Q1 2020 Earnings Call
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I'd now like to hand over the conference to Speaker today, Amanda Blender Vice President of Investor Relations. Thank you. Please go ahead man.
Thank you Christine good morning, everyone welcome to Lincoln Electric's, 2021st quarter Conference calls, we released our financial results earlier today, you can find our releases an attachment to this call's presentation as well as on the Lincoln Electric Web site at a Lincoln electric Dot com in the Investor Relations section.
Joining me on the call, Chris Me, Lincoln's Chairman, President and Chief Executive Officer.
The trauma executive Vice President and keep Bruno our Chief Financial Officer.
Chris will begin the discussion with an overview of our first quarter results and together with Vince will discuss Lincoln's management of Cobot 19.
Gable covered the first quarter performance in more detail.
Your prepared remarks, we're happy to take your questions.
Where we started discussions please note that certain statements made during this call maybe forward looking and actual results may differ materially from our expectations due to a number of risk factors a discussion of some of the risks and uncertainties.
The results are provided in our press release.
See filings on forms 10-K and 10-Q.
In addition, we discuss financial measures that do not conform to U.S. GAAP a reconciliation of non-GAAP measures to the most comparable GAAP measure is found in the financial tables in our earnings release, which again is available in the Investor Relations section of our website at Lincoln Electric.
And with that I'll turn the call over the Christmas.
Thank you Amanda good morning, everyone.
Before we get started I'd like to think Vince for his outstanding contributions as CFO to Lincoln electric vis a step down as our CFO, but it's continuing to work with us to ensure a smooth transition.
I'd like to formally introduce gay Bruno our new CFO, who has been with Lincoln for 25 years and brings a wealth of knowledge and experience to the position.
Vincent game will be leading the call with me today.
Looking at the first quarter, we continue to operate through the quarter as an essential infrastructure sector business across substantially all of our facilities and achieve the margin in return performance in an increasingly challenging environment.
Despite first quarter sales declining 7.5%, our adjusted operating income margin declined only 40 basis points to 12.6% on favorable mix price cost and benefits of our cost reduction actions.
This resulted in an 18.2% decremental margin performance in the quarter.
Adjusted earnings per share decreased 14.5% to one dollar per share.
Cash flow generation reflected seasonality, but free cash flow improved versus the prior year.
Returns remain strong with ROI see at 19.7%.
We also returned 140 million to shareholders through a combination of our 4% higher dividend payout rate and $110 million in share repurchases in the quarter.
As we ended the quarter, we benefit from a strong balance sheet and ample liquidity as we ready the business for a more challenging conditions ahead.
Moving to slide four.
Our employees have shown great resilience and perseverance maintaining operations during this time.
Across the organization, our priority has been keeping our team safe, while we serve customers.
We have aggressively implemented new procedures that include the CDC and World Health organization recommended best practice hygiene, and sanitation protocols entry and exit screenings, social distancing and have implemented flexible and remote working arrangements. In addition to many other actions.
We continue to monitor guidance from federal and local authorities were actively adopting new measures as recommended.
Secondarily, the focus of first quarter operations wants to maintain a steady supplier product, which we achieved.
Our teams established local and regional operational contingency measures, we expedited select raw materials as needed and built excess inventory ahead of potential supply chain disruptions or mandated closures.
During the quarter, our five Chinese facilities were closed for approximately one month due to government mandated shutdowns, but orders resumed to normalized levels by early March.
The balance of our global business did not experience any material impact from cobot 19 until mid March when many of our global locations instituted aggressive new procedures to protect employee safety, while continuing to serve customers.
As demand compressed significantly during the last two to three weeks of March were expecting more challenging operating conditions and the second quarter.
An increase in customer facility closures and the continued risk of possible supply chain disruptions are expected to result in lower operating activity and higher inefficiencies in the business.
Moving to slide five looking at organic sales trends in the first quarter, our two welding segments contracted well hear sales increased on higher retail channel and Athree AC activity.
All regions saw further deceleration in demand as the cobot 19 impact late in the quarter compressed an already challenged industrial sector, which prompted an expansion in our cost reduction actions.
Looking at products, both consumables and automation organic sales declined at a low double digit percent rate and equipment systems declined by a mid single digit percent rate.
