Q3 2024 Lincoln Electric Holdings Inc Earnings Call
Speaker Change: Greetings and welcome to the Lincoln Electric 2024 third 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, Fise President of Investor Relations in Communications. Thank you and you may begin.
Thank you, Kayla. In good morning everyone. Welcome to Lincoln Electric's third quarter of 2024 conference call. We released our financial results earlier today and you can find our release and this call, fly presentation at Lincolnelectric.com in the Investor Relations section.
Amanda Butler: Joining me on the call today is 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 may 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 filing.
on forums 10K and 10Q.
Speaker Change: In addition, we discuss financial measures that do not conform to US gaps. A reconciliation of non-gap measures to the most comfortable gap measures found in the financial tables in our earnings release, which again is available in the Investor Relations section of our website at linkinelectric.com.
and with that I'll turn the call over to Steve Hedlund.
Speaker Change: and Steve.
Steve Hedlund: Good morning everyone. Turning to slide three, we generated solid third quarter results with strong profit performance, cash generation, and a 134% cash conversion rate, despite a broad disseleration and demand due to challenging end-market dynamics and our mixed profile.
All results highlight the resilience of our business model through the cycle, through the strong execution of our strategic initiatives.
Disciplined Cost Management, adjustments made to employee-related costs which now align incentive compensation with business conditions and the initial benefits of our temporary cost saving measures.
As a result, we achieved a slight increase in a gross profit margin in a 17.3% adjusted operating income margin, which is modestly lower versus prior year and relatively steady sequentially.
The incentive compensation adjustment had a 70 basis point favorable impact to our adjusted operating income margins.
While not an easy quarter, I am extremely pleased with our performance as we are holding margins above our higher standard average target of 16% despite top line challenges.
Speaker Change: We are also maintaining our balanced capital allocation strategy despite the weaker cycle, investing in both internal growth projects and acquisitions and continue to return 91 million dollars in cash to shareholders in the quarter through our dividend and share repurchases.
Speaker Change: ROSC at 21.4% remains strong and continues to reinforce our disciplined capital stewardship.
Turning to slide four, the 8% decline in organic sales in the third quarter reflects broad weakness among a large mix of our customer base, impacting all product areas.
Speaker Change: We continue to see a more cautious posture from our general industry customers, given macroeconomic uncertainty, which is delaying discretionary equipment purchases.
Our heavy industry customers continue to curtail their production levels to right-sized inventories in their dealer channels which continues to impact consumables demand.
Speaker Change: An automotive sector customers continues to delay capital projects despite high-coding activity as they rebalance their product plans across ice, EV and hybrid power trains.
We are seeing very different sales trends by Channel Mix, which has impacted our sales performance relative to the market as a whole. Our OEM sales declined at double the rate of our distribution channel sales.
Speaker Change: Most notable is in America's welding where our distribution channel organic sales performance was steady year over year, demonstrating the strength of our brand, products and programs and the region's relative resilience.
Given slowing OEM customer orders in industrial weakness in key regions like Europe, we remain cautious through the first quarter of 2025 as we expect these trends to persist in the short term.
and given the long cycle nature of automation, current shifts in the automotive sector's plans could impact automation portfolio sales through the first half of 2025.
Speaker Change: As we progress through the fourth quarter, we will be monitoring industrial production rates, PMI, sentiment and sector specific announcements to better gauge when the market will pivot back to growth and when automation orders will accelerate.
In the interim, I am pleased by the margin of performance of our teams delivering through the strong execution of our Lincoln Business System and Strategic Initiatives.
and we are aggressively deploying our cost savings playbook, which has a track record of mitigating the impact of lower volumes and reshaping the business for superior profit performance once and markets recover.
Speaker Change: Turning to slide five during the third quarter we initiated both temporary and permanent cost savings actions, where it's expected to generate $40 to $50 million in combined annualized savings, with approximately three quarters in the American's Welding segment and the balance primarily in international welding.
The savings will be approximately half temporary and half permanent and run at $10 to $14 million per quarter starting to ramp at the low end of the range in the fourth quarter.
Speaker Change: We recognized approximately a $2 million benefit in the third quarter.
We have aggressively implemented temporary cost savings through a significant reduction in discretionary spending by aligning productive hours with demand and by maintaining net attrition through slower replacement hiring of voluntary turnover.
