Lincoln Electric Holdings, Inc. (LECO) Q1 2015 Earnings Report, Transcript and Summary

Greetings and welcome to the Lincoln Electric First Quarter 2015 Financial Results Conference Call. At this time, all participants are in a listen-only-mode. As a reminder, this call is being recorded. It is now my pleasure to introduce your host, Vincent Petrella, Executive Vice President and Chief Financial Officer. Sir, you may begin. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Thank you, Kat, and good morning to everyone. Welcome to the Lincoln Electric 2015 first quarter conference call. We released our financial results for the quarter this morning prior to the market's open and our release is available on the Lincoln Electric website at lincolnelectric.com. Joining me on the call today is Chris Mapes, our Chairman and Chief Executive Officer. Chris will start the discussion this morning with an overview of our first quarter results. I will then cover the first quarter numbers in more detail as well as our uses of cash. We will then take questions following our prepared remarks. As part of the webcast today, we are using a slide presentation, which can be accessed on our website under the company and Investor Relations tabs. Before we start our discussion, please be reminded that certain statements made during this call and in our discussions may be forward-looking and actual results may differ from our expectations. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the company's operating results. Risks and uncertainties that may affect our results are provided in our press release and in our SEC filings on Forms 10-K and 10-Q. Additionally, we also discuss financial measures that do not conform to U.S. GAAP, and you may find important information on our use of these measures and their reconciliation to U.S. GAAP in the financial tables that we've included in our earnings release. With that, let me turn the call over to Chris Mapes. Chris? Christopher L. Mapes - Chairman, President & Chief Executive Officer: Thank you, Vince, and good morning, everyone. Moving to slide three, our first quarter performance demonstrated the business resilience in a choppy and dynamic market, even with the challenge of unfavorable foreign exchange translation and a weakening energy sector. I attribute our performance to the advantage of our diversified end market, regional exposure, innovative solutions and the team's continued solid execution of our 2020 strategy and initiatives. The first quarter proved to be a slow start to the year, with reported sales down 4% to $658 million. If we exclude the unfavorable impact from foreign exchange, sales increased 4%. This increase was primarily due to pricing actions to offset hyperinflation in Venezuela and the benefit of our recent acquisition, Easom Automation. We achieved solid volume growth in Europe Welding and Harris Products Group on strong execution of commercial programs and held North American volume steady on mixed end market demand trends. As anticipated, we experienced volume weakness in South America, on weak end market conditions and in Asia Pacific, where we continued to strategically reposition the business for long-term profitable growth. We held first quarter gross profit and operating income margins relatively steady on favorable mix and operational efficiency. We achieved a 13.8% adjusted operating income margin in the quarter, which was down slightly. We reported diluted earnings per share of $0.89 in the first quarter on an adjusted basis. EPS declined 2% versus the prior year on a challenging year-over-year comparison from our Venezuelan operation, which contributed $0.14 to adjusted EPS in the first quarter of 2014. This year, Venezuela contributed $0.03 to EPS. Excluding Venezuela in both periods, our first quarter 2015 adjusted EPS would have increased approximately 12% to $0.86. We increased our return on invested capital by 100 basis points to 20.1% this quarter and generated solid cash flows from operations. We returned approximately two and a half times our cash flow from operations or $125 million to shareholders through dividends and share repurchases in the quarter. Looking at demand in a little more detail by end sector, we continue to see strength in the rail car sector, automotive, ship building, and in pipe mills. And we saw this growth across most of our global footprint. Also, HVAC and refrigeration applications continued to remain solid in the quarter, benefiting our Harris Products Group. The energy sector, as anticipated, began to weaken in the quarter across our reportable segments, with sales exposed to oil and gas down mid-single-digit percent in the quarter. Moving to slide five, so while we stay cautious on any near-term improvements in our end markets given uncertain macros and the expected persistent headwinds from foreign exchange and oil and gas, we are continuing to focus our initiatives on driving long-term, profitable growth and enhancing shareholder returns. As discussed in February, our priorities are focused on driving growth in engineered value-add solutions as part of our 2020 plan. This includes ongoing investment in our automation portfolio and the integration of our acquisitions to further capitalize on our broadened capabilities. We are also focused on sustaining a robust product development pipeline and delivering the next-generation of industry-leading, welding and cutting solutions. This includes ongoing investment in our engineering trainee classes, where we will have one of our largest in 2015; a new regional technology center in Singapore, which will allow us to share our technology more closely with the end-users and applications within that market. So I'll wrap up my saying again that we are executing with confidence, demonstrating the benefits of diversified end markets and geographic exposure, the strength of the business' cash generation, and the ability to drive higher returns even in challenging conditions. And now, I'll pass the call to Vince to cover our segments' financial performance, balance sheet items, and uses of cash in more detail. Vince? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Thank you, Chris. Let's turn to slide six, where you will see that our consolidated sales decreased 4% compared to the first quarter of 2014. We achieved 2.9% higher price, primarily reflecting the hyperinflationary environment in Venezuela, as well as a 1.8% increase in acquisition revenue. These increases were offset by 80-basis point decline in volumes and a 7.9% unfavorable impact from foreign currency translations. Excluding foreign exchange, sales increased 4%. Our first quarter gross profit margins increased by 50 basis points to 33.5% compared with 33% in the comparable prior-year period. The increase in gross margins was primarily due to mix and operational improvements. Our SG&A expense as a percentage of sales decreased 160 basis points to 19.7%. The prior year did include a foreign exchange loss of $17.7 million, relating to the Venezuelan currency re-measurement. Additionally, SG&A expenses declined on a lower foreign currency translation effects. Excluding the Venezuelan currency re-measurement loss, SG&A was 18.7% of sales in 2014. Operating income for the quarter increased 12.5% to $90 million and our operating margin increased 210 basis points to 13.8% in the quarter. On an adjusted basis, excluding the prior years, Venezuelan currency re-measurement loss, our operating income margin declined 50 basis points to 13.8% as compared with 14.3% in the prior year. Pension expense increased $2.9 million in the first quarter of 2015 over the 2014 numbers. Excluding our Venezuelan operations from both years' first quarter results, operating profit margin would have increased 60 basis points compared with a 13.2% in 2014. Our other income line increased $1.5 million in the quarter, primarily related to a gain associated with the liquidation of a foreign subsidiary. The effective tax rate for the first quarter was 26.3%, compared with 31.5% in the prior year. The primary factors driving this lower effective tax rate were U.S. tax credits and the favorable resolution of tax litigation. We continue to expect our 2015 effective tax rate to be in the high-20% range subject to the mix of earnings by geographical jurisdiction. Net income for the first quarter increased 21% compared with the prior year. On an adjusted basis, excluding the Venezuela currency re-measurement loss in the first quarter of 2014, our net income declined by 7.8%. Foreign currency exchange translation had an unfavorable $4.2 million impact on net income or $0.05 per diluted share in the first quarter. Our reported diluted earnings per share increased 29% to $0.89 for the first quarter compared with $0.69 in the prior year's first quarter. The prior-year quarter was unfavorably impacted by the currency re-measurement loss from our Venezuelan operations. Now, on an adjusted basis, diluted earnings per share decreased 2% on a more challenging year-over-year comparison as the prior year's adjusted diluted earnings per share included $0.14 per share from our Venezuelan operations. Venezuelan operations contributed $0.03 per share in the first quarter of 2015. If Venezuelan results and special items were excluded from both periods, our adjusted EPS would have increased 11.7% to $0.86 per share. Now, moving to the geographical segments on slide seven. Our North American Welding segment adjusted EBIT margins declined by 20 basis points in the first quarter to 16.2% on higher pension costs. U.S. pension expense increased $2.6 million in the quarter. Reported sales increased 2.8% in the quarter with volumes steady, reflecting relatively flat domestic demand and a slight decline in export volumes. In Europe, our adjusted EBIT margin improved 110 basis points to 9.5%. This increase was caused by operating leverage, improved mix, and operational improvements. Volumes increased 3% on strategic initiatives that generated increases in both consumables and equipment product lines in the region. Now, moving to slide nine. The Asia Pacific segment generated a 6% adjusted EBIT margin in the first quarter after a loss in the prior year. Margin expansion reflected mixed improvements as well as a $1.8 million gain from the liquidation of a subsidiary. Sales in Asia Pacific were down 19.6% in the quarter on 14.9% volume declines. The volume decreases were due to ongoing repositioning of the portfolio as well as end market weakness across the region. South America Welding generating an 8.4% adjusted EBIT margin in the quarter as compared with 26.7% in the prior-year period. The margin decline reflects the effect of pricing controls in our Venezuelan operations and weak end market demand in Brazil. The South American segment includes $22.9 million in sales in Venezuela in 2015 as compared with $24.2 million in 2014. Additionally, adjusted EBIT in 2015 includes $3.2 million from Venezuela, which compares with $10.8 million in the first quarter of 2014. Venezuela contributed $0.03 of EPS in the first quarter of 2015 as compared with $0.14 per share in the comparable prior-year period. Now, The Harris Products Group expanded their first quarter EBIT margins by 240 basis points to a first quarter record of 10.5%. Volumes increased 6% in the quarter with growth achieved across both the equipment and consumable product categories as the segment saw good demand in retail and across HVAC and refrigeration applications. Our pricing decreased because of lower metal costs, primarily silver. Moving to slide 12, our cash flow from operations increased $39 million in the quarter. We received another $25 million of Canadian tax refunds representing substantially all of the remaining refund due. Looking at uses of cash in the quarter, we spent $12 million for capital expenditures. We continue to estimate our 2015 capital spending plan at a range between $65 million and $75 million. Additionally, we paid cash dividends of $22.3 million, reflecting the 26% higher dividend payout rate in 2015. During the quarter, we spent about $103 million repurchasing 1.5 million shares for treasury. We continue to target $400 million for share repurchases in 2015. As announced on April 1, we issued $350 million of senior unsecured notes that have an average tenure of 19 years and a weighted average interest rate of 3.5%. $150 million of the proceeds were received in April and the remaining $200 million will be drawn in August of this year. We expect to use these funds for general corporate purposes, including share repurchases as we continue to invest in the business for the long-term and prudently return cash to shareholders. Now, just a couple of comments on the 2015 outlook before we open up the call for questions. We continue to expect that the strengthened U.S. dollar will negatively impact our 2015 reported revenue and earnings as the year unfolds. Although the impact of lower energy market activity has only modestly impacted our results thus far this year, we continue to believe this trend will play itself out as the year progresses. With that, I would like to turn the call over for questions.

Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. And our first question comes from the line of Matt McConnell of RBC Capital Markets. Sir, your line is open. Please go ahead.

Thank you. Good morning. Christopher L. Mapes - Chairman, President & Chief Executive Officer: Good morning, Matt. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Good morning.

Certainly appreciate the update on oil and gas exposures. It sounds like it's pretty manageable here. Could you give any more insight into your customer behavior or expectations for how that will play out over the next few quarters? Christopher L. Mapes - Chairman, President & Chief Executive Officer: Yeah, Matt. This is Chris. Look, I think, as Vince said in his comments that, we don't really see any catalyst for a change in thinking about the way it will play out within our portfolio globally over the next couple of quarters. We recognize that without any significant change in the economics around the oil pricing in the broad global marketplace, that we expect it to be a continuing headwind as demand continues to weaken within that particular space as we work throughout the rest of 2015. And we are seeing it on a global basis. And as you would expect, you see that in the higher cost extraction applications earlier and mitigates as you move into other extraction areas. I will say that our business in some areas around the world, especially in the Middle East, was actually very strong in the quarter. We continue to see nice demand there. The other side of that is the offshore portions of the European market were much more contracted as we evaluated it in Q1.

Okay. Great. Thanks. That's helpful. And I wonder – it's currency or exports contributing to the slight margin decline in North America? I know you called out pension that accounts for probably 40 bps of that margin decline. But how did the stronger dollar and the exports impact your North American margins? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: I don't think the stronger dollar has significantly impacted our margins in the U.S. Our export business was actually relatively flat out of our U.S. business, so that didn't have a material year-over-year impact. So the biggest impact is really the foreign exchange translations from earnings overseas. And certainly, our products for export are more expensive. But in this quarter, we held up fairly well from an export perspective. We were down slightly, but I wouldn't consider it to be one of the more important drivers to the financial results of our North American segment in the quarter. But the pension increase was, I believe, about 60 basis points on the North American margins, so they would've had an increase in margins on a year-over-year basis if it weren't for pension increases.

Okay. Great. Thanks very much.

