Q1 2025 Lincoln Electric Holdings Inc Earnings Call
Speaker Change: Okay.
She thinks and welcome to Adobe's caught all that shakes out at 75 first quarter financial results Conference call.
These have been placed on mute and this call is being recorded.
My pleasure to introduce your host Amanda Butler, Vice President of Investor Relations and communications. Thank you you may begin.
Amanda Butler: Thank you Selena and good morning, everyone welcome to Lincoln Electric's first quarter 2025 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 Headlands, Chairman, President and Chief Exec.
Amanda Butler: Officer, as well as Gabe Bruno our Chief Financial Officer, following our prepared remarks, we're happy to take your questions before we start a discussion now. 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.
Amanda Butler: In our press release and in our SEC filings on forms 10-K and 10-Q in.
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 statements in our earnings release, which again is available in the Investor Relations section of our website at Lincoln Electric Dot com and with that I'll turn the call over to Steve Steve.
Steve Headlands: Thank you Amanda good morning, everyone turning to slide three we reported solid execution in the first quarter. Despite a softer industrial cycle, we are well positioned to manage evolving market conditions, while still investing in long term growth advancing our strategic operational initiatives, which are focused on driving margin.
Steve Headlands: And increasing our returns to shareholders.
Steve Headlands: Looking at our first quarter highlights top line sales increase on benefits from acquisition and price while volumes were a bit softer than we expected half of the volume decline was due to labor negotiations in our Turkey facility, which impacted sales. We successfully concluded negotiations in mid March and orders started nor.
Steve Headlands: Wise in April.
Steve Headlands: Our first quarter price included our initial response to announce tariffs and we have since implemented additional pricing.
Steve Headlands: Together. These actions are expected to yield mid single digit percent higher price in the second quarter.
Steve Headlands: And we are prepared to take further pricing actions if other tariffs come into effect.
Steve Headlands: The team did a great job, maintaining diligent cost management and generated an incremental $16 million from our saving actions in the quarter. Our adjusted operating income margin declined by 60 basis points to 16, 9%.
Steve Headlands: Acquisitions, which we are still integrating any impact from Turkey had an unfavorable 110 basis point impact to our adjusted operating income margin.
Steve Headlands: Our adjusted earnings per share of $2.16 was slightly lower than expected, but included a five cent headwind from the combination of Turkey and unfavorable foreign exchange.
Steve Headlands: Oh I see you remain top quartile at 21, 5% and we generated record cash flows with a 130% cash conversion ratio.
Steve Headlands: We returned $150 million to shareholders through our higher dividend and share repurchases.
Steve Headlands: In this period of uncertainty, we're staying agile and are working diligently to serve customers with our innovative solutions, while leveraging our global supply chain to minimize.
We continue to expect to generate an incremental $15 million to $20 million in year over year savings in the second quarter and we expect some easing in our savings rate in the third quarter as we anniversary the program, but are committed to limiting discretionary spending until volume performance improves.
We have also decided to temporarily suspend merit increases which are normally implemented April one.
This delays and increase in employee costs of approximately $5 million per quarter until we better understand customer demand trends as trade policies of all.
While a difficult decision. We felt this was the prudent position to take in the near term.
Turning to slide four reported organic sales declined one 2% in the quarter, which includes a 190 basis point unfavorable impact from Turkey.
We continued to see better resilience in consumable organic sales as customer order rates improved through the quarter.
Automation is organic sales remained steady year over year as double digit international growth was offset by ongoing compression and the American region. This quarter.
<unk> lead time automotive projects and energy were sources of growth for automation, while all other end markets continued to compress as customers defer capital spending.
Automation reported sales increased mid single digit percent to $215 million. The automation team continues to see strong quoting activity as customers hedge different investment scenarios, but order rates and backlog have not yet normalized.
Which puts what is normally a seasonally strong back half of the year at risk.
Looking at end sector direct channel sales trends across the company. We were pleased to see that four of our five end markets achieved organic sales growth. This was led by global growth in both nonresidential construction and infrastructure applications and in automotive.
General industry has also improved with momentum in HBC within the Harris <unk> Harris products group and international due to select automation projects heavy industries remains challenged and we expect this trend through year end until production activity normalizes in the agricultural sector.
