Amanda Butler - Director, Investor Relations Chris Mapes - Chairman, President and Chief Executive Officer Vince Petrella - Chief Financial Officer.

Mig Dobre - Robert W.

Baird Joe O’Dea - Vertical Research Jim Giannakouros - Oppenheimer Robert Wertheimer - Barclays Saree Boroditsky - Deutsche Bank David Stratton - Great Lakes Review Walter Liptak - Seaport Global Tom Hayes - Northcoast Research Matthew Trusz - Gabelli & Company Steve Barger - KeyBanc Capital Markets Seth Weber - RBC Capital Markets.

Greetings and welcome to Lincoln Electric 2017 First Quarter Financial Results Conference Call. [Operator Instructions] And this call is being recorded. It is now my pleasure to introduce your host, Amanda Butler, Director of Investor Relations. Thank you. You may begin..

Thank you, Brian and good morning everyone. Welcome to Lincoln Electric’s 2017 first quarter conference call. We released our financial results earlier today and you can find our release as an attachment to this call slide presentation as well as on the Lincoln Electric website at lincolnelectric.com in the Investor Relations section.

Joining me on the call today is Chris Mapes, Lincoln’s Chairman, President and Chief Executive Officer as well as our Chief Financial Officer, Vince Petrella. Chris will begin the discussion with an overview of the quarter and Vince will cover the quarter performance in more detail.

And following our prepared remarks, we are happy to take your questions. Before we start our discussion, please note that certain statements made during this call maybe forward-looking and actual results may differ materially from our expectations due to a number of risk factors.

A discussion of some of the 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. In addition, we discussed financial measures that do not conform to U.S.

GAAP and a reconciliation of non-GAAP measures to the most comparable GAAP measure is found in the financial tables in our earnings release, which again is available in the Investor Relations section of our website at lincolnelectric.com. And with that, I will turn the call over to Chris Mapes..

Thank you, Amanda. Good morning, everyone. We had a strong start to the year with improving demand in many of our end markets. Excluding Venezuela, we achieved 6.4% sales growth, with approximately 4% volume growth and 2% price contribution.

Higher volumes with favorable mix and operational efficiency help mitigate rising raw material costs in the quarter. Our adjusted operating income margin expanded 90 basis points to 14.6%, representing a 33% incremental margin. Our organization’s execution of our 2020 strategy initiatives delivered solid profitability performance.

The design and investment in unique solutions, leading application expertise, 600 plus technical sales team, 1000 plus automation team and our focus on operational excellence continues to drive value in the business throughout the cycle. These strengths generated an 11% increase in EPS to $0.84 in the quarter.

Excluding transaction cost associated with the proposed acquisition of Air Liquide Welding, adjusted EPS increased 16% to $0.88. We generated strong cash flows from operations in the quarter and achieved 110% cash conversion of adjusted net income.

Looking at market conditions in more detail on Slide 4, we continued to capture pockets of growth across the business. When excluding Venezuela results in the prior year, volumes increased by nearly 4% and grew across all categories on a consolidated basis in the business.

Consumables achieved modest growth in all segments after several quarters of compression. And equipment systems, including automation, continued to show strong volume performance, especially in North America and in Asia-Pacific. This demand spurred U.S. export sales up over 10% in the quarter.

Looking at performance by end market, we estimate that approximately 80% of our revenue is exposed to end markets, which were trending steady to up in the first quarter, with only portions of energy and shipbuilding remaining globally challenged.

While these results are encouraging, we recognized that easier year-over-year comparisons account for a portion of the growth rate and we like to see a few more months of consistent growth to ensure that end markets are trending. On a positive note, April month-to-date volumes continue to track favorably.

Before I pass the call to Vince to cover the quarter in more detail, I would like to touch upon our recent announcement that we are in exclusive negotiations to acquire Air Liquide Welding’s businesses.

While we are still progressing through the consultation and information process with relevant works councils in Europe, we are excited about the prospect of bringing together two leading welding and cutting organizations.

We believe the complementary nature of the businesses will not only offer operating and supply chain efficiencies, but we will be better positioned to capture growth opportunities. Together, we will be able to offer a more comprehensive product portfolio, broader application expertise and expand channels to markets within Europe.

