Lincoln Electric Holdings Inc (LECO) 2013 Q4 法說會逐字稿

Greetings and welcome to the Lincoln Electric fourth-quarter and full-year 2013 financial results conference call.

At this time, all participants are in a listen-only mode.

As a reminder this call may be recorded.

It is now my pleasure to introduce your host, Vincent Petrella, SVP and Chief Financial Officer.

Thank you sir.

You may begin.

Thank you, Ashley, and good morning to everyone.

Welcome to the Lincoln Electric 2013 fourth-quarter conference call.

We released our financial results for the quarter and full year this morning prior to the market open, and our release is available on the Lincoln Electric website at LincolnElectric.com, or by contacting our Investor Relations office at 216-383-2534.

Joining me on the call today is Chris Mapes, our Chairman and Chief Executive Officer.

Chris will start the discussion this morning with an overview of our full-year 2013 results, and then he will also highlight progress made on our strategic initiatives.

I will then cover the fourth-quarter numbers in more detail as well as our uses of cash.

We will then take questions following our prepared remarks.

As part of the webcast today, we are using a slide presentation which can be accessed on our website under the Company and Investor Relations tabs.

But before we start our discussion, please be reminded that certain statements made during this call and in our discussions may be forward-looking and actual results may differ from our expectations.

Actual results may differ materially from such statements due to a variety of factors that could adversely affect the company's operating results.

Risks and uncertainties that may affect our results are provided in our press release and in our SEC filings on Forms 10-K and 10-Q.

Additionally, we also will discuss financial measures that do not conform to US GAAP, and you may find important information on our use of these measures and their reconciliation to US GAAP in the financial tables that we have included in our earnings release.

With that, let me turn the call over to Chris Mapes.

Thank you, Vince, and good morning to everyone joining us on the call today.

Moving to Slide 3, I am pleased to report that our full-year 2013 results demonstrate the company's ability to stay focused and execute well in an otherwise challenging market.

In 2013, we achieved record profit, earnings and cash flow performance.

This achievement reinforces our confidence in our strategies and our ability to execute on our initiatives.

Most notable is our record cash flow generation, which increased 3% to $339 million and includes a voluntary $75 million contribution to our US pension program, which is now fully funded.

We also returned just under two-thirds of cash from operations, a record $217 million, to shareholders through dividends and share repurchases.

Lastly, we increased our return on invested capital to 18.9% this year, up 20 basis points from 2012.

Moving to Slide 4, which highlights key income statement items for full-year 2013, I would like to note that, in addition to our reported results on this slide, we have footnoted the contribution of our Venezuelan operation which operates in a highly inflationary economy and uncertain environment.

We have provided more information this quarter as our Venezuelan results have grown in significance due to inflation compared with our South American segment results.

While I know many on the call will be doing some quick math, I would like to point out that even if you exclude our Venezuelan business results, you will see that our remaining business performance still achieved record results for the year.

Now, looking at our reported full-year 2013 sales performance in detail, we held sales steady at $2.9 billion.

We achieved a 3.2% growth in sales.

However, this gain was offset by an approximate 3% decline in volumes.

Lower volumes primarily reflected our decision to strategically realign our product portfolio for its higher value solutions in various parts of our business.

We did see strength in demand in global automation solutions where we achieved a solid double-digit percent increase in sales in 2013.

Additionally, demand for consumables continued to improve through the year with full-year sales ultimately flat versus the prior year on stronger fourth-quarter growth.

Geographically, we achieved solid growth in Mexico and in our South American business where both our Colombia and Brazil businesses achieved excellent improvement in sales growth.

Moving to profitability, reported operating profit margins expanded 160 basis points to a record 14.3% of sales.

On an adjusted basis, which excludes special items, we achieved a record 15% operating margin, up 190 basis points from 2012.

This increase reflects favorable product and geographic mix, and the benefits of our internal initiatives and productivity improvements.

We accomplished this while integrating several acquisitions, consolidating areas of our platform, deploying seven SAP installations in our global footprint, and executing on hundreds of continuous improvement projects that we pursue as part of our lean culture.

So I would like to thank our employees around the world for their hard work and perseverance through a demanding year.

