Lincoln Electric Holdings, Inc. (NASDAQ:LECO) Q1 2025 Earnings Call Transcript

Lincoln Electric Holdings, Inc. (NASDAQ:LECO) Q1 2025 Earnings Call Transcript April 30, 2025

Lincoln Electric Holdings, Inc. misses on earnings expectations. Reported EPS is $2.16 EPS, expectations were $2.22.

Operator: Greetings and welcome to the Lincoln Electric 2025 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 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 lincolnelectric.com in the Investor Relations’ section. Joining me on the call today is Steve Hedlund, Chairman, President and Chief Executive Officer; as well as Gabe Bruno, our Chief Financial Officer. Following our prepared remarks, we’re happy to take your questions. 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-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 statements 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. Steve?

Steve Hedlund: Thank you, Amanda. Good morning everyone. Turning to Slide 3. 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 improvement, and increasing our returns to shareholders. Looking at our first quarter highlights, top line sales increased 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 mid-March and orders started to normalize in April.

Our first quarter price included our initial response to announced tariffs and we have since implemented additional pricing. Together, these actions are expected to yield mid-single-digit percent higher price in the second quarter and we are prepared to take further pricing actions if other tariffs come into effect. 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%. Acquisitions, which we are still integrating and the impact from Turkey, had an unfavorable 110 basis point impact to our adjusted operating income margin. Our adjusted earnings per share of $2.16 was slightly lower than expected, but included a $0.05 headwind from the combination of Turkey and unfavorable foreign exchange.

ROIC remained top quartile at 21.5% and we generated record cash flows with a 130% cash conversion ratio. We returned $150 million to shareholders through our higher dividend and share repurchases. In this period of uncertainty, we are staying agile and are working diligently to serve customers with our innovative solutions, while leveraging our global supply chain to minimize costs wherever possible. We are continuing our savings actions until we have better confidence in improving fundamentals and demand. 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 1. This delays an increase in employee cost of approximately $5 million per quarter until we better understand customer demand trends as trade policies evolve. While a difficult decision, we felt this was the prudent position to take in the near-term. Turning to slide 4, reported organic sales declined 1.2% in the quarter, which includes a 190 basis point unfavorable impact from Turkey. We continue to see better resilience in consumable organic sales as customer order rates improved through the quarter. Automation’s organic sales remained steady year-over-year as double-digit international growth was offset by ongoing compression in the American region this quarter.

Long lead time automotive projects and energy were sources of growth for automation, while all other end markets continue 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 orders 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 infrastructure applications and in automotive.

General industry has also improved with momentum in HVAC within the 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 standard strategic targets. We are focused on executing what we can control and staying agile to adapt quickly 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 will now pass the call to Gabe Bruno to cover first quarter financials in more detail.

Gabe Bruno: Thank you, Steve. Moving to slide 5. Our first quarter sales increased approximately 2.4% to $1.04 billion from a 4.9% benefit from acquisitions and 2.6% from higher prices. These increases were partially offset by 130 basis points from unfavorable foreign exchange translation and 3.8% 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 LIFO charge 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 expense from acquisitions was offset by approximately $12 million of savings benefits and $6 million of favorable foreign exchange. SG&A as a percent 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, which decreases the distribution of corporate costs to 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 had 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 $0.05 headwind to EPS this quarter from the combined impact of Turkey and unfavorable foreign exchange. Moving to our reportable segments on slide 6. 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 2024 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 decline due to second half 2024 order rates, which we’ve previously discussed.

Consumable band was relatively steady as order rates improved 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 RedViking acquisition. Vanair will then anniversary on August 1st. 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% in early 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 7. The International Welding segment has 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 taking 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 a 140 basis point compression from Turkey. We expect International Welding’s 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 8. First quarter sales increased 9% with a 9.5% higher price and 60 basis points of higher volumes. Price increased on metal cost and volume growth reflected ongoing strength in the HVAC industry, which was partially offset by softer retail trends. EBIT increased approximately 22% to $24 million and margin improved 190 basis points to 17.9%. 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 9. 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 through 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 US tariffs enacted through April. At the 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 basis points to 100 basis points.

