Q1 2024 Lincoln Electric Holdings Inc Earnings Call
Operator: Greetings and welcome to the Lincoln Electric 2024 First Quarter 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.
Greetings and welcome to the Lincoln Electric 2024 first quarter 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.
Amanda H. Butler: Thank you, Sarah, and good morning, everyone. Welcome to Lincoln Electric's first quarter 2024 conference call. We released our financial results earlier today, and you can find our release and this call's slide presentation at LincolnElectric.com in the Investor Relations section. Joining me on the call today are Steve Hedlund, President and Chief Executive Officer, and Gabe Bruno, our Chief Financial Officer. Following our prepared remarks, we're happy to take your questions. But before we start our discussion, please note that certain statements made during this call may be forward-looking, and actual results may differ materially from our expectations due to a number of risk factors and uncertainties, which are provided in our press release and in our SEC filings on Forms 10-K and 10-K.
Amanda H. Butler: Thank you Sarah and good morning, everyone welcome to Lincoln Electric's first quarter 2024 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: And Gabe Bruno our Chief Financial Officer, following our prepared remarks, we're happy to take your questions, but before we start our discussion. Please note that certain statements made during this call may be forward looking and actual results may differ materially from our expectations due to a number of risk factors and uncertainties, which are provided in our press release and in our SEC.
Amanda H. Butler: Filings on forms 10-K, and 10-Q. In addition, we discuss financial measures that do not conform to U S. GAAP and a reconciliation of non-GAAP measures to the most comparable GAAP measure is found in the financial tables in our earnings release, which again is available in the Investor Relations section of our website at Lincoln Electric Dotcom and <unk>.
Amanda H. Butler: In addition, we discuss financial measures that do not conform to U.S. GAAP, and a reconciliation of non-GAAP measures to the most comparable GAAP measure is found in the financial tables in our earnings release, which again is available in the investor relations section of our website at LincolnElectric.com. And with that, I'll turn the call over to Steve Hedlund.
Amanda H. Butler: That I will turn the call over to Steve headland, Steve. Thank you Amanda good morning, everyone turning to slide three I am pleased to report that we continued to demonstrate solid execution in the quarter. We achieved record gross profit margin performance, a 120 basis point increase in our adjusted operating income margin and record.
Steven B. Hedlund: Thank you, Amanda. Good morning, everyone. Turning to slide three, I am pleased to report that we continued to demonstrate solid execution in the quarter. We achieved record gross profit margin performance, a 120 basis point increase in our adjusted operating income margin, and record earnings in cash flows. ROIC remained top quartile, and we doubled returns to shareholders, led by $110 million in share repurchases, all while navigating a challenging portion of the cycle with a slower than expected sales start to the year.
Steven B. Hedlund: Earnings and cash flows.
Steven B. Hedlund: Oh I see remained top quartile and we doubled returns to shareholders led by $110 million and share repurchases all while navigating a challenging portion of the cycle with slower than expected sales start to the year. In this environment. We are staying focused on serving our customers and investing for long term growth we are diligently.
Steven B. Hedlund: In this environment, we are staying focused on serving our customers and investing for long-term growth. We are diligently managing costs and working to accelerate productivity gains from our Higher Standard 2025 Strategies Operational Initiative. This positions us well to continue to drive profit and earnings expansion in 2024, despite softer end market conditions. Turning to slide four, organic sales declined approximately 6% in the quarter.
Steve Headland: Currently managing costs and working to accelerate productivity gains from our higher standard 2025 strategies operational initiatives. This positions us well to continue to drive profit and earning expansion in 2024, despite softer end market conditions.
Steve Headland: Turning to slide four organic sales declined approximately 6% in the quarter challenging prior year comparisons and equipment project timing and automation along with slow industrial activity in automotive heavy industries and H V. A C. All contributed to choppy organic sales performance through the quarter.
Steven B. Hedlund: Challenging prior year comparisons in equipment, project timing, and automation, along with slow industrial activity in automotive, heavy industries, and HVAC, all contributed to choppy organic sales performance through the quarter. Areas of strength continue to be in the Middle East and Turkey on strong project activity. By end sector, energy remained resilient against challenging prior year comparisons with notable strength and growth in midstream oil and gas projects.
Steve Headland: Areas of strength continue to be in the middle East and Turkey on strong project activity.
Amanda H. Butler: By end sector energy remained resilient against challenging prior year comparisons with notable strength in up and midstream oil and gas projects.
Steven B. Hedlund: We are also pleased to see America's welding consumables organic sales steady versus the prior year in the general industry sector. This suggests the early stages of an underlying recovery in regional industrial production activity and aligns with macroeconomic data which tends to lead orders by a few months. On the capital equipment side, we are maintaining a strong automation backlog from solid order activity through the quarter, and current quoting activity remains elevated as customers continue to seek solutions that deliver higher productivity, consistent quality, and help address the acute shortage of skilled welders.
Amanda H. Butler: We're also pleased to see Americas welding consumables organic sales steady versus prior year in the general industry sector. This suggest early stages of an underlying recovery in regional industrial production activity and aligns with macroeconomic data, which tends to lead orders by a few months.
Amanda H. Butler: On the capital equipment side, we are maintaining a strong automation backlog from solid order activity through the quarter and current quoting activity remains elevated as customers continue to seek solutions that deliver higher productivity consistent quality and help address the acute shortage of skilled welders.
Steven B. Hedlund: Moving to slide five, as part of our long-term investment in sales and earnings growth, I would like to highlight a few of our recent developments. First, we announced our acquisition of Red Viking, an automation system integrator based in Michigan, specializing in automated material handling solutions such as AVGVs. They also add new capabilities to our portfolio, including dynamic testing and a proprietary MES software solution that offers enhanced connectivity between customers' automated production solutions and their ERP systems.
Amanda H. Butler: Moving to slide five as part of our long term investment for sales and earnings growth I would like to highlight a few of our recent developments first we announced our acquisition of Red Viking and automation system integrator based in Michigan specializing in automated material handling solutions such as a V. G vs. They also add new capabilities to our poor.
Amanda H. Butler: Folio, including dynamic testing and our proprietary Mes software solution that offers enhanced connectivity between customers automated production solutions and their ERP systems.
Steven B. Hedlund: The addition of Red Viking brings our global automation sales run rate to over $1 billion, marking a key higher standard strategy milestone a year ahead of schedule. Their addition, along with our extensive range of non-welding automation capabilities, brings our global automation sales mix to approximately 55% welding-related and 45% non-welded. The non-welding portion includes automated cutting, material handling, assembly systems, testing, additive manufacturing, and high-precision machining.
Amanda H. Butler: The addition of Red Viking brings our global automation sales run rate to over $1 billion, marking a key hire standard strategy milestone a year ahead of schedule.
Amanda H. Butler: Their addition, along with our extensive range of non welding automation capabilities brings our global automation sales mix to approximately 55% welding related and 45% non welding.
Amanda H. Butler: The non welding portion includes automated cutting material handling assembly systems testing additive manufacturing and high precision machining I'm also proud to announce that we celebrated the sale of our 1000th co bought during the first quarter. This is a key milestone since the launch of this solution in mid 2021.
