Q1 2021 Lincoln Electric Holdings Inc Earnings Call
Greetings and welcome to the Lincoln Electric 2021 first quarter financial results Conference call.
At this time all participants are in a listen only mode and this call is being recorded.
It is my pleasure to introduce your host Amanda Butler, Vice President of Investor Relations and communications.
You may begin.
Thank you Stephanie and good morning, everyone welcome to Lincoln Electric's first quarter 2021 Conference call. We released our financial results earlier today and you can find our release as an attachment to this call's slide presentation as well as on the Lincoln Electric website at Lincoln Electric Dot Com and the Investor Relations section joining me on the call today is Chris Mapes Lincolns.
Chairman, President and Chief Executive Officer, and Gabe Bruno our Chief Financial Officer, Chris will begin the discussion with an overview of our results and business trends and Gabe will cover our first quarter financial performance and more detail and following our prepared remarks, we're happy to take your questions before we start our discussion. Please note that certain statements made during this.
Call, maybe forward looking and actual results may differ materially from our expectations due and due to a number of risk factors a discussion of some other risks and uncertainties that may affect our results are provided in our press release and in our SEC 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 and the financial tables and our earnings release, which again is available and the Investor Relations section of our website at Lincoln Electric Dot com and with that I'll turn the call over to Chris Mapes, Chris. Thank you Amanda good morning, everyone.
I am pleased to report that the first quarter results exceeded our expectations as demand accelerated through the quarter reinforcing solid recovered momentum we globally, operator doesn't a central business and remain focused on safety and servicing our customers, while still navigating a challenging COVID-19 environment, our teams execution yield.
And at very strong results.
Turning to slide four we returned to growth and the first quarter sales increased seven 8% led by a six 4% growth and organic sales exceeding our assumption of flat to slightly positive performance and.
Diligent price management and operational initiatives generated an approximate 24% increase and adjusted operating income.
Our adjusted operating income margin improved 180 basis points to 14, 4% with a 37, 8% incremental margin very strong performance.
Adjusted earnings per share increased 37% to $1 37, and a record first quarter performance.
Return on invested capital remains strong at 18, 9% and cash flow from operations and free cash flow performed above prior year levels.
We returned approximately $60 million to shareholders with $28 million and share repurchases and paid out $31 million and dividends.
Looking at the first quarter demand on slide five organic sales increased six 4% with two 7% volume growth.
Demand improved through the quarter with heightened acceleration in March and several areas of the business and the quarter all reportable segments geographic regions and main product families achieved improved performance sequentially.
Equipment demand continued to outperform the other product categories on the strength of our solutions and we're pleased to see automation sales returned to prior year levels as customers increased capital spending.
80% of our first quarter revenue was exposed to growing end markets led by mid teens percent organic sales growth and automotive and heavy industries, where mining agriculture, and construction equipment demand increased above expectations.
Energy remained slightly challenged.
We're entering the second quarter with strong momentum and record order and backlog levels for equipment.
Customer sentiment continues to be positive yet cautious as the economy rebounds faster than anticipated.
This positions us well to capitalize on growth and this early part of the cycle.
Given this strength and the incremental pricing actions, we've taken to mitigate persistent raw material inflation, we're updating our full year top line organic sales assumptions to now be in the low to mid teens percent range.
This range does not include any future pricing actions, which may be warranted.
We're also assuming standard seasonality and the business with second quarter sales slightly higher than first quarter results.
We're also increasing our incremental adjusted operating income margin assumption to now be and the high 20% range to reflect higher volume levels and operating leverage.
This incremental range also factors in unexpected LIFO charges that we expect to be consistent with the first quarter rate through the balance of the year.
Acquisitions are a key growth driver at Lincoln Electric and we closed our acquisition of Zima and structural steel automation business on April 1st.
And we're excited to have the zeman team join our automated cutting portfolio and their solution is complementary and downstream to our Python X automated <unk> plasma cutting solution.
The two products now provide customers with unparalleled productivity and quality and fabricating I beams for structural steel and infrastructure projects.