In the interim, we are focused on servicing our customers and continue to invest to achieve our 2020 vision and strategy to drive shareholder value. And now, I will pass the call to Vince to discuss our first quarter results and uses of cash in more detail..

Thank you, Chris. Looking at our first quarter income statement highlights on Slide 5, our consolidated sales increased 5.5% compared with the prior year on contributions from volumes, price and acquisitions. Volumes rose 2.9%, price increased by 2.1%, and acquisitions contributed 60 basis points to the top line.

Excluding results from our Venezuelan operation in the prior year, first quarter 2017 sales increased 6.4%, primarily from 3.9% higher volumes and the 2.1% price increases. Our first quarter gross profit margin increased 80 basis points to 35.1% compared with 34.3% in the prior year.

The improvement was primarily due to higher volumes across the business and favorable mix. In the quarter, we incurred a $1.7 million LIFO charge in our Americas Welding segment due to rising raw material costs.

Our SG&A expense increased 8% or $8.6 million primarily due to higher incentive compensation accruals and the acquisition transaction costs related to the proposed acquisition of Air Liquide Welding. Excluding those acquisition-related costs, SG&A expense increased 4% or $5 million and SG&A as a percentage of sales declined 30 basis points to 20.4%.

Operating income increased 8% to $81.5 million or 14% of sales. On an adjusted basis, operating income increased 13% to $85.1 million or 14.6% of sales, a 90 basis point improvement versus the prior year period. Our incremental margins were 33% in the quarter or 30%, excluding Venezuela and special items.

Interest expense was $6.1 million in the quarter from interest accrued on borrowings. This compares with prior year interest expense of $3.8 million. We continued to expect annual interest expense of approximately $24 million in 2017.

Our first quarter effective tax rate was 28.3%, which was higher than the prior year’s rate reflecting geographical mix of earnings. We expect our full year average 2017 effective tax rate to be in the high 20% range. This range is subject to the future mix of earnings, the utilization of U.S. tax credits and the timing of stock option exercises.

The tax benefits from stock option exercises are now recognized as an income tax adjustment on the income statement following the adoption of a new accounting standard in the first quarter. The impact from this accounting change was a benefit of $1.3 million or $0.02 per share in the first quarter.

First quarter 2017 diluted earnings per share increased 11% to $0.84 per share. And excluding special items, EPS increased 16% to $0.88 per share reflecting higher volumes in the favorable mix. Our 2016 share repurchase activity contributed a $0.05 per share benefit to adjusted EPS in the quarter. Now, moving to our reportable segments on Slide 6.

Our Americas Welding segment adjusted EBIT margin increased 90 basis points to 16.9% on higher volumes. Sales, excluding Venezuelan results from the prior year increased 8.3% on 5.6% higher volumes, 1.6% higher price and 90 basis points from acquisitions. Sales performance also benefited from easier year-over-year comparisons.

Demand trends improved through the quarter with notable strength in automotive and construction applications, automation and U.S. export sales. These areas of growth were partially offset by ongoing weakness in portions of the oil and gas sector, which have not fully stabilized in the Americas segment.

In our International Welding segment, adjusted EBIT margin increased 240 basis points to 7.2% on favorable mix and a 2.7% increase in volumes. Volume and price improvements came predominantly from the Asia Pacific region where we see continued strong demand for our solutions. European region sales were up modestly in the quarter.

The Harris Products Group’s first quarter adjusted EBIT margin increased 80 basis points to 11.9% on favorable mix and improved raw material cost trends. Volumes declined 2.9% from challenging comparisons in the retail channel, but the segment did achieve growth in other areas of their business, notably in international regions.

Price increased 4% on favorable year-over-year metal cost changes. Moving to Slide 9, our cash flow from operations increased significantly year-over-year to $76 million in the quarter.

The increase reflects improved company operating performance and lower pension contributions due to the freeze of our fully funded defined benefit pension plan on December 31, 2016. Our operating working capital ratio improved 190 basis points to 17.1% compared with 19% in the prior year same quarter.

Our cash conversion remains strong in the quarter at 110%. Capital expenditures increased to approximately $12 million in the quarter. We are maintaining our full year CapEx spend expectation at $65 million to $75 million.