Steven B. Hedlund: I am also proud to announce that we celebrated the sale of our 1,000th cobot during the first quarter. This is a key milestone since the launch of this solution in mid-2021, and we believe this reaffirms our position as the leading welding cobot provider in the industry. Many of you may have seen our recent announcement outlining the creation of a new Chief Transformation Officer role at the company, which will be led by Michelle Curt.
Amanda H. Butler: One and we believe this reaffirms our position as the leading welding cobalt provider in the industry.
Amanda H. Butler: Many of you may have seen our recent announcement outlining the creation of a new chief transformation officer role at the company, which will be led by Michelle Kurt We felt the time was appropriate to dedicate a senior executive to accelerate the impact of a range of enterprise wide productivity initiatives currently underway that bolster long term margin and earnings.
Steven B. Hedlund: We felt the time was appropriate to dedicate a senior executive to accelerate the impact of a range of enterprise-wide productivity initiatives currently underway that bolster long-term margin and earnings growth. In addition, I am pleased to welcome Susan Edwards to the company, who succeeds Michelle as our new Chief Human Resources Officer and brings extensive HR leadership and expertise to the company. To conclude, before passing the call to Gabe, I'm confident in the progress we have made to date.
Amanda H. Butler: Growth in.
Amanda H. Butler: In addition, I am pleased to welcome Susan Edwards to the company, who succeeds Michelle as our new Chief Human Resources Officer, and brings extensive HR leadership and expertise to the company.
Amanda H. Butler: To conclude before passing the call to Gabe I'm confident in the progress. We have made to date, we have a strong team that continues to execute on our strategic initiatives to strengthen our market position and improve margins and accelerate growth via industry, leading innovations and a fall in active M&A pipeline all of which contribute to <unk>.
Amanda H. Butler: Our active long term value creation for our stakeholders and now I will pass the call to Gabe Bruno to cover first quarter financials in more detail.
Steven B. Hedlund: We have a strong team that continues to execute on our strategic initiatives to strengthen our market position, improve margins, and accelerate growth via industry-leading innovations in a full and active M&A pipeline, all of which contribute to attractive long-term value creation for our stakeholders. Now, I will pass the call to Gabe Bruno to cover our first quarter financials in more detail.
Gabriel Bruno: Thank you Steve.
Gabriel Bruno: Moving to slide six our first quarter sales declined 6% to $981 million, primarily from 6.1% lower volumes, we maintain price at prior levels and benefited 60 basis points from a combination of acquisitions and favorable foreign exchange.
Gabriel Bruno: Gross profit dollars increased approximately 4% to $368 million to a record 37, 5% gross profit margin effective cost management and operational improvements drove strong profit performance.
Gabriel Bruno: Moving to slide 6, our first quarter sales declined 6% to $981 million, primarily due to 6.1% lower volume. However, we maintained prices at prior levels and benefited 60 basis points from a combination of acquisitions and favorable foreign exchange. Gross profit dollars increased approximately 4% to $368 million, to a record 37.5% gross profit margin. Effective cost management and operational improvements drove strong profit performance. Our SG&A expense increased 4.5 percent, primarily due to $6 million of higher employee-related costs, including approximately $3 million of incentive compensation associated with our CEO transition, which will not progress in the second quarter.
Gabriel Bruno: Our SG&A expense increased four 5%, primarily due to $6 million of higher employee related costs, including approximately $3 million of incentive compensation associated with our CEO transition, which will not progress in the second quarter.
Amanda H. Butler: SG&A as a percent of sales increased 200 basis points to 23% on lower sales.
Amanda H. Butler: Reported operating income was relatively steady versus prior year at $165 million and includes approximately $6 million of special items, including rationalization and asset charges from plans initiated within international welding and the Harris products group as well as acquisition transaction costs.
Amanda H. Butler: Excluding special items, adjusted operating income increased 1% to $171 million and our adjusted operating income margin increased 120 basis points to 17, 5%.
Gabriel Bruno: SG&A as a percent of sales increased 200 basis points to 20.3% on lower sales. Reported operating income was relatively steady versus the prior year at $165 million and includes approximately $6 million of special items, including rationalization and asset charges from plans initiated within International Welding and the Harris Products Group, as well as acquisition transaction costs. Excluding special items, adjusted operating income increased 1% to $171 million, and our adjusted operating income margin increased 120 basis points to 17.5%. Interest expense net in the quarter declined 34% to $8.8 million, which is more consistent with our expected quarterly run rate. Our first quarter effective tax rate, as reported and adjusted, was approximately 22 percent.
Amanda H. Butler: Interest expense net in the quarter declined 34% to $8.8 million, which is more consistent with our expected quarterly run rate.
Amanda H. Butler: Our first quarter effective tax rate as reported and adjusted was approximately 22%. We continued to expect our full year 2024 effective tax rate to be in the low to mid 20% range subject to the mix of earnings and anticipated extent of discrete tax items.
Amanda H. Butler: First quarter diluted earnings per share was $2 14.
Amanda H. Butler: Excluding special items adjusted diluted earnings per share was a record $2.23.
Amanda H. Butler: Moving to our reportable segments on slide seven.
Amanda H. Butler: American Americas welding sales decreased 5% in the quarter, primarily due to $6, 5% lower volumes with compression across all three product areas price and the benefits of our power and make acquisition contributed approximately 1% of sales growth.
Amanda H. Butler: We expect acquisition contributions to increase in the second quarter, reflecting the Red Viking acquisition.
Gabriel Bruno: We continue to expect our full year 2024 effective tax rate to be in the low to mid-20 percent range, subject to the mix of earnings and anticipated extent of discrete tax items. First quarter diluted earnings per share was $2.14. Excluding special items, adjusted diluted earnings per share was a record $2.23.
Amanda H. Butler: Americas welding segment's first quarter adjusted EBIT increased approximately 3% to $136 million. The adjusted EBIT margin increased 160 basis points to 28% on effective cost management and operational improvements in the automation portfolio.
Amanda H. Butler: As the team recognizes benefits from the <unk> integration.
Gabriel Bruno: Moving to our reportable segments on slide 7, America's welding sales decreased 5% in the quarter, primarily due to 6.5% lower volumes with compression across all three product areas. Price and the benefits of our Power MIG acquisition contributed approximately 1% of sales growth. We expect acquisition contributions to increase in the second quarter, reflecting the Red Viking acquisition. America's welding segment's first quarter adjusted EBIT increased approximately 3% to $136 million. The adjusted EBIT margin increased 160 basis points to 20.8% on effective cost management and operational improvements in the automation portfolio as the team recognizes benefits from the FOREI integration. We expect America's welding to continue to operate above their 17-19% EBIT margin target for the remainder of the year. Moving to slide eight. The international welding segment sales declined approximately 7% on a 5% lower volume.
Amanda H. Butler: We expect Americas welding to continue to operate above their 17% to 19% EBIT margin target for the remainder of the year.
Amanda H. Butler: Moving to slide eight the international welding segment sales declined approximately 7% on 5% lower volumes strong project activity in the Middle East and Turkey was offset by weak industrial activity in Europe and challenging prior year comparisons in Asia Pacific.
