Lincoln Electric: EPS Up, Profits Down

| About: Lincoln Electric (LECO)

Lincoln Electric Holdings Inc. (NASDAQ:LECO) reported fourth-quarter EPS of 65 cents, beating the Zacks Consensus Estimate of 60 cents. However, quarterly earnings were down 26.1% year over year, primarily due to lower sales in North America and Europe.

Quarterly net sales of $462.4 million were 12.1% lower than the prior-year sales of $526.2 million. The year over year decrease in sales reflected an 18.1% decline due to lower volumes and a 3.4% decrease due to price, partially offset by a positive contribution of 6.2% from acquisitions and a 3.2% favorable impact of foreign currency translation.

North American welding sales fell 23.8% year over year to $218.2 million. However, sales from welding operations outside North America improved 4.1% to $190.9 million due to higher sales from Asia-Pacific and South America, partially offset by weak demand in Europe. The Harris Products group posted a year over year sales decline of 5.5%.

Gross profit of $134.5 was down 4.7% and operating profit of $43.5 million (excluding special items) was down 20.1% compared to the fourth quarter of 2008. Gross margin improved 230 basis points year over year to 29.1%, while operating margin was down 100 basis points at 9.4%.

For the full year 2009, Lincoln Electric reported earnings of $1.71 per share on revenues of $1.7 billion, compared to earnings of $5.36 per share on revenues of $2.5 billion in 2008. The company has implemented various measures in an attempt to align its business costs with declining global demand. However, these measures could not fully offset the impact of declining volumes on the company’s earnings.

Lincoln Electric generated operating cash flow of $250.4 million during 2009. The company ended the year with cash and cash equivalents of $388.1 million and debt of $123.7 million on its balance sheet. The company’s debt capitalization ratio stood at 10.2% as of December 31, 2009.