Moving down the page, we achieved a 16% increase in reported diluted earnings per share at $3.54 in 2013.

On an adjusted basis, EPS increased 19% to $3.77, which includes $0.46 from our Venezuelan operation.

Moving to Slide 5, which highlights specific end sectors that we serve, the fourth quarter saw similar trends to what we've highlighted all year, ongoing strength in the transportation and energy related sectors across most regions worldwide.

Light vehicle production continues to expand in units and broaden its production base geographically, which we have leveraged well in our automation solutions.

The energy sector remains solid with new oil and gas development investments being committed to, strong international pipeline projects coming on stream in mid-late 2014 as well as the development of downstream processing facilities which we expect will continue to present growth opportunities for us.

While still in its early stages, construction appears to be picking up activity and we expect that we are seeing the bottoming in the heavy fabrication sector even though there has been a slight decline in the agricultural sector as it is moving into 2014.

We do remain cautious on any substantial improvement in the global mining sector, especially as it relates to Australia, a significant piece in our Asia-Pacific region.

As we navigate through the slow pace of economic stabilization in Europe and ongoing recovery in other geographies, we have continued to focus on our strategic priorities and investing in our business for the long term.

In the quarter, we continued to invest in our expanding automation portfolio.

New investments in this area include a robotic automation platform in Europe based in Germany.

While we are also focused on providing unparalleled solutions and customer service to our broad base of customers, we are working to ensure we are leveraging our industry-leading expertise and proprietary technologies to capitalize on the increasing technical and high performance requirements of OEMs and large-scale engineering projects worldwide.

These efforts include our work in aligning our portfolios, R&D investments, and manufacturing platforms to ensure that we can capitalize on these trends profitably.

We expect to continue to benefit from these strategies in 2014.

Before I pass the call to Vince to go through the fourth quarter in detail, I would like to comment on our view going into 2014.

As you can see by my comments on the industry sectors, we remain cautiously optimistic that we will continue to see modest improvement in many of our end sectors this year, but we expect any improvement to occur towards the second half of the year.

This perspective has been amplified by the early challenges in North America in the first quarter primarily driven from the concerns over the weather.

As such, we expect a low single digit percent growth rate in sales this year with continued modest improvement in margin performance.

Looking at capital allocation, we will continue to take a balanced approach in 2014.

We expect to invest in the business for growth, which includes an active acquisition program, as well as return cash to shareholders through our dividend program and share repurchases.

We recognize that driving improved results this year will require an ongoing discipline of continuous improvement, a focused execution of our global strategies and technology plans, and a strong pipeline of new, innovative solutions that drive measurable value for our customers.

I am confident that we are well positioned to deliver on all these and improve operating results in 2014 and towards our 2020 goals.

And now I will pass the call to Vince to cover our segments' financial performance, balance sheet items and uses of cash in more detail.

Thank you Chris.

We finished the year strongly by continuing to improve the quality of our earnings in the face of an uncertain global economic environment.

Despite a relatively modest revenue growth, we expanded our adjusted operating profit by 32% in the fourth quarter.

Now, moving to Slide 7, consolidated sales were up 4.4% compared with the fourth quarter of 2012.

Volume increased reported sales by 3.1% and acquisitions increased sales by about 2%.

Foreign-exchange had a 60 basis point negative impact on sales.

Our fourth-quarter gross profit margins increased to 34% compared with 31.1% in the comparable prior-year period.

LIFO credits in the quarter totaled $3.7 million, similar to the LIFO effect in the prior year's fourth quarter.

The improved gross margins were primarily attributable to improve volumes, a better sales mix, and expanding margins in Venezuela.

SG&A expense for the fourth quarter decreased 60 basis points.

Contributing to the decrease in SG&A expenses as a percentage of sales is the leverage from improved sales results and a $3.5 million favorable impact from foreign exchange transactions year-over-year.

Operating income for the quarter increased 410 basis points.

The quarter included rationalization charges of approximately $300,000 mostly related to rationalization actions and asset impairments in Europe.

We also incurred a $700,000 loss from the disposal of land in our Asia-Pacific segment.

Operating income before these charges was $120 million or 16.8% of sales.

Venezuela contributed $24.2 million to adjusted operating income in the fourth quarter of 2013 on $41 million of sales.

