Q3 2023 Lincoln Electric Holdings Inc Earnings Call
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Okay.
Greetings and welcome to the Lincoln Electric 2023 third quarter financial results Conference call.
At this time all participants are in a listen only mode and this call is being recorded.
It is my pleasure to introduce your host Amanda Butler, Vice President of Investor Relations and communications. Thank you you may begin.
Thank you Liz and good morning, everyone welcome to Lincoln Electric's third quarter 2023 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 <unk> Dot com in the Investor Relations section joining me on the call today is Chris Mapes Lincolns chair.
<unk>, President and Chief Executive Officer, Gabe, Bruno our Chief Financial Officer, and Steve headlines Chief Operating Officer, Chris We'll begin with quarterly highlights Steve will provide a discussion of end market trends and Gabe will cover our quarterly financial performance in more detail as well as comments on our full year 2023 assumptions followed.
Our prepared remarks, we are happy to take your questions. Before we started 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.
Our SEC filings on forms 10-K and 10-Q.
In addition, we discuss financial measures that do not conform to U S. GAAP a reconciliation of non-GAAP measures. 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 like what's your dot com and with that I'll turn the call over to Chris Mapes Chris.
Thank you Amanda good morning, everyone.
Turning to slide three.
We maintained strong performance in the third quarter and continued to generate record sales profitability earnings and cash flow performance.
We also maintain top decile returns and are positioned to continue to fund long term growth and drive higher shareholder returns with our solid balance sheet profile.
We remain well positioned in the market.
What is unique in the quarter as the mix and drivers of our Gen, 5% sales growth are.
Our automation acquisitions led by 40 automation accelerated in the quarter and generated approximately 9% sales growth or $83 million.
This increased our global automation portfolio sales to $238 million in the quarter as we work to exceed our $1 billion automation on 2025 sales target.
The balance of our business delivered 40 basis points of organic growth volumes compressed slightly at 70 basis points, and we achieved 110 points of higher price <unk>.
<unk> performance reflected a challenging prior year comparison in our Harris products group segment, and fewer shipping days across our segments, which Stephen Gabe will comment on in more detail.
In addition automation volume performance was relatively steady in the quarter ahead of a strong delivery schedule in the fourth quarter.
We generated superior value in the quarter with a high teens to low 20% increase in gross profit and adjusted operating income respectively.
This yielded a record 17, 7% adjusted operating profit margin with a 31% incremental margin.
Two of our three reportable segments generated EBIT profit margins that exceed their 2025 higher standard strategy EBIT margin targets. In addition, our automation portfolio continued to advance its margin profile year over year.
We also delivered an approximate 18% increase in our adjusted earnings per share achieving a record $2 40 in the quarter.
These significant improvements in performance demonstrate our track record of effective price cost management through the cycle and our ability to successfully mitigate higher employee costs due to continuous improvement programs and Lincoln business system initiatives.
This also translated into record cash generation in the quarter with 141% cash conversion.
Our team remains focused on growth and executing our strategic initiatives to continue to deliver compounding long term value through the cycle.
Now I will pass the call over to Steve <unk> to share more details on the third quarter sales performance.
Thank you, Chris and good morning, everyone turning to slide four as Chris discussed our reported 40 basis point organic sales growth rate does not fully reflect the more resilient welding end market trends, we are seeing due to fewer shipping days in the quarter, which had a 230 basis point unfavorable impact to our organic sales.
Growth rate nor.
Normalizing for this effect, our two welding segments would have reported low to mid single digit organic sales growth in the quarter driven by growth in both consumables and equipment with relatively steady organic sales performance in automation due to project timing.
Breast products group had unseasonably strong HVAC sales in the prior year, which was the primary driver of our consolidated 70 basis point volume decline.
Geographically, we saw the greatest growth in the non European portions of our international welding segment, particularly in India, Turkey, and the Middle East and the Americas demand remains strong while demand in Europe continued to be soft.
From an end market perspective, three of our five end markets energy heavy industries, and general industries, which represent approximately two thirds of our revenue continued to grow in the quarter.
Energy related demand was up globally led by strong midstream project activity.
Looking at consumable demand as a barometer of factory activity four of our five end markets were up representing approximately 85% of our revenue.
Organic sales in construction infrastructure remains soft due to challenging prior year comparisons and weak market conditions as reflected in benchmarks such as the architectural billings index <unk>.
