Greetings, and welcome to the Lincoln Electric 2022 Third Quarter Financial Results Conference Call. [Operator Instructions]. And this call is being recorded. It is now my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you, you may begin..

Thank you, Towanda, and good morning, everyone. Welcome to Lincoln Electric's Third Quarter 2022 Conference Call. We released our financial results earlier today, and you can find our release as an attachment to this call's 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 Gabe Bruno, our Chief Financial Officer; and Steve Hedland, Chief Operating Officer. Chris and Steve will begin the discussion with an overview of our results and business trends.

Gabe will cover our quarterly financial performance in more detail. And finally, Chris will conclude with a review of our full year assumptions and discuss our announced definitive agreement to acquire for Automation. 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 may be 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.

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'll turn the call over to Chris Metz.

Chris?.

Thank you, Amanda. Good morning, everyone. Turning to Slide 3. I'm pleased to report another quarter of record sales, profitability, earnings and returns on great momentum in Americas Welding and automation on strong industrial activity as well as capital investment.

The organization did an excellent job servicing customers and capturing growth in an increasingly dynamic operating environment.

Our focus on putting customers first, innovating, driving operational excellence and investing in our employees shapes our higher standard 2025 strategic initiatives and has been key to successfully navigating through the cycle and through current market conditions.

We achieved record sales of $935 million, led by 21% organic growth on 13% higher price and a 9% increase in volumes. Our third quarter sales also benefited 1% from acquisitions, which partially offset an approximate 7% unfavorable impact from foreign exchange translation.

Our third quarter marks our return to 2019 volume levels at the consolidated level and with an operating model that is generating considerably more value compared to 3 years ago. We achieved record third quarter profitability with a 16.4% adjusted operating margin with a 24% incremental margin.

We are operating at our long-term higher standard 2025 strategy margin target while managing segments that are navigating through unique end market dynamics, but year-to-date are also operating within their higher standard margin ranges. Supply chain conditions are improving in our consumables portfolio.

However, we continue to be challenged in our equipment. While we've achieved a neutral cost price position year-to-date, we continue to operate in an inflationary environment and are driving productivity to mitigate the impact. However, in certain products and markets, we have implemented further pricing actions to offset inflationary pressures.

Returning to our third quarter highlights. Adjusted earnings per share increased 31% to $2.04, a record performance despite a $0.07 foreign currency headwind. Additionally, we achieved a record 28.7% adjusted return on our invested capital and a 19% increase in cash flows from operations with a 94% cash conversion rate.

We returned $59 million to shareholders in the quarter through dividends and share repurchases, bringing our year-to-date returns to $255 million, which includes $156 million of share repurchases.

We also recently announced our 27th consecutive dividend increase at 14.3%, reaffirming our confidence in our business model, and our progress towards achieving our higher standard 2025 strategy targets. And now I'm going to pass the call to Steve Hedland, our Chief Operating Officer, to cover organic sales trends..

Thank you, Chris. Good morning, everyone. Looking at third quarter organic sales performance on Slide 4. We achieved good momentum across all of our segments in every region, excluding China and across our 3 main product groups.

Our product demand trends reflect strong industrial production activity and platform investments, most notably driven by strengthening automation demand. Looking at our end markets, we achieved organic sales growth across all 5 end sectors, led by an acceleration in demand in automotive transportation.

We are also benefiting from the heightened investment activity in energy in the Americas and internationally. In both end sectors, customers have maintained or accelerated production activity and capital investments to increase existing capacity or support greenfield projects.

Lincoln's leadership position in automation and our proprietary solutions for wind turbine fabrication and the manufacturing of EV battery trays as well as a host of other industry-leading solutions has allowed us to capture this growing investment cycle in auto and energy, and we expect this trend to continue over an extended period.

In addition, we are seeing heavy industries, general industries and construction infrastructure all maintained low to mid-teens percent growth rates.

Heavy industry production levels remain elevated as OEMs address high backlog levels, general industries demand reflects strengthening in Americas partially offset by weaker international fabrication activity in Europe and China.