The effective tax rate for the fourth quarter was 180 basis points lower than the prior year.

The primary factor driving this lower effective tax rate was an improved geographical earnings mix.

Our 2014 effective tax rate should increase to over 30%, subject to the mix of earnings by jurisdiction this year.

Our diluted earnings per share increased 45% for the fourth quarter compared with the prior year.

Excluding special items, diluted earnings per share increased 38% over 2012's fourth quarter.

Adjusted diluted earnings per share included $0.22 per share from our Venezuelan operations in the fourth quarter.

On a geographical segment basis and excluding special items, North America Welding improved EBIT margins by 120 basis points in the fourth quarter.

Higher volumes and improved mix and good cost control drove the increase.

Europe Welding's EBIT margin improved 240 basis points in the quarter.

The increase was attributable to a 4.4% increase in year-over-year volumes partially offset by a softening in pricing.

Our European markets improved broadly in the quarter led by Eastern Europe and the Middle East.

The Asia-Pacific segment was essentially breakeven in the fourth quarter after recording a $1.4 million loss in the prior year.

Sales in Asia-Pacific were down 5.7% due to volume and pricing declined 1.4%.

The volume decreases were generally caused by the continued sluggishness in the construction and related machinery markets in China.

In addition, Australian volumes continued to decline as a result of lower mining activity as well as a general industrial softness in that country.

The South America Welding EBIT margin increase was driven by the highly inflationary economy in Venezuela.

Volumes increased in our most important South American markets.

South America again includes $41 million of sales from Venezuela and $24.3 million of adjusted EBIT in the fourth quarter of 2013.

The Harris Products Group expanded fourth-quarter EBIT margins by 200 basis points.

Pricing decreased because of lower metals cost, primarily silver.

A foreign-exchange gain of $1.2 million aided the margin expansion in that segment.

Now onto cash flow and working capital, our cash flow from operations increased $13 million in the quarter, primarily from higher net income, lower working capital needs and lower year-over-year pension contributions.

Our net operating working capital to sales fell to 17.6% compared with 18.8% at the prior year end.

Full-year operating cash flows increased to $339 million after contributing $18 million more in pension contributions for the full year 2013.

During the quarter, we paid cash dividends of $16.3 million which resulted in dividend payments for the full year at $49.3 million.

The prior year's fourth quarter included an additional dividend payment of $16.5 million which normally would have been paid in January of 2013.

Our full-year capital spending increased to $76 million because of higher reinvestment projects in North and South America.

Our 2014 capital spending plan is currently estimated at between $60 million and $80 million, primarily associated again with significant reinvestment projects in our North American business unit.

We spent approximately $53 million on acquisitions in 2013 to strengthen our global automation position.

During the quarter, we spent another $54 million repurchasing about 768,000 shares for treasury.

And for the year, we spent $168 million on share repurchases for a total of 2,722,000 shares.

That's a repurchase price of approximately $61.68 per share for the year.

We ended the year with no net debt and $300 million of cash on the balance sheet.

We will continue to invest in our business for the long run and prudently return cash to our shareholders.

That's the extent of our prepared remarks this morning.

With that, I would like to open the call to any questions.

Ashley?

(Operator Instructions).

Schon Williams, BB&T Capital Markets.

Good morning guys.

Thanks.

Good quarter.

I guess I wanted to dive right into Venezuela here.

I just wanted to kind of get your expectations.

I think the last time we talked, there was (inaudible) said maybe we would see another deval coming in March.

I just want to see if that's still your current expectations, and what effect that would have on the margins.

And then I wanted to talk about it seems like there's quite a bit of political instability that we've seen in Venezuela the last few weeks.

There's talks of violent protests in Caracas.

I just want to see what -- have you seen any effect on your business just from the (inaudible)?

This is Chris.

It's obviously a very challenging situation.

We are very aware of some of the issues that have been going down there politically and with some of the incidents that have occurred in some of the major cities.

It is challenging for the business.

It is having some impacts upon the business.

It's very difficult for us to forecast or determine what the impact will be on the business over the course of the next several months.

Certainly, we view that there probably will be further potential adjustments to the currencies, but depending upon what the decisions are made there from the government, it's very difficult for us to forecast what those changes might be.