Speaker Change: We will maintain the posture until conditions improve.
Speaker Change: We expect substantially all of the temporary cost savings benefits will be in America's welding.
Speaker Change: In addition, we are implementing structural changes to align the business to market conditions, strengthen our ability to serve customers, and improve our cost structure to outperform in the next growth cycle.
Speaker Change: We launched our structural cost savings initiatives in the third quarter and incurred $20 million in rationalization charges and expect an additional $6 million of non-cash charges in the fourth quarter.
These initiatives include stream landing or organization to better align with business conditions and the consolidation of several manufacturing and warehouse facilities across North America and international locations.
Both our temporary and permanent class savings do not include changes to incentive compensation expenses.
Despite short-term cyclical headwinds, we remain focused on innovation and long-term profitable growth, which is also a hallmark of our playbook.
Speaker Change: Turning to slide six, I'm pleased to report that we launched over 35 new products at a recent industry trade show.
This represents our largest launch of new products in the last five years, and I'm confident that our R&D investments and acquisitions will continue to differentiate our brand, extend our leadership position and generate superior returns.
Our portfolio of new solutions focused on driving higher productivity and customer operations.
as well as strategically expanding our presence in under-penetrated areas like TIG, laser, plasma, and thermal heating, including the launch of our FlexLase Pantheld Laser.
We also showcase how we are integrating technologies from recent acquisitions.
including Zeeman, Foyre, Red Viking, Van Eyre, and InRotek to deliver unique solutions to the market. This included a fully automated production line featuring four different automated functions highlighting the breadth of our in-house capabilities as an automation system integrator.
Lastly, we emphasize sustainability and how improved safety, ergonomics, for cyclability as well as energy efficiency and lower emissions are integral to our product designs.
Before I pass the call to Gabe to cover third-quarter results and discuss our outlook for the balance of the year, I would like to reiterate the confidence we have on our business, our strategic initiatives, and our long-term growth prospects.
The strong execution of our strategic initiatives have positioned the company to outperform in the upcycle and exceed private performance goals.
and now I will pass the call to Gabriel Bruno.
Gabriel Bruno: Thank you, Steve, moving to slide 7, our third quarter sales declined 5% to $984 million, primarily from 8.7% lower volumes. Pricing was 1% higher, and acquisitions contributed 3% to sales.
Gross Profit Dollars decreased approximately 4% to 352 million dollars with a 35.8% gross profit margin which increase 40 basis points versus the prior year.
Gabriel Bruno: Margin improved on effective cost management and operational efficiencies, which offset the unfavorable impact of softer volumes. We also recognize a $1.2 million life-full benefit in the quarter.
RSTNA expense held relatively steady at $186 million. As higher SGA from acquisitions was largely offset by lower employee-related costs.
Employee Related Cost Inc. Reduction and Variable Labor Costs and Related Property Sharing Programs and an approximate $7 million adjustment to other performance based incentive programs which are largely recorded in corporate.
S. U.A. has a percent of sales increased 80 basis points versus prior year to 18.9% on lower sales.
Looking ahead to the fourth quarter, we do not expect another significant adjustment to our performance space in send of programs and would expect corporate expense to be closer to $3 million.
reported operating income declined 15% or 26 million dollars to 146 million dollars.
The decline was substantially due to $24 million in special item charges, primarily from a $20 million rationalization charge, which Steve previously discussed, and a $3 million charge for the step up in the value of acquired inventories.
Excluding special items adjusted operating income declined approximately 7% or 14 million dollars to 170 million dollars in our adjusted operating income margin declined to a modest 40 basis points to 17.3%.
Gabriel Bruno: The margin includes a 70 basis point benefit from the incentive compensation adjustment.
Interest expense net in the quarter increased 11% to 12 million dollars reflecting the $150 million of debt issued in August. We continue to expect our interest expense net for the full year 2024 to be relatively flat versus the prior year.
We reported a net $1.6 million of other expense in the quarter, primarily due to a $4 million non-cash pension settlement charge from the termination of a non-US pension plan, which offset other income.
Excluding special items, other income was $2.3 million as compared with $800,000 in the prior year.
A third quarter effective tax rate was 23.6% due to mix of earnings which compares with an adjusted effective tax rate of 19.5% in the prior year.