Our domestic rental and industrial distribution channels, which predominantly serve commercial and light industrial solutions also performed well as compared to industrial demand.
To conclude before passing the call to Gabe while this is a more dynamic environment to navigate we are continuing to prioritize our customers are implementing short term actions to mitigate inflation and are progressing towards our higher standards strategic targets. We are focused on executing what we can control and staying agile to adapt quickly.
<unk> to evolving conditions, our strong balance sheet ample levels of liquidity and confidence in cash generation allows us to pursue our capital allocation strategy through the cycle to continue to compound earnings and position ourselves for superior returns once growth returns.
I'll now pass the call to Gabe Bruno to cover our first quarter financials in more detail.
Thank you, Steve moving to slide five our first quarter sales increased approximately two 4% to $1 $4 million from a four 9% benefit from acquisitions and two 6% from higher prices. These increases were partially offset by one.
130 basis points from unfavorable foreign exchange translation, and three 8% lower volumes.
Turkey had a 200 basis point unfavorable impact to net sales.
Gross profit dollars declined by approximately 1% to $365 million as a $4 million benefit from our savings actions as well as benefits from cost management and operational initiatives were offset by the impact of lower volumes, Turkey acquisitions, and an approximate $2 million of LIFO.
<unk> in the quarter.
Our gross profit margin declined 110 basis points to 36, 4% versus the prior year's record results.
Acquisitions, and Turkey, combined had a 90 basis point unfavorable impact to gross profit margin results.
Our SG&A expense decreased 1% as $11 million of expense from acquisitions was offset by approximately $12 million of savings benefits and $6 million of favorable foreign exchange.
SG&A as a percentage of sales improved 60 basis points to 19, 5% of sales.
For analysts closely following our EBIT schedule, we reported corporate expense of approximately $1 $7 million, which was substantially lower than prior year.
The decline was primarily due to a lower level of accelerated stock compensation and equity awards as well as an update to corporate allocations in mid 2024.
<unk> decreases the distribution of corporate costs, two reportable segments.
This lowered corporate expense by approximately $4 million in the quarter.
Looking ahead, we expect corporate expense of approximately $2 million to $3 million per quarter for the balance of the year.
Reported operating income held relatively steady versus prior year excluding.
Special items, adjusted operating income declined 1% to $160 million with an adjusted operating income margin of 16, 9% 60 basis points lower than prior year.
As Steve mentioned, Turkey, and acquisitions at a combined unfavorable impact of 110 basis points to margin.
We reported first quarter diluted earnings per share of $2 10.
Or $2 16 on an adjusted basis, we incurred a <unk> <unk> headwind to EPS this quarter from the combined impact of Turkey and unfavorable foreign exchange.
Moving to our reportable segments on slide six.
Americas welding sales increased approximately 5% in the quarter driven by a nearly 8% contribution from acquisitions and 2% higher prices.
These increases were partially offset by 4% lower volumes and 1% unfavorable foreign exchange.
Pricing reflects benefits of prior 2020 for pricing actions, which anniversaried at the end of the first quarter and new first quarter pricing implemented to address rising material costs and tariffs.
As Steve mentioned, we have also announced additional pricing in the second quarter, including surcharges to mitigate the impact of the announced tariffs. We will continue to monitor the dynamic situation and respond as trade policies evolve.
First quarter volume softness reflected customers cautious capital investment spending with automation, representing just under half of the dike.
Klein due to soft second half 2024 order rates, which we've previously discussed.
Consumable demand was relatively steady as order rates improve progressively through the quarter. This was most notable in our industrial distribution channel and in nonresidential construction and energy.
We expect acquisition contributions to narrow starting in the second quarter, reflecting the April 1st Anniversarying of the Red Viking acquisition.
Then air will then anniversary on August one.
Americas welding segment's first quarter adjusted EBIT decreased approximately 9% to $124 million. The adjusted EBIT margin declined 260 basis points to 18, 2%.
I only due to the impact of lower volumes as well as an 80 basis point unfavorable impact from acquisitions, and a 40 basis point impact from the higher allocation of corporate expenses.