I would tell you that our singular focus in Venezuela for our business is our employees, ensuring our employees are operating in a safe environment.

And the situation there is very challenging and certainly it is going to have some negative implications to the business, but the determination of that at this point is just very difficult for us to estimate.

I would add to that that I think it is fair to say that finishing off 2013 and rolling into 2014, there was a growing consensus that a devaluation was going to occur and was necessary.

And I think it's a little surprising that it hasn't occurred at this point in time, but certainly pressure is building.

The amount of US dollars available for the economy continues to be restricted, and is falling.

And so I think a lot of the press that you've been reading about other companies, Procter & Gamble, Toyota, would increase the likelihood of disruptions in production activities and manufacturing in the year to come.

So, I would just add that the uncertainty level is increasing.

The amount of dollars are decreasing, and I think a devaluation is something that will probably come this year even though most consensus was it would happen by now.

Okay.

And just as a follow-up, it looks like volumes picked up dramatically in South America in the quarter.

Is that more the automation facility coming online?

Is that some type of pre-buy ahead of the end of the year?

I'm just trying to get a sense of what drove the strength and the volume trends in the quarter.

I would tell you that the volumes came across the board in our South American segment.

We had volume increases in Venezuela, a very strong quarter there from a volume perspective.

And Colombia and Brazil also did quite well and had a strong result during the course of the quarter.

And the last thing I would add on Venezuela is our management team there is doing an excellent job at managing the environment there to be able to achieve the kind of margins they have and keep the operations running thus far.

We are highly confident that we have the right team in place to continue to manage a very difficult environment.

My final comment on Brazil would be that we are very happy with the growth that we saw in that business in 2013.

But we are really at the early stages of the entrance to that market from an automation perspective.

And although we certainly are meeting with customers and have had a couple of projects that have come through, we are really going to start to see that build as we move into 2014 and 2015 and develop and execute on that presence and that market.

All right, thanks guys.

I'll get back in the queue.

Steve Barger, KeyBanc Capital Markets.

Thank you.

Good morning.

For the total company, this is the first quarter since 2Q 2012 that you've seen positive volume growth.

And Chris, you talked about this a little bit, but has that momentum continued into 2014 so far if you can kind of adjust for the weather if that's possible?

I'll have to start by saying I'm not sure that it's possible.

Look.

It's been a little bit more of a challenging start here in the North American marketplace because of some of the implications that we certainly believe are just weather driven.

But I would tell you that I also think there are some elements of the market that, as we move into 2014, I think we will see strengthening as we end and get towards the back half of the year.

So automotive continues to stay relatively robust.

That's a benefit for us, also a benefit in the automation investments that we've been making here and executing on here for the last couple of years.

I also think we've seen a bottoming of the heavy fab area, although there was some concerns recently about what the agricultural space within heavy fab might look like in 2014.

But we see that -- we still think that we are in a scenario in 2014 that, certainly through the early portions of the year, the growth may not be as exciting as we would like to see.

But we do think we are going to be in an accelerating environment and expect to see more favorable demand opportunities in the back half of the year.

Got it.

Okay.

I don't know if you can quantify this, but how much of the almost 200 basis points of operating margin expansion through 2013 came from your decision to focus on higher value applications?

And I guess, just reasonably speaking, how much margin expansion can you drive in 2014 pursuing that same kind of strategy?

I don't know that we can give you an exacting number.

I can tell you I expect to continue to make incremental improvements in the business.

As we've said, we've got our teams around the world working on the productivity side as well as continuing to enhance the product portfolio by focusing on higher value-added applications and solutions in the market.

We really don't think about the business, Steve, relative to the actions we are taking at various places around the world and trying to make adjustments to the portfolios to make improvements in those particular markets.

We can see the benefits in the P&L, but I wouldn't be comfortable in telling you what the actual impact would be with this transition.

I got it.

I guess just last question, can you frame up how far along you are in the process of really identifying and targeting those higher value applications?

Is a lot of that done, or have you just kind of scratched the surface on where you think you can go with that?

The way I would describe it is that the early successes and the significant successes are behind us.

