Lincoln Electric (LECO) Q4 2006 earnings summary

Executive summary

• FY06 set records: net sales rose 23.2% to $1.972B, net income increased 43% to $175.0M, and operating income climbed 56% to $233.0M.

• Growth reflected strong worldwide demand, higher volume and prices, acquisitions, and favorable currency; market share increased across North America, Europe, Asia, the Middle East, and Latin America.

• Strategic priorities included global capacity expansion, product innovation, acquisitions, customer service, and Six Sigma productivity improvements.

Financial highlights

• Net sales were $1,971.9M, up 23.2% YoY; volume contributed 15.5%, acquisitions 3.4%, price 2.9%, and currency 1.3%.

• Gross profit rose 26.4% to $552.3M; gross margin was 28.0%, versus 27.3% in FY05, primarily on favorable volume leverage.

• Operating income increased to $233.0M from $149.8M; net income was $175.0M versus $122.3M, and diluted EPS was $4.07 versus $2.90.

• Adjusted net income excluding non-recurring items was $171M; adjusted diluted EPS was $3.98 versus reported diluted EPS of $4.07.

• Cash from operations was $118.7M, compared with $117.0M in FY05; year-end cash and equivalents rose to $120.2M.

Outlook and guidance

• FY07 growth may moderate versus recent years as economic forces weaken, especially in North America; many key global markets were expected to remain strong.

• FY07 capital expenditures were projected at ~$75M, focused on manufacturing capacity, international expansion, efficiency, cost reduction, safety, and environmental improvements.

• Pension expense was expected to decline by ~$10.7M in FY07; planned voluntary U.S. pension contribution was $10M.

• Capacity additions in China, India, Brazil, Poland, Turkey, Mexico, Canada, and the U.S. were intended to support continuing demand; several facilities were scheduled to begin or expand production during 2007.