These factors offset the benefits of cost management and our savings actions, we expect Americas welding to continue to operate in their 17% to 19% EBIT margin target for the remainder of the year.
Moving to slide seven the international welding segment sales declined approximately 7% primarily due to 6% lower volumes.
Excluding the impact of Turkey International welding volumes would have increased 3% on strong volume growth in Asia Pacific and a modest decline in EMEA.
The overall improved demand was seen across four or five end markets excluding heavy industries.
Adjusted EBIT decreased approximately 17% to $23 million margin declined 120 basis points to 10, 2%, which includes a 30 basis point unfavorable impact from corporate allocations and 140 basis point compression from Turkey.
We expect international welding as margin performance to improve sequentially and should be within 11% to 12% for the balance of the year.
Moving to the Harris products group on slide eight.
First quarter sales increased 9% with a nine 5% higher price and 60 basis points of higher volumes.
Price increased on metal cost and volume growth, reflecting ongoing strength in the HVAC industry, which was partially offset by softer retail trends.
Adjusted EBIT increased approximately 22% to $24 million and margin improved 190 basis points to 17, 9% <unk>.
Improved profitability reflects effective cost management and strategic initiatives in the segment, we expect the Harris segment to operate in the 17% to 18% margin range for the full year 2025.
Moving to slide nine.
We generated a record $186 million in cash flows from operations in the quarter, resulting in a 130% cash conversion ratio.
Average operating working capital improved 100 basis points to 17, 8% versus the comparable prior year period due to continued improvement in operating disciplines in the business and timing.
Moving to slide 10.
We invested $27 million in Capex and cash returns to shareholders were strong at $150 million in the quarter, there were a higher dividend payout and approximately $107 million of share repurchases.
We maintained a solid adjusted return on invested capital of 21, 5%.
Moving to slide 11 to discuss our operating assumptions for 2025.
We have adjusted our full year framework to incorporate U S tariffs enacted through April.
At this early stage in the year, we are assuming our full year 2025 organic sales will be relatively flat year over year, which is consistent with our prior position. However, we have updated the drivers.
To maintain a neutral price cost position on enacted tariffs we have estimated our full year consolidated price will be in the mid single digit percent range as compared with our original estimate of 50 to 100 basis points we.
We are assuming that higher prices and the possibility of incremental tariffs in the months ahead will lead to lower volumes.
We're expecting to see this starting in the second quarter our.
Our framework assumes that we're able to substantially mitigate the impact of enacted tariffs and mid single digit percent lower volumes through a combination of price supply chain and operational initiatives and our savings actions, which is in line with our track record.
This will result in a full year adjusted operating income margin that is flat to down 50 basis points versus the prior year at a high teens percent decremental margin.
While April demand has been relatively steady sequentially. This stability may not reflect improved fundamentals nor the impact of all of our pricing actions. We also recognize that evolving trade policies and tariffs will continue to shape market conditions and uncertainty in the quarters ahead, which could.
Customers to further defer capital spending and lower production levels until conditions stabilize.
We'll monitor trade and demand conditions as the year progresses and aggressively manage conditions as warranted.
Looking further down the income statement, we now expect a contribution of approximately $1 million in other income per quarter from our recent equity investment.
While we are continuing to pursue M&A.
Doug as steel environment, and our own valuation favors and an elevated level of opportunistic share repurchases.
We are now estimating our full year 2025 share repurchases to be in the range of $300 million to $400 million, we're maintaining our other assumptions on interest expense tax capex and cash conversion.
And now I would like to turn the call over for questions.
Ladies and gentlemen at this time.
A question and answer session. If you would like to ask a question during this time.
Press Star followed by that number one on your telephone keypad.
If you would like to withdraw your question Christa.
To ensure that everyone has an opportunity to participate.
You ask one question and one follow up question.
And then you think of the queue. Your first question come from the line.
Alright.
Jeffrey Please go ahead.
And Ryan and thanks for taking the question and he talked about growth in all markets. Excluding the industries I believe that includes price.
You saw from that end market on a volume basis, and then I guess thinking about that what that mean Europe here.
