Lincoln Electric (LECO)

Welding equipment manufacturer Lincoln Electric (NASDAQ:LECO) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 2.4% year on year to $1.00 billion. Its non-GAAP profit of $2.16 per share was 3.2% below 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 performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Regrettably, Lincoln Electric’s sales grew at a mediocre 6.5% compounded annual growth rate over the last five years. This fell short of our benchmark for the industrials sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Lincoln Electric’s recent performance shows its demand has slowed as its annualized revenue growth of 2% 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 2.5% year-on-year declines. Because this number is lower than its normal revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Lincoln Electric reported modest year-on-year revenue growth of 2.4% but beat Wall Street’s estimates by 2.9%.

Looking ahead, sell-side analysts expect revenue to grow 1.1% over the next 12 months, similar to its two-year rate. This projection is underwhelming and indicates its newer products and services will not catalyze better top-line performance yet.

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 34.8% gross margin over the last five years. Said differently, Lincoln Electric paid its suppliers $65.23 for every $100 in revenue.

In Q1, Lincoln Electric produced a 36.4% gross profit margin, marking a 1.2 percentage point decrease from 37.5% in the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, 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 an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 15.4%. 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 4.5 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, Lincoln Electric generated an operating profit margin of 16.4%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Lincoln Electric’s EPS grew at a spectacular 15.3% compounded annual growth rate over the last five years, higher than its 6.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Lincoln Electric’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Lincoln Electric’s operating margin was flat this quarter but expanded by 4.5 percentage points over the last five years. On top of that, its share count shrank by 7%. 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 5.4% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q1, Lincoln Electric reported EPS at $2.16, down from $2.23 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects Lincoln Electric’s full-year EPS of $9.21 to grow 2.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and 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 11.8% 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 1.4 percentage points during that time. This is encouraging because it gives the company more optionality.

Lincoln Electric’s free cash flow clocked in at $158.7 million in Q1, equivalent to a 15.8% margin. This result was good as its margin was 4.9 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 24.9%, 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. Over the last few years, Lincoln Electric’s ROIC averaged 2.5 percentage point increases each year. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Lincoln Electric reported $394.7 million of cash and $1.26 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 $788.3 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 $21.88 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’ revenue expectations this quarter. We were also happy its organic revenue narrowly outperformed Wall Street’s estimates. On the other hand, its EBITDA missed and its EPS fell short of Wall Street’s estimates. Overall, this was a mixed quarter. The stock remained flat at $184 immediately following the results.

Updated: May 22, 2025 at 10:06 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Lincoln Electric isn’t a terrible business, but it isn’t one of our picks. First off, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its stellar ROIC suggests it has been a well-run company historically, the downside is its organic revenue declined. On top of that, its projected EPS for the next year is lacking.

Lincoln Electric’s P/E ratio based on the next 12 months is 20.6x. Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $209.89 on the company (compared to the current share price of $194.41).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.