Q4 2023 Lincoln Electric Holdings Inc Earnings Call
Operator: Good morning, everyone, and welcome to Lincoln Electric's fourth quarter and full year 2023 financial results conference call. All lines have been placed on mute, and this call is being recorded.
Good morning, everyone and welcome to Lincoln Electric's fourth quarter and full year 2023 financial results Conference call. All lines have been placed on mute 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.
Operator: It is my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you. You may begin.
Amanda H. Butler: Thank you Lisa and good morning, everyone welcome to Lincoln Electric's fourth quarter and full year 2023 Conference call. We released our financial results earlier today and you can find our release and this call slide presentation at Lincoln Electric Dot Com in the Investor Relations section joining me on the call today is Steve headland, President and Chief Executive Officer.
Amanda H. Butler: Thank you, Lisa, and good morning, everyone. Welcome to Lincoln Electric's fourth quarter and full year 2012. We released our financial results earlier today, and you can find our release in this cold slide presentation or on LincolnElectric.com in the investor relations section. Joining me on the call today is... President and Chief Executive Officer, and Gabe Bruno, our Chief Financial Officer. Before we start our discussion, please note that comments made during this call may be And actual results may differ materially from those indicated.
Amanda Butler: And Gabe Bruno our Chief Financial Officer, following our prepared remarks, we're happy to take your questions.
Amanda Butler: 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 SEC filings on forms 10-K and 10-Q.
Operator: Thank you to a number of RIC faculty members. The Bulletproof Executive, 2013, and in our SEC filings on 4 May. In addition, we discussed financial measures that do not conform to U.S. GAAP. A reconciliation of non-GAAP measures to the most comparable GAAP measure is found in the financial statements, which again is available in the investor relations section of our website. And with that, I'll turn the call over to Amanda. Thank you, Amanda. Good morning, everyone.
Yeah.
Amanda Butler: In addition, we discuss financial measures that do not conform to U S. GAAP a reconciliation of non-GAAP measures to the most comparable GAAP measure is found in the financial tables in our earnings release, which again is available in our in the in the Investor Relations section of our website at Lincoln Electric Dot com and with that I'll turn the call over to Steve headland Steve.
Steve Barger: Thank you Amanda good morning, everyone turning to slide three I am pleased to report record full year results for our key financial metrics. These results demonstrate the power of our people products and processes to serve the needs of our customers. They also highlight the benefit of our broad and diverse exposure to different end markets and regions are.
Christopher L. Mapes: Turning to slide three, I am pleased to report record full-year results for our key financial metrics. These results demonstrate the power of our people, products, and processes to serve the needs of our customers. They also highlight the benefit of our broad and diverse exposure to different end markets and regions, our prior investments to build an industry-leading automation business, and our disciplined capital allocation strategy. We generated record sales from solid organic growth and strong performance from our acquisitions. Our automation portfolio sales are now $941 million, and we are on track to exceed our $1 billion 2025 automation sales target ahead of schedule. We achieved record profitability with all three segments delivering profit margins within their higher standard target ranges, and automation is now at a low teens margin. This improvement reflects operating leverage, diligent price-cost management, and productivity. We achieved record adjusted earnings performance of $9.41 per share, and our cash flows from operations also accelerated to a record. Higher earnings and improved working capital efficiency delivered a 105% free cash flow conversion to net income.
Steve Barger: Prior investments to build an industry, leading automation business and our disciplined capital allocation strategy.
Steve Barger: We generated record sales from solid organic growth and strong performance from our acquisitions.
Steve Barger: Our automation portfolio sales are now $941 million and we are on track to exceed our $1 billion 2025 automation sales target ahead of schedule.
Steve Barger: We achieved record profitability with all three segments delivering profit margins within their higher standard target Mark ranges and automation is now at a low teens margin.
Steve Barger: This improvement reflects operating leverage diligent price cost management and productivity initiatives.
Steve Barger: We achieved record adjusted earnings performance at $9 41 per share and our cash flows from operations also accelerated to a record high.
Steve Barger: Higher earnings and improved working capital efficiency delivered a 105% free cash flow conversion to net income.
Christopher L. Mapes: These achievements contributed to record ROIC, demonstrating gains from our strategic initiatives, as well as our disciplined approach to capital allocation and our M&A strategy. Heading into 2024, we maintain an investment grade balance sheet profile with strong free cash flow, which allows us to continue to invest in the business through the cycle while also returning capital to shareholders. Turning to slide four, we are completing the last two years of our higher standard 2025 strategy and are on pace to achieve our target. Looking at the financial metrics, our sales performance is on track, and we will continue to focus on organic and inorganic growth to capitalize on secular trends such as the shortage of skilled welders, labor inflation, reshoring, civil and energy infrastructure investments, and electrification, all of which create demand for our solutions.
Steve Barger: These achievements contributed to record ROIC.
Steve Barger: Demonstrating gains from our strategic initiatives as well as our disciplined approach to capital allocation and our M&A strategy.
Steve Barger: Heading into 2024, we maintain an investment grade balance sheet profile with strong free cash flow, which allows us to continue to invest in the business through the cycle, while also returning capital to shareholders.
Steve Barger: Turning to slide four we are completing the last two years of our higher standard 2025 strategy and are on pace to achieve our targets.
Steve Barger: Looking at the financial metrics, our sales performance is on track and we will continue to focus on organic and inorganic growth to capitalize on the favorable secular trends such as the shortage of skilled welders labor inflation re shoring civil and energy infrastructure investments and electrification all of which create demand.
Steve Barger: Our solutions.
Christopher L. Mapes: Operationally, we will continue to drive continuous improvement throughout the business, enhance our safety and environmental performance, and further realize the benefits from the investments we have made in shared services, process automation, and, most recently, centralized global procurement. We are especially focused on improving the margin performance of both our international welding segment and our automation portfolio by 200 to 300 basis points, which will bring our 2020 to 2025 average consolidated operating income margin up to 16%, which is our 2025 target. We have more opportunity to improve working capital efficiency and bring our average operating working capital-to-sales performance closer to 15% by the end of 2025. We have made strong progress as inventory levels normalize, and we are pursuing additional initiatives to reposition ourselves as a top-decile operator in this area. We are also committed to our balanced capital allocation strategy.
Steve Barger: Operationally, we will continue to drive continuous improvement throughout the business enhance our safety and environmental performance and further realize the benefits from investments. We have made in shared services process automation and most recently centralized global procurement.
Steve Barger: We are especially focused on improving the margin performance of both our international welding segment and automation portfolio by 200 to 300 basis points, which will bring our 2020 to 2025 average consolidated operating income margin up to 16%, which is our 2025 target.
Steve Barger: We have more opportunity to improve working capital efficiency and bring our average operating working capital to sales performance closer to 15% by the end of 2025.
Steve Barger: We have made strong progress as inventory levels normalize and we are pursuing additional initiatives to reposition ourselves as a top decile operator in this area.
Steve Barger: We are also committed to our balanced capital allocation strategy.
Christopher L. Mapes: Under our higher standards strategy, we've invested over $900 million in growth and have returned approximately $1.2 billion to shareholders. We intend on continuing a balanced approach in the years ahead. So, as I start my initial year as CEO, I could not be more confident in Lincoln Electric's position entering 2024. We have a strong core business and operational platform, an expanding automation portfolio, market-leading innovation, and two new long-term growth initiatives, additive manufacturing and our DC fast charger, which are both in the early commercialization phase and offer attractive long-term upside opportunities for the business. Before we turn to the fourth quarter results, I would like to thank Chris Mapes for his strong leadership and the Lincoln Electric team for their exceptional work in 2023.
Steve Barger: Under our higher standard strategy, we've invested over $900 million in growth and have returned approximately $1 $2 billion to shareholders. We intend on continuing a balanced approached in the years ahead.
Speaker Change: So as I start my initial year as CEO I could not be more confident in Lincoln Electric's position entering 2024, we have a strong core business and operational platform and expanding automation portfolio market, leading innovation and two new long term growth initiatives additive manufacturing and our DC fan.
Speaker Change: <unk> Charger, which are both in early commercialization phase and offer attractive long term upside options for the business.
Speaker Change: Before we turn to fourth quarter results I would like to thank Chris Mapes for his strong leadership and the Lincoln electric team for their exceptional work in 2023.
Christopher L. Mapes: I would also like to extend my gratitude to our customers, partners, and shareholders who have put their trust in us and have supported our Higher Standard 2025 strategy and all who are critical to our success. With that, let's move to slide five to discuss fourth-quarter demand trends. We achieved strong sales growth in the fourth quarter to a record $1.1 billion.