Thank you. Our next question comes from the line of Schon Williams of BB&T Capital Markets. Sir, your line is open. Please go ahead. C. Schon Williams - BB&T Capital Markets: Hi. Good morning. Christopher L. Mapes - Chairman, President & Chief Executive Officer: Good morning, Schon. C. Schon Williams - BB&T Capital Markets: I wonder if we could perhaps start with South America? I mean, the pricing obviously coming through there on hyperinflation in Venezuela. I think, the past couple of quarters, you've been guiding around kind of flat margins in that region. But obviously, you're getting pricing ahead of the inflation there now. I mean, should we start baking in something much higher for that region giving how robust the pricing is right now or are you still maintaining kind of flat, operating profit profile there? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Yes. I would tell you that our South American segment, driven by Venezuela, is a highly volatile operating region. It's very difficult to forecast in a stable, consistent way the earnings, in particular the Venezuelan business. I think it's true that we operated our plant there in a fairly regular way during the course of the quarter, whereas the previous quarter, there were disruptions that didn't enable us to make the necessary product to be converted into revenue and earnings. So I would tell you that we had a relatively good quarter in Venezuela, in South America, but that is not necessarily repeatable throughout the course of the year. And we will likely continue to have volatility there. And next quarter, maybe towards that break-even or even small loss perspective. But we did have a good quarter there. But I can't say that it's repeatable. C. Schon Williams - BB&T Capital Markets: Okay. And then, if I could switch to Asia Pacific, was there a gain in the quarter on the sale of the Chinese facility that – was there some impact on margins there? And then maybe if you could talk about, even kind of excluding that, what – where do you think the margin profile of Asia Pacific goes from here? I mean, last quarter, we saw some fairly significant improvement in that region. I think you were a bit cautious at the time about whether that was sustainable to some degree. I'm just trying to get a sense of, as you exit some of that business specifically in China, what is the goal or what is sustainable as we move through the next six months to 12 months here? Is a mid-single-digit operating margin kind of in the ballpark or should we see that kind of bounce around? Thanks. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Sol, Schon, the $1.8 million gain was in the Asia Pacific segment, affecting those EBIT margins, so that represented a little more than half of the EBIT, adjusted EBIT that was reported from the region. So if you were to exclude that it would put our Asia Pacific EBIT margins at less than half of that or maybe 2.6% EBIT margin. It was not related to the previously announced assets that we have for sale in China. It was an unrelated entity that was liquidated that had been closed a number of years ago. In terms of the ongoing performance and trajectory of our Asia Pacific business, there will be a volatility in Asia as well. It's a developing business, not quite the same kind of volatility that we would expect out of South America and Venezuela. But I think that the core earnings there at a low-single-digit margin growing to mid-single-digits is not an unreasonable projection or a forecast for us to put out there for Asia Pacific as we roll out the year. Christopher L. Mapes - Chairman, President & Chief Executive Officer: Yeah, Schon, this is Chris. I'd also add that, look, we're still very excited about the opportunity to drive more of our technologies into that marketplace. And that's why we've announced that we're going to build the technology center in Singapore to get us closer to that particular marketplace. We've made some changes in the Australian business model over the last couple of years, very excited about the organization that we had there, although, obviously, Australia pretty much a mining-driven market, and mining is pretty challenged right now, so at this particular portion in the cycle, maybe not performing at the level that we think it will through the cycle. But I'll also add that happy with the progress that we're making in China. So we said that this was going to be a longer approach for us in the way we were transitioning that business towards more higher value-added solutions that was going to require us to migrate the revenue down as we transition that organization and that business towards more alignment with our 2020 vision and strategy. And the first quarter is a quarter where we can look at that business independently and say that we're making progress on that strategy and happy with the work that we're doing there at this point. C. Schon Williams - BB&T Capital Markets: All right. Thanks, guys. I'll get back in the queue here.

Thank you. Our next question comes from the line of Walter Liptak from Global Hunter. Your line is open. Please go ahead.

All right, thanks. Good morning, guys. Christopher L. Mapes - Chairman, President & Chief Executive Officer: Good morning, Walter. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Good morning, Walter.

I wanted to ask – just a follow-on to the last question about Asia. Maybe, as you exit, it sounds like some lower margin products. Are these the kind of volume declines, like if you exited those products and we should see similar volume declines throughout the rest of the year? Christopher L. Mapes - Chairman, President & Chief Executive Officer: Well, look, I believe that we're going to continue to see volume declines. The volume mitigation is going to be choppy as we're repositioning that business. But we've been experiencing volume declines in that business as we've announced the strategy transition for probably the last six quarters or eight quarters. So I guess the answer would be yes. I expect there to still be some compression of the revenue model as it relates to China and how that impacts our Asia Pacific results. But again, and I think more importantly, a quarter where when we take a look at the execution of the strategy, we're happy with the progress that we made in that region in Q1.

Okay. Okay, fair enough. Just switching gears, I've wondered about the O&G business, and I apologize if you alluded to this already. But it sounds like, as the upstream guys go after cost reduction that they're asking for price decreases. And I wonder what kind of pricing pressure you're getting and if you are helping them with lower prices. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Well, if you look at our results, Walt, in the quarter, our pricing is really relatively flat, plus 1%, minus 1%. So we don't foresee pricing pressures having a material impact on the business this year. Any particular segment that's not on its own, material to the company. So I think, we'd be able to manage pricing activities during the course of the year and don't expect to have significant impact to our results of operations from pricing activities.

Okay. Good. And then a last one for me, you guys sound kind of cautious about the top-line growth environment focused on automation acquisitions. I wonder if – when you look at your monthly trends and even going into April, if that helps you to discern, what are things are looking like as you go into the second quarter or the rest of the year? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Well, our largest operating segment in North America was flattish in the quarter on a year-over-year basis and Europe had a nice volume improvement of 3%. But the overall business was relatively flat. So we have, I think, good reason to be cautious as we look throughout the remainder of the year. We've seen the beginnings of the impact of the oil and gas declines and foreign currency will certainly continue to be a headwind, at least, in the near-term. So we're looking at a business that is relatively flattish at this point in time with no apparent catalyst that may jumpstart a more rapid growth in volume. So if you look at the global economies and I'm sure you look at it constantly and it's a mixed story out there in terms of geographies and end market activities. There's some bright spots. There are maybe some more negative spots but by any means, the global growth trajectory is I think reflective at least in the industrial sector of what you see in Lincoln Electric, which is a much of a flat type of environment.