Our third quarter performance also reflects the long-term growth catalysts that favor our business, including the acute shortage of skilled welders, reshoring and shortening of supply change and significant government investments in infrastructure, energy and the electrification of the transportation sector.

While we are cautious around the near-term pace of industrial activity and investments in Europe and China due to the unique headwinds in each area, we are confident that we are well positioned to capture growth once these markets stabilize and we continue to see strength in the Americas and automation.

And now I'll pass the call to Gabe to cover third quarter financials in more detail..

Thank you, Steve. Moving to Slide 5. I our consolidated third quarter sales increased 16% to $935 million. The increase reflected a 12.5% increase in price, approximately 9% higher volumes and a 1.3% benefit from acquisitions.

These increases were partially offset by a 6.6% unfavorable foreign exchange translation, primarily from the euro and Turkish lira. Gross profit increased 15% or $41 million versus the prior year on higher volumes, mix and cost management.

In the quarter, we recorded a LIFO charge of $3 million and currently expect a $7 million charge in the fourth quarter. Our profit improvement was partially offset by lower operating leverage and approximately $15 million unfavorable impact from foreign currency translation.

Our third quarter gross profit margin was relatively steady versus the prior year at 33.1%. Our SG&A expense increased approximately 7% or $10 million primarily due to $6 million of higher incentive compensation and employee costs as well as $3 million of higher discretionary spending.

SG&A as a percent of sales decreased 150 basis points to 17% on higher sales. Reported operating income increased 23% to $142 million.

Excluding $11 million of special items, primarily from an asset impairment charge and acquisition transaction costs related to our recent [indiscernible] automation announcement, our adjusted operating income increased 25% to $153 million on higher volumes operational improvements and automation and favorable segment mix, which was partially offset by $8 million in unfavorable foreign exchange translation.

Our adjusted operating income margin increased 120 basis points to 16.4%, generating a 23.6% incremental margin. Interest expense in the quarter increased approximately $2.5 million to $8 million on higher borrowings. We expect interest expense in the fourth quarter to be impacted by book borrowings from the Fore acquisition.

Our third quarter effective tax rate as reported and adjusted was approximately 20% due to our mix of earnings and discrete items. We expect our full year 2022 effective tax rate to be approximately 20%, subject to the mix of earnings and anticipated extent of discrete tax items. Third quarter diluted earnings per share increased 253% to $1.87.

Excluding special items, adjusted diluted earnings per share increased 31% to a record $2.04. We incurred a $0.07 unfavorable impact to EPS from foreign currency translation. Moving to our reportable segments on Slide 6. Americas Welding segment's third quarter adjusted EBIT increased approximately 41% to $119 million.

The adjusted EBIT margin increased 220 basis points to 19.1% from solid volume growth, operational improvements and automation and effective cost management versus the prior year.

Americas Welding organic sales increased approximately 27% as key end markets such as automotive, general industries and energy accelerated in the quarter reflecting strong customer production activity and capital investment.

Organic sales growth was led by an approximate 15% benefit from pricing implemented to mitigate inflation and approximately 11% volume growth, led by automation and consumables. The [indiscernible] acquisition contributed approximately 100 basis points to sales growth. Moving to Slide 7.

The International Welding segment's adjusted EBIT decreased approximately 13% or $4 million to $25 million, which was impacted by $6 million of unfavorable foreign exchange translation. The adjusted EBIT margin declined 130 basis points to 11.1% and due to unfavorable mix and the timing of pricing actions to mitigate broadening inflation in Europe.

Organic sales increased approximately 16% and led by 14% higher price primarily from prior pricing actions and price adjustments made to mitigate unfavorable foreign exchange translation. Volumes increased 2% and with strongest demand in Turkey, the Middle East and India. Moving to the Harris Products Group on Slide 8.

