All right, there we go. I think we're in business now. Thanks everyone for joining us. My name's Adam Seiden, and I lead the U.S. Machinery and Construction effort at Barclays. Thanks for attending our 43rd Industrial Conference here in Miami. For this presentation and fireside chat, we have with us today the folks from Lincoln Electric. Joining us is Steve Hedlund, the CEO, as well as Gabe Bruno, the CFO, and we have Amanda Butler from the IR team as well, out in the audience. The format of this session, like I was just saying, is a chat between myself and the fellows to my left. We will also be taking audience response questions through the event.
You could participate in that through the little phone-looking devices on your table there, and we certainly would welcome your participation here throughout. So with that, Lincoln folks, welcome back to Miami.
Great. Thanks for having us.
Glad to be here.
Well, appreciate you being here as well. You know, just last week, you guys had some big news. You were talking a bit about your, the, you know, the next step in your strategy. The way I look at it is, a, a bit more of an evolution rather than a revolution, which a lot of consistencies with what we've seen in the past. But maybe, just to pass the floor to you for a second here, just to talk a little bit about, RISE and, and what it means for Lincoln Electric and how it positions you going forward.
Okay. Yeah, great place to start, and you did interpret it correctly. It's more of an evolution of continuing to do the things that we did that were successful for us, and the Higher Standard strategy, trying to take that further and accelerate the growth and performance of the business. So RISE is an acronym that stands for Reimagine how the work gets done so we can drive safety, productivity, and quality in our factories. I is for Innovating to differentiate us from competition. We've got a lot of really great ideas in the early part of the funnel in R&D. We gotta get them through the funnel and into the market faster. S is about Serving the customers better than we are doing today and better than our competition. There's a point of differentiation to help us take share in a very competitive market.
E is really around Elevating the team members, so helping each individual person achieve their career aspirations and getting the team to work more effectively together. So that's a fairly simple acronym. We think there's a lot of potential left in the business to go to continue to expand margins over a cycle, higher highs in good times, higher lows in challenging times, and to continue to drive organic growth and to deploy capital in pursuit of accelerating that strategy through M&A. So we're, we're really excited about it. We're launching it to all of our global employees starting next week. The early returns and the teasers of how we're rolling this out have been extremely positive, so we're really excited.
Great. Y eah, higher highs, higher lows are always, you know-
Always a good thing.
Always a good thing. So we probably could go through each letter of the acronym, but the one that I did wanna touch on and go through a bit more is on the R, on the Reimagine side.
Yeah.
So you described within that, around it as you know, being center-led, not centralized.
Right.
So how, how does that work in practice? And, would you say the four, how are the four Reimagine, you know, pillars set up? Are they equal in scale and in size and impact to the business?
Yeah, great question. So, it's important to understand that the history of the company is we ran very decentralized, autonomous regions. So, the folks in Europe would have their own way of doing demand forecasting, processing orders, doing supply chain planning, and the like. T hey're largely similar, but just different enough so that when you go to deploy things like shared services or AI chatbots or other things to make the business more efficient, it really, it stumbles on the fact that the data is not entirely consistent, the processes aren't consistent. So we call it center-led in the sense that there is a centralized functional expert of, say, in, finance, which is Gabe, but IT, HR, supply chain planning, R&D, and the like.
They set the processes and the policies and the tools that they want their teams around the world to follow, so we can try and capture economies of scale, but we still run the individual functions more regionally tied into the business units, so that they can be responsive to local market and customer needs. So it's trying to get the benefit and the best of both worlds from a centralized for scale, but decentralized for flexibility and agility. Gabe and his team have done a really nice job on the finance function over the last five years and have driven about a 50 basis point, and it's a total percent of sales reduction in our finance costs. There are other functions that are, you know, following on Gabe's work, particularly in IT and HR.