Amanda H. Butler: While price declined one 6% disciplined cost management held international welding segments, EBIT margins steady year over year.
Amanda H. Butler: We expect their margin performance to improve sequentially to the lower end of their 12% to 14% target EBIT range.
Amanda H. Butler: Moving to the Harris products group on slide nine first quarter sales declined approximately 5% with 7% lower volumes volume softness was primarily from weak residential sector trends impacting the HVAC industry price increased 1% on higher metal costs.
Amanda H. Butler: Adjusted EBIT increased approximately 5% to $20 million. The adjusted EBIT margin increased 150 basis points to a strong 16%, reflecting effective cost management and structural improvements to the business. We expect the team to continue to operate at this higher level and <unk>.
Gabriel Bruno: Strong project activity in the Middle East and Turkey was offset by weak industrial activity in Europe and challenging prior comparisons in Asia Pacific. While prices declined 1.6%, disciplined cost management held the international welding segment's EBIT margin steady year over year. We expect their margin performance to improve sequentially to the lower end of their 12 to 14 percent target EBIT range. Moving to the Harris Products Group on slide 9, first quarter sales declined approximately 5% with 7% lower volume. Volume softness was primarily from weak residential sector trends impacting the HVAC industry, and prices increased 1% on higher metal costs.
Amanda H. Butler: 24.
Amanda H. Butler: Moving to slide 10.
Amanda H. Butler: We generated a record $133 million in cash flows from operations in the quarter, resulting in 83% cash conversion average operating working capital decreased 80 basis points to 18, 8% versus the comparable prior year period on improved inventory levels.
Amanda H. Butler: Moving to slide 11.
Amanda H. Butler: We invested $26 million in capex spending and more than double our returns to shareholders at 152 million in the quarter through a higher dividend payout and approximately $110 million of share repurchases. We maintained a solid adjusted return on invested capital of 24, 1%.
Gabriel Bruno: Adjusted EBIT increased approximately 5% to $20 million. The adjusted EBIT margin increased 150 basis points to a strong 16%, reflecting effective cost management and structural improvements to the business. We expect the team to continue to operate at this higher level in 2024. Moving to slide 10. We generated a record $133 million in cash flows from operations in the quarter, resulting in 83% cash conversion. Average operating working capital decreased 80 basis points to 18.8% versus the comparable prior year period on improved inventory levels. Moving to slide 11.
Amanda H. Butler: We will continue to repurchase shares opportunistically for the balance of the year, but expect to prioritize acquisitions in the quarters ahead due to a strong M&A pipeline as seen by our recent Red Viking acquisition.
Amanda H. Butler: Turning to slide 12, we.
Amanda H. Butler: We have not changed our initial full year assumptions, despite a slower start to the year and stronger margin performance. We will continue to monitor economic conditions and the progression of order trends, including any recovery in Europe. The continued strength in automation investment and improvements in automotive in general.
Amanda H. Butler: Industries sectors.
Amanda H. Butler: We're expecting second quarter organic sales to trend flat to up on a consolidated basis, primarily from improved performance in the Americas welding and Harris products group segments. We also anticipate continued strong margin and EPS performance on a consolidated basis through the balance of the year.
Gabriel Bruno: We invested $26 million in CapEx spending and more than doubled our returns to shareholders at $152 million in the quarter through a higher dividend payout and approximately $110 million of share repurchase. We maintained a solid adjusted return on invested capital of 24.1%. We will continue to repurchase shares opportunistically for the balance of the year but expect to prioritize acquisitions in the quarters ahead due to a strong M&A pipeline, as seen by our recent Red Viking acquisition. Turning to slide 12.
Amanda H. Butler: In addition, we expect a sales contribution of approximately $45 million to $55 million and an estimated five to seven cents adjusted EPS contribution in 'twenty 'twenty four from our April one acquisition of Red Viking.
Amanda H. Butler: During this portion of the cycle, we are staying focused on our customers driving innovation and executing on our strategic initiatives, which will continue to generate superior value for all of our stakeholders and now I would like to turn the call over for questions.
Gabriel Bruno: We have not changed our initial full-year assumptions despite a slower start to the year and stronger margin performance. We will continue to monitor economic conditions and the progression of order trends, including any recovery in Europe, the continued strength in automation investment, and improvements in the automotive and general industries sectors. We're expecting second quarter organic sales to trend flat to up on a consolidated basis, primarily from improved performance in the Americas Welding and Harris Products Group segments.
Speaker Change: Ladies and gentlemen at this time, we will be conducting a question and answer session. If you would like to ask a question simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question simply press Star one again.
Speaker Change: 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.
Speaker Change: Your first question comes from the line of Bryan Blair with Oppenheimer. Your line is open.
Bryan Francis Blair: Thank you good morning, everyone.
Bryan Francis Blair: Good morning, Brian.
Bryan Francis Blair: Yeah.
Gabriel Bruno: We also anticipate continued strong margin and EPS performance on a consolidated basis through the balance of the year. In addition, we expect a sales contribution of approximately $45 to $55 million and an estimated $0.05 to $0.07 adjusted EPS contribution in 2024 from our April 1st acquisition of Red Viking. During this portion of the cycle, we are staying focused on our customers, driving innovation, and executing on our strategic initiatives, which will continue to generate superior value for all of our stakeholders. Now, I would like to turn the call over to questions. Ladies and gentlemen, at this time, we will be
Bryan Francis Blair: Hudson courage into.
Bryan Francis Blair: How do you frame the second quarter and he noted that Americans consumables are relatively steady.
Speaker Change: Obviously, a key leading indicator I'm just curious if you can offer a little more color on our end market and regional trends entering the second quarter and what gives you confidence in that.
Speaker Change: The stabilization of <unk>.
Speaker Change: Top line trends and improvements going forward.
Speaker Change: Yes, Hi, Brian I'd start just give me a little color on the drivers of why we say flat to up.
Speaker Change: For our business second quarter, so as we've been pointing to over the last quarters, the strength of orders and backlog in automation and we know we had a pull forward in the fourth quarter that impacted first quarter, but we see that continued strength and driving the Americas profile in the second quarter and for the balance of the year. So we have <unk>.
Speaker Change: Confidence in the contribution for.
Bryan Francis Blair: For the automation business and Americans, we've also seen.
Bryan Francis Blair: Our inflection point on the Harris part of our business you know we've been now I think three quarters of compression in organic trends at Harris, but where we saw we're seeing in April a good pivot point on both retail and core business in here, so that gives us confidence that the progression.
Operator: Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. If you would like to ask a question, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 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 line. Your first question comes from the line of Bryan Blair with Oppenheimer. Your line is open.
Bryan Francis Blair: Strong there as well we are cautious as you heard in our comments in Europe. If you look at the macro metrics.
Bryan Francis Blair: <unk> continues to be challenged and we continue to see that choppiness in our business.
Bryan Francis Blair: We are more optimistic.
Bryan Francis Blair: You look at the macro metrics like PMI in the U S. A which we typically are lagged and that's a leading indicators. So we would lag a few months there. So it's pretty important for us to see short cycle business in the Americas, particularly in the progression of PMI. So those are the drivers and how we think of our business.
