Q4 2021 Lincoln Electric Holdings Inc Earnings Call

Greetings and welcome to the Lincoln Electric fourth quarter and full year 2021 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 Communications. Thank you you may begin.

Speaker 1: Greetings and welcome to the Lincoln Electric fourth quarter and full year 2021 financial results conference call. At this time, all participants are on 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. Thank you.

Speaker 2: Thank you, Kevin, and good morning everyone. Welcome to Lincoln Electric's fourth quarter and full year 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 lincolnelectric.com in the investor relations section.

Thank you Kevin and good morning, everyone welcome to Lincoln Electric's fourth quarter and full year 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 in the Investor Relations section.

Speaker 2: Joining me on the call today is Chris Mapes, Lincoln's Chairman, President and Chief Executive Officer and Gabe Bruno, our Chief Financial Officer. Chris will begin the discussion with an overview of our full year results and business trends and Gabe will cover our fourth quarter financial performance in more detail. And finally we will conclude with comments on our outlook and updates to our 2025 Higher Standard Strategy. And following our prepared remarks, we are happy to take your questions.

Joining me on the call today is Chris Mapes, Lincoln's Chairman, President and Chief Executive Officer, and Gabe Bruno Our Chief Financial Officer, Chris will begin the discussion with an overview of our full year results and business trends.

And Gabe will cover our fourth quarter financial performance in more detail and finally, we will conclude with comments on our outlook and updates to our 2025 higher standard strategy 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 may be forward looking and actual results may differ materially.

Speaker 2: Before we start our discussion, please note that certain statements made during this call may be 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 that may affect our results are provided in our press release and in our SEC filings on Forms 10-K and 10-Q.

<unk> from our expectations due to a number of risk factors a discussion of some of the 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.

Speaker 2: In addition, we discussed financial measures that do not conform to US GAAP and 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 LincolnElectric.com.

In addition, we discuss financial measures that do not conform to U S. GAAP and 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 Dot Com.

Speaker 2: And with that, I'll turn the call over to Chris Mates. Chris? Thank you, Amanda. Good morning, everyone.

And with that I'll turn the call over to Chris Mapes, Chris.

Thank you Amanda good morning, everyone.

Speaker 3: Turning to slide three, we finish the year with a solid fourth quarter and achieve record sales, operating income, earnings and returns for full year 2021.

Turning to slide three we finished the year with a solid fourth quarter and achieved record sales operating income earnings and returns for full year 2021.

Speaker 3: Our results demonstrate the strength of our business and our team's perseverance and commitment to put our customers first, while still advancing our strategic initiatives, even under these unprecedented conditions.

Our results demonstrate the strength of our business and our team's perseverance and commitment to put our customers first while still advancing our strategic initiatives.

Even under these unprecedented conditions.

So I would like to thank our team as well as our suppliers and partners, who tirelessly tirelessly worked with us to help us serve our customers and generate record results.

Speaker 3: So I would like to thank our team, as well as our suppliers and partners who tirelessly worked with us to help us serve our customers and generate record results.

Speaker 3: Our 2021 sales increased 22% to a record $3.2 billion on 19% organic growth, led by higher volumes and 2% from acquisitions, reflecting a strong recovery and the early stages of an industrial expansion.

Our 2021 sales increased 22% to a record $3 2 billion or 19.

14% organic growth led by higher volumes and 2% from acquisitions, reflecting a strong recovery in the early stages of an industrial expansion.

We achieved a 240 basis point increase in our adjusted operating income margin to 14, 8% with a 26% incremental margin, reflecting solid commercial and operational execution across our business.

Speaker 3: We achieved a 240 basis point increase in our adjusted operating income margin to 14.8%, with a 26% incremental margin reflecting solid commercial and operational execution across our business.

Speaker 3: We achieve neutral price costs due to diligent price management, which offset unprecedented inflation and approximately $39 million in lipo charges.

We achieved neutral price cost due diligent price management, which offset unprecedented inflation and approximately $39 million and LIFO charges.

Speaker 3: We also benefited from structural cost savings and our higher standard strategy operational initiatives.

We also benefited from structural cost savings and our higher standard strategy operational initiatives.

Speaker 3: Our adjusted earnings per share increased 50% to a record $6.22, and we achieved record returns of 23.9%.

Our adjusted earnings per share increased 50% to a record $6 22.

And we achieved record returns of 23, 9%.

Speaker 3: Cash generation grew to $365 million and represented approximately 81% cash conversion, which is lower than our standard 100% plus performance.

Cash generation grew to $365 million and represented approximately 81% cash conversion, which is lower than our standard 100% plus performance.

Speaker 3: This reflects our early decision in this pandemic to use our balance sheet to strategically elevate inventory levels to service customers' needs.

This reflects our early decision in this pandemic to use our balance sheet to strategically elevate inventory levels to service customers' needs.

I am proud that we increased our dividend nearly 10% this year, making our 26th consecutive increase which again reinforces our confidence in the business and cash flow generation through a cycle.

Speaker 3: I am proud that we increased our dividend nearly 10% this year, making our 26 consecutive increase, which again reinforces our confidence in the business and cash flow generation through a cycle.

Speaker 3: Combined with $165 million in share repurchases, we returned approximately $286 million to shareholders this year.

Combined with $165 million in share repurchases, we returned approximately $286 million to shareholders. This year.

Speaker 3: We also maintained a solid balance sheet profile, have approximately $729 million in liquidity, and have no near-term debt maturities.

We also maintained a solid balance sheet profile have approximately $729 million in liquidity and have no near term debt maturities.

We enter 2022 with over 80, new product families a higher vitality index of new products, a strong pipeline of additional product launches new acquisitions to scale up and are seeing strong quoting activity and record backlogs for both our equipment systems and our automation.

Speaker 3: We enter 2022 with over 80 new product families, a higher vitality index of new products, a strong pipeline of additional product launches, new acquisitions to scale up, and are seeing strong quoting activity and record backlogs for both our equipment systems and our automation solutions.

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Speaker 3: I believe Lincoln Electric is better positioned today than ever before to capture growth and accelerate our performance in this industrial cycle.

I believe Lincoln electric is better positioned today than ever before to capture growth and accelerate our performance in this industrial cycle.

Looking at end market trending in the fourth quarter on slide four we achieved organic sales growth a growth across all of our end markets. Despite challenging operating conditions for our customers.

Speaker 3: Looking at end market trending in the fourth quarter on slide four, we achieved organic sales growth across all of our end markets despite challenging operating conditions for our customers.

Speaker 3: Our end sector organic sales growth was led by a strong mid 30% increase in construction infrastructure, which reflects the strength of non-residential pre-engineered building projects and our competitive advantage in that market with our unique solution.

And sector organic sales growth was led by a strong mid 30% increase in construction infrastructure, which reflects the strength of nonresidential pre engineered building projects and our competitive advantage in that market with our unique solutions.

Speaker 3: Where we see the most opportunity for resurgence is in the automotive sector and in general industries, which face the tightest supply and labor challenges, as well as in energy, which is still in the early stages of recovery.

We see the most opportunity for resurgence as in the automotive sector and in general industries, which faced the tightest supply and labor challenges as well as in energy, which is still in the early stages of recovery.

We achieved solid organic sales growth across all product areas led by broad end sector demand for our equipment and automation solutions, while consumable volumes grew in the quarter. We anticipate performance will increase as customers operating conditions improve and we navigate past challenging first quarter comparisons.

Speaker 3: We achieved solid organic sales growth across all product areas, led by broad end-sector demand for our equipment and automation solutions. While consumable volumes grew in the quarter, we anticipate performance will increase as customers' operating conditions improve and we navigate past challenging first-quarter comparisons which represented strong consumable demand last year prior to weakening supply chain conditions. For more information on M proud instrumental

Which represented strong consumable demand last year prior to weakening supply chain conditions.

Speaker 3: Geographically, North America and European organic growth outpaced Asia-Pacific due to slow industrial output in China.

Geographically North America, and European organic growth outpaced Asia Pacific due to slow industrial output in China.

Speaker 3: Despite this pocket of weakness, the underlying fundamentals of our end markets are strong, with customers expressing needs for added capacity to address high demand for their products, record backlogs, and low inventory levels.

Despite this pocket of weakness the underlying fundamentals of our end markets are strong with customers expressing needs for added capacity to address high demand for their products record backlogs and low inventory levels.

Paired with long term demand drivers, including skilled labor shortages re shoring EV investments aging fleets infrastructure maintenance and repair and renewable energy Lincoln is well positioned to serve customers' needs.

Speaker 3: Paired with long-term demand drivers including skilled labor shortages, reshoring, EV investments, aging fleets, infrastructure maintenance and repair, and renewable energy, Lincoln is well positioned to serve customers' needs.

Speaker 4: And now, I'll pass the call to Gabe to cover fourth quarter financials in more detail. Thank you, Chris. Moving to slide five, our consolidated fourth quarter sales increased approximately 22% driven by 13% higher prices, a 6% increase in volumes, a 5% contribution from acquisitions, which was partially offset by a 2% unfavorable impact from foreign exchange.

And now I'll pass the call to Gabe to cover fourth quarter financials in more detail. Thank.

Thank you, Chris moving to slide five our consolidated fourth quarter sales increased approximately 22% driven by 13% higher prices a 6% increase in volumes.

5% contribution from acquisitions, which was partially offset by a 2% unfavorable impact from foreign exchange.

Speaker 4: Our gross profit margin decreased 70 basis points to 32.3% as additional pricing actions and the benefit of volumes and cost reduction actions did not fully mitigate a $14 million LIFO charge. For the full year, we achieved neutral price cost as diligent price management offset broad inflation and approximately $39 million in LIFO charges.

Our gross profit margin decreased 70 basis points to 32, 3% as additional pricing actions and the benefit of volume and cost reduction actions did not fully mitigate a $14 million LIFO charge for the full year, we achieved neutral price cost as diligent price.

Management, offset broad inflation, and approximately $39 million and LIFO charges.

Speaker 4: Our SG&A expense increased approximately 11%, or $14 million, to $151 million in the quarter, primarily due to higher wages and incentive compensation, as well as acquisition.

Our SG&A expense increased approximately 11% or $14 million to $151 million in the quarter, primarily due to higher wages and incentive compensation as well as acquisitions.

Speaker 4: SG&A as a percent of sales decreased 180 basis points to 17.9% due to higher sales.

SG&A as a percent of sales decreased 180 basis points to 17, 9% due to higher sales.

Speaker 4: Reported operating income increased approximately 44% to $120 million or 14.3% of sales.

Reported operating income increased approximately 44% to $120 million or 14, 3% of sales.

Speaker 4: Operating income included approximately $2 million of special items. Excluding special items, adjusted operating income increased 32% to $122 million or 14.5% of sales with an approximate 20% incremental margin reflecting a challenging prior year comparison.

Operating income included approximately $2 million of special items, excluding special items, adjusted operating income increased 32% to $122 million or 14, 5% of sales.

With an approximate 20% incremental margin, reflecting a challenging prior year comparison.

Speaker 4: We incurred a $43 million expense and other income substantially related to a $46 million non-cash settlement charge associated with the termination of a frozen U.S.-defined benefit pension plan. This plan is fully terminated and excess funds will be allocated towards another employee retirement plan over the next several years.

We incurred a $43 million expense and other income substantially related to a $46 million noncash settlement charge associated with the termination of our frozen U S defined benefit pension plan. This plan is fully terminated and excess funds will be allocated towards another employ.

Retirement plan over the next several years.

Speaker 4: Our fourth quarter adjusted effective tax rate was 19.7% due to our mix of earnings and discrete items. Fourth quarter diluted earnings per share increased 16% to $1.25.

Our fourth quarter adjusted effective tax rate was 19, 7% due to a mix of earnings and discrete items.

Fourth quarter diluted earnings per share increased 16% to $1 25.

Speaker 4: excluding special items, adjusted diluted earnings per share increased approximately 30% to a record $1.61 in the quarter.

Excluding special items adjusted diluted earnings per share increased approximately 30% to a record $1 61 in the quarter.

Speaker 4: foreign exchange had an unfavorable force sent impact to EPA.

Foreign exchange had an unfavorable four cent impact to EPS.

Now moving to our reportable segments on slide six.

Speaker 4: Now moving to our reportable segments on slide six.

Speaker 4: America's welding segment's fourth quarter adjusted EBIT increased 21% to approximately $84 million.

Americas welding segment's fourth quarter, adjusted EBIT increased 21% to approximately $84 million. The adjusted EBIT margin compressed 30 basis points to 16, 4% as the benefits of higher volumes and price did not fully offset a $14 million LIFO charge.

Speaker 4: The adjusted EBIT margin compressed 30 basis points to 16.4% as the benefits of higher volumes and price did not fully offset a $14 million LIFO charge. America's welding organic sales increased approximately 24% led by 9% higher volumes and a 15% benefit from pricing action.

Americas welding organic sales increased approximately 24% led by 9% higher volumes and a 15% benefit from pricing actions organic sales increased across all product areas and end markets in the quarter led by an acceleration in <unk>.

Speaker 4: Organic sales increased across all product areas and end markets in the quarter, led by an acceleration in infrastructure construction and mid-teens percent growth in heavy industry and energy.

Infrastructure construction and mid teens percent growth in heavy industry and energy.

Speaker 4: Moving to slide 7, the International Welding Segment's adjusted EBIT nearly doubled to $28 million. The adjusted EBIT margin increased 430 basis points to 11.2% on the benefits of structural cost saving initiatives and price cost management.

Moving to slide seven.

The international welding segment's adjusted EBIT nearly doubled to $28 million. The adjusted EBIT margin increased 430 basis points to 11, 2% on the benefits of structural cost saving initiatives and price cost management.

Speaker 4: Organic sales increased approximately 13% reflecting continued price management to mitigate inflation.

Organic sales increased approximately 13%, reflecting continued price management to mitigate inflation.

Speaker 4: Volume performance reflected lower industrial production in China. Across the international welding segment, equipment volumes improved at a double digit percent rate. The segment also benefited approximately 8% from the Zeeman acquisition.

Volume performance reflected lower industrial production in China.

Across the international welding segment equipment.

Equipment volumes improved at a double digit percent rate. The segment also benefited approximately 8% from the <unk> acquisition.

Speaker 4: The segment incurred a negative 7% impact from unfavorable foreign exchange, predominantly as a result of the devaluation of the Turkish lira.

This segment incurred a negative 7% impact from unfavorable foreign exchange predominantly as a result of the devaluation of the Turkish lira.

Speaker 4: Moving to the Harris Products Group on slide 8. Fourth quarter adjusted EBIT increased approximately 16% to $16 million. Adjusted EBIT margin decreased 130 basis points to 12.9% on acquisition integration costs and less favorable mix.

Moving to the Harris products group on slide eight fourth quarter, adjusted EBIT increased approximately 16% to $16 million.

Adjusted EBIT margin decreased 130 basis points to 12, 9% on acquisition integration costs and less favorable mix.

Speaker 4: we expect margin performance to improve through 2022.

We expect margin performance to improve through 2022.

Speaker 4: Organic sales increased approximately 12% led by pricing actions to mitigate raw material costs. Volumes increased 5% on strength in the HVAC and industrial end markets which offset lower retail sales due to challenging prior year comparisons in that channel.

Organic sales increased approximately 12% led by pricing actions to mitigate raw material costs volumes increased 5% on strength in the HVAC and industrial end markets, which offset lower retail sales due to challenging prior year comparisons in that channel.

Moving to slide nine.

Speaker 4: We generated $110 million in cash flows from operations and achieved 98% cash conversion.

We generated $110 million in cash flows from operations and achieved 98% cash conversion.

Speaker 4: At year end, average operating working capital was 16.3% of sales and remains intentionally elevated to support product availability and mitigate supply chain issues.

At year end average operating working capital was 16, 3% of sales and remains intentionally elevated to support product availability and mitigate supply chain issues. We expect to maintain this posture through the first half of 2022.

Speaker 4: we expect to maintain this posture through the first half of 2022.

Moving to slide 10.

Speaker 4: As Chris mentioned, we finished the year having strengthened our balance sheet and liquidity position. In the quarter, we invested approximately $16 million in capital expenditures and returned approximately $91 million to shareholders through a combination of our dividend program and $61 million in share repurchases.

As Chris mentioned, we finished the year, having strengthened our balance sheet and liquidity position in the quarter, we invested approximately $16 million in capital expenditures and returned approximately $91 million to shareholders through a combination of our dividend program and $61 million in share.

Purchases.

Speaker 4: On a full year basis, we invested $219 million towards growth and returned $286 million to shareholders including $165 million in share repurchase.

On a full year basis, we invested $219 million towards growth and returned $286 million to shareholders, including $165 million in share repurchases.

Speaker 4: We maintained ample liquidity at year end with $729 million. With no near-term debt maturities and strong cash flows, we will continue to prioritize growth investments and return cash to shareholders.

We maintained ample liquidity at year end was $729 million with no near term debt maturities and strong cash flows we will continue to prioritize growth investments and return cash to shareholders.

Speaker 4: Looking ahead to 2022, we anticipate navigating through another dynamic operating environment with continued strong demand momentum, which we have seen quarter to date.

Looking ahead to 2022.

We anticipate navigating through another dynamic operating environment with continued strong demand momentum, which we have seen quarter to date.

Speaker 4: Given what we see today, we anticipate a high single digit to low double digit percent organic growth rate in 2022. Our organic growth assumption does not include incremental pricing actions and we expect a price tailwind in 2022 which will be higher in the first half as prior pricing actions anniversary.

Given what we see today, we anticipate a high single digit to low double digit percent organic growth rate in 2022, our organic growth assumption does not include incremental pricing actions and we expect that price tailwind in 2022, which will be higher in the first half as prior.