There are ones that are more newer, so R&D and global purchasing are fairly new initiatives for us. B asically, we expect the maturation of the benefits to happen sort of evenly over the course of the five-year planning program. So there's not an assumption that we have to do three years of hard work, and then a miracle happens, and we get a hockey stick. You ought to see a consistent layering and an improvement in the profitability of the business through these enterprise initiatives steadily over the five years.
Great, that's helpful. I f you think about one of the other legs to RISE, and you guys spoke a bit about M&A, and within that-
Mm-hmm
... within that growth framework, you're leaving yourself 300-400 basis points or so, right?
Right.
Oh, of M&A growth. So how should we think about that? Over the last number of years, you guys have bought a number of assets-
Mm-hmm
... smaller ones that added up to equal the, you know-
Yeah
... quite a big contribution. So, is it more targeted within one spot of the portfolio, more on automation? You know, with even within that, is it, you know, more complex systems or similar systems? Just trying to get an idea of how we could think of that 300?
Yeah, great question. So if you look back at the last 10 deals we've announced, I think it's pretty evenly balanced between the legacy welding business and the automation business. So we're looking across the breadth of the portfolio, in terms of business units, the breadth of the portfolio geographically, and really just looking for assets that either come in with an accretive margin structure that helps the business, or a business that has a clear pathway to get to be at least margin neutral, ideally margin accretive, for the business.
So if we look at, you know, two of the last deals we did, Alloy Steel, which has a proprietary process for doing wear plate, using Lincoln Electric equipment and consumables, by the way, trade secret, very high margins in that business, so glad to have that as part of the portfolio, and tremendous growth opportunities to take that technology around the world. Look at Vanair, that was a business that was a little bit margin- dilutive to the company, but a really clear growth strategy and cost synergies that we could deploy to get that to be at the corporate average margins in a very quick period of time. So those are the type of things we look for, and we're looking across the breadth of the business to do that.
Great. So, so I guess just maybe just to put a finer point on that, looking across the breadth of the business, but larger scale M&A, is that something, look-
Well, as the business gets bigger, right, to get 300-400 basis points of growth, you need to either do a lot more deals or bigger deals.
Yeah.
We'll try and do both. I think it'd be unlikely that you would see us do something that's truly transformative, you know, bet the balance sheet all in one go, or anything like that. But I think we are looking to do things that are slightly larger in terms of their impact to the business.
Great. So in the strategy, I think you guys referenced channel access, as well. So how does that play out in the M&A strategy?
Yeah, Vanair is a great example of that. So they do solutions for mobile work trucks, so all those utility vehicles you see going down the road that repairing transmission lines or substations, almost all of them have an engine-driven welder on the back of the truck. We had a very, very small part of that business because we didn't have access to those customers. That was the primary reason for acquiring Vanair, was to be able to sell Lincoln products through their channels to the customers we couldn't get to. In other places, you might see that as trying to build a position within a distribution channel. We're very fortunate, we have a great position in North America. You look at other places like India or parts of South America, we're not as strong in the channel as we'd like to be.
We look for opportunities to acquire businesses that can improve our position and help pull through the full range of products that we already make.
Great. So maybe flipping a little bit from the long-term strategy to thinking about a bit today. On this past call, my interpretation was that there was a little more enthusiasm around the volume outlook as you proceed through the year. So what are some of those key data points that Lincoln's watching to determine whether a second half inflection, you know, is durable?
Yeah, so there, there's two elements to that. One is in the long cycle automation business that we have. We have the backlog that will mature in the second half of the year. So it's a lot of long cycle projects. They're on percent completion accounting, so as we do the work, we recognize the revenue, but the work tends to be back-end loaded in those projects. So we're fairly confident that we'll see a pickup in the automation business from the business they've already got in hand. T hen in the rest of the business, we look at PMI is a pretty good proxy for the confidence of customers to make capital investment decisions. Typically, our consumable volume grows maybe a month after you see a continued step-up in PMI.
