Lincoln Electric Holdings, Inc. Stock

Well, good morning, everybody, and thanks for joining us for the third and last day here at the Laguna Conference. So it's my pleasure to have with me today, Gabe Bruno, EVP, CFO & Treasurer of Lincoln Electric. So thank you so much, Gabe.

Good to be here, Angel.

Thank you. Well, before we get started, I just want to read a quick disclaimer. So for important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative.

So again, okay, thank you so much for joining us. Lots of things to discuss. And obviously, macro is a big aspect of what's happening right now. But I want to actually go a little bit more idiosyncratic at first and a little bit higher level. And back to your kind of RISE strategy and start there in terms of talking about what you laid out as a longer-term outlook in terms of achieving kind of high 20s incremental margins by 2030. Maybe if we could start with that bigger picture and just talk about kind of the concrete structural changes inside of Lincoln and initiatives that are ultimately expected to drive that kind of improvement over the years.

Well, thanks, Angel. That's a great place to start. So thank you for focusing on long-term value creation. I've been with the company now this year about 31 years, and we have consistently improved the operating profile of our business. I think about an operating margin through each cycle, improving 200 basis points per cycle. So you've seen that. So that has taken us from a largely regional business model. So we manage the international business, the European, the Asian, the North American business is more as distinct business units. And over the years, we have determined that we can create a lot more value by looking at all of our operations, particularly where we should like in the welding business and think about what are those disciplines that can scale the enterprise.

And so, for example, we pointed to finance have a simple example. But over the last stranger, think about higher standard last 5 years, we improved the operating profit of our business by 50 basis points beyond. Just in finance. So we're looking at structural changes that we essentially drive an enterprise-wide view of our business and how do we leverage capabilities. Same in HR, same in IT, same and key disciplines like supply chain, procurement, engineering, you're going to see us do more and more of how do we leverage the capabilities across the enterprise and create incremental value.

So that gives us confidence from accelerating the level of margin improvement over each cycle from 200 basis points to 300 basis points you go from a mid-20s incremental margin, which is our historical profile, to a high 20s incremental margins. And that, on top of what are the disciplines that are customer-facing. We're talking about our spotlight strategy that looks at operational capabilities, supply chain, how are we servicing our customers, that gives us confidence that we can achieve that. So a lot of great structural work you can anticipate in how we approach our business model, and that's what gives us confidence to drive a step change in that.

That's very helpful. And maybe just as we kind of work our way to some of the near-term dynamics, just given how much it's happening. Should we think about that as more of a steady cadence between now and 2030? Or how should we think about that progression and what you've already put in place?

I think it's the best way to think about it, a steady, ratable type of improvement over the next 5 years. There'll be elements that will be more accelerated than others. But on an enterprise level, that's a good way to think about it.

Perfect. And again, ultimately, there's so much happening. It's hard not to ultimately ask about kind of the near-term dynamics that are happening, right? So we still have -- it seems like a lot of self-help, a lot of initiatives internally that will drive that high 20s. But given the difficulties of kind of the current macro backdrop, I think last week, you indicated 3Q incremental margins, maybe a little bit more towards the lower 20s.

And then just a lot of that obviously, inflation that's been very topical and very well covered. So can you just maybe help us unpack that a little bit more in a bit more detail, like what does that -- what are you exactly seeing in terms of that inflation? Is it what specific segments or pockets? And ultimately, should we think about that as kind of just a 3Q dynamic or also 4Q?

Yes. So there's a lot there. But inherently, we have been raising the issue of persistent inflation. We had announced price increases in the second quarter in the May time frame put those in place. But we have just seen consistent inflation across our welding businesses. So the actions we've taken cover both the Americas as well as the international businesses. And with energy costs, logistics costs, supply chain dynamics, all those point to an incremental consistent level of inflation. So because of that, our strategy is to be price cost neutral. And so we take the actions to maintain that kind of posture.

Because we had seen that persistency, we took additional pricing actions in the Americas effective the beginning of September. In the international markets, we'll have some towards the end of September. We won't see that fully mature into the fourth quarter time frame. That incrementally represents about 100 basis points of incremental price that you'll see in the fourth quarter. But in the meanwhile, because of the cost pressures, we moved from mid-20s incrementals to low 20s. That on top of a very strong demand. The same dynamics that we have talked about across all the product lines in the Americas segment in particular. Consumables, standard equipment, automation, just continued strength in -- from a demand perspective.

So we're just navigating a price/cost dynamic, which is part of our discipline. We want to make sure that we're protecting the operating model.

And that was actually -- you kind of started on my next question is just ultimately you did talk about that momentum that we're seeing from the demand side, it doesn't seem like anything really is slowing down. So can we just unpack that a little bit more in terms of, one, when you take those 2 pieces, the inflation, the incremental price on that basis, is this still in terms of earnings going to wash out, net neutral? Is it the incremental strength in demand that you're seeing is that kind of, again, offset that or still a little bit of negative, which is, again, the trajectory in the right direction?

Yes. From a dollar perspective, we feel confident it's more about the -- what's the incremental margin contribution. The demand profile continues to be strong. Just additional comment on that. We point to is that we had already seen consistent -- consistency in volumes on the consumable side of our business, flat to slightly up. And then we saw in the Americas mid-single-digit type growth in volumes. Standard equipment, very, very strong. So that continued through this third quarter to date. And so then on top of the strength we've already seen in the order patterns, the backlog on the automation just continues to give us very strong conviction on the demand profile of the business.

So I guess, fair to say that even with all the geopolitics and macro, you haven't seen any kind of step change as we've kind of evolved from August, September. I know we're -- September can be a big month, and it's still -- we're only halfway through it. But -- it doesn't sound like you're seeing any...

We're seeing the same kind of demand profile.

Got it. Very helpful. So let's keep going and get a little bit deeper now, and perhaps going into Americas. Again, maybe on the industrial environment, just you talked about, again, the meaningful acceleration. Could we maybe talk about the different end markets. I think there's a lot of questions around the manufacturing activity, the PMIs that we're seeing. Just help us understand a little bit deeper into your business, ultimately across the different end markets. in some of the product lines, consumables, equipment, but just the different end markets, what are you seeing in terms of that demand?

Yes. So I think it's pretty important to understand what is happening in real production activity across end markets. When you are servicing factory activity, you can think of consumable activity, production requirements, volumes. And when you see consistency over a period of time, that generally leads to investment. So when we point to standard equipment, the velocity of incremental investment, that would give you a sense that there's a progression in the potential expansion in the industrial activity.

So when we look at the end markets, for example, when you look at general industry, a little over 1/3 of our business, you look to what's happening on industrial production how consistent is that production velocity? What is the sentiment on 8 months in a row now of the PMI and orders and all the dynamics there pointing above 50, so expanding. Now what does that mean in terms of investment. So when we talk about standard equipment and then talk about how the progression of automation, ties into that. You see not only factory activity, production activity steady to improve in, but then conviction to capital and capital deployment. So that's what we point to.

So general industry, you're seeing that. Heavy industry, the key driver there is to think through what's happening in construction and ag and mining. We believe that we've seen a trough and we believe that because we've seen more steadiness in consumable volumes and that's production and then starting to see more improvement in investment. So when we look at point to heavy industry, we're talking about that. Steadiness and actual activity, then also conviction of investment. Same thing on structural fabrication. We've seen a lot of strength there. Energy, strengthened in the Americas, obviously, some pockets of pressure in the Middle East and that, but very bullish on energy.

And then where we're seeing mid-single digits down year-over-year is in automotive. In the automotive side, think about our consumables following what the headlines are on automotive production, which we're right on line on. And the question becomes when do you start to see a conviction of investment. So that's how we point to what are the program launches out 2028, '29 mean to us, what are the S&P's report out going to look like in October. Seem positive there and then seeing the level of quoting activity increase in our business and seeing that turn into orders will give us more conviction on the automotive side of the end market.

But except for automotive, the strength in production and investment we're seeing progressive across all the end markets.

That's super helpful. And I think I do want to get into automation a little bit, which touches on autos a lot in a second. But maybe before we go into that, just maybe one extra layer I want to put on the pricing front. You mentioned the 100 basis points in what you've kind of implemented in September and one year in late September. Can you help us understand, I guess, just the broader picture of price for your business and the cadence as we should think about the patients to kind of price cost as we start to get into 2027?

We're going to take pricing actions where we're dealing with inflationary pressures. So we just took pricing actions in September. We expect to be price/cost neutral with those actions. And we'll take additional price actions if we see otherwise. But our posture is to maintain a price/cost neutral posture. We believe we've taken the price actions to achieve that in the fourth quarter and then obviously leads into 2027 and beyond. But that's our posture. If we see things otherwise, it will take additional pricing actions.

And as you think about the different distribution terms, you have distribution, you have OEMs, any differences in terms of your ability to kind of get that price and achieve that pricing trial?

Yes, it's a great question, Angel, because I'd like to reinforce that more than 60% of our business is sold through channels and the channel is very disciplined. We provide notice. We announced our -- for example, the price increases are effective in September and August to provide the channel some lead time and being able to net changes in pricing. So 60% plus is sold through the channel, 20% automation, which is really about value proposition. And the other 20% is really where we're dealing with OEM specific type of pricing. So largest part of our business is very disciplined through a channel through automation. It's really about how do we manage the notice and level of alignment to our price/cost posture.

Got it. Okay. No, that all makes a lot of sense. And again, maybe now shifting over to automation. This is an area that has become a broader part of your business, a lot of acquisitions over the years. as well as very strong organic growth. But more recently, it's been obviously a little bit softer because of the ties to ultimately automotive. As you think about this automation business, I think it's broader than just robotic welding, right? It's a handling testing and other things. Where do you ultimately see Lincoln Electric as you think about automation in the value chain longer term and like where you'll play?

Yes. So I think a key driver for that is thinking about our customers, what are the solutions requirements. You just follow the needs of our customers. And that's broad-based. So if we're talking about automotive, how do we deepen our capabilities to provide the kind of automation solutions that we have. Think about acquisitions over time where 40%, 50% of our business tied to the welding fabrication. But we've added capabilities in material handling and testing and positioning that broadens the offering. And that's kind of how we see it. And how do we follow our customers and enhancing the value proposition, the solutions we provide in automation.

When you think about broadly then outside of automotive, how do we also then foster an adoption of automation capabilities. So over the last few years, you've seen the introduction of Cobots. We're working to introduce physical AI, and we have a trade show coming up in October and introducing the prototypes that we've done to be able to take orders. So how do we drive better adoption in automation in small, midsized fabricators as well as some of the larger players in the heavy industry.

So, we want to provide the kind of solution set that is following the customer -- our customer needs but then also enhancing the adoption of automation capabilities across end markets. We -- prior to our acquisition of Fori, let's say, in 2022, we're pretty balanced in looking at general industry, heavy industries, structural fabrication, automotive. We leaned more heavily with the acquisition into automotive, but it introduced capabilities to, again, provide deeper solutions to our customer base. So think about it in that context, following customers with a broad set of capabilities of automation solutions.

Yes. I mean, you kind of answered it in that light, but also I wanted to maybe about it from the perspective, at least for me, I always think about automation as much easier to do in high-volume areas, very standardized areas. As you start to get, you mentioned to smaller fabricators or manufacturing operations that might be more customized or lower volume and making automation make sense there. Can you just talk about that? Are there any structural limitations that you see? Or is it just about adding like you said, value propositions, technologies that ultimately make it more enhance the value kind of offering from automation for them? Like, how do you think about that longer term? Or will it still be primarily kind of the standardized autos market?

No longer term is how do we leverage our IP capabilities to rich in the mix of our business. And when you think about the margin profile of our automation business, so we're pushing high single digits last year and into the first half of this year, and we got an objective to achieve mid-teens type of an EBIT profile. And that does mean how do we structure the kinds of solutions that are going to be accretive to the model.

Pre-engineered type components, you hear us talk about that, what are those offerings in robotic cells or Cobots or the technologies that can enhance the mix of business from an automation perspective and still meet all the customization requirements, integration requirements for our customers. So, it depends a little bit about the context of our customer needs, but also our own objectives to continue to drive high single-digit organic growth in the long term with an objective of mid-teens type of an EBIT profile.

And actually, you got perfectly weaving it into my next few questions here, just but the pre-engineered sales, I think that dynamic has been a factor in terms of impacting the margins, right? The more kind of impact perhaps from large engineered systems that might be a little bit lower margin. Just ultimately, how should we think about the balance of the portfolio? And when -- is there a point where perhaps the business becomes more meaningful kind of scalable in that less project-oriented type of business and more preengineered. How should we think about that progression of shift of the mix?

Well, we definitely want to rig in the mix. We have our EBIT objectives to achieve that mid-teens. And it also depends on where our customers are progressing, right? So if there's -- obviously, there's going to be a need for integration and the custom requirements for the offerings on a project basis, but also, we've done some very, very nice acquisitions in structural fabrication, the Zeman and Python ex capabilities. We introduced some years back. We'll continue to nurture that in a very strong market.

So the pre-engineered component becomes strategy for servicing pretty areas of the business that are growing, but also an enriching the mix of business.

And maybe just last one, I guess, on automation. I think just if you could walk us through the progression of that over the next few quarters. Again, had faced a little bit of more challenges over the last year, but you're starting to see better orders and better some signs of kind of improvements. So how should we expect that business to ultimately progress here?

We are on a path that we believe high single-digit organic growth with a continuous improvement in the margin profile of the business. And that's kind of how we see it.

And that kind of -- the exit rate already puts you in a good spot from this year into next year?

Absolutely. Yes.

All right. Perfect. And maybe just wanted to switch over to a little bit more of the gap or geopolitical backdrop. But as we think about EMEA, you've been a little bit more cautious on your expectations on the region. Obvious, for reasons with everything happening with Iron U.S. conflict and just broader kind of energy prices. But as you think about that unrest, what are the implications? And just broadly, how -- what are you seeing today in terms of has it had any impact on the business in the region? And just how are you seeing that kind of unfold?

Well, when I think EMEA, I'm going to separate the Middle East discussion from Core Europe. Middle East actually had progressed better than anticipated. We were talking during the second quarter of $8 million to $10 million type headwind per quarter. And think about that mix in our International segment, but also exports coming out of the Americas. And so we were down $1 million to $2 million in the second quarter. We updated $8 million to $10 million to be $6 million to $7 million type of headwind per quarter. So we saw that progressing better than anticipated. Still some headwinds, but better than anticipated.

And we're postured for the project requirements there, the rebuild going on in the Middle East. So we're very positive about the long-term trajectory of the Middle East. Core Europe, a little bit more challenged. And not just because Middle East dynamics is just because we haven't seen a consistency in industrial demand capacity investment. And so our posture for Europe is to think of it as more of a stable operating organic profile within that market. But to challenge how we address our business model. So when you look at our long-term EBIT objectives for international, it is to improve to 12% to 15%. And we expect all of our businesses to improve.

So the European context is less expectations, no expectations for growth, frankly, and to shape the model to be able to drive that kind of margin profile. And we believe we can do that.

Got it. And maybe sticking with the geopolitics dynamics, turning over perhaps Canada and the retaliatory tariffs on U.S. goods. I know you've historically sourced a little bit from Canada and had some exposure. Can you just remind us of what your exposure is the implications are of the Canada, U.S. relationship. And yes, just help us understand that.

Yes. So Southbound, largely, we've talked about this in the past is it's really driven by Section 232 tariffs. Think about the metals component. So we're managing through that. We have managed through that. Don't see anything changing near term on that. On the retaliatory side, northbound, we see that as a minor impact. I mean we're still digesting what all means, but our initial analysis is not significant.

Got it. And I think because to your point on the metal side, that's not necessarily new, right? We have started a couple of administrations ago. And so you've, I think, over the years, been looking to try to source more domestically to reduce that. So has there been a reduction in that? What is the kind of overall exposure that we should think about from a material sourcing Canada?

Yes. That's a long cycle activity for sure, but we have seen good progress in domestic suppliers. So we'll continue to navigate the requirements domestically, but also sourcing from our partners in the North.

Got it. That's very helpful. And then maybe now switching to the international side. We talked about Europe being balanced. I think in -- maybe looking at agents that think about China, India, parts of Southeast Asia, I think, have been a little bit stronger. But in the past, I tend to think about China as being fairly competitive in terms of the ventures that you've had in the region. So just how do you think about what is structurally different about the opportunity? Has anything changed in terms of the Asia opportunity set? Or just kind of what's the near-term and longer-term outlook for Lincoln Electric in Asia?

Yes. So think about -- so when we talk about international organic growth, we're pointing to low to mid-single-digit organic growth, that's all Asia. And so if you think about 70% of our international business is EMEA. The balance is Asia. So all that growth comes from Asia. And we're very bullish on what's addressing in India and how we position our business now in China, Southeast Asia, all that you pointed to, the acquisition we did last year in Australia, tied into mining and wear applications very key to grow.

So we look at Asia is nicely growing organically, and we continue to invest in those markets, but -- bullish on Asia.

And as you think about these investments, you mentioned some of the acquisitions you've done, should we think about it as being more inorganic in terms of continuing to kind of invest in that? Or are the organic opportunities that you can do to ultimately continue to enhance that?

Yes. We'll continue coming. The assumptions are driven off organic growth. But we'll look at opportunities for inorganic opportunities. We see the welding business as fragmented still. And as we see opportunities to continue to drive an investment base that ties it to our core capabilities, we'll do so.

And maybe last one just on that region. Again, the competitiveness of that market in the past, I think it's been a factor. Has anything changed ultimately there? Or is it just the type of products that you're going into market? Like what makes it more attractive now perhaps than in the past, China may have been?

Yes. The key thing is really driving our value proposition. So whether it's in India or Southeast Asia, the strength of our positioning in energy or some of the end markets, that really highlights kind of how we position the kind of growth that we would expect. So the competitive dynamics really haven't changed a whole lot. But how we approach the market with a value proposition that will differentiate positioning in India or China, Southeast Asia or, I mentioned Australia. Those are capabilities that start to differentiate, how do we create value? How do we solve provide solutions for our customers.

Amazing. That's very helpful. I do want to take a second in case anybody in the audience had any questions. Free to raise your hand and we can get a mic to you. Not. I want to continue on the -- maybe just last one on the international side. We talked about your -- maybe just to kind of close that out a little bit. How much earnings operating leverage is there in that business ultimately, whenever we do see any kind of recovery? And what are you looking at in terms of factors that will make you feel kind of we're hopeful that we're starting to see a recovery in the region. I know for instance, Germany has talked about infrastructure investment. Like what is it that you're watching ultimately to see that?

Yes. So for sure, industrial investment, that's a key macro driver for any market. But what we're -- when I say shaping our business model is really addressing the fixed cost structure within the business. So enhancing margins with an assumption of no volume improvement, but enhancing margins a couple of hundred, 300 basis points kind of the key driver there. So when we do see growth, so let's say the markets do start to expand, and you see some consistency in Eastern Europe or Western Europe, then we would expect incrementals to be into the low to mid-30s because this is inherently a larger fixed cost basis in the European model than outside of Europe, particularly in the U.S.

Right. That's very helpful. And then maybe switching to Harris products. Obviously, a lot of metals exposure there with copper, silver and a lot of that has kind of driven some volatility or some noise in the results. If we kind of peel back the onion and kind of peel that back a little bit, how do you think about the underlying growth algorithm for that segment? What are kind of the key drivers? I think sometimes that again, all that noise makes it a little bit harder for us to kind of understand what is kind of the underlying algorithm and that would be helpful.

Yes. So long term, think about the Harris segment is like a mid-single-digit type of organic growth. Made a lot of progress, as you've seen in the EBIT profile of the business. In fact, we've commented on don't expect the 2 that we saw in the first half of the year progressively because the kind of leverage we got with the price cost dynamic with silver and copper gave us a lot of SG&A leverage.

So we see the business model more in that 18%, 19% type range currently. That's kind of we've talked about short term. Long term, our objectives and EBIT are to be 18% to 21%. So we're well on our way. But just expect a continuation of growth across HVAC. So about 60% now of the Harris segment is driven by HVAC. I think about HVAC split between residential and commercial. Starting to see some levels of growth. By the way, I have mentioned that, so that's a good thing. And then just seeing the continued discipline across shaping the operating model. I mentioned Spotlight, for example, Spotlight initiated at Harris some couple of years back. nice EBIT contributions. That's what gives us the confidence to think about that strategy across the rest of our business. So we're doing that.

So the Harris team has just done a great job and driving the kind of improvements there. In the meanwhile, on the retail side, we captured a significant player in the channel. Last year's second quarter, we anniversaried that this past second quarter, a little bit into the third quarter. So we're very excited about how the retailer channel -- can we're positioned in the retail channel. Just be watchful about consumer activity. I see the dynamics in the markets and driving consumer decision points for investing and buying have an impact on the retail side. But we're very well as you know, a market-leading position in welding in the retail channel.

Yes. And maybe if we could dive a little bit deeper into that HVAC piece, to your point, I think you have residential and the commercial side kind of 50-50. That also starts to bring you a little bit more into like the data center side, right? So maybe first, could you just give us an update of what you're seeing in the residential HVAC? And then also quickly, like what is the opportunity set on the commercial HVAC front? What are you hearing there?

Yes. So we're starting to see improving volumes. We had expected to see improving volumes HVAC and HVAC broadly. Okay broadly. And then start to see some already in the third quarter, easier comps in the fourth quarter. We estimate when you think about data center potential, we look at Harris between mid- to high single digits exposure in data centers. So that's been a very nice growth trajectory for us. Consolidated basis, less than 5%. You don't think about this as a big driver consolidated-wise. Although we have pockets of serving data centers and automation or in our core welding business. But within Harris, some of the components, parts, fabricated parts serving directly to data centers.

And we believe that we have a position in the market greater than 10%. A lot of the OEMs have their own parts supply for chillers in that. But our positioning is very nicely positive for growth. And so we expect data center contributions will continue as the market continues to shape kind of investment that you're seeing as we all see in data centers.

And then so you talked about, I think, 5% just coming from Harris, right? Can you elaborate on what are the other areas of your business that ultimately touch on? And what's kind of the consolidated total opportunity opportunity?

Yes. So less than 5% consolidated for Harris, think about mid- to high single digits, okay? But think about automation solutions. So let's say, there's a facility requirements for producing components for serving data centers. We see an automation solution there, working its way through. A lot of indirect type of needs that are serving either construction equipment or structural fabrication you see solutions there. So it's a lot of indirect investment tied to data center activities.

But how we've captured it best we can on a direct basis, about less than 5% consolidated.

Do you see any pockets of the products that you make where you could ultimately make direct investments that or investments that get you more direct exposure or ways to play in the data centers?

We've seen it largely in the Harris segment. So we are making investments to support the kind of growth progressively in supporting the data center investment, but mostly on the Harris side on a direct basis.

And maybe just sticking with that, with the last few minutes around capital allocation, I think you touched on earlier some bolt-ons or technology, different ways, again, you can ultimately invest inorganically. That's also kind of another core pillar of RISE strategy, right, continuing to do inorganic or organic investments. Just can you help us understand the nature of the pipeline, the mix of where is there perhaps more opportunity where businesses that are maybe more coming your way or a bigger focus for you?

So inorganic growth, a key part of our strategy for a long period of time, right? So for the last 10 years, our CAGR on sales has been 480 basis points. Our objectives in our RISE strategy, at least 2030 targets, at 300, 400 basis points of growth, sales growth, CAGR from acquisitions, a very active part of what we do every day. We have a center-led corporate function that is working alongside our business unit leaders in navigating opportunities. Over the last 5 years, we've done 10 deals, 5 within automation and 5 outside of automation, and that's really spread out in the international and the Americas segment.

So it's an inherent part of our strategic focus on how we're going to drive growth, deploying capital broad-based with a center-led focus across our business units.

And I think as part of that, I remember in your last Investor Day, I feel like there was like a little bit of a broader, I don't know, funnel that you were looking at other opportunities. I don't know if it's a little bit of the international side. Again, there has been so much focus on automation for a while. Where are there -- where has there been any shift in terms of incremental opportunities? Is it international? Is it other particular technologies or investments around Harris, like where has there been any kind of strategic opportunity that's changed?

Yes. I wouldn't call it a shift I would call it a broad-based focus and looking at opportunities of bolt-on businesses that enhance positioning in our strategy. So the wear that we completed last year. That's an international market in Australia. We did a mobile power acquisition in the Americas that extended out some of the technology capabilities of our own business. So -- our business unit leaders are actively navigating opportunities, working with our corporate function to see if it makes sense for us. We're very disciplined. We get a board level of engagement, every meeting and navigating what the opportunities look like what the pipeline looks like, but very much focused on that 300 to 400 basis points of growth in a very disciplined way, the kind of expectation of margin contribution and returns.

And maybe just to round it all out, how do you think about the hurdle or the puts and takes of that versus buying back your own stock or returning cash to shareholders?

Very much we prioritize growth. I mean the higher returning opportunities for our shareholders, investors start with growth. We've more than doubled our internal investments and looking for opportunities for driving efficiency or quality or safety or capacity, internal investment is pretty important for us and then inorganic growth. So we want to make sure we're deploying capital for growth. We've been very consistent in increasing the dividend rate for the last 30-plus years as we've done -- have been registered on NASDAQ. And then we return any excess cash to shareholders, and we want to make sure we cover maintenance.

And you can see how the range of share repurchases have average throughout the year. I did a $50 million, $300 million type of range. But it's opportunistic in deploying excess strategic class for share repurchase.

Perfect. Well, that's a perfect place to wrap it up again, the so much for your time.

Well, thank you very much, Angel.

Thank you.

All right. Welcome back, everybody. So I'm Steve Volkmann with Jefferies. I cover Lincoln Electric and a number of other industrial companies. We're very pleased to welcome Gabe Bruno, who is the CFO for Lincoln Electric.

We're going to do a fireside chat up here the next 35 minutes or so. We would love to have your participation as well. If you have any questions, I'll make sure to make time and pull the audience as well. But I will kick it off.

So welcome, Gabe, thank you so much for coming.

Thank you, Steve. It's always great to be here.

Good. So I've been starting off all my sessions like this because, yesterday, somebody yelled at me for not doing it. But we are on a webcast here, so I want to just provide the opportunity if you have any updates to sort of how things are going in the third quarter, we'd love to hear them.

Sure. So one of the key things, Steve, as you know, on the earnings call for the second quarter at the end of July, we had increased our sales assumptions. We have seen strength, broadly speaking, across the Americas segment across all the product lines, consumables, standard equipment and automation. And continue to see that, in fact, through the August time frame. So I want to reinforce that the strength and the momentum that we saw in our business, we continue to affirm that kind of strength.

Similarly, challenges in Europe. Kind of August is a tough time frame to really gauge what's going on in Europe, so more of a choppy environment. Continue to see strength in the India and the Southeast Asia, Chinese portions of our Asia business. And then Harris, we're starting to see a little bit more volume. So very good progression, consistent with what we saw at the end of July.

Now that said, we've been managing through some persistent inflation. We talked about that in our call. So we did take actions on pricing in the Americas segment. They have impacts beginning of September. You'll see that mature in the fourth quarter. We also took actions on the International side, price actions that are going to take effect towards the end of September, you'll see that fully realized in the fourth quarter.

So we estimate that, at maturity, is probably another 100 basis points of pricing actions, that we'll see at maturity in the fourth quarter. And that's driven again by a lot of cost pressures, it's the logistics, some supply chain challenges, we're seeing the components. So pretty important for us.

What that implies is that we're looking at our incrementals for the third quarter more into the low 20s. We had talked about mid-20s, but now we're tracking around the low 20s in terms of an update. So we're really excited about the market profile, but we continue to manage the pressures of inflation and some supply chain dynamics with it too.

Okay. And sort of that extra 100 basis points by year-end, does that put you price/cost neutral or maybe...

Yes. So that's our focus. So as we -- as you recall on the call, we've talked about second half being price/cost neutral, and that's the drivers of the action. So more inflation, more cost pressures translates into more pricing actions. And that's driving to a price/cost neutral posture.

Got it. Okay. So I think you've been at Lincoln Electric quite a while, 31 years or something...

31 years this year, yes.

31 years, okay. So you've seen a few cycles. And I'm curious, I think the second quarter was the first volume growth quarter in like 9 quarters or something. So how durable does this recovery look to you and how broad-based?

Well, the key drivers are seeing consistency in production levels across the different end markets we serve and how that translates into conviction of capital. And I would point to that outside of what you see in automation. Because we had already seen, coming into 2026, significant increases in the order activity, the order book, the backlogs in automation that pointed to volume expectations towards the end of the second quarter, which is what you saw.

We have, as you know, had experienced an extended contraction on the industrial side. So when you see PMI now 8 months in a row of expanding, that's real positive. So the sentiment followed by steady increases in industrial production trends point to pretty positive trends in the broader macro sense. The conviction of capital, both in standard welding equipment as well as investment in automation, also provide a framework for strength in the industrial cycle.

Typically, consumable leads in a cycle by a few months, a couple of quarters. And so seeing the turn coming into the second quarter and significant improvement in capital investment on standard welding equipment is very positive. That follows the typical trajectory of the cycle.

Now how long? Who knows? But certainly, the dynamics are pointing to a very positive progression, particularly in the Americas segment.

Okay. And are there certain end markets that are really leading the charge here? Or how broad-based is it?