The Zeman business expands our automation sales by approximately 10% with margins at the Lincoln consolidated average.
We expect the acquisition to be accretive to earnings on an adjusted basis by three to five this year.
While it is still a dynamic market, we're very encouraged by the near term momentum.
We also remain confident with our long term higher standard 2020 five strategy growth initiatives that capitalize on secular trends driving automation and related large capital investments as well as other catalysts, such as renewable energy and infrastructure investments, where we conservatively estimate 15 to two.
20% of our revenue is exposed to these two areas today.
So we're excited to be back in growth mode, and look forward to driving towards our 2025 higher standard strategy goals and now I'll pass the call to Gabe to cover the first quarter financials in more detail.
Thank you, Chris moving to slide seven our consolidated first quarter sales increased seven 8% due to a 3.7% benefit from price, 2.7% higher volumes and a 1.4% favorable impact from foreign exchange, our gross profit margin decreased.
30 basis points to 33, 5% as benefits from volumes and cost reduction actions were offset by higher raw material and freight costs, including a 3.9 million dollar LIFO charge price cost was slightly negative and the quarter, but we continue to expect price cost to be neutral and.
Full year basis.
Our SG&A expenses declined 2.7% or $4 million, reflecting savings from cost reduction actions, which was partially offset by approximately $2 million and higher incentive compensation and employee costs.
And as well as approximately $3 million and unfavorable foreign exchange SG&A as a percent of sales decreased 210 basis points to 19, 2%.
We expect 2021 SG&A expense to increase due to higher wage and incentive compensation.
Reported operating income increased 28, 2% to $103 9 million or 13.7% of sales operating income results included $4 $2 million of rationalization charges and $1.1 million of acquisition transaction costs.
Excluding special items adjusted operating income increased 23, 5% to $109 2 million or 14.4% of sales a 180 basis point increase versus the prior year and.
Adjusted operating income benefited from improved volumes and diligent price and cost management, which generated a 37.8% incremental margin.
Our first quarter effective tax rate was 23, 7% or 22, 9% on an adjusted basis.
Due to our mix of earnings and discrete items. This compares with 26, 8% and the prior year period, we continue to expect our full year 2021 effective tax range to be and the low to mid 20% range subject to the mix of earnings and anticipated extent of discrete tax items.
First quarter diluted earnings per share increased 35, 2% to one dollar and 23 cents compared with 91 cents and the prior year excluding.
Excluding special items adjusted diluted earnings per share increased 37% to one dollar and 37 cents.
And now moving to our reportable segments on slide eight.
Americas welding segment's first quarter adjusted EBIT increased eight 4% to 76.6 million.
The adjusted EBIT margin increased 80 basis points to 16, 7% from benefits of cost reduction actions and lower discretionary spending Americas welding organic sales increased one point and 3% led by a 2.2% benefit from pricing actions implemented to mitigate inflation.
This was partially offset by a 90 basis point decline in volumes, which exceeded our expectations and as most regional and market crew and the quarter with the exception of energy, which appears to be in the early stages of a recovery.
Moving to slide nine the international welding segment's adjusted EBIT increased 184.4% to $18 $8 million. The adjusted EBIT margin increased 500 basis points to eight 3% and higher volumes and the benefits of opera.
<unk> improvement initiatives.
Organic sales increased 8%, reflecting strong double digit percent growth in Asia and <unk>.
Salaries and regional demand and favorable prior year comparisons and a low single digit percent increase and organic sales in Europe.
Automotive and heavy industry activity were the primary growth drivers in this segment.
Moving to the Harris products group on Slide 10 first quarter adjusted EBIT increased 49, 7% to $18.7 million adjusted EBIT margin increased 260 basis points to 16.9% due to higher volumes.
Organic sales increased 28, 1% with 13.6% higher volumes, primarily from the continued strength and the North American retail channel and and H P. A C applications.
As well as a 14.5% benefit from pricing actions taken to recover rising commodity costs, such as silver and copper.