Okay. And it sounds, so it sounds like in a monthly basis, January, February, March you were flat in those big regions? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Well, we were actually – but March was a difficult comparable month for us. We had a very good March 2014. And so from a trend perspective, our March was weaker on a year-over-year basis than January and February.

Okay. All right. Thank you.

Thank you. Our next question comes from the line of Rob Wertheimer from Vertical Research Partners. Sir, your line is open. Please go ahead.

Thank you and good morning. I guess I'm trying to ask a question on whether it's sales distribution versus direct or confidence or whether there is any equipment coming off of the oil and gas side of things, sort of backing up and channeled? So I'm just wondering if there is a good read on that on distribution versus direct? Christopher L. Mapes - Chairman, President & Chief Executive Officer: I can share with you that when we think about channel inventories and we think about the way the product moves through the channel, we've got relatively solid visibility and good velocity of those products and really don't see any inventory bubbles or any inventory issues building up in the marketplace, whether that would be direct or distribution that we're trying to manage at this point or that we saw within the quarter.

Perfect. Thank you. That's very responsive. And then the second question, maybe this is for somebody else more than you but it would seem that a competitor reported a 6% headwind in the welding segment on oil and gas, so that'll be roughly 15% of the mix. So a relatively large headwind versus what you were seeing. Is there any pace through the quarter where you saw things really sharply down, or is there just something from the other side that's unclear right now? Christopher L. Mapes - Chairman, President & Chief Executive Officer: I wouldn't say that we saw any pacing within the quarter that was significant relative to any one segment. And I would also tell you that as we think about the welding space in the marketplace that I would necessarily give one segment data point in one quarter overly a lot of credibility to being a trend line.

Yeah. Perfect. Okay. Thank you.

Thank you. Our next question comes from the line of Mark Douglass of Longbow Research. Your line is open. Please go ahead.

Hi. Good morning, gentlemen. Christopher L. Mapes - Chairman, President & Chief Executive Officer: Good morning, Mark.

Vince, the pension headwind, should we expect a similar type of run rate for the rest of 2015? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: That would be a good estimate for the remainder of the year on a quarterly basis.

Okay. And then you said exports were only flat in North America. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Yeah, they were essentially flat excluding acquisitions. It's $44 million versus $45 million in the previous year, so I call that flat.

Right. That's pretty surprising, probably better than expected. Is that new equipment, you think, or just a lot of that automation demand? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Actually, we have some – I think as Chris pointed out from – one quarter, one month is a pretty narrow period of time to conclude on a trend. I will tell you that in this one quarter, we had nice exports into some of the emerging markets that had been struggling over the course of the past year. We had a very nice increase in Russia, for example, and India was strong. And the Middle East was strong from an export perspective. So a lot of these orders can be lumpy and large scale project base. So it's difficult to say that this is the beginning of an improvement for exports for us. The comparables are getting certainly a lot easier because the last year, we had some big double-digit decline in exports. So I wouldn't necessarily say that this is going to be a great export year with – considering that we still are down fairly significantly from historical levels and the strong dollar is not going to be a help for us as the year continues, and as oil and gas works its way through our system so.

(34:15). Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: (34:16) Sorry?

Go ahead. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: A little slightly down, down $1 million or so this year, but not a bad result considering the challenges of a much stronger dollar and the weakness in oil and gas, and international markets.

Right. And final question, are you seeing any impacts from lower raw material costs? Any benefits at all or do you anticipate modest net benefit as the year progresses? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Yes. We haven't – we're on LIFO in the U.S. We really haven't booked any significant credits during the course of the first quarter. It is too early in our view to make that kind of a judgment because we have to be predicting what raw material costs might be at the end of the year. So we're evaluating our LIFO position and our cost position very carefully. But I think it's fair to say that there is some trends downward in steel costs, one of our major inputs. And we're going – we will continue to evaluate our overall cost structure and our LIFO position as the year matures.

Okay. But right now, no LIFO? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: No LIFO. The prior year had about $1 million charge in it and this year, just a very modest credit, less than $1 million.

Okay. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: So not significant impact on the results.

Great. Thanks for taking my questions. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: You're welcome.