Your today, our adjusted effective tax rate is 22.2% and we continue to expect our full year 2024 adjusted effective tax rate to be in the low to mid-20% range, subject to the mix of earnings and anticipated extent of discrete tax item.
The recorded diluted earnings per share was $1.77. Excluding special items adjusted diluted earnings per share was $2.14. EPS results include a 10 cent benefit from the incentive compensation adjustment.
Gabriel Bruno: Moving to our reportable segments on slide eight.
Gabriel Bruno: America's welding sales decrease 4% in the quarter primarily due to 8.6% lower volumes with compression across all three product areas.
reflecting slowing production rates among many large-end customers in having industries in transportation, as well as lower equipment and automation orders.
Price and the benefits of our red Viking and van air acquisitions contributed approximately 5% sales growth. We expect to be price positive and recognize an uptick sequentially in acquisition sales in the fourth quarter.
America's welding segments third quarter adjusted E but declined approximately 8% to 126 million dollars.
Gabriel Bruno: The adjusted-event margin decrease 90 basis points versus prior year to 18.8% reflecting the impact of lower volumes and acquisitions, which were partially offset by effective cost management, lower employee-related costs and operational improvements and automation.
As a Scuston September, we expect a segment to generate an EBIT margin in the 18-19% range for the year.
Moving to slide 9.
International Welding Sales declined approximately 11% on 12% lower volumes. Regional automation sales growth and relatively studied the Man in Asia Pacific was offset by persistent weak industrial demands in Western Europe and Turkey.
Gabriel Bruno: Price decline 60 basis points in the quarter.
The adjusted-event margin of 9% reflects the impact of lower volumes and mix in a seasonally weaker quarter due to holiday schedules. The team is effectively managing costs and recognizing the initial benefits of their cost savings measures.
Given the extent of volume compression, we expect a segments full year 2024, EBIT margin performance to be in the 10 to 11% range.
Speaker Change: Moving to the Harris' products group on slide 10, the recorder sales increased approximately 4% led by 7% higher price on rising metal costs, predominantly silver, which was partially offset by 3% lower volumes.
Vime declines reflect relatively stat HVAC sector demand, which was offset by a challenging prior comparison in the retail channel and softer industrial sector demand.
Adjusted E-Bit increased approximately 8% to 22 million dollars. The Adjusted E-Bit margin increased 50 basis points to 16.4% primarily due to effective cost management and operational efficiencies.
We continue to expect a team to generate EBIT margins into 16-17% range for the balance of the year.
Moving to slide 11.
We generated $199 million in cash flows from operations in the quarter, resulting in a $134 cash conversion.
Our average operating working capital increased to 19.1% from higher working capital from acquisitions as well as lower sales levels.
Speaker Change: Moving to slide 12.
We invested $136 million in growth in the quarter, from $36 million in capex and $100 million in acquisitions. We return $91 million to shareholders through our hired dividend payout and approximately $50 million of share purchases.
For the first nine months, we have demonstrated the discipline and balance approach to our capital education strategy through the cycle which continues to generate strong returns at 21.4% at quarter end.
We remain confident in our strong cash flow generation and our long-term value creation. And recently announced our 29th consecutive annual dividend rating increase to $3 per share in 2025.
As we look to the balance of the year, we continue to expect our full year 2024 organic sales to decline mid to high single digit percent as outlined in September. Given the deceleration in the third quarter, we expect fourth quarter organic sales to decline in the high single digit percent range.
We have updated our assumption on profit performance and are now expecting our full year 2024 adjusted on protein income margin to be relatively steady versus prior year at around 17.1% at a high teens-decormental margin.
This reflects the benefits of our cost savings playbook and reductions in employee-related costs. We are maintaining all other assumptions.
While we navigate this portion of the cycle.
Speaker Change: We will continue to monitor risk in our confident and ability to adjust our operating posture to changing market conditions.
as well as maintain ample liquidity and a strong balance sheet to continue to invest in growth.
Speaker Change: Operational Excellence in Return Cash to Shareholders.
Speaker Change: and now I would like to turn the call over for questions.
Ladies and gentlemen, at this time we will be conducting a question and answer session. If you would like to ask a question during this time, simply press star, follow by the number 1 on your telephone keypad.
Speaker Change: If you would like to withdraw your questions, simply press star and one again. To ensure that everyone has an opportunity to participate, we ask that you ask one question and one follow-up question and then return to the queue.
