Lincoln Electric (LECO) Q4 2009 earnings summary

Executive summary

• 2009 net sales fell 30.2% to $1.729 billion; net income declined to $48.6 million from $212.3 million as lower volume reflected the industrial downturn.

• Adjusted operating income was $121.3 million and adjusted net income $73.1 million; adjusted diluted EPS was $1.71 versus reported EPS of $1.14.

Financial highlights

• Gross profit fell 36.6% to $456.3 million; gross margin declined to 26.4% from 29.0%, reflecting lower volume, higher-cost inventory liquidation and higher U.S. retirement costs.

• SG&A declined 17.8% to $333.4 million, primarily on lower bonus and operating expenses and favorable currency effects, partly offset by higher retirement costs and acquisition costs.

• Cash provided by operating activities was $250.4 million, compared with $257.4 million in 2008; cash and cash equivalents rose to $388.1 million.

• Rationalization and impairment charges were $29.9 million; adjusted operating income excluded $29.0 million of rationalization charges, $0.9 million of impairment charges and a $1.5 million pension settlement gain.

Outlook and guidance

• 2010 capital expenditures were expected in the range of $40 million to $50 million, for operational effectiveness and international expansion.

• 2010 U.S. pension expense was expected to decrease by $2 million to $4 million; planned voluntary U.S. pension contributions were $30 million.

• Venezuela's exchange-rate change was expected to reduce 2010 operating results significantly and lower gross profit by $5 million as inventory carried at the previous rate was sold; a $2.5 million Q1 gain was expected on net Bolivar monetary liabilities.