During the first quarter, we paid a cash dividend to shareholders of $23 million, reflecting the 9% higher dividend payout rate in 2017. And finally, our net debt position at March 31, 2017, was $234 million. Now I would like to turn the call over for questions..

[Operator Instructions] Our first question will come from the line of Mig Dobre with Robert W. Baird. Please proceed..

Good morning everyone. Thank you for taking my question.

Lots to talk about, but I guess I will just start with this, when you are looking at your business, not only year-over-year, but sequentially, can you talk a little bit about how progression has been in terms of demand versus normal seasonality and maybe a little bit more color into what you are seeing into April versus what – again, seasonally with how your business would build versus 1Q?.

Sure. This is Chris.

And look, I think that the quarter in Q1 continued to show the improvements that we have talked about in the business over the last three or four quarters that at the end of the day, we saw the rate of compression narrowing as we were exiting 2016 and expected that as we moved into 2017, we would start to see growth within the portfolio and certainly have seen that and probably seen at a little slightly earlier than maybe we had expected.

I think there are a couple of elements though to the volume trend lines that we are certainly cautious with as we look at the business. One is that globally we are seeing raw material input prices that are hitting those cots that are hitting the business on a global basis.

In a couple of major markets, we are seeing multiple raw material cost increases into the business. That’s creating some choppiness associated with potentially some demand trends in those markets. As you all know, certainly the second quarter normally would be an accelerating quarter.

From a trend perspective welding generally has the second quarter as a very strong quarter. And we are seeing the continued favorable trends from the first quarter move into early April, although it certainly is still very early in the quarter.

But with the multitude of end markets that we are seeing that are up over prior year, sit gives us more confidence that with these trends that we will see that continued improvement at least as we are moving into Q2.

But as I said, some of the raw material input cost increases that we are seeing on a global basis may be making a little bit of the order book and some of the patterns of demand a little cloudier than we would normally see at this point in the cycle..

I appreciate that Chris.

And also maybe a quick question on mix here at least versus our expectation was surprised positively in the quarter and I am wondering how you are thinking about this mix going forward, especially at this point in the cycle, should we continue to see equipment outperform consumables, at what point does that flip back to consumables outperforming?.

Well, we had very strong equipment performance in Q1 across the portfolio. I believe that’s because of the continued advancement of the technologies that we are providing into the marketplace. Some of the new products that we brought in over the last couple of years continue to perform very well.

But I don’t believe that one quarter is going to give us guidance to move away from what we see as the normal trends associated with the welding business. And would expect to see the increased migration of demands in consumables and I am certainly not expecting that mix to continue at that rate as we are thinking about the rest of 2017..

Alright. I will jump back in the queue. Thank you..

Thank you. Our next question will come from the line of Joe O’Dea with Vertical Research. Please proceed..

Hi, good morning.

First on oil and gas, could you just flush out a little bit in terms of the kind of key areas that we focus on there, which you might have been seeing upstream, midstream, downstream onshore versus offshore, it sounded like when you said you haven’t seen total stabilization yet, but that was an offshore comment, but just understand the various drivers there?.

Actually Joe, it was the other way around. In the Americas we still had a down quarter year-over-year whereas internationally we were up in the oil and gas space. In the aggregate from a global perspective the company was in oil and gas end markets in the single digits on a year-over-year basis.

So we are seeing a little bit faster rebound internationally than what we have seen in the Americas. As far as the sub-categories of oil and gas we would tell you that both upstream and downstream are the stronger elements of those components and midstream is still down on a year-over-year basis globally..

Okay, that’s helpful.

And then similarly just on mining a little bit, I think the past couple of quarters noting MRO activity up, could you talk about how much of that is mining related and what you have seen in those markets whether stabilization or some acceleration over the past couple of quarters?.

Right. So our maintenance and repair business was up strongly and actually led the way from a percentage increase perspective as far as our end market segments that we look at, so very strong improvement, predominantly in the international markets. But it was, certainly one of the leaders of our year-over-year improvements.

Other well performing categories that I mentioned in my formal comments were automotive and construction end markets as well as some other energy markets that were strong in the quarter. So certainly, more in the green than what we have seen for quite some time from an end market segment.

But by no means our all markets are positively trending on a year-over-year basis, but those are some of the highlights in the quarter..