Our first question comes from the line of Brian Blair with open-heimer. Your line is open.
Brian Blair: Thank you, Gabriel.
So if we need to offer some detail on October, Order Rates across major product categories and markets geographies.
He mentioned, you know, cautious posture through the first quarter of 25.
that on its own offers the big picture, an answer here. I'm just trying to get a sense of whether underlying trends.
and then you know in any of those key areas have you know diverged from cue through experience and ultimately just get a better sense of the jumping off point for next year.
Yeah, Brian so as I mentioned in my comments, you know, we expect the fourth quarter organic
Speaker Change: to be down in the high single digits. So that implies a continuation of the dynamics we saw, which decelerated in the third quarter.
So the consumable profile, the equipment profile, the automation profile, we see it more the same So nothing really is pointing to any different
Speaker Change: and the level of activity when you point to the external measures such as PMI, such as industrial production cell. From an internal sample we're seeing more of the same and pressing on the high single digit down for organic.
Speaker Change: Okay, understood. And you mentioned the split of cross-crawl actions or cross-sadings by Segment. I apologize on NIST to detail, but can you parse out temporary and structural savings specific to your automation? It's random.
Well, specific to automation, we didn't comment on that, but we did comment on the operational improvements that we've seen.
We were tracking into the low teams on the spike pressures on integrating acquisitions within our business. We continue on track to target as you know, Brian, to be into that corporate average.
which is at 16% in the air of it through the cycle. So we're pleased with the performance of our automation business.
Speaker Change: Understood? Appreciate the going.
Speaker Change: And your next question comes in the line of Angel Castillo with Morgan Stanley, your line is open.
Good morning, thanks for taking my question
I wanted to get a little bit more colour, you reiterated the price cost neutral. How are you thinking about that heading into 2025 and just, you know, as you think about kind of price increases in this kind of environment?
and continue to flow through. If you could talk about those two pieces kind of the price and supply the cost heading into 25.
Yes, I angel, our posture strategically used to be price-cost, neutral.
So we'll protect our business model and implement pricing as we see inflationary types of trends but our posture generally right now will have seen the market is to maintain a level of pricing that we serve secretly in the market, you know, our performance.
being 1% up for the third quarter is aligned to the actions that we took at the beginning of the year because of some of the inflationary pressures, as well as the metals cost as you saw for Harris. So we'll continue with that same posture.
That's helpful and then maybe if you could just talk about the automation business and unpack that a little bit more you mentioned it again, so maybe the first question regarding the first half and the visibility there, I think historically you had six months of visibility just how is that shaping up in terms of your visibility and what that implies for your growth and automation in the first half for next year?
You saw that we pointed to our automation, organic being down low double digits. So we're seeing more of the same. And driven by, you know, the air pocket that we have been talking about in decision, capital decision making, particularly on the automotive side of the markets.
and one of the key things that we track is the progression of programs.
Speaker Change: and when you look at what has just been released into the market just in the last week or so.
Speaker Change: the comparison of the program years 2025, 2026.
versus what they were in April, you're seeing about a mid-teens decline in the programs.
and while we're seeing a very active quoting activity and we got strength in the level of engagement just that continued delay and making decisions in terms of what is hybrid, what is ice.
and what is the type of an investment. So we're seeing that in our business and that should extend into 2025. Now, you look at the program years. A lot of that seems to be moved out to 2025, and 2028. But those are important indicators that our team is keeping a very much focused time.
Thank you.
In your next question comes in a line of NAIDDRAPRIE with Baird, your line is open.
Yes, thank you good morning. Just to follow up on that discussion on automation, it sounds that the challenge in auto persists through 2025.
Speaker Change: and so I guess I'm wondering how do you think about running this business next year? Is it dead?
Speaker Change: You're going to have to maybe make some longer-term adjustments to it, given the changes in automotive. Do you try to fill maybe some of that whole-form automotive with additional M&A or are there some other opportunities and other end markets that could help us out as 2025 progresses?
Yeah, makes a weird, very confident in the long-term strategy for automation, and the growth trajectory that we believe.
that the capabilities that we have presented to the market for automation within industrial markets.
One of the dynamics that I just touched on a bit is despite the pressures on organic, our team is very much disciplined in developing our business model.