Yes, just to give you some some clarity.
While the four out of the five end markets.
We are stronger than they had been we do have an unclear picture as the as the year progresses as you can appreciate.
As we've talked in the past construction infrastructure, while was up mid to high single digits pretty choppy.
So we've got good momentum, there, but depending on where we see.
Activity levels.
Aggress and how we.
We view the that part of the market smaller part of our business as you know.
<unk>.
Ah.
13% of our overall sales.
Automotive General industries were positive we were good to see that they were up mid single digit when you see the mix of our business and general industries, we did see strength.
In the consumable side of our business and you saw that not only.
In the international markets, but also on the U S. We did have some strength on the HVAC as we've mentioned.
And so while we had positive trends, there again pretty difficult to assert whether or not that momentum will continue in the balance of the year and that's why our cautious position on volume activity.
On automotive.
As we've mentioned we were up mid single digit.
And while.
We're trending favorable on the capital side automation as well as standard equipment consumables were down mid single digit.
That reflects production activity and there is as you know there is a.
Some caution on where production activity goes across the automotive industry.
But we'll continue to monitor that the comps on the automation side as well.
Easier.
And we're looking to see quotes to translated to orders as we've commented on how that impacts us for the second half of the year.
Lastly, I would just comment on heavy industries heavy industries down high teens and that's the same progression that we've noted throughout the last year and.
Continues to be the most challenged.
We're seeing some positives.
Ports on the Destocking.
But we're still cautious as we progress throughout the year and and we've positioned our expectation to see softening softening production levels through the balance of the year.
Should comment lastly on energy energy.
Well it was up low single digits and as we've talked we're bullish on oil and gas.
But there was some tough comparisons beginning part of 2024, and we do see easier comps in the back half. So that's kind of an outlook that we would have a lot of uncertainty as you know.
It's dependent upon how the end markets progress on production levels as.
As well as decisions on capital investment.
Let me just add as you look at the.
Consumable demand in the first quarter I think the question on everybody's mind is how much of that reflects pre buy activities by our customers and through both our analysis of demand trends and conversations with many of our large customers. The feedback is they're not pre buying there may be some opportunistic purchases here and there but.
In general our customers are very reluctant to get stuck with inventory they don't need given the uncertainty of demand in the future. So while there may be a little bit of pre buying in the first quarter in numbers and in the April order trends.
Don't believe it's significant at this point in time.
And I was going to be my next question. So I appreciate that.
And one more just kind of high level, you mentioned customers deferring capital spending a couple of times in nuclear marks impacting automation and Ann can you just provide some color on what you're hearing from customers and what they're really looking to see to start redeeming some of those projects. Thank.
Thank you.
Yes.
As we commented we continue to see a lot of quotation activity. So a lot of customers trying to figure out how theyre going to respond to the shifting trade policies.
And I believe long term there will be a lot of good growth opportunity for us as a result of that it's the nearer term where given the uncertainty of where the trade policies are finally going to shake out the general uncertainty over macroeconomic conditions impact on demand and the like the customers are just taking a little longer to make decisions and then we would like to.
And I would just add when you translate a pause in decision making on capital investment.
We can see up to another quarter and thats the risk that we see in the second half of the year. So we had been pointing to if you recall throughout the second half of last year of softening order trends that would impact the first half of this year and so we're more cautious because of the pause and making capital investment decisions on what it means to our second half and that's our.
That's why we posture.
Our dialog on volumes to be offset with the pricing impacts that we've announced.
Your next.
Question comes from the Brian.
Oppenheimer. Please go ahead.
Thank you good morning, everyone.
And I just wanted to.
To level set on.
<unk> pricing.
What in terms of the mid single digit incremental.
Pricing what is the split between direct price and surcharges.
And then.
Hum.
And if youre willing to share what was price cost in Q1 and given the moving parts.
Timing of those moving parts and how is your team is thinking about price cost impact in Q2 and.
And throughout two weeks to net to the roughly neutral.
Your level.
Yeah, So Brian on the price cost were essentially flattish in the first quarter and you know that is our strategy to be price cost neutral.
We're not disclosing the split between surcharges and absolute price.
Changes.