Your pricing actions anniversary.

Speaker 4: we will continue to target a neutral price cost position for full year 2022.

We will continue to target a neutral price cost position for full year 2022.

Speaker 4: Our revenue assumptions are centered on organic sales as we expect the approximate $50 million of incremental sales from acquisitions to be offset by unfavorable foreign exchange at current rates.

Our revenue assumptions are centered on organic sales as we expect the approximate $50 million of incremental sales from acquisitions to be offset by unfavorable foreign exchange at current rates.

Speaker 4: In this environment, we are expecting a low to mid 20% incremental operating income margin for the full year as organic sales growth, lower LIFO charges, and incremental structural cost savings will offset inflation and higher employee costs.

In this environment, we are expecting a low to mid 20% incremental operating income margin for the full year as organic sales growth lower LIFO charges and incremental structural cost savings will offset inflation and higher employee costs.

Speaker 4: The full year 2022 effective tax rate is expected to be in the low 20% range.

The full year 2022 effective tax rate is expected to be in the low 20% range.

Speaker 4: We anticipate continued strong cash flow generation from sales and from improved working capital in the second half of the year.

We anticipate continued strong cash flow generation from sales and from improved working capital in the second half of the year.

We are planning to invest $70 million to $80 million in capital expenditures in 2022 on growth and efficiency oriented projects.

Speaker 4: We are planning to invest $70 to $80 million in capital expenditures in 2022 on growth and efficiency-oriented projects, which suggests an approximate 90% cash conversion rate for the full year.

<unk> suggests an approximate 90% cash conversion rate for the full year.

Speaker 4: So while operating conditions are not ideal, we will continue to effectively navigate and manage the business through this part of the cycle and focus on serving our customers, operating safely and investing in our long-term strategic initiatives while driving improved sales, profitability, and earnings throughout the year.

So while operating conditions are not ideal we will continue to effectively navigate and manage the business through this part of this cycle and focus on serving our customers operating safely and investing in our long term strategic initiatives driving improved sales profitability and earnings throughout the year.

And now I'd like to turn the call back over to Chris to discuss our 2025 higher standard strategy.

Speaker 3: And now I'd like to turn the call back over to Chris to discuss our 2025 higher standard strategy. Thanks, Gabe. Yeah, 2021 was really just an exceptional year for the company. I'm really proud of all of our employees and given our team's execution of our strategic initiatives and the solid demand momentum we see across our end markets, we revisited our 2025 higher standard strategy financial targets and have adjusted them up to reflect the superior value we believe we can generate through 2025.

Gabe, Yes, 2021 was really just an exceptional year for the company and I'm really proud of all of our employees and given our team's execution of our strategic initiatives and the solid demand momentum we see across our end markets. We revisit our 2025 higher standard strategy financial targets and have adjusted them up to reflect the superior value we.

Believe we can generate through 2025.

Speaker 3: As you can see on slide 12 on the left side, our key focus areas have not changed.

As you can see on slide 12 on the left side. Our key focus areas have not changed we are pivoting to higher levels of growth are strong product development pipeline industry, leading position in automation bold investments in new technologies like additive and a solid balance sheet to fund our active M&A probe.

Speaker 3: We are pivoting to higher levels of growth. Our strong product development pipeline, industry-leading position in automation, bold investments in new technologies like additive, and a solid balance sheet to fund our active M&A program position us well for higher performance.

Graham position us well for higher performance.

Speaker 3: We now expect our top-line reported sales growth rate from 2020 to 2025 to be in the high single-digit to low double-digit percentage range.

We now expect our top line reported sales growth rate from 2020 to 2025 to be in the high single digit to low double digit percentage range.

Speaker 3: We remain focused on richeting the mix of our business, advancing operational excellence through continuous improvement projects, including initiatives that progress our safety and environmental 2025 goals, and leveraging our Lincoln business system, which aligns the organization and generates greater efficiencies through standardized best practice tools and processes.

We remain focused on Richard the mix of our business advancing operational excellence through continuous improvement projects, including initiatives that progress our safety and environmental 2025 goals and leveraging our Lincoln business system, which aligns the organization and generates greater efficiencies through standardized best practice tools and.

Assesses.

Speaker 3: We expect these initiatives, combined with volume growth, will increase our average operating income margin by over 200 basis points versus the last cycle, which was in the mid 13% range.

We expect these initiatives combined with volume growth will increase our average operating income margin by over 200 basis points versus the last cycle, which was in the mid 13% range.

Speaker 3: We are now targeting to achieve an average 16% operating income margin between 2020 and 2025.

We are now targeting to achieve an average 16% operating income margin between 2020 and 2025.

Speaker 3: We've also provided adjusted EBIT margin ranges for our reportable segments, including a new target range for our international welding segment of 12 to 14 percent, depending on where we are in the cycle. This improved performance is expected to yield a high teens to low 20 percent EPS growth rate from 2020 to 2025.

We've also provided adjusted EBIT margin ranges for our reportable segments, including our new target range for our international welding segment of cloud to 14% dependent on where we are in the cycle. This.

This improved performance is expected to yield a high teens to low 20% EPS growth rate from 2020 to 2025.

Speaker 3: We will continue to maintain our top quartile ROIC and top decile working capital performance with the ROIC brains positioned to accommodate additional M&A.

We will continue to maintain our top quartile ROIC and top decile working capital performance with the ROIC range positioned to accommodate additional M&A.

Speaker 3: We expect strong cash flow generation and remain committed to our balance sheet capital allocation strategy by pursuing growth investments while returning cash to shareholders through our dividend program and opportunistically repurching shares above our maintenance buyback level.

We expect strong cash flow generation and remain committed to our balance sheet capital allocation strategy by pursuing growth investments, while returning cash to shareholders through our dividend program and Opportunistically repurchasing shares above our maintenance buyback level.

I am confident that our team will successfully execute our higher standard 2025 strategic plan.

Speaker 3: I'm confident that our team will successfully execute our higher standard 2025 strategic plan.

Speaker 3: The investments we've made in the business and the strength of our balance sheet position as well to deliver on our higher sales, profitability and earnings goals.

The investments we've made in the business and the strength of our balance sheet position us well to deliver on our higher sales profitability and earnings goals.

Speaker 3: generating superior value for all of our stakeholders. And now I'd like to turn the call over for questions.

Generating superior value for all of our stakeholders and now 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 then one on your Touchtone telephone to remove yourself from the queue. Please press the pound key to ensure everyone has an opportunity to participate we ask that you limit yourself to one question and one follow up and then return to the queue.

Speaker 1: Ladies and gentlemen, at this time, we will be conducting a question and answer session. To ask a question, please press star then 1 on your touchstone telephone. To remove yourself from the queue, please press the pound key. To ensure everyone has an opportunity to participate, we ask that you limit yourself to one question and one follow-up and then return to the queue. Our first question comes from Brian Blair with Oppenheimer.

Our first question comes from Bryan Blair with Oppenheimer.

Thanks, Good morning, everyone.

Hey, Brian Hey, Brian .

Speaker 5: To frame Lincoln's positioning and demand momentum entering 2022 a bit more, how much higher are backlog levels relative to 2018-19 timeframe and how are orders trending?

To frame Lincoln's positioning and demand momentum entering 2022, a bit more how much higher our backlog levels relative to 2018, 19 timeframe and how are orders trending to start the year.

So Brian just to give you a sense so and as you saw we've got strong momentum as we ended the fourth quarter that continues into the first part of the year.

Speaker 4: So Brian , just to give you a sense, as you saw, we've got strong momentum as we end at the fourth quarter. That continues into this first part of the year. Backlogs are very strong, primarily in the equipment and automation side of our business. So we're pretty confident in the demand profile within our business.

Backlogs are very strong primarily in the equipment and automation side of our business. So we're pretty confident in the demand profile within our business.

Speaker 5: Okay, understood. To level sets on the 2022 sales guide, what are you contemplating for volume versus price contribution to the high single to low double digit organic growth?

Okay understood.

To level set on the.

The 2022 sales sales guide what are you contemplating for volume versus price contribution to the high single to low double digit organic growth.

Speaker 3: You know, when we when we participate in 2021, you know, we ended up at about half volume and half price as it relates to the performance of the company. And I certainly think that as we're moving into 22, we'll probably have more price in the first half of the year than the back half of the year really driven by two reasons. Brian , the first is, obviously, some of that price is going to continue to anniversary as you're working through the year.

When we when we participate in 2021, we ended up at about half volume and half price as it relates to the performance of the company and I certainly think that as we're moving into 'twenty. Two we'll probably have more price in the first half of the year than the back half of the year really driven by two reasons Bryan. The first is obviously some.

That price is going to continue to anniversary as youre working through the year, but the second comment I would make is look at the accelerating costs that we covered in the fourth quarter and you'll see a portion of that and that LIFO charge. So obviously the actions that we had to take to cover those increased costs youre going to see a larger portion of that in the first half of the year than the back half.

Speaker 3: But the second comment I would make is look at the accelerating costs that we covered in the fourth quarter and you see a portion of that in that LiPo charge.

Speaker 3: So obviously, the actions that we had to take to cover those increased costs, you're going to see a larger portion of that in the first half of the year than the back half of the year.

For the year.

Speaker 3: But we're confident in our thought process on the organics and the way we're thinking about it.

But we're confident.

And our thought process on the organics and the way, we're thinking about 2022, and probably while I've still got you on the call that because I think that earlier question you asked about the confidence in the demand profile is just critical when you take where were at from a backlog perspective, and where we're seeing our our industry segments and the <unk>.

Speaker 3: 2022 and probably while I've still got you on the call that because they I think that earlier question you asked about the confidence in the demand profile is just critical when you take where we're at from a backlog perspective and where we're seeing our our industry segments and the favorable trending.

Favorable trending with energy churning in the back half of 'twenty, one and the fact that we continued to target closer towards our 2019 volume levels, which were still under at Lincoln Electric I think it sets us up very well for very strong volumes as we're moving through the year.

Speaker 3: with energy turning in the back half of 21 and the fact that we continue.

Speaker 3: to target closer towards our 2019 volume levels, which we're still under.

Speaker 3: at Lincoln Electric. I think it sets us up very well for very strong volumes as we're moving through the year.

Speaker 5: That's very helpful, Keller. And thinking a little more medium term, it would be great to hear any updated perspectives on infrastructure spending.

That's very helpful color and thinking a little more medium term it'll be great to hear any updated perspectives on infrastructure spending.

Speaker 5: related catalysts over the coming years. We know direct exposure nets to 15 plus percent of your sales. I'm actually more curious about indirect catalysts and tailwinds.

Related catalysts over the coming years direct exposure net of 15 plus percent of your sales I'm actually more curious about indirect catalysts and <unk> with.

Speaker 5: with the simple logic that plant spending is pretty steel intensive so perhaps

With the simple logic that planned spending is pretty steel intensive so perhaps there'll be broader tailwind across Americas welding.

Speaker 5: broader tailwinds across America's welding and in parts of HPG.

In parts of HBV.

Speaker 3: Yeah, look, it's very logical that we would see that move through the subsegments and certainly a lot of the general industries types businesses that we participate with.

Yes look it's very logical that we would see that move through the sub segments and certainly a lot of the general industries types businesses that we participate with I mean, it's not hard to draw that analogy. If if we're seeing more infrastructure and a portion of that infrastructure is going into the commercial side of the business you've seen Lincoln electric <unk>.

Speaker 3: I mean, it's not hard to draw that analogy if we're seeing more infrastructure and a portion of that infrastructure is going into the commercial side of the business. You've seen Lincoln Electric strengthen that segment. That's driven from our solutions as well as that demand. But that trickles through those industries. That leads to the plumbing applications that require utilization of the Harris solutions and Harris products that goes into the general fabrication markets. So I agree with you.

<unk> in that segment, that's driven from our solutions as well as that demand, but that trickles through those industries that leads to the plumbing applications that require utilization of the Harris solutions and Harris products that goes into the general fabrication markets. So I agree with you I think that seeing demand in those segments is a.

Speaker 3: seeing demand in those segments is a broader positive momentum for many of the customers in areas that Lincoln Electric serves today. I would also tell you that we continue to see just an enormous amount of activity in our automation businesses.

Broader positive momentum for many of the customers in areas that Lincoln Electric serves today I would also tell you that we continue to see just an enormous amount of activity in our automation businesses, which gives me confidence that youre seeing manufacturers in the U S market continued to want to dedicate cash.

Speaker 3: which gives me confidence that you're seeing manufacturers in the U.S. market continue to want to dedicate capital to improving performance and profitability within their businesses. So our automation business improved in 21 over 20. I'm expecting very solid improvement in that business in 22. And again, I think it's a catalyst to the broader continuing positive industrial cycle we see here in North America.

Capital to improving performance and profitability within their businesses. So our automation business improved in 'twenty one over 'twenty.

Im expecting very solid improvement in that business in 'twenty two.

And again I think it's a catalyst to the broader continuing positive industrial cycle, we see here in North America.

Oh very good to hear thanks again.

Speaker 1: Our next question comes from Chris Bancart with Loop Capital.

Our next question comes from Chris Dankert with loop capital.

Hey, Chris.

Oh, Hi, there sorry, I think a bit of a connection issue. Thanks for taking the question here I.

Speaker 5: Oh, hey there. Sorry, I had a bit of a connection issue. Thanks for taking the question here. I guess to kind of follow up on that last comment you made about kind of the expectation for solid automation improvement, I guess, you know, any further color on kind of what that contribution could be in 22 to growth? When do we get back to 2018 levels? Is that a little bit too optimistic at this point in the cycle?

I guess to kind of follow up on that last comment you made about kind of the expectation for solid automation improvement I guess.

Any any further color on kind of what that contribution could be in 'twenty two to growth when do we get back 2018 levels or is that a little bit too optimistic at this point in the cycle.

Speaker 3: Yeah, you know, look, I think that might be a little optimistic. And then the other challenge that I have in commenting on that, Chris, is that as you've seen us continue to expand the solution offering that we have in our automation business and acquire companies into that portfolio like we did last year with the with the Austrian acquisition of Zeeman, that portfolio is continuing to shape and grow.

Yes look I think that might be a little optimistic and then the other challenge that I have in commenting on that Chris is that as you've seen us continue to expand the solution offering that we have in our automation business and acquire companies into that portfolio like we did last year with the with the Austrian acquisition of Zeman that portfolios continue.

Going to shape and grow so I would tell you that when I think about that business that business is still a business that we should be growing much faster than our core we talked about it being two XR core I want to see that business get into solid double digit margins for us in 2022 to to get closer to where we're trying to drive that.

Speaker 3: So I would tell you that when I think about that business, that business is still a business that we should be growing much faster than our core. We talk about it being 2X our core. I want to see that business get into solid double digit margins for us in 2022 to get closer to where we're trying to drive that target.

Target, but we are well positioned in that space and we had very strong momentum exiting 'twenty one moving into 'twenty two.

Speaker 3: But we're well positioned in that space, and we had very strong momentum exiting 21 moving into 22.

Got it Thats very helpful. Thank you.

Speaker 5: got other very helpful thank you uh... and i guess from the updated kind of international margin target obvious very impressive level not that we've seen even in the past decade i guess is getting to that new target international mostly about volume we kind of leveraging f g n a here or uh... you go what really help to hit those new profitability golden in international specifically

And then I guess just on the updated kind of international margin target absolutely.

Our impressive level nothing we've seen even in the past decade, I guess is getting to that new targeted international mostly about volume and kind of leveraging SG&A here or.

What really helps you hit those new profitability goals and in international specifically.

Speaker 3: Well, look, our team's just done an amazing job at International to get to this first step. And we've always talked about it being a first step to get to double-digit margins. But there's no question, when I think about that business...

Look our team has just done an amazing job in international to get to this first step in and we've always talked about it being a first step to get to double digit margins, but theres. No question. When I think about that business us continuing to drive our solutions into that region.

Speaker 3: us continuing to drive our solutions into that region and further penetrating those segments that we have relationships with in other areas of the world, which is volume driven, is going to be a catalyst for us to reach those margin targets. I'll also tell you the team there is still working on process performance opportunities that we have in the business where we think we can build an even better business just from a process perspective.

And further penetrating those segments that we have relationships with in other areas of the world, which is volume driven is going to be a catalyst for us to reach those margin targets. I'll also tell you. The team there is still working on process performance opportunities that we have in the business, where we think we can build an even better business just from a process perspective.

Speaker 3: Catalysts of those two, the volume, continued process improvements, we've got great confidence will make this next step change in the business from an operating performance perspective.

Catalysts are those two the volume continued process improvements we've got great confidence, we'll make this next step change in the business from an operating performance perspective.

Understood. Thanks, so much for the color there and really again, congrats the whole team on a really strong 21.

Speaker 5: Understood. Thanks so much for the color there. And really again, congrats to the whole team on a really strong 21. Thank you. Thanks Chris.

Thanks, Chris.

Our next question comes from Mig <unk> operate with Baird.

Speaker 6: Hello, good morning everyone.

Hello, Good morning, everyone. Good morning Mick.

Speaker 6: This question for Gabe, I heard that apparently there were $39 million worth of LIFO charges in 2021. I'm kind of curious, Gabe, as you're concentrating 22 here in the operating plan, what sort of headwind from LIFO is based into your assumptions?

This question Gabe.

I heard that.

Currently there were $39 million.

Worth a LIFO charges.

In 'twenty, one and I'm kind of curious gave as Youre contemplating 22 here in cooperating.

What sort of headwind from LIFO.

Baked into your assumption.

Speaker 6: And if we continue to see lower steel prices, which we're already starting to see that, I'm curious as to what happens in the back half of the year. Does this revert to where you're actually going to start seeing some life-long benefits? Do you kind of become price-wise positive?