Speaker Change: I would also like to extend my gratitude to our customers partners and shareholders, who have put their trust in us and have supported our higher standard 2025 strategy and all who are critical to our success.
Speaker Change: With that let's move to slide five to discuss fourth quarter demand trends.
Speaker Change: We achieved strong sales growth in the fourth quarter to a record $1 1 billion organic sales grew two 6% from solid growth momentum across four of our five primary end markets and then two of our three main product categories led by continued investments in capital equipment across our automation and equipment solutions.
Christopher L. Mapes: Organic sales grew 2.6% from solid growth momentum across four of our five primary end markets and in two of our three main product categories, led by Continued Investments in Capital Equipment across our Automation and Equipment Solutions businesses. Fourth quarter sales were stronger than expected in automation both organically and from acquisitions as our teams completed projects ahead of schedule while feeling high quoting activity. This will position the portfolio for growth in 2024, most likely accelerating in the second quarter based on project timing. Our consumable organics sales contracted at a low single-digit percent rate in the fourth quarter due to decelerating industrial production activity in South America, Europe, and portions of Asia-Pacific.
Speaker Change: Fourth quarter sales were stronger than expected in automation, both organically and from acquisitions as our teams completed projects ahead of schedule, while feeling high quoting activity. This is positioning the portfolio for growth in 2024, most likely accelerating in the second quarter based on project timing.
Speaker Change: Our consumable organic sales contracted at low single digit percent rate in the fourth quarter on decelerating industrial production activity in South America, Europe, and portions of Asia Pacific consumed.
Christopher L. Mapes: Consumable organic sales were up slightly in North America with choppy order patterns, which we expect to continue in 2025. End market growth broadened in the fourth quarter to four of five markets, or approximately 80% of our revenue exposure. Construction infrastructure led the improvement on strong automation demand and a favorable prior year comparison. Energy and general industry sectors both increased by mid-teens percent as project activity in midstream oil and gas and in power generation continued to remain strong globally. General industry growth reflects strength in automation demand in the quarter, including the continued success of our Cooper Cobots and standardized automation. Heavy industry demand remains strong, up low to the double-digit percent, primarily from strength in America's welding. Automotive continued to contract on challenging prior-year comparisons and slower production activity in the quarter. Residential-oriented applications like HVAC and the Retail Channel, both in our Harris Products Group, remain challenged by weak residential sector trends.
Speaker Change: Consumable organic sales were up slightly in North America with choppy order patterns, which we expect to continue in 2024.
And market growth broadened in the fourth quarter to four or five markets or approximately 80% of our revenue exposure.
Speaker Change: Construction infrastructure led the improvement on strong automation demand and favorable prior year comparisons.
Speaker Change: Energy and general industry sector as both increased mid teens percent as project activity in midstream oil and gas and power generation continued to remain strong globally.
Speaker Change: General industry growth reflects strength in automation demand in the quarter, including the continued success of our Cooper co bots and standardized automation cells.
Speaker Change: Heavy industry demand remained strong up low double digit percent primarily from strength in Americas welding.
Speaker Change: Automotive continued to contract and challenging prior year comparisons and slower production activity in the quarter.
Residential oriented applications like HV AC in the retail channel both in our Harris products group remained challenged on a weak residential sector trends.
Gabe Bruno: While this is a dynamic environment, our diversified end market and regional profile allowed us to successfully navigate through this portion of the cycle and will ensure we capture growth opportunities ahead. I will now pass the call to Gabe Bruno to cover fourth-quarter financial results and our 2024 assumptions in more detail. Thank you, Steve.
Speaker Change: While the dynamic environment, our diversified end market and regional profile allowed us to successfully navigate through this portion of the cycle and will ensure we capture growth opportunities ahead.
I will now pass the call to Gabe Bruno to cover fourth quarter financial results and our 2024 assumptions in more detail.
Gabe Bruno: Thank you Steve.
Gabe Bruno: Moving to slide 6, our consolidated fourth-quarter sales increased approximately 14% to a record $1,059,000,000. We recognize a 9.8% increase from acquisitions, which included an approximate 270 basis point benefit from both $15 million of revenue from the extra month of Foray acquisition sales reported in the fourth quarter, as well as an incremental $10 million of revenue from projects the automation team completed ahead of schedule. Organic sales increased 2.6% from a 2% increase in volumes and 60 basis points of higher price. Foreign exchange translation was favorable by 1.3% versus the prior year.
Gabe Bruno: Moving to slide six our consolidated fourth quarter sales increased approximately 14% to a record $1.059 billion.
Gabe Bruno: We recognized a nine 8% increase from acquisitions, which included an approximate 270 basis point benefit from both $50 million of revenue from the extra month of flurry acquisition sales reported in the fourth quarter as well as an incremental $10 million of revenue from projects.
Gabe Bruno: Automation team completed ahead of schedule.
Gabe Bruno: Organic sales increased two 6% from a 2% increase in volumes and a 60 basis points of higher price.
Gabe Bruno: Foreign exchange translation was favorable by one 3% versus the prior year.
Gabe Bruno: Gross profit dollars increased approximately 21%, or $63 million, versus the prior year on higher sales, price-cost management, and operational improvements. We recognize a $5.1 million LIFO benefit in the quarter reflecting the progression of material costs and lower inventory levels. Our fourth quarter gross profit margin increased 200 basis points to 35.1% with a modest positive price cost position on a full year basis. Our SG&A expense increased approximately 15%, or $25 million. The increase is primarily due to higher incentive compensation and employee-related costs, as well as acquisitions. SG&A as a percent of sales was relatively steady at 17.8 percent.
Gabe Bruno: Gross profit dollars increased approximately 21% or $63 million versus the prior year on higher sales price cost management and operational improvements we recognized a 5.1.
Gabe Bruno: $1 million LIFO benefit in the quarter, reflecting the progression of material costs and lower inventory levels.
Gabe Bruno: Fourth quarter gross profit margin increased 200 basis points to 35, 1% with a modest positive price cost position on a full year basis.
Gabe Bruno: Our SG&A expense increased approximately 15% or $25 million. The increase is primarily due to higher incentive compensation and employee related costs as well as acquisitions.
Gabe Bruno: SG&A as a percent of sales was relatively steady at 17, 8%.
Gabe Bruno: Reported operating income increased 44% to $204 million. Operating income benefited from approximately $22 million of special items from a gain on the sale of property associated with rationalization activities initiated in Europe several years ago. Excluding special items, our adjusted operating income increased 24% to $182 million.
Gabe Bruno: <unk> operating income increased 44% to $204 million operating income benefit benefited from approximately $22 million of special items from a gain on the sale of property associated with rationalization activities initiated in Europe several years ago.
Gabe Bruno: Excluding special items, our adjusted operating income increased 24% to $182 million diligent price cost management operational improvements and contributions from acquisitions drove profit dollar growth.
Gabe Bruno: Diligent price-cost management, operational improvements, and contributions from acquisitions drove profit-dollar growth. Our adjusted operating income margin increased 140 basis points to a record 17.2%, generating a 28% incremental margin. Our incremental margin reflects price-cost management, operational improvements, and easier prior year comparisons in International Welding and the Harris Products Group segment. Moving to earnings, our fourth-quarter diluted earnings per share increased 44% to $2.70. Excluding special items, adjusted diluted earnings per share increased 26% to $2.45, which included a two-cent benefit from favorable foreign exchange translations.
Gabe Bruno: Our adjusted operating income margin increased 140 basis points to a record 17, 2% generating a 28% incremental margin.
Gabe Bruno: Our incremental margin reflects price cost management operational improvements and easier prior year comparisons in international welding and the Harris products Group segment.
Gabe Bruno: Moving to earnings our fourth quarter diluted earnings per share increased 44% to $2 70 SaaS excluding.
Gabe Bruno: Excluding special items adjusted diluted earnings per share increased 26% to $2 45, which included a <unk> <unk> benefit from favorable foreign exchange translation.
Gabe Bruno: Moving to our reportable segments on slide seven, America's welding sales increased 14% in the quarter from approximately 11% benefit from our automation acquisitions and a 3% increase in organic sales led by volume growth. Acquisition performance exceeded expectations on efficient project execution. We are pleased with the progression of integration activities. America's welding's 3% organic sales growth reflected a low double-digit percent increase in automation and a mid-single-digit percent rate in equipment systems, reinforcing the continued momentum in capital spending. However, consumers were relatively steady in the region due to challenged industrial activity in South America, as Steve mentioned earlier. America's welding segment's fourth quarter adjusted EBIT increased approximately 13% to $130 million.