Thank you. Our next question comes from the line of Joe Mondillo from Sidoti & Company. Your line is open. Please go ahead. Joe L. Mondillo - Sidoti & Co. LLC: Good morning, guys. Christopher L. Mapes - Chairman, President & Chief Executive Officer: Good morning. Joe L. Mondillo - Sidoti & Co. LLC: First question, just related to the European segments. If you could address how you're feeling about how the margin has progressed with that segment? And also, regarding the incremental benefits of the initiatives that you've done over the last year, how much more incremental benefits are expected going forward? And then, just lastly, 2Q and 3Q of last year were very strong, 12% to 14% margin. Are you anticipating that's possible again in this second and third quarter coming up? Christopher L. Mapes - Chairman, President & Chief Executive Officer: Well, first, I'd say that when we start talking about the European business, I mean, we were very happy with the improvements we've made in that business over the last, what I'd call, probably 12 quarters to – in the last 12 quarters. We're going to have a very hard comparison, especially with the challenges associated with the foreign exchange of those earnings back here to the U.S. in Q2 and Q3, although we certainly believe that that business can perform at that level. So we've executed on the – on some of the restructuring actions that we committed to in 2013. We saw that move through the business in 2014. We still have a couple of other actions that we're working on strategically within that portfolio, focused on some of our alloy strategies within that particular business. We've been executing on our equipment portfolio offering there and building out that equipment portfolio. We launched that at the global Essen show, probably five quarters ago. And we've seen those benefits in 2014 hoping to accelerate those benefits into 2015. So we liked the improvements we've made in the business. I would share with you, I think, some very difficult comparisons approaching us in Q2 and Q3. But we do believe – I do believe, that the business in Europe for Lincoln Electric has been achieving market share gains over the last three quarters or four quarters in Europe. Joe L. Mondillo - Sidoti & Co. LLC: Okay. So it sounds like there is a potential that you could put up numbers similar to last year. However, there is headwinds and it's going to be tough. Is that a fair sort of outlook of the numbers that we saw last year? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Well, what I would say, Joe, is that there is seasonality in our business and Europe is no exception. The first quarter and the fourth quarter tend to be lower EBIT margin results in Europe. The second and third quarters, generally are stronger from a seasonality's perspective. So what I would tell you is that I expect the 9.5% EBIT margin that we achieved in the first quarter to be higher in the second and third quarters of this year. Joe L. Mondillo - Sidoti & Co. LLC: Okay. Just a second question regarding The Harris Group. I was just wondering, is there ever an environment where we could see silver declining and because of the strong accelerated volume growth that you're seeing, that pricing could potentially get to a positive point? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Well, it's all – silver is right around $16 an ounce now, so it would be positive to the extent that silver increases above that level. So we've been in a declining silver price environment now for the better part of maybe 18 months, two years. You might recollect that silver hit mid-$40s per ounce and fell to the $20s last year. Now to the teens in this year, tail end of last year. So as long as we're in that declining type of silver environment which we've been in the last couple of years, we will have price declines. And if that reverses and goes back up over $20, $25, you will see price increases. So it's all a matter of the pass-through pricing mechanisms that we use in that business that drive price changes in the consumable side of Harris Products Group. Joe L. Mondillo - Sidoti & Co. LLC: Okay. So even if volume continues to accelerate, even if you get to save (40:20) hypothetically double-digit type of growth, silver is continuing to decline. Your pricing is going to just – the way it works, it's going to have to continue to decline. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: And that's because, Joe, silver is such a significant element of the total cost of the product. It drives the pricing of the product because it represents substantially all of the cost of the product short of some labor and overheads. Joe L. Mondillo - Sidoti & Co. LLC: Okay. Thanks for taking my questions.

Thank you. Our next question comes from the line of Liam Burke of Wunderlich. Your line is open. Please go ahead.

Thank you. Good morning, Chris. Good morning, Vince. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Good morning. Christopher L. Mapes - Chairman, President & Chief Executive Officer: Good morning.

Chris, how big a contributor was automation products in terms of the North American results this quarter? Christopher L. Mapes - Chairman, President & Chief Executive Officer: Our automation business was solid in the quarter. We don't break out the financial metrics around automation, but I can tell you it was solid for us. As you would expect, the automotive industry is still very solid in North America, and we had really strong performance within there. Our Mexico automation business was also a positive contributor for us within the quarter. And we also continue to have some positive results from a couple of our technologies within that portion of the portfolio. Our orbital technologies out of our arc products business as well as our Burlington Automation business for 3D robotic plasma cutting in the structural steel segment, which I would still view structural as a positively trending market segment also.