If we continue to see lower steel prices, which.

We're already starting to see that I am curious as to what happens in the back half of the year right.

Sort of revert to where youre actually going to start seeing some LIFO benefit.

It will become quite positive how do you think about that.

Yes, it's EMEA got so not to give a lesson in LIFO, but just remember that LIFO has always anchored around the end of the year inventory position.

Speaker 4: Yes, so not to give a lesson in LIFO, but just remember that LIFO is always anchored on the end of the year inventory position. We did see an acceleration in the fourth quarter on material costs and with that price actions and that's how we ended with the price cost neutral. At the beginning of the year, we're projecting out based on what the current cost.

And so we did see an acceleration in the fourth quarter on material costs and with that price actions and that's what that's how we ended with the price cost neutral at the beginning of the year, we're projecting out based on what the current costs.

Speaker 4: that we see within our business. So that's why I wanted to anchor our conversations around incremental margins. You know, a lot of inflationary pressures were anchored on a very disciplined price cost neutral. We'll have some inflationary pressures on wages and other costs. And we've got actions that are offsetting that. So I wanna move our conversation towards more of a traditional view.

That we see within our business. So that's why I wanted to anchor our conversations around incremental margins.

A lot of inflationary pressures were anchored on a very disciplined price cost neutral and we'll have some inflationary pressures on wages and other costs and we've got actions that are offsetting that so.

Want to move our conversation towards more of a traditional view.

Incremental margins in that low to mid Twenty's because.

Cause I think thats important and Thats on top of the step change that we made on the international side and the margin profile of our business. So.

Well monitor as you know LIFO as we progress throughout the year, but that's all baked into that incremental margin expectation.

Well right.

I appreciate what youre, saying here, but.

Obviously, you have to make some assumptions right now would be to be your.

Input costs.

Speaker 4: I'm curious as to how you're going about that. Are you using current spot prices or are you having some sort of a forward outlook here based into this guidance as well? Sorry to press you on this. I'm just trying to understand. No, that's okay, May. That's a fair question. It's all based on what we currently see. Our assumptions for organic...

And I'm sort of curious as to sort of how youre going about that are you are you using current sort of spot prices or are you, having some sort of a forward outlook here are baked in.

This guidance as well starting to break down those I'm just trying to understand no that's okay.

Fair question, it's all based on what we currently see our assumptions for organic.

Growth for the year, it's all based on pricing actions taken to date and it's all of the profile of what we see in our business now I don't project out where material costs will be at the end of the year.

Whatever pricing actions, we will take into play to respond to that but it is all based on a full view of what we see today in our business. Maybe this is Chris.

Interesting when we were when we were discussing the performance of the company.

Speaker 3: When we were discussing the performance of the company at the end of the Q3 results, we were talking about what our expectations were for LIFO and input costs, and quite frankly, our input costs continued to accelerate through the fourth quarter. And that's why you see that LIFO charge that was much greater than what we had expected in the fourth quarter. So I think part of that discussion and the dynamic that Lincoln's managing, and I would say that I believe strongly Lincoln's managed very well, certainly in 2021, and confidence that will continue.

The Q3 results, we were talking about what our expectations were for LIFO in input costs and quite frankly, our input costs continued to accelerate through the fourth quarter and Thats why you see that LIFO charge that was much greater than what we had expected in the fourth quarter. So I think part of that discussion and the dynamic that Lincoln's managing.

Speaker 3: LIFO and input costs and quite frankly our input costs continued to accelerate through the fourth quarter and that's why you see that LIFO charge that was much greater than what we had expected in the fourth quarter.

Speaker 3: So I think part of that discussion and the dynamic that Lincoln's managing, and I would say that I believe strongly Lincoln's managed very well, certainly in 2021, in confidence that we'll continue to be able to manage it in 2022.

And I would say that I believe strongly Lincoln's managed very well certainly in 2021 and confidence that we will continue to be able to imagine in 'twenty. Two is the dynamics around those material costs because unlike you read that there's potentially some discussions around there around some steel products that might be beginning to mitigate from a cost perspective.

Speaker 3: is the dynamics around those material costs, because I'm like you, Reed, that there's potentially some discussions out around there around some steel products that might be beginning to mitigate from a cost perspective. We're just not seeing that in our business. The products that we're buying, as it shows from the lipo charges that we had to take in the fourth quarter, were still accelerating.

We're just not seeing that in our business the products that we're buying as it shows from the LIFO charges that we had to take in the fourth quarter were still accelerating so it is dynamic quite frankly, it could move materially throughout the year, but we just don't have the visibility to be able to provide.

Speaker 3: So it is dynamic, quite frankly, it could move materially throughout the year, but we just don't have the visibility to be able to provide you much more guidance on that at this point in 2022.

Provide you much more guidance on that at this point in the in 2022.

Speaker 6: Totally fair and I understand and humor me for one more. I'm curious as to how you think about the international business here in terms of volume growth potential for 2022. You talked about Asia being a little bit softer. How do you think that kind of plays out and should we kind of think about this segment maybe having negative volume for the full year if China weaknesses?

Totally fair and I understand in human humor me for one more.

I'm curious as to how you think about the international business here in terms of volume growth potential for 'twenty two.

You talked about Asia, being a little bit softer.

How do you think that kind of plays out and should we kind of think about.

This segment may be having negative volume for the full year.

Ana weakness.

Thank you.

Speaker 3: Yeah, well, I'll tell you, Meg, our volume X China in the international business was actually very solid in the fourth quarter. So it had volume growth associated with it. I expect that business is going to continue to show very solid volume growth. So at this point in time, the real question as it relates to the entire segment is how quickly will we see things maybe improve in China?

Yes.

Meg our volume ex China in the international business was actually very solid in the fourth quarter. So it had volume growth associated with it I expect that business is going to continue to show very solid volume growth. So at this point in time the real question as it relates to the entire segment is how quickly will we see things may be improve in China.

China had a host of variables that were impacting everything from some supply chain challenges as well as supply chain challenges for customers. Some COVID-19 lockdowns prior to the Olympics as well as the operation of the Olympics within China. So we're certainly not thinking those will permeate through the year that will really be the variable, but I will tell you.

Speaker 3: the operation of the Olympics within China. So we're certainly not thinking those will permeate through the year. That'll really be the variable, but I will tell you, I fully expect there to be volume growth inside our European portions of the international business in 2022. Appreciate it. Thank you.

I fully expect there to be volume growth inside our European portions of the international business in 2022.

I appreciate it thank you.

Our next question comes from Steve Barger with Keybanc capital markets.

Hey, good morning, everyone.

Let me just kind of follow up on that last call and maybe or the <unk>.

<unk> in a slightly different way.

Relative to that outlook for high single to low double digit organic growth can you talk about those assumptions to include automation, maybe just rank the how you see growth across the portfolio.

Speaker 4: Yeah, so Steve, you mentioned automation. I would expect, considering our backlog and demand patterns, that.

Yes, so Steve I would you mentioned automation I would expect.

Considering our backlog and demand patterns that.

Speaker 4: Automation would be strong. You know, we talked about double-digit type growth volumes for automation, so we continue to expect strength there. The equipment part of our business also to remain robust.

Automation would be strong.

We've talked about double digit type growth volumes for automation. So we continue to expect strength there the equipment part of our business cell selector remained robust and then as the factories of manufacturing generally accelerate we should see similar consumable demand accelerates.

Speaker 4: And then, as the factories of manufacturing generally accelerate, we should see some more consumable demand accelerate. But I would put it in that order, automation, equipment, consumables. Yeah, and Steve, you know our business well. I mean, think about it. Most of our backlog is, quite frankly, in automation and in our equipment solutions. We have a mid to high 90% on-time delivery ratio that we're achieving in our consumable products. We may not like the input costs.

Put it in that order automation equipment consumables, yeah, Steve you know our business well I mean think about it most of our backlog is quite frankly in automation and in our equipment solutions. We have we have a mid to high 90% on time delivery ratio that we're achieving in our consumable products. We may not like the input costs that we're having to move to the marketplace.

Speaker 3: that we're having to move to the marketplace. But we're serving those customers very, very well. So we've got that backlog there. Again, most of that backlog sitting in automation and equipment solutions. And I completely agree with Gabe. I believe that automation should be a real growth catalyst in our fastest growers as it relates to the portfolio in 22. Right. And all of that comes.

But we're serving those customers very very well so we've got that backlog. There again most of that backlog sitting in automation and equipment solutions and I completely agree with Gabe I believe that automation should be.

A real growth catalyst in our fastest grower as it relates to the portfolio in 'twenty two.

And all of that comes out of North America right.

Speaker 3: A good bit of that, yeah, a good bit of that, but we track our backlogs on a global basis. Okay. And Chris, you said pricing is probably stronger in the first half, which makes sense given the comps. Do you think you can see double-digit growth each quarter as the year progresses, or does that moderate into the back half just given those strong pricing comps and, you know, the strong activity in the back half of 2021?

A good bit of that or yes, good bit of that but we track our backlogs on a global basis okay.

And Chris you said pricing is probably stronger than the first half, which makes sense given the comps do you think you could see double digit growth each quarter as the year progresses.

Is that moderate into the back half just given those strong pricing comps in <unk>.

Activity in the back half of 'twenty one yes.

Speaker 3: Yeah, that's a really good question, Steve. I still would expect that we should, but at the end of the day, I think that we know that pricing is going to be stronger in the first half.

Yes, that's a really good question, Steve I still would expect that we should.

But at the end of the day I think that we know that pricing is going to be stronger than the first half.

Speaker 3: uh... and and let the achievement of that is critically important which we've i think shown a a great ability to to manage that through the cycle

And look the achievement of that is critically important I think shown a great ability to manage that through the cycle.

Speaker 3: But I also want to continue to see that underlying volume growth inside the business. We've got a large demand for our solutions, and I want to make sure we're continuing to see volume growth inside the portfolio.

But I also want to continue to see that underlying volume growth inside the business. We've got a large demand for our solutions and I want to make sure we're continuing to see volume growth inside the portfolio, but.

Speaker 3: I'm confident in the business. I'm confident in our positioning and quite frankly, I think we should see a very strong volume year for Lincoln Electric. And Steve, just to add, just keep in mind that in our assumptions we did not incorporate any additional pricing actions, right? Right, right. Got it. Thank you. Okay.

Im.

I am confident in the business I am confident in our positioning and quite frankly, I think we should see a very strong volume year for Lincoln Electric and Steve maybe just to add just to keep in mind that in our assumptions, we did not incorporate any additional pricing actions right right right.

Got it thank you.

Okay.

Our next question comes from Nathan Jones with Stifel.

Yeah.

Good morning, everyone.

Good morning morning.

Speaker 6: I wanted to ask a question on the electronics side. I know you guys make a lot of your own boards, a lot of your own, and put together a lot of your own electronics components. Do you think that's giving you an advantage at this point, or is the bottleneck there of supply of those components to construct those boards still completely impacted?

I wanted to ask a question on the electronic side.

I would make a lot of your own blood linear.

<unk> put together a lot of your own electronics component do you think that's giving you an advantage at this point or is that.

Total net their supply of those components to construct those boards.

Yes.

Still completely impacting here yes.

Speaker 3: Yeah, Nathan, look, it's a great question. I would tell you it's provided Lincoln Electric with a competitive advantage for quite some time. And the reason it provides us a competitive advantage is that by us being able to have controls of those processes, which we made that investment here in Cleveland. I know since I've been here with the company, probably now maybe eight, nine years ago, we made those investments so that we could control the product development and the innovation associated with power electronics and the utilization of the board.

Yes, Nathan look it's a great question I would tell you it's provided Lincoln electric with a competitive advantage for quite some time and.

And the reason it provides us a competitive advantages that by us being able to have controls of those processes, which.

We made that investment here in Cleveland and I know since I have been since I've been here with the company probably now maybe eight nine years ago. We made those investments so that we could control the product development and the innovation associated with power electronics and the utilization of the boards.

Speaker 3: It gives us better visibility into the supply chain side of those components.

It gives us better visibility into the supply chain side of those components. So today. If you were someone who was in our industry and you were just buying boards from a third party you probably don't have visibility back into that component supply we have that visibility.

Speaker 3: So today, if you were someone who was in our industry and you were just buying boards from a third party, you probably don't have visibility back into that component supply.

Speaker 3: we had that visibility. So that visibility provided us the opportunity to see where some of those weaknesses were. And then we've talked often about in this cycle, using our balance sheet to protect our business and serve customers, place customers first. So we've gone out very early and made sure that we got an allocation and purchased the components that we know we need for our business.

So that visibility provided us the opportunity to see where some of those weaknesses were and then we've talked often about in this cycle using our balance sheet to protect our business and serve customers place customers first so we've gone out very early and made sure that we've got an allocation and purchased the components that we know.

We need for our business so that vertical integration in that area has served us well and has been another catalyst in assisting us in mitigating some of the impacts we would have otherwise had in supply.

Speaker 3: So, that vertical integration in that area has served us well and has been another catalyst in assisting us in mitigating some of the impacts we would have otherwise had in supply in our equipment portfolio.

Our equipment portfolio.

Thanks for that and I wanted to ask a follow up on the automation margins I think you said looking to get into double digit this year.

Speaker 7: Thanks for that, and I wanted to ask a follow-up on the automation margins. I think you said looking to get those into double digits this year. I think the automation business is very high value-add. Can you talk about the reasons that business is below corporate average? Is that just because there's, you know, a large amount of pass-through cost in the robot? Where you think those margins can get to over the long-term?

The automation business is very high value add can you talk about the reasons that business is below corporate average is that just because the large amount of pass through costs in the robot, where you think those margins can get to over the long term.

Speaker 3: Yeah, our expectation is that we'll get those margins to our corporate average. So we had some challenges within that business a couple years ago. We made some changes. We put in some process improvements and we've been driving volume and making improvements in that portion of the portfolio.

Yes, our expectation is that we'll get those margins to our corporate average. So we had some challenges within that business. A couple of years ago. We made some changes we've put in some process improvements and we've been driving volume and making improvements in that portion of the portfolio I will tell you that depending on the tail of the automation project.

Speaker 3: I will tell you that depending on the tail of the automation project, there's times when you may have input costs that are rising during that window that are difficult for you to be able to recapture, but that's all a point in time.

There's times when you may have input costs that are rising during that window that are difficult for you to be able to recapture but thats all a point in time.

Speaker 3: uh type of a challenge that our teams are managing through. We will

Type of a challenge that our teams are managing through we will we have been saying that those were migrating towards high single digit we expect those to be at or above double digit operating margins. When we think about the company in 'twenty, two and our expectation will be to continue to make those improvements so that it is at our core.

Speaker 3: We have been saying that those were migrating towards high single digits.

Speaker 3: We expect those to be at or above double-digit operating margins when we think about the company in 2022, and our expectation will be to continue to make those improvements so that it is at our corporate average over the longer term.

Average over the longer term.

Great. Thanks for taking my questions.

Speaker 1: And again, ladies and gentlemen, if you have a question or a comment at this time, please press the star then the one key on your touch-tone telephone. Our next question comes from Dylan Cumming with Norfolk Stanley.

Ladies and gentlemen, if you have a question or a comment at this time. Please press. The Star then the one key on your Touchtone telephone.

Our next question comes from Bill coming with Morgan Stanley .

Great Good morning, guys.

Yeah.

Speaker 5: Just to go back to your prepared remarks real quick, you guys call out reshoring, which is something we've been talking about and qualitatively really since the start of COVID, but have those conversations really started to kind of crystallize for you here over the past few months and you're kind of expecting some actual, tangible project activity over the next year? And I guess kind of like related to that, is the greatest opportunity from reshoring for you guys still on the automation side or would you expect actually a broader uplift across your broader business?

Just going back to your prepared remarks real quick you guys called out reassuring, which is something we've been talking about that qualitatively really since the start of COVID-19 , but how.

Are those conversations really started to kind of crystallize you here over the past few months and Youre kind of expecting some actual tangible project activity over the next year and I guess kind of related to that is the greatest opportunity from reassuring for you guys still on the automation side or would you expect actually a broader uplift across your broader business.

Speaker 3: Yeah, that's a great question, Dylan. It's sometimes difficult for us to give you a data point associated with that, but I can share with you the context that we're having with our teams. And our automation teams are telling us that they're having a lot of conversations and some quoting activity with large firms that are talking about investing in automation to protect their supply chain.

Yes, that's a great question Bill and it's sometimes difficult for us to give you a data point associated with that but I can share with you the context that we're having with our teams and our automation teams are telling us that theyre, having a lot of conversations and some quoting activity with large firms that are talking about investing in automation to protect their supply chains investor.

Speaker 3: investing in automation to be able to enhance their ability to serve their demand needs. Or maybe they're seeing demand in the marketplace and they didn't have the capacities available, so they're expanding those capacities.

And automation to be able to.

Enhanced their ability to serve their demand needs or maybe they're seeing demand in the marketplace and they didn't have the capacity is available. So they are expanding those capacities and are choosing to expand those capacities closer to the local demand markets were certainly seeing that in our automation business and then the second piece does come.

Speaker 3: and are choosing to expand those capacities closer to the local demand markets. We're certainly seeing that in our automation business.

Speaker 3: And then the second piece does come down to re-shoring, but really gets lost inside of productivity. And what I mean by that is.

Down to re shoring, but it really gets lost inside of productivity and what I mean by that is many of our customers are working with Lincoln electric to drive higher productivity inside their manufacturing facilities to increase capacities to minimize some of the capacity requirements. They might have in other areas of the world.

Speaker 3: Many of our customers are working with Lincoln Electric to drive higher productivity inside their manufacturing facilities to increase capacities to minimize some of the capacity requirements they might have in other areas of the world. And we're seeing a lot of that activity with our equipment solutions or our equipment and consumable solutions that we'd be providing into specific segments. So it does trickle into many areas of our business.