Gabe Bruno: Moving to our reportable segments on slide seven.
Gabe Bruno: Americas welding sales increased 14% in the quarter from approximate 11% benefit from our automation acquisitions and a 3% increase in organic sales led by volume growth.
Gabe Bruno: Acquisition performance exceeded expectations on efficient project execution, we are pleased with the progression of integration activities.
Gabe Bruno: America as well as a 3% organic sales growth reflected a low double digit percent increase in automation and in mid single digit percent rate and equipment systems reinforcing the continued momentum in capital spending.
Gabe Bruno: <unk> were relatively steady in the region due to challenged industrial activity in South America as Steve mentioned earlier.
Americas welding segment's fourth quarter, adjusted EBIT increased approximately 13% to lunch and $30 million. They achieved an adjusted EBIT margin of 18, 8% as benefits from effective price cost management and operational initiatives were partially offset by higher employee cost and lower margin automation.
Gabe Bruno: They achieved an adjusted EBIT margin of 18.8% as benefits from effective price-cost management and operational initiatives were partially offset by higher employee costs and lower margin automation. Moving to slide 8, the international welding segment sales increased 20% with approximately 4% higher organic sales. We achieved 5% volume growth from higher automation sales and a mid-single-digit percent increase in equipment. This increase reflects strong project activity in the Middle East, portions of Southeast Asia-Pacific, as well as pockets of strength in Europe. Consumables declined modestly due to challenged industrial activity in Europe and portions of Asia-Pacific.
Mix.
Gabe Bruno: Moving to slide eight the international welding segment sales increased 20% with approximately 4% higher organic sales, we achieved 5% volume growth from higher automation sales and a mid single digit percent increase in equipment. This increase reflects strong project activity in the middle East portions.
Gabe Bruno: Southeast Asia Pacific as well as pockets of strength in Europe consumables declined modestly on challenge industrial activity in Europe, and portions of Asia Pacific.
Gabe Bruno: Acquisitions contributed 12% sales growth as far as international teams exceeded the plan on efficient project completion. Adjusted EBIT increased approximately 88% to $43 million with a 490 basis point improvement in their adjusted EBIT margin to 14.1%. Higher volumes, favorable mix, and productivity improvements drove strong margin performance in the segment. Moving to the Harris Products Group on slide nine, fourth quarter organic sales declined approximately 3% on 7% lower volumes and 4% higher price performance.
Gabe Bruno: Acquisitions contributed 12% sales growth as far as international teams exceeded plan on efficient project completions.
Gabe Bruno: Adjusted EBIT increased approximately 88% to $43 million with a 490 basis point improvement in the adjusted EBIT margin to 14, 1% higher volumes favorable mix and productivity improvements drove strong margin performance in the segment.
Gabe Bruno: Moving to the Harris products group on slide nine fourth quarter organic sales declined approximately 3% on 7% lower volumes and 4% higher price performance volumes remain challenged and persistently weak residential construction trends.
Gabe Bruno: Volumes remain challenged on persistently weak residential construction trends. Harris' price performance reflects higher metal costs, primarily from silver, and the benefits of prior pricing actions. Fourth quarter adjusted EBIT increased 27% to $50 million.
Gabe Bruno: <unk> price performance reflects higher metal cost, primarily from silver and the benefits of prior pricing actions.
Gabe Bruno: Fourth quarter, adjusted EBIT increased 27% to $50 million Theyre adjusted EBIT margin increased 300 basis points to 13, 3%.
Gabe Bruno: Their adjusted EBIT margin increased 300 basis points to 13.3%. The increase was driven by effective price-cost management and operational efficiencies, which were unfavorably impacted by lower operating leverage from volume. Moving to slide 10, cash flows from operations increased 9% to $122 million with a 68% cash conversion ratio on free cash flow to adjust the net income. Cash conversion is seasonally lower in the fourth quarter due to higher uses of cash for incentive compensation payments.
Gabe Bruno: The increase was driven by effective price cost management, and operational efficiencies, which were unfavorably impacted by lower operating leverage from volumes.
Gabe Bruno: Moving to slide 10.
Cash flows from operations increased 9% to $122 million with a 68% cash conversion ratio on free cash flow to adjusted net income.
Gabe Bruno: Cash conversion is seasonally lower in the fourth quarter due to higher uses of cash for incentive compensation payments.
Gabe Bruno: We improved our average operating work and capital sales ratio to 17.1% on lower inventory levels. Moving to slide 11. We invested $25 million in CapEx in the quarter, bringing full year CapEx spend to $91 million. We returned $105 million to shareholders in the quarter through approximately $68 million of share repurchases and a higher dividend payout. We generated a record return on invested capital of 24.1%. Turning to slide 12, our full year 2024 assumption. We remain in growth mode and expect to expand organic sales margins and earnings in 2024. However, coming into 2024, we have seen several months of choppy order trends and dynamic operating conditions. Given this environment, we are assuming a more conservative full year 2024 organic sales growth rate range of low to mid single digits, half from volume and half from price.
Gabe Bruno: We improved our average operating working capital sales ratio to 17, 1% on lower inventory levels.
Gabe Bruno: Moving to slide 11.
Gabe Bruno: We invested $25 million in capex in the quarter, bringing full year capex spend to $91 million, we returned $105 million to shareholders in the quarter to approximately $68 million of share repurchases and or higher dividend payout. We generated a record return on invested capital of 20.
Gabe Bruno: Four 1%.
Gabe Bruno: Turning to slide 12, and our full year 2024 assumptions.
Gabe Bruno: We remain in growth mode, and expect to expand organic sales margins and earnings in 2024 coming into 2024, we have seen several months of choppy order trends and dynamic operating conditions. Given this environment. We are assuming a more conservative full year 2020 for organic sales growth rate range in the low <unk>.
Gabe Bruno: Mid single digits half from volume and half from price. We are assuming continued volume momentum in Americas, partially offset by weakness in Europe residential construction and in the retail channel.
Gabe Bruno: We're assuming continued volume momentum in America, partially offset by weakness in Europe, residential construction, and in the retail channel. However, our team is encouraged by improving PMI trends, elevated quoting activity and automation, and growth from our 2023 new product launches. As we start the year in this first quarter, we are expecting steady to slightly lower sales performance versus the prior year, with an inflection to growth in the second quarter as automation sales accelerate towards a seasonally stronger back half of the year. We are continuing to manage to a neutral price-cost position and have taken modest pricing actions in our welding segments in this first quarter to mitigate inflation.
Our team is encouraged by improving PMI trends elevated quoting activity in automation and growth from our 2023, new product launches as we start the year in this first quarter, we are expecting steady to slightly lower sales performance versus the prior year with an inflection to growth in the second quarter as automation sales Act.
Gabe Bruno: <unk> towards the seasonally stronger back half of the year.
Gabe Bruno: We are continuing to manage to a neutral price cost position and have taken modest pricing actions in our welding segments. In this first quarter to mitigate inflation. We expect these benefits to fully mature in the second quarter.
Gabe Bruno: We expect these benefits to fully mature in the second quarter. Diligent price-cost management combined with operating leverage and continuous improvement initiatives is anticipated to deliver full-year incremental margins in the low-to-mid 20 percent range. In the first quarter, we expect an incremental $3 million in corporate expense versus the prior year from long-term incentive compensation costs associated with our CEO transition. We are expecting a consistent interest expense range of $45 to $50 million and a tax rate in the low to mid 20% range.
Gabe Bruno: Intelligent price cost management, combined with operating leverage and continuous improvement initiatives are anticipated to deliver full year Ingram incremental margins in the low to mid 20% range.
Gabe Bruno: In the first quarter, we expect an incremental $3 million in corporate expense versus the prior year from long term incentive compensation costs associated with our CEO transition.
Gabe Bruno: We are expecting consistent interest expense range of $45 million to $50 million and a tax rate in the low to mid 20% range. We're planning on $90 million to $110 million of Capex investments to fund both growth initiatives and investments in operational efficiencies.