Moving to slide 11, we generated $45 million in cash flow from operations, which is seasonally lower in the first quarter working capital remains intentionally elevated to support the recovery and mitigate supply chain constraints move.
Moving to slide 12.
Given strong execution and solid returns and continued strength and cash flows our capital allocation and the first quarter emphasized growth with $10 million and internal capital spending as well as the Zeman acquisition on April 1st we also returned approximately $59 million to shareholders.
Share repurchases and our dividend program.
Looking ahead, we expect our annual Capex program to be $65 million to $75 million and we will continue to repurchase shares opportunistically.
We maintained ample liquidity with $720 million and the first quarter and recently expanded our revolver to $500 million for added capacity with no near term debt maturities and expectations of cash conversion and excess of 90%. We are focused on further investing.
And growth and returning cash to shareholders.
With that I would like to turn the call over for questions.
Ladies and gentlemen at this time, we will be conducting a question and answer session.
To ask a question. Please press star one on your telephone.
To ensure everyone has the opportunity to participate the assets.
One question and one follow up question and return to the queue.
Yeah.
And our first question is from the line of Rob wagon.
Mike and hymer with Malian.
Hey, good morning, everybody.
So thanks for the clarification and the LIFO charge.
It does seem like.
And that you were maybe up I was wondering if the index on gross margin excluding that but I'm just curious if there are significant.
Hampering and COVID-19 and the gross margin line do you expect to get a little bit more leverage on that throughout the year.
Great. Thanks.
Yeah.
Rob I just want to make sure I heard your question clearly you mentioned a lie.
LIFO and you mentioned gross profit excluding LIFO. So as as we've talked price cost was was slightly negative and we continue to be a.
Positive and the progression of our profile of gross profit with we expect a neutral impact on price costs throughout the year.
So I think I covered your question about it and we'll make sure I covered all of that Rob Yeah Yeah.
Just any COVID-19 disruption on the gross margin line and should you expect to see that kind of a rebound as you grow into strong strong organic growth later in the year.
Yeah Rod this is Chris look I'm confident that globally, and we've got still some drag associated with COVID-19, but when I think about the business at the entirety I really don't think that's material because we're still probably having some benefits associated to travel and other things, which are still mitigated as we're beginning to ramp up and these economies around the world.
So there probably is a drag but I'm certain that that drag is probably offset by other activities that maybe on the expense line, we're not participating in today, So I don't view it as material.
Okay. Thanks, Chris.
Your next question is from the line of Bryan Blair with Oppenheimer.
Thanks, Good morning, everyone. Good morning, Brian.
I was hoping you could.
And some color on and Ah.
Order cadence through the first quarter and into.
Early second how that compares to and normal seasonality, obviously year on year comps get quite easy over the near term just trying to get a sense of you.
And a better sense of and and frame the underlying demand acceleration and to the second quarter. Yeah look that's a that's a great question, Brian and this is Chris and look I would tell you that I have to put it in context, because theres. So many are inflationary and then the pricing actions that are needed to be able to recover that.
And the marketplace, you've obviously got some choppiness associated with potential order patterns, but I will tell you the acceleration and the order pattern and the breadth of the order pattern moving through the quarter was significant and we saw great momentum as we were exiting Q1 and March was very very strong and and probably.
Most importantly, it was the breadth of the strength and you saw that we said that 80% of those exposed revenues now are and are in positive momentum our industry segments and its really not in any one particular region, we're seeing that Brett the cros and and very happy to see our automation.
Business actually stabilize and actually seeing it it perform at that prior year level on a revenue basis. So the momentum was strong exiting the quarter and that's what gives us such confidence about and are really improving upon what we think the full year performance will be for the company at the top line.
That's great to hear.
And any notable call outs by geography.
Sticking with the same topic for recovery and Asia Pacific demand has obviously been solidly ahead of Americas and Europe for the last few quarters, just curious if youre seeing any shift there.
Entering the second quarter or if that dynamic is expected to change during the quarter.
