Lincoln Electric (LECO) Q4 2007 earnings summary

Executive summary

• FY07 net sales rose 15.7% to $2.281B; operating income reached $277.6M and net income $202.7M, both above FY06.

• Growth reflected higher volume and prices, acquisitions and favorable currency; stronger volume leverage and lower product-liability costs supported gross margin expansion.

• Q4 net sales were $580.3M, net income $49.5M and diluted EPS $1.14.

Financial highlights

• FY07 gross profit increased 17.3% to $647.6M; SG&A rose 17.2% to $370.1M, including higher bonuses, selling activity, acquisition costs and FX impact.

• Operating income was $277.6M versus $233.0M in FY06; income before taxes was $287.2M versus $238.2M.

• Net income was $202.7M versus $175.0M; diluted EPS was $4.67 versus $4.07.

• Operating cash flow increased to $249.8M from $118.7M, aided by higher earnings and improved inventory; cash ended FY07 at $217.4M.

Outlook and guidance

• FY08 capital expenditures expected at $60M–$70M, mainly for manufacturing capacity expansion and international growth.

• Raw-material and energy costs expected to remain elevated; pricing, product mix, overhead absorption and cost reduction efforts are intended to offset increases.

• FY08 pension expense expected to be essentially flat with FY07; voluntary U.S. plan contribution of $10M planned, with no required contribution anticipated under current rules.

• Operating cash flow, cash balances and existing credit facilities expected to fund ongoing cash needs for the foreseeable future.