Generally most end market sectors continued to compress at a double digit percent rate.
Since mid March we've seen a significant deceleration in demand.
April month to date sales orders have trended in the low 40% range, primarily due to customer closures.
Our order patterns appear to have troughed over the last three weeks and while there is limited visibility and uncertainty from customers and government discussions around partial reopenings. The data suggest that the second quarter should be the trough in demand.
Well this down cycle is unique in the shape of the recovery is unknown. We've outlined some of the recent prior peak to trough historical performance across our main end markets to provide perspective.
Generally declines have been in the mid 30% range and have compressed over 12 to 18 months with an equivalent recovery time frame.
And now I will turn the call over to events outlined the actions we have taken to mitigate the impact of lower demand in our business.
Thank you Chris.
Turning to slide six we expanded our cost reduction actions in the quarter and are benefiting from prior actions that eliminated travels.
Regression every spending and froze new hiring and wages.
In the first quarter, we achieved approximately $7 million and benefits primarily from temporary actions.
In April we significantly reduced hours to 32 per week in our main U.S. operations eliminated overtime and we have deferred all wage increases in the quarter, we commenced the rationalization and closure of three manufacturing facilities and further reduced headcount to align with demand.
Our actions are now expected to realize 40 to 45 million an annualized cost savings in 2020 of which 45% is expected to reflect permanent cost reductions.
We expect to exit 2020, generating between six and $7 million in permanent cost savings per quarter.
We incurred $6.5 million pre tax rationalization charges in the first quarter and anticipate incurring an additional 10 to 15 million in rationalization charges through the balance of the year.
We are prepared for further cost reductions and will determine the appropriate timing of implementation as a second quarter progressive.
The lack of visibility on timing and the shape of the recovery has led us to carefully phase and cost reduction actions overtime.
Turning to slide seven.
We are confident in our ability to navigate through this challenging period disciplined conservative management of our balance sheet provides us with an investment grade profile at 1.85 times gross debt to EBITDA, which positions us well below our 3.5 times gross debt to EBITDA debt covenants.
We have ample room to endure severe contraction in demand and are confident in our current liquidity position.
We benefit from ample liquidity of $477 million in cash and available credit lines and expect to generate cash flows from reductions in working cap.
As in past cycles cash flow generation remains strong and we expect greater than 100% cash conversion.
In addition, our long term debt maturity, our first long term debt maturity is in August 2025.
Moving to slide eight we have made temporary adjustments to our capital allocation plan.
We are now prioritizing capital investment spending to cost reduction new products and growth initiatives.
This reduces our 2020 Capex plan by approximately 15%, which is now estimated to be in the $55 million to $65 million range.
We do continue to evaluate M&A activity Opportunistically focus primarily on tuck in assets.
We're also maintaining our dividend program, but we have temporarily suspended share repurchases after spending $110 million and buybacks in the first quarter.
We expect to resume repurchases when we start see business conditions improve.
Before I pass the call the gave to cover the first quarter results and some more detail.
I would like to extend my thanks to our investors and analysts why worked with over the years.
There's been a pleasure and honor to work with all of you I.
I would also like to congratulate gave on his new role and I'm confident that he will build upon the accomplishments Lincoln has achieved and will successfully help navigate the organization through this period, while staying focused on our long term strategic goals.
Okay.
Thank you Vince and Hello, everyone.
Moving to slide nine our consolidated first quarter sales decreased 7.5%.
By an 8.6% decline in volumes from lower demand in our welding segments. Our first quarter gross profit margin was generally steady with prior year due to positive price costs favorable mix and the benefits of cost reduction actions already seen a expense declined 6.7.
Percent in dollar terms, driven by lower employee costs and discretionary spending the assuming a ratio increased 20 basis points to 21.3% sales reported operating income decreased 14.2% to 81.1 million or 11.
0.5% of sales operating income results included approximately 7.3 million in special item charges related to rationalization.
The impairment primarily from severance related to our international welding cost reduction activities. Excluding these special items adjusted operating income decreased 10.5% to 88.4 million or 12.6% of sales a 40 basis point.