I mean general industry, for sure. You saw that we were up in the 30s. Not just because of pricing within Harris, because the Harris HVAC component is within the general industries, but just broadly in the Americas side. So the general industry markets are very strong.

When you point to heavy industries or structural, seeing some good activity. Heavy industries, we believe, are hitting a trough and are starting to accelerate capital investment. Structural is choppy, generally speaking, but seeing good project activity as well on structural.

When you think about automotive, it's a little bit of a contraction still, but the contractions are narrowing on the automotive side. So pointing to pretty positive trajectories across end markets.

Now a couple of areas to be watchful of is, for example, on the retail side. So as consumer activity continues to be a pressure point, looking to see how that translates into improvements on the retail side. Second quarter was kind of tough on the Harris side, which is where our retail channel is served, because of tough comps. So we're hopeful to seeing more progression on volumes on the Harris side, on retail as well as some of the HVAC activity we expect out of the Harris business.

Okay. How about -- let's talk about the consumable versus the equipment side of things. You said consumables tend to lead, but I think we're seeing equipment follow as well.

Yes. So I'll point to Americas in particular for volume. So you take out pricing if you want to see what is the real activity going on from a production standpoint. In the Americas segment, for example, in Q2, consumable volumes were up about mid-single digits. So it's been consistently trending higher, seen a slight uptick into that, translates then into capital investment. So a significant improvement in standard equipment volumes.

That continues into -- deeply into the third quarter, through August. So that really points to the strength of an industrial trend. Consumables, stability increasing, as well as then the level of investment through standard welding products.

Okay. One of the questions that seems to be very broad here at the conference is folks thinking about interest rates, which unfortunately seems to be kind of going in the wrong direction. Have you seen any sign that that's a problem? Or does that worry you?

No. We haven't seen it to be a driver. A lot of the larger-scale investments, particularly in the automation side of our business, aren't driven by the financing decisions. They're driven by what kind of productivity needs, what kind of quality kind of efficiencies that are driven by an investment. So we've seen less pressure on the financing drivers on projects, decisions.

Okay. Great. Maybe let's go International now. And we've had some headwinds, I guess, from the Middle East, and talk about how that's impacted and what you're seeing now.

Well, we started off, as the conflict progressed, expecting about $8 million, $10 million type of headwind per quarter. Second quarter played off pretty well actually. We were down $1 million to $2 million in Q2. And that's driven by how we serve that region through the international markets, but also exports out of the U.S.

So we did temper the impacts to about $6 million, $7 million per quarter versus the $8 million to $10 million. So we've seen less of an impact. But still very watchful. We do expect that at this point, and we're close to our commercial teams, we'll see how that plays out as the quarter progresses. But that's kind of where we're anchored on, $6 million, $7 million type of a headwind, crossing both what you see in International and also exports out of the U.S.

And on the other side of the coin, is there any sort of pent-up demand brewing that...

Yes, look, we're very well positioned as, hopefully, the conflict is beyond us and you start to see project activity as well as rebuilding occurring in the region. So we're very well positioned to drive the support for the region.

Okay. Good. And longer term, internationally, I think, is a growth opportunity for you. How do you prosecute that?

Yes. So if you look at our long-term objectives on organic growth, we're into that low to mid-single-digit type of trajectory. So we're much more bullish on what we see in Asia. You've seen our comments around what we see in India or China, Southeast Asia, et cetera, the acquisition we did last year in Australia, very nicely positioned for growth.

But our posture for Europe is not an aggressive volume expectation. So our posture is really drive a business model that's going to be accretive to our margin expectations there. So we're hopeful that the level of defense or general industrial activity improves in the European markets. But our strategy expects, is planned to have more of a stable type volume expectation.

And how do you win in Asia versus kind of local competition?

Well, we differentiate on our value proposition and solutions. If you go back to our history, we stayed away from -- and we pulled out of areas that we weren't getting paid for our value proposition. So it's about our solutions, the applications and our welding offer that differentiates us. That's how we go to market.

So we'll walk away from a lower-margin type of contribution in the markets and stay away from any commodity type focus, and really focus on our solutions and how we tie in creating value for our customers.

Are there certain types of customers that are most likely to sort of lead that penetration?

Well, again, it's broad-based. When you look at China, for example, it's a nichey type focus. So it's going to be in different parts of heavy industries, customers that are global in nature that are going to drive some more activity in region, those that have a level of sensitivity and really focus on creating value through productivity improvements and tying in the complete solution, consumable or equipment or automation. So it gets more nichey as we serve in those markets.

Okay. All right. Maybe we'll talk about a few of the end markets, specifically, energy is a fan favorite at the conference here. Talk about what you do in energy and what the opportunities are for growth there.

Yes. So we're bullish on energy. You've seen the level of activity on the Americas side, it's been real positive. So about 2/3 of energy is driven by oil and gas. We just talked about the Middle East, that has an impact to that. But in general, we feel we have a lot of momentum, there's a lot of potential in oil and gas.

You see midstream being a key part of that, so a level of investment and pipeline, that's really our sweet spot. And then you have downstream type of investments in process industries that have a real impact to how we present our value proposition to the market.

So over the long term, really bullish on energy. A lot of strength coming out of the Americas. We expect strength out of Southeast Asia and the Middle East, a very important market for us.

And power gen and nuclear, is there opportunity there?

Nuclear, yes, that's included. So it's broad-based solutions. So as an example, one of the pressure points we have is in wind. So it's an alternative energy type source. You have tough comps, particularly in the Americas side. Less investment, relatively speaking, in wind. But we serve a broad-based level of power generation in that outside of oil and gas as well.

And just remind us how big energy is as a percent?

I think they're tracking around 17% of our overall business. So talking about high teens.

Okay. And you mentioned automotive quickly. That's historically been a strength for you guys. Just bring us up to speed on kind of what you're seeing there.

Yes. So we were down mid-single-digit type of activity in the second quarter. When you look at automotive, I could split up between what's happening in production, and we're following that. So level of consumable volumes serving the production requirements in automotive, we've seen that challenged. But it's tracking to the overall market.

The level of capital investment is where we've seen some stall in decision-making. Some of that could be extending to some of the program years. But the positive, what we pointed to, we've seen an acceleration of request for proposals, request for quotes in some of the longer lead time items. So we expect more activity over the next few months coming through some of the longer lead time items in capital investment in automation -- on automotive.

In the industry, there are 2 key reporting dates, in April and October, where the industry is announcing what program launches look like 2028, 2029. So we're looking for the October affirmation of what are we seeing in activity translates into real investment and program launches in 2028, 2029.

So they announce the new platforms, how long until you might get an order?

Expect 18 to 24 months before the actual launch. So right now, it's a key time frame, and getting into 2028.

Okay. And do they always need to upgrade equipment when they change platforms?

Usually they're complete investments.

All right. Interesting. Anything happening with share in that end market?

I would say, in general, it's held. I think about the question, Steve, I think about the whole EV-ICE change-out that happened in 2024. We're agnostic as to whether you have EV or ICE or hybrid. You see more accelerated demand on the hybrid side. But we're very much agnostic in how our welding applications and the content within vehicles play out between each of those drivers. So I would look at more steadiness in the market.

Okay. And you mentioned the difference between production and capital investment. How does that breakdown for you guys?

So think about the consumable side of our business serving production, and then you've got the standard equipment and the automation serving the equipment. It's a longer cycle portion serving the automotive side versus consumables tied to production. So think about consumables overall -- it's probably a good bellwether, half -- a little over half the business is tied to consumables.

Got it. Okay. Good. Automation has been I think a bright spot for you guys. I think the backlogs are at record levels and you're starting to see the volumes turn. Just talk about what you're seeing in automation.

We've seen, after a challenging 2024, 2025, as we exited 2025, significant level of orders, increased -- record levels of backlog, and broad-based. Except for the comments we just went through on the automotive side, whether it's general industry, whether it's energy, whether it's heavy industry, structural type work, broad-based activity on the automation side. So that's what points us to growth.

If you think about it from a long-term perspective, we expect kind of high single digits organic type of growth on the automation side. So we're seeing that play out. And while we're doing that, also continue to drive improvements in our EBIT margins within our automation business. So broad-based level of activity, with the exception of automotive. We expect automotive to start seeing some real growth opportunities here short term, and then continuing to shape our business model in automation.

So you mentioned margins. Remind us kind of your midterm targets there and kind of how you get there.

So we exited second quarter high single-digit type of an EBIT profile. Our targets are to be mid-teens type of an EBIT, and driven by how do we continue to drive leverage off our platform. So that's more volume growth at a high single-digit organic growth.

We continue to shape our business processes. Think of a lot of project execution and management. We call it our Lincoln Business Systems. How do we continue to drive the kind of disciplines for incremental margins?

We also look at the mix of our business. So there are components that we've talked a little bit about, some of our pre-engineered type businesses, that drive a higher margin relatively speaking. So we're going to continue to look to richening the mix of our business within automation, and then just continuously focus on the broad execution. That's just how we do it.

We feel we have a clear line of sight. It's still dilutive to our overall objectives from an operating margin perspective, but going from a low double-digit to mid-teens, 50% improvement is kind of where we're at. It's what we're targeting.

All right. Good. So another topic that's pretty broad here is just kind of AI and how you're starting to integrate that. I think you had the Inrotech acquisition to help along that process. Just talk about how that's going to play out.

Look, we're really excited. We've been developing technology, which is our first entry into what we call physical AI. And so that's tying to vision, that's tying machine learning, all of the welding analogy that we introduced into a solution that's -- we're going to anchor on [ Cool Box ] initially. We have an industry trade show, FABTECH, coming up in October. We'll be continuing to showcase our product. We expect to take orders on new technology platform yet this year.

So we're pretty excited about driving what we've acquired through vision capabilities, through machine learning, through AI into a new introduction. So we're pretty excited about what this could look like for us.

So what does that AI-enabled system do that you can't do today?

Yes. Think about -- I like how we've talked about think about a master human welder being able to make adjustments to a welding process without a CAD file, without having structural computer-aided designs leading the path for welding. So think about a human able to make those kinds of adjustments to a weld process. So our team is actively working on this, and I would look for technology introduction in the coming months.

Okay. All right. Good. Maybe I'll stop just for a second. Does anybody want to chime in on end markets or technology? No? Okay.

Maybe let's talk a little bit about sort of pricing and margins and tariffs. We touched on that, I think, in your opening commentary. But give us a sense of how that's evolved through 2026.

Well, we are actively managing price/cost, and our strategy is to be price/cost neutral. We announced some pricing actions in the second quarter. You see that mature in the third, you see persistent inflation. We respond with additional pricing actions. I mentioned both in the Americas and International segments have an impact that will have incremental pricing maturing this fourth quarter.

So that's our discipline. As we are seeing inflationary pressures, could be tariffs, could be otherwise, the actions we see coming out of Canada, whatever that means to us, we're going to quantify it, we're going to understand it, and then we're going to take action to protect our business model.

So there are quarters like -- we started the year off, first quarter, we're 90 basis points behind. We narrowed that to 10 basis points behind, with a very much disciplined focus on that neutral price/cost posture.

Okay. And it sounds like you maybe take a small step back in the third quarter and then forward again in the fourth quarter?

We expect the pressure to get -- that's what's driving a lot of our slight reductions from that mid type of incrementals to low-20s type of incremental margins.

So how much total inflation have we seen in these end markets in 2026?

Well, think about the overall low double digits for the year, we're talking about 2/3 of that being driven by pricing. So add a little bit more to that.

Okay. And are you finding all your competitors, especially, I guess, in the consumables space, are they also being pretty disciplined?

That's a pretty disciplined market. I would point to longer term, Steve, because I think it's important in how we look at our strategy. So we look at high single-digit, low double-digit type of growth. If you take out the inorganic 300 to 400 basis points, we expect a normalized level pricing to be in that 100 to 200 basis points. That's how we look at our business long term.

We don't want to be driving our strategy for growth through pricing. But we want to be disciplined in managing the model depending on what we see on inflationary pressures to protect the inherent part of our business objectives with operating profit.

Okay. And you mentioned incremental margins maybe at the lower end near term, but I think you still have sort of a high 20s longer-term forecast. Do you have confidence in that?

Yes, absolutely. So mid-20s is typical for our model when you think about the normalized level of volume. We come through a higher standard period with very modest increases in volumes and yet increased our operating margin by 200 basis points. We're pointing to a 300 basis point improvement in our 2030 objectives, which is a step-change from what we've done historically. And that's going to be driven by a higher level of incrementals. So I'll peel some of the key drivers.

We talked about automation, improving the EBIT profile by more than 50%. Because of the fixed cost nature and our automation business with facilities and engineer, typically, that is a higher incremental, low to mid-30s type of an incremental type margin. We expect growth and improvement in the margin profile there.

Each of our business segments have objectives to improve their EBIT profile in the strategy period. So it's a little different story. Like we just went through International and Europe shaping, strength on the growth side for Asia. On the Americas side, where you have the component of automation tied to Americas, and then you also have growth.

And then we have, on top of that, enterprise initiatives. Think about 2/3 of the overall improvement in margins and incrementals driven by what I just went through. And then think about enterprise initiatives then driving another 1/3. So we expect another 100 to 125 basis points of margin improvement driven by either center-led activities across our business, our continued investment and rationalization of our facilities and operations to drive productivity, how we engage with our customers. All those are contributors to how we shape the operating model.

That's what gives us confidence in a step-change with improvements in the volume trajectory of our business and how we look to innovation to drive the kind of incrementals that are going to be a step-change in our business.

Now we had a question at the last earnings call of, how do you expect this trajectory over the next 5 years? And our comment is think about it on a ratable basis. We're continuously looking at process capability, best practice to contribute to a level of growth there.

Okay. So enterprise initiatives, I think, include sort of centralizing some functions, modernizing factories, improving customer service. Which of these are sort of furthest along and which has the most upside?

I would say they all have equally upside. However, I'd like to point to the center-led activities. So we've been talking about, for example, procurement as a function where, historically, more regionally driven, the buying, whether direct or indirect type of resources, are tied into that. How do we look to leverage capabilities across all of our regions?

And we pointed to the historical examples of functional areas like in finance or in IT and HR where, historically, you would have had more regional concentration of resources, to more how do we leverage strategies across all of our regions. That's what's more progressive. So think about procurement, supply chain, engineering, product development being more center-led and moving away from a regional type of focus to more of a corporate center-led focus.

We still have resources in region, of course. And those in-region resources, for example, if they're customer focused, they're there to drive the intimacy with our local presence, and customers that have best practices and capabilities, they're leveraged across the enterprise. That's really the focus.

Okay. Maybe let's switch to M&A and capital allocation. I know you've targeted, I think, 300 or 400 basis points of growth through M&A over the long term. Talk about how you build the funnel, what types of things you're looking for.

Yes. So I'd point to last 10 years, our CAGR is 480 basis points of growth. So as we drove our building blocks for the long term, we said 300 to 400 basis points kind of fits the model.

But very active level of engagement. We have a corporate-led function on M&A and strategy that works alongside our business units to identify bolt-on opportunities in a very disciplined way. We're very mindful of valuation, what kind of bolt-on strategies that make sense for our long-term positioning in the markets, how do we ensure we're at that mid-teens returns by year 3.

So very disciplined, active level of engagement, and it's broad-based. You see in our materials kind of what the last few years meant to us in terms of acquisitions. You've got Americas transactions, International transactions, you got Harris transactions.

It's all driven by a level of engagement across our business units, with an active level of oversight and drive across the enterprise -- the executive team, and that's how we manage it. The Board is very much engaged. Very much we want to deploy capital on growth. So we're focused and doubled the level of internal investment and what we just talked about on enterprise initiatives, but also look to M&A to be an important strategy for us. So it's very key for us.

Are there any metrics around what the pipeline looks like that you might be able to share?

I would just point to very active, very broad-based. Not a day, it doesn't go by where there's some level of engagement and some level of a pipeline. But it's broad-based. So it could be an automation-type focus, it could be welding-focused in the U.S. We had a couple of really nice acquisitions over the last few years that tie into technologies, whether it's in wear or whether it's in mobile power, that are just really nice attractive ways to grow.

And remind us where you are on leverage and what your targets are?

We have a target that we set, about 1.75, but we're tracking, when you look at net leverage, close to 1.2, 1.1. So we got a lot of flexibility.

Okay. And if the great acquisition doesn't come along, can you buy back shares? Or is that not a priority?

That's what we do. Our priorities are to deploy capital for growth, so that's internal investment and acquisitions. We've had a steady, since going public in 1995 on NASDAQ, had steady increases in dividend rate for the last 30 years. And then any excess strategic cash, we're covering maintenance, which is somewhere around $75 million right now per year end, and then we'll buy back shares with excess strategic cash, and that's how we do it.

All right. Good. Another chance for questions from the field? Anybody? Pregnant pause. No. All right.

So that's -- I've gone through most of what I wanted to talk about today, so maybe I'll just put it back to you. I mean we seem to be seeing kind of your first volume growth year under RISE. And what would you counsel investors to sort of focus on? What do you think the market may be sort of under-appreciating here in terms of this?

Yes, it's a few things. One, I'd point to the dynamics of the short cycle component of our business versus a longer cycle. We've been intentional in shaping our model with more long-cycle capital investment opportunities to serving our customers. So while this, historically, a view of Lincoln being short cycle, very much positioning to have longer capital, investment-driven type decisions from our customer base over the long term. So pretty important for us.

The discipline of execution, despite the cycle -- and you've seen that in our business, we've got a long track record of managing an expansion and contraction with the continuous focus on shaping our business model. This is what gives us conviction that we'll continue to enhance the operating model of our business. The conviction to go from 200 basis points on average improvement to 300 basis, moving from incrementals from mid-20s to high 20s, all very important for us, and then how we shape that.

We've evolved our business to have an enterprise type focus versus a regional, particularly on the operations side, the engineering side, and we'll continue to drive that. Those are real opportunities for us. When you look at a long trajectory of how we've shaped our model, it has been about gaining more leverage and the disciplines across all of our businesses. So very much focused on the areas of operational excellence, how do we drive an improving level of customer intimacy with our Elite program on the customer side. So very much focused.

We've just finished another round of we call it RISE sessions across our corporation, where our CEO is out and engaging with all of our different teams around the world. And so we're pretty excited of where we're headed. It's rounding out the first year on RISE and, yes, some pretty attractive objectives and the volumes do progress positively for us, and we're excited about what the market progression looks like for us.

Great. Very clear. All right. With that, we will wrap it up. Thank you so much. We appreciate the insights. And thanks, everyone, for your attention.

Greetings, and welcome to the Lincoln Electric 2026 Second Quarter Financial Results Conference Call. 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, Mark, and good morning, everyone. Welcome to Lincoln Electric's Second Quarter 2026 Conference Call. We released our financial results earlier today, and you can find our release and this call's slide presentation at lincolnelectric.com in the Investor Relations section.

Joining me on the call today is Steve Hedlund, our Chairman and Chief Executive Officer; and Gabe Bruno, our Chief Financial Officer. Following our prepared remarks, we are happy to take your questions. But 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 and uncertainties and which are provided in our press release as well as in our SEC filings on Forms 10-K and 10-Q.

In addition, we discuss 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 Steve Hedlund. Steve?

Thank you, Amanda. Good morning, everyone. Turning to Slide 3. Second quarter marked a solid inflection to volume growth in the business after 9 quarters of compression, led by strength in the Americas Welding segment. Volume leverage and an improved price cost position generated record performance across sales, our adjusted operating income margin, adjusted earnings per share and cash flows. .

In addition, we delivered top quartile ROIC performance and continue to execute our capital allocation strategy with $120 million returned to shareholders. Our performance reinforces the strength of our global team and the effectiveness of our operating model as we advance our RISE strategy.

Turning to Slide 4. Consolidated organic sales increased 10% with volume growth across all 3 product areas. This was largely driven by higher demand in the Americas region and price actions taken across all 3 segments to mitigate inflation in energy, logistics and in certain metals.

Given persistent inflation we are continuing to monitor if additional actions are needed. Turning back to improved volume performance. We were encouraged to see capital spending improve in the second quarter. Both equipment and automation volumes increased mid-single-digit percent, resulting in automation sales of $229 million in the quarter.

Consumable volumes continued to grow at low single-digit percent rate aligned with general industrial production activity. Geographically, organic growth was strongest in the Americas and in portions of Asia Pacific, notably China, India and Vietnam. Europe remained challenged due to persistently soft industrial trends and buy ahead activity in the first quarter.

The Middle East was resilient during the ceasefire resulting in a modest $2 million to $3 million sales headwind on a consolidated basis. In Americas Welding growth accelerated and broadened out across most end markets and channels.

Strength in the industrial gas distribution channel continue to hold, and we were pleased to see direct OEM and rental customers increase their capital spending. Equipment organic sales growth in Americas Welding accelerated high teens percent in the quarter and consumables grew high single-digit percent.

Looking at end sector trends on a consolidated basis, 4 of our 5 end markets achieved organic growth in the quarter, representing approximately 80% of our revenue exposure. General fabrication organic sales grew over 30% from improved industrial production activity in the Americas and commercial HVAC demand in Harris.

Heavy Industries and nonresidential structural steel both grew mid-single-digit percent in the quarter, largely in Americas Welding on rising capital spending to support off-highway construction and mining equipment as well as higher project activity in commercial structural steel fabrication.

Energy sales also held up well with strong oil and gas demand in Americas welding, which was up nearly 30% in the segment. And finally, transportation sales declines have narrowed in a mid-single-digit percent rate as demand for equipment systems grew but were offset by lower factory production activity and timing of our automation projects.

We expect transportation to improve during the balance of the year on equipment demand, timing of automation projects and the acceleration of new automation quoting activity to support new lightweight vehicle platforms.

Before I hand the call over to Gabe, I would like to thank our global team for staying focused on our customers, driving higher service levels and executing on our RISE strategy in this dynamic operating environment. We are encouraged by 6 consecutive months of favorable macro data in the Americas, strong incoming order rates and a record backlog position, which gives us confidence in the durability of an industrial recovery in the Americas.

And we believe we are well positioned to capitalize on customers' investments in productivity, capacity, automation and infrastructure. Our innovative solutions, domain expertise winning commercial team, operational initiatives and capital allocation strategy will accelerate our cycle-over-cycle performance and deliver superior returns for shareholders.

And now I will pass the call to Gabe Bruno to cover second quarter financials in more detail.

Thank you, Steve. Moving to Slide 5. Our second quarter sales increased 12% to $1.220 billion driven by approximately 8% higher price, 2% higher volumes, a 1.5% benefit from our Alloy Steel acquisition and 40 basis points of favorable foreign exchange translation. .

Gross profit increased approximately 11% on higher sales and improved cost profile in the quarter. Our gross profit margin compressed 50 basis points to 36.8%, while we narrowed our price cost gap to 10 basis points from a recent price increase and a tariff refund, higher persistent inflation, unfavorable mix and a $4.2 million LIFO charge offset these benefits.

We now expect LIFO will be a $10 million headwind for the full year. Our price actions keep us on track to achieve a neutral price cost position for the third and fourth quarters. As Steve mentioned, we have implemented price actions and will continue to monitor rising input costs and evolving trade policies to determine if additional measures are needed.

Our SG&A expense increased 7% to $225 million, primarily from higher spending to support strategic initiatives IT investments and unfavorable foreign exchange translation. SG&A as a percent of sales improved 100 basis points versus prior year to 18.4%. We expect our quarterly SG&A run rate to be in the $210 million to $215 million range and corporate expense at $1 million to $2 million per quarter for the balance of the year.

Reported and adjusted operating income increased 15% on higher sales and an improved price cost position. Our adjusted operating income margin improved 50 basis points to 18.4% with a 22% incremental margin. Second quarter diluted earnings per share performance increased 12.5% to $2.88. On an adjusted basis, earnings per share increased 13% to $2.93.

We incurred a $0.01 headwind from foreign exchange translation and a $0.05 benefit from share repurchases. Moving to our reportable segments on Slide 6. The Americas Welding sales increased approximately 11%, driven by 7% higher volumes, approximately 4% price and 40 basis points of favorable foreign exchange translation.

Volumes inflected to growth across all 3 product areas led by low double-digit percent volume growth in equipment. Price reflects the partial benefit of a mid-second quarter price increase and the anniversarying of substantially all 2025 price actions. We expect Americas to report low to mid-single-digit percent price for the balance of the year and the mix of organic growth will be led by higher volumes through the balance of the year.

Second quarter adjusted EBIT increased 15% to $158 million with a 110 basis point improvement in adjusted EBIT margin to 19.7%. The higher sales and an improved cost position helped narrow unfavorable price costs and investments in our strategic initiatives. We expect Americas Welding margin to increase and perform in the 19% to 20% EBIT margin range for the remainder of the year.

Moving to Slide 7. International Welding segment sales increased 4.5%, driven by strength in our alloy steel acquisition, higher price and favorable foreign exchange translation. Volumes compressed approximately 5% on slowing EMEA demand following the first quarter's buy ahead activity and weak industrial activity in Europe.

Middle East demand was resilient in the quarter due to the sea fire. However, we anticipate customer activity to slow due to the resumption of fighting. We estimate the conflict will represent a $6 million to $7 million headwind per quarter in the segment. Adjusted EBIT decreased 13% to $27 million, Margin declined 210 basis points to 10.6% as the benefits from alloy steel and the narrowing of price cost headwinds were offset by lower volumes.

We now expect International Welding's margin performance to be in the 10% to 11% range for the full year as EMEA demand trends and operating efficiency will remain challenged. Moving to the Harris Products Group on Slide 8. Second quarter sales increased 27%, led by 34% higher price. Price moderated sequentially given easing in silver and copper costs but remained elevated versus the prior year.

Tariff volumes were challenged by tough prior year comparisons in the HVAC sector and last year's inventory load-in at a new retail customer. While the retail sector remains challenged on soft consumer trends, we anticipate HVAC to gain some momentum in the second half of the year and benefit from an easier prior year comparison in the fourth quarter.

Adjusted EBIT increased approximately 33% to $42 million and margin improved 100 basis points to 20.4%. The profitability improvement reflects SG&A leverage and higher sales dollars, which was aided by a tariff refund. We expect the Harris segment to operate in the 18% to 19% range in the second half of the year at current metal prices.

Moving to Slide 9. We generated a record $254 million in cash flows from operations in the quarter, reflecting strength in earnings and a 100 basis point improvement in working capital. This resulted in 138% cash conversion for the quarter.

We are now at 95% cash conversion on a year-to-date basis and on track to achieve our 100% target for the year. Moving to Slide 10. We continue to execute on our capital allocation strategy by investing $31 million in CapEx and returned $120 million to shareholders from a combination of our higher dividend payout and share repurchases.

We also improved our adjusted return on invested capital ratio to 23%. Moving to Slide 11 to discuss our operating assumptions for 2026. The year-to-date, we have exceeded our initial top line outlook with low double-digit percent sales growth, and we are encouraged by strengthening demand in Americas, current order levels and our record backlog position.

We are now raising our full year net sales growth assumption to a low double-digit percent rate with seasonal progression through the balance of the year. Full year organic sales are now expected to be in the high single-digit to low double-digit percent rate with an estimated 1/3 volume and 2/3 price mix.

Volatility and commodity costs evolving trade policies and the duration of the Middle East conflict are added risk to our assumptions, which our global team is monitoring and actively working to mitigate. We continue to expect higher adjusted operating income margin performance versus the prior year with a mid-20% incremental margin for the balance of the year.

We are maintaining our other full year assumptions on interest expense, tax rate, CapEx and cash conversion. Solid execution is expected to deliver strong earnings performance, further supported by growth investments and returns to shareholders.

And now I would like to turn the call over for questions.

[Operator Instructions] And our first question comes from the line of Angel Castillo with Morgan Stanley.

This is Oliver on for Angel. Just a question on kind of your price cost assumptions I think we had moved from neutral for the full year to neutral in the second half. Is that a change because they would have implied a positive price/cost in the second half? Just maybe help us unpack that a little bit.

Yes, Oliver, thanks for the question. Yes, that is a change. We are pointing to price cost neutral for the back half. We ended the second quarter at 10 basis points of a headwind, which is actually better than we expected, but we expect to execute on our pricing strategies to achieve a neutral price cost for the second half of the year.

Got it. That's helpful. And then maybe just on the automation side. I know you guys are involved in bigger projects, but also smaller pre-engineered projects. in terms of what you're seeing in July, like have you seen any mix shift perhaps back to the smaller side where it could be a little bit more favorable for you guys?

Yes, Oliver, we've seen really broad-based strengthening in demand profile for the automation business. I think all of our segments. 4 out of the 5 segments have gotten better for automation, in particular, general industries, which is where a lot of the pre-engineered sales than the cobots and the like are recorded and we're seeing really encouraging signs of willingness of customers to invest capital in their businesses.

So we're optimistic that we'll see both improvements in the overall demand level and also favorable mix as we pick up some of those products that you were talking about.

And our next question comes from the line of Mic Dobre with Baird.

Yes. Just quick clarification here on a tariff refund, I don't know if I missed this, but is there a way to maybe help us quantify that a little bit? And you mentioned the $10 million for LIFO reserve for the full year. Any sense for how we should think about this flowing in the second half, maybe either by quarter or any other way that you can help us .