But we're looking at that balance to be able to respond to tariffs. So you can see a mix of that being.
More traditional pricing that's reflective of inflationary pressures and then the surcharge.
To tie in to some of the tariff actions.
Okay understood.
And maybe not a quick updates on red liking and banner integration rates obviously.
You own for around a year now.
I'm just curious how those deals are progressing relative to plan the impact would be operating environments and just overall macro uncertainty on that progression.
And then any quick comments you can offer on the deal pipeline in house.
This unique backdrop is affecting.
The development pipeline action ability et cetera. Thank you.
Yeah.
Yes, so generally Brian the integration work on both Red biking, and van are doing great, but right on schedule deployed new systems at Red Viking, we've integrated them within our Lincoln business system. That's.
Is progressing nicely the van Air strategy is also.
Driven by growth in <unk>. So that's also progressing right on schedule, but just keep in mind that the first three years of any integration that the results are expected to be dilutive to the overall business. So it's running right on track the Red Viking business has a little bit more choppy because of the project level.
Activity for example, fourth quarter was pretty strong and yet the first quarter, while we had incremental sales.
Sales contributions we did have some margin pressure on the red banking side of things. So we're very pleased with the progression of both businesses and they're very much on schedule.
On the pipeline you've heard our comments around a sluggish environment.
No a very active pipeline.
But we do anticipate some some slowness in being able to complete deals and that's why we pressed on our dialog around share.
Share repurchases as we think about capital allocation.
Yeah.
Your next question comes from the line of inkjet.
Morgan Stanley. Please go ahead.
Hello, Thanks for taking my question. This is actually Stefan sitting in for Angel.
I was wondering if you could just speak to your Americas margin performance for the quarter.
On this slide dimension impact of lower volumes and some impact from that.
Acquisitions, and then also that corporate reallocation.
Speaker Change: But maybe if you could also.
Speaker Change: <unk> mentioned, how quickly you expect kind of the integration of an error and Red Viking I know you just mentioned.
Amanda Butler: Maybe some margin impact this quarter, but maybe like how quickly do you expect the integration of those two the progress to the point, where it's not margin decretive.
Steve Headlands: Yes, so stefan thanks for that question.
Steve Headlands: So in general as I, just mentioned on acquisitions, we look to up to three years to get to a normalized margin. So both.
Amanda Butler: And Red Viking are progressing on schedule, a little bit more choppiness from Red Viking and more accelerated growth on the van Air side is what we expect in terms of the margins for the Americas, We've talked about the impact of acquisitions being dilutive impact of 80 basis points kind of resetting.
Amanda Butler: Corporate allocations.
Amanda Butler: Decrease the EBIT margins for Americas at 40 basis points, but.
Steve Headlands: The larger driver as volumes and behalf of that we noted that was in the automation side of our business.
Steve Headlands: So we're looking at mid to high single digit types of decline and growth in this first quarter in Americas overall stable and automation, but the other offsets and the strength in the international side.
Steve Headlands: So we do expect on Americas, though to stay within our target range of.
Steve Headlands: Of 17% to 19% and you can see that's how we ended the first quarter, but those are the drivers we'll need to see progression around automation orders to have more confidence that volumes will improve in the second half of the year.
Steve Headlands: Thanks.
Steve Headlands: Really helpful. Maybe just sticking with automation.
Speaker Change: Given all the uncertainty and maybe the reluctance of capital spend that you are mentioning particularly in <unk> and.
Speaker Change: In Americas.
Speaker Change: Are you still expecting that business to sort of hit $1 billion. This year, because I know you were.
Steve Headlands: Expecting some organic growth on the automation business last quarter. Thanks.
Steve Headlands: Stefan So I would say the core of our business. All the fundamentals are there to achieve our long term targets, but this year I don't expect us to hit the $1 billion based on everything that we see now.
Steve Headlands: Order patterns in the trends around capital investments are going to put a lot of pressure on our automation business.
Steve Headlands: But I'm pretty excited about how the business is positioned and long term when you just take the core business and the acquisitions we've completed.
Steve Headlands: On a normalized basis, we're exceeding the $1 billion objectives.