Decline versus the prior year acquisitions had a 40 basis point diluted impact to our adjusted operating income margin in the quarter.
Alan margin performance reflected favorable mix lower costs and the benefits of cost reduction actions.
Our first quarter reported and adjusted effective tax rate was 26.8% compared with 23.1% in the prior year period or 22.9% on an adjusted basis. The increase in the first quarters effective tax rate was primarily due to discrete items.
Okay and mix of earnings we expect the balance of our average 2020 effective tax rate to be the mid 20% range, considering the future mix of earnings and anticipated extent of discrete tax items.
First quarter diluted earnings per share decreased 18.8% to 91 cents compared with $1.12 in the prior year on an adjusted basis diluted earnings per share decreased 14.5% to one dollar benefiting five cents from share.
Repurchases.
Now moving to the segments on slide 10.
Americas welding segments first quarter adjusted EBIT dollars declined 13.5% to 70.7 million. The adjusted EBIT margin declined 90 basis points to 15.9% as positive price costs favorable mix lower costs and.
The benefits from cost reduction actions helped mitigate lower volumes in acquisitions.
Excluding acquisitions, the EBIT margin would have declined 20 basis points.
Looking at the top line Americas welding sales declined 8.6%, primarily due to 8.2% lower volume.
Both equipment and consumable organic sales declined at a high single digit percent rate and automation declined at a mid teens percent rate.
Moving to slide 11.
The international welding segments, adjusted EBIT decreased 50.4% to 6.6 million and the adjusted EBIT margin declined 270 basis points to 3.3% volume declines in Europe, and Asia Pacific offset benefits of cost.
Ladies and lower discretionary spending.
Moving to the Harris products group first quarter, adjusted EBIT increased 18.8% to 12.5 million. The adjusted EBIT margin increased 200 basis points to 14.3% on higher volumes from the retail channel.
Favorable mix and from continued improvement in operational excellence with that I would like to turn the call over to Chris before we take questions.
Thank you gave we're managing the business with tremendous flexibility and agility given the need to ensure the safety of our employees customers and communities, while continuing to operate and serve customers who have mission critical applications.
We've also acted swiftly to align our business the lower demand and are prepared to implement further measures as we monitor the progress of the second quarter.
Our product development and commercial initiatives have continued to advance as well in the quarter.
Our Harris products group team designed developed manufactured and delivered a customized gas distribution system in five days that delivers oxygen to individual patient beds at a New York City Field Hospital.
The Harris team continues to provide gap oxygen regulators and systems to help healthcare and government agencies respond to the cobot 19 threat.
In a new era of social distancing and travel restrictions, our north American commercial team rapidly deployed a new digital platform to engage our customers in life product demonstrations and educational webinars.
Year to date, we've engaged over 5000 customers worldwide online and we'll be using digital solutions to support the launch of 30 new products. This year.
We are confident in our ability to navigate this unprecedented challenge with the strength of our balance sheet strong cash flow generation and the continued commitment and dedication of our global teams.
Thank you and I will now pass the call back to the operator for questions.
Thank you.
And as a reminder to ask a question we need to press star one of your telephone.
Your question. Please press the pound key.
Please standby compared to Q1 a roster.
And our first question comes from the line to Rob Wertheimer with Melius Research. Your line is now open.
Thank you and good morning, everyone.
Good morning.
We just trying to and I noticed gets a little bit granular, but you gave some good color commentary on orders.
I'm trying to figure out whether.
This is the bottom and how that compares to kind of your worst months or worst weeks or whatever how nine.
You can it sort of compare and contrast, the two time period and death of order downturn, and then really how you're trying to manage through it seems as though you're doing a nice sort of look at stage responses, depending on how things play out but are you anticipating.
As deep as as long as out there. Thanks.
Yeah, Rob This is Chris look I. Appreciate the question as you can imagine it is it's a challenging window to try to evaluate the data and.
Be able to understand how we think we may trend here over the next several weeks, but as I compare it to own no nine to the certainly the change that we saw in the dynamic in the business was the swiftness or the downturn.
So in the business globally started to turn down and we saw that the middle part of March it turned down pretty materially and then as we shared with you today down in the low 40% from a global welding perspective, where we sit today, we've been tracking this data pretty diligently I'd say for the last 69.