Third quarter adjusted EBIT decreased approximately 10% to $14 million. The adjusted EBIT margin decreased 270 basis points to 10.6%, reflecting lower operating leverage and declining commodity pricing in certain metals offerings.

Harris's organic sales increased approximately 11% on higher volumes and a 50 basis point decline in price due to decreases in commodity metal prices. Volume was stronger than expected on continued high demand for specialty gas solutions and the fulfillment of back orders serving HVAC customers.

These increases offset continued softness in the retail channel, which is expected to persist through year-end on weakening consumer trends. The segment also benefited from a 5% increase in sales from the FTP acquisition serving the HVAC market, which anniversaried in August. Moving to Slide 9.

We generated seasonally high levels of cash flows from operations in the quarter.

Cash flows increased 19% to $130 million, reflecting 94% cash conversion, average operating working capital remained elevated at 19.5% of sales at the end of the quarter as we maintain higher inventory levels to support higher sales and mitigate challenging supply chain conditions.

We continue to expect cash conversion to be at or above 90% through the balance of the year. Moving to Slide 10. We invested million in CapEx spending and returned $59 million to shareholders through our higher dividend payout and approximately $27 million of share repurchases.

Through September year-to-date, we have spent $156 million on share buybacks and have repurchased 1.2 million shares or approximately 2% of our outstanding share count. We maintain a strong balance sheet profile with a net debt position at September 30 of $638 million, allowing us to maintain a balanced capital allocation strategy through the cycle.

And now I'll pass the call back over to Chris to discuss our updated assumptions for the balance of the year and our recent Fori automation announcement..

Thank you Gabe. Turning to Slide 11 to discuss our 2022 full year assumptions. The continued strength in Americas and global automation as well as our ability to mitigate challenging conditions, reinforces my confidence in achieving the high end of our organic sales and incremental margin range this year.

Heading into the fourth quarter, we expect Americas Welding performance to remain strong and follow a typical seasonal cadence on secular growth trends and high demand for capital equipment. As we previously mentioned, we're more cautious on international welding and in the Harris Products Group retail channel on soft consumer trends.

Turning to Slide 12. We I'm excited to discuss our recent announcement that we've signed a definitive agreement to acquire Fori Automation, which we expect to close later this year.

Fori a privately held automation engineering firm and leader in providing OEMs with large-scale, complex automated welding systems as well as assembly and material handling solutions to drive efficiencies across production platforms. They also provide end-of-line testing systems.

These solutions are complementary to our automation portfolio, which further distinguishes Lincoln's leading automation offering in the industry. We are now strongly positioned to serve customers both up and downstream from the ARC and on factory floors, which offers tremendous cross-selling opportunities across our end markets.

Fori is headquartered outside of Detroit, Michigan with a broad international footprint that expands our current automation network of 23 facilities located across the Americas, China and Europe to 31 sites with a new presence in India and South Korea.

The proposed transaction would increase our automation portfolio annual sales run rate to over $850 million, which accelerates us towards our 2025 sales goal of $1 billion.

Fori's low double-digit percent EBIT margins are comparable with our existing automation portfolio profit margins, and we expect volume growth and synergies post integration will support automation achieving its mid-teens percent EBIT margin target in 2025. Turning to Slide 13.

We've agreed to a cash purchase price of $427 million which represents approximately a 9.3x EBITDA multiple with synergies driven by top line growth and profit improvement through integration of our Lincoln business system, including a new ERP system and disciplined processes.

We expect the business to be accretive to earnings by $0.12 to $0.15 in the first full year post close, reflecting integration and borrowing costs. We also expect to double that accretion to $0.24 to $0.30 in 2025.

As announced, we intend to fund the transaction with cash in a range term loan of approximately $400 million which we expect to finalize later this quarter.

We expect the term loan will increase our annual interest expense by $15 million to $20 million and will increase our gross to debt EBITDA leverage ratio to approximately 1.3x on a pro forma basis as of September 30, which maintains our investment-grade profile.