We are assuming that higher prices and the possibility of incremental tariffs in the months ahead will lead to lower volumes. We are expecting to see this starting in the second quarter. Our framework assumes that we are 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 in our savings actions, which is in line with our track record. This would 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 the evolving trade policies and tariffs will continue to shape market conditions and uncertainty in the quarters ahead, which could prompt customers to further defer capital spending and lower production levels until conditions stabilize. We will monitor trade and demand conditions as the year progresses and aggressively manage conditions as warranted. Looking further down the income statement, we now expect the contribution of approximately $1 million in other income per quarter from a recent equity investment. While we are continuing to pursue M&A the sluggish deal environment and our own valuation favors in 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 are maintaining our other assumptions on — tax, CapEx and cash conversion. And now, I would like to turn the call over for questions.

Q&A Session

Operator: [Operator Instructions] Your first question comes from the line of Saree Boroditsky with Jefferies. Please go ahead.

Saree Boroditsky: Thanks for taking my question. You talked about growth in all markets, excluding heavy industries. I believe that includes price. Could you just talk through what you saw on those end markets on a volume base and then how you’re thinking about that for the remainder of the year?

Gabriel Bruno: Yeah. Just to give you some clarity, sure, while the four out of the five end markets were stronger than they had been. We do have an unclear picture as the year progresses, as you can appreciate. As we’ve talked in the past, construction and infrastructure, while it was up mid- to high single digits, pretty choppy. So we’ve got good momentum there. But depending on where we see activity levels will progress in how we view that part of the market. A smaller part of our business, as you know, it’s about 13% of our overall sales. Automotive, general industries were positive. We were good to see that they’re up mid-single digit. When you see the mix of our business in 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 in the US. 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 mentioned, we were up mid-single digit. And while we’re trending favorably on the capital side, automation as well as standard equipment, consumables were down mid-single digit that reflects production activity. And there’s — as you know, there’s some caution on where production activity goes across automotive industry, but we’ll continue to monitor that. The comps on the automation side, as you know, we’re easier, and we’re looking to see quotes to translate into orders, as we’ve commented on how that impacts the second half of the year.

And lastly, I’ll just comment on Heavy Industries. Heavy industry is down high teens. That’s the same progression that we’ve noted throughout the last year. Ag continues to be the most challenged. We are seeing some positive reports on the destocking, but we’re still cautious as we progress throughout the year, and we’ve positioned our expectation to see softening production levels through the balance of the year. And I should comment lastly on energy. Energy was up low single digits. And as we’ve talked, we’re bullish on oil and gas, but there were some tough comparisons at the 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, which is dependent upon how the end markets progress on production levels as well as decisions on capital investment.

Steve Hedlund: So just to 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 prebuy 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 prebuying in the first quarter and numbers and in the April quarter, we don’t believe it’s significant at this point in time.

Saree Boroditsky: It’s going to be my next question, so I appreciate that. I’ll add one more just kind of high level. You mentioned customers deferring capital spending a couple of times in the remarks impacting automation demand. Can you just provide some color on just what you’re hearing from customers? And what they’re really looking to see to start reviewing some of those projects? Thank you.

Steve Hedlund: Yes, Saree. As we commented, we continue to see a lot of quotation act. So, a lot of customers trying to figure out how they’re 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 near 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 we would like to see.

Gabe Bruno: Yes. And I would just add, Saree, when you translate in the decision-making on capital investment, we can see up to another quarter, and that’s the rest that we see in the second half of the year. So we have 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 in making capital investment decision and what it means to our second half. And that’s our — that’s why we posture our dialogue on volumes to be offset with the pricing impacts that we’ve announced.

Operator: Your next question comes from the line with Bryan Blair with Oppenheimer. Please go ahead.

Bryan Blair: Thank you. Good morning, everyone. I just wanted to level set on announced pricing. In terms of the mid-single-digit incremental pricing, what is the split between direct price and surcharges? And then if you’re willing to share, what was price cost in Q1 and given the moving parts and timing of those moving parts and — has your team thinking about price cost impact in Q2 and throughout 2H to net to the roughly neutral full year level?