90 days.
We we were seeing the impacts of covert 19, very early with our China operations.
Our five day 10 day, and 15 day trend appears to show a bottoming at this level I'd like to see some more of that data to get more competence and that's why I'd like to see this data over the next two to three weeks, maybe trend that data in towards the middle part of May to see if we've got some confidence that we have bottomed and beginning to see an upturn.
And from the data certainly this time versus Oh wait no onein the drop was more swift more material.
And that certainly is a change from that prior pattern.
But I've got a lot of confidence in our ability to navigate through the cycle. We've got a great balance sheet. Our teams have done a great job in a very challenging environment.
Certainly one of the differences for the leadership team this time versus though eight no nine is quite frankly, managing the importance of employee health.
And in that creates a different dynamic when you're trying to operate as an essential business around the world certainly as we continue to watch the data here over the next few weeks, we'll keep that front of mind you got to make sure. We're continuing to invest in our processes to ensure that employee safety will continue to watch the data here over the next three to four weeks and hopefully.
We see some improvements in that data as we're migrating through Q2.
Okay. Thank you I'll follow up thanks.
Thank you and our next question comes from a line of sorry borrowed it ski with Jefferies. Your line is over.
Right.
If your line is on mute please UN mute.
Hi, sorry can you hear me.
Good morning, and congratulations to Vincent gave on your new rules.
You mentioned order levels, reaching normalized levels in China in early March you. Thank you can apply what you saw in China to other regions and if so when would you expect order levels to normalize.
Well, it's difficult for us.
Imply that the order dynamics that we saw in China are going to replicate across our larger businesses in Europe in the United States certainly in China within 30 to 45 days, we saw those order net numbers move back to a more normalized level nor normalized level being.
Plus or minus 5% versus prior year, and and certainly happy that we have seen that business provide that type of recovery.
If you were to imply that across the rest of the business that would say we should probably have.
Over the next 30 to 45 days a recovery back in our European businesses, our mirror business as well as our us business, but at this point it's just.
Two challenging for us to extrapolate that across.
Our portfolio at Lincoln Electric and that's why we're going to continue to evaluate the data determine whether we start to see that improvement or if we need to take further actions to mitigate a longer downturn in demand in those markets.
I appreciate that and then just within the 40% where declines in April can you provide some color. What you saw that end market or region nice seen any impact from de stocking.
Well I can't say that I've seen or we have enough context to though about any destocking levels I would tell you that as you would expect with the with the virus starting in Asia Pac, where we start to seeing that China business returned to normalized levels, though the impact was earlier in Europe.
We actually now has seen the Europe numbers be slightly more favorable than the average and we'd see the Americas number slightly unfavorable to the average, but we certainly believe that's just more of the trending the impact from the pandemic within those businesses and then from an end market perspective, obviously when you've seen these.
Demand numbers drop that swiftly and with what we're seeing in the marketplace not surprising that automotive and transportation and heavy industries have been significantly hit by the impact.
I appreciate the color. Thanks, so much.
Thank you.
And our next question comes from the line of Joe O'dea with vertical research. Your line is now open.
Hi, good morning, Congrats and best wishes to Vince and congratulations on your new role Gabe.
Thank you.
The.
First question just related to margins.
Of the 40 to 45 million in 2020 cost savings can you talk about how that flows through from a cadence perspective.
And any anything you're willing to say in terms of expectations around decremental margins in the second quarter.
So this is gave.
As we've disclosed 45% of their overall cost savings we've identified is permanent.
So expect that more of an acceleration of temporary savings as we progressed into the second quarter and then the trajectory into the balance of the year and that's going to be driven by car alignment to demand.
More as Vince had identified $7 million in the first quarter and expect that kind of trajectory into the second you think about decrementals.
Assuming our current levels volumes, which Chris has mentioned we've disclosed in the low Fortys, we would expect decrementals in the 35% to 45% range.
You saw the first quarter was pretty healthy at 18.2, and we've been pretty aggressive and identifying and progressing the cost savings, but thats the framework that we're working towards.