In conclusion, I'd like to reiterate how proud I am of our global team who continues to lead the industry in servicing customers, driving innovation and executing on our higher standard strategy to drive value for all of our shareholders. And now I'd like to turn the call over for questions..

[Operator Instructions]. Our first question comes from the line of Bryan Blair with Oppenheimer..

Had a very solid quarter..

Yes. Thanks, Bryan..

Automation trends remain extremely encouraging and if my simple math proves correct here, you incurred were at least 625 this year with the 4 automation deal getting into the pro forma 50 plus. I'm curious, given the size of the transaction, if Fury was contemplated when you established the $1 billion revenue target for 2025.

And given the jumping off point that you're likely to have going into 2023, if it's now reasonable to think it's something plus relative to that $1 billion run rate by the $250..

That's a great question. I'll tell you that Fori was not in some sort of plan that we had. We recognize that it's still a very fragmented marketplace, and there are opportunities for Lincoln Electric to continue to bring in valued assets to our strategy in the automation portfolio.

But I really like and think we need to focus on the second portion of your question, which is potentially could we exceed that target. And I've got a lot of confidence in the underlying growth trends that we see in automation. Our backlog and automation is at a record level and continued at that pace as we're moving into the fourth quarter.

Fori brings us some new capabilities, which I believe we can leverage across the broader customer base of Lincoln Electric, especially relative to the AGV technologies that they bring, which is advanced material handling that's being utilized on the manufacturing floor.

And just with the growth that we're seeing in the business and our continued desire to bolt on more strategic acquisitions into the automation space, it certainly is an opportunity for us to potentially exceed that target as we're executing on our strategy over the next 24 months..

All great to hear. And with regard to another catalyst or, I guess, at minimum optionality for the Lincoln story. I was wondering if you could touch on your recent announcement of the DC fast charge BV initiative. We find that pretty intriguing.

Maybe highlight Lincoln's competitive or technology angle in the market, the scale of the potential opportunity over the longer term and how you're currently thinking about go-to-market strategy and the potential partnerships that may play out as you look towards commercialization..

Yes. We're very excited about the EV technologies and potentially what it could mean for Lincoln Electric. It's really scaling our power electronics competencies that we have within the business. And Steve Hedland our Chief Operating Officer, has been really driving that initiative inside the company.

And I'll let Steve provide you more color on really where we're at with the initiative..

Yes. Thank you, Chris. So Bryan, we're -- I guess, I would say, still in early innings on this strategy. We've had initial discussions with both ChargePoint operators as well as other people who provide chargers into the market and -- our value proposition and our story resonates with them.

They understand our long history, designing and manufacturing power electronics for high-duty cycle use in very severe environments. They understand that we're very vertically integrated and can easily meet all the Biomerica requirements.

And the feedback we've heard so far is that people believe we're very well positioned to enter this market, and we address an unmet need in the market. So now it's really the challenges for our engineering and operations teams to start to scale up to get ready for production..

Our next question comes from the line of Walt Liptak with Seaport..

I wanted to ask about -- you talked about how you're a little bit cautious internationally. And -- but it looked a little bit more stable, you called out Turkey and India.

I wonder if you could just provide us with a little bit more detail about what you're seeing out of Europe and our -- is the growth that you're seeing in Turkey and India, is that -- do you think that will be sustainable enough or big enough offset in the future?.

Yes.

Well, look, I think the uncertainty that we're highlighting and managing is just the uncertainty with the potential energy crisis that's migrating across Europe and what that may mean to the demand models as we move into Q4 and certainly probably permeating into as they work through those challenges around energy in the colder months, especially in the international markets and specifically Europe.

So we've seen some choppiness in that business. Some of that choppiness is driven by other dynamics that might be involved with pricing actions because of some of that inflation. But probably the thing that concerns me the most is actually what the demand model may or may not look like. But we believe we're managing it well.

We factored that into our perspectives on the company and Lincoln Electric and what we're going to be able to achieve as we're finishing up 2022. I really like the investments that we've made in areas of the international market. We've made some large investments in Turkey.