So hopefully, you know, we've had a few head fakes in the past. Hopefully, January was not a head fake. But if we see a couple of consistent months of PMI strengthening, you should see consumables a month after that, and then you should see capital investment in standard equipment and standard automation maybe a quarter or two after that. So we're looking for continued improvement in PMI, we're looking for some improvement in our consumable volume, and then that'll really give us the confidence that the second half growth will be there.
So, and just to add, so when you think about mid-single-digit sales growth-
Mm-hmm.
70 basis points, we know of, right? That's the acquisition. We know of pricing we put in place through the end of 2025. That's in the assumption. T hen we point to, Steve mentioned, the volume assumptions that are from real activity that we've seen in orders and backlog for automation, are staged more in the back half of the year. So that's what gives us confidence in that overall assumption for this year. W e're cautiously optimistic. You see more continued trends on, on PMI and the like, that, that points to more broader growth in short cycle activity. But our posture initially is to provide visibility on what we do know and what we see in our business.
Got it. O f course, the portfolio's wide and vast, there's a lot of different areas you participate in. So I'm just curious, if we were to exclude automation, would the core welding business still be expected to grow volumes in the second half?
I would assume, a modest level of growth.
Got it. T hen when you think about the different end markets that Lincoln's participating in, which of the five major end markets offer the most visibility today? T hen, one step broader, maybe for Steve, is like, where are you guys best positioned within those major end markets?
Yeah, I would say from a visibility standpoint, you look at the places where we tend to have a greater proportion of direct sales to large end users. So that would be things like automotive, it would be things like, you know, the heavy fab, construction, ag equipment, where we just are in much deeper discussions with the decision- makers around their forward production planning than we would with, say, Joe's Fabrication Shop, right? That we service through distribution. So a little more visibility in those segments. I think we're very confident, particularly in the Americas region, and our position across all the segments. We have really great solutions, really great people delivering and supporting those solutions.
That's probably one of the things that people don't fully appreciate about the welding business: there is a lot of on-site, pre- and post-sale technical support of customers, and we've got a significant advantage in the capability of our sales force to do that in the Americas region. We look internationally, it tends to be more, either large end users, so the automotive, heavy fab, or it tends to be project work in the energy industry. That's where we see, you know, our strength outside the Americas region.
... Great. Gabe, you mentioned a second ago on pricing. So when we think about that, the mix of volumes and price through the year, does price go down to zero in the second half, or does it get back to more of that long-term average that you have over the 20-30 strategy here? H ow should we, you know, so essentially, how should we think about price on the other side of the volume?
So, our assumption are that the pricing, it reflects only actions in 2025, as we exited 2025. So if you took fourth quarter pricing, compare that first quarter, you start to see the anniversarying effect, first quarter, second quarter, third quarter a nd yes, we'll have, on that basis, a flat type of assumption for pricing in the back half of the year. But there's no incremental pricing built into that.
Great.
Yeah.
Now, having said that, if we see continued cost inflation in the business, we'll take pricing accordingly. We just, as we sit today, felt like we had taken enough pricing through the end of 2025 to cover the current cost structure through 2026.
Got it. So maybe on cost, a different type of cost, but there's some pass-through in the business. So, when you think about the mid-20s incremental margin framework for 2026, does that include the commodity pass-through as well, or should we be excluding that throughout just to calculate that?
When you're referring to commodity pass, are you referring to silver?
Correct
...copper type within the Harris business? So, we haven't assumed a significant level of pricing-
Yeah
Within the Harris business because it's just difficult to predict. Anyone predict what silver or copper will move like. But we assume that irrespective of the move there, we should be able to hold to that mid-twenties type of incremental.
Great. So maybe shifting a little bit on share. I think share was brought up a bit earlier, too.
Mm-hmm.
So, one of the things I love to do is I look—like looking at your investor deck and seeing the, the global market share pie and seeing if there's been even a, a small change there. It seems fairly, you know, fairly stable. So I'm curious, when you look at it on a regional level, is that a similar event where it's stable, or just how does market share, I guess, vary based on North America versus EMEA and APAC and so forth?