Steven B. Hedlund: It's encouraging to hear how you've framed the second quarter, and you noted that America's consumables are relatively steady, obviously a key leading indicator. I'm just curious if you could offer a little more color on end market and regional trends entering the second quarter and what gives you confidence in the stabilization of top line trends and then improvements going forward.
Speaker Change: Okay I appreciate the detail there.
Bryan Francis Blair: Regulation seems to be you know.
Speaker Change: Pretty high fit our acquisition for me and maybe offer a little more color.
Speaker Change: On the strategic fit within.
Speaker Change: Platform the synergies with your existing assets.
Speaker Change: The assets and capabilities.
Speaker Change: And.
Speaker Change: You touched on year, one revenue and bottom.
Steven B. Hedlund: So, Bryan, I'd start just giving a little color on the drivers of why we stayed flat to up for our business in the second quarter. So, as we've been pointing out over the last quarter, the strength of orders and backlog in automation. And we know we had a pull forward in the fourth quarter that impacted the first quarter, but we see that continued strength in driving the Americas profile in the second quarter and for the balance of the year. So, we have confidence in the contribution of the automation business in the Americas.
Speaker Change: Bottom line contribution.
Speaker Change: But what is the current margin profile, where do you expect that to be and how much could you know accretion accelerated from the.
Speaker Change: Stated range for this year.
Speaker Change: Yeah, Brian I'll start by talking about the strategy for automation with Red Viking our strategy is fairly simple in the sense that we're following the needs of our customers and leveraging the capabilities and competencies.
Speaker Change: We've developed to serve them and continuing to expand those competencies one of the big problems a lot of our customers have is moving material through the factory, particularly azure completing various steps of the fabrication and assembly process. These parts get cumbersome large heavy hard to move if you think about the 40 business we have.
Steven B. Hedlund: We've also seen an inflection point on the Harris part of our business. You know, we've been through now, I think three quarters of compression and organic trends at Harris, but we're seeing in April a good pivot point on both retail and core business at Harris. So, that gives us confidence that progression is strong there as well.
Speaker Change: Wired a little over a year ago, there a JV platforms really function as a replacement for the assembly lines. So think about you know very very large parts in a fairly standard configuration of the Adv, what red Viking brings to the table is a smaller more modular platform. If you think about this.
Steven B. Hedlund: We are cautious, as you heard in our comments, in Europe. If you look at the macro metrics, Europe continues to be challenged, and we continue to see that chompiness in our business. We are more optimistic. You look at macro metrics like PMI in the U.S., which we typically lag behind, you know, at the leading indicators, so we would lag a few months there. So, it's pretty important for us to see short-cycle business in the Americas, particularly in the progression of PMI. So, those are the drivers in how we think of our business.
Speaker Change: Cells that might be feeding and assembly line is how do you get material from those cells to the main assembly lines. So we view them as very complementary and in fact in many customers, we see them already buying both for you and Red Viking. So we think that's a great fit for us and it's really again, just following the customers' needs and continuing to build and expand extend.
Speaker Change: Our competencies.
Speaker Change: And Brian just to add you know from a from a valuation standpoint, we're pretty excited of how it nicely. It fits into our model are initially we're looking at a low double digit EBIT profile and they will just move right into our <unk> system, and we have the confidence they'll fit within our overall targets within automation business its a second quarter.
Steven B. Hedlund: Good. I appreciate the detail there. Red Viking seems to be a pretty high-fit acquisition for you.
Steven B. Hedlund: Maybe offer a little more color on the strategic fit within the automation platform, the synergies with your existing assets and capabilities. And you touched on year one revenue and bottom-line contribution. What is the current margin profile? Where do you expect that to be? And how much could accretion accelerate from the stated range?
Speaker Change: Transaction, but expect to see a purchase price in the range of $115 million and so we're we're very satisfied as where we're at with this acquisition fits very well.
Speaker Change: Oh very helpful detail. Thanks again.
Speaker Change: Your next question comes from the line of 70 Bora ski with Jefferies. Your line is open.
Speaker Change: Hi, good morning.
Speaker Change: So Americas margins were extremely strong in the quarter I believe the highest in recent years.
Steven B. Hedlund: Yeah, Bryan, I'll start by talking about our strategy for automation with Red Viking. Our strategy is fairly simple in the sense that we follow the needs of our customers and leverage the capabilities and competencies that we've developed to serve them, and we continue to expand those competencies.
Speaker Change: You mentioned I think being above the high end of their being above the end of the range, but these margins or even shorter than that so just talk about the sustainability of margins at these levels. Thank you.
Speaker Change: Yeah, So sorry, yes, you're right that we're confident we're going to be up over the higher end of the range, which is 19% and just the mix of business very good our posture and are.
Steven B. Hedlund: One of the big problems a lot of our customers have is moving material through the factory, particularly as you're completing various steps of the fabrication and assembly process. These parts are becoming cumbersome, large, heavy, and hard to move. If you think about the Forry business we acquired a little over a year ago, their AGV platforms really function as a replacement for the assembly line. So think about very, very large parts in a fairly standard configuration of the AGV.
Speaker Change: Driving cost management.
Speaker Change: Actions and it's just been a very good mix of business and we also had very nice improvement.
Speaker Change: Improvement in the margin profile of automation, which we expect that to continue throughout the year. So that's what gives us confidence that we're going to be over the range.
Speaker Change: And it's building on that comment you talked about the operational improvements in automation. So we are Americans in the automation business today, and where can they kind of go as you exit this year.
Speaker Change: Yes, so just to remind you that we ended 2023 low teens, we are progressing ahead of that.
Steven B. Hedlund: What Red Viking brings to the table is a smaller, more modular platform. If you think about the cells that might be feeding an assembly line, it's how do you get material from those cells to the main assembly line.
Speaker Change: So our target is to be at that corporate average, 16% and so we have a very focused agenda.
Speaker Change: Through 2025 to hit those objectives.
Speaker Change: Thanks for taking my questions.
Steven B. Hedlund: So we view them as very complementary. In fact, many customers, we see them already buying both Forry and Red Viking, so we think that's a great fit for us. And it's really, again, just following the customer's needs and continuing to build and extend our competition.
Speaker Change: Your next question comes from the line of Nathan Jones with Stifel. Your line is open.
Nathan Hardie Jones: Good morning, everyone.
Speaker Change: Nate.
Nathan Hardie Jones: I just wanted to ask about the creation of this chief transformation Officer Raul.
Nathan Hardie Jones: Kind of just any color you can give us on on what what Michelle focus will be in that raw, what youre looking to achieve out of out of having a specific later in that role just any color you can give us around the creation of that.
Gabriel Bruno: And Bryan, just to add, from an evaluation standpoint, we're pretty excited about how nicely it fits into our model. Initially, we're looking at a low double-digit EBIT profile, and they will just move right into our LBS system, and we have the confidence they'll fit within our overall targets within the automation business. It's a second-quarter transaction, but we expect to see a purchase price in the range of $115 million, and so we're very satisfied with where we are with this acquisition. It fits very well.