I think that margin expansion, because of the pairing of the business and improving the mix, will likely diminish over 2013, but that's not to say there won't be other areas that we will continue to grow margin expansion in, most notably automation and some end markets that are more attractive to us.

But from the geographical mix standpoint, we've made some of our most significant improvements in 2013 now.

So I would just reiterate that will likely diminish during the course of 2014 now.

Got it, thanks.

I'll get back in line.

Kathryn Thompson, Thompson Research Group.

Thanks for taking my questions today.

Just a follow-up on margin questions, not to ask too many questions on gross margins, but if you dig into the quarter, excluding Venezuela, what would gross margins and/or operating margins have been?

And looking over a long-term, excluding the Venezuela impact, realistically as you think about the business two to three years down the line, where do you see gross margins growing?

And what is the overall company target that you think about where realistically growth in operating margins can go?

Thank you.

Based on the information we gave in our prepared comments on the Venezuela operating income contribution, if you were to completely strip out Venezuela in the quarter, it represents about a 250 basis point improvement in consolidated operating profit.

And then in terms of what our ultimate goals are, we have established a goal of having through the cycle an operating profit margin of in excess of 15% for our business.

Great, thank you.

Then my last question, on volumes, you look specifically more at what's driving your volume demand in North America and in Europe.

Could you just give a little bit more color on end markets that are driving it, more specifically I think if you give color on what you are seeing in nonresidential and/or commercial construction.

Let's start with Europe.

I think Europe, we did see an improving market environment in Europe in the fourth quarter.

But part of that improvement is coming off pretty challenging comps as that market has really just, in my opinion, stabilized through 2013, and now we are beginning to see some improvements off of a relatively low trough.

They are seeing benefits in the automotive space.

They are seeing some benefits there in the marketplace in the energy space.

So, we are seeing the improvements in Europe, and I would probably characterize those from those industry segments.

As we look at the US, we think we are seeing some improvement in the commercial construction.

We really like the investment that we've made recently in some new technology to assist individuals who are in that marketplace and think that that will be a catalyst for us to expand in that area.

That would be the purchase of the Burlington automation business that we completed in 2013.

Certainly, we believe that automotive has stayed strong and we are continuing to see the catalyst in the North American market of energy, both from a shale and from the impact of lower energy costs into chemical processing into some other industries that would utilize that as part of their cost basis in the production of their materials.

Great.

Thank you so much.

Walter Liptak, Global Hunter Securities.

I wanted to ask about kind of a follow-on to the last question talking about Europe improving a little bit.

The pricing looks like it was down in the quarter, and I think you got price last year.

I wonder if you could talk about the environment, and if you are planning a place increase or has it become a more competitive market?

Pricing can be largely driven segment by geographical segment by raw input cost movements and the mix of equipment versus consumables.

We have a little heavier mix on the consumables side in Europe and maybe a little softer raw input cost there that lead to that kind of a dynamic.

So it all depends, Walt, as you know, on what our mix is and what important raw material cost movements are doing to impact particularly our larger consumable sales mix in our consolidated results.

As far as looking forward in terms of pricing, we are monitoring the input cost changes very closely at the present time.

We did have some falling prices towards the end of 2013.

2014 has now started out with some slight increases in our most important raw input costs, so it's likely that, in the next month or so, we would be looking at what we would need to do to protect our margins in the face of some slight increases in raw inputs.

Okay.

Fair enough.

I wanted to ask too about cash uses.

The use of cash on the repurchase I think was good.

I wonder if you could comment on your 2014 expectations on the repurchase.

And then second, on acquisitions, I wonder what the deal pipeline looks like.

Are you seeing any larger deals that might be in the market that you could utilize some of that cash?

From a capital allocation standpoint, we did just raise our dividend again towards the tail end of 2013.

We had a good year on share buyback, spending about $168 million.

That's likely that based on everything we see today that that will likely be our baseline for 2014, barring any more significant acquisitions or any other uses of cash.

So we did double our share buyback from $81 million in 2012 to $168 million, so we certainly have ramped that up.

But we still ended the year, Walt, with about the same amount of cash we ended last year.

So we have a great cash flow generation.

We drove our working capital down by 120 basis points, which freed up more cash.

So, we will keep deploying our balance sheet and our cash flows towards those categories that we utilized in 2013.