Speaker Change: and achieving the higher margins that we've targeted in the long term. So we're not going to make decisions that are going to compromise our ability to grow a long term.
but we need to navigate the cycle and we're very much focused in driving the long-term strategy while navigating some of the short-term pressures we have. But we continue to improve the margin profile.
About a nation, we're going to continue to look for opportunities, through acquisitions, as well, to drive growth. And we're very excited about where we are at with our automation strategy.
Yeah, Amanda, I just had that we've already been doing a lot of work to reshape the automation business into a higher performing business in all parts of the cycle.
As you know, we've built this business largely through acquisition and the team has been doing a lot of great work to enable us to scale the business across multiple sites.
Speaker Change: being able to share work across multiple sites. So when one site is busy, on another site's slow, we don't end up incurring a lot over time in the first site and a lot of dead labor in the second site. So I think a lot of the work we need to do to be able to navigate the air pocket is work we've already been doing.
and really the question for us is when do we think we're going to start to see signs that the market is recovering and picking up. We're starting to see encouraging activity on particularly in Furi which is the longest cycle part of our business that gives us confidence that.
and the market will return on the question just a matter of timing and when will that...
Speaker Change: and proved order intakes start to flow through the business.
Okay, understood. And then I guess my follow-up, you know, you've obviously been very proactive on a cost-front with temporary savings as well as the permanent ones that you've announced.
Speaker Change: At least by my math, you know, the decremanals in the fourth quarter are looking okay in a tough environment.
What should our expectations be for 2025 if these challenges say continue a while? Are you going to be able to maintain these sort of decromentals or do we have either a mixed problem or something else to be aware of as 2025 would progress?
Speaker Change: Yeah, so maybe you do mention the decramal, so we're looking to high teens decramal and maintaining our margin profile despite the pressures on our gannings. I think you're reporting to the...
the strength of our business model.
We're pointing to key drivers to demand, whether it's in heavy industries or automotive or within our automation portfolio. But think about long term, long term or pastured for high single digit load double digit type of growth.
including a very robust and resistant strategy. We're looking to navigate this portion of the cycle and come out of the cycle, even stronger. You've had a track record of improving the margin profile.
by 200 Bates' points plus and so that's where we're navigating towards long-term. In the short-term as we go into 2025, we see a lot of pressure still.
and short cycle is well a lot of uncertainty in the capital markets from an investment standpoint. But we'll post it and managing through the cycle.
I've never said never, but it's hard to imagine the market conditions, particularly given our mix getting much worse in 2025 than they were in this year. If you look at it,
For us, our three biggest industries, General Industries, heavy industries and automotive transportation have all been off significantly.
For the reasons we've discussed earlier on this call and I'm prior calls which I'm sure you're well aware of in terms of the OEMs trying to destock their channel.
Speaker Change: And so if the current market conditions persist in 2025, I believe we've taken the actions we need to defend the profitability of the business, if the other shoe drops somehow and it gets worse we will take another set of actions. We've got more leverage to pull.
Speaker Change: Thanks for the call, appreciate it.
and your next question comes with a line of seri, bordidski with Jeffries, your line is open.
Hi, thanks for being the question. In the commentary, I think you talked about America's margins being 18 to 19% for the year. Some of the big steps down of 4Q margins, so could you just clarify if this is 4Q or the full year and then how much bridge to the 4Q margins in America?
So that 18, 90% is for the full year and it'll be the higher end of the range and then you point to some of the pressures in America's through acquisitions and that. So expect the fourth quarter to be more of what you saw in the third quarter.
Thanks and then I think you said it's steady to man America's distribution, could you just pride more color on this? Is this related to industry's search by distribution or automation investments and what else drove the differential between distribution and OEM customers? Thank you. Sure, sorry, the distribution channel for us serves a broad variety of end-industrial.
Speaker Change: [inaudible]
Speaker Change: into automotive or heavy industries, the direct business that we have is is typically very large end-users that are very concentrated in construction, ag, mining equipment, and automotive. And so that's why when we see the pressures in the business from those industry segments, it reflects more in the direct sales than it does in distribution.
So I believe that our position in distribution remains very strong. We've got a great set of relationships, a great set of distributor programs, a great set of products.
And so for the broader market, the business is holding up relatively well. It's really in the end-use industries where we have a very concentrated position with some very large end-users that we're facing.