Raul: Sure sure happy to do that I think the important thing to note is we're not trying to change who we are or what we do but really just to get better at the how we do it. So if you think about the opportunity for us to simplify standardize and automate some of our core business processes to enable us to serve.
Nathan Hardie Jones: This customer is much more effectively.
Nathan Hardie Jones: Relieve some of the administrative burden of managing those processes on our employees. So they can focus on higher value added activities. We just think there is an opportunity to help continue to accelerate our growth above market in our margin expansion by just getting better at what we do.
Steven B. Hedlund: All very helpful detail. Thanks again.
Operator: Your next question comes from the line of Saree Boroditsky with Jeffreys. Your line is open.
Gabriel Bruno: Hi, good morning. America's margins were extremely strong in the quarter, I believe the highest in recent years. You mentioned being above or at the high end of the range, but these margins were even stronger than that, so just talk about the sustainability of margins at these levels. Thank you.
Nathan Hardie Jones: And that's may sound fairly boring to our investors and shareholders. We're pretty excited about it internally because we see the opportunities in front of US just in these core business processes.
Nathan Hardie Jones: The forecast to ship the ship to collect the AR the buy to pay it's it's the nuts and bolts of the business, where we just see opportunities to get better and to leverage new technologies and new capabilities to become much more effective and efficient.
Gabriel Bruno: Yeah, so, Saree, yes, you're right that we're confident we're going to be over the higher end of the range, which is 19%. And it's the mix of business, very good, our posture and driving cost management actions, and it's just been a very good mix of business. And we also had a very nice improvement in the margin profile of automation, which we expect that to continue throughout the year. So that's what gives us confidence that we're going to be over the range.
Speaker Change: Okay. Thanks, I don't think making more money as their borrowing for investors.
Nathan Hardie Jones: Yeah.
Speaker Change: I just wanted to just ask about the data.
Speaker Change: The EV charging business any update on the progress youre, making there in terms of.
Gabriel Bruno: Testing the equipment building the commercial organization.
Nathan Hardie Jones: Just an update on the progress of how that's going.
Gabriel Bruno: And they were confident in the plan we continue to work the plan of working through the testing and validation and customer acceptance and I think as we mentioned on the last call. You know will provide a more full update for you. After the second quarter, we're getting prepared right now for.
Gabriel Bruno: And I guess building on that comment, you know, I talked about operational improvements in automation. So, you know, where are margins in the automation business today, and where can they kind of go as you exit this year?
Nathan Hardie Jones: We're going to host the charging testable that we did last year again in June and that's a great event for us to showcase our capabilities and technologies to all the key decision makers in the industry. So we're just continuing to work the plan and we'll have more updates for you in the future.
Gabriel Bruno: Yes, I guess we should remind you that we ended 2023 in the low teens; we're progressing ahead of that. So our target is to be at that corporate average 16%. And so we have a very focused agenda through 2025 to hit those objectives.
Speaker Change: Excellent thanks, very much for taking my questions.
Gabriel Bruno: Your next question comes from the line of Mike Gilbert with Baird. Your line is open.
Mike Gilbert: Yes. Good morning, Thank you.
Gabriel Bruno: Thanks for taking my questions.
Mike Gilbert: Thanks for taking the question.
Operator: Your next question comes from the line of Nathan Jones with CFL. Your line is open.
Mike Gilbert: I guess.
Mike Gilbert: The thing that stood out to me in a quarter was volume decline in Americas and international.
Mike Gilbert: And I'm sort of curious how that matched relative to the expectations that you had coming into the quarter and somebody already sort of asked the question as to what gives you the confidence that youre going to see a ramp here but.
Steven B. Hedlund: I just wanted to ask about the creation of this Chief Transformation Officer role, kind of any color you can give us on what Michelle's focus will be in that role, what you're looking to achieve out of having a specific leader in that role, just any color you can give us around the creation of that.
Mike Gilbert: Essentially what's kind of baked into your guidance is a pretty significant ramp in the back half of the year. So.
Mike Gilbert: Is that entirely predicated on on automation.
Steven B. Hedlund: Sure. Sure, Nate. Happy to do that.
Mike Gilbert: Are there some other assumptions that youre, making that.
Steven B. Hedlund: I think the important thing to note is we're not trying to change who we are or what we do, but really just to get better at how we do it. So if you think about the opportunity for us to simplify, standardize, and automate some of our core business processes to enable us to service customers much more effectively, to relieve some of the administrative burden of managing those processes on our employees so they can focus on higher value-added activities, we just think there's an opportunity to help continue to accelerate our growth above market and our margin expansion by just getting better at what we do.
Mike Gilbert: Investors and us to sort of be aware of.
Mike Gilbert: So just first address the first part of your question Mig about what what was softer than we anticipated I'd point to Europe and the euro.
Mike Gilbert: But very choppy first quarter, and we saw an acceleration of softness inherently.
Mike Gilbert: The comparable is on Asia also contributed to a little bit of a mix impact on volumes in the international markets. We expected what you saw at Harris.
Mike Gilbert: On the Americas side, I know, we had tough comps going into the quarter.
Mike Gilbert: But I would say a little bit on the consumable side, we saw some accelerated softness, particularly on the heavy industries. When you when you look to the OEM production schedules, we saw that.
Steven B. Hedlund: And that may sound fairly boring to investors and shareholders. But we're pretty excited about it internally because we see the opportunities in front of us just in these core business processes, the forecast to ship, the ship to collect, the buy to pay. It's the nuts and bolts of the business where we just see opportunities to get better and to leverage new technologies and new capabilities to become much more effective and efficient.
Mike Gilbert: Have we had some pressure on that as we progress throughout the first quarter. So those are some of the drivers.
Mike Gilbert: When we talk about are not changing our full year assumptions.
Mike Gilbert: On both the sales organic sales assumption as well as margins our margins are are stronger than than we expected but.
Mike Gilbert: On the organic side, we continue to have very strong.
Mike Gilbert: Orders backlog in automation and that's what we pointed to are into the second quarter in the back half and so we're maintaining we haven't changed our our assumptions are.
Steven B. Hedlund: Okay, thanks. I don't think making more money is ever boring for investors. I did want to just ask about the EV charging business, any update on the progress you're making there in terms of, you know, testing the equipment, building the commercial organization. Just an update on how that's going.
Mike Gilbert: But we will continue to monitor is as you've seen in the short cycle activity of our business. We are optimistic when you look at key macro measures like the PMI in the U S. Although Conversely, you see that same pressure and a contraction side on industrial and <unk> in Europe, but that's what it is.
Steven B. Hedlund: Yeah, Nate, we're confident in the plan. We continue to work the plan, working through the testing and validation and customer acceptance, and I think, as we mentioned on the last call, you know, we'll provide a more full update for you after the second quarter. We're getting prepared right now for – we're going to host the charging testable that we did last year again in June. That's a great event for us to showcase our capabilities and technologies to all the key decision makers in the industry. So we're just continuing to work on the plan, and we'll have more updates for you in the future.
Mike Gilbert: Driving the conversation.
Speaker Change: Just to follow up on this if I may.
Speaker Change: The part that I struggle with.
Speaker Change: We just heard from.
Steven B. Hedlund: The likes of Caterpillar, we're going to we're going to hear from the AG Oems. It certainly seems like machinery production is.
