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Here's How Lincoln Electric Performed In 2014

William Bias profile picture
William Bias


  • Lincoln Electric sports a rock solid balance sheet.
  • Lincoln Electric experienced volume decline in the Asia-Pacific and South American regions due to macro-economic weaknesses.
  • Lincoln Electric’s long-term potential remains despite short-term challenges.

On Feb. 17, welding equipment and supply company Lincoln Electric (NASDAQ: NASDAQ:LECO) came out with its 2014 earnings announcement. The company didn't do so well in 2014. Lincoln Electric saw its revenue and net income decrease 1% and 13% respectively year-over-year. However, favorable changes in working capital and lower capital expenditures caused free cash flow to increase 31% year-over-year.

Lincoln Electric sports an excellent balance sheet. Its $278 million in cash equated to 22% of stockholder's equity. I like to see companies harbor cash of at least 20% or greater of stockholder's equity. The company only registered minimal long-term debt with its $2.5 million in long-term debt coming in at a miniscule 0.2% of stockholder's equity, way below my personal threshold of 50%. Let's take a closer look at how the company is doing.

Demand puts a dent in the fundamentals

There are three primary factors within a company's control (to a certain degree) that can cause a company's revenue to grow or contract (in order of personal preference)-volume, pricing and acquisitions. Lincoln Electric's volume or demand negatively impacted revenue by $58 million in 2014. The story behind the demand decline is telling of the global risks in owning a company like Lincoln Electric. Macroeconomic headwinds contributed to softness in the South American segment. Specifically, instability in Venezuela contributed to the bulk of demand decline for Lincoln Electric. The Asia-Pacific region and certain parts of Eastern Europe such as Russia also contributed to demand softness. Foreign currency exchange contributed to the bulk of the overall revenue decline. However, I don't worry about foreign currency exchange because it doesn't reflect the underlying economics of the business.

Management is on top of things

Despite international headwinds, Lincoln Electric's management is forging ahead with its strategies. The company is making strategic acquisitions in the areas

This article was written by

William Bias profile picture
I have been analyzing stocks since 1992 and a freelance writer since 2012.

Analyst’s Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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