Lincoln Electric Holdings Inc (LECO) 2003 Q3 法說會逐字稿

I would like to welcome everyone to today's Lincoln Electric Company third-quarter earnings teleconference call. (OPERATOR INSTRUCTIONS). I would like to turn the meeting over to Mr. Jay Elliott, Chief Financial Officer. Sir, you may begin.

Thank you, Jason, and good morning. Welcome to the discussion of Lincoln Electric's financial results for the 2003 third-quarter. We released our earnings announcement this morning prior to marketing opening. If you have not received a copy, the results can be found on the Company's Website. You may also obtain a copy by contacting our Investor Relations office and have a copy e-mailed or faxed to you.

As we begin our discussion, I remind you that certain statements made during this call may well be forward-looking. You also should be aware of the risk factors associated with our business. These risk factors are provided in our press release or generally in our SEC filings.

Lincoln Electric's Chairman and Chief Executive Officer Tony Massaro will start our discussion with an overview of the results. John Stropki, Lincoln's Executive Vice President and Chief Operating Officer, is also joining our call today and will summarize the business environment in the region. I will conclude with a discussion of the financial details.

I would now like to turn the call over to Tony Massaro.

Thank you, Jay, and good morning to all of you joining the call. This past quarter, in our eyes, was a very good quarter. The United States is starting to show a pickup in activity with September sales much better than we have had in quite awhile. A very welcome sign given the sluggish economic environment the U.S. industrial market has experienced the past several years.

As the current scenario unfolds, we believe that we stand to benefit from the cost reductions and productivity increases we have implemented throughout our global operations during this economic slowdown. As we have previously stated, the programs we have put in place, the expansion and upgrades of our plants and the improvements in our manufacturing processes, new developments in products, as well as our acquisitions and joint ventures, have Lincoln well-positioned to take advantage of the recovery as it unfolds and gains momentum. In other words, we are ready.

Now let us take a look at the numbers for the quarter and nine-month period. Net income in the quarter was $14.1 million or 34 cents per diluted share on sales of $256.9 million. These results compare with last year's same quarter net income of $18.3 million or 43 cents per diluted share on $247.5 million in net sales. Our U.S. operations had net sales of $154.3 million compared with 154.2 million in the prior year's quarter, and export sales were 15.2 million compared with 15.6 million in 2002.

Internationally, the quarter also benefited from strong energy-related activity in Asia, namely China, and in Russia and the Middle East. Net sales from non-U.S. operations were 102.6 million in the quarter compared with 93.3 million in the same quarter last year. The net sales from non-U.S. operations when measured in local currencies were essentially the same as last year's comparable period with both ups and downs in individual countries and regions, of course.

Our joint ventures with Kuang Tai in Taiwan in China and the other joint venture with Kaynak in Turkey, though not included in our consolidated figures, did quite well during the quarter from a growth prospective. Both have grown over 10 percent on a year-to-date basis.

Turning to the nine-month period, net income was $40.5 million or 97 cents per diluted share compared with $10.9 million in the 2002 like period or 26 cents per diluted share. The 2003 net income includes rationalization charges of approximately $1.3 million net of tax. Excluding the rationalization charges, our net income was $41.8 million or $1.00 per diluted share. The net income for the first nine months last year before the cumulative effect of an accounting change was $48.5 million or $1.14 per diluted share. Excluding the cumulative effect of an accounting change and rationalization charges, net income was 55.5 million or $1.30 per diluted share.

Net sales in the nine months increased approximately 2 percent to $771.1 million compared with last year's sales of 755.5 million. Our U.S. operations had net sales of 456.9 million compared with 468.4 million in the year ago period. Export sales in the first nine months were 46.2 million compared with 48 million in the same period last year. The net sales from non-U.S. operations were 314.2 million during the nine-month period compared with 287.1 million in the prior year. In local currencies, net sales from non-U.S. operations, again, were essentially the same as last year and, again, had different ups and Downs depending on the countries and the regions.