We like the fact, although I did mention that the Fori acquisition actually will bring us an automation facility that's active in India. We've been looking for a site in India, so we'll have a head start on that strategy, which should be able to support our consumable strategy that we also have in that market.

So it certainly is more around the really the uncertainty centered around those markets because of the energy inflation that they're seeing and some of the challenges that we think will occur in some of those markets..

Okay. Great. And clearly, the Americas region is doing great.

maybe can you -- are you seeing any early signs you've been through a cycle or 2 in the past? Are you seeing any signs of slowing? Or is it just the acceleration that we're getting?.

Walt, we've -- I think we were early in believing and in that belief investing behind a positive industrial cycle. And we're seeing that positive industrial cycle in the markets today. And certainly, from quarter-to-quarter, you might see some migration between some of those segments.

But broadly, I still believe we're in a positive industrial economy and certainly our Americas business and our automation business, especially are benefiting from that.

But I also believe a reason why we're benefiting is because of our belief in that and then the investments in our business to be prepared to go out there and serve those customers in this portion of the cycle. So I still believe that we're on that positive trend, and we'll continue to evaluate that.

And I would hope that's a very positive trend for us. When we have this many of our segments that are moving positively exiting 2022, that's a positive thematic for us as we're starting to look at 2023..

Okay. Yes, that's certainly true..

[Operator Instructions]. Our next question comes from the line of Mig Dobre with Baird..

It's Jogaboski on for Mig this morning. Really nice quarter. So you reiterated your organic growth guidance, but now the higher end more likely which implies about low double-digit growth in the fourth quarter compared to 18% to 22% growth for the prior 5 quarters.

Is there anything you can point to? Is this the international cautiousness that you mentioned or just tougher comps and moderating pricing?.

Joe, just keep in mind that we anniversary the pricing actions we took last year, and you continue to see that from last year's fourth quarter. And you also see the currency impact assume that we experienced in the third quarter continuing into the fourth quarter. So that provides some offsets to that.

But in terms of organic type sales, we're seeing the higher end of that range..

Got it. Okay. And then my follow-up, the growth in automotive and transportation was really impressive in the quarter, kind of took a step function higher.

Maybe expand on it a little bit, what's driving this outsized growth?.

So just, Joe, we think about production levels, vehicles, you can read the reports, but the light vehicle production in September was up almost 40%, and our business tracked with that. So you're seeing good fulfillment on production plus capital investment. You see the capital investment coming from our automation business.

So as we've talked, the inventory levels have been low in the automotive sector. we're positioned to serve production and you're seeing that within our results..

And Joe, the other comment I would make is that and I know we've mentioned it before, but I do believe that when we have historically looked at automotive, we have to look at automotive slightly differently on a forward basis.

I don't think in my career, we've seen the type of transition that's going in within that marketplace and within that industry as they're migrating towards EVs.

And that migration towards those new technologies requires more capital investment, requires changes to facilities, requires new technologies -- and yet at the same time, they're trying to continue the demand profile they see for their internal combustion engine. So that transition creates demand for Lincoln Electric.

And it's probably also another underlying catalyst that we're seeing within the automotive and transportation space..

Our next question comes from the line of Steve Barger with KeyBanc..

Great.

It looks like Fori has some complementary products, but also some new things for you like the -- do you have an estimate for how this changes your addressable market for automation and robotics?.

Steve, I'm not sure that I'm ready to talk about what the addressable market migration should be. But certainly, as we're migrating to executing on our 2025 strategy. We need to spend some more time with that.

What I do know is that when we think about automation and we think about how our industries are utilizing automation -- we know that there's a desire to migrate towards more flexible automation where possible. We're seeing it with our cobots, where that's flexible automation, you can move it within your manufacturing facility.

The AGVs are just that, flexible automation. In the past, you might have -- you put in permanent automation because you put in other material handling systems, really, the AGVs are really a step change in that portion of the process. And so that does expand that portion of the marketplace for us.