And we're seeing a lot of that activity with our equipment solutions or our equipment and consumable solutions that we'd be providing into specific segment. So it does trickle into many areas of our business, but I am confident that we have had more re shoring discussions with our customers over the last six to 12 months then.

Speaker 3: But I'm confident that we've had more reshoring discussions with our customers over the last 6-12 months than we had prior.

We had prior.

Okay, Great. That's helpful color. Thanks, and then maybe not significant in the quarter or too much just given that margins were down year over year in the Americas. I mean, you guys, obviously have a LIFO charge in there but to what extent was that I was kind of a reflection of things like S&P is in premium freight maybe some general manufacturing inefficiencies I would just be curious how much those factors impacting the quarter and if you guys can comment on.

Speaker 5: OK, great. That's really helpful, Collar. Chris, thanks. And then maybe not to nip it in the quarter too much, but just given that margins were down here in the Americas, I mean, you guys obviously have the LIFO charge in there. But to what extent was that also kind of a reflection of things like absenteeism, premium freight, maybe some general manufacturing deficiencies? I would just be curious how much those factors impacted the quarter. And if you guys can comment on January , even if it was kind of like Omicron related or something, to what extent that was kind of spilling over into the first quarter as well.

January even.

What kind of like on a carnival, it or something like that but that's kind of spilling over into the first quarter as well.

Speaker 3: Yeah, you know, first of all, I'll tell you, you know, January's had a solid start.

Yes first of all I'll tell you January has had a solid start.

Speaker 3: So a solid start to the business, even though in certain markets, obviously, you still have a host of the issues that were a headwind for us in Q4. I mean, the challenges associated with Asia-Pac and certainly here in the U.S. market, I think that there was some softness that was early in January when people were dealing, our customers were dealing with some of the Omicron challenges. But I will tell you, Lincoln Electric's had a solid start.

I'll start to the business, even though in certain markets. Obviously, you still have a host of issues that were.

Headwind for us in Q4, I mean, the challenges associated with Asia Pac and certainly here in the U S market I think that there was some softness that was early in January when people were dealing our customers were dealing with some of the omicron challenges, but I will tell you Lincoln electric had a solid start as it relates to the operating margins in the Americas business I got to tell you.

Speaker 3: As it relates to the operating margins in the Americas business, I've got to tell you, being able to manage through the challenges of Q4 and the additional input costs that we had to cover through the LIFO charges, when you do your quick math and look at mitigating those LIFO charges and see what the margins were in that portfolio, you'll be very impressed.

Are you able to manage through the challenges of Q4 and the additional input cost that we had to cover through the LIFO charges. When you do your quick math and look at mitigating those LIFO charges and see what the margins were in that portfolio, you'll be very impressed so I'm very happy with the performance of our Americas business and that business.

Speaker 3: So I'm very happy with the performance of our America's business, and that business is still not at 2019 volume levels.

Is still not at 2019 volume levels and as I expect we continue to make improvements in that business and see the volume come through the portfolio. We will continue to get the leverage off of that and expand that margin profile.

Speaker 3: And as I expect, we continue to make improvements in that business and see the volume come through the portfolio. We'll continue to get the leverage off of that and expand that margin profile.

Got it great. Thanks for the time and congrats on a strong year.

Speaker 5: Got it. Sounds great. Thanks for the time and congrats on a strong year. Our next question comes.

Don.

Our next question comes from Walter Liptak with Seaport Research.

Speaker 8: Hey, thanks. Good morning, guys. Wanted to do a follow-on on the automation and just a question about how big is automation and revenue now?

Hey, Thanks, good morning, guys.

What did it do a follow on on the automation and just.

A question about how big is automation and revenue now.

Yes, well our automation businesses in the aggregate are at a run rate of around $500 million globally.

Speaker 3: Yeah, well our automation businesses in the aggregate are at a run rate of around $500 million globally.

Speaker 8: Okay, great. You know, the order activity backlogs sound like they're picking up, but I wonder, you know, which sectors are you seeing that in or across the board, any color?

Okay great.

The order activity backlog sound like they are picking up but wonder which sectors are you seeing that in or is it across the board any color there.

Speaker 3: You know, we're seeing it across the board in a host of areas, and I've got very good visibility to that. We've got some internal tools where we can actually see on a daily and weekly basis where our quoting activities are coming in by segment and actually where we're seeing.

We're seeing it across the board and a host of areas and I have got very good visibility to that we've got some internal tools, where we can actually see on a daily and weekly basis, where our quoting activities are coming in by segment and actually where we're seeing.

Speaker 3: Those quotes actually turn into orders for Lincoln Electric.

Those quotes actually turn into orders for Lincoln Electric we've seen some really nice order patterns in the electric vehicle marketplace and some individuals that are investing are retrofitting for that particular area real strength in the appliance marketplace with some of the solutions that we've been providing some of our standard solutions have continued to gain track.

Speaker 3: We've seen some really nice order patterns in the electric vehicle marketplace in some individuals that are investing or retrofitting for that particular area, real strength in the appliance marketplace with some of the solutions that we've been providing.

Speaker 3: of our standard solutions have continued to gain traction.

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Speaker 3: So I would also tell you that the general industry's marketplace continues to show good strength. And there's capital investment in automotive outside of EB. So one of our goals has always been to make sure that we're penetrating these solutions across the industry segments that we participate in. And we continue to show some really impressive wins in a multitude of those segments.

So I would also tell you that the general industries marketplace continues to show good strength and there's capital investment in automotive outside of <unk>. So one of our goals has always been to make sure that we're penetrating these solutions across the industry segments that we participate in and we continue to show some really impressive wins and a.

Multitude of those segments.

Speaker 8: Okay. All right. And then, you know, part of that is auto and, you know, within welding, you know, I think there's auto. I wonder if you could comment, I know it's, you know, just happening, but like the trucker thing in Canada, you know, if you think that's going to have a negative impact on some demand levels in the first quarter.

Okay Alright.

Alright, and then.

Part of that is auto within welding I think theres, our though I wonder if you could comment.

Just happening, but like the trucker thing in Canada.

If you think thats going to have a negative impact.

On some demand levels in the first quarter.

Speaker 3: Yeah, you know, while we could talk about the trucker issue in Canada, we could talk about the Olympics, we could talk about whether there'd be another Omicron spike. I mean, look, those challenges are real and they exist.

Yes.

We could talk about the trucker issue in Canada, we could talk about the Olympics, we could talk about whether there would be another omicron spike I mean look those those challenges are.

Are real and they exist, but at the end of the day.

Speaker 3: But at the end of the day, we've had a really solid start to January . I've got a lot of confidence in the business, and we're expecting to execute on our plans. So, it's there. Could it raise to a level where it causes some concerns? Possibly. But we don't see those things raising to that level today, and we're going to manage and lead right through those challenges.

We've had a really solid start to January I have got a lot of confidence in the business and in <unk>.

We're expecting to execute on our plans. So it's there could it raised to a level where it causes some concerns, possibly but we don't see those things raising to that level today, and we're going to manage and lead right through those challenges.

Speaker 8: Okay, great. And then maybe just the last one, you know, congratulations on the higher standard strategy and some of the goals out there. The one to understand a little bit more about the international margins that you're looking for. And I think you went into this a little bit but I just missed it. But what do you have to do to get to the 12 to 14% is there more structuring or the block and tackling at this point to get to 12 to 14?

Okay, Great and then maybe just the last one congratulations on the.

The higher standard strategy and some of the goals out there.

I wanted to understand a little bit more about the.

The international margins that Youre looking for and I think you went into this a little bit but I just missed it but what do you have to do to get to the 12% to 14% as their.

More structuring as a block and tackling at this point to get to 12% to 14, yes, theres really two points to that and wallet and really the first pieces, we do need to have volume in the business. We've made a lot of improvements in our asset base, there and investments in our processes, both with capital investments and people investments in systems, and we moved the volte.

Speaker 3: Yeah, there's really two points to that. And well, and really, the first piece is we do need to have volume in the business. We've made a lot of improvements in our asset base there and investments in our processes, both in capital investments and people investments and systems. And we move the volume through there, we're going to see that operating leverage. So clearly, I'm thinking about volume being the first. But I'll also tell you that the team there continues to work on a host of Lincoln Business Systems improvements in the business that will generate

Through there, we're going to see that operating leverage so clearly I am thinking about volume being the first but I'll also tell you that the team. There continues to work on a host of Lincoln's business systems improvements in the business that will generate.

Speaker 3: positive tailwinds for us in the business.

Positive tailwind for us in the business.

Speaker 3: So, we're not through positioning that business for where we want it to be longer term. But I think it's really those two components.

So we're not through positioning that business for where we want it to be longer term, but I think it's really those two components, but we need to see some of that volume will get the operating leverage off that business.

Speaker 3: But we need to see some of that volume. We'll get the operating leverage off that business. And I love what that team has been able to accomplish. And I would hope that the accomplishments that we've made

Im.

I love what that team has been able to accomplish and I would hope that the accomplishments that we've made.

Speaker 3: Historically with the Harris business, now with the international business, the improvements we're making in automation should give our stakeholders confidence in our ability to execute on our long-term higher standard strategy targets that we put out. Because that's the type of work and execution that we need to be able to do that. I certainly have great confidence in our ability to execute on that as we're moving forward.

Historically with the Harris business now with the international business. The improvements, we're making in automation should give our stakeholders confidence and our ability to execute on our long term higher standard strategy targets that we've put out because thats the type of work and execution that we need to be able to do that I certainly have great confidence in our ability to.

Execute on that as we're moving forward.

Speaker 8: Okay, you know, as I look at the 12 to 14 percent number, I mean, it's a good number, but I wonder why you guys went with 12 to 14 and not with something higher.

Okay.

Looked at the 12% to 14% number I mean, it is a good number.

But I Wonder why you guys went with 12% to 14 and that was something higher.

Speaker 3: That's a very fair question, but I would tell you that our methodology is that we need to make sure we're working with our teams around the world and that we can set targets.

Well I'll tell you, yes, sorry, no look thats, a very fair question and but I would tell you that our methodology is is that we need to make sure. We're working with our teams around the world and that we can set targets that are achievable for them within a window, where we can drive those programs we can drive those.

Speaker 3: that are achievable for them within a window where we can drive those programs, we can drive those initiatives. I mean, I could have just as easily put on the slide for you today that we want to get them to the target over time, because we do want to get them to the target over time. But we need to be able to provide our employees with a path to be able to achieve those targets, and that's why we set them up in phases. And that has worked very well for Lincoln Electric as we've made improvements to this portfolio over the last several years. Okay, great. Thank you.

Initiatives.

Just as easily put on the slide for you today that we want to get them to the target overtime, because we do want to get them to the target overtime, but we need to be able to provide our employees with a path to be able to achieve those targets and that's why we set them up in phases and that has worked very well for Lincoln electric as we've made improvements to this portfolio.

Over the last several years.

Okay, great. Thank you.

Our final question comes from Steve Barger with Keybanc capital markets.

Speaker 9: Hey, thanks for the follow-up. Gabe, when you think about merit pay, normal inflation, and whatever other cost inputs you have to SG&A, how much leverage do you expect to run on, say, 10% sales growth in 2020?

Hey, thanks for the follow up.

When you think about merit pay normal inflation and whatever other cost inputs you have to SG&A, how much leverage do you expect to run on say, 10% sales growth in 2022.

I go back to those incremental margin assumptions there, Steve so still within that low to mid Twenty's type view.

Speaker 4: Now I go back to those incremental margin assumptions there, Steve. So still within that low to mid-20s type view, we are going to see a little bit more higher inflation on the wage side. We expect that as you're tracking across the industrial base. But that's all baked into our assumptions.

We are going to see a little bit more higher inflation on the wage side, we expect that.

As you are tracking across the industrial base, but thats all baked into our assumptions.

Speaker 9: Yeah, I guess I was trying to get a sense for how you saw gross margin versus SG&A margin.

I guess I was trying to get a sense for how you saw gross margin versus SG&A margin evolving through the year.

Speaker 4: I mean, I'll give you one split on that, is that we are very measured in introducing or restoring some level of discretionary spending, and we'll be very disciplined with that in alignment with real volumes. So we're very much on top of how we look at the mix of our cost drivers within our business.

Yes, I mean, I'll give you one month's split on that is that we are very measured in.

Introducing our restoring some level of discretionary spending and we'll be very disciplined with that in alignment with real volumes.

So we're very much on top of how we look at the mix of our cost drivers within our business.

Speaker 9: Got you. And Chris, relative to the suite of the 70 or 70 products you introduced in 21, can you talk about growth rates for that cohort relative to legacy products or how that's played out in the past?

Got you and Chris relative to the suite of the 70 or 70 products you introduced in 'twenty. One can you talk about growth rates for that cohort relative to legacy products or how that's played out in the past.

Speaker 3: Yeah, look, we would we would tell you that it depends a little bit on the solution and the segment that we're targeting, as you would expect, Steve, that some of the solutions might be going into a segment that has a longer timeframe for us to be able to get that into the industry, get it into the large players in the industry, and then start to see that growth. And then, quite frankly, some of our products in the commercial space, we may see an increase from a run rate perspective instantaneously.

Yes look we would we would tell you that it depends a little bit on the solution in the segment that we're targeting as you would expect Steve that some of the solutions might be going into a segment that has a longer.

Timeframe for us to be able to get that into the industry get it into the large players in the industry and then start to see that growth and then quite frankly some of our products in the commercial space. We may see an increase from a run rate perspective instantaneously.

Speaker 3: because they get that on the shelves, it's going through the channel, it's there very quickly and we see that step up very fast.

Because they get that on the shelves that's going through the channel. It's there very quickly and we see that step up very fast. So I always think about our business in that way and think that you know what when we're driving those new products in the aggregate, we ought to be 100 to 150 basis points above where we're trending normally but it is different depending upon the.

Speaker 3: So, I always think about our business in that way and think that, you know what, when we're driving those new products in the aggregate, we ought to be 100 to 150 basis points above where we're trending normally, but it is different depending upon the solution and the segment that we're moving it into.

<unk> and the segment that we're moving it into.

Speaker 9: understood. And last one, what's the typical time from drawing board to production? And I'm really trying to get a sense for how you see new product launches in 2022.

Understood and last one what's the typical time from drawing board to production and I'm really trying to get a sense for how you see new product launches in 2022.

Visibility is there.

Speaker 3: Yeah, so look, our visibility is good. And it's good in that we've got a detailed process inside the business where we're looking at all of those. But I can tell you that

Yes, so look our visibility is good and it's good in that we've got a detailed process inside the business, where we're looking at all of those but I can tell you that.

Speaker 3: Some of those, which where we might be doing software enhancements to provide much more functionality in some of our businesses, might be something we could gate more quickly. And some of them are very innovative that, quite frankly, we expect them to take, you know, 12 months to 36 months to actually be able to execute on that particular strategy. So it does go back to...

Some of those which where we might be doing software enhancements to provide much more functionality in some of our businesses might be something we could gain more quickly and some of them are very innovative that quite frankly, we expect them to take 12 months to 36 months to actually be able to execute on that particular strategy. So it does go back.

Two.

Speaker 3: It does go back to being very dependent on the individual solution. I will share with you, Steve, that I had an operating review yesterday with our additive business, and we haven't talked much about our additive business. It's still very much incubating. It's very, very small piece inside the company.

It does go back to being very dependent on the individual solution I will share with you Steve that at an operating review yesterday with our additive business and we haven't talked much about our additive business. It's still very much incubated, it's very very small piece inside the company.

Speaker 3: But in our additive business, we had an opportunity to work with a customer. And that particular customer, we took a CAD file and developed a new product for them that they needed for their operations apart. And it was done in days.

But in our additive business, we had we had an opportunity to work with the customer and that particular customer we took a CAD file and developed a new product for them that they needed for their operations apart and it was done in days.

Speaker 3: And look, that's the type of innovation that I think long-term can be a catalyst for the company. But it goes back to your point on how quick can innovation move inside the company and what's that rate of innovation. And look, I think that 100 to 150 basis points above our core is probably a good number.

And look that's the type of of innovation that I think long term it can be a catalyst for the company, but it goes back to your point on how quick and innovation move inside the company and what that rate of innovation.

And look I think that that 100 to 150 basis points above our core is probably a good number.

Got it thanks for the detail.

This concludes our question and answer session I would like to turn the call back to Gabe Bruno for closing remarks.

Speaker 1: If this concludes our question and answer session, I would like to turn the call back to Gabe Bruno for closing.

Speaker 4: Thank you, Kevin. I would 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 Higher Standard 2025 strategic initiatives in the future. Thank you very much.

Thank you Kevin I would 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 higher standard 2025 strategic initiatives in the future. Thank you very much.

Speaker 1: Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.

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Speaker 10: You

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Speaker 1: Greetings and welcome to the Lincoln Electric fourth quarter and full year 2021 financial results conference call. At this time, all participants are on 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. Thank you.

Greetings and welcome to the Lincoln Electric fourth quarter and full year 2021 financial results Conference call. At this time all participants are in a listen only mode and this call is being recorded. This is my pleasure to introduce your host Amanda Butler, Vice President of Investor Relations Communications. Thank you you may begin.

Speaker 2: Thank you, Kevin. And good morning, everyone. Welcome to Lincoln Electric's fourth quarter and full year 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 LincolnElectric.com in the Investor Relations section.

Thank you Kevin and good morning, everyone welcome to Lincoln Electric's fourth quarter and full year 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 in the Investor Relations section joining me on the call today is Chris Mapes.