Yeah, a great question, Adam. Share moves very, very slowly in our industry, right? People are generally risk-averse. If it isn't broken, don't fix it. There are a lot of codes and standards that people have to comply with, so they qualify products from a particular factory for a particular application. W hat really moves share over time is, you know, product innovation, where you've got a better mousetrap that you can't get from somebody else, or just out-servicing the competition, being much more reliable and predictable on supply chain performance, technical support, and the like. So you don't see wide share shifts at the broad global macro level. At a regional level, you can see it with a little bit more granularity.
In North America, for example, you know, we have really, I think, adjusted or fine-tuned our go-to-market strategy. We had emphasized in a prior period, a little bit more direct selling that alienated some of the distributors. They weren't too excited about that. We have really re-embraced a more balanced route to market these days, and we're seeing the distribution channel reward us with share gains. So we get very good share data from some of the large gas distributors. We have rebate programs that are structured around the distributors have to tell us their market share data. So we feel very confident in the visibility of that data there, and more confident that we're winning share in the North American channel. So we're very excited about that.
You know, some other parts of the world a little more challenging. Europe is a fairly tough market because of the industrial malaise there, the high fixed cost nature of labor in the European markets. There's a lot of competitors that are a little more willing to play the price game to try and keep their factories running. So that becomes a little bit tougher market for us. T hen our visibility and share in some of the rest of the world is a little more limited, right? But overall, we feel like we're doing a great job executing the strategy and driving share gains, particularly in the most important market for us, which is North America.
Great. So maybe shifting to automation a little bit. In those same slides, right, you give pretty good color as far as the, you know, the end market mix and so forth. W hat it also seems like is parts of the automation business is becoming a bit more, you know, short cycle. So how-
Mm-hmm
... you know, how do those businesses compare in outlook and margin profile versus more of like the engineered into custom solutions?
Yeah, so I'd, I'd say about 20% of our automation business is short cycle. The rest has, you know, projects and duration from 6 months to 24 months at, at the extreme. I think the margin structure is less reflective of the short versus long cycle-
Okay
... and more reflective of where do we have proprietary content or technology that we're integrating. So when we're integrating a welding solution with Lincoln technology, you know, that tends to be a more attractive business for us. When we have solutions that are driven by software, where we're taking a CAD file and interpreting the CAD file to automatically plan the robot, that tends to be better business for us. The pure integration, where I'm buying a bunch of third-party content, and I'm programming it and setting it up and installing it, there tends to be lower barriers to entry there. The pricing tends to be a little thinner. The margins are thinner. S o as we look forward in the M&A strategy for that business, it's really trying to expand the proprietary content portion of the business.
That's why we talk about tech acquisitions, for example-
Mm-hmm, mm-hmm
... like, we did recently with a business in Denmark that had a vision system for being able to look at a joint and then decide how to weld and path plan the joint, right? So we're looking for things like that, where we have differentiated technology that we're deploying as part of the solution.
Yeah, I had to add tech acquisitions into my dictionary on my computer this past quarter. So, if you think about automation, right, you guys have margin ambitions in that business as well.
Yep.
You just talked a little bit about-
Yep
The differences between the product level. So, what are those key levers to reaching the mid-teens margin? Seems like M&A and acquiring in those areas.
Yeah, I'd say the first lever has got to be volume growth, right? The business has faced a fair amount of headwinds in the last two years, driven in large part by the uncertainty in the economy, particularly around the ICE to EV, the hybrid transitions. We saw, you know, some pause in the capital planning cycle for automotive around that. We saw the challenge for heavy fab, having built out too much channel inventories. They were destocking their distribution channel. So I think if we see a return to the previous volume levels that we had in the business, that'll go a long way towards getting us towards that mid-teens target. T hen secondly is by driving more proprietary content, being able to charge for that.