I'll talk to you later, ok?
I appreciate that. And if I could just squeeze one last line, you know, given the election in a few days, maybe just talk about some of the policies that would impact Lincoln. Like, what do you need to see to drive a pickup and investment from customers? And maybe how do you think if there are any additional tariffs or maybe the potential benefit to Lincoln if we saw a lower domestic production tax rate? Thanks. Marie, I'm just going to be so thankful that the election's over, then I'll worry about the implications.
Speaker Change: after that, but it's hard to say.
Speaker Change: There's just a lot of uncertainty around what the actual policies that get implemented will be versus what are talking points on the campaign trail. It's hard for me to give you a more definitive answer than that.
Speaker Change: Thanks, have a nice day.
And your next question comes from the line of Nathan Jones with Stifle. Your line is open.
Hey, good morning. This is Adam Farley on for Nathan. Hey, good morning. I was wondering, are there any areas of relative strength, either by geography and market or product area? I appreciate the commentary around distribution.
In general, there's, in terms of drivers for, you said green shoes, or I'm thinking energy constraints.
did you say relative strength or any signs of positivity. Yeah so you know while energy was down in the single digits, we do see pockets of strength particularly investment in the Middle East and some of our automation types of business.
We also talked about HVAC and specialty gas holding pretty steady, so we're optimistic about those markets.
Speaker Change: And then there are other areas of trending positively in Asia-Pac and Harris broadly that are more favorable, and that's been navigating through the cycle, particularly on the Harris side.
So there are underlying positives, but again, a lot of those are driven by either key investments in certain geographies or working through the cycle in many cases on the Harris side.
Speaker Change: Okay, and then on new product introductions, how are those being received in the market just given the end market headwinds? And do you expect any new products to maybe help buoy equipment sales in the near term?
Yeah, Adam, the products were extremely well-received by participants at the trade shows. So from the standpoint of hitting the mark in terms of feature functionality, price point, etc.,
We're very excited about that. I think your point, though, is when does enthusiasm translate into orders, particularly if a general industry customer is
Speaker Change: holding on to their cash to see what is going to happen with the election, with trade policy, with interest rates, etc.
How that excitement translates into orders and shipments and revenues, we have yet to see, but we're very encouraged by the strong positive reaction we got to the products that we introduced.
And Adam, I would add also just think about strategically long-term and we talk about new products, new technology initiatives contributing about 100 to 200 basis points of CAGR in the long term.
So a lot of positive input that we've heard from the show and we're excited about what it means to us long term.
Great, thank you for taking my questions.
And your next question comes from the line of Walt Liptock with Seaport. Your line is open.
Hi, thanks. Good morning, everyone.
I wanted to ask about the cost savings action.
Walt Liptock: And what I was wondering about is, you know, you guys have been making improvements, you guys talked about automation, you know, you've structurally been changing the business, you know, I wonder if you talk just a little bit about how the, you know, this program, is it just targeting?
you know, the slowdown that we've seen this year, or is this part of, you know, maybe more of a structural change to make the whole business better in the future? Thanks.
Yeah, well it's a combination of the two. So if you think about temporary cost savings,
Speaker Change: The general motto there is an approach to saying not now for certain initiatives or projects where
Speaker Change: We were looking to either hire consultants or contractors to help us advance an initiative or adding additional staff to help us advance an initiative.
And what we've said is we're going to be very selective about which things we continue to fund and pursue.
We don't want to come off our strategy or impact the ability of the business to grow and expand margins in a recovery, but we're going to be selective about what things we continue to fund now versus what things we might postpone until market conditions are a little better.
When we look at the permanent cost savings, it's really taking the opportunity when the business is slower to be able to take some actions that we've been considering for a while, but when you're trying to keep up with demand and serve customers,
don't really want to have the distraction and the potential disruption in the business. So that's looking at some...
site consolidations that's looking at some organizational structure changes so we can address some spans and layers where maybe our management team can be a little bit more efficient. And it's really just taking the opportunity of a slower market to be able to pull the trigger on those without disrupting the business.
Speaker Change: Okay, sounds great. I wonder if you talked a little bit just about the the savings on it and the timing of when you expect, you know, those to start hitting.
You know, getting a benefit, I mean, not getting a benefit.