Speaker 2: Joining me on the call today is Chris Mates, Lincoln's Chairman, President, and Chief Executive Officer, and Gabe Bruno, our Chief Financial Officer. Chris will begin the discussion with an overview of our full-year results and business trends, and Gabe will cover our fourth quarter financial performance in more detail. And finally, we will conclude with comments on our outlook and updates to our 2025 Higher Standards Strategy. And following our prepared remarks, we're happy to take your questions.

Lincoln's Chairman, President and Chief Executive Officer, and Gabe Bruno our Chief Financial Officer, Chris will begin the discussion with an overview of our full year results and business trends.

And Gabe will cover our fourth quarter financial performance in more detail and finally, we will conclude with comments on our outlook and updates to our 2025 higher standard strategy 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 may be forward looking and actual results may differ.

Speaker 2: Before we start our discussion, please note that certain statements made during this call may be 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 that may affect our results are provided in our press release and in our SEC filings on Forms 10-K and 10-Q.

<unk> from our expectations due to a number of risk factors a discussion of some of the 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.

Speaker 2: In addition, we discussed financial measures that do not conform to U.S. GAAP and 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 LincolnElectric.com.

In addition, we discuss financial measures that do not conform to U S. GAAP and 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 Dot Com.

Speaker 3: And with that, I'll turn the call over to Chris Mayes. Chris? Thank you, Amanda. Good morning, everyone. Turning to slide three, we finished the year with a solid fourth quarter and achieved record sales, operating income, earnings, and returns for full year 2021.

And with that I'll turn the call over to Chris Mapes, Chris.

Thank you Amanda good morning, everyone turning to slide three we finished the year with a solid fourth quarter and achieved record sales operating income earnings and returns for full year 2021.

Speaker 3: Our results demonstrate the strength of our business and our team's perseverance and commitment to put our customers first while still advancing our strategic initiatives, even under these unprecedented conditions.

Our results demonstrate the strength of our business and our team's perseverance and commitment to put our customers first while still advancing our strategic initiatives even under these unprecedented conditions.

Speaker 3: So I would like to thank our team, as well as our suppliers and partners who tirelessly worked with us to help us serve our customers and generate record results.

So I would like to thank our team as well as our suppliers and partners, who tireless tirelessly worked with us to help us serve our customers and generate record results.

Speaker 3: Our 2021 sales increased 22% to a record $3.2 billion on 19% organic growth led by higher volumes and 2% from acquisitions, reflecting a strong recovery in the early stages of an industrial expansion.

Our 2021 sales increased 22% to a record $3 2 billion or 19% organic growth led by higher volumes and 2% from acquisitions, reflecting a strong recovery in the early stages of an industrial expansion.

Speaker 3: We achieved a 240 basis point increase in our adjusted operating income margin to 14.8%, with a 26% incremental margin reflecting solid commercial and operational execution across our business.

We achieved a 240 basis point increase in our adjusted operating income margin to 14, 8% with a 26% incremental margin, reflecting solid commercial and operational execution across our business.

Speaker 3: We achieved neutral price costs due to diligent price management, which offset unprecedented inflation and approximately $39 million in LIFO charges.

We achieved neutral price cost due diligent price management, which offset unprecedented inflation and approximately $39 million and LIFO charges.

Speaker 3: We also benefited from structural cost savings and our higher standard strategy operational initiatives.

We also benefited from structural cost savings and our higher standard strategy operational initiatives.

Speaker 3: Our adjusted earnings per share increased 50% to a record $6.22, and we achieved record returns of 23.9%.

Our adjusted earnings per share increased 50% to a record $6 22.

And we achieved record returns of 23, 9%.

Speaker 3: Cash generation grew to $365 million and represented approximately 81% cash conversion, which is lower than our standard 100% plus performance.

Cash generation grew to $365 million and represented approximately 81% cash conversion, which is lower than our standard 100% plus performance.

Speaker 3: This reflects our early decision in this pandemic to use our balance sheet to strategically elevate inventory levels to service customers' needs.

This reflects our early decision in this pandemic to use our balance sheet to strategically elevate inventory levels to service customers' needs.

Speaker 3: I am proud that we increased our dividend nearly 10% this year, making our 26th consecutive increase, which again reinforces our confidence in the business and cash flow generation through a cycle.

I am proud that we increased our dividend nearly 10% this year, making our 26th consecutive increase which again reinforces our confidence in the business and cash flow generation through a cycle.

Speaker 3: Combined with $165 million in share repurchases, we returned approximately $286 million to shareholders this year.

Combined with $165 million in share repurchases, we returned approximately $286 million to shareholders. This year.

Speaker 3: We also maintained a solid balance sheet profile, have approximately $729 million in liquidity, and have no near-term debt maturities.

We also maintained a solid balance sheet profile have approximately $729 million in liquidity and have no near term debt maturities.

Speaker 3: We enter 2022 with over 80 new product families, a higher vitality index of new products, a strong pipeline of additional product launches, new acquisitions to scale up, and are seeing strong quoting activity and record backlogs for both our equipment systems and our automation solutions.

We enter 2022 with over 80, new product families a higher vitality index of new products, a strong pipeline of additional product launches and new acquisitions to scale up and are seeing strong quoting activity and record backlogs for both our equipment systems and our automation.

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Speaker 3: I believe Lincoln Electric is better positioned today than ever before to capture growth and accelerate our performance in this industrial cycle.

I believe Lincoln electric is better positioned today than ever before to capture growth and accelerate our performance in this industrial cycle.

Looking at end market trending in the fourth quarter on slide four we achieved organic sales growth a growth across all of our end markets. Despite challenging operating conditions for our customers.

Speaker 3: Looking at in-market trending in the fourth quarter on slide four, we achieved organic sales growth across all of our in-markets despite challenging operating conditions for our customers.

Speaker 3: Our end-sector organic sales growth was led by a strong mid-30% increase in construction infrastructure, which reflects the strength of non-residential, pre-engineered building projects and our competitive advantage in that market with our unique solutions.

Our end sector organic sales growth was led by a strong mid 30% increase in construction infrastructure, which reflects the strength of nonresidential pre engineered building projects and our competitive advantage in that market with our unique solutions.

Speaker 3: Where we see the most opportunity for resurgence is in the automotive sector and in general industries, which face the tightest supply and labor challenges, as well as in energy, which is still in the early stages of recovery.

Where we see the most opportunity for resurgence as in the automotive sector and in general industries, which faced the tightest supply and labor challenges as well as in energy, which is still in the early stages of recovery.

We achieved solid organic sales growth across all product areas led by broad end sector demand for our equipment and automation solutions, while consumable volumes grew in the quarter. We anticipate performance will increase as customers operating conditions improve and we navigate past challenging first quarter comparisons.

Speaker 3: We achieved solid organic sales growth across all product areas, led by broad end sector demand for our equipment and automation solutions. While consumable volumes grew in the quarter, we anticipate performance will increase as customers' operating conditions improve, and we navigate past challenging first quarter comparisons, which represented strong consumable demand last year prior to weakening supply chain conditions.

Which represented strong consumable demand last year prior to weakening supply chain conditions.

Speaker 3: Geographically, North American European organic growth outpaced Asia Pacific due to slow industrial output in China.

Geographically North America, and European organic growth outpaced Asia Pacific due to slow industrial output in China.

Speaker 3: Despite this pocket of weakness, the underlying fundamentals of our end markets are strong, with customers expressing needs for added capacity to address high demand for their products, record backlogs, and low inventory levels.

Despite this pocket of weakness the underlying fundamentals of our end markets are strong with customers expressing needs for added capacity to address high demand for their products record backlogs and low inventory levels.

Speaker 3: Paired with long-term demand drivers, including skilled labor shortages, reshoring, EV investments, aging fleets, infrastructure maintenance and repair, and renewable energy, Lincoln is well positioned to serve customers' needs.

Paired with long term demand drivers, including skilled labor shortages re shoring EV investments aging fleets infrastructure maintenance and repair and renewable energy Lincoln is well positioned to serve customers' needs.

Speaker 4: And now, I'll pass the call to Gabe to cover fourth quarter financials in more detail. Thank you, Chris. Moving to slide five, our consolidated fourth quarter sales increased approximately 22 percent, driven by 13 percent higher prices, a 6 percent increase in volumes, a 5 percent contribution from acquisitions, which was partially offset by a 2 percent unfavorable impact from foreign exchange.

And now I'll pass the call to Gabe to cover fourth quarter financials in more detail. Thank.

Thank you, Chris moving to slide five our consolidated fourth quarter sales increased approximately 22% driven by 13% higher prices, a 6% increase in volumes, a 5% contribution from acquisitions, which was partially offset by a two.

2% unfavorable impact from foreign exchange, our gross profit margin decreased 70 basis points to 32, 3% as additional pricing actions and the benefit of volume and cost reduction actions did not fully mitigate a $14 million LIFO charge for the full year.

Speaker 4: Our gross profit margin decreased 70 basis points to 32.3 percent as additional pricing actions and the benefit of volumes and cost reduction actions did not fully mitigate a $14 million LIFO charge. For the full year, we achieved neutral price costs as diligent price management offset broad inflation and approximately $39 million in LIFO charges.

We achieved neutral price cost as diligent price management, offset broad inflation and approximately $39 million and LIFO charges.

Speaker 4: Our SG&A expense increased approximately 11 percent, or $14 million, to $151 million in the quarter, primarily due to higher wages and incentive compensation, as well as acquisition.

Our SG&A expense increased approximately 11% or $14 million to $151 million in the quarter, primarily due to higher wages and incentive compensation as well as acquisitions.

Speaker 4: SG&A as a percent of sales decreased 180 basis points to 17.9% due to higher sales.

G&A as a percentage of sales decreased 180 basis points to 17, 9% due to higher sales.

Speaker 4: Reported operating income increased approximately 44% to $120 million, or 14.3% of sales.

Reported operating income increased approximately 44% to $120 million or 14, 3% of sales.

Speaker 4: Operating income included approximately $2 million of special items. Excluding special items adjusted operating income increased 32% to $122 million or 14.5% of sales with an approximate 20% incremental margin reflecting a challenging prior year comparison.

Operating income included approximately $2 million of special items, excluding special items, adjusted operating income increased 32% to $122 million or 14, 5% of sales with an approximate 20% incremental margin.

Reflecting a challenging prior year comparison.

Speaker 4: We incurred a $43 million expense and other income substantially related to a $46 million non-cash settlement charge associated with the termination of a frozen U.S.-defined benefit pension plan. This plan is fully terminated and excess funds will be allocated towards another employee retirement plan over the next several years.

We incurred a $43 million expense and other income substantially related to a $46 million noncash settlement charge associated with the termination of our frozen U S defined benefit pension plan. This plan is fully terminated and excess funds will be allocated towards another.

Employee retirement plan over the next several years.

Speaker 4: Our fourth quarter adjusted effective tax rate was 19.7% due to our mix of earnings and discrete items. Fourth quarter diluted earnings per share increased 16% to $1.25.

Our fourth quarter adjusted effective tax rate was 19, 7% due to a mix of earnings and discrete items.

Fourth quarter diluted earnings per share increased 16% to $1 and 25.

Speaker 4: Excluding special items, adjusted diluted earnings per share increased approximately 30 percent to a record $1.61 in the quarter.

Excluding special items adjusted diluted earnings per share increased approximately 30% to a record $1 61 in the quarter.

Speaker 4: foreign exchange had an unfavorable 4 cent impact to EPI.

Foreign exchange had an unfavorable four cent impact to EPS.

Now moving to our reportable segments on slide six.

Speaker 4: Now moving to our reportable segments on slide six.

Speaker 4: America's welding segment's fourth quarter adjusted EBIT increased 21 percent to approximately $84 million.

Americas welding segment's fourth quarter, adjusted EBIT increased 21% to approximately $84 million. The adjusted EBIT margin compressed 30 basis points to 16, 4% as the benefits of higher volumes and price did not fully offset a $14 million LIFO charge.

Speaker 4: The adjusted EBIT margin compressed 30 basis points to 16.4% as the benefits of higher volumes and price did not fully offset a $14 million LIFO charge. America's welding organic sales increased approximately 24% led by 9% higher volumes and a 15% benefit from pricing action.

Americas welding organic sales increased approximately 24% led by 9% higher volumes and a 15% benefit from pricing actions.

Speaker 4: Organic sales increased across all product areas and end markets in the quarter, led by an acceleration in infrastructure construction and mid-teens percent growth in heavy industry and energy.

Organic sales increased across all product areas and end markets in the quarter led by an acceleration in infrastructure construction and mid teens percent growth in heavy industry and energy.

Speaker 4: Moving to slide 7, the international welding segment's adjusted EBIT nearly doubled to $28 million. The adjusted EBIT margin increased 430 basis points to 11.2% on the benefits of structural cost-saving initiatives and price-cost management.

Moving to slide seven the international welding segment's adjusted EBIT nearly doubled to $28 million. The adjusted EBIT margin increased 430 basis points to 11, 2% on the benefits of structural cost saving initiatives and price cost management.

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Speaker 4: Organic sales increased approximately 13 percent, reflecting continued price management to mitigate inflation.

Organic sales increased approximately 13%, reflecting continued price management to mitigate inflation.

Speaker 4: Volume performance reflected lower industrial production in China. Across the international welding segment, equipment volumes improved at a double-digit percent rate. The segment also benefited approximately 8 percent from the Zeeman acquisitions.

Volume performance reflected lower industrial production in China.

Across the international welding segment equipment.

Equipment volumes improved at a double digit percent rate. The segment also benefited approximately 8% from the <unk> acquisition.

Speaker 4: The segment incurred a negative 7% impact from unfavorable foreign exchange, predominantly as a result of the devaluation of the Turkish lira.

This segment incurred a negative 7% impact from unfavorable foreign exchange predominantly as a result of the devaluation of the Turkish lira.

Speaker 4: Moving to the Harris Products Group on slide 8, fourth quarter adjusted EBIT increased approximately 16 percent to $16 million. Adjusted EBIT margin decreased 130 basis points to 12.9 percent on acquisition integration costs and less favorable mix.

Moving to the Harris products group on slide eight fourth quarter, adjusted EBIT increased approximately 16% to $16 million.

Adjusted EBIT margin decreased 130 basis points to 12, 9% on acquisition integration costs and less favorable mix.

Speaker 4: We expect margin performance to improve through 2022.

We expect margin performance to improve through 2022.

Speaker 4: Organic sales increased approximately 12% led by pricing actions to mitigate raw material costs. Volumes increased 5% on strength in the HVAC and industrial end markets, which offset lower retail sales due to challenging prior year comparisons in that channel.

Organic sales increased approximately 12% led by pricing actions to mitigate raw material costs volumes increased 5% on strength in the HVAC and industrial end markets, which offset lower retail sales due to challenging prior year comparisons in that channel.

Moving to slide nine.

Speaker 4: We generated $110 million in cash flows from operations and achieved 98% cash conversion.

We generated $110 million in cash flows from operations and achieved 98% cash conversion at.

Speaker 4: At year-end, average operating working capital was 16.3% of sales and remains intentionally elevated to support product availability and mitigate supply chain issues. We expect to maintain this posture through the first half of 2022.

At year end average operating working capital was 16, 3% of sales and remains intentionally elevated to support product availability and mitigate supply chain issues. We expect to maintain this posture through the first half of 2022.

Moving to slide 10.

Speaker 4: As Chris mentioned, we finished the year having strengthened our balance sheet and liquidity position. In the quarter, we invested approximately $16 million in capital expenditures and returned approximately $91 million to shareholders through a combination of our dividend program and $61 million in share repurchases.

As Chris mentioned, we finished the year, having strengthened our balance sheet and liquidity position in the quarter, we invested approximately $16 million in capital expenditures and returned approximately $91 million to shareholders through a combination of our dividend program and $61 million in share.

Purchases.

Speaker 4: On a full year basis, we invested $219 million towards growth and returned $286 million to shareholders, including $165 million in share repurchase.

On a full year basis, we invested $219 million towards growth and returned $286 million to shareholders, including $165 million in share repurchases.

Speaker 4: We maintained ample liquidity at year-end with $729 million. With no near-term debt maturities and strong cash flows, we will continue to prioritize growth investments and return cash to shareholders.

We maintained ample liquidity at year end was $729 million with no near term debt maturities and strong cash flows we will continue to prioritize growth investments and return cash to shareholders.

Speaker 4: Looking ahead to 2022, we anticipate navigating through another dynamic operating environment with continued strong demand momentum, which we have seen in quarter to date.

Looking ahead to 2022.

We anticipate navigating through another dynamic operating environment with continued strong demand momentum, which we have seen quarter to date.

Speaker 4: Given what we see today, we anticipate a high single-digit to low double-digit percent organic growth rate in 2022. Our organic growth assumption does not include incremental pricing actions, and we expect a price tailwind in 2022, which will be higher in the first half as prior pricing actions anniversary.

Given what we see today, we anticipate a high single digit to low double digit percent organic growth rate in 2022, our organic growth assumption does not include incremental pricing actions and we expect a price tailwind in 2022, which will be higher in the first half as prior.

Our pricing actions anniversary.

Speaker 4: we will continue to target a neutral price cost position for full year 2022.

We will continue to target a neutral price cost position for full year 2022.

Speaker 4: Our revenue assumptions are centered on organic sales, as we expect the approximate $50 million of incremental sales from acquisitions to be offset by unfavorable foreign exchange at current rates.

Our revenue assumptions are centered on organic sales as we expect the approximate $50 million of incremental sales from acquisitions to be offset by unfavorable foreign exchange at current rates.

Speaker 4: In this environment, we are expecting a low to mid-20% incremental operating income margin for the full year as organic sales growth, lower LIFO charges, and incremental structural cost savings will offset inflation and higher employee costs.

