Lincoln Electric Ends 2022 With Solid Fourth Quarter

Narrow-moat-rated Lincoln Electric LECO posted solid fourth-quarter results, as its full-year 2022 adjusted EPS of $8.27 beat our estimate by $0.15. After rolling our model forward one year, we’ve increased our fair value estimate to $156 from $148, which reflects our slightly more optimistic near-term revenue growth projections as well as time value of money.

Lincoln Electric’s fourth-quarter organic sales grew by 14.3% year over year, driven by 9.9% higher price and 4.4% volume growth. Compared with the prior-year period, volume increased by 7.7% in Americas welding and 1.4% in international welding, but decreased by 2.4% in the Harris Products Group due to softness in the retail channel and residential applications. Price was up in the low teens in Americas welding and international welding, but stayed roughly flat in the Harris Products Group. Lincoln Electric delivered a solid 130-basis-point year-over-year adjusted operating margin expansion, from 14.5% to 15.8%, thanks to volume leverage and operational improvement in the automation business.

Heading into 2023, Lincoln Electric expects continued solid momentum in the automotive, heavy industries, and energy end markets in the first half of the year. For full-year 2023, management anticipates organic sales growth in the midsingle digits, neutral price-cost, and incremental operating margins in the mid to high teens (low-20% excluding the impact of the Fori Automation acquisition).

We are encouraged by the performance of Lincoln Electric’s automation portfolio, which delivered over 30% revenue growth in 2022. The recent acquisition of Fori Automation has boosted Lincoln Electric’s annual run-rate automation revenue to around $850 million, a significant increase toward management’s target of $1 billion by 2025.