We had cash flows of $69.9 million from operations in the 2003 nine-month period. That is compared with 81.8 million in the comparable period last year. Cash flows from operations, of course, include pension contributions to U.S. benefit plans of $30 million and $20 million in the nine-month periods ending September 30, 2003 and 2002 respectively. The Company also paid a regular quarterly cash dividend of 16 cents per diluted share on October 15th, 2003, the holders of record as of September 30th, 2003.

Now that is a snapshot of the numbers, and Jay will go into detail a little later in the call.

Next I would like to discuss some other positive developments at the Company. As we have stated in our discussions with you, the investment community, Lincoln will grow through internal growth, joint ventures, acquisitions and three new markets. I mentioned earlier that our joint ventures in Turkey and China are doing quite well, validating that our growth strategy remains on track. Our acquisition track record is very solid.

Yesterday we announced that we have an agreement to purchase the welding and cutting products and accessories business of Clore Automotive, which includes the well-respected brands of Century and Marquette welding products as well as Century battery chargers. These are all strong brands and will further strengthen our growth in the retail channel. John Stropki will cover more about Clore in his remarks.

Today Lincoln Electric is in the strongest position of its long and successful history. We are the worldwide leader in the arc welding industry. Our carefully planned and implemented strategy has helped the Company expand to increase its global footprint and to take advantage of long-term growth opportunities. And most importantly, we continue to have a very very strong balance sheet.

That is a view of the quarter and some recent events. I will now turn the call over to John, Lincoln's Chief Operating Officer, who will give us a quick update on the regional operations.

Thank you, Tony. As Tony mentioned, Lincoln Electric has agreed to purchase Century's Welding and Cutting Equipment, accessories and battery charger businesses, as well as the Marquette welding branded products from Clore Automotive. These products and brands have leading positions in the automotive aftermarket and retail DIY channels that are very complementary to our existing retail and professional products businesses. These businesses will be part of the Lincoln Welding, Cutting Tools and Accessories business unit, which we formed early this year to consolidate all of our retail and professional channel businesses into one dedicated business unit, recognizing this market's increasing importance and to ensure a dedicated focus to meet its special requirements. The addition of the Century and Marquette product lines will allow Lincoln to provide an even broader range of products to this rapidly growing market segment. We see it as an excellent fit with our overall quarter retail strategy to provide retail brands and products that are clearly differentiated from our industrial market segments. We anticipate closing this transaction by the end of this month. Meanwhile, our management and Clore's management are working closely together to ensure an uninterrupted supply to all Century and Marquette customers.

In our North American region, industrial demand seemingly stabilized during the quarter. As Tony said, we saw meaningful improvements in demand toward the latter part of the quarter. However, from a U.S. market standpoint, it appears that the overall industrial production output has accelerate moreso in the high-tech industries rather than the traditional markets we serve. As such, we are cautiously optimistic on the overall economic outlook across the North American markets.

In Canada, the strengthening Canadian dollar and the overall softness in the industrial markets continued to challenge overall domestic Canadian output. Also, we expect that any economic strengthening in Canada will somewhat lag the economic expansion in the U.S.. We did, however, have an excellent quarter in Canada.

During the quarter, although our North American operating profit is lower than prior year periods, as a result of the issues we have been discussing such as pension-related costs, product mix, energy and overhead absorption, we have seen consistent improvement in the operating profit trends in quarter to quarter to quarter during 2003. These improvements are a result of the many operational improvements and cost reduction programs we have taken earlier this year. We have also experienced more stable and slightly improved production output in both equipment and consumables compared to prior year periods.

