Lincoln Electric (LECO) raised its margin outlook during a September 17 presentation at Morgan Stanley's 14th Annual Laguna Conference, reaffirming a target of high-20s incremental margins by 2030 under its RISE strategy.
Gabriel Bruno, executive vice president, CFO and treasurer, said the company is "navigating a price-cost dynamic" amid persistent inflation across energy, logistics and supply-chain costs. Q3 incremental margins slipped to the low 20s from the mid-20s as those cost pressures weighed on results.
Bruno said Lincoln Electric expects roughly 100 basis points of incremental price relief in Q4, following pricing actions implemented in May in the Americas, early September in the Americas and late September internationally.
Automation-segment EBIT margins ran in the high single digits last year and in the first half of this year, with a long-term goal of reaching a mid-teens margin profile, Bruno said. International EBIT objectives target improvement to 12%–15%. For the Harris Products Group, first-half EBIT margins were approximately 20%, with a normalized range expected between 18% and 19% and a long-term EBIT target of 18%–21%.
More than 60% of Lincoln Electric's business is sold through distribution channels, with automation and OEM sales each accounting for roughly 20% of revenue. The company's international footprint is concentrated in Europe, the Middle East and Africa, which represent about 70% of its international business, while all growth is coming from Asia.
On the acquisition front, M&A contributed 480 basis points of compound annual sales growth over the past decade. The RISE strategy targets 300 to 400 basis points of sales compound annual growth from acquisitions through 2030. Notable recent acquisitions include Fori (2022), Zeman, PythonX, Weartech (Australia), Mobile Power (Americas) and the Harris Products Group.
Harris Products' sales exposure is heavily tied to HVAC, representing about 60% of its revenue split roughly evenly between residential and commercial. Data-center exposure at Harris is in the mid- to high-single-digit range, with over 10% share in some fabricated components, though consolidated data-center exposure across the entire company remains below 5% of sales.
Bruno provided several forward-looking figures: Middle East-related headwinds narrowed to $6 million–$7 million per quarter from $8 million–$10 million in Q2; automotive volumes declined mid-single digits year-over-year; and Asia is expected to deliver low- to mid-single-digit organic growth inclusive of India, Southeast Asia and Australia. The general-industry PMI has recorded eight consecutive months above 50.
On capital allocation, Lincoln Electric announced planned share repurchases of $150 million to $300 million annually when cash conditions allow. The stock closed around USD 257.20 on September 18, trading at a P/E of 25.7 and offering a dividend yield of 1.24%, with dividends having increased for 29 consecutive years.
"We have consistently improved the operating profile of our business," Bruno said, emphasizing the company's focus on protecting its operating model through the current inflationary environment.