No no real shift obviously are you see the continued exceptional performance from our Harris business and and quite frankly, you see quite frankly, the improvements that we're driving and that international business and quite frankly, the demand. We were seeing are in the European market. So we really like the performance of those operations and again the.
Net of the improvement and.
And and quite frankly that our volume and the strength of that momentum certainly will be a catalyst and us continuing to make the improvements that we're looking for and some of those markets.
Understood. Thanks again.
Your next question is from the line of Nathan Jones with Stifel.
Good morning, everyone. Good morning, good morning.
I wanted to start on supply chain and hearing from a lot of companies out there that supply chains are tight and a lot of areas product shortages material shortages those kinds of guys kinds of things.
And I gave you mentioned, having some elevated inventory.
Which is protecting you a bit from that can you talk about where the pressure points are and your supply chain.
And if any way, you're saying any shortages and if that is yeah, you know inhibiting your ability to satisfy demand at all anyway.
Yeah, Nathan I would I would say that certainly our decision that we've talked about while we've been operating and the pandemic now over the last 14 months or so to quite frankly ensure that we were going to provide products and solutions to our customers and put the inventory on the shelf has turned out to be a very good decision for the business.
Because we did enter into 2020, one with three or four days globally of additional inventory than than historically, what we've had.
And I've also got to share with you that quite frankly, our teams are just doing an amazing job of managing the supply chain issues within Lincoln Electric.
And the flexibility that we built into some of our systems. The interchange ability of some of our components. It's those little pieces of work that then when you have these difficult times provide you with a little bit more resiliency and the challenges are there quite frankly, if you were thinking about a a piece of welding equipment and our welding solutions quite.
And that's power electronics, that's chips, that's the things that we're all reading about and the challenges that some of our customers are having and being able to have the supply chain necessarily to meet some of their demand and so we're managing those issues.
As you saw in Q1, I think we manage them exceptionally well and we believe those challenges will remain through most of the rest of the year, but our teams are continuing to address those challenges and believe we'll be able to meet and exceed our customers' expectations.
Do you feel like that inventory has.
Has led to you being able to gain share and the first quarter or do you think there will be opportunities for you to gain share using that inventory over the next two three quarters.
Well you know we've we've traditionally said that we really don't think about share you know transactional or within a quarter. We believe that shares actually are taken from the market and quite frankly that we believe our solution certainly provide us with that opportunity, but it has placed us in a good position to service our customers. That's what's the most important thing for.
For us at Lincoln Electric and we do believe that long term that positioning can allow us to be the supplier of choice with some of those customers and and I like the positioning, but I'm, probably not willing to say that necessarily I believe that I can point towards.
A shift and share as you've presented the question.
Thanks for taking my questions.
Thanks have a good day.
Your next question is from the line of MAGE debris of RW Baird.
All right. Good morning, everyone. It's Joe Grabowski on for Mig This morning.
And good morning, Hey, good morning, So I wanted to start out by asking about the auto transport and market wondering if your business has been impacted by any of the production disruptions.
And the automotive.
And market and how do you see that business progressing sequentially through the year.
Yeah. So you know we see the challenges that we're reading about and the marketplace with the supply chain challenges around power electronics, and chips and and talking to our teams internally. We did have some areas of the business, where quite frankly, we saw some delays and some shipments and we saw some assembly plants that were shut down and we could see some element of it.
That but quite frankly, it was kind of mitigated by the strong strength that we had net segment when we looked at the growth and the auto transport and we saw really strong growth in Q1, so as much as we saw a couple of mitigating factors, we did see really strong growth and the quarter and we're expecting continued momentum from that.
Group.
Obviously I believe the supply chain challenges are going to stay in the marketplace to the rest of the year I don't believe these electronic supply chain challenges will be will be eliminated but.
But we've been managing them well and are expecting continued momentum and that auto transport group as we're moving through the rest of the year.
Alright. Thank you for that good to hear and then my follow up question is around.
Around automation and it was relatively steady and the quarter.
