Lincoln Electric Reports 3Q'09 Results

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Nov 05, 2009 (Close-Up Media via COMTEX) -- LECO | Quote | Chart | News | PowerRating -- Lincoln Electric Holdings, Inc. has reported 2009 third quarter net income of $12.8 million, or $0.30 per diluted share, on sales of $441.8 million.

In a release on October 30, the Company noted that operating income for the third quarter increased sequentially to $33.2 million, or 7.5 percent of sales, from $19.4 million, or 4.7 percent of sales, in the second quarter of 2009. Excluding special items, operating income in the quarter was $40.4 million or 9.1 percent of sales.

Sales were $441.8 million in the third quarter versus $632.9 million in the comparable 2008 period, a decrease of 30.2 percent. Sales for the Company's North American operations were $240.5 million in the quarter versus $370.5 million in the comparable quarter last year, a decrease of 35.1 percent. U.S. export sales in the quarter were $37.9 million versus $62.5 million in the comparable prior year period, a decrease of 39.3 percent.

Sales at Lincoln subsidiaries outside North America were $201.3 million in the third quarter versus $262.4 million in the comparable quarter last year, a decrease of 23.3 percent. Excluding acquisitions and the effect of changes in foreign currency exchange rates, sales outside North America decreased 27.5 percent in the quarter.

During the third quarter, the Company completed the acquisition of Jinzhou Jin Tai Welding and Metal Co., Ltd., ("Jin Tai). This acquisition greatly expanded the Company's customer base and added significant cost-competitive consumable solid wire manufacturing capacity in China. The Company acquired Jin Tai by exchanging its 35 percent ownership in Taiwan-based Kuang Tai Metal Industrial Co., Ltd. ("Kuang Tai), paying cash of $40 million and assuming net debt of approximately $13 million. This transaction resulted in a non-cash loss of $7.9 million due to the difference in the appraised values of the non-controlling interests in Kuang Tai and Jin Tai when compared with the carrying value of the related equity investments. The Company expects this transaction to be accretive to earnings by approximately $0.08 - $0.12 per diluted share over the next twelve months.

Operating income for the third quarter included a pre-tax rationalization charge of $7.1 million. Special items which impacted net income included after-tax rationalization charges of $6.3 million and a loss of $7.9 million on the acquisition of Jin Tai. Rationalization charges during the 2009 third quarter related primarily to a facility closure in Europe and the consolidation of certain manufacturing operations in the Europe and Other Countries segments.

Net income for the third quarter was $12.8 million, or $0.30 per diluted share, compared with net income of $69.2 million in the third quarter of 2008. Excluding special items, net income was $27.0 million, or $0.63 per diluted share. The effective tax rate for the third quarter of 2009 was 47.4 percent compared with 25.5 percent in 2008. The higher effective tax rate in 2009 is primarily due to losses at certain non-U.S. entities, including the loss on the Jin Tai transaction, for which no tax benefit has been provided.

"I am pleased that our third quarter results reflect good sequential improvements in profitability," said John M. Stropki, Chairman and Chief Executive Officer. "Despite the continued softness of the overall global markets, we saw a slight improvement in our sales level during the third quarter which has carried over to the start of the fourth quarter. The sales improvement, coupled with the introduction of over 100 new products during the third quarter, give us reason to be cautiously optimistic about the near term."

"We continue to aggressively challenge our overall cost structure, and we are pleased that related actions have contributed to improved profitability from the first half of 2009. We are confident that as the global recovery strengthens we are strategically positioned with a more efficient and highly competitive business model. In addition, our ongoing focus in managing the balance sheet and reducing working capital to current business levels generated $231.3 million in operating cash flows for the first nine months of 2009. Our strong financial position and our ongoing rationalization efforts will allow us the flexibility to make the necessary investments to achieve our long-term strategic objectives."

Net cash provided by operating activities increased to $97.1 million in the third quarter compared with $96.1 million for the comparable period in 2008. During the third quarter 2009, the Company paid $11.5 million in dividends.

Sales for the first nine months were $1.27 billion versus $1.95 billion in the comparable 2008 period, a decrease of 35.1 percent. Operating income for the first nine months was $53.6 million compared with $259.9 million in 2008. Excluding special items, operating income was $77.8 million or 6.1 percent of sales.

Sales for the Company's North American operations were $726.9 million in the first nine months versus $1.14 billion in the comparable period last year, a decrease of 36.4 percent. U.S. export sales in the first nine months were $112.7 million versus $188.5 million in the prior year period, a decrease of 40.2 percent.

Sales at Lincoln subsidiaries outside North America were $540.0 million in the first nine months compared with $810.6 million in the comparable period last year, a decrease of 33.4 percent. Excluding acquisitions and the effect of changes in foreign currency exchange rates, sales outside North America decreased 28.7 percent in the first nine months of 2009.

Special items for the first nine months of 2009, which impacted operating income, included pre-tax rationalization charges of $25.7 million and a pension settlement gain of $1.5 million included in selling, general and administrative expenses. Special items which impacted net income included after-tax rationalization charges of $20.4 million, a pension settlement gain of $1.5 million, a gain on the sale of a property by the Company's joint venture in Turkey of $5.7 million and a loss on the acquisition of Jin Tai of $7.9 million.

Net income for the first nine months was $24.2 million, or $0.57 per diluted share, compared with net income of $192.8 million in the first nine months of 2008. Excluding special items, net income was $45.4 million, or $1.07 per diluted share. The effective tax rate for the first nine months of 2009 was 47.4 percent compared with 27.8 percent in 2008. The higher effective tax rate in 2009 is primarily due to losses at certain non-U.S. entities, including the loss on the Jin Tai transaction, for which no tax benefit has been provided.

Net cash provided by operating activities increased to $231.3 million in the first nine months of 2009 compared with $216.7 million for the comparable period in 2008. During the first nine months of 2009, the Company repaid $30.0 million of outstanding debt on maturity under its Senior Unsecured Notes and paid $34.3 million in dividends. The Company's Board of Directors declared a quarterly cash dividend of $0.27 per share, which was paid on October 15, to holders of record as of September 30.

Lincoln Electric is a company focusing on the design, development and manufacture of arc welding products, robotic arc-welding systems, plasma and oxyfuel cutting equipment.

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