We've got some pretty exciting solutions we're bringing to market this year, using AI to help a welding robot figure out how to weld a particular joint and deal with the inherent variability that exists in a factory. I think one of the things that really goes unappreciated is how much complexity there is in a factory and how much random variation there is. S o you can get a solution that works beautifully in a lab, but you put it in a factory, and it starts dealing with all the variability, and it crashes, right? So it's using software to be able to handle that variability like a human would, but with a robot instead of a human.
I think it's those kind of things, the driving of technology solutions at higher margins, continuing to get some volume leverage, and then being thoughtful about the M&A.
So, and just to add, just to remind us that our peak sales was at $940 back in 2023. Our EBIT profile then was in the low teens%. So we have line of sight to recover and then expand the margin of the business.
Very good. So maybe we'll shift over to the audience response questions right now. So a reminder for the folks in the audience, you could contribute or participate with the gadgets on your table. One day, they'll tell me what those gadgets are called so I could refer to them officially. All right, so question one is, do you currently own this stock? One, yes, overweight, market weight, underweight, or no? This is a good year-on-year reminder that my eyes are getting worse.
Mm.
All right, about two-thirds of the room, no. Next question, please. What is your general bias towards the room right now? Positive, negative, or neutral? Just as a reminder, the vote counts once the clock is up. All right, about two-thirds positive. Moving to the next question, please. In your opinion, through cycle EPS growth for Lincoln Electric Holdings will be above peers, in line, or below peers? Start the clock. About half the room above, and call it half in line. Next question, please. In your opinion, what should Lincoln do with excess cash? Bolt- on M&A, larger M&A, repos, dividends, debt pay down, internal investment. Kind of split, but about 40% on bolt on M&A. About a quarter of the room on larger M&A, share repos and internal investment. And is there one more this year, or...?
There you go. We got, in your opinion, on what multiple of 26 earnings should, Lincoln trade? Various ranges from less than 10 times to higher than 21 times. So what's amazing about this slide is we made this, I think, back in 2016.
Ah.
Those ranges may need to change, guys. All right.
Yeah.
So, we're up to six, higher than 21 times, about a third of the room. All right. So, valuation, I think, is going to be an interesting conversation around the entire conference here. But, one of the things I wanted to talk about a little bit here is on the margin range. So when you talk—when you guys gave your view out to 2030, I guess just what drives the high and low ends of what you're thinking through? I think there was a ±150 basis points view there. So what gets you to top and low end?
Well, think of the cycle.
Yep.
Right? So starting off 2030 and 2026. So if 19 is an average—if you back off the cycle, low end, one, 1.5 basis points is 150 basis points is 17.5.
Sure.
Right? So we're starting off at 17.6, right? On the higher end, right, you have the 19 + 150 basis points, so that's the 20+, with an average of 300 basis points improvement in this cycle versus the 200 in the past cycle. So it points to accelerated margin expansion, with being sensitive that we manage through cycles. W hile we were just exiting kind of a down cycle and still expanding margins, we'll continue to manage our business to drive improvements in the operating model. But that just recognizes that there's a dynamic of the cycle that we have to tend to throughout the next 5 years, that we don't know what it plays out to look like.
Fair enough. No, a range makes sense, just given volumes could vary. So then I guess, the ±150 is on the full code. When you think about the segments-
Yeah.
Is there any variation on what that could be?
That would apply the same way, right? So as we give broad ranges for each of the segments, depending on the progression throughout the cycle, Americas may look a little different than International and Harris, depending what the mix of business is.
Fair enough. So when we're looking at the margin views, right, by segment, so Americas and Harris margins were guided materially higher than the prior view. International's a bit more flatter. So I guess, what held margins back a bit on the international side that, you know, could look a bit more positive this time here?
Well, in general, the European markets, I mean, our view at this point is more pressure in the core European markets, with more expansion in Asia, Middle East-type markets. So we just have a posture of just a more challenged outlook on the industrial base than the European side of things.