The other thing is, and it's interesting, I was just at one of our own manufacturing facilities in the last 2 or 3 weeks and looked at the installation that we had of a large automation cell within that facility. And that was all around manufacturing process. It wasn't around welding or cutting application.

We have those kinds of capabilities and continuing to be able to identify and and participate in those opportunities, I think, is also a potential expansion of this addressable market within the strategy as we move forward. So you're right. I think it's great in the core. They've got some new capabilities for us.

I think those capabilities, we can migrate to our global customer base. and potentially opens up an even larger sandbox for us to play in longer term than automation, and we'll continue to think about that and share that with you as we're executing on the strategy..

And Steve, I would add that TVs have been in the market for a while for warehouse applications and the like. The AGVs that designs and builds are different.

They're really well suited to handling large, heavy, unbalanced parts and moving those through a factory from station to station which are ideally suited for customers in heavy fabrication and structural steel and other industries where historically, they haven't had a very good way to move parts efficiently through their factories, so that gives us a lot of excitement around places we can take that product line..

Yes. I think the AGVs are a really exciting part of this acquisition.

And I guess to the point on flexibility, how interoperable are these AGVs and for these other products relative to your other automation products? And maybe can you talk about your vision for interoperability as you expand your product set?.

Yes, Steve, I think that's driven really by 2 really drivers within the business. Certainly, we want to make sure that we develop the operability where we can be communicating and maximizing the productivity that our customers are looking for within that process.

And then as importantly, we want to make sure that, that operability aligns with what the customers are looking for within their shop floor information systems. So it's still early innings for us as it relates to what we think we can do with those products in our systems.

But as you can tell from Steve's comments and my comments, we're very excited about that addition to our product portfolio..

Yes. No, I agree. I think it's a great pickup..

Our next question comes from Nathan Jones with Stifel..

This is Adam Farley on for Nathan. So volume comparisons reaccelerated in the quarter, which is -- it's nice to see.

How much of this volume increases from higher order rates versus improving supply chains that are potentially a lot backlogs to be shipped at a faster pace?.

So Adam, I think through it, the consumable drivers are driven by production activity. So we've been -- as we mentioned in our comments, seeing more stability in the supply chain on the consumable side. So that's driven by real activity currently. And then again, on the automation side, tint the Americas, strong growth.

Our backlogs are our holding study from entering the third quarter to enter into fourth quarter. So real strong demand as well as on the automation side..

Okay.

Maybe just another way, where are your lead times today versus 2019? Are your lead times improving?.

So look, I've shared with you that the lead times are improving sequentially. As I mentioned, we're starting to see more stability in the raw material and metals-based inputs that we have in some of our consumable products. We may not like some of the price points associated with them, but it's not an issue of availability.

There are still challenges on the equipment side of our business with some of the chips and the electronic components, some of the control components that we might be utilizing in automation.

So we're still seeing challenges in those areas of the supply chain and expect that we're going to see challenges in those areas, the supply chain for at least what we see for the foreseeable future, which is probably at least the next 2 to 3 quarters. So that's really the way we're thinking about the business internally.

And with that, as you'd expect, our on-time delivery metrics on the consumable side of our business have bounced back and quite frankly, are performing very well. And we believe we've made some improvements, quite frankly, even on the equipment side of our business.

A lot of our products for the commercial marketplace are ready and available today for our customers. But it is still challenging from the supply chain side. And as I mentioned, just really proud of how our teams have been able to manage through the challenges we've seen in the marketplace.

And the fact that very early on, we decided to use the strength of our balance sheet to protect our customers in the market, and we did that by going out and procuring additional components and raw materials to try to minimize the impacts we might have in the marketplace.

And I think both of those initiatives have served us well over the last 3 to 6 quarters..

Our next question comes from the line of Dillon Cumming with Morgan Stanley..

I'm sorry to ask another one on automation, but I just wanted to check in on kind of the EBIT margin targets of the business. You obviously underwrote the kind of mid-teens-ish kind of target by 2025 for broader automation. I'm just curious, you're going to do probably close to 17% this year, the kind of total company average level.