Operator: We are planning on $90 to $110 million of CapEx investments to fund both growth initiatives and investments in operational efficiency. Given expectations of continued strong margins in earnings performance and working capital efficiencies, we are targeting full-year cash conversion at 100 plus percent of adjusted net income. Our assumptions do not include contributions from possible upside growth in our two newest technology platforms, our DC fast charger Velion, nor our 3D printing additive manufacturing business, as we are still commercializing these early stage growth initiatives. Overall, we are very confident in our market position and our ability to successfully navigate the year ahead. We have a solid track record of managing and delivering long-term value while remaining agile in the short term. We are excited to capture the many growth opportunities ahead of us and build upon our record results as we progress towards our higher-standard 2025 strategy target. And now I would like to turn the call over to you for questions. Thank you, sir. Ladies and gentlemen, at this time, we will be conducting a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number one on your telephone keypad.
Gabe Bruno: Given expectations of continued strong margin and earnings performance and working capital efficiencies. We are targeting full year cash conversion at 100 plus percent of adjusted net income.
Gabe Bruno: Our assumptions do not include contributions from possible upside growth and our two newest technology platforms, our DC fast charger billion, nor our <unk> printing additive manufacturing business as we are still commercializing. These early stage growth initiatives.
Gabe Bruno: Overall, we are very confident in our market position and our ability to successfully navigate the year ahead, we have a solid track record of managing and delivering long term value while remaining agile in the short term. We are excited to capture the many growth opportunities ahead of us and build upon our record results as we progress.
Gabe Bruno: <unk> towards our higher standard 2025 strategy targets and now I would like to turn the call over for questions.
Speaker Change: Thank you, Sir ladies and gentlemen at this time, we will be conducting a question and answer session I would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Saree Boroditsky: If you would like to withdraw your question, please press the town key. 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. We'll take our first question today from Saree Boroditsky, Jeffreys. So could you please provide any details on just how you think about the guidance for the low-to-mid incremental margins? I guess I would have thought easier comps from older 4A contracts and potentially less headwinds from Harris. Maybe we could have seen some higher incremental margins there. So what are the offsets?
Speaker Change: If you would like to withdraw your question. Please press the pound pool.
Speaker Change: So 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.
Speaker Change: We will take our first question today from Saree E.
Saree Boroditsky: Hey, Jeffrey.
Saree Boroditsky: So could you provide any details on just how you thought about the guidance for the low to mid <unk> incremental margins I guess I would have thought easier comps or therefore, a contracts and potentially less headwinds from Harris, maybe could have seen some higher incremental margins. There. So what are the offsets.
Gabe Bruno: So, Saree, you know, obviously it's early in the year, and I mentioned some of the full forward of activity in our automation business in the fourth quarter from 4A. So it's just a conservative posture.
Speaker Change: So sorry.
Speaker Change: Obviously, it's early in the year and I mentioned some of the pull forward of activity in automation.
Speaker Change: The automation business in the fourth quarter from <unk>. So it's just a conservative posture we're.
Christopher L. Mapes: You know, we're optimistic about potential short-cycle activity. But being early in the year, we want to keep a conservative posture as we progress. Conservatism is always good.
Speaker Change: Optimistic of the potential short cycle activity, but being early in the year, we want to keep a conservative posture as we progress.
Christopher L. Mapes: So you also highlighted some strong growth in capital investments in the quarter. I believe a lot of that, you know, came from the backlog, although you did kind of, you did cite some positive quoting activities. So could you expand on what you're seeing or hearing from customers on the capital investment side for 2024? Thank you.
Speaker Change: Conservatism is always good. So you also highlighted some stronger some capital investments in the quarter I believe a lot of that came from the backlog, although you get kind of EBIT positive connectivity. So just could you expand on what youre seeing or hearing from customers on the capital investment side for 2024. Thank you.
Speaker Change: Yes, so we've got as I mentioned as Steve mentioned, a lot of quoting activity. So it's fairly broad based and you think about the strength. We saw in general industry. For example is driven by automation activity. So.
Bryan F. Blair: Yeah, so we've got, as I mentioned, and as Steve mentioned, a lot of quoting activities. So it's fairly broad. And we think that the strength we saw in general industry, for example, was driven by automation activities. So we're bullish on a level of continued capital investment. And that was one of the growth drivers we point to as we progress into this year. Sari, it's not only the quoting activity but also the order intake on the capital equipment side. ...signaling to us that people are still spending money to invest in it... That's great to hear. Congrats on the quarter.
Speaker Change: We're bullish on the level of continued capital investment and that was.
Speaker Change: One of the growth drivers, we point to as we progress into this year and sorry, it's not only the quoting activity, but also the order intake on the capital equipment side is a signaling to us that people are still spending money to invest in productivity. Despite the higher interest rates.
Speaker Change: That's great to hear congrats on the quarter. Thanks, Thanks, Larry.
Bryan F. Blair: Next up we'll hear from Bryan Blair Oppenheimer.
Bryan F. Blair: Thank you good morning, everyone.
Bryan F. Blair: Hey, Brian and Brian.
Bryan F. Blair: I wanted to hear some more about automation no momentum in the outlook you know growth there against a rather healthy comp was chosen impressive after the $940 million or so revenue days, what kind of growth does your team expected in 2024 and based on backlog order trends what you see.
Bryan F. Blair: Next up, we'll hear from Bryan Blair Oppenheimer. Thank you. Good morning, everyone.
Christopher L. Mapes: Thank you, Bryan. I'd love to hear some more about the automation momentum and the outlook. You know, growth there against a rather healthy comp is impressive. Off of the $940 million or so revenue base, what kind of growth does your team expect in 2024? And then, based on backlog order trends, and what you see in the project pipeline, how should we think about the end market mix for the strategy going forward? Yeah, so Brian, I would go back and just emphasize that for 2023, organic growth and automation will be 8%. And so that, coupled with the impact of the acquisition, just really postures for strength progressively.
Bryan F. Blair: The project pipeline, how should we think about the end market mix for the strategy going forward.
Speaker Change: Yeah, So Brian I would go back and just emphasize for 2023 organic growth in automation was 8%.
Speaker Change: So that coupled with the impact of the acquisition just really postures for.
The strength progressively so.
Speaker Change: The strength of orders and quoting would lead us to continue to be bullish about the automation growth opportunity in 2024.
Christopher L. Mapes: So the strength of orders and quoting would lead us to continue to be bullish about automation growth. Okay, fair enough. And if we were to nitpick on a very strong quarter and constructive outlook, the trends and consumables, you know, having a little bit of compression there, albeit versus, you know, an elevated comp, that would be the area. Maybe speak to what you're seeing, you know, year to date specific to consumables. You mentioned, you know, kind of choppy trends in general, expecting sluggish Q1 sales. But there's cautious optimism on short cycle activity, and that's understandable. Is there any additional color you can offer on a disposable side?
Brian: Okay fair enough.
Speaker Change: If we were to that particular strong.
Speaker Change: Quarter end than constructive outlook the trends in consumables.
Speaker Change: <unk> been having a little bit of compression there, albeit versus.
Speaker Change: You know an elevated comp.
Speaker Change: That would be the area.
Speaker Change: Maybe speak to what Youre seeing.
Speaker Change: Year to date specific to consumables you mentioned.
Speaker Change: Choppy trends in general expecting flattish Q1 sales.
Speaker Change: But there is cautious optimism on short cycle activity that's understandable.
Speaker Change: Is there any additional color you can offer on the consumable side would be great.
Speaker Change: So Brian I would add that for the Americas.
Bryan F. Blair: So Bryan, I would add that for the Americas segment, for example, you heard our comments, is that when you pull out some of the dynamics in South America, our actual North American business was slightly up in the fourth quarter. So a steady state in our biggest part of our business when you think about the consumables mix in the Americas. So as we start to see, and we're hopeful that PMI measures and new orders start to pull forward some short cycle activity, that's the area where we'll see growth on the consumables side. As I mentioned, we have a conservative posture, but as things open up and we start to see a little bit of expansion in general industry activity, particularly in consumables, that's a potential upside. understood. I appreciate the color.
Brian: Segment for an example, you heard our comments is that when you pull out some of the dynamics in South America, our actual North American business was slightly up in the fourth quarter. So.
Brian: Steady state in our biggest part of our business. When you think about the consumables mix and in the Americas. So as as we start to see and we're hopeful that PMI measures and new orders start to pull forward. Some short cycle activity. That's the area that we will see growth in the consumable side. So.
Brian: As I've mentioned, we have a conservative posture, but as as things open up and you start to see a little bit of expansion in general industry activity, particularly in consumables, that's a potential upside in our business.
Speaker Change: Understood I appreciate the color.