And then just a last one on price cost, I think you were putting in place some price increases earlier in the first quarter that I believe were in place by March 1, it doesn’t sound like those drove any kind of meaningful pull forward in demand and things remain pretty good in April, could you talk about the incremental cost increases that you have seen since then, how substantial are those relative to what you were previously pricing and how much of a headwind are recent cost increases?.

Yes. So again in my formal comments I have mentioned the LIFO charges that we took in the first quarter that only applies to half of our business that’s on LIFO accounting in the Americas. You can expect to have equivalent or greater cost increases from raw material pricing. It has been put into the book yield thus far.

I would tell you that not all the cost increases are in the quarter, we are going to continue to see cost increases roll through our global businesses as we enter the second quarter and into the third quarter. I think as you look at our margin performance and our price increase of 2.1% in the first quarter.

We have done a good job of passing along those cost increases from a global perspective. But my message today is that we are seeing more increases in cost as we continue throughout the year and the 2.1% pricing improvement in the first quarter will be increasing certainly in the second and third quarter of 2017..

Got it. Thanks very much..

You are welcome..

Thank you. Our next question will come from the line of Jim Giannakouros with Oppenheimer. Please proceed..

Hey, good morning everyone..

Good morning, Jim..

Just to better understand the puts and takes of your incremental margin progression. You said 30 – call it low 30s incremental margin, that’s a little bit higher than what we were modeling. And certainly, I think what you guys were thinking about this time last quarter or 3 months ago.

What was the source of upside? Was it volume, was it a price cost dynamic that was a benefit, because if I recall, Vince, you kind of guided us to if we were to be in the high single-digit type of volume area, then that would drive 25% to 30% incremental, so not to be nitpicky, but just trying to get a better beat on better than expected incrementals?.

Certainly, our price cost realization was good in the quarter. Our volumes were little bit higher than what we were talking about in the prior quarter and looking forward into the first quarter. We were talking about something in the low single-digits from a top line improvement.

And certainly, the mix has helped us in terms of the higher margin profitability that came through the quarter. So, all those factors resulted in a very attractive incremental margin performance for the global business..

Okay, that’s helpful. And just a follow-up on, I think, Mig framed that just talk about mix, I think it’s typically just viewed as equipment versus consumables.

But you do have some potential mix benefits in selling other specialty alloys within consumables or certain end-markets are typically higher margin like oil and gas, how much outside of equipment versus consumables kind of drove that mix comment or benefits in margin in the quarter?.

That’s largely the driver. There are subcategories where there could be categories within equipment where we had lower volume performance that had lower margins that aided us as well.

So, I would say globally that is the right way of looking at our business, but there are also a number of subcategories as you pointed out in energy-related markets that help us and other parts of the equipment or consumables business that may have lower or higher margins.

So, we could be benefiting in some cases from lower equipment sales as well as higher consumables sales. So, mix has a number of moving pieces, but certainly, in the aggregate, we had a mix benefit in the first quarter..

Thank you..

Thank you. Our next question will come from line of Robert Wertheimer with Barclays. Please proceed..

Hi, good morning. Question is on automotive, I mean, just for the consummation on SAR and then maybe consumer impact and in general, consumer health.

Could you just talk about what’s driving strength in auto and how you feel about that market looking for the rest of the year and thereafter?.

Well, auto continues to be a very strong segment for us. So, it’s one of our strongest segments at Lincoln Electric in the quarter. And automotive has been a more robust segment over the last several quarters. I would really point towards a couple of items first.

Lincoln Electric has been driving some unique applications and solutions into that marketplace, expanding those applications. So, I believe we are certainly finding more opportunities for us to drive some solutions into the automotive space, especially when we are talking about applications around thin-gauge galvanized.

And our aluminum welding business has also been doing well and a portion of that is going towards the automotive space. We believe automotive can stay very healthy.

Although certainly, there are some dynamics that we are watching very closely we know that from the consumer side that I believe consumer sales of light duty vehicles at least in Q1 trail prior year. So, that’s not a positive trend line. We will watch that very closely.

Certainly, our work with our customers in the space believed that automotive still has some very opportunistic elements associated with that segment as we are looking throughout 2017, but it has been trending at a very high level over the last couple of years. I will also point out that a portion of our automation business is aligned with automotive.