We continue to make strategic investments in our business units, including programs we have implemented to improve quality, productivity and profitability. These programs include the rationalization of production across our North American businesses, including Mexico, rationalization of warehousing and continued overhead staff rationalization. A great example to this end is that at the end of this past quarter we substantially completed the move of our main distribution center in Cleveland out of a lease facility into one we own. This action, coupled with the opening of the WCTA retail distribution center and the closure of an East Coast facility, have allowed us to remove over $2 million in annual operating costs.

Shifting over to Europe, in Europe the market situation is very difficult with all major countries, including Germany, Italy and the Netherlands, in recession and France being flat. The strength of the Euro continues to have an impact on the economic situation in most countries that depends on exports, thereby holding back any improvement in the Euro economy.

The Eastern European region, however, has been a bright spot for us this year with double-digit growth in both sales and profitability. We continue to make more important progress in Eastern Europe. With the major thrust coming from our Bester operation, which is performing very well, it has experienced significant growth since we acquired the business in 2002.

Record sales were achieved in Poland in August and September as a result of our continued market expansion and penetration related to our strategy of bringing more Lincoln branded products into the market through existing Bester distribution networks. We are expanding our investment in this very successful acquisition to upgrade both capacity and production capabilities. We are now shifting Bester products to all of the regions -- Asia, Latin America, North America and the RIM region.

We have also had several new products in the final design stage that will start to come to market early next year for Bester, utilizing a low-cost platform to further enhance our market share expansion.

Turkey has been another bright spot for us, where we have achieved strong performance from our joint ventures through the market improvement after the Iraq war. Turkey should also provide a strategic platform for the Iraq reconstruction efforts. Our Uhrhan & Schwill unit based in Germany provides us an unique position in meeting the growing demand for pipes (ph), especially the manufacturers of large diameter steel pipe. Our backlog at Uhrhan & Schwill is at record levels with future prospects looking very favorable.

Our European operations will continue to focus their efforts on cost reductions and productivity improvements at all facilities, and we have seen several positive results thus far this year. In the Latin America region, Lincoln's business in the region flowed through very weak market conditions during the third quarter. The larger markets in the regions, Brazil and Mexico, continue to register declines in industrial activity during the period, while other important markets such as Argentina and Venezuela have stabilized somewhat after suffering steep drops in the last 12 to 18 months. Our Venezuela operation continues to manage through the economic and political challenges in that country.

Lincoln's share in the region held steady during the quarter -- sales in the region, excuse me, held steady in the quarter due to successfully improving our market share in a number of markets through the region, most noticeably Venezuela, Mexico and Brazil. In Brazil, we are adding capacity in the form of an additional stick electrode line to meet our increased share demand and take advantage of the opportunity created by the shutdown of two local competitor operations.

As part of our NAFTA rationalization project, we have successfully transferred several of our high-volume mid-gun (ph) products to our plant in Torreon, Mexico. This has resulted in a significant cost savings with several more opportunities identified and planned for next year.

Signs of future improvement are beginning to emerge throughout Latin America. As the macroeconomic picture in many countries has improved, petroleum and other infrastructure projects are being released. We expect that this improved large product check formation will begin to positively impact our results as early as the first quarter of '04. The mining sector in the region remains a positive sector, and we expect it to remain so for the foreseeable future.

Finally, taking a look at the market region covering Russia, Africa and the Middle East. In the Middle East market, the business activity in the region remains steady with oil and gas related projects contributing to solid growth with year-to-date double-digit gains. We continue to expect significant sales opportunities in Iraq as a direct result of the reconstruction efforts.

On the African confidant, the business activity continues to be good in South African. Our product sales there are running close to projections, and we are continuing to add new distributors throughout Africa with the latest being in Nambia.

Equipment and consumable orders from Russia continue to be very strong, and we would anticipate that this trend would continue. We recently booked initial orders of approximately $1 million for two important new products in Russia in this last quarter.

That is a summary of the region. Let me turn this back over to Jay.