Thank you Might've mentioned record backlogs and the prepared remarks I'm not sure if that was specific for automation.
But are you still expecting automation and deliveries to rebound and the second half.
Yes, we are and I'll also.
Tell you the the record backlog was across the equipment portfolio for us, but a great to see our automation business stabilize meet prior your expectations on a revenue basis saw some improvement and the operating performance and the business and we're expecting that capital spending will continue to accelerate so our discussions that we have.
<unk> had about continued improvement and the automation business as we're moving through 2020 one certainly.
Our first quarter gives me, great confidence and our ability to execute on that.
Great. Okay. Thanks for taking my questions.
Your next question is from the line of Chris Dankert of Longbow Research.
And I know you guys typically don't provide guidance on the quarter, but given some of the comp stores and maybe you could level set a bit just any comments on second quarter sales growth versus typical seasonality here.
No not really I mean, we provide the recognition that we do have some seasonality associated with it as we said we really like the momentum is we're moving from Q1 to Q2, but we just don't provide that level of detail.
On the Q2 performance.
Yeah fair enough fair enough and to try their.
And forgive me if I missed it but looking at the new organic sales guide assumption for the year and he comments on you know what portion of that is pricing versus volume at this point.
Yeah, you know as you can imagine only being here and the first quarter, it's hard to be exact thing with that but I'd say a good rule of thumb is that about half of that is on the volume side and about half of that would be on the pricing side associated with it that's probably a good guide at this point and the <unk> at this point and the year.
Got it got it thanks, so much guys.
Great. Thank you.
Your next question is from the line of three four and Jetski with Jefferies.
Hi, congratulations on the strong quarter.
I know, we've talked about half of other.
And in the past, both cash and effectively earning negative rates does this change how you're thinking about your balance sheet and when do you think.
About increasing leverage to buy back shares.
And what you've seen and many more.
Okay.
Sorry, Thanks for the question, we continue to be focused on growth right. So when you look at the acquisition. We just completed we'll look at continued our primary agenda of looking at internal investment and acquisitions.
And keep a pretty balanced view and how we look at share repurchases opportunistically as well as returning cash to shareholders broadly so.
We're focused on that kind of profile and our capital allocation strategy and sorry, I would just add that look the M&A pipeline is very strong right. Now again, we just completed that acquisition and Europe, I really really like that acquisition, it's a perfect fit into our structural steel portfolio, it's an area of the marketplace.
And that we've already shown great success with automated solutions and I also believe that at least and the North American market, where there are some discussions around potential changes and the tax structure around capital gains that there may be some private enterprises and quite frankly, and the fragmented automation space, we see a lot of players like that.
That might be evaluating whether they want a determined and they want to exit before the end of the year. So strong pipeline, we certainly got a.
Ah the capital to be able to execute on acquisitions and we are we know it's a critical piece of our long term strategy to continue to bolt and those solutions to the Lincoln electric portfolio.
Thanks, and then Harris posted another really strong quarter, and you called out each back and retail and some key drivers of that and it gets easier comps and the second quiet and it gets much more challenging so how do you think about growth and this particular market.
Yeah.
Well look I was just at our Harris business and really excited at the work that the team is doing there and quite frankly the success. We've had and are in the retail space continues and and we believe that we can we can continue to provide products and solutions into that marketplace to generate growth. So.
What we're seeing a strong momentum and Harris, it's a it's been a great product category for us we'd love to be able to identify some acquisitions that we could bring into that portfolio also a couple of years ago, we brought debt.
Solder business into there the acquisition that we had from a industrial company here and the U S and that's gone very well so great.
Great execution by the team and we realize we've got stronger comps in the back half of the year, but driving strategies and growth strategies to be able to continue to show improvement and the business.
And if I could squeeze one more and in America and Americas could you just break out how exports performed and materials that performance.
Yeah, So sorry experts, where we're <unk>.
Flat year over year.
Great. Thanks for taking my questions.
Great. Thank you sorry.
Once again, if you would like to ask and audio question. Please press star one and your.