Excluding for a strong growth in automotive sales in the quarter organic sales in the automotive transportation sector were down due to timing of deliveries and our automation businesses. We continue to see growth in automotive consumable volumes globally as the Oems and their suppliers maintained production activity to restore inventory.
Levels, the labor disruptions in the U S automotive sector did not have a significant impact on consumable demand in the third quarter and we continue to see solid demand in this sector for our standard equipment and automation solutions.
Looking ahead, we expect a strong finish to the year. Despite increasingly dynamic environment. We are seeing solid momentum in Americas welding October order rates given the resilience in many of our end markets and continued strength in capital spending.
In fact, we were pleased to see strong orders for our new equipment and automation solution that showcased at the recent fab Tech trade show with record orders for our new Cooper Hobart solution.
You'll also see an acceleration of scheduled automation deliveries in the fourth quarter that will lift automation organic sales performance compared to the third quarter and we continue to maintain a high backlog levels. This positions us for mid single digit percent organic sales growth in the fourth quarter.
The fourth quarter will also be a milestone for our newest growth initiative as we will officially start up production and launch our new Valeant DC fast charger at a national EV charging testing festival, which we're proudly hosting at our Cleveland headquarters in late November.
Now I will pass the call to Gabe Bruno to cover third quarter financial results in more detail.
Thank you states moving to slide five our consolidated third quarter sales increased 10, 5% to $1.033 billion.
The increase reflected an eight 8% benefit from acquisitions, and one 1% higher price and a 70 basis point decline in volumes Foreign exchange translation was favorable by one 2% versus the prior year.
Gross profit dollars increased approximately 18% or $56 million versus the prior year on price cost management and acquisitions. We also recognized a $1.3 million LIFO benefit in the quarter.
Our third quarter gross profit margin increased 230 basis points to 35, 4% on operational improvements and effective price cost management, which is now slightly positive for the first nine months of the year.
Our SG&A expense increased approximately 18% or $28 million, primarily due to higher incentive compensation and employee related costs and acquisitions.
SG&A as a percentage of sales increased 110 basis points to 18, 1%.
Reported operating income increased approximately 21% to $171 million, excluding approximately $12 million of special items from rationalization charges and the amortization of a step up of acquired inventories are adjusted operating income increased <unk>.
One 2%.
Two $183 million diligent price cost management and contributions from acquisitions drove profit dollar growth.
Our adjusted operating income margin increased 130 basis points to 17, 7% generating a 31% incremental margin or incremental margin reflects solid performance from operational improvements and easier prior year comparisons in international welding and the Harris products.
Group segments.
Moving to earnings our third quarter diluted earnings per share increased 19% to $2 and 22.
Excluding special items adjusted diluted earnings per share increased 18% to $2 40.
Favorable foreign exchange translation provided a <unk> benefit to EPS.
Moving to our reportable segments on slide six.
Americas welding segment's third quarter, adjusted EBIT increased approximately 15% to $136 $5 million or adjusted EBIT margin increased 60 basis points to 19, 7% and effective price cost management and a LIFO benefit.
Which was partially offset by higher employee costs and acquisitions.
Americas welding sales increased 14% in the quarter driven by an approximate 12% benefit from our automation acquisitions and a 1% increase in organic sales organic sales incurred a 280 basis point impact from fewer shipping days in key areas of the segment.
Excluding this impact Americas welding organic sales growth would have increased approximately three 8% with consumables up low single digit percent and standard equipment up low double digit percent.
This demand reflects strength in factory activity and industrial capital spending in the region. These.
These increases were partially offset by a slight decline in automation due to project timing.
Moving to slide seven the international welding segment, adjusted EBIT increased approximately 20% to $30 million.
Adjusted EBIT margin increased 110 basis points to 12, 2% on higher volumes effective price cost management and productivity improvements in the region.
Organic sales increased approximately 3% despite a 160 basis point impact from one less day led by 3% volume growth and 20 basis points of price consumable automation and standard equipment organic sales increase in the quarter led by strong equipment demand.
Moving to the Harris products group on slide eight third quarter, adjusted EBIT increased approximately 41% to $20 million, Eric just that EBIT margin increased 530 basis points to 15, 9%, reflecting effective price cost management mix and operational efficiency.
And the business as well as a favorable prior year comparison.