Thanks, John. As commented upon in our released and in previous comments, the big news is that the U.S. operation had higher quarter -- prior year quarter sales. This is the first time since the third quarter of 1998 that we have enjoyed this year-on-year improvement. It has been a challenging five-year period for our largest and most profitable business unit. The decline stopped this quarter, and when we have a return to positive sales comparisons, we will also have improved margins through better overhead absorption.

We are seeing less pricing pressure from imports due to the weakening U.S. dollar as well. When these improvements will occur will be determined by the U.S. economic recovery and the basic industrial and manufacturing sectors. The economists are lining up to say the recovery should be on its way.

Looking at the volume of purchases by our customers by location, rather than from our selling units location, U.S. customers were up by nearly 1 percent in the last quarter. Russia, Africa and the Middle East customers were up double-digit. Increases were also achieved in Asia.

In local currencies, purchases in Europe and the balance of the Americas were best described as flat. Business activity continues to have mix rates of change throughout the year world as described by John.

The percentage of gross profit in the quarter continue to be down versus '02 in total with the U.S. at 26.8 percent, down 2.8 points, and the balance of the world at 22.3 percent, down 1.2 points. However, we have seen steady improvement in the margin comparisons as we move through the year.

On a year-to-date basis, the lower comparative gross profit was because of the U.S. unit with its 25.7 percent margin, down 4.2 points, while the balance of a world was at 23.2 percent, up 0.1 points. Margins continue to be affected by the lower sales and lower overhead absorption, pricing constraints caused by excess investment capacity in the insured economies of the world, plus higher pension expenses. Focused programs to reduce costs and increase efficiencies continue to contribute to reducing the negative effect of the marketplace.

Sales, general and administrative expenses in the quarter are $51.9 million or 20.2 percent of sales, up slightly to 0.7 points from the prior year. Both U.S. and non-U.S. were slightly higher. The U.S. included higher pensions and bonus accruals. For the nine months, the $154.4 million SG&A expense was 20 percent of sales, down slightly from the prior year's 20.1 percent. The improvement was achieved in the U.S..

Q3 operating profit of 7 percent was down 3.1 points versus Q3 of '02. The point decline in the U.S. and outside the U.S. was similar. Cash flow and working capital management, again, had a positive outcome in the quarter and year-to-date in comparison to the prior year. Working capital turnover efficiency continues to improve, and the Company's operating cash flow adjusted for the difference in pension contributions between '03 and '02. We are essentially the same on reduced income.

The Company closed the quarter with $11.3 million more cash and cash equivalents than debt. The $198.2 million in cash is being used to repurchase shares and pay the increased dividends and is available to support our continued acquisitions program. The Company is poised to take advantage of the recovery in the U.S. and the world economy and is positioned well to further enhance its growth should the appropriate transactions come to closure with the various acquisition candidates that the Company is pursuing.

At this point in the call, I would like to open it for questions. Jason?

(OPERATOR INSTRUCTIONS). Gary McManus, J.P. Morgan.

Good morning anybody. Regarding the strength you saw in September, can you elaborate a little bit more on it? Was it across the board in all your various end markets? Can you maybe say what was the increase for the month of September, quantify it? And sustainability, do you have any early read in October? Is it continuing?

Well, Gary, let me first address the amount of it and John can talk to the sectors. The amount was double-digit, and it was both machines and consumables. We have not really addressed what our sales are month by month as we are in the quarter, but needless to say, it was substantial.

What was interesting is that the market seems to be different. Where we have had (inaudible) available several times earlier in the year, we did have some sales gains from that program in September, essentially the same was much more positively received, which would indicate that the market has a different psychology now than it had before.

John, you want to address it?

I would say as Jay commented the improvement was very broad in North America, both equipment and consumables, and Jay talked a little bit of specifics about that. The other regions of the world with the exception of Asia-Pacific, which Tony covered, were a little softer because of the Euro currency issue in Europe and some of the political challenges in the Latin American markets. So this was primarily on North American and Asia-Pacific led gain.

