Lincoln Electric (LECO)

Welding equipment manufacturer Lincoln Electric (NASDAQ:LECO) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 7.9% year on year to $1.06 billion. Its non-GAAP profit of $2.47 per share was 1.9% above analysts’ consensus estimates.

Company Overview

Headquartered in Ohio, Lincoln Electric (NASDAQ:LECO) manufactures and sells welding equipment for various industries.

Automation that increases efficiency and connected equipment that collects analyzable data have been trending, creating new demand. Some professional tools and equipment companies also provide software to accompany measurement or automated machinery, adding a stream of recurring revenues to their businesses. On the other hand, professional tools and equipment companies are at the whim of economic cycles. Consumer spending and interest rates, for example, can greatly impact the industrial production that drives demand for these companies’ offerings.

Competitors offering similar products include Illinois Tool Works (NYSE:ITW), Colfax (NYSE:CFX), and Fronius (private).

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Thankfully, Lincoln Electric’s 9.1% annualized revenue growth over the last five years was solid. Its growth beat the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Lincoln Electric’s recent performance shows its demand has slowed as its annualized revenue growth of 1.4% over the last two years was below its five-year trend.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Lincoln Electric’s organic revenue averaged 2% year-on-year declines. Because this number is lower than its two-year revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Lincoln Electric reported year-on-year revenue growth of 7.9%, and its $1.06 billion of revenue exceeded Wall Street’s estimates by 1.6%.

Looking ahead, sell-side analysts expect revenue to grow 5.6% over the next 12 months. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below the sector average.

Lincoln Electric’s gross margin is good compared to other industrials businesses and signals it sells differentiated products, not commodities. As you can see below, it averaged an impressive 35.2% gross margin over the last five years. Said differently, Lincoln Electric paid its suppliers $64.81 for every $100 in revenue.

In Q3, Lincoln Electric produced a 36.7% gross profit margin, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Lincoln Electric has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 16%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Lincoln Electric’s operating margin rose by 3.2 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, Lincoln Electric generated an operating margin profit margin of 16.6%, up 1.9 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Lincoln Electric’s EPS grew at an astounding 19.3% compounded annual growth rate over the last five years, higher than its 9.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Lincoln Electric’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Lincoln Electric’s operating margin expanded by 3.2 percentage points over the last five years. On top of that, its share count shrank by 7.4%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Lincoln Electric, its two-year annual EPS growth of 4.9% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Lincoln Electric reported adjusted EPS of $2.47, up from $2.14 in the same quarter last year. This print beat analysts’ estimates by 1.9%. Over the next 12 months, Wall Street expects Lincoln Electric’s full-year EPS of $9.80 to grow 8.2%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Lincoln Electric has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 12.1% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Lincoln Electric’s margin expanded by 2.7 percentage points during that time. This is encouraging because it gives the company more optionality.

Lincoln Electric’s free cash flow clocked in at $205.1 million in Q3, equivalent to a 19.3% margin. This result was good as its margin was 2.7 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Lincoln Electric hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 26.2%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Lincoln Electric’s ROIC averaged 2.6 percentage point decreases over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Lincoln Electric reported $293 million of cash and $1.24 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $822.9 million of EBITDA over the last 12 months, we view Lincoln Electric’s 1.1× net-debt-to-EBITDA ratio as safe. We also see its $22.47 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing Lincoln Electric beat analysts’ organic revenue expectations this quarter. We were also happy its revenue and EPS both outperformed Wall Street’s estimates. Zooming out, we think this was a solid quarter. The stock remained flat at $236.50 immediately after reporting.

Updated: December 4, 2025 at 9:15 PM EST

Are you wondering whether to buy Lincoln Electric or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

There are some bright spots in Lincoln Electric’s fundamentals, but its business quality ultimately falls short. To kick things off, its revenue growth was solid over the last five years. And while Lincoln Electric’s organic revenue declined, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders.

Lincoln Electric’s P/E ratio based on the next 12 months is 22.9x. While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $263.90 on the company (compared to the current share price of $243.32).