Great. Thanks. You did mention in Europe that you thought that you had – you were gaining share. How much of that could you attribute to new product introductions? Christopher L. Mapes - Chairman, President & Chief Executive Officer: We've talked about share in the past. It's very difficult for us to look at any one quarter. The reason I'm more confident about share is really our performance in the European market, which has occurred over the last four quarters to six quarters. We think we've trended very favorably to the overall welding market performance within that region, and we've begun to attribute that to share. Certainly, the launch of the equipment offering has been one of those catalysts associated in improving our position in that marketplace. I would also attribute a portion of that into some other focus that we've had with some of our alloys portfolio, whether it's sold there within Europe or whether it's exported around the world. We had some LNG applications and some other projects that were also favorable with those launches in Europe over the last three quarters to four quarters. So a good balance, certainly strong in equipment, but we've also got a multitude of other products and strategies we've been executing on as we believe we've picked up market share in that region over the last four quarters to six quarters.

Great. Thank you very much.

Thank you. Our next question comes from the line of Steve Barger of KeyBanc Capital. Your line is open. Please go ahead.

Hey. Good morning. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Good morning.

Thinking about the North American segment itself, if price stays neutral and volume were to go negative, but you get some acquisition growth with whatever margin profile that has, do you think you'd be able to hold operating margin flat in that segment versus the last year's 19.5%, or would the risk be to the downside given the mix? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Well, Steve, your question is highly reliant on the variability of the amount of volume declines and the mix changes. And I would just tell you, look at our historical performance in 2009 and how we recovered from the Great Recession, and how well we were able to maintain our margins in North America at a double-digit level, despite losing 30% of our volumes. So I think our historical track record speaks loudly for the capability to manage our cost structures in the U.S. to align those cost structures with the inevitability of the marketplace. And so I would just ask you to look at the 2009 to 2014 performance to give you an idea of how we can react to volume declines in the U.S. business.

Got it. Well, and I guess, on a related topic, you've done a very nice job of driving higher return on capital despite pretty low overall growth the last couple of years. We know returns are lower in some of the smaller segments. But what percentage of North American revenue, if any, is really dilutive to return on capital right now, where you see an opportunity to improve? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Well, that's an interesting question. The core – the legacy business is a very strong, a high ROIC business. I would tell you that the parts of the business that don't match up to the legacy business are really largely the acquisitions that we've executed on over the past two years, three years, four years, five years in North America. So it's not uncommon, it's expected that you buy a new business, its ROIC maybe in the single digits, you integrate it, you gain synergies. And we have a track record as you know of driving acquisition businesses up to at least or higher than the company average. So if there is anything that's dragging down North America's ROIC, it's really the acquisitions that are still young and immature, have not been fully integrated, and most of those are on the automation side as we continue to drive leverage through the business on those acquisitions.

Just generally, does it take three years to drive that process or four years, or there is no way to kind of predict. I'm just thinking about the cadence of acquisitions over the last few years. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: It varies. We look at it very closely, Steve, on an annual basis. And some of them are faster than others, but we expect to show almost immediate improvements. But I would tell you that on average, somewhere three years, four years, five years, they're fairly mature in their integration accomplishment.

Very good. Thank you. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: You're welcome.

Thank you. Our next question comes from the line of Jason Rodgers of Great Lakes Review. Your line is open. Please go ahead.

Good morning. Christopher L. Mapes - Chairman, President & Chief Executive Officer: Good morning.

The mid-single-digit margin goal for Asia that you mentioned, is that something you think you can achieve this year or is that more in 2016? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Well, we're pretty much – the first quarter was right around 3%. And I wouldn't put a timetable on when we might achieve that. But as Chris pointed out, we're pleased with the progress we've made there. We're making investments in improving our core capabilities there. We're reshaping the business. We like the trends and the progression that we see over the last two quarters, four quarters, five quarters. So I won't put a date on it but we continue to expect a improvement in the business and a progression towards those mid-single digit EBIT margins.

Just looking at the acquisition pipeline, I wonder if you could talk about that? And if the focus continues to be automation? Christopher L. Mapes - Chairman, President & Chief Executive Officer: Well, we certainly are continued and interested in expanding our automation portfolio. We believe that's a global business for Lincoln Electric today. We've got very good capabilities in our North American marketplace, although a couple of areas even within North America that we believe we could build out more capabilities and competencies. So automation is one of those areas where we're still very interested from an acquisition perspective. But we're also very interested in identifying other distinctive technologies or businesses that we can bring in to the portfolio, if they're going to allow us as a catalyst to enhance our 2020 vision and strategy. So we're still very active in the marketplace and continuing to evaluate various opportunities. But I would tell you the focus on automation as well as a focus on other distinctive technologies that we can bring in to the portfolio on a global basis.

Thank you.