As far as that being sustainable, Gary, we've got a long way to go yet in the quarter. But what we see right now in North America is that it is positive compared to what it was in prior years, so that is continuing.

Okay. Secondly, I think at the end of your prepared remarks, Jay, you talked about cash is going to be used for share buyback. But I think in the third quarter you did not buy back any stock. I was just wondering the thought process behind that, and with all the cash you had on hand, why aren't you buying back stock?

Gary, we did buy back some stock.

How much did you buy back in the third quarter?

Let me take a look here. Was not a large amount. A little bit of it was maybe we are being too optimistic as we try to buy it back, as we try to make sure that we don't ride the price just by our own purchasing activity. It was a couple of hundred thousand in the quarter.

Okay. But it does not seem like it showed up in the cash flow. I think you had 14.1 million for share buyback or something like that. It did not seem like that changed that much from the second quarter. Were there other offsets to that, like employee options or something like that that would --?

Yes.

So you were buying back stock, but it was offset by the --?

Right.

Walt Liptak, McDonald Investments.

Good morning. With regard to -- a follow-up to that question, one of your competitors out of Chicago was saying that they cut prices for equipment during the summer period and that they also saw an uptick in September. Did you go through any pricing strategy, especially on the equipment side?

As Jay had mentioned, we had a promotional activity during this quarter similar to other promotional activities that we had entertained throughout the last 12 to 18 months. I think the difference was that this promotional activity was coupled with a rebound in the appetite in the marketplace. The timing of it was significant to allow the kind of results that we achieved. So we were very pleased, and to Jay's point, we feel that momentum is continuing.

Okay. Then on the acquisition that was announced yesterday, can you give us an idea of the magnitude of sales? We are coming up with something smallish in the 20 to 25 million range; is that about right?

That is a good range. The Company was historically larger than that. I think as they have gone through a number of sales and divestitures, they lost a bit of the market focus on the welding side of the business. Clearly these are strong brands in the marketplace. Number three or four in the segment depending on how you look at it. The early contact that we have had with the customer base has been ecstatic about the fact that they are now going to have a stable source of supply with a company that knows how to service this segment, including product introductions and good delivery and market support.

Okay. And then in terms of accretion, you did not make any comments -- I know it is small, but will it be accretive in the first year and by how much?

It will definitely be accretive in the first year. We think it's in the range of 3 cents a share. One other comment I would make is that although these brands were in the same type of channels that Lincoln retail business were in, in the overlap of their top 10 customers and our top 10 customers, there is only one common customer. So, again, it opens up a whole new opportunity for us in the market segment that we had not historically participated in.

Are you going to maintain the brands? I don't recall you saying that. Are you going to paint them red and call them Lincoln?

Unfortunately, they are already red, so we won't have to repaint them. I think we'll go through a whole new product configuration and review, including looking at where the product is made and how we get it to the channel.

Okay. Just another question. It was curious to me that the export sales were down year-over-year. With the weakening dollar, I would have thought we would be seeing more export sales. Can you just address that? Maybe it's not that meaningful.

I think it's more an issue of timing when orders have been shipped. Certainly the momentum out of the U.S. for exports is not that way.

Okay. Thank you.

Godfrey Birckhead, SBK-Brooks.

I am a bit confused by the last questioner. In the press release, you say $14 million of sales. Is that correct? (multiple speakers)

That was these sales most recently of that company, but, as John was saying, the 20 million has been disbursed if you go back just a bit to what they were selling through their channel. That is right.

So it is 14 million?

What they have right now is 14 million.

Okay. You are going to give us the cash flow numbers in the fourth quarter as you usually do. So can you share with us now since you are going to do it later on about what you are going to pay for it or what EBITDA multiple you might be paying for this? (multiple speakers)

It will be discussed. It is small transaction, and basically we are buying the inventory. The details will be in the few as we're still coming to closure on what the details are (multiple speakers) we will just wait for that.