Mig Dobre: Your next question comes from Mig Dobre, Baird. Thank you, and good morning, everyone. Just to clarify this discussion on automation, are we to understand here that automation growth in 2024 is going to exceed the low to mid single-digit range that you've given overall? And then, I guess, my follow-up to this is you as you think about 2024 and you think about your end market. Where are you seeing growth versus potential contraction like auto firms that have been declining here? Do you expect that to return to growth? Is there some catch-up activity that you think you're going to have post-strike?
Mig: Your next question comes from Mig <unk> Baird.
Mircea Dobre: Thank you and good morning, everyone.
Mircea Dobre: Just to clarify the discussion on automation.
Mircea Dobre: Are we to understand here that automation growth in 'twenty four is going to exceed it.
Mircea Dobre: The low to mid single digit range that you've given overall and then.
Mircea Dobre: Yes.
Mircea Dobre: My follow up to that.
Mircea Dobre: As you think about 2024, and you think about your end markets.
Mircea Dobre: Where are you seeing growth versus potential contraction like auto brands. That's been declining here do you expect that to return to growth is there some catch up in activity that you think youre going to have post post strike and.
At the same time, you know heavy equipment.
Mircea Dobre: Hearing from Deere today talking about production cuts.
Mircea Dobre: <unk> from others, how do you think about that vertical as well.
Speaker Change: Yes, so maybe the first part of your question in terms of automation growth, we do expect more accelerated growth in our.
Christopher L. Mapes: And at the same time, you know, heavy equipment, we're hearing from Deere today talking about production cuts, we've heard from others; how do you think about that vertical? Yeah, so maybe the first part of your question in terms of automation growth, we do expect more accelerated growth in our assumptions, as we highlighted for 2024. If you just think about the mix of our business in 2023, you know, our organic overall was up 4%, and that was with automation being up 8%.
Speaker Change: Assumptions as we highlighted for 2024 and if you just think about the mix of our business in 2023, and our organic overall was up 4% and that was with automation being up 8%. So we do expect accelerated growth from automation.
Speaker Change: When you think about the end markets <unk> point to automotive we've had some challenging comps with some large projects in the back half of 2022 versus 'twenty through 'twenty three so, but we still feel that we've got a lot of.
Christopher L. Mapes: So we do expect accelerated growth from automation. When you think about the end markets, you point to automotive. You know, we've had some challenging comps with some large projects and the back half of 2022 versus 2023. So we still feel that we've got a lot of good, strong demand and capital investment when you look at both ICE and EV. So we're bullish on automotive investment. You do point to a few pockets of areas and heavy industries that we're more cautious about, whether it's ag or construction. But I think, on balance, when you think about the exposure we have in so many end markets, that gives us confidence in the operating assumption. Yeah, Meg, I think you summarized it well.
Speaker Change: Good strong demand in capital investment when you look at both ice and EV. So look we're bullish around automotive investment you do point to a few pockets of areas in heavy industries that we're more cautious cautious of whether its AG or construction, but I think in balance when you think about the exposure we have in so many <unk>.
Speaker Change: And markets that gives us confidence in the operating assumptions that we provide.
Speaker Change: Yeah, Mike I think you summarized it well as we look at the automation business. We expect continued growth based on the activity we see in the market today.
Speaker Change: So that would be above the guidance for the overall business. So obviously, there's parts of the business. They are lagging what are those parts. It's.
Christopher L. Mapes: As we look at the automation business, we expect continued growth based on the activity we see in the market today. So that would be above the guidance for the overall business. Obviously, there are parts of the business that are lagging. What are those parts?
It's early innings in terms of seeing a turn in the macroeconomic indicators, particularly in Europe. So we're cautious on Europe.
Christopher L. Mapes: It's early innings in terms of seeing a turn in the macroeconomic indicators, particularly in Europe. So we're cautious on Europe. We're cautious on things that are consumer-facing.
Speaker Change: We're cautious on things that are consumer facing so the Harris portion of our business that is retail and HVAC focus we're cautious on that and then as you pointed out there are some large energy users that are themselves being cautious about the outlook for 2024, and so that just tempers, our overall conservatism approach to it.
Christopher L. Mapes: So the Harris portion of our business that is retail and HVAC focused, we're cautious on that. And then, as you pointed out, there are some large end users that are themselves being cautious about their outlook for 2024. And so that just tempers our overall conservatism. www.larryweaver.com, Fair enough.
Speaker Change: A lot of pressure on our people and our teams to outperform our conservatism so.
Speaker Change: We hope that as the global economy starts to accelerators that we will see our business improve as well.
Speaker Change: Fair enough.
Speaker Change: Nobody has the tax charge your question, yet and I'm surprised I'm going to be the guy to ask it.
Mig Dobre: Nobody has to test charge your question yet, and I'm surprised. So I'm going to be the guy to ask it. We are yet to see sort of a quantifiable update from you in terms of how this opportunity is evolving. So, what should our expectations be in 2024? At what point in time are you going to be in a position where you can provide maybe a little more clarity on this? And yeah, maybe your thoughts too.
Speaker Change: We are yet to see sort of a.
Speaker Change: Quantifiable update from you in terms of how this opportunity is evolving so.
Speaker Change: What should our expectations be in 2024, and what point in time are you good.
To be in a position where you can provide maybe a little more clarity on this.
Speaker Change: And yes, maybe your thoughts on it.
Christopher L. Mapes: Yeah, Meg, we're still in the commercialization process for this product. You know, we're a new entrant into the market. I think we've done a very good job of cutting through the clutter and a lot of the vaporware that's out in the industry. We are engaged with dozens of large potential customers, all of whom you'd recognize. We're talking to the right people, and we're working through their testing and validation protocols. It's a long selling cycle based on the capital spend that they need to make and the potential risk to them of making a wrong decision.
Speaker Change: We're still in the commercialization process for this product, we're a new entrant into the market I think we've done a very good job of cutting through the clutter and a lot of the vaporware thats out in the industry. We are engaged with dozens of large potential customers all of whom you'd you'd recognize we're talking to the right people.
Speaker Change: We're working through their testing and validation protocols. It's it's a long selling cycle based on the capital spend that they need to make and the potential risk to them.
Speaker Change: Making a wrong decision. So I expect that will take the balance of the first half of the year to get through that process and then we should be able to provide you more clarity on how we think that will ramp up in the second half.
Christopher L. Mapes: So I expect that we'll take the balance of the first half of the year to get through that process, and then we should be able to provide you with more clarity on how we think that will ramp up in the spring. All right, thank you. Chris Dankert from Loop Capital has the next question. Hey, morning, guys.
Speaker Change: Alright, thank you.
Speaker Change: Thanks Meg.
Speaker Change: Chris <unk> from loop capital has the next question.
Christopher L. Mapes: Hey, good morning, guys.
Chris Dankert: I guess, I guess first off, you have nice execution on higher standards, so I'm glad you highlighted that. I guess just the one spot that still needs some work, you know, international margin, how much volume do we really need to get that additional two 300 basis points? Or how much of this is still kind of inside a Lincoln control excluding volume here?
Christopher L. Mapes: I guess I guess first off nice execution on higher standard so glad you highlighted that.
Christopher L. Mapes: I guess, just the one spot that still needs. Some work international margin how much volume do we really need to get that additional two or 300 basis points or how much of this is still kind of in.
Christopher L. Mapes: Inside of Lincoln control, excluding volume here.
Chris Dankert: But Chris, I would point out that, you know, we executed at 14% in this fourth quarter on the international side. So we're looking to be more consistent. So for the full year 2023, we were in the range.
Speaker Change: Chris I would point to that you know we executed a 14% in this fourth quarter on the international side. So we're looking to more consistency so for.
Speaker Change: For the full year 2023 were in the range. So while we point to in the slide deck and on average we're at just over 10%.
Christopher L. Mapes: So while we point out in the slide deck that on average, we're at just over 10%, with current volumes, we're within the range. So improvements in volumes as we continue to shape our business just give us more confidence that we'll be on the higher end. We continue to navigate and think through the longer 2030 strategy that we've spent some time thinking about. Transcription and Sync Seiko, "understood."
Speaker Change: With current volumes were within the range. So.
Speaker Change: Improvements in volumes as we continue to shape our business just gives us more confidence that we'll be on the higher end of the range and as we continue to navigate I think through the longer 2030 strategy that we've spent some time thinking about when you just continue to see.
Improvement in shaping our model. So we're very much comfortable that with existing volumes were within that range.