That's really helpful and any thoughts then in terms of I mean, I know, it's really tough to call the demand side of things, but based on what you're doing on the cost front. We go from 18, then into the 35 to 45 range and then how that could sort of look in the back half it's more of the cost actions start to materialize.
They can generate so difficult Joe to project out with the volume assumptions, we see in that framework. We just believe that's a reasonable framework for us to monitor.
Sure.
Appreciate that.
You gave some helpful context in terms of declines if we go back to the O. eight or nine period and overall down 30%.
And when we look at.
For the 12 months post that trough revenue was up 20%.
And can you talk about kind of the trends that you have seen than maybe what you would expect to see out of a recovery with respect to equipment demand versus consumables demand.
Think presumably consumables, leading out but generally how long that equipment demand could could lag that with maybe some capex sensitivity in the early days of recovery.
Well I think part of that will depend significantly about the shape of that recovery, which at this point in time is very difficult.
For us to estimate.
We've been very.
Committed to continuing to invest in our new product development at this point in the cycle and we'll continue to be I think if you go back and look at O. eight no nine to one of the real success stories for Lincoln Electric was our ability to continue to invest a new products and then when we were coming out of that cycle bring those new products to the marketplace and even ex.
And our positioning in the marketplace from a solutions perspective.
But the swiftness down of this particular downturn could lead someone to believe that if it migrates out and whether you would say that forget about the shape of the recovery that when you are moving from that recovery certainly some of the support that's been provided out into the marketplace.
And certainly a continued low cost of capital, we should be able to see some of those investments and solutions, especially those investments that people are looking for productivity. So I'm still.
Feeling very good about the fact, when we do migrate into the recovery phase that the equipment portion of that should be able to migrate in more quickly than maybe what we've seen previously I'm, probably also feeling that way because of our positioning in the marketplace. We have two or three products that we brought into the marketplace in the last six to nine months that are doing very very well I expect.
Those to continue to do well and again as we mentioned in my prepared remarks, we have several new products that we intend to bring to the marketplace in 2020.
And most of those new products are centered around the equipment portfolio.
Yes.
Got it and then I just want to ask one more on oil and gas and down 33% 14 to 16, 15% of your revenue exposure can you just remind us for the breakout of kind of upstream midstream downstream, but then also how you think about this from a sort of structural perspective and risks to.
In particular upstream based on the regular volatility that we've seen in that market.
Well, when we think about our mix within oil and gas.
We've got about 16 or 18% that's upstream were 50, 560% that's around midstream and our downstream assets are somewhere around 20% to 25%.
That's really the way, we think about the mix within the portfolio. Obviously, the very recent shop within the global oil industry is just now permeating around the world.
Certainly they're experiencing some dynamics within their marketplace that they've never seen we have seen some large projects that have already been postponed we've seen some of that impact across our portfolio, but I would still say very early for us to understand what the longer term dynamics may be in oil and gas other than generally when they've had.
Cycles, we've seen those cycles tend to be elongated versus what we would say a normalized cycle would be so what I mean by that as we kind of think about.
Those cycles being 12 to 18 months when I tend to think about oil and gas I think about them being slightly longer as it takes to return to more of a recovery, but very early in the oil price shock and what's going on in that marketplace for us to get more comfort about what the outlook appears to be for that segment.
Thanks very much.
Thank you.
And our next question comes from the line of Nathan Jones with Stifel. Your line is now.
Good morning, everyone.
Hello, Good morning, they learning.
Just wanted to start with a question on they are the potential for further cost reduction actions.
I think you said as to Q 20, Progressive can you talk about maybe what that decision points, our along the way there what you would need to say.
To an act or the cost cutting actions and what kind of levels, they're off to pull there.
Well I would tell you that what we intend to do is continue to migrate this demand profile I mentioned earlier. The 510 15 day trends that we're seeing within the global welding portion of the marketplace.
We need to begin to see some improvements within that data as we're exiting may and some material improvements in that data as we migrate into the early portions of June.
And and that's the data the Abhi looking for in determining whether we've got to move forward with further actions within the business. We are we have evaluated a couple of structural opportunities that we might look at accelerating as unfortunately, it would probably require us to take more employee cost actions.
Across the business and that would probably be the two levers that we would be reviewing at implementing and as you can imagine those would have very little impact in Q2 themselves most of that impact would be.