Gabe Bruno : Yes. So Brian, on the price/cost, we’re 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 — is more traditional pricing that’s reflective of inflationary pressures and then the surcharge to tie into some of the tariff actions.

Bryan Blair: Okay. Understood. And maybe offer quick updates on RedViking and an integration of — obviously owned for around a year now. Just curious how those deals are progressing relative to plan the impact of the operating environment and just overall macro uncertainty on that progression? And then any quick comments you could offer on the deal pipeline and how this unique backdrop is affecting the development of the pipeline, actionability, et cetera? Thank you.

Gabe Bruno : Yes. So generally, Brian, the integration work on both RedViking and — doing great, but right on schedule. We’ve deployed new systems at RedViking. We’ve integrated them within our Lincoln Business System. That’s progressing nicely. The Van air strategy is also driven by growth in that. So that’s also progressing right on schedule. But just keep in mind that the first three years of any integration, the results are expected to be dilutive to the overall business. So it’s running right on track. The RedViking business is a little bit more choppy because of the project level of activity. For example, fourth quarter was pretty strong. And yet first quarter, while we had incremental sales contributions. We did have some margin pressure on the red biking 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. We have, as you know, a very active pipeline, but we do anticipate some slowness in being able to complete deals, and that’s why we pressed on our dialogue around share repurchases as we think about capital allocation.

Operator: Your next question comes from the line of Angel Castillo with Morgan Stanley. Please go ahead.

Stefan Diaz: Hello. Thanks for taking question. This is actually Stefan Diaz sitting in for Angel. I was wondering if you could just speak to your Americas margin performance for the quarter. I know in the slides, you mentioned impact of lower volumes and some impact from acquisitions and then also that corporate reallocation. But maybe if you could also just mention how quickly you expect kind of the integration of Vanair and RedViking. I know you just mentioned maybe some margin impact this quarter. But maybe like how quickly do you expect the integration of those to progress to the point where it’s not margin accretive.

Gabe Bruno : Yes. So Stefan, thanks for that question. in general, as I just mentioned on acquisitions, we look to up to three years to get to our normalized margins. So both Vanair and RedViking are progressing on schedule. A little bit more choppiness from RedViking and more accelerated growth on the Vanair side is what we expect. In terms of the margins for the Americas, we’ve talked about the impact of acquisitions being a dilutive impact of 80 basis points kind of resetting corporate allocations, decreased the EBIT margins for America at 40 basis points. But the larger driver is volumes. And behalf of that, we noted that it was in the automation side of our business. So we’re looking at mid- to high single-digit types of decline in growth in this — in the first quarter in Americas.

Overall stable in automation, but the other offsets and the strength on the international side. So we do expect Americas, though, to stay within our target range 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.

Stefan Diaz: Thanks. That’s really helpful. Maybe just sticking with automation, given all the uncertainty and maybe the reluctance of capital spend that you’re mentioning, particularly in Americas, are you still expecting that business to sort of hit $1 billion this year? Because I know you were expecting some organic growth from the automation business last quarter. Thanks.

Gabe Bruno: 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. The order patterns and the trends around capital investment are going to put a lot of pressure on our automation business. But I’m pretty excited about how the business is positioned in the long term. When you just take the core business and the acquisitions we’ve completed and on a normalized basis, we’re exceeding the $1 billion objective.

Steve Hedlund: 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 life cycle. We 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 gives us an indication that customers are still delaying decision-making, which puts the back half at risk for us.

Operator: And your next question comes from the line of Steve Barger with KeyBanc Capital Markets. Please go ahead.

Unidentified Analyst: Good morning, everyone. This is actually Christian Zilo [ph] on for Steve Barger. Thank you for taking the questions. First question, on automation and robotics, solid performance on a tough comp given your prepared remarks, has your visibility improved or changed since 4Q, 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 automotive-related automation.