<unk> organic sales declined approximately six 5% on approximately 11% lower volumes and 5% higher price performance.
<unk> volume performance reflected a challenging prior year comparison.
With moderating demand in several end markets.
Retail channel sales inflected positively in the quarter on improving prior year comparisons and some select restocking activity.
We remain cautious on retail channel performance through year end.
Eric just price performance reflect higher metal cost, primarily from silver and copper given current metal commodity pricing trends, we expect Harris to report relatively steady price performance on a year over year basis in the fourth quarter.
Moving to slide nine.
Cash flows from operations increased 10, 1% to a record $223 million in the quarter, resulting in 141% cash conversion ratio on free cash flow to adjusted net income.
Our average operating working capital to sales ratio continued to improve to 18, 3%.
Inventory levels moderated.
Moving to slide 10.
We invested $26 million of Capex in the quarter and returned $82 million to shareholders through approximately $45 million of share repurchases and our higher dividend payout.
We maintained a solid return on invested capital of 23, 6% and.
And given the strength of cash generation and confidence in the business. Our board recently announced an 11% increase in the 2024 dividend payout rate.
Turning to slide 11, and our full year assumptions.
Given nine months of strong performance solid order rates into the fourth quarter and better insight to the interim impact of labor disruptions in the U S. Auto industry, we expect full year sales growth to be at the low double digit percent range with a mid single digit percent increase in organic sales driven largely by.
Volume in Americas welding.
We estimate a $5 million to $10 million sales impact in the fourth quarter from the current list of impacted auto plants.
This estimate could change as labor negotiations progress.
These assumptions reflect an expected mid single digit percent increase in organic sales in the fourth quarter.
We are outperforming operationally on a year over year basis, and expect incremental margin assumptions in the high teens percent range on a consolidated basis.
Excluding the <unk> acquisition, we expect to generate high 20 to low 30% incrementals on mix and improved execution in the business.
We expect to be at the lower end of both our interest expense and tax rate ranges.
The outperformance in cash conversion year to date at 118% gives us confidence in achieving greater than 100% cash conversion this year, which aligns with our long term track record and strategic target.
And now I would like to turn the call over for questions.
Ladies and gentlemen at this time, we'll be conducting a question and answer session.
To ask a question. Please press star one one on your Touchtone telephone.
To withdraw your question. Please press star one one again.
To ensure that everyone has an opportunity to participate we ask that you ask one question and one follow up question and then return to the queue.
Our first question will come from the line of Bryan Blair with Oppenheimer.
Good morning, Brian and everyone.
Good morning.
Good morning, very solid quarter.
Thank you Beth I appreciate all the color on <unk>.
UAW impact having negligible in Q3 that is understandable just given the timing.
The start of the strike with Q4.
$5 million to $10 million.
Topline headwind just to clarify on that I assume thats all consumables, we wouldn't expect much much of an impact if any on the equipment side.
And exactly what is factored in in terms of the.
Timing of resolution so we can.
Try to calibrate.
Whatever Brian datasets.
Yeah, Brian So as we've talked in the past.
Short cycle type of activities, what we would expect to be impacted by the labor disruption and thats, primarily consumables, so as the quarter progresses and we monitor.
Hopefully resolution two.
But we just saying, but that's driven by consumables and Thats a full quarter type of view.
Okay I appreciate that and then I appreciate you, giving us a figure just in general that's very helpful.
Sure.
And.
Set up for automation I believe you said $238 million in contribution for the quarter.
That will step up into Q4 base.
Based on that run rate and jumping off point the backlog that you now have in place.
And just overall visibility.
Is it reasonable to expect that.
Our 2025 target of above a 1 billion plus.
Youre going to hit that in 2024.
Yes.
Well, we're certainly excited about the execution, we've had on that strategy and certainly the trending that we would see obviously that would look like we would be able to achieve that that milestone for the business.
One of the things that you said, there, though Brian I'd like to provide maybe a little bit more context on is that looked at the backlog in that business is very solid, but when we think about the business. We think our backlog to really normalize and what I mean by that is that.
Over the last several quarters, we like many individuals who had been working through supply chain challenges and most of those have.
Have eliminated are theyre very de minimis within the business. So as we think about the company. The company is really running at more of a normalized backlog level now and that backlog level is significant and were.