Chris Dankert: I guess the concern I had here too was when you cited some of the concerns around Europe and maybe just update us on the other international trends kind of year to date here. I mean, has India and the Middle East held up kind of with what we saw in the fourth quarter? Yeah, Chris, what we've seen is continued strength in India and the Middle East, and energy sectors there just continue to drive growth. The Ultimate Parody Site-Limited Company, Understood.
Speaker Change: Yes.
Speaker Change: I guess.
Speaker Change: What I have here too is can you cited some of the concerns around Europe, and maybe just update us.
Speaker Change: Other international trends kind of year to date here been has India and the middle East held up kind of like what we saw in the fourth quarter.
Speaker Change: Yes.
Speaker Change: This will be seen strength continued strength in India middle East and the energy sectors. There just continue to drive strength in the demand profile.
Speaker Change: Understood. Thanks, so much guys.
Chris Dankert: Thanks so much, guys. We'll take the next question from Nathan Jones from Stiefel. Good morning, everyone. Good morning, Nathan.
Speaker Change: Thanks, Chris.
Speaker Change: We'll take the next question from Nathan Jones from Stifel.
Nathan Hardie Jones: Good morning, everyone.
Nathan Hardie Jones: Correct.
Nathan Hardie Jones: I've got a follow up on the on the EV charging stuff.
Nathan Hardie Jones: I'm going to follow up on the AV charges stuff. You said in response to Mig's question that working through the testing procedures in the first half potentially could see some ramp-up in the second half of 2024. Did I also hear you say that you've included none of that ramp-up in the guidance for 2024? Yep, that's correct.
Nathan Hardie Jones: You said.
Nathan Hardie Jones: In response to <unk> question that walking through the testing procedures in the first half potentially could see some ramp up in the second half of 2024 did I also hear you say that you've included none of that ramp up in the guidance in 2024.
Speaker Change: Yes, that's correct.
Speaker Change: And I mean, you guys have.
Christopher L. Mapes: And I mean, you guys have previously stated that you have 600 million units of capacity to sell those EV charges. Is there any expectation of when you might be, you know, at that kind of level? Are we looking at, 25, 26, 27, any kind of expectation for when you think you can get that capacity filled? It's really hard for us to forecast that for you, Nathan, in particular, because there are so many factors outside our control and so many factors outside even our prospective customers' control, such as grid connections and civil construction and permitting and their own capital deployment plan. So it's really premature for us to be able to give you a ramp-up horizon, really. I expect that we will know more after the end of the first half as we work our way through this process.
Speaker Change: They had previously stated that you have $600 million of capacity.
Speaker Change: To sell by the JV charges is there any expectation of when you might be.
Speaker Change: At that kind of level are we looking at like 'twenty five 'twenty six 'twenty seven any kind of expectation for when you think you can get that capacity filled.
Speaker Change: It's really hard for us to forecast that for anything in particular, because there are so many factors outside our control on so many factors outside even our prospective customers control in terms of grid connections and civil construction and permitting in their own capital deployment plans.
Speaker Change: So it's really premature for us to be able to give you a.
Speaker Change: Ramp up horizon really I expect that we would know more after the end of the first half as we work our way through this process. We're also <unk>.
Christopher L. Mapes: We're also fortunate that a lot of these prospective customers are enthusiastic about our value proposition and have asked for us to execute NDAs with them so they can share with us in more detail their capital spending plans. So I'm hoping we will have more visibility later in the year. Don't have the numbers, Nathan, but we're just confident Nathan that we're doing all the right things from a product, from commercialization, from an operating capacity. So it really is about, as Steve points out, continuing to nurture the progression of the product offering, and then by the second half, be able to give a little bit more insight as to how they're going. Thanks.
Speaker Change: Fortunately a lot of these prospective customers are enthusiastic about our value proposition have asked for us to execute NDA with them. So they can share with us in more detail their capital spending plans. So I am hoping we will have more visibility later in the year I just don't have that visibility to share with you now.
Speaker Change: Nathan but we are just.
Speaker Change: We are confident Nathan that we're doing all the right things from our products from a commercialization from an operating capacity standpoint. So it really is about as Steve pointed to continuing to.
Speaker Change: Nurture the progression of the product offering and then by second half be able to give a little bit more insight as to how that's progressing.
Nathan Hardie Jones: And then maybe just one on capital allocation, leverage lesson one, strong pre-cash flow ahead. The automation portfolio has been a priority for capital deployment over the last few years. Do you feel like, you know, that portfolio is mostly complete, and capital allocation priorities have turned to somewhere else, or is automation still, you know, really the outlet for M&A dollars? Well, Nathan, as we've talked before, the market is very fragmented. We believe we have lots of opportunities to continue to drive inorganic growth through acquisitions, automation, and outside of automation. So we'll continue to prioritize capital allocation through internal investment and acquisitions and then the balance to return cash to shareholders. But we think we have a lot of opportunities, a very robust pipeline of acquisitions that we're active in. And Nathan, I would just like any questions on the application.
Speaker Change: Thanks, and then maybe just one on capital allocation leverage less than one strong free cash flow are ahead.
Speaker Change: The automation portfolio has been a priority for capital deployment over the last few years do you feel like you know that portfolio is mostly complete and capital allocation priorities to somewhere else or are is automation is still.
Speaker Change: The outlet for our M&A dollars.
Speaker Change: Nathan and as we've talked before that the market is very fragmented. We believe we have a lots of opportunities to continue to drive inorganic growth through acquisitions automation and outside of automation. So we'll continue to prioritize capital allocation through internal investment and acquisitions and then the balance to return cash to shareholders, but we think we are.
Speaker Change: A lot of opportunities a very robust pipeline of acquisitions that were actively pursuing.
Speaker Change: And I thought I would just add I think the question art vacation.
Christopher L. Mapes: It's not necessarily that automation has been the priority for M&A. It's just been the most fertile hunting ground for us. In the last couple of years, we continue to be very active with the rest of our business for M&A investment opportunities. And as Gabe mentioned, as we sit today, the pipeline looks fairly robust. I am optimistic that we'll be able to deploy the capital effectively and productively, consistent with our capital allocation strategy and our disciplined approach. Thanks for taking the question... We'll now take a question from Walt Liptak, Seaport Research Partners. While your line is open, please check your mute button.
Speaker Change: It's not necessarily that Ben that automation has been the priority for M&A has just been the most fertile hunting ground for us in the last couple of years, we continue to be very active in the rest of our business and looking.
For M&A investment opportunities and as Gabe mentioned as we sit today the pipeline looks fairly robust for us. So we're optimistic that we'll be able to deploy the capital effectively and productively consistent with our capital allocation strategy and our disciplined approach to investments.
Speaker Change: Thanks for taking the questions.
Speaker Change: Thanks, David.
Speaker Change: We will now take a question from Walt Liptak Seaport Research partners.
Speaker Change: Okay.
Speaker Change: Yeah.
Walter Liptak: Your line is open please check your mute button.
Walt Liptak: Okay.
Walter Liptak: Oh, sorry about that.
Walter Liptak: Oh, sorry about that. Thanks. Can you hear me now?
Speaker Change: Thanks can you hear me now.
Walter Liptak: So I wanted to ask you about the guidance, so low to mid-single digit. I wonder if you could run through the regions for us. We're, you know, seeing some, hearing about weakness in Europe and some of the international markets. I wonder if you could just, you know, help us understand what your assumptions are. Well, typically, we don't give a lot of detail about the full year assumptions. I'll give you a couple of points of color.
Speaker Change: Yes as well.
Speaker Change: Great.
Speaker Change: So I wanted to ask you about the guidance so low to mid single digit I Wonder if you could run through the regions for us.
Speaker Change: Seeing some hearing by weakness.
Speaker Change: Europe and some of the international markets.
Speaker Change: Wonder if you could just.
Help us understand what your assumptions are.
Well typically we don't give a lot of detail from the full year assumptions and I'll give you a couple of points of color. So we do expect to lead in the America side.
Gabe Bruno: So we do expect to lead in the Americas. We have 75% of our automation business portfolio within America. So you can see that lead.
Speaker Change: We have 75% of our automation business portfolio within Americas. So you can see that leading.
Speaker Change: We do expect continued pressure.
Gabe Bruno: We do expect continued pressure on residential construction and retail on the Harris side, so we've considered that. And then on the international side, just a little bit of pockets of caution in Europe but continued strength when we think about the... Middle East and parts of Asia. Okay, great. And then Harris, you know, revenue was down in 2023, but there might be some signs that things are going to start to turn.