That side of our business has seen a lot of activity as well as a lot of quoting activity. So, we continue to see investments in the automotive space.

So, very strong segment – a segment that we are expecting to stay firm that we are watching very closely some of those consumer demand issues, which might mitigate the segment as we move through the rest of ‘17..

It’s very helpful. Can I – if I can ask a follow-up on the automation side.

I mean, do you foresee enough value add in what you are doing with that to continue to have companies invest even if CapEx SAR slows down, CapEx slows down? I mean, is that somewhere where you want strides being made or is it just more moves along with CapEx generally?.

No. I absolutely see people willing to invest at different points in the cycle, because at the end of the day, our value proposition around our automation business is it’s all around the welding and cutting solution that we are driving. And usually that is driving a level of productivity for the OEM.

And these large OEMs even when they are in more challenged environments are willing to make investments, especially in this low cost of capital environment to drive productivity.

So, we believe that certainly it has an element that’s related to global CapEx, but that element is not linear and we see many of these large OEMs talking to us and willing to invest to drive productivity, quality improvements, other analytics that they are looking for in their welding processes even when their broader markets maybe challenged..

Great. Thank you..

Thank you. Our next question will come from the line of Saree Boroditsky with Deutsche Bank. Please proceed..

Thank you. Good morning. I was hoping you could start with exports since this is the first quarter in a while we have seen growth there.

Could you just talk about what’s driving the improvement and any thoughts about how that will trend going forward?.

Well, I would say the improvement is fairly broad-based. Certainly, we have seen improvements in the Asia-Pacific region in oil and gas markets. We are at a low point historic our export business.

So, a 10%, 12% improvement year-over-year is a relatively modest improvement in aggregate dollars to the global company, but it is notable that we are starting to see a firming up an improvement in overseas markets, but I would attribute it mostly to the Asia-Pacific region and energy-related categories..

Yes. And I would add to that, but look I think that it’s too early for us to be able to acknowledge that we know this is driving some of this improvement in the export sales. But certainly, in the Asia-Pacific region, over the last 24 to 36 months, we have been investing in technical centers. We launched a new technical center in Sydney, Australia.

We launched the new technical center in Singapore, where we can bring our customers into that location, share with them the new advancements in technology that we believe we can bring to their manufacturing floors. And we are seeing that activity continue to grow.

And I am hopeful that, that is part of a catalyst for the increase in those particular markets and that would give us more confidence in being able to continue to grow those sales in those regions as we move forward..

And then I would also add that we have seen strength from a category – product category perspective and our automations businesses. So there has been a growing export performance out of the Americas region into world markets targeting automation end market customers..

Okay. Thanks. That was helpful.

And then I guess maybe could we talk more about your broader strategy in China and how you are thinking about automation that sort of put in demand there over the longer-term and potentially your market share with domestic versus international firms?.

Well, I am not sure we are comfortable talking about any market share positions in China relative to automation or equipment. But as we stated, our strategy in that marketplace is continue to drive more higher end solutions into the marketplace.

Certainly, that involves us continuing to advance our equipment solutions and automation solutions in the market. We have invested in more technologies, both including people and capital, to be able to drive those solutions. We saw improvements in Q1 and would expect to continue to see those improvements.

It’s a very important marketplace for us, not only because of the size of the market, but also because of the various industry segments that participate in that markets and the global customers that are engaged in those segments. And Lincoln Electric continued to invest and advance our strategies and build that business..

Okay. Thank you very much..

You’re welcome..

Thank you. Our next question will come from the line of David Stratton with Great Lakes Review. Please proceed..

Hi, good morning. Thanks for taking my questions.

Could you give us a little detail on the shipbuilding end market and what you are seeing there and what stage of the cycle that is looking to be in?.

Well, that’s one of our end markets David, that’s actually down year-over-year. And so we would view that as an opportunity going forward to show some improvement as those markets continue to bottom and stabilize into the future. But that’s one of just a handful of markets that still continues to be a compressing on a year-over-year basis..

Okay.

And then you have mentioned new products pretty consistently throughout, is there anything that is really showing a lot of promise or anything that you guys are pretty excited about that might be helping some of that equipment sales?.