Yes. Mig, I'll let Gabe comment on LIFO. But on the tariff side, remember that the majority of the tariff impact we saw was Section 232 tariffs, not the EPA. And in last quarter's call, we had indicated that while we had filed for refunds, we expect that overall inflationary pressures in the business, and we had incorporated the expected refunds into our pricing actions and our price cost neutrality projection. .

The only place that we really wanted to call out the impact of tariffs was on Harris because it was about 100 basis point EBIT margin improvement in the quarter for Harris. So as we look forward to the back half of the year, I would not expect Harris to continue to perform at a 20% EBIT level.

Just to add to that, Mig, it is important to note the changes that we incorporated, as Steve mentioned, the Harris side of our business. On EBIT for the balance of the year. We moved up the Americas EBIT profile to 19% to 20%. So we anticipate getting to that price cost neutral pasture back half of the year.

So we've incorporated how we have progressed with price cost, and we're still negative 10 basis points, but we expect to get neutral we also expect mid-20s incrementals in the back half of the year. So we've incorporated costs, tariffs, otherwise as well as continued persistent inflationary pressures as well as LIFO.

So is how we see that. That's based on the inflationary pressures we saw through June, and we just use that as a basis for evaluating what the year-end potential is on inflation and inventory.

I see. Okay. And I guess my follow-up on your comments on the Middle East. You called out if I heard correctly, $6 million to $7 million of headwind per quarter. It seems to be a little bit larger than what I recall you mentioning in the past. I wonder if that's correct.

And maybe more broadly. Can you talk a little bit about what is actually going on with your business over there in terms of like what are you experiencing project delays where you normally would have sold equipment? Are there specific verticals, countries? Or is it distributor destocking? Just kind of trying to understand what's going on in that region, really.

Yes. So Mig, I'll start off and just reminding you. So we entered Q2 with a framework of we expected a headwind of $8 million to $10 million per quarter. we actually ended up much more favorably in the second quarter than we expected.

We were -- I think we had a headwind of $2 million to $3 million in the second quarter. So we have actually reduced the level of expectation of impact in Middle East for what we've seen to $6.6 million to $7 million versus $8 million to $10 million our team locally is very engaged in looking at how we are progressing on projects, both as you would see it on the international side as well as exports coming out of the U.S. and we just need to stay real close to it.

So far, it's been more favorable than we anticipated, but our team is actively engaged in region to be able to support not only the restart of projects but also any other work to address some of the needs of the region.

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

This is Jacob Moran for Steve. The first one from us. I know that you cited improved Americas industrial production activity, but I'm hoping you can help us out with a bit more insight into what's behind the magnitude of general fabrication mid-30% growth rate? And also maybe what sort of run rate you would expect through the back half of the 2027 there.

So I'll start, Jay. We saw -- the key thing is the momentum that was accelerating within standard welding equipment. We pointed to seeing an acceleration in April, and we saw that progress throughout the second quarter and into July now.

And what that represents, and we always point to how our production levels progressing in the markets, and we pointed to in the Americas steadiness and now a slight improvement an actual consumable volumes, but seeing an acceleration in capital investment, confidence in a trajectory for growth and that translates to both automation and standard welding equipment sales.

We had been pointing to very high levels of backlog. Now we're pointing to record levels of backlog in the automation side of our business. You can be reminded that 80% of our automation business is within the Americas.

So that gives us confidence that we're seeing progressive strength in production activity, particularly in general industries, broad based as well as conviction and investments.

So we've got confidence that the momentum that we see continuing into the third quarter provides us the framework to lift and raise the sales assumptions and organic strength for our business.

Jake just to add, I think what we're seeing across the business is a greater confidence in our customers to make capital investments in standard equipment and automation. So we're seeing significant step-up in that activity.

And then on the consumable volume, we're seeing continued progression as production levels creep up. I would say it's not as rapid as what we're seeing on the capital deployment side, but that's also encouraging as well.

And so you take the volume tailwinds that we now have in the Americas business and then factor in, there's also additional price on top of that year-over-year and that's how you get to the organic growth rate for the Americas business.

Understood. That's really helpful color. The second 1 from us. Just thinking about the RISE 2030 strategy, can you comment on which initiatives were the biggest self-help margin contributors in the back half and into 2027? I'm kind of thinking independent of volume there?

Yes. There's a whole range of initiatives that we're driving in the business that are oriented around trying to improve productivity in the factories, efficiency and our SG&A spend, commercial effectiveness.

It's hard to point to any one of them and signal which one is most important because we think there's opportunities across all 3 of those areas. So the RISE strategy is really intended to help direct guide and motivate our employees to go capture the opportunities that we know are in the business.

So we have great confidence in our ability to capture those. The open question is just how quickly can we get there. We're obviously racing to capture as much of the opportunity as quickly as we can. And I think in our guidance for the 2030 targets, we've basically pointed towards a steady progression over the 5 years is the best assumption we can make at this point in time.

Yes. And just to remind you, as Steve mentioned the steady progression over the 5 years is what we've commented on, but that adds up to 100 to 125 basis points of improvement in the margin profile of our business through these enterprise initiatives.

Our last question comes from the line of Nathan Jones with Stifel.

This is Adam Farley on for Nathan. Maybe following up on the automation piece. Maybe can you just provide an update on your expectations for automation in the transportation sector for the back half of the year? Are customers gearing up for plant refreshment and give a lot of sight into maybe larger customer activity innovation.

Just broadly, Adam, so we've seen significant levels of quoting activities. Talked about record backlog. That's broad-based -- we are starting to see more acceleration in the level of engagement on the automotive side.

So if you think about some of the program years out, 2027 beyond, we're starting to see more activity that points to potentially more favorable progression in actual orders within the automotive sector. So that's a favorable trending.

We actually saw a better performance in transportation, including think about equipment as well as automation into the second quarter from the first we look to automation to be pushing the high single-digit, low double-digit trajectory on year-over-year sales improvement.

So the record level of backlog, broad-based level of conviction on investment point to more favorable trends on the automation side.

Okay. That's helpful. And then looking geographically, you noted encouragement for capital spending in APAC. Maybe just some color on what's going on in that region? .

Yes. So just broadly, Steve mentioned strength we're seeing, frankly, in India and China, some pockets of Southeast Asia. So just a general trajectory of growth as well as investment points to our continued bullish outlook on Asia. .

When you think about the international markets, really where we're seeing continued challenges within the core European markets, and we'll wait and see how the Middle East and that progresses, but we're more bullish on how the Asian markets are progressing.

This concludes our question-and-answer session. I would like to turn the call back over to Gabe Bruno for closing remarks. Gabe?

Thank you, Mark. 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 right strategy in the future. Thank you very much.

This concludes today's call. You may now disconnect.

Good morning, everyone. Welcome to day 3 of the 21st Annual Oppenheimer Industrial Growth Conference. Next up, we have the Lincoln Electric team, led by CFO, Gabe Bruno. Gabe, great to see you as always.

Great to see you, too, also, Bryan.

And thank you for joining us. I guess, to kick things off for anyone newer to the LECO story, maybe introduce the history, at least the recent history of the company, what really drives your business and how you differentiate strategically. And even for those who have experience with LECO, perhaps dive into the recently launched RISE strategy.

Yes. So Bryan, it would be great to start that way. So just to remind those who are interested in our story is that we are the global leaders in arc welding solutions. And we also are the leader in our industry in fabrication and automation types of technologies. And so think of us as one of the broad-based offering in our portfolio that is eager to solve our customers' challenges, pain points and differentiate ourselves through technology. And that's in automation, where the heavy invested in automation capabilities and then broad base of leveraging technologies in metals and in power sources and in software to be able to differentiate our footprint.

As you mentioned, Bryan, we just recently launched what we're calling our RISE strategy. And it truly is anchored on the foundation that we have now in 130 years in business, and how do we accelerate our growth as well as shaping the operating model for the long term. And so just to go through what the RISE stands for, the R stands for reimagining how work gets done. And that's challenging how we engage throughout our businesses. And are there, for example, center-led opportunities that we could introduce best practices and capabilities that we can leverage across all of our businesses around the globe.

The I stands for, as I mentioned, we lead by technology and how do we continue to innovate and differentiate ourselves in the marketplace. And so we are investing. We're the market leaders in technology, the welding experts, and we want to continue to accelerate our ability to differentiate our offering, our products to position ourselves for enhanced growth.

And then the S stands for serving customers and differentiating how we go to market with our customers and improving supply chain practices, improving how we serve our customers and being that market leader in our industry in service. And then lastly, the E stands for elevating our team and focus on developing our organization to improve the level of engagement and foster an environment our teams, our employees around the world want to drive the kind of performance that we -- our objectives are set on.

And so when you think about objectives, so the RISE is a strategy, we have established new 2030 objectives that anchor on the fundamentals of our strategy. And first of all, is to drive accelerated growth. So our objectives top line is to drive a CAGR in the high single digits, low double digits. That is both organic and inorganic type of growth. On the organic side, we looked at 300 to 400 basis points of CAGR through bolt-on strategies that have served us well in broadening our footprint. It could be a technology, it could be a footprint in region, it could be across different parts of the markets, and it's broad-based.

On the operating side, we have a long track record of improving the operating margin profile of our business. If you go through each cycle, on average, we have improved operating margins by 200 basis points per cycle. Our 2030 objectives are to accelerate that to 300 basis points of improved margins through the cycle. On top of that, historically, our incrementals have hovered around mid-20s. And so our objective is to move to a high 20s type of incremental margin. And a lot of the work we're doing around center-led or enterprise initiatives, we expect to provide about 1/3 -- a little more than 1/3 of the improvement in our operating model and then the balance through positioning in the markets as well as growth. And that would take us to a plus 20% operating profit for our business. And so that's what anchors on the acceleration from the RISE strategy.

And on top of that, be very disciplined around managing our balance sheet, cash flows. Our 100% cash conversion is our objective. We have a very balanced capital allocation strategy where we want to focus on, first, growth. We've more than doubled the level of internal investment over the last 5 years. And so we're looking for opportunities to invest in our business, to introduce new products, to drive capacity, drive operational improvements. And so we want to prioritize growth through internal investment as well as through acquisitions. And then as you know, we have been increasing our dividend rate consistently since going public in 1995 and then returning any excess strategic cash to our shareholders through repurchases. And so a very balanced capital allocation strategy. And lastly, that translates into mid-teens type compounder in earnings. And that's how we think about objectives and think about our EPS disciplines around that as well. Those are our objectives for 2030, Bryan.

All right. Excellent walk through. That sets the stage well. Your team has exposure across pretty diverse end markets and you are global. Maybe touch on what you saw in Q1 and what's contemplated in your 2016 outlook across key end markets and geographies.

Yes. So I'll start broadly on end markets and maybe touch on a little bit on the geographies. So I start off with general industries. General industries is about 1/3 of our business. You saw that our performance in the first quarter was high 30s percent type of growth. And that was across capital investment, projects, equipment as well as on the consumables side. And so we're excited about what we're seeing. We're cautiously optimistic that some of the key trends within general industry are going to lead to growth. And so we're optimistic on what it means, particularly in the Americas side of our business.

So one of the measures that I'd like to share, I shared last week, Bryan, on our earnings call, is that within the general industry segment, in Americas, the consumable volumes were up low double digits. And now you've seen PMI with their readings, and this past Friday is the fourth month in a row where the sentiment around PMI has been positive in an expanding type of territories as well as seeing steadiness in growth on the industrial production side. So good drivers in general industries. We did in the month of April, turned positive on standard equipment and volumes. So that was a good trajectory. We do see that as positive drivers within general industries in general.

Then think about heavy industries. Heavy industries was up mid-single digits. We've been navigating, as you know, destocking across ag and construction. And it looks as though we have hit the trough and now are positioned for growth. And we pointed to growth in the back half of 2026. The comps are easier. But it appears that the market, particularly heavy industries, off-road type of investment are starting to turn more positive. So we're excited about that.

On the energy side, in the first quarter, we saw more of a flattish, steady type performance. We're bullish on energy. We look at across all the markets, whether it's in oil and gas or power generation, those are opportunities for us. In the Americas component in energy, we were up mid- to high teens. So we remain bullish, and we do expect that volumes will improve on energy as the year progresses.

And then we were down mid-teens in transportation, automotive, as well as structural, and that's driven by a lot of project activity. And so the timing, for example, the comps last year were more challenged on the automotive side first quarter. So that was a driver there. But we expect more choppiness across project activity in both structural and transportation as the year progresses. On industrial production within the automotive end market, we expect to follow kind of what the market is describing as production, and that's a low single-digit down in production levels across the automotive industry. So that's kind of a walk through end markets.

In terms of geographies, we're more bullish on the Americas segment, not only in core welding, as I pointed to a couple of key drivers there in general industries and the sort. But also the automation component, of which 80% of our automation portfolio is within the Americas segment. And we had talked about strength in backlog coming into 2026, some of the longer cycle projects positioning for growth in the back half of the year. We're optimistic that as we exit the second quarter, the level of activity would point to some modest growth overall. So the automation business is positioned for growth in 2026.

On the Harris side, we talked about some tough comps in Q2. We had the initial stocking of new customers in Q2 of last year. So we expect some tough comps on the Harris side. But we do expect progressively improving volumes, particularly in the back half of the year on the Harris side. On the international side, more bullish on Asia. Project activity, whether it's in energy in Southeast Asia or India and Australia are more positive. And on the EMEA side, more -- less constructive about kind of where we see consistency in demand. We did point to within core Europe, some pockets of improving order trends, just not sure whether or not that's pre-buying going on with inflationary supply chain challenges, and we just want to see more consistency there as well. And then you have the Middle East type of conflict that had an impact to us in the first quarter. And so we're monitoring how that progresses and the impacts on the EMEA region as well.

Okay. All makes sense. You quickly touched on automation. We'll certainly get back to that topic and driver for your team. You stressed cautious optimism as you began the walk-through of markets. Maybe speak to that a little bit more and if you're willing to share what data points your team is really watching to see whether the perspective or potential volume inflection into the back half is real across your core markets?

Yes. So you can appreciate, Bryan, we're actively monitoring daily order rates, shipments and just normal activity day-to-day. And as we exited the first quarter, we saw an increasing level of daily orders activity, particularly in the Americas segment and into April. And I pointed to volume improvements in consumables, and that typically leads to improvements in standard equipment investment. And so we saw an improvement in volumes in April also on the equipment side. So that leads us to some optimism progressively.

Now at the same time, we talked about the impact of the conflict in the Middle East being about $8 million to $10 million type of an impact. And so that's what gives us a little bit of maybe some more strength on the Americas side, but maybe some cautious in terms of how this progresses. So monitoring daily order activity, monitoring the progression of real volume versus pricing, that's pretty key for us. Then on the equipment, the capital investment side of things, looking for consistency and seeing how the quoting activity translates into real orders and the positioning for capital investment across the automation portfolio as we progress into the year.

Strong backlogs coming into the year and want to continue to see the strength of transition from quoting activity to orders. And those are internal metrics. But obviously, we're looking to the macros as well. I mean, confidence from an investment standpoint, from a CEO confidence perspective or from a consumer confidence perspective, those are important for seeing the trajectory of real activity. And then monitoring what's happening in the automotive industry and production and investment, what's happening across different PMI indices, industrial production indices. And are we seeing consistency and is that lined up to what our business activity is. So you got the internal, you get the macro and staying really on top of that to see what that means for us as we progress throughout this year.

All makes sense again. It's quite the mosaic. I'd be remiss if I didn't quickly ask about tariffs. Given the current framework, at least assuming it stays as it now is, what's the net impact to LECO operations relative to what was in place prior to the latest change?

Yes. So very, very modest type impact. So don't look at that as a driver to how we've positioned pricing, for example. The broader implications in our pricing strategy have been about inflationary pressures more broadly. We saw that accelerate as we exited the first quarter. That's what drove a lot of the pricing actions. So think of tariffs at this point, the actions that have been introduced in the markets as having a modest impact to our business.

Okay. And then to level set on your team's response to other inflationary pressures. How should we think about price realization Q2, Q3 or the back half, however it's best to frame that?

Yes. So I'll first just remind us that we increase our operating assumptions on sales. So we went from mid-single-digit type growth to high single-digit type growth for 2026, and that was driven by pricing. And so think about that as between 300 to 400 basis points of increase in top line sales driven by pricing.

Now a lot of that is on the Harris side. You saw the uptick driven by metals, silver, copper on the Harris side. So I'd say 3/4 of that is Harris, 1/4 of that are for the other actions we took. We exited the first quarter being behind price cost by about 90 basis points. So we took pricing actions. Those are now taking hold now in May, and that will mature throughout the second quarter into a full impact. I point to the Americas segment, about 150 basis points on a quarterly type trajectory starting in Q3.

So if you take what we've seen in metals and Harris, what we've -- to the actions we have taken to bring our cost -- price/cost position back to neutral by Q3, that's what drove the increase in the -- in pricing as part of our overall assumptions for the year. Now if you think about it quarter-by-quarter, you saw in the first quarter, we were in excess of 10%. Think about second quarter as being kind of mid to high single digits in terms of pricing. Think about mid-single digits as we have anniversaried then all the pricing actions for 2025 into Q3 and then low single digits into Q4. And that's how we see the progression of pricing this year, which drove the increase in our assumptions.

Got it. Very helpful. And remind us what the impact of Middle East conflict was on Q1. I know it was relatively modest. But what was that? What is your team watching over the near term? What are the key watch items going forward?

Yes. So top line impact is about $8 million in Q1, $5 million of that is within the International segment. The balance is driven by exports coming out of the Americas into the Middle East type region. So progressively, as the conflict persists, we expect about $8 million to $10 million a quarter type of an impact. And that's split again between international and the Americas segment. That's top line type of impact. We all know the other impacts in supply chain and inflation. So those are areas that also we're monitoring closely and part of our pricing dynamics that we've introduced into the markets, but it's really broad inflation that we're trying to address and then just seeing how the conflict persists.

Okay. Understood. And circling back to strategy, high-level question. We've always thought of Lincoln as very technology driven in the end. I think there's been more appreciation of that over recent past by investors. As we look forward, what are the standout opportunities for your team to further accelerate growth, meet the kind of financial targets that you've put out with RISE. Is there anything that really stands out in the front?

Yes. So think about, as you mentioned, Bryan, we're a technology-driven business. And the I in RISE is all about innovation and to differentiate ourselves. And so think about heavy experience, expertise in metals, in power sources and software. And what that means for us, not only in growing our core welding business.

For example, we talk about Vitality Index, our Vitality Index, for example, in equipment from 2025 was 58%. So that's new products introduced in equipment over the last 5 years. In 2025, that represented 58% of our sales. So you can see the velocity of technology investment within our business. But we've taken that and we've looked at adjacencies and I'll use a couple of examples. You had the acquisition last year, Alloy Steel Australia. That's in wear solutions. So that's leveraging our inherent knowledge into materials, into metals and how do we now expand a footprint that's attractive for us. And it's a mid-20s type of an EBIT profile, which gives us a lot of opportunity for growth.

In power, we invested -- we acquired a business called Vanair a couple of years ago that was into mobile power. So we had already had done some joint development with Vanair and it was just a great opportunity to expand our footprint into a channel and leveraging all of our technology and know-how and how do we continue to develop our presence in the market. So that's been key for us is leveraging the core capabilities, the expertise we have as welding experts as being deep into solutions within our customers and then using that as an avenue for growth.

Same thing with our 3D printing and additive. So we're very excited about the potential in this business and it's leveraging key capabilities. Then think about automation. Automation, its footprint had originated in welding fabrication and robotic capabilities, and we have been expanding our footprint and capabilities within the automation portfolio. We've expanded now where about 40% of our offering is tied to welding fabrication. The other -- the balance is about other ways that we solve and provide solutions for our customers, whether it's material handling and maybe AGVs or end-of-line testing, but we continue to broaden the footprint within our automation space.

We're introducing what -- it now incorporates vision capabilities, AI capabilities and what we're calling LEAP. And those are part of a techquisition that we made a couple of years ago, and we continue to enhance with our own welding knowledge and experience in technology to enhance our welding offering within an automation space. So a very much a technology-driven organization that I for innovation is a key part of our strategy.

Understood. You just mentioned techquisitions. And within the RISE strategy, you're targeting 300 to 400 basis points annualized revenue contribution from inorganic sales, techquisitions and others. And maybe speak to the confidence in being able to drive that going forward.

Yes. So you're right. So we have 300 to 400 basis points of CAGR incorporated into our long-term growth objectives. Over the last 10 years, we achieved 480 basis points. So we say that we're kind of pulling back a little bit, but we're not because it's a law of larger numbers. But we're very much committed to broad-based investment for growth, and that includes whether it's in our core welding business or at Harris or within automation is how do we leverage our capabilities to drive a footprint of expanding capabilities.

The examples that I provided are in core welding. So I mentioned Vanair, that's part of our Americas Welding business. I mentioned Alloy Steel, that's part of our International Welding business. And at the same time, as you know, we've had very consistent level of investment in automation targets that continue to broaden out our footprint within our -- the automation space.

The techquisition, we've coined that term, it seems, and it's really looking about how does technology and certain elements of technology that we can look to in an inorganic sense that would complement how we are introducing solutions. So I mentioned acquisition, Inrotech, a couple of years now [ ago ] that had vision capabilities. And so our leadership across our automation business are looking at ways to continue to introduce technology and maybe they're small types of businesses, but they can offer up capabilities to broaden our platform. And so that becomes an opportunity for us to drive growth through inorganic investment. So we're very much committed. There isn't a day go by where we're not having some level of dialogue on the pipeline and how each of our teams are engaging in opportunities. And so very much focused on driving the 300 to 400 basis points of CAGR, and we've been very successful at that.

Yes. And now circling back to automation, a very exciting aspect of the LECO story. Legitimate differentiator. We remain very bullish through the cycle and what it means for Lincoln Electric. Just stepping back, what really differentiates your team's capabilities? How have you built out the product, technology, capability suite that you have? And what gives you confidence in continued outgrowth, further scale and then we'll get to profitability after.

Okay. So let's talk about growth in our footprint. So go back a few years ago. I mean, we were hovering around a $400 million business. We talked about driving to $1 billion objective. We went through some challenges in the market, the EV-ICE transition and then you had some pause in commitment to capital in 2025, but we're very much committed to driving growth through our automation business. So that's the first place I would start up. Our commitment to the execution of an automation strategy, which is market-leading in our industry. So we've got the largest footprint within our industry.

Lots of deep experience. I mentioned we started off in welding fabrication. So think about the robotic capabilities, how we have then expanded into more deeper customer needs, and that's material handling or testing and the sort. So we have broadened the footprint to be able to engage with our customers in a broader sense. We also have been very intentional to broaden adoption within automation capabilities. And just a couple of years ago, we introduced Cobots. It's with our proprietary type software that makes it easier for small, midsized fabricators to get into automation capabilities. So we've been very intentional about leveraging technology, expanding our footprint and looking for ways to differentiate within the markets. And as I mentioned, very much invested in growth. We see automation as an opportunity to accelerate growth at 2x what we would define as core welding, and we continue to shape our model to be able to achieve the longer-term objectives we have for the business.

Very helpful. And you have, within the RISE strategy, targeted mid-teens operating margin for automation. What are the key levers to get there? And then as we think longer term, there is a pretty heated debate as to whether the strategy is kind of capped in that profitability range. Is that the case? If not, how do we see mid-teens progress to something even more robust and drive that much more value over time?

Yes. So great, Bryan. So I've taken steps, right? Our current objective is mid-teens type of EBIT for the automation business. And how we get there, we weren't that far away from that as we had approached kind of the $940-plus million of sales a couple of years ago. And so we know the path to get there. One is the volume leverage. I mean we have built out our fixed cost structure to achieve $1 billion and plus. So we need to get some leverage. We need to increase the level of volume and pull-through out of the business, and we'll do that with consistent growth.

Then we also have strategic positioning. So there are pockets within our automation portfolio that are higher-margin type opportunities from an organic perspective. We'll also look to inorganic opportunities to richen kind of the mix of profitability within the portfolio. So that would be another anchor that we'll focus on. And the third point I'd make is on execution. You know that we talked about our Lincoln business system and the disciplines around project management and from quote to execution, how well are we managing the portfolio. And so we'll continue to put a lot of pressure on our teams to sharpen the level of execution across the projects that we engage in.

And so those 3 elements will define us getting to that mid-teens type of EBIT profile. From there, you know that we have a continuous improvement type of focus. I mentioned kind of big picture, the expansion in our operating margins through each cycle. And that goes for all of our businesses. And so we'll think through the same thing. Once we are consistently in that mid-teens performance within automation of how do we continue to increase that. And the same way that we do for each of our segments and our businesses. We expect to continuously improve the level of discipline around operating excellence as well as growth.

Understood. Really good color throughout, Gabe. Have a little bit of time left. Any message you'd like to leave the group with today?

Yes. Look, we're very much focused on creating value, as you know, Bryan. And as we talked about some of the key levers within our RISE strategy to accelerate growth to also expand the operating margins of our business. And that -- when I talk about the EPS compounder, I think that sometimes is less understood. And that is despite where we are at in the cycle, we have proven time and time again that we're going to expand margins irrespective of kind of where the volumes are in the cycle, and we're going to be very disciplined on capital allocation, and that will drive a compounding effect on our earnings. And so we've been very consistent with that in a very disciplined way. We're very excited about where the future is headed. And the organization -- the launch of RISE strategy in this first quarter has been well received, not only externally in the markets, but across our team, our employees across the company, and we're excited about where the future holds for us.

All right. We look forward to seeing it as well. I think that's a great way to close. Thank you, Gabe.

Thank you, Bryan.

Greetings, and welcome to the Lincoln Electric 2026 First Quarter Financial Results Conference Call. [Operator Instructions] And this call is being recorded.

It is my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you. You may begin.

Thank you, Kathleen, and good morning, everyone. Welcome to Lincoln Electric's First Quarter 2026 Conference Call. We released our financial results earlier today, and you can find our release and this call slide presentation at lincolnelectric.com in the Investor Relations section.

Joining me on the call today is Steve Hedlund, Chairman and Chief Executive Officer; and Gabe Bruno, our Chief Financial Officer. Following our prepared remarks, we're happy to take your questions.

But before we start our discussion, please note that certain statements made during this call may be forward-looking and the actual results may differ materially from our expectations due to a number of risk factors and uncertainties, which are provided both in our press release and in our SEC filings on Forms 10-K and 10-Q.

And in addition, we do discuss 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 Steve Hedlund. Steve?

Thank you, Amanda. Good morning, everyone. Turning to Slide 3. We achieved solid results led by record quarterly sales and adjusted EPS performance while also navigating heightened operating complexity from geopolitics and evolving trade negotiations. Teamwork exemplified our success this quarter. We remained agile in addressing short-term dynamics while staying customer-focused, investing in long-term growth and reimagining how work gets done.

The global launch of our new RISE strategy was successful and we celebrated a string of early wins, which include the U.S. launch of our Elite customer program as part of our enterprise-wide spotlight initiative, which raises the bar for customer service in our industry. It enables us to provide superior on-time delivery, hassle-free support and value-added services to help customers grow their business with us.

In addition, we commissioned a new automated manufacturing line in one of our Harris facilities that triples the line's productivity while significantly improving quality. This investment also showcases the breadth of automated manufacturing solutions we engineer beyond traditional welding robots. Finally, we launched a new center-led process innovation function in welding consumables to accelerate our speed to market. I am pleased by the speed of progress, and we will work hard to maintain this pace.

Turning back to quarterly performance. We are encouraged by improving sales and order momentum in the Americas region through April. This aligns well with 3 consecutive months of expanding manufacturing PMI data. In the quarter, we held our adjusted operating income margin steady with prior year. While we targeted a slight margin improvement, our 10% higher price did not fully offset inflation in the quarter. To ensure we achieve our neutral price cost target this year, we have already announced new price actions across our welding segments, which go into effect in early May.

Cash flows, while seasonally lower, were further affected by a temporary increase in inventory levels we put in place to maintain high fill rates and service levels while we pursue our spotlight initiative and migrate select products to next-generation versions. We continue to invest in long-term growth through CapEx and R&D and return cash to shareholders through both dividends and share repurchases. ROIC performance remained at top quartile levels at 21.5%.

Turning to Slide 4 to spend a few minutes on demand trends. The Americas region continued to outperform other geographies and consumables remain the most resilient product category. This was driven by factory activity and infrastructure investments in energy and data centers which helped offset slower auto production. These same end market drivers, along with an increase in capital spending from off-highway customers supported modest automation growth in the Americas in the quarter as well.

Globally, our automation portfolio achieved $210 million in sales versus $215 million in the prior year, with compression from international markets where we have a challenging prior year comparison. We have been encouraged by the continued acceleration in both equipment and automation order rates and backlog levels in the Americas through April. This should support modest volume growth in the Americas Welding segment starting in the second quarter with further improvement in the back half of the year if conditions are sustained.

Internationally, we also saw a broad improvement in sales from European customers with organic sales pivoting to growth across Northern, Eastern and Central Europe and in Turkey. In addition, India and Australia improved. The headwind in our international business was largely from challenging prior year comparisons in regional automation and energy projects and, to a lesser extent, the Middle East conflict. On a consolidated basis, the Middle East represents a relatively small portion of sales, and we estimate an approximate $8 million sales impact from the conflict as several customers suspended activity.