In this environment, we are expecting a low to mid 20% incremental operating income margin for the full year as organic sales growth lower LIFO charges and incremental structural cost savings will offset inflation and higher employee costs.

Speaker 4: The full year 2022 effective tax rate is expected to be in the low 20% range.

The full year 2022 effective tax rate is expected to be in the low 20% range.

Speaker 4: We anticipate continued strong cash flow generation from sales and from improved working capital in the second half of the year.

We anticipate continued strong cash flow generation from sales and from improved working capital in the second half of the year.

Speaker 4: We are planning to invest $70 to $80 million in capital expenditures in 2022 on growth and efficiency-oriented projects, which suggests an approximate 90 percent cash conversion rate for the full year.

We are planning to invest $70 million to $80 million in capital expenditures in 2022 on growth and efficiency oriented projects.

<unk> suggests an approximate 90% cash conversion rate for the full year.

Speaker 4: So while operating conditions are not ideal, we will continue to effectively navigate and manage the business through this part of the cycle and focus on serving our customers, operating safely and investing in our long-term strategic initiatives while driving improved sales, profitability, and earnings throughout the year.

So while operating conditions are not ideal we will continue to effectively navigate and manage the business through this part of the cycle and focus on serving our customers operating safely and investing in our long term strategic initiatives are driving improved sales profitability and earnings throughout the year.

Speaker 3: And now I'd like to turn the call back over to Chris to discuss our 2025 Higher Standard Strategy. Thanks, Gabe. Yeah, 2021 was really just an exceptional year for the company. I'm really proud of all of our employees. And given our team's execution of our strategic initiatives and the solid demand momentum we see across our end markets, we've revisited our 2025 Higher Standard Strategy financial targets and have adjusted them up to reflect the superior value we believe we can generate through 2025.

And now I'd like to turn the call back over to Chris to discuss our 2025 higher standard strategy.

Thanks, Gabe, Yes, 2021 was really just an exceptional year for the company and I'm really proud of all of our employees and given our team's execution of our strategic initiatives and the solid demand momentum we see across our end markets. We revisit our 2025 higher standard strategy financial targets and have adjusted them up to reflect the superior value.

We believe we can generate through 2025.

Speaker 3: As you can see on slide 12 on the left side, our key focus areas have not changed.

As you can see on slide 12 on the left side. Our key focus areas have not changed we are pivoting to higher levels of growth are strong product development pipeline industry, leading position in automation bold investments in new technologies like additive and a solid balance sheet to fund our active M&A program.

Speaker 3: We are pivoting to higher levels of growth. Our strong product development pipeline, industry-leading position in automation, bold investments in new technologies like Additive, and a solid balance sheet to fund our active M&A program position us well for higher performance.

<unk> position us well for higher performance.

Speaker 3: We now expect our top-line reported sales growth rate from 2020 to 2025 to be in the high single-digit to low double-digit percentage range.

We now expect our top line reported sales growth rate from 2020 to 2025 to be in the high single digit to low double digit percentage range.

Speaker 3: We remain focused on enrichening the mix of our business, advancing operational excellence through continuous improvement projects, including initiatives that progress our safety and environmental 2025 goals, and leveraging our Lincoln Business System, which aligns the organization and generates greater efficiencies through standardized best practice tools and processes.

We remain focused on originating the mix of our business advancing operational excellence through continuous improvement projects, including initiatives that progress our safety and environmental 2025 goals and leveraging our Lincoln business system, which aligns the organization and generates greater efficiencies through standardized best practice tools and process.

Yes.

Speaker 3: We expect these initiatives, combined with volume growth, will increase our average operating income margin by over 200 basis points versus the last cycle, which was in the mid-13% range.

We expect these initiatives combined with volume growth will increase our average operating income margin by over 200 basis points versus the last cycle, which was in the mid 13% range.

Speaker 3: We are now targeting to achieve an average 16% operating income margin between 2020 and 2025.

We are now targeting to achieve an average 16% operating income margin between 2020 and 2025.

Speaker 3: We've also provided adjusted EBIT margin ranges for our reportable segments, including a new target range for our international welding segment of 12 to 14 percent, depending on where we are in the cycle. This improved performance is expected to yield a high teens to low 20 percent EPS growth rate from 2020 to 2025.

We've also provided adjusted EBIT margin ranges for our reportable segments, including our new target range for our international welding segment of 12% to 14% dependent on where we are in the cycle.

This improved performance is expected to yield a high teens to low 20% EPS growth rate from 2020 to 2025.

Speaker 3: We will continue to maintain our top quartile ROIC and top decile working capital performance with the ROIC range positioned to accommodate additional M&A.

We will continue to maintain our top quartile ROIC and top decile working capital performance with the ROIC range position to accommodate additional M&A.

Speaker 3: We expect strong cash flow generation and remain committed to our balance sheet capital allocation strategy by pursuing growth investments while returning cash to shareholders through our dividend program and opportunistically re-purchasing shares above our maintenance buyback level.

We expect strong cash flow generation and remain committed to our balance sheet capital allocation strategy by pursuing growth investments, while returning cash to shareholders through our dividend program and Opportunistically repurchasing shares above our maintenance buyback level.

Speaker 3: I'm confident that our team will successfully execute our Higher Standard 2025 Strategic Plan.

I am confident that our team will successfully execute our higher standard 2025 strategic plan the.

Speaker 3: The investments we've made in the business and the strength of our balance sheet position us well to deliver on our higher sales, profitability, and earnings goals.

The investments we've made in the business and the strength of our balance sheet position us well to deliver on our higher sales profitability and earnings goals.

Speaker 3: generating superior value for all of our stakeholders. And now, I'd like to turn the call over for questions.

Generating superior value for all of our stakeholders and now I'd like to turn the call over for questions.

Okay.

Speaker 1: Ladies and gentlemen, at this time, we will be conducting a question and answer session. To ask a question, please press star then one on your touchtone telephone. To remove yourself from the queue, please press the pound key. To ensure everyone has an opportunity to participate, we ask that you limit yourself to one question and one follow-up and then return to the queue. Our first question comes from Brian Blair with Oppenheimer.

Ladies and gentlemen at this time, we will be conducting a question and answer session to ask a question. Please press Star then one on your Touchtone telephone to remove yourself from the queue. Please press the pound key to ensure everyone has an opportunity to participate we ask that you limit yourself to one question and one follow up and then return to the queue.

Our first question comes from Bryan Blair with Oppenheimer.

Thanks, Good morning, everyone.

Morning, Brian Hey, Brian .

Speaker 11: Douglas Goldstein, CFP®, is the director of Profile Investment Services and the host of the Goldstein on Gelt radio shows. He is a licensed financial professional both in the U.S. and Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE & SIPC, a Fidelity Investments company. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at www.profile-financial.com. All information on this website is purely information and should not be used as the sole basis for making financial decisions. Disclaimer! This document is a transcription and original. While it is believed to be current and accurate, divergence from the original is to be expected.

So frame Lincoln's positioning and demand momentum entering 2022, a bit more how much higher our backlog levels relative to 2018, 19 timeframe and how are orders trending to start the year.

Speaker 4: So, Brian , just to give you a sense, so, you know, as you saw, we've got strong momentum as we ended the fourth quarter. That continues into this first part of the year. Backlogs are very strong, primarily in the equipment and automation side of our business, so we're pretty confident in the demand profile within our business.

So Brian just to give you a sense so and as you saw we've got strong momentum as we ended the fourth quarter that continues into this first part of the year.

Backlogs are very strong primarily in the equipment and automation side of our business. So we're pretty confident.

<unk> and <unk> and the demand profile within our business.

Speaker 11: Okay, understood. To level set on the 2022 sales guide, what are you contemplating for volume versus price contribution to the high single to low double-digit organic growth?

Okay understood.

To level set on.

The 2022 sales sales guide what are you contemplating for volume versus price contribution.

The high single to low double digit organic growth.

Speaker 3: You know, when we participate in 2021, you know, we ended up at about half volume and half price as it relates to the performance of the company. And I certainly think that as we're moving into 22, we'll probably have more price in the first half of the year than the back half of the year, really driven by two reasons, Brian . The first is, obviously, some of that price is going to continue to anniversary as you're working through the year.

When we when we participated in 2021, we ended up at about half volume and half price as it relates to the performance of the company and I certainly think that as we're moving into 'twenty. Two we'll probably have more price in the first half of the year than the back half of the year really driven by two reasons Bryan. The first is obviously.

Some of that price is going to continue to anniversary as youre working through the year, but the second comment I would make is look at the accelerating cost that we covered in the fourth quarter and Youll see a portion of that and that LIFO charge. So obviously the actions that we had to take to cover those increased costs youre going to see a larger portion of that in the first half of the year than the back half.

Speaker 3: But the second comment I would make is look at the accelerating costs that we covered in the fourth quarter, and you see a portion of that in that LIFO charge.

Speaker 3: So obviously, the actions that we had to take to cover those increased costs, you're going to see a larger portion of that in the first half of the year than the back half of the year.

Speaker 3: But we're confident in our thought process on the organics and the way we're thinking about.

For the year.

But we're confident in.

In our thought process on the organics and the way, we're thinking about 2022, and probably while I've still got you on the call that because I think that earlier question you asked about the confidence in the demand profile is just critical when you take where were at from a backlog perspective, and where we're seeing our our industry segments and the <unk>.

Speaker 3: 2022 and probably while I've still got you on the call because the I think that earlier question you asked about the Confidence and the demand profile is just critical when you take where we're at from a backlog perspective and where we're seeing our industry segments and the favorable trending

<unk> trending with energy churning in the back half of 'twenty, one and the fact that we continued to target closer towards our 2019 volume levels, which were still under at Lincoln Electric I think it sets us up very well for very strong volumes as we're moving through the year.

Speaker 3: with energy churning in the back half of 21 and the fact that we continue.

Speaker 3: to target closer towards our 2019 volume levels, which we're still under.

Speaker 3: At Lincoln Electric, I think it sets us up very well for very strong volumes as we're moving through the year.

Speaker 11: That's very helpful, Keller. And thinking a little more medium term, it would be great to hear any updated perspectives on infrastructure spending.

That's very helpful color and thinking a little more medium term it'll be great to hear any updated perspectives on infrastructure spending.

Speaker 11: related catalysts over the coming years. We know direct exposure nets the 15 plus percent of your sales. I'm actually more curious about indirect catalysts and tailwinds.

Related catalysts over the coming years direct exposure net of 15 plus percent of your sales I'm actually more curious about indirect catalysts and tailwind with the simple logic that planned spending is pretty steel intensive so perhaps there'll be broader tailwind across Americas welding.

Speaker 11: with the simple logic that plant spending is pretty steel-intensive, so perhaps...

Speaker 11: broader tailwinds across America's welding and in parts of HPG.

And then parts of H P J, yes.

Speaker 3: Yeah, look, it's very logical that we would see that move through the subsegments and certainly a lot of the general industries types businesses that we participate with.

Yes look it's very logical that we would see that move through the sub segments and certainly a lot of the general industries types businesses that we participate with I mean, it's not hard to draw that analogy.

Speaker 3: I mean, it's not hard to draw that analogy. If we're seeing more infrastructure and a portion of that infrastructure is going into the commercial side of the business, you've seen Lincoln Electric's strength in that segment, that's driven from our solutions as well as that demand. But that trickles through those industries. That leads to the plumbing applications that require utilization of the Harris solutions and Harris products. It goes into the general fabrication markets. So, I agree with you.

We're seeing more infrastructure and a portion of that infrastructure is going into the commercial side of the business you've seen Lincoln electric strength in that segment, that's driven from our solutions as well as that demand, but that trickles through those industries that leads to the plumbing applications that require utilization of the Harris solutions and Harris products that goes into the general fabric.

Asian markets. So I agree with you I think that seeing demand in those segments is a broader positive momentum for many of the customers in areas that Lincoln electric serves today.

Speaker 3: Seeing demand in those segments is a broader positive momentum for many of the customers and areas that Lincoln Electric serves today. I would also tell you that we continue to see just an enormous amount of activity in our automation businesses, which gives me confidence that you're seeing manufacturers in the U.S. market continue to want to dedicate capital to improving performance and profitability within their businesses.

Also tell you that we continue to see just an enormous amount of activity in our automation businesses, which gives me confidence that youre seeing manufacturers in the U S market continued to want to dedicate capital to improving performance and profitability within their businesses. So our automation business.

Speaker 3: So our automation business improved in 21 over 20. I'm expecting very solid improvement in that business in 22. And again, I think it's a catalyst to the broader continuing positive industrial cycle we see here in North America. Well, very good to hear. Thanks again.

<unk> in 'twenty, one over 'twenty.

I'm expecting very solid improvement in that business in 'twenty, two and again I think it's a catalyst to the broader continuing positive industrial cycle, we see here in North America.

Oh very good to hear thanks again.

Yes.

Our next question comes from Christopher <unk> with loop capital.

Hey, Chris.

Speaker 11: Oh, hey there. Sorry, I had a bit of a connection issue. Thanks for taking the question here. I guess to kind of follow up on that last comment you made about kind of the expectation for solid automation improvement, I guess, you know, any further color on kind of what that contribution could be in 2022 growth? When do we get back to 2018 levels? Or is that a little bit too optimistic at this point in the cycle?

Oh, Hi, there sorry, I think a bit of a connection issue. Thanks for taking the question here.

I guess to kind of follow up on that last comment you made about kind of the expectation for solid automation improvement I guess.

Any any further color on kind of what that contribution could be in 'twenty two to growth when do we get back to 2018 levels or is that a little bit too optimistic at this point in the cycle.

Speaker 3: Yeah, you know, look, I think that might be a little optimistic. And then the other challenge that I have in commenting on that, Chris, is that as you've seen us continue to expand the solution offering that we have in our automation business and acquire companies into that portfolio, like we did last year with the with the Austrian acquisition of Zeeman, that portfolio is continuing to shape and grow.

Yes look I think that might be a little optimistic and then the other challenge that I have in commenting on that Chris is that as you've seen us continue to expand the solution offering that we have in our automation business and acquire companies and of that portfolio like we did last year with the with the Austrian acquisition of Zeman that portfolios continue.

Going to shape and grow so I would tell you that when I think about that business that business is still a business that we should be growing much faster than our core we talked about it being two XR core I want to see that business get into solid double digit margins for us in 2022 to get closer to where we're trying to drive that.

Speaker 3: So, I would tell you that when I think about that business, that business is still a business that we should be growing much faster than our core. We talk about it being 2X our core. I want to see that business get into solid double-digit margins for us in 2022 to get closer to where we're trying to drive that target.

Target, but we are well positioned in that space and we had very strong momentum exiting 'twenty one moving into 'twenty two.

Speaker 3: But we're well positioned in that space and we had very strong momentum exiting 21 moving into 22.

Speaker 11: Got it. That's very helpful. Thank you. And then I guess on the updated kind of international margin target, obviously a very impressive level, not that we've seen even in the past decade, I guess. Is getting to that new target in international mostly about volume and kind of leveraging SG&A here? Or what really helps you hit those new profitability goals in international specifically?

Got it that's very helpful. Thank you.

And then I guess just on the updated kind of international margin target obviously.

Our impressive level nothing we've seen even in the past decade, I guess is getting to that new targeted international mostly about volume and kind of leveraging SG&A here or what really helps you hit those new profitability goals and international specifically.

Speaker 3: Well, look, our team's just done an amazing job at International to get to this first step. And we've always talked about it being a first step to get to double-digit margins. But there's no question, when I think about that business...

Well look our team has done an amazing job in international to get to this first step in and we've always talked about it being a first step to get to double digit margins, but theres no question when I think about that business.

Speaker 3: Us continuing to drive our solutions into that region and further penetrating those segments that we have relationships with in other areas of the world, which is volume-driven, is going to be a catalyst for us to reach those margin targets. I'll also tell you the team there is still working on process performance opportunities that we have in the business, where we think we can build an even better business just from a process perspective.

Continuing to drive our solutions into that region.

And further penetrating those segments that we have relationships with in other areas of the world, which is volume driven is going to be a catalyst for us to reach those margin targets. I will also tell you. The team there is still working on process performance opportunities that we have in the business, where we think we can build an even better business just from a process perspective catalysts.

Speaker 3: Catalysts of those two, the volume, continued process improvements, we've got great confidence we'll make this next step change in the business from an operating performance perspective.

As to the volume continued process improvements we've got great confidence, we'll make this next step change in the business from an operating performance perspective.

Speaker 11: Understood thanks so much for the color there and really again congrats the whole team on a really strong 21 Thank you. Thanks, Chris

Understood. Thanks, so much for the color there and really again congrats to the whole team on a really strong 'twenty one.

Thank you thanks, Chris.

Our next question comes from Mig <unk> with Baird.

Speaker 6: Hello. Good morning, everyone.

Hello, Good morning, everyone. Good morning Mig.

Speaker 6: This question for Gabe, you know, I heard that apparently there were $39 million worth of LIFO charges in 21, and I'm kind of curious, Gabe, as you're concentrating 22 here in the operating plan, what sort of headwind from LIFO is based into your assumption?

This question.

I heard that.

Apparently there were $39 million.

Worth a LIFO charges.

In 'twenty, one and I'm kind of curious cabins youre contemplating 22 here then cooperating club.

What sort of headwind from LIFO.

The euro assumption.

Speaker 6: And, you know, if we continue to see lower steel prices, which, you know, we're already starting to see that, I'm curious as to what happens in the back half of the year, right? You know, does this sort of revert to where you're actually going to start seeing some lifelong benefits? Do you kind of become price-cost positive?

If we continue to see lower steel prices, which.

We're already starting to see that I am curious as to what happens in the back half of the year right.

Sort of revert to where youre actually going to start seeing some LIFO benefit.