Look, I think that at Lincoln Electric instead of thinking about any one item that’s driving that it’s our consistent and deliberate investment in new technology. So we look at our vitality index, it’s part of the way we think about the way we are driving the business, the products and the utilization of those products in the marketplace.

So we have a host of new technologies in equipment side and the consumable side that we brought into the market in the last several months.

And I don’t think it’s any one item, it’s probably our continued investment in driving those new products and technologies that gives us great confidence in our ability to continue to make those improvements and continue to bring solutions to the market that our global customers will want to bring into their manufacturing floors..

And what is your current vitality index?.

It’s in high-30s..

Yes. It’s about – 34%, 35% is our current vitality index..

Alright. Thank you..

Thank you. Our next question will come from the line of Walter Liptak with Seaport Global. Please proceed..

Thanks. Good morning everyone.

Wanted to ask about your commentary on the trends through April sound very positive [indiscernible] and try one, during the quarter did you see – I guess, how would you characterize the distribution channel and demand from those partners and kind of visibility from larger projects, is there anything that you can discern from the way revenue came in or volumes came in a little bit better than expected as you talked about?.

I can’t identify any large projects or any uniqueness relative to any particular channel, which was unique or divergent from the way we think about the business.

So I wouldn’t say that as we looked at Q1 that OEM or distribution on a global basis have any material impact as far as the way we compare and contrast the business and certainly, no large projects that I can identify that impacted Q1..

Okay.

So how would you characterize that the value came in a little bit better during the first quarter than you originally thinking would you attribute that to?.

Well, look I think when we talked about the business over the last several quarters, we said that we would begin cross over sometime in early 2017. And we thought that the business would begin to grow in the low single-digits. And we are not far from that expectation.

So certainly, the inflation that came into the marketplace could be creating a little bit of that activity. And as we stated and as Vince provided in his remarks, we are just seeing some improvements across the broad category of the segments. And we are hoping that that is a continuing trend for the business..

Okay. It sounds great.

If I can ask one about the Air Liquide Welding business, have you provided any metrics about the profitability in that business or what multiple you are paying towards?.

No. We have not at this point. So I will share with those of you on the call our process. So we have announced that we have a memorandum of understanding to work with Air Liquide to get to a share purchase agreement for the Air Liquide Welding business. We are still in those negotiations.

And once we have completed them, which we are expecting that we can get to a share purchase agreement, then we will be providing a broad update to the investor community on the transaction..

Okay, good luck with those. Thank you..

Yes.

And again I would remind everyone that when we provide that update we will still have antitrust approval and some other regulatory approvals that will be required before we would be able to get to a closing which we stated we would expect to be able to accomplish in the back half of 2017 if we are successful in negotiating the share purchase agreement..

Thank you. Our next question will come from the line of Tom Hayes with Northcoast Research. Please proceed..

Thanks. Good morning gentlemen. Thanks for taking my questions.

Just some quick follow-up questions Vince, regarding cash flow you indicated lower pension contributions this year, just wondering how much lower on a year-over-year basis and your thoughts for funding this year?.

It was $20 million lower on a year-over-year basis. So we put little over $20 million in last year and really very little in 2017. From a go-forward basis, we are fully funded on our defined benefit pension plan. So to the extent that our returns meet plan and interest and discount rates don’t move.

We do not anticipate in the near or foreseeable future funding the defined benefit plan in any substantial way. But that again that’s dependent upon what the markets might do and what interest rates might do, but right now, we are pretty well funded..

Okay.

Should we expect similar amounts of acquisition related costs in the next couple of quarters just from a forecasting point of view?.

We don’t are – aren’t able at this point to provide an estimate on what we think those costs will be. But I can tell you that they will continue throughout the year. And we will certainly have integration related costs if we are able to reach a stock purchase agreement and acquire the business sometime this year.

So I would expect us to continue to have those one-off costs as we move through the acquisition process and integrate the two businesses together..

Okay.

If I could sneak one more real quick on pricing, it sounds like you are expecting pricing still to increase throughout the year, just your thoughts on being able to stay ahead of that and capture that pricing in the marketplace?.

Well, we have announced price increases Tom, for the second quarter that will go into effect in varying degrees across our world. So I am pretty confident that we will see a higher pricing element to that sales line in the second and third quarter of 2017.

