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Why Lincoln Electric’s Revenues and Profits Declined in 2015

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Impact of a challenging environment on LECO’s revenues and profits

Lincoln Electric’s (LECO) total revenues have declined at a CAGR of 3.9% since 2012. There has been a decline in all its segments across the globe.

LECO’s five segments—North America, South America, Europe Welding, Asia-Pacific Welding, and Harris Group Products—contributed around 64%, 6%, 13%, 7%, and 10%, respectively, to the company’s consolidated revenues for 2015.

Lincoln Electric’s 2015 revenues have declined by 16% to $2.5 billion when compared to $2.8 billion in 2014. The dent in revenues can be attributed to a volume decrease of nearly 8%, a price increase of approximately 4%, and an increase from acquisitions of 2.2%. There was an unfavorable impact of 8.1% from foreign exchange.

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The underperformance for LECO can be attributed the softness in demand, as well as the weakness in the oil and gas sector and US export markets. The increase in revenues from the high inflationary environment in Venezuela was partially offset by the pricing decline in the Harris Products Group due to the decline in the cost of silver and copper.

Lincoln’s operating profit and margin trend

We have seen a steady decline in operating profits at a CAGR of 7.4% since 2013. For 2015, the operating profit was down by 12% due to impairment charges, constant cost on lower sales, and a less favorable product mix.

LECO’s five segments—North America, South America, Europe Welding, Asia-Pacific Welding, and Harris Group Products—contributed ~81%, 1%, 8%, 2%, and 7%, respectively, to the company’s consolidated operating profit for 2015.

In 2015, the company’s operating profits witnessed a 12% decline due to an inventory charge related to the adoption of new foreign exchange mechanism, higher warranty costs, and unfavorable translation impact.

Lincoln’s actual net profit down 46% in 2015

LECO’s net profit in 2015 decreased by 46% over 2014. The annual actual EPS was at $3.20 in 2014, compared to an actual EPS of $1.70 in 2015. The dent in earnings was due to unfavorable foreign currency, pension settlements, and contingent consideration related to an acquisition.

RBC Bearing (ROLL), The Timken Co. (TKR), Blount International (BLT), and Stanley Black & Decker (SWK) are some of LECO’s peers that operate in welding products industry.

LECO is a part of the Robo-Stox Global Robotics and Automation Index ETF (ROBO) and accounts for 2.2% of the total holdings. LECO is also a part of the SPDR S&P Dividend ETF (SDY).

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