So, I would expect another good year for cash return to shareholders.

And we've always had acquisitions every year over the past decade, so I would expect that we would do something in that arena as well, but I won't comment any further on what might or might not be in the pipeline.

Okay, great.

And then Chris, if I could just ask you one on the outlook you gave for a stronger second half.

So to this point, through part of February, is it you are still seeing kind of this sluggish low volume growth?

I guess the question is if it persists, we would expect -- I'm trying to look at my model for 2014 and kind of revenue growth we might get.

And I wonder if you can get significantly stronger growth in the back half, like could you do high single-digit double-digit in the back half directionally, what are you thinking?

We certainly don't believe the global economy is on a pace to be driving a double-digit kind of improvements in the overall market around the world.

I guess my comments would be we believe that we are going to continue to see improvements in these markets and slight improvements in the acceleration of those markets around the world.

And we feel that because of believing we are beginning to see slight improvement in Europe, and the fact that the North American market continues to expand, although I do believe that it has had more challenges, especially in Q1, with some of the implications in the economy with the challenges that have been in North America with some of the challenging weather events which have occurred.

None of us ever want to talk about weather as it relates to the call, but we are probably 30 days into the year from a shipping perspective, and we've just had a multitude of days that have been more challenging.

And we are very confident in the business over the longer term, but I do believe that Q1 may be a little bit more challenging for us because of some of the implications here in North America.

I would just add to that, Walt, that we finished out the year very strongly.

December was a very good month, and January and February have started out soft compared to those results, both sequentially and on a year-over-year basis, which gives us maybe some rising or higher level of confidence that January/February may be truly more weather-related than maybe a downturn in the macros or the businesses that we are serving.

So, it might take March to really sort it out, but certainly the year has started soft for us.

Okay.

Thanks guys.

Stanley Elliott, Stifel.

Good morning everyone.

Thank you very much for taking my question.

A quick question.

Does Lincoln -- and I hate to go back to Venezuela, but does Lincoln qualify as an importer of priority goods?

I guess the reason I ask that is there is some speculation that maybe certain classes of companies would be viewed at differently as it relates to kind of the revaluation piece.

Broadly speaking, we do not qualify as an importer of priority goods.

We do have a couple of categories that are relatively insignificant that do qualify for fast-track treatment, but the bulk of our product is not priority classified.

Okay.

Has there been an update on the money that you will put into escrow for -- I guess there's a -- I think, if I remember correctly, there was a Canadian tax issue.

Is there any update on that, and plan for the money, should it come back to you?

The amount stays the same.

It's just shy of $90 million.

It's $89 million I believe that we have on deposits in Canada.

We are working our way through the litigation during the course of 2014.

And there is really no change in our view of either the deposit or the status of the litigation.

We still believe that we will win on the merits in our case, the money will be returned.

And we are going to do the same thing with that $89 million that we are doing with the rest of our cash and balance sheet.

We will deploy it towards acquisitions and share buybacks and paying dividends.

Is there any change on the timing?

Is that a 2014 event?

Does that happen a couple of years down the road, or maybe it's just who knows?

We don't know.

There has not been a trial date established at this point in time.

We are still in discovery and doing that work and exchanging documents, and so we don't have a trial date, so I wouldn't be able to tell you when that might be resolved.

Okay.

Lastly from me, was there anything on either a regulatory front or anything of that nature that would've helped December accelerate sales relative to the rest of the quarter?

Not to our knowledge.

We just think it was a strong end to the year.

Some of the macros I think supported that.

We had some growing ISM numbers in most markets around the world running up to the end of the year.

And we viewed it as a continuous strengthening of the global economy.

Great, thank you very much.

Best of luck.

Liam Burke, Janney Capital Markets.

Thank you.

Good morning Chris.

Good morning Vince.

Chris, on the product mix and exports in North America, how has that market been?

Overall volume was up in the segment, but how were the export pieces of the business?

The export piece of the business actually in Q4 was down slightly for us.

So, we think that's probably from some of the impacts that we've seen on the equipment side globally.

So, we were down slightly for the quarter 2013 versus 2012.

Okay.

And then on automation, are you satisfied with the continued progress you are making in that area?