Europe is about 70% of the international business, right? So it is, if Europe continues to have headwinds and challenges, it's gonna affect the overall segment. So we were a little bit more conservative in the outlook for international than the other two segments.
Oh.
Then keep in mind, Adam, that 80% of automation is within the Americas segment, so the core business has been very strong. When you look at an acceleration of growth from an automation standpoint, that those are higher incrementals because of the fixed cost nature of that business. So that's what points to strength in Americas from both growth, but also the margin expansion.
Great. Now for the fun ones that I'm asking every company at the conference. So,
Buckle up.
Exactly, buckle up is right.
Yeah.
So, AI.
Yeah.
It's a new thing.
Yep.
So how would you guys say that AI, you know, directly impacts, you know, Lincoln, your business or as well as some of your customers, and how you see that transpiring over the next couple of years?
Yeah, so I think there's two broad areas. One is helping us be more efficient and productive in our own internal operations, and that will really benefit from the work we're doing in the Reimagine the standardization of the work, 'cause it's hard to deploy AI tools when everything's slightly different. I think the more interesting and exciting part is how we're gonna leverage AI to improve the value proposition of products to our customers, right? I think one of the big challenges that people face is not necessarily getting the work tool to the work piece. So the humanoid robot thing, I think, doesn't really have a big impact for us. There's lots of different ways to get the tool to the work piece today, a six-axis robot, a cobot, for example.
It's what do you do when you get there, right? How do I deal with the inherent variability in a factory environment to be able to get the output that the customer is looking for? I, I think that's the part where we'll see a lot of exciting developments. I don't think it'll ever get to be a truly lights-out factory, where AI is deciding to do everything. If you look at sort of parts of the production process, there are clearly areas where AI can help.
Great. T he other thematic is on lower rates.
Lower rates help? Yeah, that'd be nice.
So what do lower rates mean to Lincoln Electric, just to throw it out there?
Yeah, I obviously, it makes capital investment, you know-
Yeah
... easier for people to justify, particularly, things that have a longer payback cycle, right, to them. I would say if we look at the capital equipment, part of our business, it's probably more sensitive to confidence than it is to interest rates, right? 'Cause it generally, people are getting a very good ROI in their investment in standard equipment with higher productivity or automated solutions with higher productivity, and it's really just, do I have the confidence in the business outlook to make that capital investment now, or do I wait to see? We've been in an elongated period where wait and see was the best answer, and if we can get to a point where there's more confidence in the future, I think you'll see an acceleration in that part of the business.
Excellent. You made it through the.
The gauntlet?
conference wide. So just to maybe wrap up here, so I guess, Steve, this in 2026, I guess, this will be potentially your first true volume growth year.
It'll be great, yeah. I've been CEO for 8 quarters, they've been 8 challenging quarters. I'm ready for an easy one.
There you go. So how does the messaging, you know, shift internally, as you move into, like, resilience through a cycle, through maybe potentially catching some of those tails?
Yeah, I don't think the messaging changes a whole lot, right? A lot of the drumbeat of our organization is really focused on serving the customer, fixing the things that we know are problems in our everyday life. So a lot of the Reimagine how the work gets done is trying to make us more productive and more effective in serving our customers, but also make the life of the daily employee at Lincoln Electric better. 'Cause there's a standardized way to do things, and they're able to focus more on value-added, thought-based work than just paper shuffling, if you will. So continue to focus on the customer, continue to drive productivity and improvement in the business, and continue to try to support each other and make the overall team more effective, and, you know, less of the me and more of the we, right?
So I think that doesn't change very much. You know, when we get into very difficult market conditions, then we start pulling the cost levers a little harder. You know, that becomes a nuance within the business, right? But I think the general drumbeat of the organization stays the same.
Excellent. Well, that's a great way to end it here. If you could all, let's thank Lincoln Electric, and really appreciate you guys being here.
Thanks for having us.
All right.
Appreciate it.
Thank you.