Mike Gilbert: It's going to be pressured. So this is not just in Q1.
Mike Gilbert: Van.
Mike Gilbert: And in your slide here, you're even talking about construction and infrastructure being down mid single digit which.
Speaker Change: I found that to be a little bit surprising personally so.
Speaker Change: Again, as you're as you're looking at your end markets and I recognize the comment on automation and I'm comfortable with that but as youre looking at your core business, whether it's equipment or consumables.
Speaker Change: Where do you see those signs of incremental stabilization, which verticals. Thank you.
Steven B. Hedlund: Excellent Thanks very much for taking my question.
Speaker Change: But I would just emphasize again capital investment is strong and there's we always have.
Operator: Your next question comes from the line of Meg Dobre with Baird. Your line is open.
Speaker Change: The challenging comps between the timing of projects quarter to quarter I think the key driver in the short term is navigating production schedules with key Oems and the likes of you mentioned already.
Operator: Yes, good morning. Thank you. Thank you for taking the time to answer the question. I guess.
Steven B. Hedlund: You know, the thing that stood out to me in the quarter was the volume decline in America's and international. And I'm sort of curious how that matched relative to the expectations that you had coming into the quarter. And somebody already sort of asked the question as to what gives you the confidence that you're going to see a ramp here. But essentially, what's kind of baked into your guidance is a pretty significant ramp in the back half of the year. So is that entirely predicated on automation? Or are there some other assumptions that you're making that, you know, investors and us need to sort of be aware of?
Speaker Change: And that's a function of.
Speaker Change: Potentially some destocking in the markets and so that drives the level of consumable activity. So.
Steven B. Hedlund: Still strong in terms of long term investment in areas of productivity on the equipment automation side, but navigating production schedules are pretty important from an OEM standpoint short term.
Speaker Change: Alright, I would just add that.
Steven B. Hedlund: There is a long cycle portions of our business and their short cycle portions of our business in the long cycle that we have visibility to where we're pretty confident and comfortable in the short cycle. It is choppy. There are a lot of puts and takes as you note the.
Gabriel Bruno: So just to address the first part of your question, Meg, about what was softer than we anticipated, I'd point to Europe. In Europe, we had a very choppy first quarter, and we saw an acceleration of softness inherently. The comparables in Asia also contribute to a little bit of the mixed impact on volumes in the international markets; you know, we expected what you saw at Harris. On the America side, I know we had tough comps going into the quarter, but I would say, a little bit on the consumable side, we saw some accelerated softness, particularly in the heavy industries. When you look at the OEM production schedules, we saw that we had some pressure on that as we progressed throughout the first quarter. So those are some of the drivers.
Speaker Change: Yellow equipment, guys are likely going to take down production and we saw that starting to happen in the first quarter. We expect that to continue to happen in the second quarter. The the expectation that gave outlined earlier already incorporates that.
Speaker Change: <unk> softness in that sector.
Gabriel Bruno: We see challenges in Europe with the macroeconomic conditions are not very favorable for us at the moment, but we see some encouraging signs in the Americas, particularly when you look at the general industry consumable portion of our business, which is probably our best Canary in the coal mine, it's holding steady and we see improving sentiment than we're expecting.
Speaker Change: That settlement to translate into higher activity and higher orders in the second half of the year.
Speaker Change: Again, we don't have a lot of orders on the books for consumables for a second half. So those are still to come but we're optimistic.
Gabriel Bruno: And then when we talk about not changing our full-year assumptions, on both the sales and organic sales assumptions, as well as margins, our margins are stronger than we expected. But on the organic side, we continue to have very strong orders, backlog, and automation. And that's what we pointed to into the second quarter in the back half. And so we're maintaining, we haven't changed our assumptions, but we'll continue to monitor, as you've seen, the short cycle activity of our business.
Gabriel Bruno: But beyond that we can't really control the end market conditions, we can control our strategy and our execution, we're very happy with our performance to date very confident in our strategy and confident in the team and we're just going to keep driving our agenda forward.
Speaker Change: Understood. Thank you.
Speaker Change: Thanks Frank.
Gabriel Bruno: Your next question comes from the line of Steve Barger with Keybanc capital markets. Your line is open.
Gabriel Bruno: Thanks.
Gabriel Bruno: The slides about Red Viking you mentioned new capabilities with the Mes software can you talk about the need if any for software interoperability across your portfolio and then longer term what do you expect recurring revenue from software and service will be as a percentage of the automation business.
Gabriel Bruno: We are optimistic when you look at key macro measures like the PMI in the U.S., although conversely, you see that same pressure on the contraction side on industrial and PMIs in Europe, but that's what's driving the conversation.
Speaker Change: Yes, Steve so.
Gabriel Bruno: If you think about an automation cell or a collection of automation cells. There is a lot of information we can take out of that system in terms of production throughput and part genealogy. So we can trace which.
Steven B. Hedlund: Just to follow up on this, if I may, you know, the part that I struggle with is, you know, we just heard from the likes of Caterpillar. We're going to hear from the agricultural OEMs. It certainly seems like machinery production is going to be pressured. So this is not just a Q1 event. And, you know, on your slide here, you're even talking about construction and infrastructure being down mid-signal digit, which I found to be a little bit surprising personally.
Steven B. Hedlund: Sell it which shift a given part was made and the like that that information is all available in the cell and we have access to it but getting that from the sell into the customers' ERP system is a challenge for a lot of customers. So they want the visibility and the traceability of that data, but they they want it to be integrated and systems are already running.
Steven B. Hedlund: Not a separate system and that's really what the mes software at Red Viking positions us better to be able to do as far as the percentage of the business that software.
Steven B. Hedlund: So, you know, again, as you're looking at your end markets, and I recognize the comment on automation, and I'm comfortable with that, but as you're looking at your core business, whether it's equipment or consumables, where do you see those signs of incremental stabilization, in which verticals? Thank you.
Speaker Change: I don't have a good figure for you on that and I think it's probably a little bit down in the weeds right. Because we do have a lot of recurring revenue as it is with.
Steven B. Hedlund: With existing automation cells that are not software related so we have a lot of work, we do where we come in and reprogram robots for the customers, we upgrade and update the equipment. That's in the cell to help keep it operating at its peak performance, we've got a fairly.
Steven B. Hedlund: Well, I would just emphasize, again, capital investment is strong, and we always have challenging comps between the timing of projects, quarter to quarter. I think the key driver in the short term is navigating production schedules with key OEMs, kind of like what you mentioned already. And that's a function of potentially some destocking in the markets, and so that drives the level of consumable activity. So still strong in terms of long-term investment and areas of productivity on the equipment automation side, but navigating production schedules is pretty important from an OEM standpoint, in the short term.
Steven B. Hedlund: Good service business. So the idea of chasing after recurring revenue and an automation system is not something that's new to us.
Speaker Change: Is that can you give us some kind of gauge of that percentage you know if youre at $1 billion run rate is that recurring revenue 10%, 20%.
Speaker Change: Yeah, I'd say on the order of magnitude in the 5% to 10% range.
Steven B. Hedlund: Okay.