So I should wait for the Q on that?

Okay.

Capital expenditures this year please?

It will be under what our depreciation rate is. You can pretty well multiply it by (inaudible) what we have had for the nine months.

Okay. And depreciation, same thing?

Yes.

The other income account I always have difficulty with because you said that China and Turkey, which I suppose go in there, were ahead, yet the other income was down by 100,000. How do we reconcile that today?

Well, we have changed the rules on you. We are now reporting on a separate line the equity earnings affiliates. You see the 900,000 (multiple speakers). That is the earnings of the nonconsolidated.

What goes into the other income account now?

That is a little bit of everything -- purchase discounts and cash discounts. It is so many different diverse things that (multiple speakers) it's very very difficult to say.

What is the tax rate going to be for the year?

We think it is going to be as we have booked it for nine months about 21 percent.

21 percent?

Yes. I mentioned also the gain on disposal of excess assets is in that account, too. (multiple speakers)

But there was none this year?

Well, there has been. The other income can be a lot of pieces of obsolete equipment that are moved out, maybe we are talking 50, 75 different (multiple speakers)

So there were possibly more gains last year than this year which would explain the $100,000 drop?

Yes. And there have been some land sales a we have periodically reduced warehouses around the world. (multiple speakers). So it's a number of things.

I guess the question we will all be asking is the upside leverage, which you have referred to, and the unabsorbed overhead. Is there any help you can give us on what the unabsorbed overhead has been so far, and at what operating rate you would make that up in, and at what rate you are now, and where you might be if you maxed out? Is there any help you can give us there? Each dollar of incremental sales, how much would that bring back to the bottom line kind of thing?

Well, you know we have had a sustained decline. This has been over five years. If you go back to where our margins were at the start of this period, back in the first part of '98, that is the place we can get back to, but it is not going to happen overnight, because we are not going to see our sales recovery that rapid. It is included in our costs this year, next year and the year after that. Also, it will be a higher pension expense, but we think that will return back to what historically it has been when we get through this catch-up period. I think our sales growth in recovery is going to be probably over the next two and half, three-year period, too, as the economies slowly recover from a long period of decline.

But where we can get -- I think we can get back to where we were and knowing we have more installed capacity around the world today -- we've got a Venezuela; we've got a Poland. We've got our JVs growing at high rates. We've got a lot of investment, which has been put in for cost reductions and improved efficiencies and all those things, not just (inaudible) around the world. I think the top side is higher than we had before. So we think all we need is the market to (multiple speakers)

The top line to get bigger?

Right.

You and I at one point some years ago talked about this, and we were talking about an operating margin potential at some point maxing out at 15 percent. Is that still --?

Our max before was 14.7 percent. I think I was even more optimistic than that. I think we've got a couple 2.5 percent above that is a reason goal considering our expanded capacities and our improved efficiencies. We are looking into the immediate term. We are not looking at next year.

Right. I understand that. If you took the -- one more question, then I will shut out and give someone else a chance -- if you took the pension fund cross-out from the SG&A, what would the SG&A be as a percentage of sales? What would that relationship be?

Yes, well, I think in the quarter we had -- was it 1 million about in SG&A? We are just trying to see what we get. There are comparisons between what we had last year and what we had this year. And then --

I wondered this year what that relationship would have been without the pension.

Well, the total in the year was 6.6 million.

That is for the nine months?

Yes. And the difference was 2.9 million in SG&A.

For the quarter?

No, for the year.

For the year.

Most of the pension cost was in cost of sales. Most of our employees are manufacturing employees.

Okay. Thanks very much.

Paul Haggerston, State Street Research.

Good morning. Could you comment what you have seen this year in terms of the sales momentum in the machines versus supplies? Also, could you comment on what you foresee to be your most important end markets, and which of those, if any, might stay really sluggish here over the intermediate-term?