Gabe Bruno: There’s an issue there, Chris, are you still with us there?

Unidentified Analyst: Yeah. Can you guys hear me — do you need to repeat the question?

Steve Hedlund: If you can just clarify your first question. The second one is pretty easy, right? I mean it’s a very, very fluid dynamic environment. The administration’s 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.

Unidentified Analyst: Got it. Understood. And I guess the question was, has visibility changed in the automotive-related automation segment just given from 4Q to 1Q, as I think visibility changed?

Gabe Bruno: No. I think, Christian, what you’re referring to are longer lead-time parts of our business, we would comment that the forward 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 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 mentions, how the automotive industry then positions the response to tariffs. So, we’ll stay very close to that.

Unidentified Analyst: 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 and volume declines. So, the question is, if we fast forward to today, do you expect a 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.

Gabe Bruno: No, I think the longer-term picture Americas margins are to continue to improve. I mean you know that we’ve operated above the range. We need to see more contribution in volumes from our automation business but our Americas EBIT is solid, and the acquisition contributions will improve over time and as well as volume. So, we’re well-positioned to continue to improve the EBIT profile for Americas.

Operator: Your next question comes from the line of Mig Dobre with Baird. Please go ahead.

Mig Dobre: All right. Thank you. Good morning. 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 this clearly because when you’re talking about Q1, right, four out of five end markets reported growth then you mentioned that at least in April, what you’ve seen is demand was stable sequentially yet your commentary points to uncertainty about the back half of the year. So, I’m sort of trying to understand here — is it a function of automation, primarily and the backlog sort of depletion and the pushout that you’re seeing there that gives you the sort of more cautious tone about the back half? Or is it that you’re sort of saying, yes, there’s that, but there’s also the — maybe the consumables business that has been studied that could potentially deteriorate as customer production levels yet take another step down in the back half. So, maybe we can parse this out, that would be helpful to me.

Steve Hedlund: At a high level, there are two things that give us concern over the second half of the year. The first and the easy one to understand is automation, right, as customers continue to delay decision-making that puts the revenue recognition in the second half of the year at risk for projects that we’re hoping they will award soon that we can start working on recognize the 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. The core part of our business, what we’re seeing so far is that as we take price in response to material inflation and tariffs, there’s an offset in volume. And we’re assuming for second quarter that the price volume offset is effectively neutral.

As we have to take further pricing actions depending on how all the Liberation Day tariff announcements get resolved, there’s a concern that as that price gets further elevated, there might be a more demand elastic response from a volume standpoint. And then you’ve got the general uncertainty in macroeconomic conditions. You see falling consumer confidence PMIs, et cetera. So it just makes us very cautious about the back half of the year based on what we can see at a particular point in time.

Mig Dobre: Okay. That’s helpful. And — useful to talk a little bit about, where your business is experiencing cost headwinds from tariffs, is it certain countries where you’re sourcing components? Is it primarily in equipment, anything on the consumables side? And I ask really because as this tariff picture from a policy standpoint, it would be helpful to know if certain deals are reached with certain countries or whatnot, if that would have a more immediate or direct effect on your cost structure as well?

Gabe Bruno: Mig, I emphasize that, yes, we have pressure on steel. You have some components, some on accessories. We have about just less than 20% of our overall COGS are exposed to where we believe tariff actions have an impact. You have a mix between when the sourcing from Mexico, Canada, China, and the rest of the world, but that’s what drives the visibility that we have in responding with a mid-single-digit average price impact. So it’s simply, understanding the supply chains and exposures of risk. And it’s broad-based, but there are definitely areas that we’re working through with components and accessories particularly within the supply chain to mitigate, but that’s kind of how we think about it big picture wise.

Operator: Your next question comes from the line of Nathan Jones with Stifel. Please go ahead.

Adam Farley: Yeah. Thanks. Good morning. This is Adam Farley on for Nathan. I wanted to clarify the price/cost discussion. Historically, you passed through cost to customers with a margin? I know this environment is very different. But are you looking to drive margin with your price increases?