In April, EMEA order rates continue to improve, and we are monitoring for consistency as activity may reflect pre-buying ahead of higher inflation and regional commodity supply concerns. In the Middle East, we are engaged with regional customers servicing active requests and our global team of welding experts are ready to support their repair and expansion needs as called upon, whether for rapid large-scale metal 3D printing of replacement and spare parts to core welding and automation solutions.

Pivoting to end market performance, we continue to see 3 of our 5 end markets achieving flat to higher organic sales growth in the quarter. Most notable is the high 30% growth rate in general fabrication which represented accelerated factory and fabrication activity in the Americas as well as in data center and HVAC projects. Heavy industries grew in the quarter, led by growth in off-highway globally. Both construction and ag equipment grew across a broad mix of solutions, including automation.

Energy was steady but was bifurcated between a high teens percent growth rate in Americas, which was offset internationally. We remain bullish on energy and expect Americas to continue to outperform international with a strong pipeline of pending LNG projects and energy infrastructure projects needed to support data center investments. With our strong broad presence across oil and gas and power generation applications, including gas turbine, battery, nuclear and renewables, our energy team is encouraged by the opportunities ahead.

Our 2 challenged end markets, nonresidential structural steel and transportation are both project-oriented and capital intensive, which can result in choppy results quarter-to-quarter. Nonresidential was largely impacted by international weakness, while transportation was broader and largely driven by lower capital spending versus prior year and a slight decline in production rates.

To conclude before passing the call to Gabe, while we are operating in a more complex environment, we are well positioned to adapt and react effectively to short-term dynamics. We are financially disciplined, maintained a solid balance sheet profile and continue to generate strong cash flows and manage the business for long-term profitable growth. This is evident in our balanced capital allocation strategy as well as our track record of compounding earnings and increasing shareholder returns through the cycle to deliver superior long-term value.

This is an exciting time at Lincoln Electric with the launch of our new RISE strategy, and the entire team is energized to achieve our mission of being the essential link to help customers build better and execute on our 2030 goals.

And now I will pass the call to Gabe Bruno to cover first quarter financials in more detail.

Thank you, Steve. Moving to Slide 5. Our first quarter sales increased approximately 12% to $1.121 billion from approximately 10% higher price, 2% favorable foreign exchange translation and a 1.6% benefit from the Alloy Steel acquisition. This was partially offset by 2.6% lower volumes. Gross profit increased approximately 9% to $399 million, reflecting higher sales.

Our gross profit margin declined 80 basis points to 35.6% and due to lower volumes, timing of price cost recovery and an approximate $1 million LIFO charge. Price/cost was unfavorable 90 basis points in the quarter. We continue to target a neutral price cost posture and have implemented new pricing actions in our welding segments, which will go into effect in early May.

Our SG&A expense increased by 7% or $14 million to $211 million. The increase was driven by foreign exchange translation, higher discretionary spending, which was largely commercially driven and from higher employee costs. SG&A as a percent of sales improved 80 basis points to 18.8% on higher sales levels. On April 1, we implemented our seasonal merit increase, which raises employee cost by approximately $6 million per quarter on a year-over-year basis.

We expect our quarterly SG&A run rate to be at $250 million for the balance of the year. For analysts reviewing our segment EBIT schedule, our corporate expense of approximately $1.4 million reflects our decision to allocate additional sensor led enterprise investments to our reportable segments. Looking ahead, we expect corporate expense to be approximately $1 million to $2 million per quarter for the balance of the year.

Reported operating income increased 13% on higher sales. Excluding special items, adjusted operating income increased 11.5% to $189 million, and we held our adjusted operating income margin steady year-over-year at 16.9%, with a 17% incremental margin. Our steady margin performance reflected favorable SG&A leverage, which offset the impact of lower volumes and an unfavorable price/cost position. First quarter diluted earnings per share performance increased 18% to $2.47. On an adjusted basis, earnings per share increased 16% to $2.50. We recognized a $0.04 benefit from foreign exchange translation and $0.05 from share repurchases.

Moving to our reportable segments on Slide 6. Americas Welding sales increased approximately 8% in the quarter, driven by nearly 8% higher price and 1% favorable foreign exchange translation. Volume declines narrowed to 40 basis points as orders accelerated through the quarter across all 3 product areas on improving demand trends from most end markets. We expect volumes to inflect to modest growth in the second quarter.

First quarter Americas price marked peak levels in the segment as we started to anniversary last year's actions in the second quarter. The team has recently announced new pricing actions to mitigate rising raw material and logistics costs. We expect Americas Welding to achieve a full quarter benefit of these new actions starting in the third quarter at 150 basis points per quarter run rate. We will continue to monitor evolving operating conditions and will respond as necessary.

Americas Welding segment's first quarter adjusted EBIT increased approximately 3% to $128 million on higher sales. The adjusted EBIT margin declined 100 basis points to 17.2%, primarily due to timing of price cost recovery and higher corporate expense allocated to the segment. We expect Americas Welding margin to perform in the mid-18 to mid-19% EBIT margin range for the remainder of the year.

Moving to Slide 7. The International Welding segment sales increased approximately 4%, primarily from favorable foreign exchange translation and strong sales in our Alloy Steel acquisition, which will anniversary in early August. This increase was partially offset by 10% lower volumes primarily from automation and, to a lesser extent, a temporary decline in customer activity due to the Middle East conflict.

Adjusted EBIT decreased 1.5% to $23 million. margin declined 50 basis points to 9.7% as the benefit from Alloy Steel was offset by lower volumes and higher corporate expense allocated to the segment. We now expect International Welding's margins performance to improve sequentially, but remain in the 11% range until conditions improve in the Middle East.

Moving to the Harris Products Group on Slide 8. First quarter sales increased 42% led by 41% higher price. The outsized price impact reflects actions taken to mitigate record high metal costs, most notably in silver and copper. The segment effectively manage costs and achieve their neutral price cost target in the quarter. While metal prices remain elevated, we expect Harris' price to moderate from first quarter record levels based on current metal price trends and prior year comparisons.

Harris volume compression narrowed benefiting from the growth in the retail channel as well as an improvement in HVAC production activity, which we anticipate will inflect positive by midyear. Looking ahead to the second quarter, we expect segment volumes to compress due to a challenging comparison from last year's retail channel load-in of a new customer. Volumes are then expected to pivot to growth in the back half of the year.

Adjusted EBIT increased approximately 68% to $41 million and margin improved 330 basis points to 21.2%. The profitability improvement reflects SG&A leverage from higher sales dollars and favorable mix. We expect the Harris segment will operate in the 19% to 20% margin range at current metal prices.

Moving to Slide 9. We generated $102 million in cash flows from operations in the quarter, which was lower due to higher uses of working capital. We strategically increased inventory levels on a short-term basis to ensure high customer service levels while we transition select products to newer models and ensure we capitalize on early strengthening of demand, especially in the Americas. We expect to reduce inventory levels in the second half of the year. The increase in inventories resulted in an 80 basis point increase in our average operating working capital to sales ratio to 18.6%.

Moving to Slide 10. We continue to execute on our capital allocation strategy by investing $39 million in CapEx and returned $101 million to shareholders from a combination of our higher dividend payout and from share repurchases. We maintained a solid adjusted return on invested capital ratio of 21.5%.

Moving to Slide 11 to discuss our operating assumptions for 2026. We have increased our net sales growth assumption to incorporate recently announced price actions taken to offset rising input costs. We now expect net sales growth to be in the high single-digit percent range as compared to our initial assumption of mid-single-digit percent growth. Our organic sales mix is now expected to be 3.75% price at a mid-single digit percent rate and 1 quarter volume.

Given how early we are in the year and the potential trade-off of strong order rates in Americas offsetting lower sales from the Middle East conflict, we have not changed our original bond growth assumption of a low single-digit percent growth rate. We estimate the sales impact from the Middle East conflict to be $8 million to $10 million per quarter while the conflict persists which is split evenly between the Americas and International Welding segments.

We also continue to anticipate a 70 basis point M&A benefit from the Alloy Steel acquisition, which again anniversaries in early August. We're maintaining our other full year assumptions on operating income margin improvement, a mid-20% incremental margin, interest expense, tax rate, CapEx and cash conversion.

And now I would like to turn the call over for questions.

[Operator Instructions] And your first question comes from the line of Bryan Blair of Oppenheimer.

It would be great to hear a little more on how your team is thinking about cycle positioning here and the prospects for overall demand acceleration and broadening product growth over the coming quarters. Consumables growth has been encouraging since Q2 of last year, obviously, very robust in Q1. Trends have been a bit choppier on the equipment side, but it sounds like you do expect near-term improvement. Just any additional color on that front would be helpful.

Yes, Brian, this is Steve. I would say we're cautiously optimistic, right? We're seeing good order rates in the Americas business. We've got continued strength in the PMI data, conversations with customers are encouraging, but we don't want to get ahead of ourselves, right? We want to see a little bit more consistency month-to-month.

In Europe, there's a lot of choppiness. We're concerned that some of the volume growth we saw there might have been a pull forward around pricing and other regulatory issues in terms of carbon taxes and the like. Don't really have any more clarity than anybody else about what's going to happen in the Middle East and keeping our fingers crossed there. So cautiously optimistic, I guess, is our overall position.

Yes. Bryan, just to add, as we mentioned, in the Americas Welding segment if we look at real volumes, consumables and automation were up. And as Steve mentioned as well as I, the progression in the quarter on orders were strengthening through March as well as into April and then also positions for growth on the equipment side. So Steve mentioned a key word for us has been just cautiously optimistic about what we're seeing in the business.

Okay. That all makes sense. And specific to automation, sorry if I missed any related detail here, is the expectation that the strategy turns to growth in Q2 as is mid-single-digit range is still a reasonable outlook for 2026. And have you seen any improvements in the scope of quoting outside of the large projects that you cited last quarter?

Yes. So Bryan, we do expect to turn to modest growth on the automation side as we exit Q2 with an expectation that second half, we see broad volume improvement across the automation business. Our order intake continues to be strong, backlog level is strong. And the mix, while a lot of project activity, which creates some choppiness, as you saw, particularly on the international side in this first quarter, but we do expect to posture the growth in second half.

Your next question comes from the line of Angel Castillo of Morgan Stanley.

This is Oliver on for Angel this morning. Just a question on your Gen fab end markets. I know you guys were up high 30s this quarter, can you help us unpack that in terms of how much of that was driven by price versus volume? And then just on the back half of the year, we're seeing some of your customers talk about order numbers that are higher than that even. So just how does that translate in terms of volume growth for you guys in the back half of the year?

Yes. So just high level, our volumes, particularly on consumables in the Americas Welding segment were up low double digits. So we're pleased with the mix. We do have a significant component of the overall increase tied to automation projects in this first quarter. But overall, we're seeing broad-based strength across general industries. So we're optimistic, cautiously optimistic that, as you know, almost 1/3 of our business is tied to general industries.

And so as we see now 3 months in a row on PMI improving and the flash numbers in April also point to positive, we're tracking that closely because that's a key part of our business.

Got it. That's super helpful. And then maybe just one on automation. Was that a drag on Americas margin this quarter? And then looking forward, how does the margin look in terms of what you signed into your backlog? I know you guys are targeting mid-teens there. So any color there would be helpful.

Yes. For the first quarter, we did have some pressure on automation margins. As you know, that's dilutive to overall business wasn't as a key driver to the overall margin performance in the Americas Welding segment because, as I mentioned, it was driven by price/cost we're trailing a bit there as well as the increase in corporate allocations into the segment, which is about 40 basis points. But we expect improvement in volumes to also track with a high single-digit type of margin for the automation business.

And your next question comes from the line of Mig Dobre of Baird.

I just have a couple of points of clarification here. Gabe, I appreciate all the commentary, trying to take notes, but I guess I'm not a fast enough note taker here.

In terms of pricing, do you expect to be back to neutral from a price cost standpoint in Q2? Or is that delayed until later in the year. And as far as the embedded price in the guide, does that reflect the actions that you talked about in the Welding business that occurred in May. Is that embedded in that or not? And how about Harris. Like -- because obviously, I mean, what we saw in Q1 at Harris is just outsized. And I know things are moderating, but at what pace should we expect that to happen?

Yes. So Mig, let me handle the first part of that, and I'll let Gabe comment more specifically. Obviously, our goal is to be price cost neutral at the margin level and that we've got a long history of achieving that objective. What you saw was an inflection in input cost for us in the latter part of Q1. And then there's a little bit of a delay for us to be able to announce the pricing to our customers, communicate all that and have it go effective.

So I would expect that we're going to recover most of that in Q2 as the pricing goes into effect beginning of May. And then I think our guide for the year on total price reflects that assumption of the pricing we've already announced. .

Yes. So Mig, as Steve mentioned, I would expect price cost neutral as we enter the third quarter. So the timing of the price increases will have an impact positively in the second quarter, but we'll have the full impact in the third quarter.

In terms of our price assumptions, if you think about the increase between 300 and 400 basis points, the way I think about it is about 1/4 of that on a full year basis, is tied to the new price actions and the balance really tied to the Harris what we've seen throughout Harris.

We don't get the full year impact, obviously, with the new price actions being taken. So if you just think about that 150 basis points that I mentioned, that begins in the third quarter. Think about half of that, and that's really about 1/4 of the overall pricing change assumption.

Great. That's very helpful. And then my follow-up, going back to international, I'm trying to make sense of the volume decline that you have in there. I understand the Middle East impact, something around 230 basis points. But what about the rest of it? Because at least optically to me, when I'm looking at the prior year, the comparison was not that difficult.

I know you talked about tough comps, but volumes were down about 6% last year as well. So can you unpack what's going on here? And what regions are doing what outside of the Middle East?

Yes. So just real simply the largest driver was the timing of projects within our automation business. We did see pockets of strength in certain markets within Europe and you had the impact of Middle East, but that was the key driver. On the Asia side, we've seen favorable trends in the likes of India, Australia and that. But the biggest driver overall was the timing of projects and the tough comps on the automation side. We were down automation international was slightly up on the Americas side.

And we have our last question from Nathan Jones of Stifel.

This is Andres on for Nathan. Just moving on to the margin side. Can you maybe talk about some of the cost management actions Lincoln's taking to drive improved margins near term?

Yes. We have a series of initiatives we're driving under RISE strategy in terms of enterprise-led initiatives. We're focusing a lot on sourcing and trying to get more leverage out of our global spend we're looking at trying to improve supply chain planning, so we can become more efficient in how we run the factories and servicing our customers with less inventory going forward. We're looking at SG&A productivity initiatives. And the combination of all those things are reflected in our assumptions around incremental margins over the course of the RISE strategy period.

And just to remind you, we talk about our expectations in the operating margins as well as incrementals for 2026. As you know, we're targeting a mid-20s. When you think about our 2030 targets, we're talking about high 20s. So we're looking to make a step change and a lot of the investments we're making currently have longer-term implications while we're continuing to improve the short-term margin outlook.

Got you. That's helpful. And just specifically to Harris, I guess, can you walk us through what were the primary margin drivers in Harris. Was it mainly mix related? Maybe just a little bit more color there.

Well, mix is certainly favorable. We did have some strengthening across on the retail side as well as but we've seen on HVAC, which was better than expected. And then we also have the pricing impact where we've achieved our price cost neutral pasture and with the leverage on SG&A you probably have about low to mid-20s type of incremental margin on that. So mix a big part of it and in our pricing and strategy as well.

And we have more questions. The next question comes from Walt Liptak of Seaport Research Partners.

I wanted to talk about the lower international margins, I wanted you to hopefully talk about that a little bit. I think you -- Gabe talked about international margin throughout the year. And I think previously, it was at 11% to 12%. And I wonder if you could help us understand, is this more price cost? Or is it the Middle East kind of volume overhang? Help us understand what's going on with the international profitability?

Yes. Well, certainly, the volume impact in the first quarter while the 9.9% down had an impact. And we do expect to see more stability in the overall business profile as we enter the second quarter. timing of projects. As I mentioned, auto automation has an impact depending on how the conflict progresses in the Middle East will continue to see an impact there.

But the mix is good from an Alloy Steel acquisition standpoint that will anniversary, as I mentioned, in August, and we expect that to also have a favorable impact. So the impact on volumes had an impact coming into the second quarter, which we expect that to stabilize.

Okay. Great. And then kind of going back to the earlier questions about some of the general fab markets and just the way the things trended. Was this quarter kind of in line with what you guys were thinking going into it? Or did you see more of a pickup as the quarter went on and into April?

Yes. As I mentioned the level of -- in Americas Welding consumable volumes being up low double digits. So that was stronger than we would have expected as we spoke in February. So we saw strengthening in real volume activity in general industries. We continue to see that momentum into April. So that's what gives us cautious optimism on the early parts of a recovery, particularly in the Americas Welding side.

Yes. Walt, I would say the improvement in Gen fab, particularly in the Americas, consumables may be a little bit ahead of what we were anticipating and standard equipment may be a little bit behind what we were anticipating. The consumables is a great barometer of factory activity and with continued strength in the factory activity and hopefully improving confidence, we should see the standard equipment follow in fairly short order.

And your next question comes from the line of Steve Barger of KeyBanc.

This is Christian Zyla on for Steve Barger. One clarifying question. Just with your earlier comments on the 2Q volume expectations, are you expecting overall margins in 2Q to be somewhat similar to 1Q and then a pretty meaningful step up to get to your full guide of slight improvement. Can you just help us walk through the cadence for the full year?

Yes. No, I expect the second quarter to show a step improvement compared to what we've realized in the first quarter and see that progressively stable as we get full realization of price cost neutral in the third quarter.

Got it. And then to follow up on that, is that driven primarily by volume or mix in the back half? Just kind of help us parse that out.

Yes. So for sure, volumes, we do see progressively improving. As we talked prior to the increase in our pricing assumptions for the year, we did point to the mix of price volume to progress into volumes in the back half of the year as we've anniversaried then the price actions from that we had taken in 2025. So we have pivoted to volume in the back half of the year.

The only comment we made to reinforce mix is that the strengthening of Americas, depending on what progresses within the Middle East conflict could be an offset, which we estimate that impact to be about $8 million to $10 million per quarter.

Yes, Christian. So our expectation is still for continued volume improvement in the second half of the year. We haven't seen anything yet to have us come off of that. But we're cautiously monitoring demand trends to stay on top of that. So hence, our cautious optimism.

Understood. One final one for me is just on the cash flow for the year. I think I understood the comment of the increased working capital or inventory levels. Do you expect that to repeat as we go for the full year? Or should we expect a similar '26 versus '25 free cash flow, which then would apply about $140 million, $50 million per quarter.

Yes. No, we expect to -- we're still anchored on a 100% cash conversion. So we expect that while we're investing short term with some product transitions, that would turn around in the back half of the year.

And we have one last follow-up question from Mig Dobre of Baird.

Still back on international for me. If we're kind of leaving out the Middle East conflict in the drag that you've outlined from that. So excluding this, do you expect to see volume growth in the rest of that business at any point in time in '26. And as far as inflation goes, what is the impact on that flow through in pricing in international wealth.

Yes, Mig, I would say we're expecting volume growth in the Asia Pacific region of the business. The Western Europe, in particular, in the broader European region, excluding the Middle East, a little more cautious. We were pleased to see a little bit of an uptick this quarter versus the prior quarters, but we're concerned that, that might be pull forward related to pricing actions and also some of the government regulations around the carbon border adjustment mechanism coming into play.

And so it's just a little too early to call any bottoming and improvement in Europe at this point in time. But we continue to see growth in Asia Pac and believe that we're investing appropriately to take advantage of that growth.

And our posture [indiscernible] there in international market is to be price cost neutral. So take some action to achieve that objective, and that's what drives the improvement as we see from Q1 into that 11% type EBIT margin profile that we expect from the business.

And this concludes our question-and-answer session. I would like to turn the call back over to Gabe Bruno for the closing remarks.

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 right strategy in the future. Thank you very much.

Ladies and gentlemen, that concludes today's call. Thank you, everyone, for joining. You may now disconnect.

All right. There we go. I think we're in business now. Thanks, everyone, for joining. My name is Adam Seiden. I lead the U.S. machinery and construction effort at Barclays, and thanks for attending our 43rd Industrial Conference here in Miami.

So for this presentation and fireside chat, we have with us today the folks from Lincoln Electric. So joining us is Steve Hedlund, CEO; as well as Gabe Bruno, the CFO. And we have Amanda Butler from the IR team as well out in the audience.

So the format of this session, like I was just saying, is a chat between myself and the fellows to my left. We will also be taking audience response questions through the event. You could participate in that through the little phone-looking devices on your table there, and we certainly would welcome your participation here throughout. So with that, Lincoln folks, welcome back to Miami.

Great. Thanks for having us. Glad to be here.

Well, I appreciate you being here as well. And just last week, you guys had some big news. You're talking a bit about your -- the next step in your strategy. The way I look at it is a bit more of an evolution rather than a revolution, which are a lot of consistencies with what we've seen in the past. But maybe just to pass the floor to you for a second here just to talk a little bit about RISE and what it means for Lincoln Electric and how it positions you going forward?

Okay. Great place to start. And you didn't interpret it correctly. It's more of an evolution of continuing to do the things that we did that were successful for us and the higher standard strategy, trying to take that further and accelerate the growth and performance of the business.

So RISE is an acronym that stands for reimagine how the work gets done, so we can drive safety, productivity and quality in our factories.

I, is for innovating to differentiate us from competition. We've got a lot of really great ideas in the early part of the funnel in R&D. We got to get them through the funnel and into the market faster. S, is about serving the customers better than we are doing today and better than our competition, as a point of differentiation to help us take share in a very competitive market. And E, is really around elevating the team members. So helping each individual person, achieve their career aspirations and getting the team to work more effectively together. So that's a fairly simple acronym.

We think there's a lot of potential left in the business to go to, continue to expand margins over a cycle, higher highs in good times, higher lows in challenging times and to continue to drive organic growth and to deploy capital in pursuit of accelerating that strategy through M&A. So we're really excited about it. We're launching it to all of our global employees starting next week. The early returns and the teasers of how we're rolling this out have been extremely positive. So we're really excited.

Great. And yes, higher highs, higher lows are always...

Always a good thing.

Always a good thing. So we probably could go through each letter of the acronym, but the one that I did want to touch on and go through a bit more is on the R on the reimagine side. So you described within that -- around this as being center-led, not centralized. So how does that work in practice? And would you say the -- how are the four reimagined pillars set up? Are they equal in scale and in size and impact to the business?

Yes, great question. So it's important to understand that the history of the company is we ran very decentralized autonomous regions. So folks in Europe would have their own way of doing demand forecasting, processing orders, doing supply chain planning, and the like. And they're largely similar, but just different enough so that when you go to deploy things like shared services or AI chatbots or other things to make the business more efficient, it really -- it stumbles on the fact that the data is not entirely consistent. The processes aren't consistent.

So we call it center-led in the sense that there is a centralized functional expert. I'd say, in finance, which is Gabe, but IT, HR, supply chain planning, R&D and the like. They set the processes and the policies and the tools that they want their teams around the world to follow, so we can try and capture economies of scale, but we still run the individual functions more regionally tied into the business units so they can be responsive to local market and customer needs. So it's trying to get the benefit and the best of both worlds from a centralized for scale, but decentralized for flexibility and agility.

And Gabe and his team have done a really nice job on the finance function, over the last 5 years and have driven about a 50 basis point as a total percent of sales, reduction in our finance costs. There are other functions that are following-on Gabe's work, particularly in IT and HR. There are ones that are more newer. So R&D and global purchasing are fairly new initiatives for us. And basically, we expect the maturation of the benefits to happen sort of evenly over the course of the 5-year planning program. So there's not an assumption that we have to do 3 years of hard work and then a miracle happens and we get a hockey stick. You ought to see a consistent layering-in, an improvement in the profitability of the business through these enterprise initiatives steadily over the 5 years.

Great. That's helpful. And if you think about one of the other legs to RISE, you guys spoke a bit about M&A. And within that growth framework, you're leaving yourself 300, 400 basis points or so, right, of M&A growth. So how should we think about that? Over the last number of years, you guys have bought a number of assets, smaller ones that added up to equal the -- quite a bit of contribution. So is it more targeted within one spot of the portfolio more on Automation? Even within that, is it more complex systems or similar systems? Just trying to get an idea of how we could think of that 300 basis points?

Yes, great question. So if you look back at the last 10 deals we've announced, I think it's pretty evenly balanced between the legacy Welding business and the Automation business. So we're looking across the breadth of the portfolio in terms of business units, the breadth of the portfolio geographically and really just looking for assets that either come in with an accretive margin structure that helps the business or a business that has a clear pathway to get to be at least margin neutral, ideally margin accretive for the business.

So if we look at 2 of the last deals we did, Alloy Steel, which has a proprietary process for doing wear plate, using Lincoln electric equipment and consumables, by the way, trade secrets, very high margins in that business. So glad to have that as part of the portfolio and tremendous growth opportunities to take that technology around the world.

Look at Vanair, that was a business that was a little bit margin dilutive to the company, but a really clear growth strategy and cost synergies that we could deploy to get that to be at the corporate average margins in a very quick period of time. So those are the type of things we look for, and we're looking across the breadth of the business to do that.

Great. So I guess just maybe to put a finer point on that, looking across the breadth of the business, the larger scale M&A, is that something...

Well, as the business gets bigger, right, to get 300 to 400 basis points of growth, you need to either do a lot more deals or bigger deals. And so we'll try and do both. I think it would be unlikely that you would see us do something that's truly transformative, bet the balance sheet all in one go or anything like that. But I think we are looking to do things that are slightly larger in terms of their impact to the business.

Great. So in the strategy, I think you guys referenced channel access as well. So how does that play out in the M&A strategy?

Yes. Vanair is a great example of that. So they do solutions for mobile work trucks. So all those utility vehicles you see going down the road, that repairing transmission lines or substations, almost all of them have an engine-driven welder on the back of the truck. We had a very, very small part of that business because we didn't have access to those customers. That was the primary reason for acquiring Vanair was to be able to sell Lincoln products through their channels to the customers we couldn't get to.

In other places, you might see that as trying to build a position within a distribution channel. We're very fortunate we have a great position in North America. You look at other places like India or parts of South America, we're not as strong in the channel as we'd like to be. So we look for opportunities to acquire businesses that can improve our position and help pull through the full range of products that we already make.

Great. So maybe flipping a little bit from the long-term strategy to thinking about a bit today. So on this past call, my interpretation was that there was a little more enthusiasm around the volume outlook as you proceed through the year. So what are some of those key data points that Lincoln is watching to determine whether a second half inflection is durable?

Yes. So there's two elements to that. One is in the long-cycle Automation business that we have. We have the backlog that will mature in the second half of the year. So it's a lot of long-cycle projects. They're on percent-completion accounting. So as we do the work, we recognize the revenue, but the work tends to be back-end loaded in those projects. So we're fairly confident that we'll see a pickup in the Automation business from the business they've already got in hand.

And then in the rest of the business, we look at PMI as a pretty good proxy for the confidence of customers to make capital investment decisions. Typically, our consumable volume grows maybe a month after you see a continued step-up in PMI. So hopefully, we've had a few head fakes in the past. Hopefully, January was not a head fake. But if we see a couple of consistent months of PMI strengthening, you should see consumables a month after that, and then you should see capital investment in standard equipment and standard automation maybe a quarter or 2 after that. So we're looking for continued improvement in PMI. We're looking for some improvement in our consumable volume, and then that will really give us the confidence that the second half growth will be there.

And just to add, so when you think about mid-single-digit sales growth, 70 basis points, we know, right? That's the acquisition. We know of pricing we put in place through the end of 2025. That's in the assumption. And then we point to, as Steve mentioned, the volume assumptions that are from real activity that we've seen in orders and backlog for Automation and are staged more in the back half of the year. So that's what gives us confidence in that overall assumption for this year. And we're cautiously optimistic. You see more continued trends on PMI and the like that points to more broader growth in short-cycle activity. But our posture initially is to provide visibility on what we do know and what we see in our business.

Okay. And of course, the portfolio is wide and best and there's a lot of different areas you participate in. So I'm just curious, if we were to exclude Automation, would the core Welding business still be expected to grow volumes in the second half?

I would assume a modest level of growth.

Got it. And then when you think about the different end markets that Lincoln is participating in, which of the five major end markets offer the most visibility today? And then one step broader maybe for Steve is, like where are you guys best positioned within those major end markets?

Yes. I would say from a visibility standpoint, you look at the places where we tend to have a greater proportion of direct sales to large end users. So that would be things like automotive. It would be things like the heavy fab, construction, ag equipment, where we just are in much deeper discussions with the decision-makers around their forward production planning than we would, say, Joe's fabrication shop, right, that we service through distribution. So a little more visibility in those segments.

I think we're very confident, particularly in the Americas region and our position across all the segments. We have really great solutions, really great people delivering and supporting those solutions. That's probably one of the things that people don't fully appreciate about the Welding business is there is a lot of on-site pre- and post-sale technical support of customers. And we've got a significant advantage in the capability of our sales force to do that in the Americas region. We look internationally, it tends to be more either large end users, so the automotive, heavy fab or it tends to be project work in the industry, energy industry. That's where we see our strength outside the Americas region.

Great. And Gabe, you mentioned a second ago on pricing. So when we think about the mix of volumes and price through the year, does price go down to 0 in the second half? Or does it get back to more of that long-term average that you have over the 2030 strategy here? And how should we -- so essentially, how should we think about pricing on the other side of the volume?

