously improve the level of discipline around operating uh excellence as well as growth understood uh really good color
throughout gabe uh have a little bit of time left any message you'd like to leave the group with
that yeah look we're very much focused in creating value as you know brian and as we talked about some of the key levers within our rise strategy to accelerate growth to also expand in the operating margins of our business and that when i talk about the eps compounder i think that's Sometimes it's less understood. And that is despite where we are at in this cycle, we have proven time and time again that we're going to expand margins, irrespective of kind of where the volumes are in this cycle. And we're going to be very disciplined on capital allocation. And that will drive a compounding effect on our earnings. And so we've been very consistent with that in a very disciplined way. We're very excited about where the future is headed. And the organization, the launch of RISE strategy in this first quarter has been well received, not only externally in the markets, but across our team, our employees across the company. And we're excited about where the future holds for us.
All right. We look forward to seeing it as well. And that's very close. Thank you, Gabe.
Thank you, Brian.