What is kind of keeping the lid structurally on margins in terms of actually getting closer to that kind of corporate average level over the next few years?.

So Dylan, we're right on track to our objective, right, being at that corporate average OP. And we've made a step change this year tracking at that low double-digit EBIT profile. As we've mentioned on the Fori sides commensurate with that profile, and we're very much targeted towards achieving that mid-teens target.

That's going to come from both continued growth organically. So you have some volume leverage there, but also continued development of our Lincoln Business System. So our margin profile increased 50%. We're talking about mid- to high single digits last year, and now we're into low double digits, and we're on track to meet our objective..

Okay. Got it.

And I guess where I was going with that, too, is, are there any parts of the automation supply chain that you might kind of consider in-sourcing over the next few years that could maybe unlock a greater kind of EBIT margin potential for that business?.

We're always looking at whether we would be bringing more capabilities into the business. I think the Fore acquisition and our ability to bring the AGVs in as a capability is a great add for us as it relates to a catalyst to the margin profile. I think that, quite frankly, opening up other markets to us could be a catalyst to that.

But I can't think of necessarily a capability today from a product perspective that we're thinking about in-sourcing because we're challenged from a supply position. That's not something that today we believe would be an enormous value creator. Now I can also share with you if we did, then strategically, we'd consider it.

We have the balance sheet and the ability to do that if we think that's something that would be a benefit to our strategy longer term. But today, that's not something that we're contemplating..

Okay. That's fair. And I could just sneak one last one in. Gabe, you mentioned in your prepared remarks the kind of impact of broadening inflation in Europe with regard to the international Welding EBIT margin performance in the quarter.

I'm just curious if you can kind of put a finer point around that in terms of any unexpected kind of energy cost inflation that you saw vis-a-vis natural gas or electricity that maybe drove some of that margin weakness versus just kind of broader inflationary pressures around like freight, labor, et cetera?.

Yes. No, it's broader inflation, but we do anticipate continued pressures, particularly on the energy side, and we're ready to respond to pricing with pricing actions to maintain that price cost neutral posture..

Our last question in the queue is a follow-up from Walt Liptak with Seaport..

Just maybe one last one on the Fori acquisition.

What is the percentage mix of the welding automation versus material handling versus other?.

Walt, look, we really haven't provided that information out, and I'm probably not going to at this point in time. I think that that the nice thing is when I look at the business is it does have an element of welding in larger weldments that quite frankly, we may be -- we're not participating in a slight add to our business.

And then we've got the in-the-line testing and the AGV as new capabilities inside the business. For me, there's really 2 reasons, one is there's no question. I believe that when people think about welding and cutting automation we come first to mind globally. I think we've built this business. We've built that reputation in the marketplace.

But we also need to make sure that customers understand we have broader capabilities, and we can do a lot of things that may even don't involve the arc. And so we look at that internally.

But at this point in time, it's got a nice mix inside of the Fori business, and I think complements what we're trying to do with our automation strategy longer term..

Okay. Yes, makes sense. I understand. I wonder if you could maybe then help us with the geographic mix, how much is in Americas versus international and how much Europe exposure for Fori..

Yes. You know what, Fori will be folded in. Once we start the integration process, well, you know us well.

Well, once we start the integration process, it will be even difficult in a very short period of time for us to be able to determine what's Fori versus what's just broad automation because we'll have an ability to be able to migrate those technologies and capabilities across the portfolio. So look, it is more concentrated in the U.S.

market than it is globally because it was developing those global markets, but it has a nice presence in a couple of the areas around the world, but certainly more North American-centric than global..

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I would now like to turn the call back to Gabe Bruno for closing remarks..

Thank you, Towanda. I would like to thank everyone for joining us on the call today and for your continued interest in Lincoln Electric. We look forward to discussing the progression of our strategic initiatives in the future..

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect..