Lincoln Electric Holdings Inc Morgan Stanley's 14th Annual Laguna Conference

It is great to be here, Angel.

Well, thanks, Angel. That's a great place to start, so thank you. In focusing on long-term value creation, I've been with the company now this year, 31 years, and we have consistently improved the operating profile of our business. Think about an operating margin through each cycle, improving 200 basis points per cycle. You've seen that. That has taken us from a largely regional business model. We manage the international business, the European, the Asia, the North American businesses, more as distinct business units. 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. For example, we pointed to finance.

Kind of a simple example, but over the last strategy period, think about Higher Standard last five years, we improved the operating profit of our business by 50 basis points beyond just in finance. 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 in 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. 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. 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. 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.

I think that's the best way to think about it. A steady ratable type of improvement over the next five years.

Okay. 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.

Yeah. 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 timeframe, put those in place. But we had 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 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 timeframe.

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 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 from a demand perspective. We're just navigating a price-cost dynamic, which is part of our disciplines. Want to make sure that we're protecting the operating model.