But we're not seeing that backlog is the mechanism that's driving those mid single digit organic that we're talking about in Q4, we really havent normalized backlog level that is really coming in within 10% to 15% of the peak backlogs that we experienced a few quarters ago. So we like the backlog position, but it's kind of a <unk>.
Normalized backlog position, we did have a very strong fab Tech show here in North America, we had.
We had record orders.
And right after fab Tech for our cobalt technologies that we launched out in the marketplace as well as several other very nice.
Orders across our product portfolio, but when I look at our backlog today, it's pretty normalized as it relates to the way we think about the business.
So Brian just to add.
We've talked I've run rate currently is $900 million and automation and our long term organic assumptions into that are into that mid to high single digits.
Much on pace to our 2025 target of $1 billion in revenue.
Yes understood I appreciate all the color encouraging trends thanks again.
Sure.
Thank you.
Our next question will come from the line of Saree <unk> with Jefferies.
Yes.
Thanks. Good morning, So you referenced a strong capital spending environment, a couple of times in the remarks.
Any impact from higher interest rates and the macro uncertainty in spending plans I know you've seen a few announcements from auto companies pushing out investments. So just what are you hearing from customers and how do you think about the investment cycle Glenn fine.
Yes, sorry. This is Steve we see a lot of interest in the solutions that we have in the marketplace in terms of both welding equipment that offers higher productivity greater ease of use as well as automation that helps address a lot of the labor concerns that our customers have so we're continuing to see a lot of our <unk>.
For quotations, we're seeing a lot of good strong order intake. So we haven't seen a very significant impact of higher interest rates on the capital equipment side of our business.
And I guess may.
Maybe.
And that framework Americas volume it did step down sequentially, although not as much adjusting for the fewer shipping days just can you talk to the cadence of demand through the quarter and provide a little bit more color on what you saw in October where did you see demand soften in any.
Surprised to the positive.
So sorry.
As we talked as we reported our second quarter results. We had strong orders to end the quarter and then into July and then as we've talked down the markets in September we did see some moderation in consumable activity to essentially flat year over year, and so I think on balance what we saw in the third quarters.
What we've.
When discussing the markets now.
Wrap up the third quarter now into the Florida, we've seen now strength again in order activity to wind down to third quarter and into the beginning parts of this fourth quarter and that's what gives us confidence in maintaining.
Any of that mid single digit organic assumption. So we've also talked about and it's going to be a larger component of the Americas.
Progression in this fourth quarter, but the automation projects that we pointed to.
Position for the fourth quarter cycle, and so we have a strong backlog and in automation and we see the progression of projects come into two revenue recognition in this fourth quarter. So that's what gives us confidence in the strength in volumes into the fourth quarter, particularly in the us.
Merrick aside and the overall assumptions for the fourth quarter and mid single digit growth.
I appreciate the color. Thanks.
Thank you.
Our next question will come from the line of Nathan Jones with Stifel.
Good morning, everyone.
Martin.
I guess I'll start off on the Eva Charger.
Side of the business you guys have previously talked about.
Adding capacity for that.
Able to deliver $600 million in revenue.
But it being pretty cautious on giving us any any detail on what you're expected to deliver in 2024, maybe now that we're a little bit further along you signed the contract to deliver the first few year net any color you can give us on what youre looking at for incremental revenue from that business in 2024.
Sure Nathan this is Steve.
We have mentioned.
Consistent layer at the pacing of that business relies a lot on factors outside of our control are outside of our customers control in terms of permitting and grid hook ups.
Substation Transformers and the like so we've been very cautious not to provide a revenue forecast.
For that business, just because we don't know exactly how that will all unfold.
You've seen the news that some of the Oems are starting to slow the rollout of <unk>.
<unk> vehicles are really because the charging infrastructure is not really there to support it yet so we see that as a positive and defensible put continued pressure for building out the charging infrastructure and we're currently in what we would call. The alpha stage of production. We're building the first units using engineering teams the design the product to them.
Some loan to check all the work instructions and anti out all the details so that when we do launch and the volume production will have a very robust high quality reliable product to sell to the market. The feedback that we've been getting from prospective customers is very encouraging and they are all waiting for the first LP units to come.
Off the line go through testing and for us to send out product samples for people to to deploy and test themselves. So we're still very optimistic about it but we are cautiously optimistic given the uncertainties in the market.