Your next question is from the line of Dillon Cumming with Morgan Stanley.
Great. Good morning, guys. Thanks for the question.
Just wanted to kind of ask the margin question other way.
Good to hear you spoke and I've got and Incrementals and the high 20% range, but you know keeping in mind that used to kind of close to 40% and.
Incremental margin and the quarter I guess, you know what should we think about this kind of changing from bounce with beer because I would think youre kind of getting the highest degree of volume leverage over the next few quarters. So that just kind of a question of temporary costs coming back in and wage inflation and just wanted to better understand the dynamics there.
Yeah, No and I would say look the dynamics are youre right. We will see some of those are some of those costs beginning to migrate back into the business as we're moving through the rest of the year, but when I think about our incremental margin profile. We've always said that this business should be able to perform at the higher end of our range and those high 20% range is when we <unk>.
Net volume on the business and the change between our last discussion and now is that we're seeing stronger momentum and volume on the business. So we believe those are those margins will perform better certainly Q1 was an exceptional performance relative to the incremental margins.
We also should see some favorability and mix because as our international business continues to make the improvements. We're seeking we've said all along that we should have our improved incremental margin from that business as we place some volume upon it. So I really think those are the drivers relative to us wanting to signal that we believe will be operating at even a higher performance level.
Then what we had expected for the year certainly Q1 outstanding result for the business.
Okay got it and very clear. Thank you and then maybe to wrap it up you know you made a comment Chris the thing that renewable energy and infrastructure investments accounted for close to 15% to 20% of revenue at this point.
Maybe this is an entirely apples to apples that last few years, and calling that I spoke of and closer to 7% other other.
And renewables side, so maybe you kind of broaden the definition and a bit but it is kind of the one I wanted to understand you know what kind of growth rates, we're seeing from that part of the portfolio.
Oh I think.
Potentially that there could be a disconnect there between the renewables discussion and abroad industry exposure, we were trying to us to provide guidance to ever want and what we would see on the infrastructure side is there's so much discussion around infrastructure here and the U S marketplace, obviously with the infrastructure not only exposure, but then it comes down to how those dollars are.
I actually brought in so when I look at infrastructure and renewables then we're really looking at that 15% to 20% range relative to exposed markets for Lincoln Electric.
Okay got it very helpful. Thank you.
Thanks.
And your last question will come from the line of Steve Barger of Keybanc capital market.
Hey, good morning.
Morning, Steve.
As I look back and my model peak operating margin was 15% and 2015, if organic growth comes through the way you expect this year is that achievable and 'twenty one.
You know what Steve and when you look at the business at this point and obviously, it's a we're at the end of Q1, but those volume levels. You know I think that is an achievable target for us to be talking about for the business, we need to execute as we're moving through the rest of the year, we need to see that volume.
And I, certainly see that as an achievable target.
And as you think you know I know you don't give guidance, but just thinking about going forward. If you put up mid teen organic growth with a high 20% incremental what what can we expect for a longer term lets say you know just if we get a really strong cycle and we're talking about mid to high single digit growth what kind of incremental can you put up against that comp.
Yeah, I believe that if we had those types of volume, Steve we'd be putting in and that was high twenty's. So again I think when we start to see that that type of growth the ability to drive leverage across the portfolio the restructuring and the improvements we've made and the core business over the last couple of years I just believe that we.
Would be targeting then those high 20% incrementals on that volume leverage.
Okay and.
And I know, it's hard to predict the cycle beyond the near term window, but when you think about longer term trends do you expect stronger growth from the Americas or the international and coming years, because obviously, that's going to affect mix.
Yeah, I'm not sure that.
I'm not sure that I I'm confident in saying at this point, Steve I mean, there's things about our Americas business from a growth perspective that I really like we've got some of our SB used that are operating very effectively we're making improvements and accessories. We've we've got we've got some areas of the business that are showing some nice growth catalyst, but it's obviously a much larger business.