Speaker Change: Non residential construction and retail on the Harris side.
So we consider that and then on the international side, just a little bit of pockets of.
Caution in Europe, but continued strength when we think about the middle east and parts of Asia.
Speaker Change: Okay, Great and then Harris.
The revenue was down in.
In 2023.
Harris: But there might be some signs that things are going to start to turn.
Walter Liptak: Just so I understand, you're expecting that the volume and price are going to be down in 2024. We put the volume down while coming into 2024. So that's a bit of caution, just under retail and residential construction. But you're right, if things potentially open up, particularly for HVAC-type demand, that should be a positive for the Harris. Okay, sounds great.
Harris: So I understand you're expecting that.
Harris: The volume and price are going to be down in 2024.
Harris: Let me put the volume.
Harris: <unk> being down coming into 2024, so that's a bit of caution just under retail and residential construction, but youre right as things potentially open up particularly on HVAC type demand that should be a positive for the <unk> segment.
Gabe Bruno: And then, you know, I think you've talked a little bit about this or alluded to it, but you know, how is January and February looking in terms of, you know, the trends, the orders, etc.? Along, as I've mentioned in my prepared remarks, we expect, coming into the year, the first quarter to be flat to slightly down, based on the mix of some of the points that we've discussed. Hi. Okay. And if I recall, last year in March, you guys had a strong March.
Speaker Change: Okay sounds great and then.
Speaker Change: Yes.
Speaker Change: I think you've talked a little bit about this or alluded to it but.
Speaker Change: How is January and February looking in terms of.
Speaker Change: The trends the orders et cetera.
Speaker Change: A lot of as I've mentioned in my prepared remarks, we expect coming into the year first quarter to be flat to slightly down.
Speaker Change: Based on the mix of some of the points that we've highlighted.
Speaker Change: Okay, and if I recall last year in March you guys had a strong March are we thinking that we're going to see sort of that trend again or maybe weaker January February and then a pickup in March.
Walter Liptak: Are we thinking that we're going to see sort of that trend again, where maybe a week over January, February, and then a pickup in March? Well, that is typical as we go into the spring season to see the strength of the end of the first quarter. But we've built that all in into our consideration. We're beginning. Okay, sounds good.
Speaker Change: Well that is typical as we go into the spring season to see the strength of the end of the first quarter.
Speaker Change: But we have built at all in into our considerations of our beginning of the year.
Speaker Change: Okay sounds good thank you.
Steve Barger: Thank you. We'll take the next question from Steve Barger, Head of Capital Markets at KeyBank Capital Markets. Hey, thanks.
Speaker Change: We'll take the next question from Steve Barger of Keybanc capital market.
Steve Barger: Hey, thanks.
Steve Barger: My question is around longer-term customer attitudes for automation investment. I think in the past, we've talked about how that's a CapEx decision that slowed down and had soft patches, but going forward, do you think that could be more resilient as some customers may be more proactive about investing for productivity through the cycle? Yes, Steve, I would agree with that assessment, and I would base that really just on our view of our own operations, right? We continue to be challenged with labor wage inflation.
Steve Barger: My question is around longer term customer attitudes for automation investment I think in the past we've talked about.
Steve Barger: Thats, a capex decision that slowed down and soft patches, but going forward do you think that could be more resilient as some customers may be more proactive about investing for productivity through the cycle.
Speaker Change: Yes, Steve I would agree with that assessment.
Speaker Change: And I would base that really just looking at our view of our own operations, we continue to be challenged with labor wage inflation.
Christopher L. Mapes: We continue to be challenged with the need to make the hard jobs easier in our factories so we can reduce the demands on our employees. And when you look at the interest rate environment, yes, it's elevated from where it was two years ago, but it's not an obscenely high interest rate environment. So a lot of the projects that we look at for our own factory, and I'd say parallel that our customers look for in their factories, are still very high return investments. It's really the ability to absorb those investments into your factory that becomes... The Bulletproof Executive 2013, understood. And Steve, I know you're just settling into the role, but are you thinking about any changes to organizational incentives for the sales teams or any other initiatives that you want to pursue? Or do you like how things are organized now and it's running the way you like it?
Speaker Change: We continue to be challenged with the need to make the hard jobs easier in our factories. So we can reduce the <unk>.
Speaker Change: <unk> our employees.
Speaker Change: And when you look at the interest rate environment, Yes, it's elevated from where it was two years ago, but it is not seemingly.
Speaker Change: <unk> high interest rate environment. So a lot of the projects that we look at for our own factory and I'd say, you'll in parallel but our customers look for in their factories are still very high return investments it's really the.
Speaker Change: <unk> to absorb that.
Speaker Change: Those investments into your factory that becomes the rate limiting factor.
Speaker Change: Understood and.
Speaker Change: Steve I know, you're just settling into the role but are you thinking about any changes to organizational incentives for the sales teams or any other initiatives that you want to pursue or do you like how things are organized now in and it's running the way you like it.
Christopher L. Mapes: Well, Steve, you know, there's always room for improvement, right? We have a continuous improvement mindset, so we'll make tweaks to various, you know, elements of our organizational model as the business continues to grow and evolve. And in particular, as we look to capitalize more on our global scale and scope, particularly in things like R&D and, as I alluded to in my comments, global procurement. But as we sit today, we've got very solid momentum. We've got many opportunities and catalysts for growth in front of us. We've got a strong and experienced team that can capitalize on that.
Steve: Well see.
Steve: There is always room for improvement we have a continuous improvement mindset. So we'll make tweaks to various elements of our organizational model as the business continues to grow and evolve in particular as we look to capitalize more on our global scale and scope.
Steve: Particularly in things like R&D and as I alluded to in my comments, our global procurement.
Steve: But as we sit today, we've got very solid momentum, we've got many opportunities and catalysts for growth in front of US we've got a strong and experienced team that can capitalize on that so I really like the position. We're in and it's really just fine tuning our approach to a few things to enable us to take the next step forward.
Steve Barger: So I really like the position we're in, and it's really just fine-tuning our approach to a few things to enable us to take the next step forward. All right, thanks. And next up, we'll go back to Robert Jamieson, UBS.
Speaker Change: Alright. Thanks.
Speaker Change: And next we will go back to Robert Davis from UBS.
Robert Jamieson: . Hey, good morning. Congratulations on the results, and thanks for taking my question. Hey, Robert.
Robert Davis: Hey, good morning, Congrats on the results and thanks for taking my questions Hey, Robyn.
Robert Jamieson: Hey, so just, you know, incrementals are really solid. It was above the, like, high end of the guidance that you gave for... I'm just curious if you could give us or provide us with what the incrementals would have been for X4E. And, you know, that would just be kind of helpful to kind of gauge how that looks versus what's baked into your guidance for next year. Yeah, so Robert, you're right.
Robert Davis: Hey, so just.
Robert Davis: Incrementals are really solid it was above the high end the guidance that you gave for full year 'twenty. Three just curious if you could give us or provide us what.
Robyn: Incrementals would've been ex Fourie.
Robyn: And.
Robyn: That would just be kind of helpful to kind of gauge how that looks versus.
Robyn: What's baked into your guidance for next year.
Speaker Change: Yes, so Robert you're right I mean, we did progress strongly on Incrementals in this fourth quarter with them without for anything we'd be mid thirties without.
Gabe Bruno: I mean, we did progress strongly on incrementals in this fourth quarter, with and without Foray. Without Foray, we would be in the mid-30s without Foray. But Foray, we just have executed very well. The assumptions for 2024, being in that low to mid-20s, that's within our traditional range.
Speaker Change: Corey.
Speaker Change: But Florida, we just have executed very well in the.
Speaker Change: The assumptions for 2020 for being in that low to mid twenties.
Speaker Change: So that's within our traditional range and that is with the <unk> business. We do expect to continue to drive improvements in our operating model for automation business and I'll just remind you that our target is to be at the corporate average for automation. So we ended.
Gabe Bruno: And that is, with the 4E business, we do expect to continue to drive improvements in our operating model for the automation business. And I'll just remind you that our target is to be at the corporate average for automation. So we ended 2023 in the low teens in the EBIT profile of automation. So when you look at it holistically, there are another 300 basis points of potential there. So we feel really good about our posture, coming into 2024 with a continued focus on developing our business. That's helpful. Thank you very much for that. And then, I guess, one last one.