So our assumptions are that the pricing reflects only actions in 2025 as we exited 2025. So if you took fourth quarter pricing, compare to that first quarter, you can start to see the anniversarying effect first quarter, second quarter, third quarter. And yes, we'll have -- on that basis, a flat-type of assumption for pricing in the back half of the year. there's no incremental pricing built into that.

Now having said that, if we see continued cost inflation in the business, we'll take pricing accordingly. We just -- as we sit today, felt like we had taken enough pricing through the end of Q5 (sic) [ Q4 ] to cover the current cost structure through 2026.

Got it. So maybe on cost, a different type of cost, but there's some pass-through in the business. So when you think about the mid-20s incremental margin framework for '26, does that include the commodity pass-through as well? Or should we be excluding that throughout just to calculate that?

So when you're referring to commodity pass-through you refer to silver and copper-type within the Harris business?

Correct, yes.

So we haven't assumed a significant level of pricing within the Harris business because it's just difficult to predict -- for anyone to predict what silver or copper will move like. But we assume that irrespective of the move there, we should be able to hold to that mid-20s type of incremental.

Great. So maybe shifting a little bit on share. I think share was brought up a bit earlier, too. So one of the things I love to do is I like looking at your investor deck and seeing the global market share pie and seeing if there's been even a small change there. It seems fairly stable. So I'm curious, when you look at it on a regional level, is that a similar event where it's stable? Or just how does market share, I guess, vary based on North America versus EMEA and APAC and so forth?

Yes. Great question, Adam. Share moves very, very slowly in our industry, right. People are generally risk averse. If it isn't broken, don't fix it. There are a lot of codes and standards that people have to comply with, so they qualify products from a particular factory, for a particular application. And what really moves share over time is, product innovation where you've got a better mousetrap that you can't get from somebody else or just out-servicing the competition, being much more reliable and predictable on supply chain performance, technical support and the like. So you don't see wide share shifts at the broad global macro level.

At a regional level, you can see it with a little bit more granularity. In North America, for example, we have really, I think, adjusted or fine-tuned our go-to-market strategy. We had emphasized in a prior period a little bit more direct selling that alienated some of the distributors. They weren't too excited about that. We have really reembraced a more balanced route-to-market these days. And we're seeing the distribution channel reward us with share gains. So we get very good share data from some of the large gas distributors. We have rebate programs that are structured around the distributors have to tell us their market share data. So we feel very confident in the visibility of that data there, and we're confident that we're winning share in the North American channel. So we're very excited about that.

Some other parts of the world, a little more challenging. Europe is a fairly tough market because of the industrial malaise there, the high fixed cost nature of labor in the European markets. There's a lot of competitors that are a little more willing to play the price game to try and keep their factories running. So that becomes a little bit tougher market for us. And then our visibility and share in some of the rest of the world is a little more limited, right? But overall, we feel like we're doing a great job executing the strategy and driving share gains, particularly in the most important market for us, which is North America.

Great. So maybe shifting to Automation a little bit. In those same slides, right, you give pretty good color as far as the end market mix and so forth. And what it also seems like is parts of the Automation business is becoming a bit more short-cycle. So how do those businesses compare an outlook and margin profile versus more of like the engineered and custom solutions?

Yes. So I'd say about 20% of our Automation business is short cycle. The rest has projects in duration from 6 months to 24 months at the extreme. I think the margin structure is less reflective of the short versus long cycle and more reflective of where do we have proprietary content or technology that we're integrating.

So when we're integrating a welding solution with Lincoln technology, that tends to be a more attractive business for us. When we have solutions that are driven by software where we're taking a CAD file and interpreting the CAD file to automatically plan the robot, that tends to be better business for us. The pure integration where I'm buying a bunch of third-party content and I'm programming it and setting it up and installing it, that there tends to be lower barriers to entry there. The pricing tends to be a little thinner. The margins are thinner. And so as we look forward in the M&A strategy for that business, it's really trying to expand the proprietary content portion of the business. That's why we talk about [ techquisitions ], for example, like we did recently with a business in Denmark that had a Vision System for being able to look at a joint and then decide how to weld and path plan the joint, right. So we're looking for things like that where we have differentiated technology that we're deploying as part of the solution.

Yes. I had to add [ techquisition ] into my dictionary on my computer this past quarter. So if you think about automation, right, you guys have margin ambitions in that business as well. You just talked a little bit about the differences between the product level. So what are those key levers to reaching the mid-teens margin? It seems like M&A and acquiring in those areas...

Yes. I'd say the first lever has got to be volume growth, right. The business has faced a fair amount of headwinds in the last 2 years, driven in large part by the uncertainty in the economy, particularly around the ICE to EV, the hybrid transition. So we saw some pause in the capital planning cycle for automotive around that. We saw the challenge for heavy fab, having built out too much channel inventory, so they were de-stocking their distribution channel. So I think if we see a return to the previous volume levels that we had in the business, that will go a long way towards getting us towards that mid-teens target.

And then secondly is by driving more proprietary content, being able to charge for that. We've got some pretty exciting solutions we're bringing to market this year using AI to help a welding robot figure out how to weld a particular joint and deal with the inherent variability that exists in a factory. I think one of the things that really goes unappreciated is how much complexity there is in a factory and how much random variation there is. And so you can get a solution that works beautifully in a lab, but you put it in a factory and it starts dealing with all the variability and it crashes, right? So it's using software to be able to handle that variability like a human would, but with a robot instead of a human. So I think it's those kind of things, the driving of technology solutions at higher margins, continuing to get some volume leverage and then being thoughtful about the M&A.

So, just to add, just to remind us that our peak sales was at $940 million back in 2023. Our EBIT profile then was in the low teens. So we have line of sight to recover and then expand the margin of the business.

Okay. So maybe we'll shift over to the audience response questions right now.

So a reminder for the folks in the audience, you could contribute or participate with the gadgets on your table. One day, they'll tell me what those gadgets are called, so I could refer to them officially.

All right. So question one is, do you currently own this stock?

One, yes, overweight, market weight, underweight or no? It's a good year-on-year reminder that my eyes are getting worse.

All right. About 2/3 of the room, no.

Next question, please. What is your general bias towards the stock right now, positive, negative or neutral? Just as a reminder, the vote counts once the clock is up.

All right, about 2/3 positive.

Moving to the next question, please. In your opinion, through cycle EPS growth for Lincoln Electric Holdings will be, above peers, in line or below peers?

Half the room, above and call it half, in line.

Next question, please. In your opinion, what should Lincoln do with excess cash? Bolt-on M&A, larger M&A, repos, divvies, debt paydown, internal investment?

Split about 40% on bolt-on M&A, about 1/4 of the room on larger -- no share repos and internal investment.

And is there one more this year or there you go. In your opinion on what multiple of '26 earnings should Lincoln trade, various ranges from less than 10x to higher than 21x?

So what's amazing about this slide is we made this, I think, back in 2016. Those ranges may need to change, guys. All right.

So we're up to 6 higher than 21x, about 1/3 of the room.

All right. So valuation, I think, is going to be an interesting conversation around the entire conference here. But one of the things I wanted to talk about a little bit here is on the margin range. So when you talk -- when you guys gave your view out to 2030, I guess just what drives the high and low ends of what you're thinking through? I think there was a plus or minus 150 bps view there. So what gets you to top and low end?

Well, think of the cycle, right? So starting off 2030 and 2026. So if 19% is an average, if you back off the cycle low end, 1.5 basis points, 150 basis points is, 17.5% right? So we're starting off at 17.6%, right.

On the higher end, right, you have the 19% plus, 150 basis points, so that's the 20% plus. With an average of 300 basis points improvement in this cycle versus the 200 basis points in the past cycle. So it points to accelerated margin expansion with being sensitive that we manage through cycles. And while we were just exiting, kind of a down cycle and still expanding margins, we'll continue to manage our business to drive improvements in the operating model. But that just recognizes that there's a dynamic of the cycle that we have to tend to, throughout the next 5 years, but we don't know what it plays out to look like.

Fair enough. No, the range makes sense, just given volumes could be -- could vary. So then I guess, the plus/minus 150 basis points is on the FullCo. When you think about the segments, is there any variation on what that could be?

That would apply the same way, right? So as we give broad ranges for each of the segments, depending on the progression throughout the cycle. Americas may look a little different than International and Harris depending on what the mix of business is.

Fair enough. So when we're looking at the margin views, right, by segment. So Americas and Harris margins were guided materially higher than the prior view. International is a bit more flatter. So I guess what held margins back a bit on the International side that could look a bit more positive this time here?

Well, in general, the European markets, I mean, our view at this point is more pressure in the core European markets with more expansion in Asia, Middle East-type markets. So we just have a posture of just a more challenged outlook on the industrial base in the European side of things.

Europe is about 70% of the International business, right? So it is -- if Europe continues to have headwinds and challenges, it's going to affect the overall segment. So we are a little bit more conservative in the outlook for International than the other 2 segments.

And then keep in mind, Adam, that 80% of Automation is within the Americas segment. So the core business has been very strong. When you look at an acceleration of growth from an Automation standpoint, those are higher incrementals because of the fixed cost nature of that business. So that's what points to strength in Americas from both growth, but also the margin expansion.

Great. Now for the fun ones that I'm asking every company at the conference. So...

Buckle up.

Exactly. Buckle up is right. So AI, it's a new thing. So how would you guys say that AI directly impacts Lincoln, your business or as well as some of your customers and how you see that transpiring over the next couple of years?

Yes. So I think there's two broad areas. One is helping us be more efficient and productive in our own internal operations. And that will really benefit from the work we're doing and reimagine the standardization of the work because it's hard to deploy AI tools when everything is slightly different.

I think the more interesting and exciting part is how we're going to leverage AI to improve the value proposition of products to our customers, right? And I think one of the big challenges that people face is not necessarily getting the work tool to the workpiece. So the humanoid robot thing, I think, doesn't really have a big impact for us. There's lots of different ways to get the tool to the workpiece today, a 6-axis robot, a lot of cobot, for example. It's what do you do when you get there, right? And how do I deal with the inherent variability in a factory environment to be able to get the output that the customer is looking for?

So I think that's the part where we'll see a lot of exciting developments. I don't think it will ever get to be a truly lights-out factory where AI is deciding to do everything. But if you look at sort of parts of the production process, there are clearly areas where AI can help.

Great. And the other thematic is on lower rates. So...

Lower rates help, yes, that would be nice.

So what do lower rates mean to Lincoln Electric? Just to throw it out there.

Yes. Obviously, it makes capital investment easier for people to justify, particularly things that have a longer payback cycle, right, to them. I would say if we look at the capital equipment part of our business, it's probably more sensitive to confidence than it is to interest rates, right? Because generally, people are getting a very good ROI and their investment in standard equipment with higher productivity or automated solutions with higher productivity. And it's really just do I have the confidence in the business outlook to make that capital investment now or do I wait to see.

And we've been in an elongated period where wait and see was the best answer. And if we can get to a point where there's more confidence in the future, I think you'll see an acceleration in that part of the business.

Excellent. You made it through the conference. So just to maybe wrap up here. So I guess, Steve, this -- in '26, I guess, this will be potentially your first true volume growth year.

That would be great. I've been CEO for 8 quarters. They've been 8 challenging quarters. I'm ready for an easy one.

There you go. So how does the messaging shift internally as you move into like resilience, through a cycle through maybe potentially catching some of those tailwinds?

Yes. I don't think the messaging changes a whole lot, right? A lot of the drumbeat of our organization is really focused on serving the customer, fixing the things that we know are problems in our everyday life. So a lot of the reimagine how the work gets done, is trying to make us more productive and more effective in serving our customers, but also make the life of the daily employee at Lincoln Electric better because there's a standardized way to do things and and they're able to focus more on value-added thought-based work than just paper shuffling, if you will.

So continue to focus on the customer, continue to drive productivity and improvement in the business and continue to try to support each other and make the overall team more effective and less of me and more of the we, right? So I think that doesn't change very much. When we get into very difficult market conditions, then we start pulling the cost levers, a little harder. That becomes a nuance within the business, right. But I think the general drumbeat of the organization stays the same.

Excellent. Well, that's a great way to end it here. If you could all -- let's thank Lincoln Electric and really appreciate you guys being here.

Thanks for having us. Appreciate it.

Greetings, and welcome to the Lincoln Electric 2025 Fourth Quarter Financial Results Conference Call. [Operator Instructions] And this call is being recorded. It is my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you. You may begin. .

Thank you, Cody, and good morning, everyone. Welcome to Lincoln Electric's Fourth Quarter 2025 Conference Call, where we will be covering our fourth quarter and full year 2025 financial results as well as our new 2030 targets. .

We released our financial results earlier today, and you can find our release and this call slide presentation at lincolnelectric.com in the Investor Relations section. And joining me on the call today is Steve Hedlund, Chairman and Chief Executive Officer; as well as Gabe Bruno, our Chief Financial Officer. And following our prepared remarks, we're happy to take your questions.

But 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 and uncertainties, which are provided in our press release and in our SEC filings on Forms 10-K and 10-Q.

And 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 now I will turn the call over to Steve Hedland. Steve?

Thank you, Amanda. Good morning, everyone. Turning to Slide 3. I am proud to report record 2025 performance. Despite challenged end markets, our sales increased 6% to a record $4.2 billion from acquisitions and price. We maintained last year's record adjusted operating income margin, increased adjusted EPS to a record $9.87 and generated strong cash flows from operations. This resulted in record cash returns to shareholders. .

Disciplined cost management and the agility of our supply chain team mitigated unprecedented levels of inflation, finishing the year at our neutral price cost target. In addition, our savings programs generated an incremental $31 million of permanent savings. These achievements, combined with solid commercial and operational execution culminated in top quartile ROIC and total shareholder return performance versus our peers. On behalf of the Board and leadership team, I would like to thank our global team for delivering these superb results.

Their commitment, focus and agility continue to position the company to outperform in the years to come.

Turning to Slide 4 to cover demand trends in the fourth quarter. Organic sales grew 2.5% from price, which was largely offset by weaker volume performance. As discussed on earlier calls, we faced a challenging prior year comparison in our automation portfolio which magnified volume declines. Excluding automation, organic sales would have increased approximately 8%. The growth reflects price contributions in consumable and equipment as well as relatively steady volume performance in our welding consumables in Americas and International Welding.

2025 was a challenging year for Automation due to lower capital spending and project deferrals. Automation sales were $240 million in the quarter, an 11% decline versus a record prior year. And on a full year basis, we achieved $870 million, which is a mid-single-digit percent decline. We are encouraged by strong order rates and a solid backlog in our automation business in the fourth quarter. This is expected to drive growth in 2026. Due to seasonality and the timing of revenue recognition, we expect first quarter sales to be steady with prior year levels and then pivot to growth starting in the second quarter.

This follows the typical seasonality cadence of a 40%-60% split between the first and second half of the year. Looking at end markets in the quarter, 3 of our 5 sectors grew with an acceleration in December, notably in Americas welding. And excluding automation due to its challenging prior year comparison, all 5 end markets were flat to up. This momentum, combined with a return to more normalized customer production activity, OEM announcements of higher capital spending plans for 2026 and the manufacturing PMI pivoting to growth in January are all encouraging signs that we may be in the early stages of an industrial recovery.

A few highlights to note are the continued outperformance in energy, which is due to strong project activity in both Americas and Asia Pacific. General Industries achieved double-digit growth in Americas but was impacted by lower HVAC activity in the quarter. We are seeing HVAC demand start to normalize in January, and our non-resi structural steel sector was flat globally, but up mid-teens percent in Americas on strength in both North and South America from a range of projects.

The 2 challenged sectors were automotive and heavy industries and both were impacted by Automation's prior year comparison. Transportation, excluding automation, grew at a mid- to high single-digit percent rate largely from consumable demand for vehicle production. Heavy Industries organic sales, excluding automation, was modestly higher year-over-year as construction and ag sector production activity continued to improve resulting in solid consumable volume growth.

So we are well positioned with strong backlog levels and broadening pockets of growth in Americas and Asia Pacific to drive growth in the year ahead.

Now I'll now pass the call to Gabe Bruno to cover fourth quarter financials in more detail.

Thank you, Steve. Moving to Slide 5. Our fourth quarter sales increased 5.5% to $1.079 billion from 8.9% higher price, 1.9% favorable foreign exchange translation and a 1.1% benefit from acquisitions. These increases were partially offset by 6.4% of lower volumes. Gross profit dollars increased approximately 1% to $374 million gross profit margin compressed 140 basis points to 34.7%, a $3 million benefit from our savings actions as well as diligent cost management and operational initiatives was offset by lower volumes and the $3 million LIFO charge in the quarter.

SG&A expense decreased approximately $3 million versus the prior year from the benefit of $5 million of permanent savings and lower employee costs, which were partially offset by unfavorable foreign exchange translation and higher discretionary spending. SG&A expense as a percent of sales declined 130 basis points to 17%. Reported operating income increased 4% to $184 million. Excluding special items, primarily related to acquisitions as well as rationalization and asset impairment charges, adjusted operating income increased 4% to $194 million.

Our adjusted operating income margin declined 20 basis points to 18%, reflecting a 15% incremental margin. We reported an effective tax rate of 21.2%, which is 510 basis points higher versus prior year. Our effective tax rate reflected an approximate $3 million specialized in tax expense from the election of provisions from the One Big Beautiful bill Act. The selection also reduced tax payments by approximately $25 million in the quarter, which we expect to realize again in the first quarter of 2026.

Excluding special items, our effective tax rate was 19.8%, which was 300 basis points higher versus the prior year's adjusted effective tax rate, which benefited from a favorable mix of earnings in the timing of discrete items. We reported fourth quarter diluted earnings per share of $2.45. On an adjusted basis, earnings per share increased 3% to $2.65. Our earnings per share results include a $0.07 benefit from share repurchases and a $0.01 favorable impact from foreign exchange translation.

Moving to our reportable segments on Slide 6. Americas Welding sales increased approximately 4%, driven by 10.4% higher price and 60 basis points of favorable foreign exchange translation. Volumes declined approximately 7%, primarily from the automation portfolio, which had a challenging prior year comparison. While automation order rates accelerated in the fourth quarter and the segment has a strong backlog entering into 2026, revenue recognition is not expected to begin to ramp until the second quarter.

The price increase reflects prior actions taken to address rising input costs. We anticipate price levels to hold sequentially in the first quarter prior to substantially anniversarying in the second quarter. We will continue to monitor trade policy decisions and take appropriate actions as needed.

Americas Welding segment's fourth quarter adjusted EBIT increased 7% to $141 million. The adjusted EBIT margin increased 90 basis points to 20%, primarily due to effective cost management, favorable mix and $5 million in permanent savings. We expect Americas Welding to continue to operate the mid-18% to mid-19% EBIT margin range in 2026.

Moving to Slide 7. The International Welding segment sales increased approximately 7% as the 5% benefit from our alloy steel acquisition, a 5% favorable foreign exchange translation and 50 basis points of price were partially offset by 4% lower volumes. Volume compression reflected the continued challenges in European industrial demand trends, which were partially offset by pockets of growth in Asia Pacific and in the Middle East.

Adjusted EBIT decreased approximately 4% to $31 million. Margin compressed 100 basis points to 11.8% as the benefits of our Alloy Steel acquisition, effective cost management and a $3 million of permanent savings were offset by the impact of lower volumes. We expect International Welding's margin performance to be in the mid-11% to mid-12% margin range in 2026.

Moving to the Harris Products Group on Slide 8. Fourth quarter sales increased 11% driven by 18% higher price and 170 basis points of favorable foreign exchange translation. As expected, volumes compressed 9% due to the decline in HVAC sector production activity in the quarter. Price continued to increase on metal costs and price actions taken to mitigate rising input costs.

Adjusted EBIT increased 8% to $23 million as March declined 30 basis points on lower volumes and mix. The Harris segment is expected to operate in the 18% to 19% margin range in 2026.

Moving to Slide 9. We generated solid cash flows from operations in the quarter, aided by lower tax payments. Average operating working capital rose 100 basis points versus the comparable prior year period to 17.9%, primarily due to higher inventory levels and reflects top quartile performance compared to peers.

Moving to Slide 10. We continue to execute on our balanced capital allocation strategy with high quartile returns. In the quarter, we invested $44 million in growth, reflecting an acceleration in CapEx investments and returned $94 million to shareholders. We generated an adjusted return on invested capital of 21.3%.

Moving to Slide 11 to discuss our operating assumptions for 2026. While conditions remain dynamic in many of our regions from ongoing trade negotiations and geopolitics, we are encouraged by recent OEM commentary on capital spending plans and growing infrastructure project commitments. This gives us cautious optimism that we may be in the early stages of an industrial sector recovery that would translate to broader demand momentum in our business in the second half of the year.

While domestic distribution channel demand and consumable volumes have remained resilient, demand for our equipment and automation portfolios has been choppy. We will be looking for consumable volumes to inflect to consistent growth, which is typically followed by an acceleration in capital spending after 1 to 2 quarters.

Once we see those drivers, we are confident that our channel mix, diversified end markets and portfolio of solutions positions us well to capitalize on accelerating growth. Our full year 2026 operating framework assumes a sales growth rate in the mid-single-digit percent range with organic sales split 50-50 between volume and the 2025 price actions that carry over to 2026. We expect volume growth rates to improve starting in the second quarter and through year-end.

Price is expected to be strongest in the first quarter, especially in the Americas Welding segment before largely anniversarying last year's price actions in the second quarter. Our price assumption does not include dynamic metal price adjustments in our Harris Products Group segment due to the volatility of metal markets. Our 2025 Alloy Steel acquisition is expected to provide an approximate 7 basis point contribution to sales. These assumptions support our first quarter sales estimate that is similar to fourth quarter sales results.

We will continue to pursue a neutral price/cost posture and expect a mid-20% incremental operating income margin from volume growth and enterprise initiatives, which will result in a modest improvement in our operating margin for the full year. In the first quarter, we expect a seasonal sequential increase of approximately $10 million in incentive costs as we reset incentive targets and issue long-term incentives.

This will impact margins and cash flow performance as we start the year. For the full year, we are confident in strong cash flow generation, which supports our capital allocation strategy and helps compound earnings performance through the cycle. We will continue to maintain an elevated level of capital spending with a target range of $110 million to $130 million as we invest across a range of safety, growth and productivity-oriented projects to drive long-term value.

Our expected tax rate and interest expense are generally in line with last year at a low to mid-20% rate and in the range of $50 million to $55 million, respectively. And now I'll pass the call back to Steve to cover our [ RISE ] strategy and new 2030 targets.

Thank you, Gabe. Turning to Slide 13. Our next strategy builds upon the success of our Higher Standard Strategy which concluded in 2025. And despite a volatile 5-year period that no one could have predicted, we are proud to have advanced the business and achieved most of our strategic targets, reaffirming our strong say-do reputation and our commitment to deliver on our goals. This is a testament to our incredible global team, the agility of our operations and the tremendous support of our customers, partners and shareholders.

So on behalf of the leadership team and the Board of Directors, thank you for your support.

Turning to Slide 14. Each reportable segment made progress during the Higher Standard Strategy, most notably in profit contribution without the benefit of significant operating leverage, diligent cost management, savings programs and operational improvements were all drivers to segment improvement.

Key highlights are the doubling of our automation sales and EBIT margin over the 5 years, the outperformance of Harris Products Group's margins and the groundwork we laid in leveraging the scale and scope of our enterprise to drive higher returns. The persistent drive for continuous improvement has delivered superior returns for our shareholders, as highlighted on Slide 15, with a 122% total shareholder return rate, which is over double proxy peers in the last strategy cycle.

Turning to Slide 16. For 130 years, we have consistently operated with a value framework that balances being people-focused with growth, continuous improvement and financial discipline. Our unwillingness to trade off 1 element for another is what sets us apart and is foundational to our culture and success. It has also delivered superior returns for our shareholders. What has evolved over time is the how the work gets done in each of these areas. This is driven by changes in technologies, processes and organizational structures.

In the next 5 years, we will further evolve how we operate under a new strategy named RISE. This next phase of our development is focused on structurally aligning the global organization to drive even greater efficiency and agility in our operations, further differentiating our technologies and solutions exposing the business to broader growth opportunities and generating value for our employees, customers and shareholders.

Let's walk through the key themes of RISE on Slide 17. The R stands for reimagining how work gets done over the next 5 years. We will be completing the transition from regionally led businesses to center-led functions that will drive higher levels of efficiency across one standard enterprise. I stands for innovating to differentiate. We are challenging our R&D, product management and M&A teams to further differentiate our portfolio to accelerate wins, whether that's through internal development, external partnerships or acquisitions, we see great opportunities to expand our market impact by amplifying the value we bring to customers' operations.

Inrotec is an excellent example of a recent acquisition their technology is being integrated into our first autonomous automation solution that uses vision and AI to weld with precision, while adjusting the variables just like a human welder would. We believe this, among other innovations will redefine productivity expectations for customers in the years ahead. S stands for serve. Today, many customers tell us that our service outperforms industry peers but we know that we can do better. We have identified opportunities to improve supply and service levels across the business, which can be a growth driver for us in the next 5 years.

And finally, we will be investing to elevate our team. We are renowned for our industry-leading technical sales reps, engineers, application experts, automation specialists and a strong operating and supply chain organization. But we want to achieve best-in-class engagement with our employees. New development programs, combined with more proactive career planning will help ensure our team is engaged, upskilled and that we are attracting and retaining industry-leading talent to help us grow.

Looking at the 2030 financial targets starting on Slide 18, and we are maintaining a high single-digit to low double-digit percent sales growth rate framework. Our growth stack consists of organic sales increasing in a mid-single-digit percent rate. We are well positioned to benefit from cyclical growth and key secular growth drivers. Our customers need partners that can offer the expertise and the solutions to address the shortage of skilled welders that support greater safety and productivity in their operations, enable reshoring and capacity expansions and deliver the right engineered solutions for electrification and infrastructure investments whether for energy, AI, data centers or for civil infrastructure projects.

We also have a long-standing position servicing defense contractors, predominantly in the Maritime Industrial base and have added some exposure to aerospace through recent acquisitions. So favorable macro trends, coupled with innovation, a targeted expansion of our TAM where we can add value, share gains and 300 to 400 basis points of sales growth from acquisitions are all catalysts that give us attractive growth opportunities to leverage.

During the next 5 years, we expect higher contribution from growth at an average high 20% incremental operating income margin. This compares with a mid-20% rate in our prior cycle. Turning to Slide 19. We expect varying rates of organic sales growth across our reportable segments, reflecting regional dynamics and segment strategies. Americas Welding will lead with a mid- to high single-digit percent organic growth rate.

Strong regional positioning will allow the team to capitalize on cyclical and secular trends. In addition, the majority of our automation portfolio is in region, and we continue to expect Automation's organic sales growth at twice the rate of the core business. In international, we are pursuing a two-pronged approach to growth. We'll be pursuing accelerated growth in portions of the Middle East and Asia Pacific which have high levels of project activity and where we can invest to expand our reach.

In core industrial Europe, we are assuming a low growth profile given macro trends, but we'll monitor European industrial trends to ensure we are aligned with customer needs and can capitalize on any growth opportunities which could offer upside to our model. We are expecting a mid-single-digit percent growth rate in Harris Products Group from ongoing HVAC sector growth, a strategic expansion of fabricated solutions for targeted industrial applications and expectations for an improvement in residential and retail channel trends.

While operating leverage from volume growth is important to our strategy, enterprise initiatives are also a driver of higher incremental margin performance.

On Slide 20, we highlight 4 key enterprise initiatives that are being implemented in conjunction with local, continuous improvement projects and our safety and environmental initiatives, which are highlighted in the appendix. Together, we expect all of these initiatives to drive approximately 1/3 of the improvement in our higher incremental operating income margin performance through the strategy cycle.

Our first key initiative is our shift from a more regional operating structure to a global enterprise of center-led functions. This allows us to align our work on standardized tools, data sets and establish highly efficient core processes. It will also enable us to leverage our scale and reduce complexity in our structure. In addition, standardization supports increased digitization, automation and the use of AI bots to drive improved supply chain and administrative efficiency.

Second, we will continue to invest in factory automation and modernize our production platforms to improve safety, productivity, sustainability and lower conversion costs in our operations. Third, we have piloted what we call our spotlight process over the last couple of years in our Harris business, and we will be deploying this process more broadly across the enterprise.

We have demonstrated that modest adjustments to our operating posture can result in improved service for customers, helping us gain market share while also generating internal efficiencies and productivity. And finally, we regularly shape our footprint to ensure utilization, quality and service are aligned with any shifts in demand.

During the higher standard strategy, we generated approximately $60 million in permanent savings from optimization projects. And while the opportunity list is shorter, we will continue our disciplined approach, which will contribute to margin performance. And now I'll pass the call to Gabe to cover margin targets, cash flow and capital allocation.

Turning to Slide 21. As Steve mentioned, we expect a step-up in our incremental margins on average operating income to high 20% range. This is about 2/3 from volume leverage and 1/3 from enterprise initiatives. This will increase our average operating income margin to 19% across the cycle, which is a 300 basis point improvement compared to the 16% average in our last strategy. This is a step up from our typical 200 basis point improvement that we have historically achieved cycle to cycle.