Speaker Change: Yeah, so what we've talked about is a range of 10 to 14 million per quarter with the ramping in this fourth quarter. We recognize 2 million of a benefit in the third quarter, so we'll accelerate that in the fourth quarter. In total, 8 to 11 million is the range we provided and that will mature in 2025 to a run rate of 10 to 14 million a quarter.
until the anniversary.
Okay, great. Okay, thank you.
Speaker Change: And our last question comes from the line of Steve Berger with KeyBank. Your line is open.
Steve Berger: Hey, thanks. Good morning.
Steve, when the auto OEMs do come to conclusions about platforms and mix, can you frame up the potential size of orders and how long it takes to deliver from purchase order to installation? Are those big projects typically book and ship or percentage of completion?
They're typically percent completion and they really range, Steve, depending on what the project is from
seat frame manufacturing station, right? So it's it's a little bit hard to give you more precise numbers than that. What we're really eager and anxious to see is that the automakers making decisions around
Okay, it was going to be Model A, it's now going to be Model B, but I'm moving forward with Model B, and I'm moving forward with Model B in the same time frame that I was thinking of Model A.
Gave alluded to earlier in the call. We're seeing a couple of instances where they're just canceling projects entirely or programs entirely or moving them out from the originally planned start of production to a later date and that when that happens that's obviously, you know business that
it will evaporate from the funnel, versus if they're just switching from one platform to another but maintaining the same sort of cadence, then that's relatively neutral to our business.
Speaker Change: just to add. I think, yeah go ahead.
I was just going to say, just to add to that, so the longer lead time items like Steve mentioned, like in 4E, you should start to see that activity first, and as we progressively navigate, we'll talk about what we're seeing in the market.
Speaker Change: It will depend, you know, project by project, but the general idea, I think you're not far off on that, Steve. Now, part of, I think, where we are in the decision-making cycle is they're running on a runway as it is anyway, so even if they say that's not a model year X, it's now a model year Y,
It may not have as big of an impact as we may have gotten to the point where we couldn't have delivered it and model your X to begin with because we've
They've delayed the decision-making so long.
But Steve, if we have an 18-month project, right, and we book the order because we're on percentage completion, we'll start to recognize revenue as we initiate work on the project.
Given the environment, the cost action is certainly understandable, but I also remember
Maybe it was 2017, maybe it was coming out of the pandemic when LECO correctly leaned into inventory to focus on fill rates versus short-term cycle considerations. And Steve, just thinking about that in the context of you saying it's hard to imagine some of the businesses getting worse, how are you balancing those two things?
Yeah, we're trying to ensure, Steve, that we have sufficient inventory, finished goods, WIP, and raw material to be able to serve customer demand, because the last thing that we want to do is, you know, miss a potential uptick in demand. Having said that, we look at the slowing sales rate and the impact on, you know, working capital to sales ratios and days of inventory. There's opportunities for us to trim our working capital a little further and free up some of the cash without impacting our ability to serve customers.
Just to add, Steve, when you consider just to change year-over-year in working capital sales, which was 80 basis points, 50 basis points of that was from acquisitions.
and that's just navigating inclusion of a new business into our model. So a very modest increase considering the pressure we've had on organic sales.
Got it. Yeah, and I'll just ask one more if I could. I know this is always hard to gauge when end markets are weak, but I have to ask, do you think there's anything going on with market share as it relates to volume declines, or how are you thinking about market share in this environment?
Yeah, we monitor our position, Steve, with particularly large end users and the distribution channel very closely. We do not see that there's significant or broad market share losses for us.
There are pockets here and there are a few areas in Europe where it's a low-margin commodity product where maintaining pricing discipline has caused us to shed some business that wasn't very profitable for us in the first place.
I would say for us that the greater impact really is just the mix of our business.
Periods of the cycle when having a very high proportion of large end users is a great thing. And there are periods of the cycle, unfortunately, right now, where having a higher proportion of that mix isn't quite so helpful. But in the long run, we like the product and customer and channel mix that we've got, and we want to just keep...
managing the business to grow and expand margins over time.
Very good, thank you.
And this concludes our question and answer session. I would now like to turn the call back to Gabriel Bruno for closing remarks.
I would like to thank everyone for joining us on the call today and for your continued interest in Lincoln Electric. Thank you very much.
Thank you for tuning in. We'll see you next time.
And this concludes today's conference call. You may now disconnect.
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