Become price cost positive how do you think about that.

Speaker 4: Yes, so, Meg, so not to give a lesson in LIFO, but just remember that LIFO is always anchored on the end of the year inventory position. And so we did see an acceleration in the fourth quarter on material costs, and with that, price actions. And that's what – that's how we ended with the price-cost neutral. At the beginning of the year, we're projecting out, based on what the current costs

Yes, it's omega so not to give a lesson in LIFO, but just remember that LIFO has always anchored around the end of the year inventory position.

And so we did see an acceleration in the fourth quarter <unk>.

Material costs and with that price actions and that's what that's how we ended with the price cost neutral at the beginning of the error were projecting out based on what the current costs.

Speaker 4: that we see within our business. So that's why I wanted to anchor our conversations around incremental margins. You know, a lot of inflationary pressures. We're anchored on a very disciplined price-cost neutral. We'll have some inflationary pressures on wages and other costs. And we've got actions that are offsetting that. So I want to move our conversation towards more of a traditional view.

That we see within our business. So that's why I wanted to anchor our conversations around incremental margins.

A lot of inflationary pressures were anchored on a very disciplined price cost neutral we will have some inflationary pressures on wages and other costs and we've got actions that are offsetting that so.

Want to move our conversation towards more of a traditional view.

Speaker 4: of incremental margins in that low to mid-20s, because I think that's important, and that's on top of the step change that we made on the international side in the margin profile of our business. So we'll monitor, as you know, LIFO as we progress throughout the year, but that's all baked into that incremental margin expectation.

Incremental margins in that low to mid Twenty's because.

I think that's important and that's on top of the step change that we made on the international side and the margin profile of our business. So.

Well monitor as you know LIFO as we progress throughout the year, but that's all baked into that incremental margin expectation.

Speaker 6: Well, right, and I appreciate what you're saying here, but obviously you have to make some assumptions right now vis-à-vis your input cost.

Well right.

I appreciate what youre, saying here, but.

Obviously, you have to make some assumptions right now would be to be your input cost right and I'm sort of curious as to sort of how youre going about that are you are you using current sort of spot prices or are you, having some sort of a forward outlook here are baked into it.

Speaker 6: And I'm sort of curious as to sort of how you're going about that. Are you using current sort of spot prices, or are you having some sort of a forward outlook here based into this guidance as well? Sorry to press you on this. I'm just trying to understand. No, that's okay, May. That's a fair question. It's all based on what we currently see. You know, our assumptions for organic...

This guidance as well sorry, it broke the envelope I'm just trying to understand no that's okay.

It's a fair question, it's all based on what we currently see our assumptions for organic.

Growth for the year, it's all based on pricing actions taken to date and it's all of the profile of what we see in our business now I don't project out where material costs will be at the end of the year nor.

Whatever pricing actions, we will take into play to respond to that but it is all based on a full view of what we see today in our business. Maybe this is Chris.

Interesting when we were when we were discussing the performance of the company at the end of the Q3 results. We were talking about what our expectations were for LIFO in input costs and quite frankly, our input costs continued to accelerate through the fourth quarter and Thats why you see that LIFO charge that was much greater than what we had expected and.

Speaker 3: When we were discussing the performance of the company at the end of the Q3 results, we were talking about what our expectations were for LIFO and input costs. And quite frankly, our input costs continued to accelerate through the fourth quarter. And that's why you see that LIFO charge that was much greater than what we had expected in the fourth quarter. So I think part of that discussion and the dynamic that Lincoln's managing, and I would say that I believe strongly Lincoln's managed very well, certainly in 2021, and confidence that will continue.

Speaker 3: LIFO and input costs, and quite frankly, our input costs continued to accelerate through the fourth quarter. And that's why you see that LIFO charge that was much greater than what we had expected in the fourth quarter.

The fourth quarter, So I think part of that discussion and the dynamic that Lincoln's managing and I would say that I believe strongly Lincoln's managed very well certainly in 2021 and confidence that we will continue to be able to imagine in 'twenty. Two is the dynamics around those material costs because unlike you read that there is potentially some discussions.

Speaker 3: So I think part of that discussion and the dynamic that Lincoln's managing, and I would say that I believe strongly Lincoln's managed very well, certainly in 2021, and confidence that we'll continue to be able to manage it in 2022.

Speaker 3: is the dynamics around those material costs, because I'm like you, Reed, that there's potentially some discussions around there around some steel products that might be beginning to mitigate from a cost perspective. We're just not seeing that in our business. The products that we're buying, as it shows from the lipo charges that we had to take in the fourth quarter, were still accelerating.

Around there around some steel products that might be beginning to mitigate from a cost perspective, we're just not seeing that in our business. The products that we're buying as it shows from the LIFO charges that we had to take in the fourth quarter were still accelerating so it is dynamic quite frankly, it could move materially throughout the year, but we just don't have the visibility.

Speaker 3: So it is dynamic. Quite frankly, it could move materially throughout the year, but we just don't have the visibility to be able to provide you much more guidance on that at this point in 2022.

<unk> to be able to.

Provide you much more guidance on that at this point in the 2022.

Speaker 6: It's totally fair, and I understand, and humor me for one more. I'm curious as to how you think about the international business here in terms of volume growth potential for 2022. You talked about Asia being a little bit softer. How do you think that kind of plays out, and should we kind of think about this segment maybe having negative volume for the full year if China weakness continues? Thanks.

Totally fair and I understand in Q human humor me for one more.

I'm curious as to how you think about the international business here in terms of volume growth potential for 'twenty two.

You talked about Asia, being a little bit softer.

Do you think that kind of plays out and should we kind of think about.

This segment may be having negative volume for the full year.

China weakness continues.

Speaker 3: Yeah, well, I'll tell you, Meg, our volume X China in the international business was actually very solid in the fourth quarter. So it had volume growth associated with it. I expect that business is going to continue to show very solid volume growth. So at this point in time, the real question as it relates to the entire segment is how quickly will we see things maybe improve in China?

Yes.

Well you Meg our volume ex China, and the international business was actually very solid in the fourth quarter. So it had volume growth associated with it I expect that business is going to continue to show very solid volume growth. So at this point in time the real question as it relates to the entire segment is how quickly will we see things may be improve in China.

Speaker 3: China had a host of variables that were impacting it, everything from some supply chain challenges as well as supply chain challenges for customers, some COVID lockdowns prior to the Olympics, as well as

China had a host of variables that were impacting it everything from some supply chain challenges as well as supply chain challenges for customers from Covid Lockdowns prior to the Olympics as well as the operation of the Olympics within China. So we're certainly not thinking those will permeate through the year that will really be the variable, but I will tell you.

Speaker 3: the operation of the Olympics within China. So we're certainly not thinking those will permeate through the year. That'll really be the variable. But I will tell you, I fully expect there to be volume growth inside our European portions of the international business in 2022. Appreciate it. Thank you.

I fully expect there to be volume growth inside our European portions of the international business in 2022.

I appreciate it thank you.

Our next question comes from Steve Barger with Keybanc capital markets.

Speaker 9: Hey, good morning, everyone. I'm just going to follow up on that last call, and maybe answer the question in a slightly different way. Just relative to that outlook for high-singled, low-double-digit organic growth, can you talk about those assumptions?

Hey, good morning, everyone.

Let me just kind of follow up on that last call and maybe the question in a slightly different way just relative to that outlook for high single to low double digit organic growth can you talk about those assumptions to include automation, maybe just rank the how.

Speaker 9: To include automation, maybe just rank how you see growth across the portfolio.

You see growth across the portfolio.

Speaker 4: Yeah, so Steve, I would, you mentioned automation. I would expect considering our backlog and the man patterns that.

Yes, so Steve I would you mentioned automation I would expect.

Considering our backlog and demand patterns that automation would be strong.

Speaker 4: Automation would be strong. You know, we talked about double-digit type growth volume for automation, so we continue to expect strength there. The equipment part of our business also to remain robust.

<unk>.

We've talked about double digit type growth volumes for automation. So we continue to expect strength there the equipment part of our business they'll sell to remained robust and then as the factories of manufacturing generally accelerate we should see similar consumable demand accelerates what I would put in that order.

Speaker 4: And then, as the factories of manufacturing generally accelerate, we should see some more consumable demand accelerate. But I would put it in that order, automation, equipment, consumables. Yeah, and Steve, you know our business well. I mean, think about it. Most of our backlog is, quite frankly, in automation and in our equipment solutions. We have a mid to high 90% on-time delivery ratio that we're achieving in our consumable products. We may not like the input costs.

<unk> equipment consumables and Steve as you know our business well I mean think about it most of our backlog is quite frankly in automation and in our equipment solutions. We have we have a mid to high 90% on time delivery ratio that we're achieving in our consumable products. We may not like the input costs that we're having to move to the marketplace, but we're serving those.

Speaker 3: that we're having to move to the marketplace. But we're serving those customers very, very well. So we've got that backlog there. Again, most of that backlog sitting in automation and equipment solutions. And I completely agree with Gabe. I believe that automation should be a real growth catalyst in our fastest growers as it relates to the portfolio in 22. Right. And all of that comes.

Customers very very well so we've got that backlog there again, most of that backlog sitting in automation and equipment solutions and I completely agree with Gabe I believe that automation should be.

A real growth catalyst in our fastest grower as it relates to the portfolio in 'twenty two.

And all of that comes out of North America right.

Speaker 9: A good bit of that, yeah, a good bit of that, but we track our backlogs on a global basis. Okay. And, Chris, you said pricing is probably stronger in the first half, which makes sense given the comps. Do you think you can see double-digit growth each quarter as the year progresses, or does that moderate into the back half just given those strong pricing comps and, you know, the strong activity in the back half of 2021?

And a good bit of that portion, yes, good bit of that but we track our backlogs on a global basis okay.

And Chris you said pricing is probably stronger than the first half, which makes sense given the comps do you think you could see double digit growth each quarter as the year progresses.

Moderate into the back half just given those strong pricing comps and the strong activity in the back half of 'twenty one yes.

Speaker 3: Yeah, that's a really good question, Steve. I still would expect that we should, but at the end of the day, I think that we know that pricing is going to be stronger in the first half.

Yes, that's a really good question, Steve I still would expect that we should.

But at the end of the day I think that we know that pricing is going to be stronger than the first half.

Speaker 3: And look, the achievement of that is critically important, which we've, I think, shown a great ability to manage that through the cycle.

And look the achievement of that is critically important we've shown a great ability to manage that through the cycle.

Speaker 3: But I also want to continue to see that underlying volume growth inside the business. We've got a large demand for our solutions, and I want to make sure we're continuing to see volume growth inside the portfolio.

But I also want to continue to see that underlying volume growth inside the business. We've got a large demand for our solutions and I want to make sure we're continuing to see volume growth inside the portfolio, but.

Speaker 3: I'm confident in the business, I'm confident in our positioning, and quite frankly, I think we should see a very strong volume year for Lincoln Electric. And Steve, just to add, just keep in mind that in our assumptions, we did not incorporate any additional pricing actions, right? Right. Right. Got it. Thank you. Okay. Our next question comes from Nick. Nick, thank you so much for joining us. We appreciate it.

Im.

I am confident in the business I am confident in our positioning and quite frankly, I think we should see a very strong volume year for Lincoln Electric and Steve maybe just to add just to keep in mind that in our assumptions, we did not incorporate any additional pricing actions right right right.

Got it thank you.

Okay.

Our next question comes from Nathan Jones with Stifel.

Yeah.

Good morning, everyone.

Martin <unk>, earning.

Speaker 7: I wanted to ask a question on the electronics side. I know you guys make a lot of your own boards, a lot of your own, and put together a lot of your own electronics components. Do you think that's giving you an advantage at this point, or is the bottleneck there of supply of those components to construct those boards still completely impacting?

I wanted to ask a question on the electronics side.

I would make a lot of your own linear.

<unk> put together a lot of your own electronics component do you think that's giving you an advantage at this point.

Total net their supply of those components to construct those boards.

Yet still.

Still completely impacting year, yes, Nathan look it's a great question I would tell you it's provided Lincoln electric with a competitive advantage for quite some time.

Speaker 3: Yeah, Nathan, look, it's a great question. I would tell you it's provided Lincoln Electric with a competitive advantage for quite some time. And the reason it provides us a competitive advantage is that by us being able to have controls of those processes, which we made that investment here in Cleveland, I know since I've been here with the company, probably now maybe eight, nine years ago, we made those investments so that we could control the product development and the innovation associated with power electronics and the utilization of the board.

And the reason it provides us a competitive advantages that by us being able to have controls of those processes, which.

We made that investment here in Cleveland I know since I have been since I've been here with the company probably now maybe eight nine years ago. We made those investments so that we can control the product development and the innovation associated with power electronics and the utilization of the boards.

Speaker 3: It gives us better visibility into the supply chain side of those components.

It gives us better visibility into the supply chain side of those components. So today. If you were someone who was in our industry and you were just buying boards from a third party you probably don't have visibility back into that component supply we have that visibility so that visibility provided us the opportunity to see where some of those weaknesses.

Speaker 3: So today if you were someone who was in our industry and you were just buying boards from a third party, you probably don't have visibility back into that component supply.

Speaker 3: we had that visibility. So that visibility provided us the opportunity to see where some of those weaknesses were. And then we've talked often about, in this cycle, using our balance sheet to protect our business and serve customers, place customers first. So we've gone out very early and made sure that we got an allocation and purchased the components that we know we need for our business.

And then we've talked often about in this cycle using our balance sheet to protect our business and serve customers place customers first so we've gone out very early and made sure that we've got an allocation and purchased the components that we know we need for our business so that vertical integration.

Speaker 3: So, that vertical integration in that area has served us well and has been another catalyst in assisting us in mitigating some of the impacts we would have otherwise had in supply in our equipment portfolio.

<unk> in that area has served us well and has been another catalyst in assisting us in mitigating some of the impacts we would have otherwise had in supply.

Our equipment portfolio.

Speaker 7: Thanks for that, and I wanted to ask a follow-up on the automation margins. I think you said looking to get those into double digits this year. I think the automation business is very high value-add. Can you talk about the reasons that business is below corporate average? Is that just because there's, you know, a large amount of pass-through cost in the robot? Where you think those margins can get to over the long-term?

Thanks for that and I wanted to ask a follow up on the automation margins I think you said looking to get those into double digit this year.

The automation business is very high value add can you talk about the reasons that business is below corporate average is that just because of that.

A large amount of pass through costs in the robot, where you think those margins can get to over the long term.

Speaker 3: Yeah, our expectation is that we'll get those margins to our corporate average. So we had some challenges within that business a couple years ago. We made some changes. We put in some process improvements and we've been driving volume and making improvements in that portion of the portfolio.

Yeah, our expectation is that we'll get those margins to our corporate average. So we had some challenges within that business. A couple of years ago. We made some changes we put in some process improvements and we've been driving volume and making improvements in that portion of the portfolio I will tell you that depending on the tail of the automation project.

Speaker 3: I will tell you that depending on the tail of the automation project, there's times when you may have input costs that are rising during that window that are difficult for you to be able to recapture, but that's all a point in time.

There's times when you may have input costs that are rising during that window that are difficult for you to be able to recapture but thats all a point in time.

Speaker 3: uh type of a challenge that our teams are managing through we will

Type of a challenge that our teams are managing through we will we have been saying that those were migrating towards high single digit we expect those to be at or above double digit operating margins. When we think about the company in 'twenty, two and our expectation will be to continue to make those improvements so that it is at our core.

Speaker 3: We have been saying that those were migrating towards high single-digit. We expect those to be at or above double-digit operating margins, and we think about the company in 22. And our expectation will be to continue to make those improvements so that it is at our corporate average over the longer term.

Average over the longer term.

Great. Thanks for taking my questions.

Speaker 1: Again, ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touch-tone telephone. Our next question comes from Dylan Cumming with Norfolk Stanley.

Ladies and gentlemen, if you have a question or comment at this time. Please press. The Star then the one key on your Touchtone telephone.

Our next question comes from Dillon Cumming with Morgan Stanley .

Great. Good morning, guys. Good morning.

Speaker 5: Just to go back to your prepared remarks real quick, you guys called out reshoring, which is something we've been talking about and qualitatively really since the start of COVID, but have those conversations really started to kind of crystallize for you here over the past few months and you're kind of expecting some actual tangible product activity over the next year? And I guess kind of like related to that, is the greatest opportunity from reshoring for you guys still on the automation side or would you expect actually a broader uplift across your broader business?

Yeah.

Just going back to your prepared remarks real quick you guys called out reassuring, which is something we've been talking about that qualitatively it really since the start of Covid, but.

Are those conversations really started to kind of crystallize through here over the past few months and youre kind of expecting some actual tangible project activity over the next year and I guess kind of like related to that is the greatest opportunity from reassuring for you guys still on the automation side or would you expect actually a broader uplift across your broader business.

Speaker 3: Yeah, that's a great question, Dylan. It's sometimes difficult for us to give you a data point associated with that, but I can share with you the context that we're having with our teams. And our automation teams are telling us that they're having a lot of conversations and some quoting activity with large firms that are talking about investing in automation to protect their supply chain.

Yes, that's a great question Bill and it's sometimes difficult for us to give you a data point associated with that but I can share with you the context that we're having with our teams and our automation teams are telling us that they are having a lot of conversations and some quoting activity with large firms that are talking about investing in automation to protect their supply chains invest.

Speaker 3: investing in automation to be able to enhance their ability to serve their demand needs. Or maybe they're seeing demand in the marketplace and they didn't have the capacities available. So they're expanding those capacities.

And automation to be able to.

Enhanced their ability to serve their demand needs or maybe they're seeing demand in the marketplace and they didn't have the capacity is available. So they are expanding those capacities and are choosing to expand those capacities closer to the local demand markets were certainly seeing that in our automation business and then the second piece does come.

Speaker 3: and are choosing to expand those capacities closer to the local demand markets. We're certainly seeing that in our automation business.

Speaker 3: And then the second piece does come down to reshoring, but really gets lost inside of productivity. And what I mean by that is.

Down to re shoring, but really gets lost inside of productivity and what I mean by that is many of our customers are working with Lincoln electric to drive higher productivity inside their manufacturing facilities to increase capacities to minimize some of the capacity requirements. They might have in other areas of the world.

Speaker 3: Many of our customers are working with Lincoln Electric to drive higher productivity inside their manufacturing facilities to increase capacities to minimize some of the capacity requirements they might have in other areas of the world.

Speaker 3: And we're seeing a lot of that activity with our equipment solutions or our equipment and consumable solutions that we'd be providing into specific segments. So it does trickle into many areas of our business.

And we're seeing a lot of that activity with our equipment solutions or our equipment and consumable solutions that we'd be providing into specific segment. So it does trickle into many areas of our business, but I am confident that we have had more re shoring discussions with our customers over the last six to 12 months then we.

Speaker 3: but I'm confident that we've had more reshoring discussions with our customers over the last six, 12 months than we had prior.

We had prior.

Speaker 5: Okay, great. It's a little bit of color for this thing. And then maybe not significant in the quarter too much. Just given that margins were down year year in the Americas. I mean, you guys obviously have the life of a charge in there. But it's what I said with that. I was kind of a reflection of things like absenteeism, premium freight, maybe some general manufacturing deficiencies. I would just be curious how much of those factors in fact is the quarter. And you know, if you guys have comments on January , even if it was kind of like I'm a chronolator something, it's what I said that it's kind of spilling over into the first quarter as well. I mean, like I said I mean I said I'm going to sit here twice a year. And then maybe

Okay, Great. That's helpful color. Thanks, and then maybe not as significant in the quarter or two months or just given that margins were down year over year in the Americas. I mean, you guys. Obviously have the LIFO charge in there but to what extent was that I was kind of a reflection of things like absenteeism and premium freight maybe some general manufacturing inefficiencies I would just be curious how much those factors impact in the quarter and if you guys can comment on <unk>.

Even if it was kind of like omicron related or something like that but that's kind of spilling over into the first quarter as well.

Speaker 3: Yeah, you know, first of all, I'll tell you, you know, January's had a solid start.

Yes first of all I'll tell you January has had a solid start so a solid start to the business, even though in certain markets. Obviously, you still have a host of the issues that were.

Speaker 3: So a solid start to the business, even though in certain markets, obviously, you still have a host of the issues that were a headwind for us in Q4. I mean, the challenges associated with Asia-Pac and certainly here in the US market, I think that there was some softness that was early in January when people were dealing, our customers were dealing with some of the Omicron challenges. But I will tell you, Lincoln Electric's had a solid start.

<unk> for us in Q4, I mean, the challenges associated.

Associated with Asia Pac and certainly here in the U S market I think that there was some softness that was early in January when people were dealing our customers were dealing with some of the omicron challenges, but I will tell you on Lincoln Electric had a solid start as it relates to the operating margins in the Americas business I got to tell you being able to manage through the challenge.

Speaker 3: As it relates to the operating margins in the America's business, I've got to tell you, being able to manage through the challenges of Q4 and the additional input costs that we had to cover through the LIFO charges, when you do your quick math and look at mitigating those LIFO charges and see what the margins were in that portfolio, you'll be very impressed.

As of Q4, and the additional input cost that we had to cover through the LIFO charges. When you do your quick math and look at mitigating those LIFO charges and see what the margins were in that portfolio, you'll be very impressed so I'm very happy with the performance of our Americas business and that business is still not at 2019 volume.

Speaker 3: So I'm very happy with the performance of our America's business and that business is still not at 2019 volume levels.

Speaker 3: And as I expect we continue to make improvements in that business and see the volume come through the portfolio, we'll continue to get the leverage off of that and expand that margin profile.

And as I expect we continue to make improvements in that business and see the volume come through the portfolio will continue to get the leverage off of that and expand that margin profile.

Speaker 5: Got it. Sounds great. Thanks for the time. I can grab some of the strong air. Tell us. Our next question comes.

Got it great. Thanks for the time and congrats on a strong year.

John .

Our next question comes from Walter Liptak with Seaport Research.

Speaker 8: Hey, thanks. Good morning, guys. Wanted to do a follow-on on the automation and just a question about how big is automation and revenue now?

Hey, Thanks, good morning, guys.

What does it do a follow on that the automation and just a question about how how big is the automation and revenue now.

Speaker 3: Yeah, well, our automation businesses in the aggregate are at a run rate of around $500 million globally.

Yes, well our automation businesses in the aggregate are at a run rate of around $500 million globally.

Speaker 8: Okay, great. And the, you know, the order activity backlog sound like they're picking up, but wonder, you know, which sectors are you seeing that in or across the board, any color?

Okay great.

The order activity backlog sounds like they are picking up but wonder which sectors are you seeing that in or is it across the board any color there.

Speaker 3: You know, we're seeing it across the board in a host of areas, and I've got very good visibility to that. We've got some internal tools where we can actually see on a daily and weekly basis where our quoting activities are coming in by segment and actually where we're seeing.

We're seeing it across the board and a host of areas and I have got very good visibility to that we've got some internal tools, where we can actually see on a daily and weekly basis, where our quoting activities are coming in by segment and actually where we're seeing.

Speaker 3: uh... those quotes actually turn into orders for lincoln electric

Those quotes actually turn into orders for Lincoln Electric we've seen some really nice order patterns in the electric vehicle marketplace and some individuals that are investing are retrofitting for that particular area real strength in the appliance marketplace with some of the solutions that we've been providing some of our standard solutions have continued to gain track.

Speaker 3: We've seen some really nice order patterns in the electric vehicle marketplace in some individuals that are investing or retroviting for that particular area. Real strength in the appliance marketplace for some of the solutions that we've been providing.

Speaker 3: Some of our standard solutions have continued to gain traction.

<unk>.

Speaker 3: So I would also tell you that the general industry's marketplace continues to show good strength. And there's capital investment in automotive outside of EB. So one of our goals has always been to make sure that we're penetrating these solutions across the industry segments that we participate in. And we continue to show some really impressive wins in a multitude of those segments.

I would also tell you that the general industries marketplace continues to show good strength and there's capital investment in automotive outside of <unk>. So one of our goals has always been to make sure that we're penetrating these solutions across the industry segments that we participate in and we continue to show some really impressive wins in our <unk>.

Multitude of those segments.

Speaker 8: Okay. All right. And then, you know, part of that is auto and, you know, within welding, you know, I think there's auto. I wonder if you could comment, I know it's, you know, just happening, but like the trucker thing in Canada, you know, if you think that's going to have a negative impact on some demand levels in the first quarter.

Okay Alright.

Alright, and then.

Part of that is auto within welding I think theres, our though I wonder if you could comment.

Just happening, but like the trucker thing in Canada.

If you think thats going to have a negative impact.

And some demand levels in the first quarter.

Speaker 3: Yeah, you know, while we could talk about the trucker issue in Canada, we could talk about the Olympics, we could talk about whether there'd be another Omicron spike. I mean, look, those challenges are real and they exist.

Yes.

We could talk about the trucker issue in Canada, we could talk about the Olympics, we could talk about whether there'll be another omicron Spike I mean look those those challenges are.

Are real and they exist, but at the end of the day.

Speaker 3: But at the end of the day, we've had a really solid start to January . I've got a lot of confidence in the business, and we're expecting to execute on our plans. So it's there. Could it raise to a level where it causes some concerns? Possibly. But we don't see those things raising to that level today. And we're going to manage and lead right through those challenges.

We've had a really solid start to January I have got a lot of confidence in the business and and we are expecting.

<unk> execute on our plans. So it's there could it raised to a level where it causes some concerns, possibly but we don't see those things raising to that level today, and we're going to manage and lead right through those challenges.

Speaker 8: Okay, great. And then maybe just the last one, you know, congratulations on the higher standard strategy and some of the goals out there. I wanted to understand a little bit more about the international margins that you're looking for. And I think you went into this a little bit, but I just missed it. But what do you have to do to get to the 12 to 14 percent? Is there, you know, more structuring or is it blocking tackling at this point to get to 12 to 14?

Okay, Great and then maybe just a last one congratulations on.

The higher standard strategy at some of the goals out there.

I wanted to understand a little bit more about the.

The international margins that Youre looking for and I think you went into this a little bit but I just missed it but what do you have to do to get to the 12% 14% or.

More structuring as a block and tackling at this point to get to 12 to 14, yes, theres really two points to that and while they are really the first piece is we do need to have volume in the business. We've made a lot of improvements in our asset base, there and investments in our processes, both with capital investments and people investments in systems, and we moved the volte.

Speaker 3: Yeah, there's really two points to that. And, Walden, really the first piece is we do need to have volume in the business. We've made a lot of improvements in our asset base there and investments in our processes, both in capital investments and people investments and systems. And when we move the volume through there, we're going to see that operating leverage. So clearly I'm thinking about volume being the first. But I'll also tell you that the team there continues to work on a host of Lincoln Business Systems improvements in the business that will generate

Through there, we're going to see that operating leverage so clearly I am thinking about volume being the first but I'll also tell you that the team. There continues to work on a host of Lincoln business systems improvements in the business that will generate.

Speaker 3: positive tailwinds for us in the business.

Positive tailwind for us in the business.

Speaker 3: So we're not through positioning that business for where we want it to be longer term. But I think it's really those two components.

So we're not through positioning that business for where we want it to be longer term, but I think it's really those two components, but we need to see some of that volume will get the operating leverage off that business and I'm.

Speaker 3: But we need to see some of that volume. We'll get the operating leverage off that business. And I love what that team has been able to accomplish. And I would hope that the accomplishments that we've made

I love what that team has been able to accomplish and I would hope that the accomplishments that we've made.

Speaker 3: Historically with the Harris business, now with the international business, the improvements we're making in automation should give our stakeholders confidence in our ability to execute on our long-term higher standard strategy targets that we put out. Because that's the type of work and execution that we need to be able to do that. I certainly have great confidence in our ability to execute on that as we're moving forward.

Historically with the Harris business now with the international business. The improvements, we're making in automation should give our stakeholders confidence and our ability to execute on our long term higher standard strategy targets that we've put out because thats the type of work and execution that we need to be able to do that I certainly have great confidence in our ability to.

Executing on that as we're moving forward.

Speaker 8: Okay, you know, as I look at the 12 to 14 percent number, I mean, it's a good number, but I wonder why you guys went with 12 to 14 and not with something higher.

Okay.

Look at the 12% to 14% number I mean, it's a good number.

But I Wonder why you guys went with 12% to 14 and that was something higher.

Speaker 3: That's a very fair question, but I would tell you that our methodology is that we need to make sure we're working with our teams around the world and that we can set targets.

Well I'll tell you yes.

No look that's a very fair question and but I would tell you that our methodology is is that we need to make sure. We're working with our teams around the world and that we can set targets that are achievable for them within a window, where we can drive those programs, we can drive those initiatives.

Speaker 3: that are achievable for them within a window where we can drive those programs, we can drive those initiatives. I mean, I could have just as easily put on the slide for you today that we want to get them to the target over time, because we do want to get them to the target over time. But we need to be able to provide our employees with a path to be able to achieve those targets, and that's why we set them up in phases. And that has worked very well for Lincoln Electric as we've made improvements to this portfolio over the last several years. Okay, great. Thank you.

Just as easily put on the slide for you today that we want to get them to the target over time, because we do want to get them to the target overtime, but we need to be able to provide our employees with a path to be able to achieve those targets and that's why we set them up in phases and that has worked very well for Lincoln electric as we've made improvements to this portfolio.

Over the last several years.

Okay, great. Thank you.

Our final question comes from Steve Barger with Keybanc capital markets.

Speaker 9: thanks for the follow-up gabe when you think about merit pay normal inflation and whatever other cost inputs you have to ask you know how much leverage do you expect to run on say ten percent sales growth in twenty

Hey, thanks for the follow up.

When you think about merit pay normal inflation and whatever other cost inputs you have to SG&A, how much leverage do you expect to run on say, 10% sales growth in 2022.

Speaker 4: Now I go back to those incremental margin assumptions there, Steve. So still within that low to mid-20s type view, we are going to see a little bit more higher inflation on the wage side. We expect that as you're tracking across the industrial base. But that's all baked into our assumptions.

And I go back to those incremental margin assumptions there, Steve so still within that low to mid Twenty's type view.

We are going to see a little bit more higher inflation on the wage side, we expect that.

As youre tracking across the industrial base, but thats all baked into our assumptions.

Speaker 9: Yeah, I guess I was trying to get a sense for how you saw gross margin versus SG&A margin.

I guess I was trying to get a sense for how you saw gross margin versus SG&A margin evolving through the year.

Speaker 4: I mean, I'll give you one split on that, is that we are very measured in introducing or restoring some level of discretionary spending, and we'll be very disciplined with that in alignment with real volumes. So we're very much on top of how we look at the mix of our cost drivers within our business.

Yes, I mean I'll give you one one split on that is that we are very measured in.

Introducing our restoring some level of discretionary spending and we'll be very disciplined and with that in alignment with real volumes.

So we're very much on top of how we look at the mix of our cost drivers within our business.

Speaker 9: Got you. And Chris, relative to the suite of the 70 or 70 products you introduced in 21, can you talk about growth rates for that cohort relative to legacy products or how that's played out in the past?

Got you and Chris relative to the suite of the 70 or so new products you introduced in 'twenty. One can you talk about growth rates for that cohort relative to legacy products or how that's played out in the past.

Speaker 3: Yeah, look, we would we would tell you that it depends a little bit on the solution and the segment that we're targeting, as you would expect, Steve, that some of the solutions might be going into a segment that has a longer time frame for us to be able to get that into the industry, get it into the large players in the industry, and then start to see that growth. And then, quite frankly, some of our products in the commercial space, we may see an increase from a run rate perspective instantaneously.

Yes look we would we would tell you that it depends a little bit on the solution in the segment that we're targeting as you would expect Steve that some of the solutions might be going into a segment that has a longer.

Timeframe for us to be able to get that into the industry get it into the large players in the industry and then start to see that growth and then quite frankly some of our products in the commercial space. We may see an increase from a run rate perspective instantaneously.

Speaker 3: because they get that on the shelves, it's going through the channel, it's there very quickly and we see that step up very fast.

Because they get that on the shelves, it's going through the channel. It's there very quickly and we see that step up very fast. So I always think about our business in that way and think that you know what when we're driving those new products in the aggregate, we ought to be 100 to 150 basis points above where we're trending normally but it is different depending upon the.

Speaker 3: So, I always think about our business in that way and think that, you know what, when we're driving those new products in the aggregate, we ought to be 100 to 150 basis points above where we're trending normally, but it is different depending upon the solution and the segment that we're moving it into.

<unk> and the segment that we're moving it into.

Speaker 9: And last one, what's the typical time from drawing board to production? And I'm really trying to get a sense for how you see new product launches in 2022.

Understood and last one what's the typical time from drawing board to production and I'm really trying to get a sense for how you see new product launches in 2022.

How your visibility is there.

Speaker 3: Yeah, so look, our visibility is good. And it's good in that we've got a detailed process inside the business where we're looking at all of those. But I can tell you that

Yes, so look our visibility is good and it's good in that we've got a detailed process inside the business, where we're looking at all of those but I can tell you that.

Some of those which where we might be doing software enhancements to provide much more functionality in some of our businesses might be something we could gain more quickly and some of them are very innovative that quite frankly, we expect them to take 12 months to 36 months to actually be able to execute on that particular strategy. So it does go back.

Speaker 3: And some of them are very innovative that, quite frankly, we expect them to take, you know, 12 months to 36 months to actually be able to execute on that particular strategy. So it does go back to being very dependent on the individual solution. I will share with you, Steve, that I had an operating review yesterday with our additive business. And we haven't talked much about our additive business. It's still very much incubating. It's a very, very small piece inside the company. But in our additive business, we had an opportunity to work with a customer. And that particular customer, we took a CAD file and developed a new product for them to add.

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It does go back to being very dependent on the individual solution I will share with you Steve that I add an operating review yesterday with our additive business and we haven't talked much about our additive business. It's still very much incubating. It is very very small piece inside the company.

Speaker 3: But in our additive business, we had an opportunity to work with a customer. And that particular customer, we took a CAD file and developed a new product for them that they needed for their operations apart. And it was done in days.

But in our additive business, we had we had an opportunity to work with the customer and that particular customer we took a CAD file and developed a new product for them that they needed for their operations apart and it was done in days.

Speaker 3: And look, that's the type of innovation that I think long-term can be a catalyst for the company. But it goes back to your point on how quick can innovation move inside the company and what's that rate of innovation. And look, I think that that 100 to 150 basis points above our core is probably a good number.

And look that that's the type of of innovation that I think long term it can be a catalyst for the company, but it goes back to your point on how quick and innovation move inside the company and whats that rate of innovation and look I think that that 100 to 150 basis points above our core is probably a good number.

Got it thanks for the detail.

Speaker 1: If this concludes our question and answer session, I would like to turn the call back to Gabe Bruno for closing.

This concludes our question and answer session I would like to turn the call back to Gabe Bruno for closing remarks.

Speaker 4: Thank you, Kevin. I would 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 Higher Standard 2025 strategic initiatives in the future. Thank you very much.

Thank you Kevin I would 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 higher standard 2025 strategic initiatives in the future. Thank you very much.

Speaker 1: Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.