Improvements, we'd be trying to drive in the business in Q3 in Q4 this year.
Okay, and then a couple of questions around cash.
You talked about the decision to repurchase shares in one Q 20, I know you said you're spending then going forward and then just any other things that you're doing me to manage cash I'm thinking, particularly about receivables collection, whether you've seen any extension on that side.
Where do you foresee any issues with your customers actually being able to pay that bills here at the moment.
Yeah. Nathan this is Vince so as far as our decision to purchase shares in the first quarter, we found the share price to be very attractive and.
Very compelling from a repurchase a perspective.
And.
Decided to suspend that program temporarily until we have better visibility in terms of the the recovery.
We expect to occur this year from this cobot 19.
Imposed compression in the industrial space from a cash management perspective, we're very closely monitoring our working capital components, a very carefully reviewing our receivable and so.
On a.
Graphic and and market and customer basis, we're managing our payables carefully and.
These are the times that were.
Viewing our cash flows and cash management activities on a very close basis.
Have you seen any issues are any stretching out of dsos or anything like that so far.
From a macro perspective, or dsos are holding up very well there.
There are anecdotal and specific cases of issues, but nothing that has risen to the level of affecting the group in a material way.
Okay. Thanks, very much help us it on.
Thank you. Thank you.
And our next question comes from the line of mid Stober with Baird. Your line is now open.
Thank you good morning, everyone.
Just one I want to go back to you or your April comments, what to make sure that I understand this properly.
Americas.
Maybe declining a little bit more than that.
40% average international I think you mentioned a little bit less.
Any any color on how harris's.
Progressing in April.
You know make Harris has held up maybe just slightly a little bit better than the average maybe a little bit better than our international business not surprising when you think about the segments that it is participating with obviously, it's got an element within that business, which is welding, but it's also got an hvdc component associated with that.
As well as a small component in medical applications are oxygen regulators and some of the technologies that we developed around that piece so that portion of the business.
Certainly has held up a little bit better, but we are seeing that downturn in demand also in the Harris business at this point.
Mig I would just add that we're saying things same kind of trending from a relative perspective, So harris was holding up better than the welding businesses.
In the first quarter and.
In the latter half of a March but we're certainly seeing a step down.
Year over year in in Harris, but not quite to the levels that that we pointed out for the welding segment.
Understood and then.
You know you gave us perspective on the decremental margins here, but I'm wondering is.
There is any variation.
From that average at segment level that you think it's worth calling out.
No I don't think anything that's really material Mig I mean, certainly not at this point in the era early part of of April I feel pretty comfortable with where we've positioned the business.
I like the fact that I recognize that we've got further actions that we can take if we don't see improvements within the structure of the business or don't see the rate of improvements that we want to see in the structure of the business again, I think that will have very little impact as it relates to the decremental margins in Q2.
But I do like where we've positioned the business our ability to manage through the cycle and certainly believe that are certainly our performance in Q1 should just amplify that confidence of our ability to manage through the cycle.
Yes.
I think then lastly from me.
Maybe a little more color on the automation business.
I guess looking at the first quarter.
So it still seeing some pretty meaningful declines here I'm wondering how that progress into April.
And I'm also sort of wondering what you're doing with this business in terms of adjusting the cost structure, because obviously the decrementals in Q1 in your Americas segment.
Look pretty good so I'm wondering how how automation played into that and.
How you're thinking about this business going forward I.
I can start by telling you that year over year performance from a top line perspective and.
Automation was a double digit year over year decline, so a little compression that little higher level than the overall welding business and I'll kick it over to maybe Chris for comment on the cost reduction activities around people one of the I guess you can say one of the benefits associated with at least this point in the cycle, we'd had some challenges within that business certainly.
As we were exiting 2019, NRT and taken quite a few actions to.
Mitigate some of our cost structures in that area. So we saw some of the benefits associated with that in Q1. The other thing I would share it do Mig is that.
Because that order book tends to have a longer cycle associated with it than our core welding products.
I wouldn't tell you that when I look at their order book as a percentage basis, it's down anywhere near the level that we're seeing in the core business now the concern is as if capital capital investments become more materially impacted they may be lagger as it relates to what we're seeing from an order perspective and it could be more challenge.