Our new framework targets a peak consolidated operating income margin of 20-plus percent. By segment, all segment target EBIT margin ranges have increased from their 2025 levels based on their growth plans, enterprise initiatives and segment-specific action plans. In addition, we are targeting a mid-teens percent EBIT margin contribution from our acquisitions and our automation portfolio, which is largely in the Americas Welding segment.

Moving to Slide 22. We have improved our working capital performance over time to top decile levels. While our ratio increased in the last few years as we have strategically increased inventory during supply chain challenges, we continue to operate at top decile levels versus peers. As we execute our RISE strategy, we will continue to optimize working capital and target a 16% to 17% ratio to sales over the next 5 years.

Cash flows from operations have also improved over each cycle with improved margin and working capital performance. We expect to generate over $3.7 billion in cash flows from operations at a 100% cash conversion ratio through 2030. This will allow us to continue to fund growth and return excess cash to shareholders through the cycle.

Turning to Slide 23 and our capital allocation strategy. We have filed a balanced capital allocation strategy, which you can see on the right side of the slide with approximately 48% invested in growth and 52% return to shareholders over the last cycle. We will be maintaining this balanced approach moving forward. Our growth investments include internal CapEx and R&D initiatives as well as acquisitions. Internal investments yield our highest returns and we target M&A returns in the mid-teens percent by year 3.

We will also continue to return capital to shareholders. We expect to return approximately 30% of net income to shareholders through the dividend. And as a dividend aristocrat, with 30 years of consecutive annual dividend increases, we remain committed to our dividend program. In addition, we will continue to repurchase shares to prevent dilution at approximately $75 million a year and will then opportunistically buy back shares using excess strategic cash.

Our capital allocation strategy allows us to effectively fund growth and generate superior returns for our shareholders through the cycle. To summarize our 2030 financial targets on Slide 24, we are targeting growth and will position sales above $6 billion in 2030. The profit margins will expand at high 20% incremental operating income margin, which would generate an average operating income margin that is 300 basis points higher than the last cycle's average. We are expecting a peak 20-plus percent operating income margin in this cycle.

Earnings per share is expected to grow at a mid-teens percent CAGR, reflecting improved performance in capital deployment. Cash flow from operations is expected to expand to over $3.7 billion, which will fund growth and shareholder returns while allowing us to maintain a solid balance sheet profile. This strategy is expected to maintain top quartile ROIC performance and elevate Lincoln Electric to consistently higher levels of performance as we continue to shape the company for another 130 years of success. And now we will pass the call to the operator to take questions.

[Operator Instructions] Your first question comes from the line of Angel Castillo with Morgan Stanley.

I wanted to start a little bit more on the longer-term dynamic, particularly on the high 20s incremental margins. You laid out some very compelling factors as we think about, I think, Slide 20 with how you continue to kind of drive towards those higher incrementals. Could you talk a little bit more about the time line of how we should think about these levers being achieved? Is this all starting out to drive the business in 2026? Or should we think about some of those investments in areas like automation or levers really starting to show through more over a longer period of time.

And then related to that, just how should we think about the push and pull of the role of M&A and innovation in driving faster kind of differentiated growth, but the potential kind of dilutive nature of that versus your portfolio? And whether that's kind of essentially factored in? And how we should think about that within the incremental margins?

Yes. Great question, Angel. So as you noted, when we talk about the improvement in our incremental margins, we pointed to a part of that being driven by volume growth and leverage on the volume growth and part of that being driven by the enterprise initiatives. So let me talk to the enterprise initiatives. We have a variety of initiatives in flight in various stages of maturation.

I think the transformation of our finance function is probably the furthest along and Gabe and the team have done a great job there, leveraging shared service and process bots and the like to make that function much more efficient. I'd say next behind that is probably IT and then HR and then if you look at things like purchasing and R&D much earlier in their maturation cycle.

So I think I would expect to start to see benefits from the enterprise initiatives flowing in fairly steadily over the course of the 5-year period as each of those functional initiatives reaches their full potential. So it's not a big bang that all happens at the end of the strategy period. It's also not going to be very quick to get all the benefit at the front end. So I'd model it as being fairly smooth over the course of the 5 years.

Angel, just to add to your comment in terms of M&A and the impact on incrementals, and we've incorporated all that into our model. And when you look at our targets, as you point to an ROIC, I mean, we're at 18% to 20%. So we don't want to limit our ability to grow by driving targeted ROIC above where we're currently at. But I want to introduce acquisitions that are in that mid-teens type of returns by year 3. And that kind of fits nicely for us. You've seen that historically. That's how we have performed, and we expect to continue to execute on that kind of dynamic. .

That's very helpful. And then maybe just on the more near-term side, I wanted to talk about your guide for net sales of mid-single digits. Apologies if I missed this, but did you break down exactly, I guess, what your expectation is for organic growth within that? And related to that, could you just maybe provide a little bit more color on the specific kind of order trends. I think you mentioned accelerating orders in automation, but just curious what you're seeing in quarter-to-date in January, February for the rest of the business in terms of orders and kind of the cadence for organic growth there.

Yes. So Angel, so when you think about the organic assumptions that we provided, it's mid-single-digit type of growth split 50-50 between price volume. What we've assumed for pricing, it reflects all of the 2025 pricing actions that we have place into our business, responsive to the acceleration of input costs. And we'll see that largely in the first quarter and then begin to anniversary largely in the second quarter. .

So we have confidence that based on the strength of orders and backlog, particularly in our automation business, that we'll see a pivot to growth beginning in the second quarter. So as the year progresses, we expect to see less pricing, see that more in the first half of the year and more volume in the back half of the year. And the confidence level we see because of order levels and backlog in automation really drives that volume assumption.

As we've mentioned, the consumables business has held steady from a volume perspective. So that's a good posture to be in when you think about the production levels across the end markets we serve. But we do want to see more consistency in order patterns from a capital investment perspective. So the volume assumptions are anchored on what we've seen to date, particularly in our automation business.

And Angel, just to add some further color to that, what we saw in the fourth quarter in automation was that we won some very large project orders, which we were very pleased to capture that business and to see some of the large end users start to release capital. What we haven't seen yet is the more small to midsized fabricator in the General Industry segment really start to deploy capital whether that's for automation or for our standard welding equipment.

We're encouraged that the consumable, which is the shortest cycle portion of our business and typically is a good bellwether for where the industry is headed, has held stable and we're hopeful that as the PMI continues to inflect and as business confidence improves, we'll see the consumable volumes start to grow and that will then translate typically with a 1- to 2-quarter lag to more capital spending on standard automation, standard equipment.

Your next question comes from the line of Nathan Jones with Stifel.

I guess the first question on the automation business. You talked last quarter about being more confident in that in the order progression on that, you sound more confident again today, talking about having a better backlog. I think you said the automation business was $840 million in 2025. Can you talk about the expectations for that in 2026, maybe size the increase in orders in fourth quarter of '25. I understand the lag. And so we'll see that start to ramp up in the second quarter. But just any more color you can give us around that would be great.

Yes. Nathan, as we said, our sales levels for our automation business were $870 million in 2025, and that reflected a mid-single-digit decline. So the order of magnitude and how we're seeing volumes, which is largely driven by the automation business is to essentially recover a lot of that organic softness we saw in 2025.

So think about mid-single-digit type of growth trajectory potentially and automation based on what we've seen in order levels in our backlog. And our confidence will continue to increase as we see less choppiness in the order patterns. And as Steve mentioned, some really strong good orders. We'd like to see more activity on the short cycle type of business.

Excellent. I guess my second question is around some of the center-led functions that you talked about, just changing the org structure, I guess, an operational structure of the business a little bit. Can you talk about some of those functions, what the benefits that you're going to get from centralizing those things. Are you targeting -- you also said you're targeting Asia and Middle East. Does that require a more centrally led business? I mean generally, you need to have kind of local content there, especially in the Middle East or investments you need to make there? I'll leave it there.

Yes. Sure, Nate. I think it's important to note that we use the term center-led, not centralized. And the objective of this approach is to try to get the benefits of our scale and scope by having highly standardized, simplified and automated processes for running the business. And unfortunately, given how we've evolved the business over the number of last decades, we tend to run our core business processes just slightly different everywhere.

So the way we do demand forecasting, order entry, supply chain planning, just slightly unique in every different part of the company, and that frustrates our ability to try to use process automation, chatbots, shared services, things like that to get much more efficient at running those processes. So it's a lot of work around standard old-fashioned business process redesign to enable us to take advantage of those opportunities while still trying to retain the local agility.

We have teams that are based in Europe, for example, that are doing demand forecasting and supply planning. We want them to be able to utilize the best automated tools, but still be very responsive to the local market. So we're trying to get the best of both worlds between a pure, regionally autonomous and a pure centralized growth.

Your next question comes from the line of Mig Dobre with Baird.

I'll start with a near-term question and then a longer-term follow-up. So from a near-term perspective, if I understand your comments correctly, in terms of pricing for 2026, you're not baking in any of the metal inflation that's coming through in Harris and the pricing that's reflected in the guidance is just carryover from 2025. So I guess the question is this, clearly, there is metal cost inflation in Harris. Is that is flowing through the P&L, how should we think about the impact that, that pricing element has on or margin, however you want to frame it, Gabe. And bigger picture, as we think about 2026 pricing, is there an argument to make that you will need to put through a 2026 price increase, generally speaking, not just carryover from 2025.

So Mig, I'll answer the last part of your question first is we'll take pricing actions as conditions require. Our price cost strategy is to be neutral. Currently, as we come into this new year, we have held steady on pricing actions largely. But we will be responsive to how we see any dynamics in the markets. .

In terms of Harris, we have a mechanical adder that's built into our pricing methodology. And you've seen what's happened with silver and copper, for example, obviously has an impact on the brazing side of our business. And so we don't feel that's going to have a significant impact on margins because that's all incorporated into our adder and movement in adjustments on pricing, but it has been pretty volatile. So we cannot and we'll not try to outline what silver or copper markets will do, but we do have a pricing mechanism. As you know, that's more mechanical in nature.

But the impact on EBIT or on operating income from the price, does that carry any contribution to your EBIT or not?

Yes, it's not dilutive to the overall Harris margin.

Okay. And then the longer-term question is on obviously the RISE strategy. you sound very bullish, constructive on the growth opportunity in automation. And I guess maybe all of us would agree on that. But at least, for now, the reality is that this portion of the business is dilutive from a margin standpoint. So in your targets, you're obviously aware of that and you're capturing it. But I guess my question is, how do you think about the opportunity for truly driving higher margin in this business?

Because if you are offering something that is differentiated to your customers and value-added, presumably, there's opportunity to price accordingly. And as you think about M&A, you talk about acquisitions, I guess that's a new term that I learned today. Presumably, that's geared towards the automation component of the business. Is there a way for you to do the kind of M&A that would actually be accretive to margin rather than dilutive to margin as, I guess, a previous question assumed they would be.

Yes, Mig, great question. I'll give you a basic framework as to how to think about it and then let Gabe fill in some details for you. You're right, the automation business is dilutive to the overall portfolio at the moment. And it's been particularly challenged over the last 18 months by the environment we've been in that has caused customers to be very cautious on capital spending.

We still really like the automation portfolio. We think it's a great fit for us strategically. We see that the world is only going to demand more and more automation going forward. So where the ultimate endpoint target for the margin structure of the businesses will remain to be seen, but the first step is to get it to be nondilutive. Once we get it to be nondilutive, then we can talk about how high is high from an accretive standpoint.

But the journey right now is get the business back to where it was supposed to be prior to all this disruption. Regarding technology, you're absolutely right, I mean to the degree that we can provide capabilities that don't exist in the world that are differentiated from what other vendors can supply and that solve a real customer pain point, we expect to get paid for that. And so we look at the acquisitions of things like Inrotec that bring an ability to help us create something that's new to the world, we're going to expect to get paid for that. And that portion of the business for sure should be accretive.

Yes. So let me just add a couple of points. Just keep in mind, historically, what we've done in the last 2 years, as you know, have been pressured by the capital investment cycle. But we started off 2025 at about a $400 million level of business, and we increased our business to [ $904-or-so million ] 2023 or so. When we achieved a low teens type of EBIT profile. And our target is, as you heard in my comments, is to be mid-teens.

So that's our objective. We're not -- we weren't that far away when we were talking about the $900-or-so million of business at a target of $1 billion. So we did have pressure in the last couple of years on capital investment. But we're confident that we can achieve that mid-teens type of profile, and that's what's incorporated into our 2030 model.

Your next question comes from the line of Steve Barger with KeyBanc Capital Markets.

You referenced some large project orders you won in 4Q. Is that primarily automotive? Or are you seeing some opening up in other industries? And just more broadly, does it feel like inbound calls are starting to accelerate? Or is this sales work that you did last year, which is now starting to monetize?

Yes. So the large projects we won in the fourth quarter were primarily automotive. And I think part of that is driven by just the nature of their business and the need to have product refresh on a defined cycle. What we're really looking for is greater willingness across the portfolio of customers to invest capital in the business. So whether that's heavy fab, structural steel, general fab, there's still a fair amount of caution out there.

The funnel of opportunities has probably never been better. The challenge becomes converting those high probability opportunities that we feel fairly confident we're going to eventually win can we get them over the finish line sooner rather than later. And again, that really is a customer confidence driven discussion less so than are they satisfied with our solution or us as a supplier. I don't think that's the issue. It's just are they ready -- willing and able to finally pull the trigger on releasing the capital.

Got it. And the automation strategy has obviously increased your OEM exposure and cyclicality. And you've done a great job managing margin through what's been a tough environment for the last 4 or 6 quarters. But is there a thought to balancing exposure to more products and services that show less volatility through cycles? Or is that increased volatility, just the price you pay for the direction you want to take the company?

Yes. I think about it, Steve, more as where are there problems that are pain points for customers that we can solve and get paid for solving. The recent acquisition we did in Alloy Steel is really all around providing solutions for abrasion and wear in a mining application. So if you're mining stuff with an excavator, the excavators parts are going to wear and you need some way of either replacing or refurbishing those. That's a great business for us that we picked up, very excited about that, look to continue to grow and expand that business. We look at automation opportunities the same way. How that then affects our overall cyclicality is something we'll deal with as long as we believe over the course of a cycle, we can get fairly compensated for the value we're creating.

Your next question comes from the line of Chris Dankert with Loop Capital Markets.

I guess just to circle back, fully appreciate, we don't want to get into handicapping silver and steel and copper prices in the guide here. But I guess just given the level of volatility we're halfway through the first quarter, can you give us just a sense for what that metals impact would be on 1Q as of today, not obviously the full year, but just for the first quarter?

So because I don't want to get that specific [indiscernible] tracking silver, I mean we saw a point for silver, top to $110 a troy ounce and drop back to the $80s in that. So as you're looking at the mix of our business, we've got about 40% of our business tied into HVAC, which is tied into brazing and consumables. So we do expect an escalation in average pricing, but it has been choppy. But overall, it has been on an increasing level [indiscernible], when you look at it year-over-year. You could just use that as a framework from a year-over-year perspective, but it can move, as you know.

Yes. And I guess to circle back, a bigger picture, thinking about international, any sense for kind of the planning around margin expansion there? I guess how much of that kind of 2025 to 2030 improvement is based on just volume recovery versus, say, cost actions or efficiency gains or mix? Just any way to kind of size those 2 components of the margin expansion in international?

Yes, Chris, I'll give you some color and then let Gabe fill in detail. When we think about the international business, we really want to focus our efforts and our future investments in places that have good macroeconomic conditions where we have a good value proposition and where we feel like we can win and profitably grow the business.

So we're looking at portions of the international portfolio, particularly in the Middle East, Africa, parts of Asia. Core Europe really is the open question mark. It's been a long, tough slog in Europe due to the macroeconomic conditions there. There's some talk about increased defense spending. We'll see whether that actually comes through to fruition. But our targets over the 5-year period for international really are not predicated on there being a significant recovery in Europe.

Chris, just to add a broader comment in terms of when you say volume, demand levels in general, when you look at the organic sales growth rates that we've shared by segment, we don't incorporate a significant level of pricing. Historical pricing will be between 100, 200 basis points. So that's kind of what we assume broadly. So our assumptions are largely driven by expansion in our footprint, acceleration in demand, for example, as we talked about automation. .

Steve mentioned the strength we would expect into Asia, Middle East and international. So they outlined that we've shared in terms of growth strategies is anchored on real increase in presence throughout the markets, not on pricing. Pricing will be modest.

Our last question comes from Walt Liptak with Seaport Research Capital Seaport Research Partners.

I wanted to just circle back on that January question. And you guys mentioned referenced the PMI a couple of times in January. I didn't -- it wasn't clear to me. Did you guys see a pop in January with some of your general industrial, either consumables or equipment?

Well, we would lag the -- any improvement in the PMI. So we're encouraged by the published number. And as we said before, our consumable volume has been steady, but we haven't seen an inflection in consumable volume.

So that's pretty [indiscernible], right, as we're seeing steadiness in the consumable volume level of business that ties into production levels and really want to see an escalation in capital investment.

Okay. Great. And then maybe sort of a high-level one. I wonder if there's a difference with the way that you guys went after the 2030 RISE targets versus the way that the 2025 higher standards were put in place like the business has been evolving. You have some factory consolidation and those impressive profit margin targets. You've got some impressive organic growth targets. Is there something that's kind of structurally changed? I wonder if you could just talk to the -- how Lincoln has evolved?

Yes. Well, great question. We really think about the RISE strategy is a continuation and evolution of the higher standard strategy and really trying to build upon the momentum and the progress that we've created over the last 5 years.

And again, what has been a fairly interesting, shall we say, market environment with a lot of headwinds and a lot of disruption from COVID, a few hot wars around the world, a global trade war, a fairly unpredictable trade policy emanating at the U.S. So we're hoping that we may see somewhat of a return to normalcy in the outside world, but that -- and it's -- when we say we're cautiously optimistic about the future, the caution is really around the external environment.

Our optimism is driven by what the team has been able to accomplish over the last 5 years and the opportunities that we know are in front of us that we see every day and that we're committed to addressing and making the business even stronger going forward. So I don't see it as a radical departure from the higher standard strategy.

This concludes our question-and-answer session. I'd like to turn the call back to Gabe Bruno for closing remarks.

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 our RISE strategy and the progression of our initiatives as we advance to our 2030 targets in the future. Thank you very much. .

This concludes today's conference call. You may now disconnect.

Greetings, and welcome to the Lincoln Electric 2025 Third Quarter Financial Results Conference Call. [Operator Instructions] This call is being recorded.

It's my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you, and you may begin.

Thank you, Janice, and good morning, everyone. Welcome to Lincoln Electric's Third Quarter 2025 Conference Call. We released our financial results earlier today, and you can find our release and this call slide presentation at lincolnelectric.com in the Investor Relations section.

Joining me on the call today is Steve Hedlund, our Chairman, President and Chief Executive Officer; as well as a Gabe Bruno, our Chief Financial Officer. Following our prepared remarks, we're happy to take your questions, but 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 and uncertainties, which 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, you can find on our Investor Relations website at lincolnelectric.com.

And with that, I'll turn the call over to Steve Hedlund. Steve?

Thank you, Amanda. Good morning, everyone. Turning to Slide 3. We reported solid third quarter results this morning. Sales increased 8% driven by pricing, benefits from our M&A strategy and resilient demand for short-cycle portions of our product portfolio in the Americas Welding and Harris Products Group segments. While we are still navigating a period of challenged capital spending in our automation portfolio and sluggish demand in the EMEA region, our results demonstrate the strength of our operating model. We are effectively offsetting inflation and volume headwinds through commercial and operational agility. .

We are achieving our targeted neutral price cost position and generated an incremental $8 million in permanent savings this quarter. This resulted in both higher gross profit and operating income margins a 15% increase in our adjusted earnings per share performance and record cash flow generation with 149% cash conversion.

Our strategic investments and operating model continue to compound earnings are delivering top quartile ROIC performance and are supporting a balanced capital allocation strategy that invests in long-term growth while returning cash to shareholders through the cycle.

Let's turn to Slide 4 to discuss organic sales performance in the third quarter and into October. Organic sales increased 5.6% on higher price and narrowing volume declines. Volumes reflected ongoing stabilization and the demand for our short-cycle consumables, most notably in Americas and the Harris Products Group segments as well as in our North American industrial gas distribution channel.

An encouraging area of improvement was the low single-digit percent volume growth we achieved in welding equipment in the Americas, which has shown continued momentum in October. Our automation portfolio continues to be challenged from deferred capital spending in the automotive and heavy industry sectors. In the third quarter, we generated approximately $200 million in global automation sales. This was slightly below expectations and primarily due to project timing, which will be recognized in the fourth quarter. We were encouraged by a broad increase in automation order rates in late September and through October. If this trend continues, we expect fourth quarter automation sales to be approximately 15% to 20% higher sequentially, but still below last year's sales level.

Looking at end market organic sales trend, we continue to see 3 of our 5 end markets, representing approximately 60% of revenue, achieving steady to higher organic sales growth in the quarter. While largely price driven, we did achieve volume growth across general industries, the HVAC sector and in midstream energy.

Construction infrastructure organic sales were steady in the quarter from a high single-digit percent increase in Americas, which was offset internationally. Heavy Industries organic sales trends improved on easier prior year comparisons, price and higher customer production activity in construction and agricultural equipment, which we are encouraged to see.

While automotive remained challenged due to slow capital spending, we are pleased to see consumable volume growth outpace domestic production rates in Americas. We are encouraged by the industry's latest October model launch survey that points to a reacceleration in new model launch plans through 2029. This aligns with an increase in long-cycle automation orders we closed in October. If this momentum continues, it's just an inflection to growth for auto capital spending in our business in early to mid-2026.

To summarize before passing the call to Gabe, we are in the final quarter of our 5-year higher standard 2025 strategy. Our global team has done an outstanding job over 5 very dynamic years that have spanned a global pandemic and a global trade war. I am proud that our initiatives have delivered and we are on track to achieve most of our financial and sustainability targets.

Since 2020, our strategy baseline year, our operating income margin has increased 500 basis points and has averaged 16% across that time frame, which is on target. Our earnings have more than doubled at a high teens percent annual compounded growth rate and we have generated over 165% in total shareholder returns through the third quarter. Our relentless focus on serving customers, driving innovation and continuous improvement and winning together positions the company for superior performance in the next growth cycle.

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

Thank you, Steve. Moving to Slide 5. Our third quarter sales increased 7.9% to $1.061 billion from 7.8% higher price a 1.7% benefit from acquisitions and 60 basis points from favorable foreign exchange translation. These increases were partially offset by 2.2% lower volumes. Gross profit dollars increased approximately 11% to $389 million, and gross profit margin expanded 90 basis points to 36.7%, a $2.5 million benefit from our savings actions as well as diligent cost management and operational initiatives substantially offset the impact of lower volumes and a $5 million LIFO charge in the quarter. We expect a similar LIFO trend in the fourth quarter.

SG&A expense increased 11% or approximately $21 million versus the prior year, primarily from a challenging prior year comparison due to lower employee costs. In the prior year, we had a decrease in variable costs associated with incentive compensation programs as well as an approximate $7 million adjustment to long-term performance-based incentive programs.

The year-over-year increase was partially offset by a $6 million benefit from our permanent savings actions. SG&A expense as a percent of sales was 19.5%, in line sequentially. Reported operating income increased 21%. The year-over-year increase primarily reflects special item charges in the prior year period.

Excluding special items, adjusted operating income increased approximately 9% to $185 million. Our adjusted operating income margin increased 10 basis points to 17.4%, reflecting a 19% incremental margin. We reported an effective tax rate of 26.1%, which is 250 basis points higher versus prior year, primarily from an approximate $9 million special item tax expense from the election of provisions from the 1 big beautiful [indiscernible].

This election also reduces tax payments by approximately $25 million per quarter starting in the third quarter and through the first quarter of 2026. Excluding special items, our effective tax rate was 21.1%, which was a 250 basis point improvement versus the prior year. We reported third quarter diluted earnings per share of $2.21.

On an adjusted basis, EPS increased 15% to $2.47. Our EPS results include a $0.07 benefit from share repurchases and a $0.01 unfavorable impact from foreign exchange translation.

Moving to our reportable segments on Slide 6. We Americas Welding sales increased approximately 9% driven by 9.6% higher price and a 1.4% contribution from our Vanair acquisition, which anniversaried August 1. Volume declines narrowed to approximately 2%. The increase in price reflects actions taken through the first half of the year to address rising input costs that fully matured in the third quarter.

We anticipate price levels to hold sequentially in the fourth quarter. We will continue to monitor trade policy decisions and take appropriate actions as needed. Americas Welding segment's third quarter adjusted EBIT increased 5% to $132 million. The adjusted EBIT margin declined 60 basis points to 18.2%, primarily due to the challenging prior year comparison from lower employee costs related to incentive compensation programs previously discussed and lower automation volumes.

These factors offset the benefits of diligent cost management and $4 million in permanent savings. We expect Americas welding to continue to operate in the 18% to 19% EBIT margin range for the remainder of the year.

Moving to Slide 7. The International Welding segment sales increased 1.6% and is an approximate 4% benefit from our Alloy Steel acquisition and 2% favorable foreign exchange translation were partially offset by 4% lower volumes. Volume compression narrowed in the quarter on prior year comparisons and growth pockets in Asia Pacific, including high single-digit percent growth in China.

The segment continued to navigate challenged European demand trends. Adjusted EBIT increased approximately 29% to $26 million. Margin increased 230 basis points to a more normalized rate of 11.3%, which reflects mix, seasonality and $3 million of permanent savings. We expect International Welding's margin performance to continue to operate in the 11% to 12% range for the balance of the year.

Moving to the Harris Products Group on Slide 8. Third quarter sales increased 15% with 2% higher volumes and nearly 12% higher price. Volumes reflect HVAC sector strength this year and our expanded retail channel presence. We expect softening HVAC production in the fourth quarter. Price continued to increase on metal costs and price actions taken to mitigate rising input costs. Adjusted EBIT increased approximately 28% to $28 million, and margin improved 190 basis points to a record 18.3% on volume growth, effective cost management and strategic initiatives. The Harris segment is expected to operate in the 16% to 7% range for the balance of the year due to seasonality and reduced HVAC production activity previously mentioned.

Moving to Slide 9. We generated record cash flows from operations in the quarter, aided by lower tax payments. Year-to-date cash flows have increased approximately 13% with a 119% cash conversion ratio. Average operating working capital improved 50 basis points to 18.6% versus the comparable prior year period.

Moving to Slide 10. We are executing well on our capital allocation strategy. In the quarter, we invested $136 million in growth, reflecting CapEx investments in our final investment in alloy steel. Our adjusted return on invested capital increased to 22.2%. We also returned $94 million to shareholders through a combination of our dividend and $53 million in share repurchases.

Looking ahead, we announced our 30th consecutive annual dividend payout rate increase, which is 5.3% starting early next year. We continue to expect superior shareholder returns through our strategic growth initiatives and our capital allocation strategy.

Moving to Slide 11 to discuss our operating assumptions for the year. We are maintaining our top line and margin assumptions given performance to date, order trends, effective cost management and benefits from our savings programs. We expect traditional seasonality in our sales performance as we move from the third quarter to the fourth quarter with a modest sequential improvement in our operating income margin. We are increasing our interest expense assumption to a low $50 million range due to recent borrowings for the alloy steel transaction, and we are increasing our cash conversion range to above 100% to better align with performance.

To wrap up, our manufacturing footprint and supply chain strategy have proven to be well positioned and resilient in this operating environment. Combined with diligent cost management and a focus on long-term growth, we will continue to effectively manage any headwinds and leverage opportunities to drive superior long-term value. And now I would like to turn the call over for questions.

[Operator Instructions] Your first question comes from the line of Angel Castillo from Morgan Stanley.

This is Oliver joining on for Angel this morning. I guess maybe just to start, how -- curious as to how you're seeing kind of demand trends unfold kind of the first month into the quarter. Specifically around kind of construction and infra, it sounds like that's actually gotten better just going off the slide. So any, just curious if you can share some color there.

Yes. Just in general, Oliver, as we mentioned, we saw continued strength as we wrap up the third quarter and into this fourth quarter. we've been looking to strength out of our automation business, and we're starting to see an acceleration of orders that are broad based. And so while it's still pretty early in the quarter, we're optimistic that we're seeing strength progressing in capital investment. We're seeing in our core business in Americas segment as well. We're seeing some progressive trends as we wrapped up the third quarter and into the fourth quarter. .

The last thing I'd mention in terms of order trends, and we do expect, as I mentioned in my comments, to see some compression on the HVAC part of our business from the production levels expected to soften in this fourth quarter. When we think about that, we think out about 10% to 15% of our business exposed. So while it's traditional seasonality within our Harris segment, we do expect incremental softness within the HVAC markets.

And Oliver, just to add specifically on your question about construction infrastructure. It's really a tale of 2 cities. We saw a lot of strength in the Americas Welding segment, more challenged in the international overall up and positive, which is encouraging, but again, very regionally distinct.

That's really helpful. And maybe just as a follow-up, in automation, it sounds like encouraging to see kind of that order rate pick up. And that could potentially, if it trends throughout the rest of the quarter, it sounds like revenues will be higher sequentially Curious as to like how that translates to margin just from an incremental perspective? I know there's some higher fixed costs there, but yes, just curious if you can share some color as well.