Yes, I think one other comment.
This gave an exceptional update on where we're at with the business I think while the other important things I just always want to reiterate them and gave talks about our extensive application of capital in the business in 2023 for the really reinvestment in.
Capabilities that we have the EV charger piece is actually a small portion of that it's probably only maybe 10% of that capital.
Rest of the capital we're deploying within the company is doing the things that we need to do to be able to meet the demands that we're seeing both across our consumable line in our equipment line as well as us continuing to invest in automation and productivity across our platform. So that we can accelerate and mitigate some of the inflationary impact as well as <unk>.
Thanks for that.
Follow up question I wanted to ask was around the backlog and that backlog burn in 2023, obviously say nice company burning backlog off this year a supply chain to have normalized.
Can you talk about the magnitude of the backlog that you've brought down in 2023, and whether we should think of that as a as a headwind to volume in 2024.
So Nathan Thats a great question.
I look at our business, particularly core welding to be largely normalized still some pockets I would say supply chain challenge in our standard equipment offering.
But I would say that normalized but the backlogs that are inherently.
Structure within our automation business is where we see more stable progression and growing progression as we continue to build out the business. So.
Going into 2024, it's going to be largely about.
Active orders.
Order to ship type business and core welding and then the normalization of kind of what we see on the automation side for backlog.
So you do or do not have a headwind from that from a backlog burn off in 2020 trade just trying to frame that how we should think about 'twenty four.
Yes, we should not see the backlog as a headwind at the end of the day.
Look it's a great question and you're right. There are many companies out there that are having to talk through this particular issue, but when I think about Q4, and when I think about the business and the backlog normalizing, we do not see the utilization of the backlog as a tailwind to 2023 or a headwind to 2024.
Really see this as the backlog that we have within the business.
We do not see that impacting the discussions will eventually have around our volume expectations for 2024.
That's perfect thanks very much.
Our next question will come from the line of Nick Dobra with Robert W. Baird.
Hey, Good morning can you hear me.
Good morning, Mike.
Good morning, Thanks for the question.
I guess I have to apologize because I'm a little bit confused in terms of what the messaging is your on demand.
It sounds like demand was good in the summer then it kind of slowed through September.
I guess that would be consistent with some of the stuff that we turned up in our own channel checks, but youre, saying that theres been reacceleration in October.
We're talking about a $5 million to $10 million hit in the fourth quarter from from auto which is obviously a negative.
So.
Trying to parse these things out I mean, if youre, if youre seeing a reacceleration where exactly is this re acceleration materializing and what's what's exactly driving that.
And.
Again is this just a function of timing for automation, that's coming out of your backlog or is this sort of booking ship business.
Yes, So may think about the core welding business being relatively steady when you normalize for shipping days so good activity.
Broadly in the third quarter and that steady pacing into the fourth quarter and as we've talked about over the last.
A couple of quarters is that we have a mix of project business and the automation that's planned for execution and wrap up.
Completion in the fourth quarter. So we know on the on the organic side of the automation business that we have a step up.
What you've seen in automation in the third quarter. So we were essentially flattish in the third quarter for automation. That's all timing of projects you saw the mix of automation being driven by acquisitions, we will see a strengthening in organic sales driven by the automation component of our business.
Yes.
And I guess I understand that part the part that I'm trying to figure out is the order commentary right because.
We're not talking about deliveries, we're talking about orders accelerating so how do we square that with the comment on auto.
Weaker.
But think about the core welding business being the activity level you saw a little choppiness strengthened in July though softening in August backed up a little bit September strengthen in October so think about that is balanced and core welding overall and then you've got the.
The component that is driven by the labor disruption.
$5 million to $10 million range, that's all built into what.
We're talking about in the fourth quarter as an organic assumption in that mid single digit. So we've considered that in how we.
Address the sales assumption.
Assumption for the year and the fourth quarter.
This is Steve I would just add that we're still seeing very good demand for our standard equipment and consumables in the energy segment heavy industry segment General industry segment, even in automotive, even though there is going to be.
<unk> volume for consumables in the fourth quarter, we're still seeing automotive customers invest in our standard equipment to drive productivity for their operation. So when you mix that holds due together and you look at the impact of the labor disruption.
And then the offsetting of continued good performance in the rest of the business, that's where we are.
Okay. Then my last question.