Speaker Change: 2023 in the low teens in the EBIT profile of automation. So when you look at it holistically another 300 basis points of potential there. So.
Speaker Change: We feel really good about our posture.
Speaker Change: Coming into 2024 with continued focus on developing our business model.
Speaker Change: No. That's helpful. Thank you very much for that and then I guess, one last one I mean.
Gabe Bruno: I mean, you know, automation, the margins there continue to, you know, continue to expand, which is nice to see. I guess you just talked about some of the drivers that are, you know, underlying that. I know a lot of it is probably LBS and some of the initiatives there on efficiency and productivity, but I'd just curious what else you're working on and where you're seeing other benefits. Thank you. So I would point to our Lincoln business system and automation, and it is about that discipline on execution. When we think about Fori, if you remember, we were into a low double-digit type of EBIT profile, and we have a clear line of sight in developing the model that we acquired into our overall automation strategy.
Speaker Change: Automation the margins there continue to.
Speaker Change: Continued to expand which is nice to see.
Speaker Change: Can you just talk about some of the drivers that are underlying that I know a lot of it is probably obs and some of the initiatives there on efficiency and productivity, but just curious what else you're working on and where youre seeing other benefits. Thank you.
Speaker Change: Yes, so I would point to our Lincoln business system and automation is about that discipline on execution.
Speaker Change: When we think about four if you remember we were into low double digit type of EBIT profile and we have a clear line of sight in developing the model that we acquired into our overall automation strategy. So it's about the discipline in managing <unk>.
Gabe Bruno: So it's about discipline and managing projects and managing the cost and execution, the labor efficiency, the group so uh... that's the driver, so we will continue to develop capabilities around our link in business system that gives us confidence that we're going to drive to a long-term target. That's great, super helpful. Thank you. We'll now take a follow-up from Mig Dobre, Baird. All right. Thanks for taking the follow-up. I figure since this is your first call, Steve, I can't let you get off the hook earlier than usual. You get one follow-up. I'm surprised you want to use it up so early in our relationship to be fun.
Speaker Change: <unk>.
Speaker Change: Managing the cost and execution the labor efficiency that the capacities around the group. So that's the driver. So we will continue to develop capabilities around our Lincoln business system that gives us confidence that we're going to drive to our long term targets and our automation.
Speaker Change: That's great Super helpful. Thank you.
Speaker Change: Well now take a follow up from Nate Bilbrey Baird.
Speaker Change: Alright, thanks for taking a follow up I figured since this is your first call Steve I can't let you get off the hook.
Speaker Change: Earlier than normal.
I'll follow up I'm surprised you want to use it up so early in our relationship with those funds.
Mig Dobre: All right. I wanted to ask you a question about Harris. So you had volume compression in 23, and you talked about the consumer portion being weak and HVAC being an issue as well. But the margins were actually pretty good, at least relative to my expectations and, arguably speaking, relative to history too. So how should we think about this segment going forward? I mean, if we're getting back to volume growth, what's the margin potential here? Can we look somewhere above this? High 14's, 15's; can this be a high teen margin business?
Speaker Change: Okay.
Speaker Change: Alright, well I wanted to ask a question about Harris.
Speaker Change: So you had volume compression in 'twenty three.
Speaker Change: Can you talk about consumer being thank.
Speaker Change: Thank you Mike portion being weak in <unk>.
<unk> being an issue as well, but the margins were actually pretty good.
Speaker Change: At least relative to my expectation and arguably speaking relative to history too. So how should we think about this segment going forward I mean, if we're getting back to volume growth. What's the margin potential here can we can we look.
Speaker Change: Somewhere above this.
Speaker Change: High Fourteens fifteens can this be a high teens margin business.
Mig Dobre: Meg, we're very pleased with how our Harris team has developed improvements within our model. And you're right, even despite the softness and volumes, we have held up towards the low end of the range, but you've seen us pushing the high end throughout 2023. So our team is focused on exceeding those ranges. We're bullish that, uh... I think we can continue to shape our model that, yeah, we'll be moving that range in the long run. Uh... strategic discussion. I mean, have you had some structural cost takeouts? I mean, what happened here to essentially offset the volume compression?
Speaker Change: Meg right, we're very pleased with how our Harris team has developed improvements within our model and Youre right, even despite the softness in volumes, we have held up.
Speaker Change: Towards the low end of the range, but you've seen us pushing the high end throughout 2023. So our team is focused on exceeding those ranges and we're bullish that.
Speaker Change: As we continue to shape our model that yes, we'll be moving that range in the long term strategic.
Speaker Change: Strategic discussions we're having.
Speaker Change: I mean have you had some structural cost take out what happened here to essentially offset the volume compression thats, what I was really kind of trying to get at.
Mig Dobre: That's what I was really kind of trying to get at. Yeah, Meg, the team at Harris has made a number of operational improvements in the business to make us more efficient. I would also point to you that there are different segments within the Harris business, and the retail and consumable HVAC portions of the business that were down tend to be the lower margin drags. The part that was performing gas equipment tends to be higher margin. Some favorable mix in, Okay.
Speaker Change: The team at Harris has made a number of operational improvements in the business to make us more efficient I would also point to you that there's a <unk>.
Speaker Change: Different segments within the Harris business, and the retail and consumable hvac's portions of the business that were down tend to be the lower margin drag in that business. So the part that was performing gas equipment tends to be higher margin. So there is some favorable mix in there as well.
Mig Dobre: Helpful. Thank you. And we'll take our final question today from Angel Castillo-Morgan Stanley. Hi, this is Grace Stone from Andrew.
Okay helpful. Thank you.
Okay.
And we will take our final question today from Angel Castillo Morgan Stanley.
Speaker Change: Hi, This is grace on for Andrew Thank you for the question.
Angel Castillo: Thank you for the question. So what drove the sequential increase in acquisition contribution for the international welding business? I think you mentioned it was from international, but could you provide more color here? And was it just a one-time thing?
Grace: So what drove the sequential increase in acquisition contribution for the international volume business. I think you mentioned from Florida International though could you provide more color here.
Grace: And was that just one time thing and if so will margins equal to come off from the <unk> level, if I count on you for thank you.
Gabe Bruno: And if so, will margins equally come off from the 4Q levels in 2024? Thank you. Grace, I want to make sure I understood your question. It seemed to focus on international acquisition performance. That is driven by our foray acquisitions, as you note, and just very strong execution on projects within the backlog as we ended the year. So those are not one-time types of projects, but they're progressively the execution of outstanding customers, Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe Joe So that's just an ongoing development of our international business. We think about the acquisitions, and we expect that Fori will continue to perform well. We did have, as I mentioned in my comments, the one month lag we caught up on in the fourth quarter. I mentioned $15 million of one-month lag that we caught up on, and I would estimate about 50-50 between international and domestic. India America is business, but that's a strong performance driven by the level of business.
Speaker Change: So Greg I want to make sure I understood. Your question it seems to focus on international acquisitions performance.
Speaker Change: And that is driven by our Fourie acquisition as you note and just very strong execution on projects within the backlog as we ended the year. So those are not one time types of.
Speaker Change: Projects, but there.
Speaker Change: Progressively the execution of outstanding customer.
Speaker Change: Projects. So that's just an ongoing development of our international business. When you think about the acquisitions and we expect that <unk> will continue to perform well we did have as I mentioned in my comments.
Speaker Change: The one month lag.
Speaker Change: We caught up in.
Speaker Change: In the fourth quarter, and as I mentioned $15 million of one month lag that we caught up and I would estimate about 50 50 between international.
Speaker Change: And.
Speaker Change: In the Americas business, but that strong performance driven by level of business activity.
Gabe Bruno: I got it. Thank you so much. And at this time, there are no further questions. I would like to turn the call back to Gabe Bruno for his closing remarks. I'd like to thank everyone for joining us on the call today and for your continued interest in Lincoln Electric. We look forward to discussing the progression of our strategic initiatives in the future. Thank you very much. Again, that does conclude today's conference. Thank you all for your participation. You may now disconnect. 2018 University of Georgia College of Agricultural and Environmental Sciences, All Rights Reserved
Speaker Change: Got it thank you so much.
And at this time there are no further questions I would like to turn the call back to Gabe Bruno for closing remark.
I'd like to thank everyone for joining us on the call today and for your continued interest in Lincoln Electric we look forward to discussing the progression of our strategic initiatives in the future. Thank you very much.
Gabe Bruno: Again that does conclude today's conference. Thank you all for your participation you may now disconnect.
Gabe Bruno: [music].