So we've got and be able to find real growth to be able to drive that and yet I will also tell you that especially in our international business and when I look at some growth markets like India and the improvements we've made in Europe I believe that we can grow outside the markets and those areas very competently and I'm seeing those businesses start to make real improve.
And so I really see both of them as growth opportunities and I'm not sure that I've targeted one or the other for a higher ratio of growth.
Understood and since I'm last I'll.
One more and part of the higher standard twenty-five strategies to enhance software solutions for Iot and AI can you just talk about where you are and those initiatives are the commercial efforts fully formed and and how are they being accepted by the market.
Absolutely and I'm glad you asked the question because it's one of those things that we've been investing and for a long period of time and quite frankly, we've got a platform. That's already designed we've got solutions that we're building off of that platform and as you would expect we have some users who quite frankly are very are adopted and already utilizing the technologies and then we have some.
And that are looking at the technologies, but whether it's Iot that we'd be providing and technologies like checkpoint or other ways to assist our customers and advancing their welding solutions, whether its machine learning that we'd be utilizing and our automation processes, whether it's even the initial work that we're doing on the additive side, which utilizes a lot.
Technologies to drive innovation, we're continuing to invest and nodes and see that as a critical differentiator for Lincoln electric over the longer term.
And I know every company has their own version of this kind of strategy, but you pointed out and your and your comment there that it is a differentiator.
Are you can you provide any detail on how this is truly differentiated versus other competitors and the marketplace well.
I'll tell you, it's Dave I think one easy way for you to get your arms around it as you're thinking about Lincoln electric is that many of those technologies are centric to the equipment portfolio.
Have you seen and the Lincoln electric equipment portfolio over the last several quarters and what would we talk about today as it relates to momentum around equipment, that's where those technologies are embedded in many cases and quite frankly, that's where we're winning in the marketplace. So there certainly are hosts of innovations with our consumable products that would be the hyperscale technology.
And the software that's required to drive that I could go on and on about also other areas of innovation, but specifically when you were talking about those Iot innovative areas. Those are really a catalyst of our equipment portfolio and that is growing exceptionally well.
Thanks for the time.
And we do have one additional question in queue from the line of saree boarded ski with Jefferies.
Thanks for taking my follow up I, just wanted to ask from a 15% margin comment it seems that international and Harris are structurally higher since 2015. So maybe you could give us some color on win in North America.
Back to prior peak levels and what.
And is the right, Mike and target for Lincoln and as you potentially and early stage of industrial recovery plus upside from infrastructure investment.
Well, sorry, I would tell you that thanks for the comment relative to the Harris business and international business, you're right. We've seen some structural improvements there and we're still looking for further improvements on the international side of the business I would tell you that I think the largest catalysts to make improvements in our Americas segment is the operational improvements that.
We're looking for and our automation business as we've talked about that automation business has been a slight drag for us we like the fact that we believe its draft. We love. The fact that quite frankly it was at prior year levels. As we were at Q1 and now we need to continue to grow that business and get those margins back up to the level that we're looking for from that particular strategy. So I see.
And that as the biggest catalyst for us as it relates to making improvements in the Americas business. We certainly have a host of other growth strategies within Americas I mentioned earlier that we have a host of SB used that we're trying to drive enhancement and revenue growth and those specific targeted areas those targeted areas tend to.
B areas that are more favorable margin mix for us as it relates to the portfolio and then I'll have to go back to equipment and our success and equipment over the last few quarters and what we're seeing I believe is still an opportunity for us as we're moving forward a lot of those Iot applications and other service offerings that we have are really.
And at the very early stages and it creates an opportunity for Lincoln electric to continue to drive growth in that portion of the category.
Thanks Congratulations.
Thank you.
And this concludes our Q&A session and I would now turn the call back over to Kate for any closing remarks.
Thank you Stephanie I would like to thank everyone for joining us on the call today and for your continued interest and Lincoln Electric we look forward to discussing the progression of our strategic initiatives and the future. Thank you again.
Thank you. This does conclude today's conference call you may now disconnect.