It's a relatively small base of revenue but growing pretty nicely.

It's growing pretty nicely, and I'll tell you I'm very excited about it.

One of the things I'm excited about is just the assets and the people that we have put in place in really what I view to be a relatively short period of time.

And the recent acquisition outside of Frankfurt, Germany of Robolution is going to give us a foundation for the European market.

We like the fact that that's in Germany because that's really a center for automation activities in the welding space.

The Greenfield asset that we placed in Brazil, we've hired a spectacular management team down there and are getting it fielded with technical individuals who can service the market.

So, you're right.

Today it continues to be a smaller portion but I see it as a long-term catalyst for the business and an area of continued investment over the next few years.

Great.

Thank you Chris.

Joe Mondillo, Sidoti and Company.

Good morning guys.

I just have one question.

It's sort of a higher level question sort of related to how you guys are sort of long-term thinking about market share gains.

And it sort of comes on the heels of this sizable acquisition that one of your competitors just made.

Lately, you guys have been taking the approach of a very organic approach complemented with making strategic acquisitions on the automation side.

It seems like that continues to be the approach.

But could you give a little more color on how you think about your strategy maybe versus your competitor?

Does that put any pressure on you guys to make any larger acquisitions, or any sort of color on your sort of big level strategy thinking there?

I would probably give you three quick answers.

One is there aren't any activities in the marketplace that are creating any pressures for us.

We are executing on our 20/20 vision strategy, enormously confident in our approach and our ability to execute on that, and that's what we are doing every day.

The second thing is, as it relates to acquisitions, I'm not as interested whether they are large or whether they are small.

I'm interested whether they're going to add value for our business and our shareholders and are they strategic.

From that perspective, if they are, then we need to execute on those and bring those into our portfolio and then align those assets and those people in generating the types of solutions for our customers and returns for our shareholders that we are looking in executing that strategy.

So I think those are really the two main pieces that I would talk to relative to the strategy around those acquisitions.

And then the third one is we have been focused on driving our business organically.

You asked me about -- your question asked about the share perspective.

I don't think about the business from a share perspective of the global welding market.

We certainly want the largest share that we can accommodate that's going to drive the types of value for our shareholders that we want to have for our business.

There's a large market out there still for us to grow into, but that's probably not every dollar of the welding market globally.

So, very focused on value-added solutions that drive the types of value that we want for our business and our shareholders, not necessarily thinking about it always from a market share perspective.

Okay.

So, just as a follow-up, is it fair to say that -- and I think you sort of confirmed this, but is it fair to say that you think you have, in terms of your product portfolio, you think you have some of the best products, some of the best innovation, you can grow organically and then really the value add it seems like that you're talking about is on the automation side, and that's really where the value add and then combining that and that's where sort of the growth in the market share gain is going to come from in contrast to maybe other competitors' strategies?

I would certainly tell you that I believe our technologies are leading in the industry and are driving opportunities for Lincoln Electric to grow with our customers.

So I agree with that as a way for us to continue to advance the business.

Automation is the catalyst.

I continue to see our investments in those technologies and those solutions around the world.

But I would also say that the right acquisitions and opportunities around the market in other technologies or in other applications that we think may advance the solutions we want to take to our customers and to the market we would be very interested in.

So we are very excited about the opportunities in front of Lincoln Electric, excited about the way our employees around the world are executing on our long-term strategy, and still recognize that there is an enormous amount of growth for us within the welding space to grow our business long-term.

All right.

Great.

Thanks a lot guys.

Jason Rodgers, Great Lakes Review.

Just to follow up on that last question regarding innovation and new technologies, I was wondering if you could provide some commentary on the whole new product area and any areas you may be focused on for new products for 2014.

I would say we have a couple of areas that are real focused.

We have advanced over the last couple of years some strategies around improving our alloys portfolio from a consumables perspective, targeting some unique applications in industries like chemical processing and a couple of areas where we thought we could provide some improvements into those markets.

We've had some nice advancements in utilizing various technologies, especially around lasers that we've implemented into the marketplace to try to advance that portion of our portfolio.

Very excited about the 3-D robotic plasma cutting solution that we recently acquired with Burlington Automation and our ability to take that to various customers that Lincoln reaches that that individual company might not have been able to reach.