Yes. So the automation business does have a higher fixed costs, so higher incrementals and also higher decrementals, A lot of that business is a fairly long cycle projects, right? So as we take orders, particularly on the automotive side, you'll start to see the revenue and margin impact of that increased activity next year, more so than fourth quarter. There are some short-cycle portions of the business in terms of cobots and more preengineered systems. So we might see a little bit of an uptick sequentially from third quarter to fourth quarter on automation, but I think the big benefit from the renewed capital spending will come next year rather than fourth quarter.

Just to add, Oliver, when you look at short term, the mix of business within the Americas segment, as you know, 80% of our automation business is within the Americas segment. So while the incremental activity that Steve points to, we won't see realized into 2026, as we mentioned, the sequential improvement, we do expect between 15% to 20% improvement in the Q3 levels, which would provide a more improving mix in the margins within the automation segment. .

Your next question is coming from the line of Bryan Blair from Oppenheimer.

It would be great to hear a little more on how your team is thinking about cycle positioning, demand recovery and acceleration into 2026. I understand comps are relatively easy. That certainly influences optics, but the growth in consumables, that's certainly notable in the quarter. Equipment grew for the first time, I believe, since the fourth quarter of '23. So there seems to be some real underlying momentum respecting that you haven't offered 2026 guidance. Just any color on the puts and takes of the backdrop and your thoughts on the setup going into next year would be appreciated.

No, we're well positioned, as you know, as markets begin to expand. The question is when -- when we think about consumables as being a key indicator for short-cycle activity, pretty positive with all the dynamics in the market to see some positive trends there. So we're well positioned for growth, although we need to see more consistency before we have more confidence in what an expansion could look like.

On the automation equipment side, and that's where we're seeing good activity with some consistency there. We do expect to see a posture to return to growth there. So it really is about being in a position to accelerate our performance with growth and we're well positioned. We've been shaping our model, but we want to see a little bit more consistency in the order activity before we point to a more consistent growth pattern in our business.

Yes, Bryan, as we've navigated through this part of the cycle, we've tried to be very thoughtful about how we can strengthen the business for the long term. We've talked about some of the controls we put on discretionary spending and looking for structural cost savings basically by changing how we get the work done so that we can become more efficient, more productive, get the cost reductions but not compromise our ability to capture demand in an up cycle.

Understood. That's very helpful color. The broad acceleration in automation orders that that's certainly encouraging. And it's been multiple quarters of, I guess, wait and see posture from customers on that front. I'm just curious if you're hearing any consistent rationale for moving forward with what the orders now for the conversion of high levels of quoting activity to now solid order flow and mentioning that it's broad acceleration, not just auto. We know that, that's been pending and platform changeovers, et cetera, Milind eventually be investment there. Just curious, auto and other sectors is, again, there's any consistency to customer rationale for now moving forward after multiple quarters of being kind of on pause.

I would add, Bryan, just it's broad based, as we mentioned, not just automotive, although you did note that with program launches announced just in this month of October versus April is probably mid-teens overall uplift in activity. So that's pretty positive. But it is broad-based. And we believe there are a key theme of how we introduce high-quality solutions within automation capabilities we offer do differentiate ourselves. And so our quoting activity is broad and very high still and seeing the progression of more commitment to capital is a good sign.

Bryan, I'd also add that you saw [ Cats ] release yesterday, right? The heavy industry part of our portfolio starting to get more confidence in their future production rates, therefore, more willing to a that also has a trickle that effect in the general industries. And I think we're also seeing this is maybe more anecdotal because we don't necessarily track it this way. But we are starting to see some investments as companies look to reshore or nearshore production.

Your next question is coming from the line of Saree Boroditsky from Jefferies. .

Pricing has obviously been very strong in Americas. I think when you started the year, you expected some demand destruction with higher pricing. So curious if you're seeing this or if it's been more inelastic.

Yes. I'd say, Saree, our initial concern, right, was that price on volume would fully offset each other. And I think we've seen demand from a volume standpoint, be a little bit more resilient than that. So trailing the production and volume trailing, the increase in price and giving us a net increase in organics. I think what we're starting to see now is the volume not being less negative but actually starting to flip towards being positive.

Now part of that is easier comps as we started to enter the slowdown this time last year. But I think there's general optimism amongst our customer base that we're starting to see the first innings of a turn in demand.

I appreciate that color. And I know you talked a little bit about 2026 volume recovery earlier. But just curious now that we're in our second year of volume decline, you saw some momentum. How you would expect to see a recovery? Would it be kind of a recovery? Or would you see some strong growth coming out of this downturn?

Well, it's always difficult for me to predict kind of the trajectory of any expansion. But a couple of signs that I'd point to, short cycle activities, we've already talked about in consumables it begins a cycle of growth that leads into investment. So for example, when we see on our part of our business in the Americas where consumable volumes are improving on the automotive end market, that points to production, and then it leads to growth in capital investment.

When we see how the industry stabilize, and then we started to point to modest levels of activities and growth in different pockets of heavy industries, that's also a positive indicator. We saw the same thing in general industries where consumable activity turned positive. So when you see persistent consistent levels of industrial production activity, then we expect to see more accelerated capital investment. So starting to see that. We need to see a little bit more consistency there, but that does lead us into a more optimistic view of where the markets are trending.

Sure, I'd expect to see a slow build of volume growth rather than an avalanche of everything suddenly breaking lease. .

Your next question is coming from the line of Nathan Jones of Stifel.

I guess I'll start with a question on incremental margins. currently, you're looking at volume declines and price increases driving organic growth. And obviously, you don't get any operating leverage on price. Particularly, if it's offsetting increased costs, right? You get volume leverage of volume. So maybe some advice on how we should think about incremental margins as the growth is primarily driven by price as we head into maybe the first half of next year. And then that flips to maybe more volume-driven growth in the second half of next year. You talked about investments you made in throughput and being more efficient.

Maybe does that change the we should expect lower incremental margins in the short term and maybe higher than historic incremental margins as volume improved from those investments? Just any color or commentary you can give us about how we should think about incremental margins?

Yes. I would love to. When I think about our current environment, where we have high teens incremental margins and in a trajectory of what we're talking about with modest volume declines. In general, as you know, Nathan, when we see volumes approaching that mid-single digits, we're going to be in that mid-20s incremental margins. There is upside with automation. And as we continue to shape our international segment, which leads into upwards of low to mid-30s type incrementals. But you should see more accelerated incrementals as you see an acceleration of growth. Outside of that, you see more of what we've done today. So see if high teens type of incrementals in this kind of environment.

I guess my follow-up question will be on Europe. Your main competitor reported yesterday, a bit more bullish on the outlook for improved volume in Europe going into next year. maybe just any commentary on your view of any inflection in European volume growth.

Yes. Sure, Nathan. The commentary from the European governments about increasing defense spending and the like is encouraging. But at this point, it's still commentary. We're not seeing that translate into order intake for us. So I guess we would be cautiously optimistic that maybe Europe might get better, but we're not in any way counting on it. We're planning for it. .

Your next question is coming from the line of Mig Dobre from Baird.

First question, I guess 2 parts to it. So can we put a finer point maybe on the volumes that you expect in the fourth quarter in Americas? The short cycle business is improving, but apparently, automation is going to be down again year-over-year, even though maybe better sequentially. So net-net, what should we be thinking in terms of volume -- and I guess the second part of the question is in international.

If I understood correctly, the way you're thinking about margin in the fourth quarter is really not all that different than what we've seen in Q3. Now I know the business does have a little bit of seasonality typically in the fourth quarter is usually better than the third. So I'm wondering, again, what might be different this time around.

Yes. So Mig, I'll answer the international margin question first. So you're right, we do expect traditional seasonality in the fourth quarter, which is an uptick from third. And then on top of that, incremental sales from the acquisition we've made. So we mentioned operating within that 11% to 12% range. I expect us to probably be on the higher end of that range but still within that framework from an international segment standpoint.

On the Americas side, we do expect sequential, as you note, automation growth, but still probably low double digits behind the prior year as we had a record level of automation sales and margins in 2024's fourth quarter. So sequentially, I would think of the fourth quarter, as I've mentioned, to be seasonally justice, it'll be up 100, 200 basis points fourth quarter versus third quarter, all in with all the puts and takes. And we do expect improvement in the operating margin profile. I expect, as I mentioned, Americas to be in the higher end of that 18% to 19% range.

Okay. That's helpful. And then my second question, and you'll have to excuse my ignorance here on the accounting dynamics. But from a life of charges standpoint, is this something that we should be contemplating in 2026 as well? Or are we starting to lap some of these issues, and you talked a little bit about incremental margins on a volume recovery, but I do know that there are some temporary cost takeouts, which, I guess, presumably revert as volumes increase. So what I may be asking for specific guidance on 2026, just level setting expectations here for the Americas segment in particular, is how people should be thinking about incrementals?

Yes. So I would follow a more traditional incremental framework because I've mentioned in previous question, Mig. On LIFO, LIFO accounting gets reset every year. So we're pointing to the valuation of inventories and the cost related to that. So we do expect, as I mentioned in my comments, to LIFO charges in fourth quarter to follow the same trending you've had in the last couple of quarters, last year would be a credit. But I can't really speak to 2026, until we start seeing the inflationary trends and then with reset, what a LIFO accounting would look like. On temporary cost savings, that's built into our model. So as volume improves, then we'll allow for temporary costs to come back into the business. But that's all part of our incremental framework that we have as a business.

Your final question is coming from the line of Steve Barger from KeyBanc Capital Markets.

This is actually Christian Zyla on for Steve Barger. My first question is on your automation business. Kind of a long one. Last quarter, your comments implied automation to be down about mid-single digits year-over-year. Where did the underperformance come from? Maybe I missed it, was it all related to automotive CapEx? And then with your comments about October activity in answer to 1 of your earlier questions, how are you thinking about the fourth quarter now? Is it -- is stable from 2Q still a fair level? Or should we be thinking about 4Q in parts of '26 closer to 3Q level?

Yes. In terms of our sales mix, we did see the compression largely in automotive, but also in heavy industries. So you've got that mix and the strengthening we pointed to, Chris, was broad-based. We had talked about a pacing after the second quarter that was more aligned with $215 million per quarter. We were below that in the third quarter, just the timing of how we recognized the revenue. We're going to recoup that in a little bit more into the fourth quarter. So I would say we're a little bit ahead of where the pacing that we had talked about in the second quarter, but still implies a mid-single-digit decline for the full year. So -- and then that's sort of the comments in terms of order activity really come into really more of a 2026 profile business. So we're trending just a little bit better than what we had communicated at the -- after the second quarter call.

Got it. That's great color. And then last question, just on your Harris business, your ability to get pricing has been incredible. The last 6 quarters have averaged high single digits. Is this primarily demand-driven pricing? Or how would you break down the pricing ability from demand tariffs and maybe some catch up pricing? Do you think this dynamic continues into the next quarter and next year, presumably?

Yes. In general, Chris, remember, Harris has good portion of the business that's tied to commodity silver and copper, and we have a mechanical pricing model that adjusts to changes in the markets, particularly in silver and copper. So the movement in pricing is largely reflective of changes in the commodities in the broader markets. .

This concludes our question-and-answer session. I would like to turn the call back to Gabe Bruno, Chief Financial Officer, for closing remarks.

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. Thank you very much. .

Ladies and gentlemen, that concludes our call for today. Thank you all for joining. You may now disconnect.

Thanks and good morning, everyone. Thank you for joining us. My name is Angel Castillo, and I'm the U.S. machinery and construction analyst here at Morgan Stanley.

Before we get started, I just want to read a quick disclaimer. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative.

And this morning, it's my pleasure to have Gabe Bruno, EVP, CFO and Treasurer of Lincoln Electric. So thank you for being here.

Thanks for hosting, Angel. It's great to be here.

Yes. And maybe just a good place to start would be your multiyear strategy. So this year, we're kind of lapping the higher standard 2025. And I know you'll probably want to talk about it in a little bit more detail later on. But to the extent that you can provide a preview or kind of set the stage for how you're thinking about the next few years with margins already kind of in the high teens, that is above what you had kind of laid out in your original plan? And just how you kind of expect to perhaps focus more on consumables or equipment mix versus automation, inorganic, et cetera? Just would love to start there.

All right. Well, thank you, Angel, again. When we think about our strategy, when we announced 2030 kind of key themes, first part of 2026, but the foundational building blocks are already established. So when we think about growth, think about leading with innovation in our 2025 higher standard strategy, our objective is to achieve high single-digit, low double-digit type growth. Fundamental drivers are leading with technology, innovation. We'll continue to drive accelerated growth through automation. And you've seen the continued investment and shaping of our business model there.

And then acquisitions become an important part of our growth agenda, which again, 300 to 400 basis points of -- type of growth. So foundationally, those elements aren't changing, right? And we'll look for opportunities and adjacencies maybe to accelerate growth, but leading with technology, accelerating our position in the market, automation, acquisitions. I think about margins, you go way back in time, we like to share a slide in our investor deck that shows the shaping of our operating model over a 20-year period. And for each cycle, we've expanded our operating margins by 200 basis points. And you point to like in the current strategy period, and we've been exceeding the last few years the average operating profit that's based in our model. So while our average is 16% in the strategy period, we've been in excess of 17% now for now pushing 3 years.

So we'll reset kind of how we think about the shaping of the next strategy period, but you can expect continued improvements in the operating model. If you just look historically, a 200 basis point type of an expansion in our operating model, it's probably a pretty reasonable place to be to start. And then we think about fundamentals of cash and capital allocation, ROIC, how we're deploying capital. When you think about growth and investing in acquisitions and that you've got core welding as well as automation. So on the core welding side, we just announced an acquisition in August that was core welding. Then we had one last year core welding. So you have a nice mix between automation types of opportunities as well as core welding.

So that's kind of how we think about it, very much balanced across all of our business, but fundamentals of cash management, cash conversion, ROIC are all part of the structure we have in our business. You can expect those kind of things to continue into 2030 strategy.

That's very helpful. And as you think about it, I think this kind of leads us into a topic that's been probably the biggest area of debate, right, just in terms of what the implications are of tariffs now we had the expanded Section 232. You still have an outlook for the year of price/cost neutral. So as you think about both this year and kind of the longer-term ability to hit 200 basis point expansion, how is that kind of expectation being impacted by tariffs near term and just your overall strategy?

Well, our overall strategy is to be price/cost neutral. So we've got to be agile and responsive to the cost dynamics we see in our business. This is not a new thing for us. It's now in a different shape or size with tariffs, but the fundamentals are there, and we have to be very disciplined about understanding the changes in our cost structure and how we respond with our pricing strategy.

Back to the strategic question. When you think about how we've performed in this 2025 strategy period, you start off with COVID in 2020, where the 2025 season has been covered with a lot of tariffs and administrative policy type discussion. So when you look at how we performed, organic actually is within the range, a little bit more pricing than volume, but all within the range. And that's how we think about it. We think about long term, we think about being very disciplined in protecting our model and understanding the fundamental cost challenges we have and putting in place pricing where needed to be able to protect our model. And but keep on thinking about long term, what are the drivers for incremental growth across the end markets and geographies that we serve.

And maybe just specifically to the expanded Section 232, I guess, any kind of ability to quantify the incremental impact of that? And how are you, I guess, already rolling through prices for that? Or how's kind of the strategy on that?

Yes. No, we're still evaluating the impact of just what's been announced over the last couple of weeks. And once we quantify it, then we'll put in place pricing actions to be able to do with the same fundamental discipline of price/cost neutral.

Got it. And I do want to remind the audience, I guess, if anybody has any questions, feel free to raise your hand and we can get a mic to you.

But maybe just sticking with the Americas for a little bit. One of the things that I guess has been a little bit surprising is you had talked about, I think, at the beginning of the year, an expectation for perhaps some elasticity from the customer to the price increases, which you really haven't seen as much. It seems like you've been able to flow that through and still see pretty decent volumes. So can you just update us on maybe how that's progressing, how your order intakes have been kind of flowing versus your quoting activity and just still...

We've been -- so we're seeing more resilience, generally speaking, in actual volumes. And we saw that continuing into the July time frame. And so we continue to see it today. It's just more steadiness in activity, not significant increases or any cliffing going on in our business, but in general, just stability. You're right, we did anticipate. We planned for. When you think about operating assumptions there, they're the assumptions that we were framing how we are addressing our short-term business operations. And so we were planning for to be ready that if volumes are impacted by pricing actions that we're ready for that. And that was the basis for our assumptions going into the second quarter.

And as you point out, we held the volumes were more resilient, more so on the consumable side of our business. So when you think about the consumables portion, which is about a little over half of our business is consumables, that is a function of factory activity, industrial production trends. So when you see more of a steadiness in that, that's actually more positive for us. When you look at overall industrial production activity being slightly up, and that's what you're seeing in our consumables. It's -- the consumable numbers are higher than that because of pricing in general. But the steadiness is important for us because that gives an inflection point on if we do see real growth, we're very well positioned to participate in the growth trajectory.

And just wanted to clarify, I guess, so the steadiness that you were seeing in July, you're seeing that continue into August.

We see that's the current atmosphere in our operations.

Great. And maybe could we drill a little bit into kind of the specific end markets. I think you had mentioned a little bit on kind of the ag and the construction side. But if we could drill into kind of the various end markets, particularly within the Americas and how -- are those all kind of holding in that steadiness? Or are there some puts and takes?

Yes. No, they're different. As you point out, heavy industries has been challenged for the last now over 1.5 years or so. And we continue to see pressure on the heavy industry side. You're tracking things like the destocking going on in ag, for example, that has an impact on our heavy industry. So we don't see that inflecting to growth until sometime in 2026. I can't tell you when, but that's kind of how we see things, seeing good progress, destocking, but we just don't see growth there. And that's heavy industries, which is almost 20% of our business.

So when you move from heavy industries into general industries, you saw we were up second quarter, high single digits and there's some pricing within that, but that comes back to our dialogue on what's consumable activity? Is it steady? What are you seeing in the sentiment, PMI? And what are you seeing in actual production. So it's -- we were up and some of the drivers we're hopeful are going to turn more -- at least steady to more positive as we progress in the next 12 months or so.

Automotive actually has held up a little better than anticipated. You see the retail sales actually are stronger. And for us, it's understanding in automotive, the difference between what's happening in factory production, which is same conversations on consumables. And the production levels on the automotive side is going to drive more consumable activity. And then the second part of that is investment. So you think about automation, 80% of our automation business is tied to our Americas. When you see deferral decision-making on the capital side, that's where you're seeing the impact on volumes, both standard equipment as well as automation while consumables is holding up. So that's kind of an automotive dynamic.

Energy, we're more bullish on energy. When you see potential investment progressing in oil and gas, particularly midstream, which is about half of our -- a little more than half of our oil and gas concentration, that's pipe mill, that's pipeline activity. That's positive. We're positive in the second quarter. We expect that to continue. So good momentum there. And that's just invested in the Americas, but you also have that dynamic in Middle East and Southeast Asia as well. So energy is positive. So that's kind of the key end markets that give you some perspective there.

That's very helpful. And I guess maybe just to go back quickly to the price/cost before I forget. I wanted to ask, so your LIFO accounting. What is the implications of that ultimately, I guess, in terms of your business and again, the speed at which you can flow through some of these tariffs and the speed at which you actually see them versus others while you also maybe have the offset of having more distribution?

Yes. So not many companies, I guess, still account for their inventories, particularly in the U.S. on a LIFO basis, but I am getting the question more often from investors because we're talking about the impact of cost more immediately than going through a turn. So our team is very sensitive to understanding that the pricing actions need to take effect now because of the cost implications that are having an impact on our business now. We don't have the turn to be able to respond to that. So you saw in the second quarter, we had an accelerated charge, we call it LIFO charge, which all that means is that we are -- the cost impact of selling the current inventory first reflects a higher cost that's within the LIFO charge.

So you saw for the half, we're at $10 million, most of that accelerated into the second quarter. That's what's built into our assumptions for the year. So our team is very disciplined in understanding pricing inherently, but then also what's the impact on inventory. And so we don't have much time to react being on LIFO accounting. So we're very disciplined about understanding that in our model.

And maybe from the pricing perspective, to your point, understanding kind of the urgency to pass that through, can you talk about what you're seeing in your distribution channel versus on your OE side?

Yes. So think about the first half of the year, and we put 5 price increases in place. And we're very sensitive to be working with our channel partners to respond in a very disciplined way and give them as much notice as possible to be able -- so that they can react to also the pricing challenges that they have. So we're very sensitive to that, and we do our best to accommodate our pricing actions to the needs of our customers. OEMs, so 60% of our business is sold through industrial distributors who are also very disciplined in managing their own models and pricing. The OEM conversation becomes a little bit more challenged from time to time, but it is working with our customers for them to understand the dynamics we're operating with and being sensitive to how we need to respond.

Got it. And I guess, yes, in this environment, are you seeing the, I guess, the pressure or the pushback from OEMs change? Or are they -- I mean, it's always I'm sure a tough negotiation, but just are you seeing that evolve at all?

There's nothing different in our discussions. Pricing is always a challenging conversation at any level, but nothing fundamentally has changed in how we approach the markets.

Got it. And then maybe sticking to that kind of price/cost, one last thing. Just in terms of cost management, can you just talk about some initiatives there and what you can do on that side in terms of additional opportunities to mitigate some of these headwinds both near term and into '26?

Yes. So I cover that first from a supply standpoint. I mean our teams are actively looking for alternatives in the supplier base. Think about steel, for example, we've talked about the source of steel being largely up north. And so the development of key U.S. suppliers are important for us. That's a pretty active part of how we look at the markets. And that's just not on steel. That's on other components where incremental cost tariffs and that has a real impact to our business model. So we're doing things to try to soften that impact.

On a more longer-term perspective on costs, we're challenging our operating model. You've heard us talk about permanent cost savings in the second half of the year being between $10 million and $15 million. That's all about how do we shape our business model for the long term. So that's a key theme. You've seen that throughout our business, just a continued emphasis on how do we shape and improve how we operate. And that's part of my original comments of what are things we're doing to improve the margin profile of our business. And takes a lot of work to continue to shape 200 basis points plus on each cycle. And so our teams are very much sensitive to needing to operate in that manner.

Yes. No, that makes a lot of sense. And on the steel sourcing side, I guess, that's an area I kind of understand to be challenging in order to get the kind of quality or the specific type of steel that you need sourced in the U.S. I guess, could you maybe elaborate a little bit more on what the potential magnitude of the steel sourcing?

When you look at welding grade broad capacity versus the other flat long, it's not the top of a steel manufacturers agenda. But we do have opportunities to kind of work through that. So we're hopeful, call it the next 6, 12 months that we will have a couple of suppliers that we can work with. But it's an ongoing work of our team.

Yes. No, that's helpful. And then maybe one last one on the Americas side. You mentioned automotive has kind of held in better than you kind of anticipated. One, could you elaborate on that, but also on the automation side of the autos, I recall, I guess, the last 6 months or so or a little bit more, you've been talking about maybe orders or how quickly things are turning from quoting to orders remaining a little bit more of kind of a wait and see at the customer level. I guess, how are you seeing that evolve as autos has held in better, are you seeing any kind of more on the automation side also move forward?

Yes. No, we've seen more of the same on the automation side. Typically, you would see -- think about automotive in the back half of the year with the seasonality, which generally leads to an uptick in the second half of the year, just the staging of project completions of that. We haven't seen that level of activity that would play out to a seasonally higher level of sales in the back half than you would see in the first half. So our tone has been more of a flattish trend. The implications of that is that we're down for the year in automation by mid-single digit for the full year. So you're seeing a steadiness of almost like a run rate $250 million a quarter, seeing more of the same.

Now for automotive, on the capital side, we are very interested in seeing how the new program launches for 2027 and 2028 play out on long lead time items. In every April and October, the industry publishes kind of its reset on program launches. So in October is the next kind of reset in communication from an industry standpoint. And so we're hopeful that, that would lead into more longer lead time capital investment on the automotive side. But we haven't seen anything to date, high-level quoting activity that gives us perspective that the orders and ultimately, the revenue recognized will be any different than what we've seen first half of the year.

And are customers telling you anything in particular as they maybe hold off on that quote turning into an order as to what it is? Is it just macro uncertainty? Is it interest rates? Anything notable?

I think it's an overall just confidence in kind of where we are in the economic cycle. So much, as you know, on the administrative side of things and policy-wise, just kind of wait a little bit, wait and see kind of how that plays out. As I mentioned, quoting activity is very high. We do think it's just a matter of timing because the value proposition we're presenting with productivity and efficiencies and facilities and introducing automation, very much sound.

The way we track our quotes is we assess the probability of this becoming an order in the next -- in this month and the next and the very high level probabilities. The dynamic we've seen though is that every month that's been pushed out another month. And it's been going on all year. So that has translated into a relatively steady level of business activity, but not the incremental volumes that we would otherwise expect from a quoting standpoint.

Got it. No, that's very helpful. And maybe just switching over to the International market, if no one has any questions on kind of the Americas here. I guess just -- this is an area where I think of the International -- your International business as being more competitive and perhaps a little bit more difficult to pass through pricing, you actually had still 40 basis points of positive price in that market. So I was wondering if you could kind of talk about both your strategy in the International market as well as just kind of the execution and what's driving perhaps some of the flattish to more positive pricing in International as well.

Yes. So pricing, when I see flattish, that's just kind of holding position, right? So that's what it is. But when you think about International long term, taking a business and I think about what it was in 2015, mid-single-digit type business. We acquired a business in 2017, the great 2018, '19, kind of drove the margins down because it was pretty much 0 margin type business. So we come into the strategy period into kind of again the low mid-single digits EBIT, but we more than doubled that. And we had a target that we established at the beginning of the strategy period to be between 12%, 14% EBIT.

And with some volumes, we believe we're there. But we're tracking a little less than that for the first half of 2025, we're at 11.5% in the EBIT margins for International. And so what does that mean for us is that we need to continue shaping the operating model. We're excited about markets like the Middle East and Southeast Asia. We bought a business in Australia in August that's going to give us the ability to leverage its capabilities in other parts of the world. Europe is -- continues to be, call it, a challenging environment. We're hopeful, though, that more investment on the industrial markets in Western Europe, Northern Europe as well as maybe defense does contribute to more industrial activity.

But in the meanwhile, until we see some real volumes, we're going to continue shaping our business model. And we do believe that with some volumes, we'll be in the higher end of that range, but that's kind of where our posture is on the International side.

That's very helpful. And maybe just kind of honing in on the Europe side. You mentioned it remains challenging. I guess could you talk about that from the competitive landscape? Like how are you seeing the competitive behavior in terms of discipline? Because you've been holding steady in an environment that's a little bit more challenging, I think it seems like a positive.

Yes. No, we're #2 player in Europe. Competitive environment is you get a lot more fragmentation for sure. I mean the big player there and then we're #2. So I can't point to anything materially different competitively, but it is more fragmented. Structurally, it's more challenging to maneuver in the operating model, but nothing else pretty to note there.

And maybe just in terms of maybe kind of a preview of 2026. You mentioned some optimism, I guess, on Middle East, Southeast Asia, again, maybe some for infrastructure. First, I guess, are you -- is that to mean you're not necessarily seeing any step change yet from infrastructure kind of spending in Europe? And second of all, how do you kind of see that as you think about 2026 or potential for improvement?

Yes. No, we haven't seen anything that gives us in the short term any confidence that we're going to go into a growth cycle here on the industrial side. But we're hopeful in Europe. So we're -- our posture is to be able to participate and grow and get our fair share of activity in the European markets. We just haven't seen that yet.

And then maybe switching over to Harris. I think you had -- I guess, you had this onetime kind of retail sell-in in last quarter, I guess, for Harris. Can you talk about just what normalized kind of pull-through of demand that perhaps Tractor Supply in our partnership potentially gives you?

Yes. No, we were very excited. I think it's very public that Tractor Supply has moved to Lincoln as a supplier for the welding industry. So we're pretty excited about that. I estimate about 2/3 of the growth volume in Harris in Q2 was driven by this new customer of ours, of which included stocking -- initial stocking requirements there. Normalized level of business there is probably somewhere half of that. So it's in the range there. We'll have probably a little bit more stocking into Q3, and then it will be -- it will normalize. But we're pretty excited about retail position in Harris and continues to grow.

And maybe just given the differences in the distribution channel for Harris, I guess, perhaps being a little bit closer to the consumer in a way. I guess, could you just talk about what this kind of tells you about the broader economy, the health of the macro as you see it out there?

Yes. The biggest difference in the Harris side is the retail positioning, the consumer end of things. And if you take outside of the Tractor Supply business in Q2, we're probably more flattish type of environment, which is more in line to what we're seeing across industrial distribution, frankly, the tone that we're sharing across in general, just more of a stability, flattish, some challenge there. But consumer activity, if you just use the proxies of kind of the Home Depot, those types of reports, kind of a framework for us.

Got it. And then maybe just a little bit on kind of the capital allocation side. Just between Americas, International and kind of Harris, I guess, where do you see yourself wanting to be more or less or bigger in kind of the next few years? And just kind of which product lines, geographies and markets you might be looking to allocate more capital to? You mentioned some of the inorganic side and automation is still an interest, but just more broadly would be helpful.