You talked about Fab Tech it was a great show and the co bots.
Seem to get a lot of attention.
My question is related to <unk> since you mentioned receiving sizable orders.
What sort of an impact canvas product have on your business as you think about whether it's the whole business or just automation, specifically as you think about 2024 and.
Related to this maybe back to the interest rate question asked earlier are you getting a sense that there is any.
Slowdown in.
And the way these automation projects are being.
Considered by your customers or are we still going and going strong.
Yes.
Let's start with the Cold box, which is a great question and I will share with you that as it relates to the financial profile of Lincoln Electric co bots are probably not going to have a significant impact.
The bigger impact is the acknowledgment by the customer that Lincoln electric as a solutions leader and we're and we're going to Lincoln electric to assist us with these solutions, which many times our entry level automation projects inside manufactured for us. So it's the acknowledgment of us in.
Our leadership position with the solution, that's what excites me about the cobalt piece and then I'll play we've not seen any change in the activity level of interest on the automation side. Our activity has stayed very strong and I think it's not that complicated at the end of the day, we're seeing an increase in the cost of capital.
We're now where we see that.
The 10 year at or near 5% rate, but we're also continuing to see inflation a lot of that inflation on the labor side that youre seeing at near the 4% rate and so quite frankly, the economics around the need to drive automation because of either a scarcity of labor or cost of labor has not diminished and and I believe.
We'll continue to see that trend for the foreseeable future as we've been sharing with you in our thoughts on the automation business so to date not.
Now the business.
Because of the size of the business does have some some choppiness to it at times because of the way you may have large orders that moves through the business, but as this business continues to grow and we have enormous confidence in ability to achieve that 2025 higher standard target and our willingness to continue.
To invest in this business, both organically and through acquisitions.
We think we're well positioned really love the impact it can have on our portfolio not just for our our customers, but also the excitement it brings inside our organization.
Steve I can't resist the opportunity to give an advertisement for our product and kudos to the teams, but you know at fab Tech everybody and their brother Hasnt co bot.
They're in the market and the getting the torch to the work piece by dragging the arm to it as the simple part and everybody can do that the challenging part is once you have the torch in place you have about a dozen welding parameters you need to set to get a good world and so you are still relying on the operator to have some knowledge of the welding process on our.
Cooper software App basically automates, all that and allows you to pick a picture of the wealth you want is a bigger small is it thick or thin and then we do the rest and that's what the market is really reacting to is linking those the welding experts, bringing solutions that makes their life easier to deal with these labor challenges.
Not only the scarcity of labor is the quality of the labor that you can get in our factory. These days. So you have got to make it simple for people to use and the market's reacting to that.
Alright, I appreciate the color. Thank you.
Okay.
Thank you.
Our next question will come from the line of Steve Barger with Keybanc capital markets.
Okay.
Good morning, Dave.
Steve Your line maybe.
Yes.
Okay.
Our next question will come from the line of Walter Liptak with Seaport research.
Hi, Good morning can you hear me.
Hi, good morning, congratulations on the quarter.
Wanted to.
<unk>.
Clarifying question too about.
The Americas ex automation.
And what Youre seeing.
The pickup in October.
Maybe.
Could you talk a little bit about where you're seeing the pickup is before.
Consumables is it four machines what sectors.
And we're ready to go through our channel restocking.
Just to clarify on movement.
Yes, so while to think about the level of activity, we're seeing to be broadly in both standard equipment and consumable business and we've already commented on automation just think about the good pacing into the fourth quarter.
Okay.
Okay Fair enough and then international maybe.
Thinking about that some of the macro numbers are showing slowing you had a good quarter this quarter, especially with the profit.
But.
What are you seeing in October from your international sales.
Our teams are doing a great job in the international markets Magic. There is certainly a more challenging demand profile than what we have in the.
Americas and certainly what we have here in the U S. I wouldn't say, we've seen any significant change relative to the trending in the in the international side of the business well probably another comment to your first question.
Because look <unk>.
Are you following like electric for a really long time, and when you start thinking about those demand profiles, but you understand our business pretty well and when you start seeing three of our large five industrial segments that are moving favorably, especially when youre talking about energy and then seeing general industries turn in the quarter those are very.
Positive demand catalysts that that we see give us just another reason to give us confidence and we're talking about what we think will drive in the fourth quarter.