So with the expansiveness of our business, we have technology advancements that are going on in most areas of the business.

Our Harris business has some very unique technology that they are bringing to the marketplace, the Perfect Flame technology, which assists customers in ensuring that they are getting the right level of performance with the products as well as ensuring that they are not using a level of energy that's wasted in the process.

So, we are very excited about some technologies in the Harris business that they are bringing.

And that's I think one of the excitements we have with the business.

We believe we have a host of portfolio products that we are developing that we can take in a multitude of markets and continue to drive the business.

Steve Barger, KeyBanc Capital Markets.

I just wanted to follow up a little more on the acquisitions.

You just said Burlington gives you 3-D robotic plasma cutting, which I think is a new application for you.

Was that the primary reason for that acquisition, and can you tell us what trailing 12-month revenue was for that company?

Certainly, the technology, that is some of the uniqueness in the technology.

We had similar technology, Steve, but we thought that the way they had built that particular system and had advanced it was unique and as important as the technology in these acquisitions.

We've got a management team and leadership team there that we are very excited about bringing into Lincoln Electric, very focused on their customers, very focused on their technology.

So certainly that's what was driving us in looking at that particular acquisition.

As far as the sales are concerned, we've disclosed that the two acquisitions of Robolution and Burlington combined represent about $35 million in annual run rate sales in their most recent year.

Got it.

And for Robolution itself, did that add a technology that you didn't have or was that really a capacity and footprint play to get more into the European automated welding market?

Yes, that's really more of a footprint play.

So although we had capabilities in the European market to service customers, we didn't feel that they had the suite of offerings that we could get with the Robolution business.

I also think you'll be hearing us talk about advancing those capabilities in Europe and building out a technology center there to be able to service that market and expand those automation capabilities over the next couple years.

Is Europe pretty wide-open from your perspective in terms of being underpenetrated for those kinds of solutions?

Europe is very familiar with those types of solutions, very familiar with their automotive concentration and the use of automation for welding capabilities.

We believe that bringing our technology along with those automation solutions can be a real opportunity for Lincoln Electric.

Got it.

And last one, if I heard you right, Vince, I think you said there are some raw material price increases.

Was that a comment on steel specifically, or is there something else?

Steel.

Okay.

Any sense of magnitude from a percentage standpoint, or is it just something you are seeing?

It looks like low single digits, low to mid single digits right now.

Got it.

Thanks, gentlemen.

Schon Williams, BB&T Capital Markets.

Hey guys.

Thanks for fitting me in.

Could we circle back quickly on the Harris division?

I just want to make sure I understand the moving pieces here.

It looks like their pricing continues to be a pretty heavy headwind, but you're seeing significant margin expansion.

I just want to make sure given that silver is going to continue to be a headwind for the next -- at least for the next quarter or two, do you feel confident you can hold margins at this level, or even, I don't know, push them higher?

Just help me understand some of the moving pieces there.

I think we can.

We've made great progress during the course of 2013 improving our margin profile in the face of falling raw input costs.

The bulk of that consumables business does price off of an adder model, so every time silver or copper decreases in price, it does impinge and compress our margins.

So we have run the business well.

On the equipment side, we have achieved some volume improvements during the course of the full year.

And so we are confident that we will be able to continue to drive improvements through that business, obviously subject to the volatility in the precious metals markets.

But you're right, we do have another half year plus that we need to get behind us in terms of the higher silver prices.

All right.

Thanks for the color, guys.

Thank you.

I'm not showing any further questions in queue.

I'd like to turn the call back over to management for any further remarks.

Thanks for joining us on the call today and for your continued interest in Lincoln Electric.

Again, our fourth-quarter and full-year record results demonstrate the company's ability to navigate well and execute on aligning our operations for more profitable growth even in these more challenging market conditions.

We believe we are well-positioned in 2014 with a robust product portfolio, an industry-leading team of experts, and solid market presence in attractive high-growth markets.

We expect our competitive advantages to drive continuing earnings and cash flow growth through the cycle.

And with that, I thank you again for joining us today, and we will talk to you at the end of the first quarter.

This concludes today's teleconference.

You may now all disconnect at this time and thank you for your participation.