Speaker Change: And then to your point about getting information out of the cell everybody loves and AI story, Here's your chance are you using AI or machine learning tool for automation sales or for improving test in train for the systems Youre installing.
Speaker Change: We're doing a lot Steve.
Steven B. Hedlund: And, Meg, I would just add that there are long-cycle portions of our business and there are short-cycle portions of our business. And the long cycle that we have visibility into, we're pretty confident and comfortable in. The short cycle is choppy. There are a lot of put and takes, right? As you note, the yellow equipment guys are likely going to take down production.
Steven B. Hedlund: Steve with additive in Oh, sorry, AI and our additive business around how do we print parts closer to near net shape and we've got a lot of our research activities that we're doing to try to answer what is a fundamental question. Most customers have just make a good world right without <unk>.
Steven B. Hedlund: To go through destructive testing or xraying or the like how do I have greater confidence that the well that just made is good and with a wide variety of different process parameters that affect the quality of it its a non trivial task. So theres a lot of effort going into trying to improve our ability to make a predictive score if you will.
Steven B. Hedlund: We saw that starting to happen in the first quarter, and we expect that to continue to happen in the second quarter. The expectation that Gabe outlined earlier already incorporates continued softness in that sector. However, we see challenges in Europe. The macroeconomic conditions there are not very favorable for us at the moment, but we see some encouraging signs in the Americas, particularly when you look at the general industry consumable portion of our business, which is probably our best canary in the coal mine.
Steven B. Hedlund: <unk>.
Steven B. Hedlund: For the world. So there's a lot of activity around AI in the business I can't really comment on whether the mes system.
Steven B. Hedlund: Viking has an AI.
Steven B. Hedlund: Enabled component to it or not.
Speaker Change: Too early for me to tell and I'll remind everybody Amo I'm, a liberal arts major not an engineer.
Steven B. Hedlund: It's holding steady, and we see improving sentiment, and we're expecting that sentiment to translate into higher activity and higher orders in the second half of the year. Again, we don't have a lot of orders on the books for consumables for the second half, so those are still to come, but we're optimistic. But beyond that, we can't really control the end market conditions. We can control our strategy and our execution. We're very happy with our performance to date, very confident in our strategy and confident in the team, and we're just going to keep driving our agenda forward.
Steven B. Hedlund: [laughter].
Speaker Change: Just one quick follow up.
Steven B. Hedlund: The last two automation acquisitions had a heavier HEV exposure are there more opportunities outside of core welding.
Steven B. Hedlund: That you are really focused on and should we see more HGV acquisitions I'm just trying to get a sense of how this business is going to evolve into what is obviously a growing tam.
Speaker Change: Yeah, Steve I think the simplest way to think about it is we help customers fabricate and assemble things right. So we're heavily rooted in our history of.
Steven B. Hedlund: Metal cutting and welding and then using the capabilities. We've developed a hold position rotate manipulate those parts, while they are being welded or cut it rolled.
Steven B. Hedlund: understood. Thank you.
Steven B. Hedlund: Well that are cut the.
Operator: Your next question comes from the line of Steve Barger with KeyBank Capital Markets. Your line is open.
Steven B. Hedlund: The challenge as I mentioned earlier about people moving things through their factory in and out of cells. That's really the happy hunting ground for us. So we'll continue to look for opportunities to add value to customers and to make money by doing that in places, where we're helping helping people make things now.
Steven B. Hedlund: In the slides about Red Viking, you mentioned new capabilities with the MES software. Can you talk about the need, if any, for software interoperability across your portfolio? And then, longer term, what do you expect recurring revenue from software and services will be as a percentage of the automation?
Steven B. Hedlund: Now, whether the making process involves bending tube or D, barring or grinding or welding or cutting.
Steven B. Hedlund: We're relatively agnostic on that part in large part because we've already built up such a sizable business thats not in welding right. That's what gives us the confidence to go into these other operations and applications within our factory is that we're not welding guys trying to figure it out we've got a very sizable set of people that know how to do those things.
Steven B. Hedlund: Yeah, Steve. So if you think about an automation cell or, you know, a collection of automation cells, there's a lot of information we can take out of that system in terms of production throughput and part genealogy. So we can trace, you know, which cell at which shift of a given part was made and the like that. That information is all available in the cell, and we have access to it. But getting that from the cell into the customer's ERP system is a challenge for a lot of customers.
Steven B. Hedlund: <unk>.
Steve: That's great color. Thank you.
Steven B. Hedlund: Once again, ladies and gentlemen, it is star one to ask a question.
Steven B. Hedlund: Your next question comes from the line of Angel Castillo with Morgan Stanley. Your line is open.
Steven B. Hedlund: So they want the visibility and the traceability of that data, but they want it to be integrated into systems that are already running, not a separate system. And that's really what the MES software at Red Viking positions us better to be able to do.
Speaker Change: Hi, good morning, and thanks for taking my question I think again until last quarter. Good morning.
Steven B. Hedlund: Quarter, you talked about price starting to pick up and flow through really more so in <unk>. So that was another reason why maybe <unk> a little bit softer could you talk about you know as you think about the second quarter and the sales outlook that you kind of outlined of kind of flat to up what the price volume kind of makeup of that.
Steven B. Hedlund: As far as the percentage of the business that is software, I don't have a good figure for you on that, and I think it's probably a little bit down in the weeds, right? Because we do have a lot of recurring revenue as it is with existing automation cells that are not software related. So we have a lot of work we do where we come in and reprogram robots for the customers; we upgrade and update the equipment that's in the cell to help keep it operating at its peak performance. We've got a fairly good service business. So the idea of chasing after recurring revenue in an automation system is not something that's new to us.
Speaker Change: Got it and then also kind of for the full year.
Steven B. Hedlund: We think about an unchanged guidance I think last time, you had talked about 50 50 price volume is that still the right way to think about the full year guide or is there kind of a shift.
Steven B. Hedlund: A shift in the makeup on.
Steven B. Hedlund: The organic growth.
Steven B. Hedlund: Yes, so angel so first of all Youre right. We did take pricing actions in this first quarter that will mature in the second quarter. So I would expect a price contribution in the second quarter.
Steven B. Hedlund: To be in that.
Steven B. Hedlund: 50 to 100 basis points of contribution to organic growth and it is a little bit more modest than than we had discussed in February and February we talked about a 50 50 mix between volume and price you assumed a middle of the range I would look to maybe a third more price too.
Steven B. Hedlund: Is that can you give us some kind of gauge of that percentage? You know, if you're at a billion dollar run rate, is that recurring revenue 10% 20%?
Steven B. Hedlund: <unk> volume in our current profile organic.
Steven B. Hedlund: Yeah, I'd say on the order of magnitude in the 5 to 10% range.
Steven B. Hedlund: Growth.
Steven B. Hedlund: And that last comment is about the full year full year, yes.
Steven B. Hedlund: And then to your point about getting information out of the cell, everybody loves an AI story. Here's your chance. Are you using AI or machine learning as a tool for automation sales or for improving test and training for the systems you're installing?
Speaker Change: I guess just to kind of clarify that.
Steven B. Hedlund: One what's pulling back on the prices are just difficult.