Hey, Walt this is Steve I would say for international particular.
Checked to see more of what we saw in the third quarter. Some weakness some choppiness in Europe and the other parts of international performing given their exposure to end markets that Chris talked about growing.
Okay, great. Thanks, and then maybe if I could sneak in a last one.
You mentioned that there is still more inflation I wonder.
If we can get an idea of what youre thinking about for pricing for next year.
Thank you.
Situations, where you can raise prices or that inflation or do you take a break for a while.
Well look we've we.
We haven't made any determinations on that because we'll have to look and see really what the inflationary cost pressures are as we're moving into 2024, but we've been able to manage price cost effectively throughout a multitude of cycles here at Lincoln Electric I can assure you if we have.
Input costs that are material that require us to go to the marketplace and provide pricing in the market. We will do that I am not concerned about there being.
Some sort of headwinds our ability to effectively do that we're just probably a little early and being able to understand what some of those larger input cost would be but let me assure you were expecting there to be inflation.
And were driving the organization to talk about identifying productivity programs at Lincoln business systems initiatives that we can drive across the portfolio to mitigate that inflation and this morning, when Steve and I were talking to the organization and sharing with them. Our results in Q3 that was a focus point.
And we will continue to be as we're trying to determine what our business expectations will be in 2024.
Okay sounds great congratulations again.
Thank you.
Thank you.
As a reminder, if you'd like to ask a question at this time. Please press star one one on your Touchtone telephone.
Our next question will come from the line of Steve Barger with Keybanc capital markets. Steve. Your line is now open.
Yeah.
Morning, Steve.
You may still be on mute Steve.
Hello.
Whereas we may have to talk to him after the call sorry about that technical challenge that we're having.
Our next question will come from the line of Robert Jamieson with UBS.
Hey, Thanks for taking my questions.
Just wanted to start on <unk>.
Is there any seasonality in that business that we should be aware of just with kind of a decrease.
Okay.
Quarter, partially due to power Mig as well.
Pointed out back that a little bit.
So Rob I think we got your question is regarding story.
First I'd like to say that very excited about the work that our team has done in integrating the business.
We are right on schedule with our integration plan.
And where we see the opportunities to continue to shape and grow the business not only in terms of sales.
Sales contributions, but the EBIT profile that we would expect longer term.
There is some choppiness as you could appreciate in this project based business you saw the significant uptick in the third quarter that saw a timing of projects.
So there is a pacing that very much in line to where.
We expect the business to be and I would just expect a little bit of a different pacing in the fourth quarter and Thats why the overall sales assumptions are where they're at so more strength on the organic side, you'll see some pacing on the acquisition side Thats particular to the <unk> business into the fourth quarter.
I don't know if that helps I appreciate that.
And then I guess just on margin cadence could you impact, it's just a little bit more it looks like for <unk>, It's a little step down in Incrementals.
And then.
Also kind of the way I read it.
The impact of <unk> on your Incrementals went up just just curious is the 40 business still on target for the 12 to 15 cents accretion for for first year of ownership.
Just any other color there around what we should expect then what's what's embedded in the <unk>.
Yes. So rapid tour is right in line to where expectations are so as you know have you talked at low double digit EBIT profile before we were right on track with that.
Fourth quarter, just has the normal dynamics of progressively into the from the third to fourth quarter. You saw that we were above the range and at Harris, So not to give any segment particulars, but in general you would see Harris to maintain more on the higher end of the range versus over the range and the strength of the Incrementals, we expect that to continue to.
Regress into the fourth quarter. So we did move up as you saw on the assumptions and we're we're confident in that profile in our business.
Great. Thank you.
Thank you.
This concludes our question and answer session I would like to turn the call back to Gabe Bruno for closing remarks.
Well. Thank you. This is Chris just wanted to make a couple of final comments before Gabe.
The call for Us I, just wanted to make sure I shared with our Investor community and our listeners that our leadership transition here at Lincoln Electric is going exceptionally well, Steve and the team are already ingrained in the transition as I finish up my time here as CEO at the end of the year end and very excited about the work and the opportunities. The team has in front of.
To them, but I just wanted to share that our transition and the work that we're doing around that is going exceptionally well and confident about our continued success here at the company and with that ill turn it back to gate.
Thank you Chris.
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 strategic initiatives in the future. Thank you very much.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
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