Speaker Change: Yes, Stefan it really comes back to the comments, we made about customers delaying decision, making so given the mix of our business in terms of project lifecycle.
Steve Headlands: Need to be getting orders in this part of the quarter in the second quarter to have greater confidence in the third and fourth quarter of this year and what we've seen so far.
Steve Headlands: It gives us an indication that customers are still delaying decision, making which puts the back half at risk for us.
Steve Headlands: And our next question comes from the line Steve.
Steve Headlands: Keybanc capital markets.
Speaker Change: Go ahead.
Christian: Good morning, everyone. This is actually Christian dialogue proceed borders. Thank you for taking the questions.
Speaker Change: First question on automation robotics solid performance on a tough comp just given your prepared remarks has your bills ability improved or changed since <unk>, especially in the auto end market and I know, it's fresh but is there any indication that the stack tariff relief helps your outlook or your customers' outlook on the automotive related automation.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: [laughter].
Speaker Change: It was an issue there.
Speaker Change: Patricia you still with us there.
Patricia: Yes can you guys hear me.
Speaker Change: To repeat the question.
Speaker Change: If you can if you could just clarify that your first question. The second one is pretty easy right. I mean, it's a very very fluid dynamic environment the administration's.
Speaker Change: <unk> policy around double stacking of tariffs I think just occurred yesterday, so it's a little bit too early to see any impact of that.
Speaker Change: Got it understood and I guess the question was has visibility changed in the automotive related automation segment, just given from <unk>, you don't want to give us any visibility changed.
Speaker Change: No I think Christian what youre, referring to are longer lead time parts of our business.
Speaker Change: We would comment that the <unk> portion of our business. We had good activity into this first quarter. So that gives us some.
Positive indication of some decisions on the longer 2026 2027 program years.
Steve Headlands: And that drove some of the automotive strength in the first quarter, but I think it's important for us to really monitor as Steve mentioned, how the automotive industry then.
Speaker Change: <unk> positions in response to tariffs.
Steve Headlands: So we'll stay very close to that.
Steve Headlands: Got it understood and then second question. If we go back to early 2018. Your Americas segment had solid margin expansion from tariff related price increases and surcharges, but then contracted in 2019 because of broader industrial weakness in volume declines. So the question is if we fast forward to today do you expect to see.
Steve Headlands: Similar playbook and do you see opportunities in Americas margin longer term given we started this time at lower volumes or are you anticipating a lower leg down in volumes. Thank you.
No I think the longer term picture for Americas margins are to continue to improve I mean, you know that we've operated above the range.
Steve Headlands: We need to see more contribution of volumes from our automation business.
Steve Headlands: Our Americas EBIT is solid.
Steve Headlands: The acquisition contributions will improve over time.
Steve Headlands: As well as volume so we're well positioned to continue to improve the EBIT profile for Americas.
Steve Headlands: Your next question comes from the line of Tobey.
Speaker Change: Please go ahead.
Tobey: Alright, Thank you and good morning.
Tobey: I must admit I am a little bit confused with all the moving pieces here. So I just want to make sure that I understand it's clearly because when you were talking about Q1 right four out of five end markets reported growth. Then you mentioned that at least in April what are you seeing.
Tobey: Demand was stable sequentially.
Tobey: Yet your commentary points to uncertainty.
Tobey: Back half of the year or so.
Tobey: Sort of trying to understand here.
Tobey: Is it a function of automation, primarily in the backlog sort of depletion and the push outs that youre seeing there that gives you this sort of more cautious tone about the back half.
Tobey: Or is it that you're sort of saying, yes, there's bad but there's also the maybe the consumables business that had been steady that could potentially deteriorate.
Tobey: As customer production levels, you have to take another step down in the back half. So maybe we can parse this out that'd be helpful to me.
Tobey: At a high level there are two things that give us concern over the second half of the year. The first an easy one to understand is automation right as customers continue to delay decision making.
Tobey: That puts the revenue recognition in the second half of the year at risk for projects that we are hoping they will award soon that we can start working on recognized revenue under percent complete accounting, but if they don't award. It we can't start we can't recognize the revenue right. So that's pretty straightforward.