Yes. So, you know that we've been leaning on capital investment, internal capital investment, doubling it over the last 5 years plus. So it's really broad-based. When we think about capital allocation, our first priority is growth. And our highest returning investments are all the internal investments we do. So this is why it's important for us to make sure we've got capital resources assigned for new products, capacity, operating capabilities in our business. And that's across all of our businesses. So that's a pretty active level of capital allocation. Then we mentioned acquisitions. While I would call it, we've had individually more transactions on the automation side.

We think about a TAM in that space of $35 billion. So in total, we talked -- if you look at M&A comments within our investor deck, $60 billion type TAM, of which $35 billion in the automation space, $25 billion kind of core welding, we estimate. So it just tells you that we'll probably have on average a little bit more transactional -- transactions around the automation space, but very much balanced and looking at across the markets. And the reason is because of the level of fragmentation. In core welding outside of some of the top 3 players and some of the regional players, very fragmented market, and we'll continue to navigate opportunities there. On the automation side, it's just a lot of fragmentation. So we'll be allocating capital first to drive internal growth investment and also for inorganic type growth, but it's not anchored on one particular segment or not.

And it's just the general level of kind of macro uncertainty impacting either the timing of some of these investments or the kind of attractiveness of any of these. And I'm just wondering, even from a kind of an interest rate perspective, like are there reasons to perhaps wait for more cuts? Are there reasons to move faster because of the opportunities that they might be affording now? I guess just if you could talk about in that context.

It hasn't had an impact on how we think about capital allocation. I mean we're looking at it long term, and we're not pulling back on internal investment, very active. Same thing on acquisitions. We're looking to what strategically fits, how we can create incremental value and how do the synergies of the business case line up within our 3-year framework. And so those are the drivers in our decision-making, less about interest rates and the cost of capital.

Yes. No, that makes sense. And then maybe just last one kind of on the capital allocation side. So you recently had the Alloy deal announcement. Just curious how the full kind of integration of that or just the acquisition of this kind of stake has gone, I guess, any incremental or potential kind of cross-selling or just other opportunities that this affords you in the business?

Yes. So we're really excited about the potential for the business. So -- and we had acquired 35% of the business back in April. So we had already been pretty deep in some of the integration work. So the integration is going very well. The teams are in place and thinking about how do we scale capabilities in a business that is tied to mining and repair and it has a unique positioning that leverages core technology that we're already in. So it's an adjacency that aligns up to a lot of the work we do today. So it works nicely.

And so we think that this is an opportunity for us in the Americas and other parts of the world to deploy what's called wear plate type technologies or hard-facing technologies that are used in the heavy industry type of markets that provide strong maintenance and repair capabilities. So we think it's a great opportunity for us to now deploy that same technology around the globe.

And we've talked about the deployment perhaps organic and inorganic. Can you maybe talk about the shareholder side or the shareholder return side? So I think you had a target of $300 million to $400 million of buybacks this year. You've already done $230 million as of 2Q. Just if you could kind of expand on that, maybe the cadence for the rest of the year, the attractiveness of repurchasing more shares at this level?

Yes. So we think strategically in returning cash to shareholders versus the dividend. And for 29 years in a row, we increased our dividend rate, and we'll go through a policy in our October meeting with our Board. And then in terms of share repurchases, first, we want to cover maintenance. So we want to make sure we're covering the dilution impact of any employee programs. And then we're opportunistic in looking at excess strategic cash. And so this is the reason why we decided to provide an expanded framework in Q2. You mentioned that we're over the $200 million already for the half. But that's kind of the range that we're kind of set for this year. And so we'll be steady and looking at the level of share repurchases within that range.

Yes. Got it. And I just want to check any questions from the audience? Remember, raise your hand if you have anything. If not, just wanted to go back to automation a little bit.

I think we talked about, obviously, some of the challenges right now. But also wanted, I guess, on 2 sides of that, right? On the near term, the potential impact from higher fixed costs of this business of at $250 million versus perhaps the ramp-up and potential kind of longer term, if you could kind of just remind us again the structural margin that you see that business ultimately attaining? And can that just be achieved organically? Or do you need some inorganic help?

Yes. So you know that our target is for the automation business is to be at the corporate average operating margin, think about the EBIT margin of the business. And we haven't achieved that yet. So if you look at 2024 as a proxy, our sales were $911 million, and we were a low teens type of EBIT. So our target is to be at the corporate average. We still have about 300 or so basis points of margin improvement, of which half of it you said is going to be driven by volume improvements or increases and then you have continued shaping of our model. So as we've integrated acquisitions, as we've incorporated the businesses into our Lincoln Business System, those are avenues for us to continue shaping our model.

So we have a clear line of sight to be able to achieve our corporate average margin while we're navigating kind of the markets currently. We started off the strategy period targeting $1 billion in revenue in automation. And as I mentioned, $911 million last year. I mentioned that just based on the level of activity, we're probably going to be down mid-single digits. So our business model is in place to be able to meet and exceed the objectives of $1 billion plus. And so you'll see an improvement in our margin profile as we achieve that as you start to see quoting activity become real orders and then we recognize the revenue, a large part of it over time. We'll be right on top of meeting not only the sales objectives but getting closer to the margin as well.

And maybe just going back to kind of the original question around your next 5 years and longer term. So that $1 billion mark was kind of, again, was set for kind of the 2025 time frame and $900 million, even down a little bit from there, still pretty darn close to that. I guess as you think about the next 5 years, do you see that growing exponentially both inorganically as you go and get that recovery?

Think about it -- so I'll give you the history first. So in 2020, our automation business was $400 million. We targeted $1 billion. Our model is essentially there, right? So accelerated growth on the organic side and a very fragmented kind of market on the inorganic side, and we'll continue to push both avenues in terms of our business model. So you see the top line growth more accelerated than core welding and then you'll see continued expansion in the margin profile.

Got it. No, that's very helpful. And then one last one I had, just in terms of maybe going back to Americas and a little bit of the core. How do -- what does the -- I guess, the cadence of consumables versus equipment deliveries in your business tell you about the market or the opportunity either down the line of growth and just your overall kind of establishing and stickiness with the business?

Yes. No, it's pretty important for us. Consumables, again, is a function of what factory activity is, what production levels are. Industrial production trends are a good barometer of that. When you start seeing more growth, not just steadiness, but more growth, that typically would lead into an investment cycle. And we look at standard equipment, standard welding equipment separate from the automation side. So you should see more investment -- capital investment on the equipment side with steady and improving trends on the consumable side.

Automation is a little bit different. You're going to have more of the confidence on investing in capital and plants and productivity and efficiencies. And again, for us, it's just a matter of timing now in the broader market, the confidence to start accelerating investment there. So for us, it's timing.

Perfect. All right. Well, I think that brings us to the end of the time. Thank you so much, Gabe. Appreciate it.

Thank you, Angel. Nice talking to you.

Of course. Thank you.

Good morning. My name is Saree Boroditsky. I cover multi-industrials here at Jefferies. We're really excited to have Lincoln Electric, CFO. Gabe Bruno with us today.

Lincoln is a global leader in welding that's coming off a strong margin performance quarter despite operating in a very dynamic environment. Over the long term, we expect the company to compound earnings through its strong position in automation and capital deployment strategies. So thank you for joining us today.

Well, thank you for having us. Saree. It'd great to have Jefferies host us and talk about our business.

So it's a fireside chat format. So if you do have any questions, please feel free to raise your hands. And otherwise, we'll just jump into it. So maybe we'll just start with the current environment. On the last earnings call, you continue to see customers defer capital spending and maintain this kind of wait-and-see approach. Has this changed at all as customers digest this 1 big beautiful bill, maybe Section 232 tariffs now? So what are customers waiting for to execute on some of these projects?

Well, just to give you a broad perspective on the environment, we kind of paint a picture of the active current production cycle versus the capital investment cycle. And we went into the second quarter knowing that there's just a lot of uncertainty.

Our posture is to protect our business model with our pricing strategy to be price cost neutral. And so we entered the second quarter considering a volume potential compression that would offset pricing. We didn't see that. We saw resilience, particularly in our North American markets. As well as in our consumable part of our business, which is a key indicator of what you see in the production cycle. So we're pretty positive with that. There is a bit of a wait-and-see sentiment, when you're thinking about capital investment that has impacted both our automation offering as well as standard equipment, and that hasn't changed.

So we saw resilience in overall -- in our overall business, but deferral kind of a flattening level of business within our automation business. So it's very active in terms of quoting, but not so much in terms of pulling that to orders. In terms of the Big beautiful bill, we do see potentially some acceleration of investment, particularly with small and midsized fabricators that may take advantage of accelerated depreciation. It's too soon to tell. Typically, that would come into play around the fourth quarter, but we haven't considered that within our overall operating assumption. So the tone in the current environment is stability and some resilience, particularly in consumables as well as North America.

And then I had to add in this question after yesterday, I think the big topic on people's minds was Section 232 tariffs. So obviously, that's kind of broadened the coverage. Can you just quantify like how you're thinking about it from a pricing or supply chain perspective?

Yes. So I think what's important to know is what our posture is. And our posture is we'll navigate the uncertainty. We'll quantify the impacts to our business and then we're going to take action on pricing to mandate a price cost neutral a posture. We have been very active in looking at alternative suppliers in the U.S. for where is -- where we've seen the specific optionality and sourcing, but that will continue to be a pretty key for us.

Our team in this latest round of actions and administration, there's a little bit more of a challenge in getting it through the bill of materials and understand the component impacts to that. But once we quantify, we'll respond as we always have with the price cost neutral posture.

Keeping the supply chain guys and girls busy. Heavy industries is 1 area that you've stressed is operating in a weaker environment this year. I think you've expected it to prove into next year. So just maybe kind of frame expectations and how far will a mid-cycle are you in that?

Yes. So when we think about heavy industries, we've been navigating a compressed environment, particularly with the destocking dynamics going on within ag and heavy industries. So our best view when you go back to peak 2019-ish time frame and with the compression we've seen, we're probably down mid-teens in terms of volumes.

We do, as you would expect, have easier comps progressively in the second half of the year. But we don't point to any expectation of growth into sometime in 2026. So that's going to be 1 of those end markets, which represents about 19% of our business. They're going to be somewhat of a challenge. Now within that, we do have some optimism around construction, mining that could offset that. But in general, we don't look to growth into 2026.

Maybe 1 more specific end market. You've talked about energy being strong domestically and internationally. Maybe just the key drivers there and the visibility to growth over the next few years.

Yes. So we're bullish on energy, and that's not short term but long term as well on both the U.S. as well as in international markets. When we think about projects and energy driven by oil and gas. About 2/3 of our energy, we estimate position is in oil and gas, and we've seen some really good activity in pipe mill and pipeline activity, which would be in the midstream components of oil and gas, which is more than half of oil and gas for us.

We also are pretty active in Powergen and you have different projects to really drive it in Southeast Asia and Middle East. And so we're pretty excited about what energy plays out for the foreseeable future. So good momentum, where we were growing in the second quarter. We'll continue to expect that for the balance of the year.

You mentioned a little bit earlier about the consumables, [ heat-reflecting ] factory activity what does this tell you about underlying demand versus the willingness to invest in equipment right now?

Yes. So what it's telling you is that customers are buying what they need for production because consumables is a function of production. When we think about some of the key underlying macros that we track are aligned to production or PMI. That's a measure of sentiment, and you saw that -- the PMI just released saw a little bit of strength in new orders. So while still contracting, particularly in the U.S., you're seeing some components that could be more optimistic.

But the other measure that's important, which is reflective in our business is actual industrial production. Being it's been kind of flattish. It was up maybe just over 100 basis points from the July period. But that's kind of what we've seen in our business. So when you see in a consumable activity, it's essentially flattish on volumes. It's an indication of what our production levels across the various markets. So it's a pretty important indicator for us, does provide a framework on what our customers' needs are currently.

When you point to growth, which we haven't seen, generally, it's been flattish. You see consistent growth that would also lead into further capital investment. And that would yield into growth into standard equipment, into even automation and other drivers for us. So consumables is a pretty important product reference, which is more than half of our business, 52% of our business is consumables.

One of the things, I often hear is kind of consumables is kind of more generic. Could you just kind of talk about what differentiates your consumables business?

High-quality consistency when you're dealing with an automation offering, you want to have a kind of bulk packaging that doesn't tangle. So you want to drive productivity, efficiency. And so we're -- our products are differentiated for its quality.

On the automation side, if you're investing in millions and an automation line that's anchored on welding capabilities. You don't want tangling, you don't want to invest and/or procured consumable products that are going to cause some productivity issues on the line. So that's what differentiates us.

Well, you brought up the automation angle. So I believe 1 of the benefits of automation was that it increases customer loyalty and like the stickiness of consumables. So just how do you see that play out? And what percentage of automation customers use Lincoln consumables?

So we shared some figures recently. So what's not captured in how we communicate automation sales are the consumables sales that we sell into robotic applications. And we estimate that to be about $300 million last year. So you think about 15% of our consumables are anchored around supply and robotic applications.

And we have substantially all of the business there because again, you have customers that are making large-scale investments and they need to be able to have consistency and the quality of the products being used from a consumable standpoint. So our team would tell you substantially all of the businesses, our business. So very sticky, very much aligned to the value proposition of the automation within the welding fabrication part of our business, 55% of our automation offering is tied to welding fabrication. So it's a very sticky part of our business.

The original guidance called for lower volumes basically to completely offset the higher prices, but obviously, volumes were not as impacted as feared. Was the original guidance just overly conservative? Or have you seen customers in certain segments respond differently than you would have thought?

Well, for sure, there is some conservatism there because as we think about our operating assumptions and how we communicate them, they're really a posture of how we're looking at our business. And our posture was to -- to protect our model with pricing actions, knowing there's a lot of uncertainty on what a response would look like in volumes or what the markets in general would respond to the tariffs and the dynamics there. But as [ Vittoria ] just talked about it, it was pretty resilient from a volume activity.

So when you look at some of the key markets, automotive has held up better. So you've seen the latest on SARS. We track production, SARS on the sales side, but also production levels on the automotive side as well as inventory levels. So that's pretty key for us. And so production seems to have held up a little better than we would have anticipated. Distribution. Industrial distribution in general has been held holding its own, too. So we look at that channel is about 60% of our business and the strength there. So it was very good as well.

And I'll just pause and see, if there's any questions from the audience. Okay. Thinking about conservatism. The current guidance assumes automation stays stable through the year, which I think implies a decline for the full year. That says, you kind of talked about steady order rates and elevated Quotium activity. So what do you need to see for those quotes to turn into orders to actually hit this year? And could we see a positive surprise?

Well, we're running out of time this year, hitting September to see some meaningful change in order activity, but have an impact on our current assumptions. Flattish implies -- and we were essentially almost spot on $215 per quarter for the first half. We see more of the same for the second half. And so, while that appears to be steady, we had a pretty strong fourth quarter last year.

If you remember, automation business peaked at $270 million of sales in the fourth quarter. So we don't see that for this year. That's built into the operating assumptions. We need to see real conviction on the quoting activity, which is still very strong and very broad-based. And when we think about broad-based end marks, we're talking about automotive, heavy industry, general industry type opportunities, but just haven't seen that translate into a meaningful incremental orders that would change our posture within our operating assumptions.

We're still pretty excited about what we see. And just for us, it's just a matter of timing I mean our win rates are improving over time. So we're pretty well positioned to drive the kind of posture we would expect on our automation business, but we're just kind of seeing -- we haven't seen it yet. But we do think it's a function of time.

Automation sales are skewed obviously to Americas and to auto markets. How do you think about diversifying this business either geographically or by end market? And does this require additional investment or acquisitions that you're thinking about?

So for sure, we look at acquisitions as part of our growth start there. So when you think about what we've done within our automation model is we've increased from $400 million in 2022, we're right on top of the $1 billion target. We get some mix of 1 capital orders are accelerating. But our growth trajectory is by organic and inorganic growth. So we continue to see opportunities on the acquisition side, both in the U.S. and outside the U.S.

And outside the U.S., when we acquired Fori couple of years ago, that allowed us to give us a nice footprint to continue to mature our positioning in India, in China, South Korea and Europe, and we'll continue to do that. Our largest component, as you mentioned, is in North America, 80% of our automation businesses in the Americas, but we're continuing to look at geographically, our ability to do acquisition or maybe specialized automation business as we've done in the past and continue to broaden out the footprint through acquisitions in North America.

And then when you think about end markets, our posture has tilted a little heavier on the automotive side, since our acquisition of Fori. But we were before that acquisition, a third split between general industry, heavy industry and automotive and with a very much intent of presenting solutions into the markets that would accelerate adoption.

So while the automotive industry has been a leader in automation, heavy industry has also been pretty deep and then look into small midsized fabricators to also adapt welding technology. And so we've broadened out our product offering. We got on the -- on the, say, lower end in terms of value proposition is $100,000 or so on the coal bonds and you've got hundreds of thousands for pre-engineered robotic cells. That ties into the small, midsized fabricators nicely, who are more recently into the adoption of automation technology. So I see that as a way to broaden our footprint and to continue to present solutions that would accelerate adoption.

I just want to circle back to your prior comment on the high quoting activity. Are you seeing customers quote like different locations, different countries, or is it just trying to like scenario plan? Or are all of these kind of like fixed ideas?

No, they're really -- the way we measure our quoting activity is our team is engaging with our customers, and then they're assessing a probability of that level of order. So you get into deep design and quoting, so as we're defining that, they're not just superficial quotes. They're deep engineered designs that are part of how we present our value proposition to our customers.

So these are largely quotes that our team has assessed with the 90-plus percent probability in this month. And so what we've seen is that level of confidence slip from 1 month to the next to the next to the next. So we have confidence in the quality of the portfolio of quoting activity, but just it hasn't been pulled into actual orders. And we've seen that throughout the year. Just pulling back the months quote to order.

Yes. I thought at this conference, maybe we could talk about things getting a little better with more certainty with the big beautiful bill and maybe tariffs, but now we have this new, are you -- has this impacted anything like people still pretty uncertain or people...

I would say it's more of the same. So since we announced in July, it's more the same resilience, seen some steadiness in actual production and order patterns, but I haven't seen an acceleration.

Well I think 1 of the positive surprises has been margin performance, maybe as always. But automation is inherently more fixed cost, but the margins have held up there, I think, maybe better than expected. How have you managed to protect the margins this year despite the weaker top line? Has there been any cost adjustments? And what does this imply for incremental margins as we see a pickup?

Well, specific to automation. When we talk about our playbook, which is our cost management approach to manage throughout the softer cycles. We announced that last fourth quarter, it impacted all parts of our business. And the way we think about it is we differentiate between temporary actions that are truly driven by the volume dynamics versus permanent actions, which are long-term structural changes that we introduced in our business, which is what gives us confidence in our continued expansion in our operating model, those permanent structural changes that.

So our automation team has done a nice job in dealing with both temporary and structural changes. What does that look like? When you think about and how we communicate our Lincoln business systems, it's how our team is positioning capacity across its operating plants. And that just gives us leverage ability to manage more effectively the cost structure within our business. We're seeing opportunities within our corporate center led strategies.

For example, procurement, you've heard us talk about this over the last year, what are the disciplines that we could introduce leverage to our broader global spend and so automation is part of that. So our team has done a nice job while challenging in this environment to maintain and grow overall the margin base we had in automation. Automation's footprint, and we -- in 2020, we were talking about mid- to high single-digit type EBIT. We've doubled that. We've more than doubled the ability to drive the margin profile that we would expect within our business.

They still have on a normalized basis, a couple of hundred to 200, 300 basis points of improvement that we need to go after, but we're confident that we'll continue to drive that from both organic and inorganic opportunities.

What's the typical return on investment that industrial customer might see from implementing a Lincoln automation solution? And is there opportunity to capture more value there and more margin? Because I know the target was the average line, why wouldn't it be higher given the value that you're providing?

I think it's an excellent question, something that we always challenge our teams on with so much value that we're introducing into the market. So for coal bots, pre-engineered robotic cells, you're looking at a shorter payback cycle, 6 to 12 months. When you're looking at more of the larger multimillion, tens of million types of systems, it's a longer term. So you think about 2 to 3 years kind of ROI or payback that we would look to -- but the value is driven on the solution, the needs on both labor efficiency, productivity, quality and consistency that we offer up.

So our team is very much focused on how do we drive business disciplines to more effectively manage our operating effectiveness and cost structure and continuing to challenge ourselves from a value proposition for our customers, but we think we have a very, very great offering to present in the markets.

You mentioned procurement savings. So I'm mostly just curious, have you looked at like AI to help improve operational efficiency, maybe expand capabilities, how do you see that impacting growth or margins?

Yes. Look, it's still early. I mean, our teams, our IT and our business teams are working to different technologies and in generative AI that it's more back office types of capabilities. We'll continue to engage. And it's kind of hard to say that we're going to have this kind of impact in this time frame, but certainly an area that we're looking for areas of productivity within our operations.

On the commercial side, a little different. We talk about the data management capabilities of our products as well as looking at automation capabilities in welding. We acquired a business last year that ties into vision and AI capabilities to drive more efficiency in developing a well path. So we're going to look at it both commercially and operate. But I think it's early -- too early to tell what kind of impact and what time frame, it means to us.

Your sales framework assumes like 100, 200 basis points above industrial production from new initiatives, innovations an additional 200 to 300 for automation and additive. Can you just talk about how that's trended over the last few years? And how do you expect this framework to hold into this year into 2026?

Yes. So I'll start at the latter end. We haven't announced 2026 strategies yet, we'll do that beginning part of...

Do that today.

Maybe next year, but the drivers are still right? We're right on top of our sales growth objectives. And if you remember, they were high single digit, low double digit. The mix has changed a little bit between the volume and price on the core seen nice acceleration within the automation business. And on the acquisition side, through 2024, we had 440 basis points of growth. So we're right on top of those objectives. You can expect the same kind of themes meaning we're going to have a very disciplined acquisition agenda, that 300 to 400 basis points, where we're in the high end and over that for the current period, it's pretty key for our growth strategy.

When you think about innovation is going to be pretty important for us, is a key part of how we continue to posture our solutions and products into the market. And we believe that automation will continue to be an accelerator to growth. So those dynamics are still -- or it will continue to be there and will continue to look for opportunities to drive that framework. We'll communicate more 2026 and beyond 2030, beginning part of next year.

Maybe we'll talk about Harris then because they continue to outperform expectations on the margins, and you might give them a new targets today? I'm not sure. But like what can we expect can those margins be expanded further? Could they approach Americas level over time? And just how you're thinking about that because they've really ...

Harris doing a great job. Our team has done a great job. I give you a little history. I've been with the company a long time. But Harris, I think 2015, the data point we're looking at we had an EBIT of 10%. We knew we had a lot of work to be done there. We entered the cycle 2020 at 15%.

So we established -- we thought a fair range of 13% to 15% on EBIT. We have exceeded that very nicely. And we don't go back and we're not going to reduce, we'll be expecting our teams to find ways to continue to expand the margin profile of our business, looking at the mix and all the work we've done structurally.

First half of the year, they actually exceeded the Americas business. The Americas business, you might talk about automation, the core welding is doing very, very nicely. But the automation is dilutive to the overall Americas. So we would expect Americas to continue to improve its margin profile with an improvement within the automation space. So there's a nice internal competitiveness there and looking at the segments there, but Harris has just done a nice job, and we'll reset objectives, but it's not going back.

I mean we had 19.4% EBIT in the second quarter. We did have a little bit of a stocking strategy on the retail side that helped a little bit there, but we're very nicely pleased with how team has performed. But there's still opportunities. I don't go through a business meeting without defining and understanding kind of where the opportunities are to improve our business. So we have that. So we expect continued development of our Harris model.

So I have to try to get information on 2026. As we think about the margins, how do we think about the benefit of operating leverage into next year plus the potential for the $20 million expected LIFO charges, not to repeat. Just thinking about the building blocks 2026 margins?

So first of all, I take the LIFO off the table because it's built into our operating assumptions. So what we think of in LIFO is what is an inventory and how do we need to recognize that cost now versus other companies on FIFO, they have a turn to work through. So we actually have -- I'd like to explain this as we have more pressure to be really on top of our cost structure and the change to this cost structure now because we see it now.

We don't wait for a turn on inventory, but it's built into all of our margin assumptions. So we take it off the table. So truly, it's discussion on margins is going to be about how do we continue to improve long term our business model, all the structural actions that we take the shape. And we talked about opportunities, for example, in automation. We know we've got opportunities there, quantified 200, 300 basis points right there.

International, we are not consistently within our targets. And we believe that our model is within the framework that we have established at 12% to 14%. And we've more than doubled the margin profile of our international business, but there's still some work to do there. We need a little bit of volume stability, some slight increases in volumes will give us within the higher end of the range, which you've seen in the quarters where we have performed a little bit better, some strength there.

But our pattern has been consistently a couple of hundred basis points of improving the operating margin of our business throughout the cycles over the last 20 years. So as we wind down the 2025 standard -- high-standard strategy. We're going to be right on top of the 16% on average, and we're going to be right also ahead of it on a run rate basis being 17.6% last year, 17.1% in 2023.

This year, we're talking about flattish despite the volume headwinds. So we're going to be ahead, and we'll continue to have a posture of driving improvement in our operating models.

So you are ahead of your expectations, what has gone better than you thought when you were putting those [ dinners ] together? And what will be the considerations as you think about setting those next margin targets?

Well, I mean, firstly, I mean, Harris has been a standout. We just talked about that. Automation has had nice improvement, though our target is to be at that corporate average, but it has had a nice improvement, more than double the margin profile. And then on the international side, more than doubled the EBIT profile there. But still within a target framework we have there.

So Harris really stands out is better. I think this in general, our level of disciplines across the business and starting to leverage what we're calling center-led activities across all of our business are going to continue to drive expansion in our margin profile. We talked about procurement already, but a lot of the back-office ability to scale across the globe, finance, IT, HR, all the traditional functions of the business are going to give us the ability to continue to leverage that. So we're pretty excited about where we're at and kind of where we're headed on the margin profile of our business.

So maybe turn a little bit to capital deployment. You talked about executing on more of your share repurchases this year. I think the largest dollar amount since 2015. However, leverage is still low. How do you think about the mix of share repurchases versus acquisitions? And can you just do more going forward of both given where leverage is today?

Well, with more cash generation, you can do a little bit more both for sure. But our strategy on capital allocation so far, we want to emphasize growth first. Our largest returning investments are when we invest in our own businesses and that is to capacity expansions or operating efficiencies or new products. Those are higher returning types of investments.

And you've seen -- if you're tracking kind of how we've -- not only the results, but how we are communicating our the framework of investment, and we've doubled that over the last few years. We'll continue to look for internal investment opportunities that are high returning type ROIC. And then we're going to continue to be pretty disciplined, aggressive in looking at acquisition opportunities. And that's in core welding as well as in automation.

We have had a larger percentage of our transactions that are anchored around automation. But nice opportunities also in core welding. We just announced our deal in Australia, acquisition of Alloy Steel in August. The Vanair acquisition in 2024 tied to welding. So we're both anchored on kind of how do we continue to broaden our footprint within the welding space, but then a lot more opportunities within the automation space. So we're going to drive growth.

Then -- we've had 29 years in a row now of dividend rate increases. We'll have go through our dividend policy in our October Board meeting. But we've been pretty consistent with returning cash through dividend rate increases as then we use opportunistically on share repurchases. We did increase the range this year. Formalize it between $300 million to $400 million. We're over $200 million already in for the first half of the year. So well on our way within the range. Well, we're pretty opportunistic in looking at excess, but we would define excess strategic cash and the timing of that to accelerate share repurchase, and that's what we did, what we did.

But what's the right leverage for this business?

Well, it's a good question. We -- internally, we talk about that 1.75x target and go up to 2. We have a lot of flexibility to go much higher. We look at those. I think if we moved up into a 3x range because we had the right acquisition to drive that, we would do it on a short-term basis. Our longer-term perspective to be at that 1.75x of EBITDA.

As you look into the business in 2026 and beyond, what are the 2 to 3 key metrics you're most focused on?

Well, I would start off with top-line growth and that's volumes, real volumes across core welding, across automation, how we're doing across growth on acquisitions. Incrementals pretty important for us, broader operating margins on average, but also how we're doing on the incrementals. We like to see mid-20s type of incrementals on kind of like, call it, a normalized volume level. But that's pretty important for us to continue to have the discipline and to make sure all the teams are also clear -- have clear alignment of how they all -- all the segments participate in the overall operating margins of the business.

Cash for any business, very important. So our target is to be 100% cash conversion. We're very much on top of that. Managing working capital and cash generation, a very strong discipline of ours, so we'll continue to reinforce that. And then we're very disciplined ROIC as an investor and thinking about the use of capital, it's pretty important for us to think through that.

Okay. One last question as we get to round on the clock. What do you think is the most misunderstood or underappreciated by the market right now about Lincoln. And if you were to leave investors with 1 thought about the business strength or strategy that's not reflected in consensus, what would it be?

Just the posture we have in 1 navigating through the cycles and then leading into a growth cycle. We're very strongly positioned to seen expansion on both production -- industrial production and what does it mean for the consumables part of our business in core welding, but also positioned for the long-term trajectories and capital, while continuing to shape our model.

So the consistency we've had in shaping our model, while posturing for driving innovation technology into the markets gives us a lot of upside on growth.

Well, thank you so much. I really appreciate you being here today.

Thank you, Saree.