And our confidence is predicated on the history of the company dealing with these types of markets. And certainly, the markets are firming up a bit from a volume perspective. But we will just have to wait and see what our suppliers do with us and react to those actions in an appropriate manner..

Great, I appreciate the color and congrats on the start to the year..

Thank you..

Thank you. Our next question is going to come from the line of Matthew Trusz with Gabelli & Company. Please proceed..

Good morning. Thank you for taking my question.

To follow-up on the Asia-Pac discussion, can you elaborate a little bit more on the underlying market demand trends there and performance in China maybe versus your other key markets and whether they feel sustainable going forward?.

Well, I will start by saying that we had strong performance across many of the sub-regions or categories in Asia-Pacific. China was up. India, Southeast Asia, Japan, we had a good result across most of our geographies there.

As a matter of fact on a constant dollar basis, we had a double-digit improvement in our top line in Asia-Pacific and it was fairly broadly based. So, I also mentioned a little bit earlier in my comments that we saw it in commodity and energy and oil and gas markets. So we have seen a pretty broad improvement in the Asia-Pacific end markets..

Thanks. And then just noticeable that Harris, the retail channel did have the volume decreases.

What’s your point of view on demand trends there? And was there a function in the quarter of sell-in versus sell-through in prior periods that customers are now working down their inventory?.

Actually, when you think about the Harris business, the Harris business had a very good quarter.

The challenge associated with the retail business in the quarter was related to an activity we had with a couple of the large retailers in Q1 of 2016 where we were renovating some of the sets in the stores and created some demand in Q1 that we have talked about in 2016 for the business. So, the comparison was very challenged.

I was actually very happy with the performance of the business increasing. The margins for the business by 80 bps really and improvements in the sales side even with the challenges associated with retail, so very good performance from the business, but we realized we had a challenging Q1 comparison for the retail space for the Harris business..

Alright. Thank you, Chris. Thank you, Vince..

You are welcome..

Thank you. Our next question will come from the line of Steve Barger with KeyBanc Capital Markets. Please proceed..

Hi, good morning. Thanks..

Good morning, Steve..

Good morning.

Going back to the comment on the April continuing to trend favorably, are you running at a higher rate than the 1Q growth rate in April so far or maybe more broadly would you expect 2Q to come in better than the 5.5% in 1Q?.

Yes, I would. And ordinarily, our seasonality, Steve, as you know, picks up a little bit in the second quarter. We can expect something like 3% to 5% improvement in a normal type of cycle.

So my expectation sitting here today knowing that we did have some improvement in our order book and sales during the course of the first quarter and from what we see so far in April. Still it’s early in the quarter, but my expectations are that we ought to see a bump in the top line between the first and the second quarter..

Would you think that’s like 3% to 5% volume with a couple of points of price on top to that kind of thing?.

I wouldn’t put the couple of points on top of that. I would best I can give you today is somewhere around maybe 3% to 5% better than the first quarter..

Understood. Thanks.

And just thinking about those price increases, is the sales force staying in the markets absorbing that pretty well or did you try for more and you ended up giving some back? And how has the competitive response been from other manufacturers in terms of what they are doing?.

Well, it’s difficult to talk about pricing environment when we think about it from a global perspective. So you have different dynamics in various areas around the world. We see raw material input costs increasing. And our objective is to identify those costs and recover those costs in the marketplace.

So we are continuing to work with our teams around the world to accomplish that. We are certainly not thinking about striving for more and then resending back that. That’s not the way we think about the market.

Our goal in the marketplace is to see those raw material input costs globally and try to go to the marketplace and recover those costs with our markets.

So very challenging, especially, in environment where we have already seen multiple cost increases in certain markets, but we are going to continue to work that diligently and continue to try to drive what’s necessary for us to be able to achieve our expectations for the business..

Understood. Thanks. I am just thinking one more.

Just following up on the auto, can you tell us what the growth rate of traditional machines and consumables into auto was versus automation? I am just trying to get a sense of how much of your growth there is the function of customer CapEx versus actual production rates?.

No. I really don’t have that data and really don’t think about it that way, other than I can tell you, I am not aware of any large projects associated with our automotive customer base that would have impacted that materially. So, I don’t think that – I don’t think CapEx versus demand was driving it.

And I wouldn’t expect necessarily that I would see that within a quarter as it relates to the segment..