Gabe Bruno: Adam, we’re maintaining our same posture that we’ve had historically. And that’s price cost neutral. And we’ll continue with that posture in the markets.

Steve Hedlund: Yeah. Adam, our goal is to manage and maintain and defend the profitability of the business through a combination of pricing, productivity actions in our factories, the cost savings initiatives that we’ve taken and really being aggressive on trying to find alternative sources of supply that aren’t subject to tariffs are subject to lower tariffs. 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.

Adam Farley: Okay. That does make sense. That’s understandable. I guess, if the tariff fixture does hypothetically improve from here, would you look to maybe hold on to pricing gains? Or again, with the tariff environment, it’s easy to point to what the — concretes are. Should we maybe assume maybe a lag on the way down from price increases? Or does a price kind of go away?

Gabe Bruno: Adam, we just assume that we’re going to manage the conditions and we’ll be agile and responsive to what we see. And we want to predict outcomes and uncertainties progressively.

Operator: Your next question comes from the line of Walt Liptak with Seaport Research. Please go ahead.

Steve Hedlund: Hey, Walt?

Operator: Hi, Mr. Walt. I think your line is on mute.

Walt Liptak: Sorry about that. Good morning, everyone. So I just wanted to ask about the — we get it on the surcharging and price increases now that could hit volumes. But I wonder if you talked a little bit more about some of the things you just mentioned about finding new local suppliers, if that’s possible for electronics yet. Are you seeing opportunities for reshoring. And then in automation, as you’re talking to your customers, are they — are some of the quotes on reshoring, especially around automated — automation for the auto sector.

Steve Hedlund: Sure, Walt. As we go through the categories of products that we buy that Gabe mentioned earlier, we buy a lot of steel outside the US. That’s largely a function of limited supply domestically of people that want to make welding grade products, right? So reshoring steel buying is a very long cycle activity that requires significant investment on behalf of our suppliers. And then you look at electronics, the global electronics industry, a lot of the core components for transistors and 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, you’re still going to have an impact of buying the raw components from a country that’s being heavily tariffed.

And then on accessories, a lot of the things like welding guns and helmets and the like are sourced 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’s 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 where we’re going to need to take pricing through to 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.

Walt Liptak: Okay. Great. And then just on the flip side of that, are you seeing — is it too early still are these longer to long cycle to see automation projects that are kind of tied to reshoring or bringing automotive manufacturing back into the US?

Steve Hedlund: Well, I think a lot of the quoting activity we see is 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 whether the trade policies are going to stick or not. So if you’re looking at reshoring something in the US to get out from under a 50% tariff, and there’s a risk of 50% tariff goes away or gets used significantly in the next 100 days, you’re probably going to sit on the sidelines and wait to see how that gets resolved. So there is a lot of interest in reshoring, but whether that interest will translate into actual project activity is the open question.

Operator: Our final question comes from the line of Chris Dankert with Loop Capital Markets. Please go ahead.

Chris Dankert: Hi. Good morning. Thanks for taking the questions. Forgive me if I missed it, I believe you made a comment around the pricing offsetting volume for the second quarter specifically, I guess, one, can you kind of walk through what kind of went into that — that’s the expectation in 2Q? And is that what you’ve seen through April to-date here?

Steve Hedlund: Yes. Chris, the algebra is pretty straightforward. That’s what we’ve seen through the month of April. So we are — so at this point, we don’t know any better to say pricing will be an increment to volume or volume 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 they’re roughly offsetting each other.

Chris Dankert: Got it. Super, super helpful. And just following up, 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. Can you remind us of that split today to try and to get arms around what project delays could kind of impact on that business?

Gabe Bruno: No, Chris, we do not include consumable activity within our automation business. So that’s as strictly the equipment components, the robots and the larger projects that are tied into our automation business.

Chris Dankert: Very helpful. Thanks so much guys.

Gabe Bruno: Thank you, Chris.

Operator: This concludes our question-and-answer session. I would like now to turn the call over to Gabe Bruno for closing remarks. Please go ahead.

Gabe Bruno: 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.

Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.