Tobey: Core part of our business, what we're seeing so far is that as we take price.
Tobey: In response to material inflation and tariffs there was an offset in volume and we're assuming for second quarter that the price volume offset is effectively neutral.
Tobey: We have.
Tobey: Has to take further pricing actions, depending on how all the elaboration day tariff announcements get resolved.
Tobey: There was a concern that as that price gets further elevated there might be a more.
Tobey: Demand elastic response from a volume standpoint, and then you've got the general uncertainty in macroeconomic conditions, you see falling consumer confidence pmi's et cetera. So it just makes us very cautious about the back half of the year based on what we can see at this particular point in time.
Tobey: Okay. That's helpful.
Tobey: And I think it would also be useful to talk a little bit about.
Tobey: Your business is experiencing cost headwinds from tariffs.
Tobey: Is it is it.
Tobey: Certain countries, where youre sourcing components.
Tobey: Is it primarily in equipment anything on the consumable side and I haven't really because.
Tobey: Tariff picture continues to evolve from a policy standpoint, it would be helpful to know if certain deals our reach with certain countries or whatnot.
Tobey: If that would have.
Tobey: A more immediate or direct effect on on your cost structure cost structure as well.
Tobey: So I would.
Tobey: <unk> emphasize that yes, we have pressure on steel, yes, some components some on accessories, we have about.
Tobey: Just less than 20% of our overall Cogs that are exposed to where we believe.
Tobey: Tariff actions have an impact.
Tobey: The mix between when the sourcing from Mexico, Canada, China, EMEA and the rest of the world.
Tobey: But that's what drives the visibility that we have in responding with a mid single digit.
Tobey: Average price impact.
Tobey: It's simply understanding of the supply chains and the exposures of risk and it is broad based but there are definitely areas that we're working through with components and accessories, particularly.
Tobey: Within the supply chain to mitigate.
Tobey: But that's kind of how we think about it big picture wise.
Speaker Change: Your next question comes from the line of Nathan Jones.
Speaker Change: Please go ahead.
Speaker Change: Yeah. Thanks. Good morning, this is Adam Farley on for Nathan.
Speaker Change: I wanted to clarify the price costs.
Speaker Change: Discussion.
Speaker Change: Historically your pass through.
Speaker Change: <unk> customers with a margin.
Speaker Change: I know this environment is very different.
Speaker Change: Are you looking to drive.
Speaker Change: Margin with your price increases.
Speaker Change: Adam.
Speaker Change: Maintaining our same posture that we've had historically that's price cost neutral and we'll continue with that.
Speaker Change: And the markets.
Speaker Change: Yeah, Adam our goal is to manage and maintain and defend the profitability of the business through a combination of pricing.
Speaker Change: Productivity actions in our factories the cost savings initiatives that we've taken.
Speaker Change: And really being aggressive on trying to find alternative sources of supply that aren't subject to tariffs are subject to lower tariff. So it's a combination of all those effects that lead us to have an objective of trying to maintain the EBIT margin of the business to flat to down 50 basis points over the course of the year.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: It does make sense.
Speaker Change: That's understandable.
Speaker Change: I guess, yes.
Speaker Change: If the tariff picture.
Speaker Change: Hypothetically improve from here.
Speaker Change: Would you look to maybe hold onto pricing gains or again with the tariff environment.
Speaker Change: Is it a point to what the cost increases are.
Speaker Change: Could we maybe assume maybe a lag on the way down from price increases.
Speaker Change: That part is kind of go away.
Speaker Change: And I would just assume that we're going to manage the conditions and we'll be agile and responsive to what we see and they want to predict outcomes and uncertainties progressively.
Speaker Change: Your next question comes from the line of floor.
Speaker Change: We see quite pleasing. Please go ahead.
Paul: Hey, Paul.
Paul: Hi, Mr. Huang I think your line is on mute.
Speaker Change: Oh, sorry about that.
Speaker Change: Good morning, everyone.
Paul: Just wanted to.
Paul: You ask about the.
Paul: We get it on the.
Paul: So charging in you know price increases now that could hit.
Paul: Volumes, but I wonder.