Got it. Thank you..

Thank you. Our next question will come from the line of Mig Dobre with Robert W. Baird. Please proceed..

Yes, thank you for taking my follow-up. I want to go back to the Air Liquide potential acquisition here. And when we tried to look through Air Liquide’s disclosures, I mean, what we found was what looked to us to be a business that certainly had quite a few challenges over the last few years in terms of both growth as well as margin.

So, I guess I am wondering the strategic rationale from your point of view, why does it make sense to have this business as part of Lincoln? And if this is indeed a bit of a turnaround story, do you sort of feel as if you have the necessary internal expertise manpower so on and so forth to deploy to actually get this business to run to Lincoln’s standards?.

That’s a great question. I can share with you that over the last 60 to 90 days as we have even had more exposure to the individuals and the details of the business, I am even more excited about the opportunity it can create for Lincoln Electric and our ability to execute on our longer term strategies for the business.

We found individuals who quite frankly are very passion about what they do. We found some technologies that we think will be interesting for us to bring into our portfolio that we can bring to our customers and markets around the world.

And we have seen a host of areas where we think we can provide some of those necessary improvements that they are looking for, for their business.

So, as I stated once we have completed the memorandum of understanding and been able to move towards the stock purchase agreement, we will be providing a full update to the investor community on the strategic rationale and what we believe this business can bring the Lincoln Electric.

But I think you are going to see that we are very excited about this opportunity and there are multitude of areas that we believe we can make this business better and that this business can assist us in driving our long-term strategy for the company..

Alright. Thank you, Chris. And then my last question, just clarification here. You talked about rising material cost and the impact that’s got on the business.

But I am trying to clarify as to whether or not you are talking about is that having an impact on volume down the line or you are talking about the way that plays into margins?.

Really, we are focused on highlighting the risks that we have surrounding margin management. And so we don’t believe that input cost increases that affect the whole of the industry will have a significant dampening or any volume impact from a longer term perspective.

We are really focused on the short and intermediate term management of our pricing and cost management strategies..

Okay, thanks for the color..

You’re welcome, Mig..

Thank you. Last question comes from Seth Weber with RBC Capital Markets. Please proceed..

Great, thanks. Good morning..

Good morning, Seth..

Good morning. Vince, so just following up on Mig’s last question, I just want to make sure I am understanding the incremental margin commentary. I mean, you did 30% in the first quarter. Pricing seems to be getting better. You are kind of saying input costs may or may not be an issue.

I mean, are you suggesting that incrementals are going to go back? You have talked previously about kind of a low 20% range, is that how we should be thinking about it or is this 30% kind of number that you did in the first quarter a good way to think about the rest of the year? I am just trying to understand I would make sure I understand what you are messaging?.

Well, that question is certainly dependent upon what our volumes do, but if you see a similar year-over-year improvement and for example, the second quarter mid single, mid to high single-digit improvement in the top line. We can expect a 30% plus incremental in my view.

So obviously, if volumes are low single-digits improvement year-over-year, we will see less. If we see more a better performance than what we saw in the first quarter, we can expect to see a better result on incrementals. The other variable is obviously are – I will state again our price cost management.

I think the performance that we saw in the first quarter is reflective of our management of those issues in the first quarter of the year as well as stating the mix improvement that we have seen.

So bottom line to your question is we ought to see this type of incremental or better, provided we have the kind of volume improvements that we have been talking about today in the second quarter..

That’s very helpful. Thank you.

And maybe just one quick follow-up on the share buyback, should we just assume that’s on hold until the – until you get better clarity on the acquisition or it was just kind of just for the first quarter?.

Seth, that’s a good assumption. We will be on the sidelines until we work through the process of signing our SPA and hopefully completing the transaction with Air Liquide..

Perfect. Thank you very much. Very helpful guys..

You’re welcome, Seth..

Thank you. This concludes our question-and-answer session. I would like to turn the call back over to Vincent Petrella for closing remarks..

Thank you and thank you, everyone for joining us today on our first quarter call and your continued interest in Lincoln Electric. We very much look forward to discussing our second quarter results with you in July and covering the progression that we will accomplish during the course of 2017. Thank you very much..

This concludes today’s teleconference. You may now disconnect your lines at this time. And thank you for your participation..