Well, first, let me comment on the machine side of the business. We think the momentum has come from a lot of factors in that area, primarily new product development efforts that we have continued to focus on over the long haul here. Even in the decline that Jason has alluded to has given us a real opportunity to advance our market share by selling the advantages of technology and the productivity improvements associated with the new technology. And then secondly, the strength that we have experienced with our WCTA segment in the retail sector to add on to that. So clearly that has been a good driver for us, and as Jay mentioned earlier, we are starting to see some of the rebound now take place in the consumable side which is also good news for us.

In terms of the industry segments, I think we have commented a number of times that one of the good things for us is that there is no singular dominant sector that we are relying on and that no segment represents 10 percent or more of our business. Clearly we have seen some segments begin to improve. We have talked about oil and gas being a very strong segment, and that is globally oriented. We have also seen some growth taking place in the construction equipment and in the farm equipment segment, which are also good segments and consume a lot of consumable type products. But I would say it is a general industry growth and improvement that has really impacted the business at this point.

Tony may want to comment on the other areas.

Well, I think you're absolutely correct. What I would add to that is that from a regional point of view, of course, Asia is the number one growth opportunity in general. But I will tell you with what John and his people have done in cost reduction and productivity improvements in the United States and elsewhere, if we have a rebound in those markets -- or not if -- when we have a rebound in those markets, our profit-making abilities is much greater in our U.S. and Latin American markets for example than we can imagine because of the actions that are taken and because of the autonomies of scale that we have there.

Paul, I have to also express condolences for last night.

It was an awful experience. There is a lot of talk around here about whether we have a Major League manager or a Little League manager running this team.

(OPERATOR INSTRUCTIONS). Walt Liptak, McDonald Investments.

I guess as a follow-up to one of the previous questions, I wonder if you could quantify for us how much costs you have taken out in the restructuring over the last couple of years that maybe you have not realized all of it yet, and how much more is there to go? John, you alluded to some cost savings plans for 2004 in Mexico. What is the magnitude of those?

Well, it is very tough to do that because what actually comes to pass is also going to be dependent upon the volumes that run through there. I think we're talking $8 to $10 million if you add up everything around the world.

On an annual basis?

Right.

At the present volume levels.

Godfrey Birckhead, SBK-Brooks.

I suffer through it every single fall. We have got another death, don't we? Why he keep Pedro in the eighth inning, I don't know. Anyway, let us go on. Can you give us an idea on what the size of the accessories retail business is as a percentage of your total? Is it as profitable as the rest of your business?

It is in the range of $35 to $45 million annually.

35 to 40 million?

It is as profitable as our other businesses are.

Thanks a lot.

That would be the wholesales to the segment.

(OPERATOR INSTRUCTIONS). Matt Fasnot (ph), Clovis (ph) Capital.

Could you talk about recent additions of partnerships with distributors and how that has helped your business?

Could you quantify what you mean by recent partnerships?

Have you expanded your partnerships for distribution with large companies that have a presence where people would buy your welders and consumables that have helped you gain more, say, a footprint in the marketplace?

I would say we've always had a very strong partnership with the large industrial gas distributors that are -- you know, the significant distribution channel in the North American markets at least. I think the difference that we are seeing today in our relationships with those distributors is that the key industrial distributors are really looking for manufacturer partners who can help them profitably grow their business over the long-term, not just one-off commodity product suppliers who offer only commodity pricing.

We have had a fairly long and consistent strategy that we are going to focus on those areas that bring value to our distributor partners in the ways of technology and process and product support, and then the service network in the field to aid their efforts. That is where our strength lies and where it will continue to lie.

Thank you.

At the moment, we are currently showing no further questions.

All right. Well, thank you very much for joining us in discussing our results for the quarter, and we look forward to talking to you in about three months.

Thank you everyone for joining today's Lincoln Electric third-quarter earnings conference call. At this time, all sites may disconnect.