Steven B. Hedlund: Difficult environment customers negotiations and two that would suggest I guess Ted.
Steven B. Hedlund: More bullish outlook than you had kind of laid out for from a volume standpoint is that the right way to think about it and I guess I didn't necessarily get the sense that there was something incrementally stronger about volumes for the full year, but if you could kind of parse that out a bit more that'd be helpful.
Steven B. Hedlund: We're doing a lot, Steve, with additive in our, sorry, AI in our additive business around how do we print parts closer to nearer the net shape. And we've got a lot of research activities that we're doing to try to answer what is a fundamental question most customers have, did I just make a good weld, right? Without having to go through destructive testing or X-raying or the like, how do I have greater confidence that the weld I just made is good? And with a wide variety of different process parameters that affect the quality of it, it's a non
Steven B. Hedlund: Yes. So you just keep in mind that our full year assumptions are low to mid single digit organic growth. So that's a range. So we do expect.
Steven B. Hedlund: Progression, particularly on the consumable side, where you've got contract negotiations that progression you saw a little bit of that in the international markets.
Steven B. Hedlund: In the first quarter, where pricing was down.
Steven B. Hedlund: So there's a lot of effort going into trying to improve our ability to make a predictive score, if you will, for the weld. And there's a lot of activity around AI in the business. I can't really comment on whether the MES system at Red Viking has an AI-enabled component. It's too early for me to tell, and I'll remind everybody I'm, Yeah, see, I think the simplest way to think about it is, you know, we help customers fabricate and assemble things, right?
Steven B. Hedlund: Although our margins are holding up so it is a dynamic of the mix of pricing between <unk>.
Steven B. Hedlund: Consumables and equipment.
Steven B. Hedlund: So that's where we get a little bit less temp.
Steven B. Hedlund: Tempered on the full year outlook on pricing, but our our posture as you know is to be price cost neutral you got a very disciplined.
Steven B. Hedlund: Processes, and managing price and we feel very good on our progression. So far this year you saw that we were at record levels and gross profit percent 37.5, and so we're just in a very good positioning in the profit profile of our business and so we'll just be very disciplined as we continue to manage price.
Steven B. Hedlund: So we're heavily rooted in our history of metal cutting and welding, and then using the capabilities we've developed to hold, position, rotate, and manipulate those parts while they're being welded or cut. The challenges I mentioned earlier about people moving things through their factory in and out of cells, that's really the happy hunting ground for us. So we'll continue to look for opportunities to add value to customers and to make money by doing that in places where we're helping people make money.
Speaker Change: That's very helpful. Thank you and then maybe just unpacking, the automation side, a bit better or a bit more.
Steven B. Hedlund: You talked about continued growth there one could you clarify what organic growth you kind of anticipate for automation for the full year and two could you just give us a sense, maybe a little bit more color on the kind of quoting activity. You mentioned has been strong, but just what are those customer conversations like.
Steven B. Hedlund: That's a great caller. Thank you.
Steven B. Hedlund: So, very strong activity.
Steven B. Hedlund: Given kind of the macro environment that we're in.
Steven B. Hedlund: So very strong activity on the automation side, there'll be pointing to orders backlog and quoting and.
Steven B. Hedlund: And we just expect that to continue to progress throughout the year and Thats, just long term opportunities from our customers to improve productivity.
Steven B. Hedlund: Within their businesses and that's what gives us confidence in me point to growth. So I just refresh in 2023 organic growth in automation was 8% and it will be pointed to us within that framework of operating assumptions that the automation business will drive that.
Steven B. Hedlund: Growth in terms of volume, so and more tempered on core welding type of organic activity, but what gives us confidence is the strength of orders and backlog.
Steven B. Hedlund: Within the automation business.
Speaker Change: Very helpful. Thank you.
Steven B. Hedlund: Our final question comes from the line of Walter Liptak with Seaport Research. Your line is open.
Speaker Change: Hey, good morning, guys.
Speaker Change: Just wanted to ask one on the.
Steven B. Hedlund: International profit.
Speaker Change: Pretty good.
Steven B. Hedlund: And given the comments from the last question about.
Steven B. Hedlund: Contract negotiations and pricing and things like that.
Steven B. Hedlund: Is.
Steven B. Hedlund: Sure.
Steven B. Hedlund: International.
Steven B. Hedlund: Should those continue to move up through the year as you start to get volume and pricing.
Steven B. Hedlund: Alright, I guess pricing to come through I guess volume is a little bit of a question.
Speaker Change: If you can comment on international yes.
Steven B. Hedlund: So great question and I did comment in my prepared remarks that we expect the international segment EBIT profile to continue to improve into the lower end of the range, which is 12% to 14%. So first quarter 11, four we expect improvement from there.
Speaker Change: Okay great.
Steven B. Hedlund: But.
Speaker Change: Okay, and maybe a follow on from that.
Steven B. Hedlund: Yes.
Steven B. Hedlund: That improvement what what are you attributing that to is it from.
Steven B. Hedlund: Cost cutting or efficiencies.
Steven B. Hedlund: Related to volumes and price.
Speaker Change: Yes, so I would just.
Steven B. Hedlund: Emphasize you know the mix of business I mean, we saw strength in the middle East, Turkey, and this first quarter. We expect that to continue we also expect improvements and in our Asia business and the mix. There. So it's mostly mix of business driving it. We do we have will continue to drive opportunities to shape. Our business you saw some of that already in this first quarter.
Steven B. Hedlund: But that's what gives us confidence in that margin profile.
Speaker Change: Okay great.
Speaker Change: And then maybe just one last one where you guys have asked about.
Steven B. Hedlund: The cadence of <unk>.
Steven B. Hedlund: Yes.
Steven B. Hedlund: Demand for equipment and consumables January February March April you know, how it would be.
Steven B. Hedlund: Sean.
Steven B. Hedlund: Trends that you talked to us about.
Steven B. Hedlund: Yes, so we did comment on that a while so just considered pretty choppy environment.
Steven B. Hedlund: The one thing we pointed to in our comments here is we did see some pressure on consumables, particularly on the heavy industry side. So while overall strength in equipment and investment automation within heavy industries more pressure on the consumable side of our business and we just expect on the heavy industry side too that will continue.
Steven B. Hedlund: Turning to the second quarter, we are more optimistic in the mix of consumables and general industries.
Steven B. Hedlund: A good framework when you think about PMI that was relatively steady so that was good in the first quarter and we expect that to continue into the second quarter and we look to some of the positive macros on PMI to result in and strengthen and short cycle orders. So that's what we're looking to.
Speaker Change: Okay, great. Thanks for taking my questions.
Steven B. Hedlund: Yeah.
Steven B. Hedlund: This concludes our question and answer session I would like to turn the call back to Keith <unk> for closing remarks.
Speaker Change: Thank you Sir 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.
Speaker Change: This concludes today's conference call. We thank you for joining you may now disconnect your lines.
Steven B. Hedlund: Okay.
Steven B. Hedlund: [music].
Steven B. Hedlund: Okay.
Steven B. Hedlund: Okay.
Steven B. Hedlund: [music].
Steven B. Hedlund: Sure.
Steven B. Hedlund: [music].