It out there in the May June timeframe, and we may need to look at taking some other actions within that business, but that business performed relatively close to expected the orders held up more favorable than the core business and we'll continue to see and monitor our automation activity as we're moving through Q2.
Going into Q3, although I will tell you I still have great confidence in our investments and automation and the continue old.
Expectation that we will continue to see people migrate more and more towards automated solutions as it relates to driving productivity and quality improvements in their businesses across the world and here in North America.
But just to clarify in terms of your cost savings action.
What do you have done already and what you're contemplating going forward is the automation business more or less impact that then then the segment average.
Right right now early on in this.
Decline automation has been more impacted some of our other welding businesses.
Okay. Thank you.
Thank you and our next question comes from the line the Chris Dankert with Longbow Research. Your line is how open.
Hey, good morning, guys, just echo the hearty congrats to Vincent and welcome gave certainly tend to be stepping into the role here.
Obviously, you guys typically don't give a lot of granular detail by country, but just can we get a quick update on specifically China growth rate in the quarter on kind of what the EBIT loss might have been there in one Q.
You're breaking up.
I don't know, whether it's a might be your phone.
Through the first color that we've had difficulty understanding but I think.
I might have the gist of your question is what's happened in China on a year over year basis.
In the topline and and operating performance and.
We would tell you that year over year performance has stabilized there was a.
A rebound in March in that business as all of our manufacturing units became.
Online again from being.
Running.
An erratic away during.
From the end of January into early March so.
We would tell you that from a year over year perspective relatively stable in both revenue and earnings from that part of our business.
Got it got it thank you.
And then just do you still expect a fairly even split in the cost savings between Americas International with these new cost out actions.
Absolutely.
I can't make I don't think anybody in the room understood that question.
Got you previously you guys just could you just give us the question again.
Sure sure.
Why don't you Hey, Chris could you just email the question to Amanda and then we'll move on and come come back to your question.
If you have sounds good any other questions just email and were spawn before the end of this call.
We'll do.
Okay. Thanks next.
Thank you. So our next question comes from Milan, Walter Liptak with seaports amount as now.
Hi, Thanks, Good morning, guys.
Morning warning.
And I'll say congratulations to them too.
I wondered if you could talk a little bit about the the additives business and you know that.
I felt was going to be a big growth.
For you I Wonder if you saw our growth in the quarter.
Orphans declining how much is declining by.
While.
We did not necessarily see the growth in the additive business in the quarter I would tell you that.
We're continuing to invest in that area the business, it's a long term catalyst for us but.
Go as far as to tell you that even if were successful in driving what we think we would drive from the business. This year, it probably will not be material enough for us to call out from a revenue perspective, we continue to invest in the technologies. We've we've had a couple of articles that have been recently written and published about the technology that we're implementing here from a.
Wire based additive perspective, so it's progressing but as you would expect one of the challenges associated.
With the pandemic is it's very important for us to have interaction with those engineers and customers and actually have them on our sites to be able to look at the parts and manufacture the parts and all of that activity.
Has been paused until we get beyond the stay in place orders that we have here in Ohio. So we had stopped allowing visitors into our headquarters here in very early March.
We're expecting to slowly start opening that up as we are exiting Q2, but I don't expect that we'll be able to have some of that activity here until the latter part of the second quarter and that impacts not only are additive business, but other individuals that might be coming here for training or to talk to us about some of the solution activity were.
Driving that's why in my prepared remarks, I'm. So excited about our team's ability to be more agile and bringing those solutions to the customers through webex and other types of technologies.
Those over 5000 customer touch points that we had in Q1 will have to continue with that activity in Q2 until we can allow visitors back into some of our technical centers around the world as we're exiting Q2.
Okay got it.
Yes, just kind of a follow on just thinking about your own supply chain. It sounds like you Didnt haven't you built some of them so everything from profitable.
And I wonder, where we might more critical parts required.
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And as we grow mobile phone calls and affordable supplies.
Well and I will tell you in great difference in appreciation to our supply chain professionals around the world I recognize that we had challenges, but we just found ways to manage through those challenges and and I can't say that supply chain had any material impact in the business in Q1, However, we recognize that.
