Lincoln Electric Earnings: Organic Sales Climb 8.5%, Fueled by Growth in Americas Welding

We are raising our fair value estimate for narrow-moat-rated Lincoln Electric LECO to $159 per share from $156 after the company reported solid first-quarter results, as sales of $1,039 million beat our $1,029 million estimate. The fair value estimate increase reflects our slightly more optimistic near-term revenue growth projections as well as time value of money. We view the name as fairly valued at current levels, with shares trading in 3-star territory.

Lincoln Electric increased its first-quarter organic sales by 8.5% from the same period last year, with roughly equal contribution from volume and price. Americas welding delivered strong 15.6% organic revenue growth, fueled by 4.6% price attainment and 11% volume growth. International welding organic revenue was roughly flat, as 5.8% higher price was nearly offset by a 5.7% volume decline on tough year-over-year comparisons. The Harris Products Group posted a 3.8% year-over-year volume decrease, partially offset by 0.4% higher price, due to soft demand in the retail channel. Lincoln Electric’s adjusted operating margin compressed by 130 basis points year over year, from 17.6% to 16.3%, due to the dilutive impact of the Fori acquisition and timing of price actions.

After a solid start to the year, Lincoln Electric raised its 2023 guidance and management now anticipates full-year organic sales growth in the mid- to high single digits (up from midsingle digits). Lincoln Electric’s automation portfolio posted high-single-digit revenue growth in the first quarter and is now generating revenue at an annual run rate of around $900 million, giving us confidence that the company can reach its target of $1 billion by 2025.