Paul: You talked a little bit more about some of the things you've mentioned about.
Paul: Finding new local suppliers, you know if that's possible or.
Paul: Electronics, yes.
Paul: Thing.
Paul: Opportunities for re shoring and.
Paul: And automation is your.
Paul: Talking to your customers.
Paul: They are some of the quotes on re shoring, especially around automated automation for the auto sector.
Speaker Change: Sure well as we go through the categories of products that we buy that Gabe mentioned earlier, we buy a lot of steel outside the U S. That's largely a function of limited supply.
Speaker Change: Domestically of people that want to make welding grade products right. So re shoring steel buying is a very long cycle activity that requires significant investment.
Speaker Change: Of our suppliers.
Speaker Change: And then you look at electronics, the global electronics industry, a lot of the core components or transistors and.
Speaker Change: Blank circuit boards and the like has moved to China and so while you can look at setting up operations, either our own or a supplier outside in other countries youre still going to have an impact of buying the raw components from a country, that's being heavily tariff and then on accessories.
Speaker Change: A lot of the things like welding guns in helmets and the like Oh.
Speaker Change: Our source out of China, because it's the only cost competitive source of supply for doing that we're working with our suppliers to look at them setting up other operations in Vietnam and other places that are less subject to tariffs, but there is some lead time in doing that as well. So both we and they are racing to try to do that but there's going to be a period of time.
Speaker Change: Where.
Speaker Change: We're going to need to take pricing through to.
Speaker Change: I cover the tariffs to protect the business right. So we're pulling all levers simultaneously and it's really a question of trying to balance this interim period and manage through it.
Speaker Change: Yeah.
Speaker Change: Okay, Great and then just on the flip side of that are you seeing too early bill.
Speaker Change: Are these longer too long cycled to see.
Speaker Change: Automation projects that are kind of tied to re shoring or bringing automotive manufacturing back into the U S. Well I think a lot of quoting activity, we see as tied to that and part of the uncertainty is people not wanting to pull the trigger on a major capital investment if there's uncertainty and fluidity around rather the trade policies are going to stick or not so.
Speaker Change: If youre looking at re shoring something in the U S to get out from under a 50% tariff and there's the rest of the 50% tariff goes away or it gets reduced significantly in the next 100 days.
Speaker Change: You are probably going to sit on the sidelines and wait to see how that gets resolved right. So there is a lot of interest in re shoring, but whether that interest will translate into actual project activity is the opening question.
Speaker Change: Our final question from Daiwa.
Speaker Change: Fair enough.
Speaker Change: Do we think the capital markets. Please go ahead.
Speaker Change: Hey, good morning, guys. Thanks for taking the questions.
Speaker Change:
But give me if I missed it I believe you made a comment around.
Speaker Change: The pricing offsetting volume for the second quarter, specifically I guess, one can you kind of walk through.
Speaker Change: What kind of went into that algebra why that's the expectation in <unk> is that what you've seen through April to date here.
Speaker Change: Yes, Christy the algebra is pretty straightforward that's what we've seen through the month of April. So we're at this point, we don't know any better to say.
Speaker Change: Pricing will be an increment to volume or volume it will overcome pricing. We just don't know at this point, but what we've seen through the month of April on the order intake side is the roughly offsetting each other.
Speaker Change: Got it Super helpful. Thank you.
Speaker Change: And just following up and speaking to the automation portfolio. If I remember correctly you guys do include both automation equipment and the consumables that go through that equipment, I guess youre mindful that split rates trying to get arms around.
Speaker Change: What project delays, what kind of impact on that business.
Chris: Chris We do not include consumable activity within our automation business. So that's strictly the equipment components robots larger projects that are tied into our our automation business.
Speaker Change: Very helpful. Thanks, so much guys.
Speaker Change: Thank you Chris.
Speaker Change: This concludes our question and answer session I would like now to turn the call.
Keith: Keith for closing remarks.
Keith: Go ahead.
I would like to thank everyone for joining us on the call today and for your continued interest in Lincoln Electric we look forward to discussing the progression of our strategic initiatives in the future. Thank you very much.
Keith: Ladies and gentlemen that concludes today's call. Thank you all.