As the global economy starts to reopen and we start to see more of that activity that there will continue to be challenges around supply chains, and that's why we've called that out as one of the risks associated.
With being able to see improvements in the demand as we're moving forward, but as it relates to Q1, our teams did a spectacular job we manage through the issues that we had and we were just recognize that there could be challenges in front of us as the global economy.
Starts to Reengage.
Okay got it thank you.
Well.
Thank you.
Ladies and gentlemen, as a reminder to ask a question we'll need to persist.
One of your telephone and to withdraw your question. Please press the pound key.
Our next question comes from the line of Steve Barger with Keybanc Capital. Your line is now open.
Hey, good morning, guys.
I wanted to do.
Thanks, Good working with you and what your retirement.
Thank you same here yes.
I'll follow up on the automation conversation I know, where we're early in the virus driven slowdown versus what we were already seeing last year in terms of things.
Slowing down, but what is your team hearing from customers in terms of how automation fits into their cycle planning or how they're thinking about managing their own cost structure going forward given what we've just been through with with the current a virus and tariffs before that.
Yes, I'll tell you, Steve it's really a difficult question to give you much clarity to I can tell you that as we were exiting Q1, many of the discussions and innovations that we were developing with customers and the automation space. They completed those discussions and quite frankly, we had some of those mature to order.
But I'll also tell you we had a couple of projects where quite frankly, the customers came back to US and said it was just too difficult for them to finish the evaluation and the discussions and decided to pause and said they would be coming back in in Q2, and moving forward with those discussions and I think thats what were going to see.
Over the next 2456 weeks as these businesses start to Reengage and get started back up.
But I still think that Steve when I think about automation I've got to go back to thinking about it from a structural perspective.
And although we were seeing challenges associated with capital spending in 2019, and we made adjustments associated with that we still feel very confident in automation.
And the structural improvements in industries that are made through automation and think that will be a really good piece of our business longer term, but I think we'll need to get through the next 30 60 90 days to see how some of the automation customers respond to.
The pandemic and respond to.
Some of the challenges within their own business, but those organizations, especially those manufacturing organizations are going to see a need to continue to drive productivity and quite frankly at times utilize automation to minimize.
Employee requirements within their facilities.
I think the unfortunately, the challenges associated with the pandemic amplify those issues and certainly couldn't be viewed as favorable for automation over the longer term.
Yep.
And I appreciate all the tough decisions around the necessary cost actions you've taken given the speed of the decline, but how are you talk to the team about service levels are taking market share. If your competitor stumble or if say Threeq you are for Q is not as bad as feared at this point.
I'm glad you asked that question, because we're having as many conversations internally about being commercially offensive.
As we are anything else within the business. So we decided globally that as we saw the pandemic started to migrate around the world that we would manufactured product. So we had essential businesses. We had employees we had raw materials, we didnt hesitate we manufactured products.
Sorry levels are very healthy and I like that because I believe quite frankly as some of these markets globally start to spring back there could be competitors that have challenges and Lincoln electric is going to be they're prepared to service those markets and customers and our service levels of stayed very strong our inventory position is very strong.
And that's what companies should do when they've been conservative with their balance sheet and have an ability to be prepared to service the market and we are not going to miss that opportunity. It's also why Steve as we entered in to early Q2, and exiting Q1 that we didn't apply all of the cost.
Production activities that could have been available in Lincoln Electric we decided that we were phasing those end because it there is a quicker recovery I want those individuals prepared to ready to respond to customers in the markets. So we think we're in a very good position and I can assure you are service levels will maintain a very high level of performance.
Especially in our international business, which struggled with some of those performance measures over the last 18 to 24 months certainly they've been very strong the last six to eight months and we'll continue that level of performance as we migrate through the pandemic.
That's great color. Thanks.
Thank you im not showing any further questions at this time. So this concludes today's question answer session I would now like to turn the call back to gay Bruno Chief Financial Officer for closing remarks.
Thank you Chris I'd like to thank everyone for joining us on the call today and for your continued interest in Lincoln Electric we look forward to discussing the progression of our actions and strategic programs in the future. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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