Lincoln Electric (LECO) Q4 2005 earnings summary

Executive summary

• FY05 net sales rose 20.1% to $1.601B; net income increased to $122.3M and diluted EPS to $2.90, supported by pricing, acquisitions and higher volume.

• Operating income grew to $149.8M as SG&A declined to 17.8% of sales; gross margin edged up to 27.3% despite input-cost pressure and lower-margin mix.

Financial highlights

• FY05 sales increased $267.5M: price added $106.4M, acquisitions $93.0M, volume $56.3M and FX $11.8M.

• Gross profit rose 20.6% to $436.9M; operating income was $149.8M versus $103.3M, and net income was $122.3M versus $80.6M.

• Diluted EPS was $2.90 versus $1.94; Q4 diluted EPS was $0.70 versus $0.37, on sales of $420.4M versus $351.0M.

• Operating cash flow increased to $117.0M from $51.3M; cash and cash equivalents ended FY05 at $108.0M.

• FY05 included $1.3M after-tax European rationalization charges, $8.7M favorable prior-year tax resolution, $1.8M state tax benefit, $1.1M repatriation benefit and $0.9M after-tax legal settlement gain.

Outlook and guidance

• 2006 capital expenditures expected at ~$50M for capacity expansion, productivity and cost-reduction projects.

• An additional $3.6M of European rationalization charges was expected through 2006; Ireland program completion targeted for Q4 2006.

• Raw-material and energy costs were expected to remain elevated; margin performance depends on pricing, mix, overhead absorption and restructuring to offset cost inflation.

• Expected 2006 U.S. pension contribution of $30.0M; pension expense expected to decline by ~$2.0M.