Thank you. Our next question comes from the line of Justin Bergner of Gabelli & Company. Your line is open. Please go ahead. Justin L. Bergner - Gabelli & Company: Good morning, Chris. Good morning, Vince. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Good morning. Christopher L. Mapes - Chairman, President & Chief Executive Officer: Good morning. Justin L. Bergner - Gabelli & Company: My first question relates to capital allocation. Given the relatively flattish environment we're seeing in most of your markets, does that bias you on the margin in terms of your capital allocation priorities versus prior at all? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: No, I don't think so. We look at our capital allocation in a very holistic approach. We evaluate each component of our cash deployment in a very aggressive way. We view our needs from a capital expenditure standpoint that have to stand on their own from a return on investment perspective. We look at our dividend payout as what we're comfortable with of paying out as a percentage of our cash flows through the cycle. And so we evaluate our capital allocation based on the balance sheet that we have today and the confidence that we have on our cash flows and the needs of our business from an internal growth perspective as well as perhaps the needs of our shareholders as well. So I wouldn't say that there is any adjustments that are imminent based on the short-term economic position that the world economy might be in today. Justin L. Bergner - Gabelli & Company: Thank you. My second question relates to just your outlook for your various end markets. Are there any geographies or end markets where you have a more positive view today than you did three months ago? Christopher L. Mapes - Chairman, President & Chief Executive Officer: Probably the only market which we've seen trending upward is actually the pipe mill marketplace. So we've actually seen some improvements globally in the pipe mill space, continuing to see improvement in the structural steel space. I'd say, the rest of them are, our perspective is pretty much the same. Automotive continues strong on a global basis, and still challenged in heavy industry and the mining space. But favorable trend in the pipe mill area and continuing favorable trend in structural steel. Justin L. Bergner - Gabelli & Company: Okay. Great. If I may throw one more in. FX seemed to be a somewhat larger headwind on the top-line than the operating profit and EPS line as a percentage. Am I accurate in that takeaway? And if so, what's driving the reduced impact on the operating profit and EPS line? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: That's a little bit higher at the revenue line. And it's just a matter of working through the translation impact on a P&L-by-P&L basis on our foreign operations. So there is obviously a mix impact that some of the larger revenue producing businesses had a negative translation effect at the top-line and a disproportionally lower earnings effect at the bottom-line. So it's really about the mix of earnings and currencies that average out to those top-line declines and bottom-line declines. Justin L. Bergner - Gabelli & Company: Great. Thank you very much.

Thank you. And we have a follow-up question from the line of Steve Barger of KeyBanc Capital. Your line is open. Please go ahead.

Hey. Thanks for taking the follow up. Just wanted to dig in a little bit deeper to the oil and gas. Based on the trends you see so far this quarter, do you expect that decline in 2Q will be in line or worse than the mid-single digit decline you saw in 1Q? Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: That's a difficult prediction to make. I would say that the impact on our business so far, during the course of the year, has been a little bit more modest than maybe what our expectations were and what headlines we read and other companies in the oil and gas patch. We did have a lower performance on a year-over-year basis in March, as 2015 compared to 2014. So if anything, I would expect there to be a little bit more pressure on the downside. I don't think it's worked its way completely through Lincoln Electric's operations worldwide. We do see, as Chris pointed out, some of the more higher cost extraction areas like offshore, for example, have been hit pretty hard. Other areas are a little stronger. So we think there is still more to be written on this story. So if anything there will be a little bit more headwind expected from our perspective when looking at the macros and other companies reporting currently.

When you look at how March played out or when you've seen other dislocations like this in the past, does that typically flow through as a reduction in machine sales, and then, a declining trend in consumables? Or does it affect everything at once? How, just trying to think about the revenue dynamics. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Yeah. Generally, what I've seen in our cycles over a fairly long period of time is, is equipment be hit first and be hit fairly dramatically. And it isn't necessarily, Steve, a gradual thing. It sort of happens pretty quickly and accelerates quickly. And then consumables follow. So our cycles are generally the loss of confidence, lower market activity results in capital equipment spend, declining first and then followed by consumables. And our consumable and equipment business were both relatively stable in the quarter within a couple of points each of each other. So we haven't really seen that dramatic decline in equipment as one might expect in a contracting oil and gas market. But again, we think it's still early, and we have to look very closely at the second and third quarter and see what the trends are through a longer period of time.

It's very good detail. Thank you.

Thank you. And our last question comes from the line of Stanley Elliott of Stifel. Your line is open. Please go ahead. Stanley S. Elliott - Stifel, Nicolaus & Co., Inc.: Great. Thank you, guys, for taking my question. A quick question about the engineering class. If memory serves, you guys had a fairly large class not too long ago. I mean, is this due to attrition or is this basically more of a move into some of the distinctive technologies that you guys have been talking about? And then kind of as a follow-on to that, how does the Lincoln brand name translate into some of those adjacent sort of spaces? Christopher L. Mapes - Chairman, President & Chief Executive Officer: I'll tell you, the investment in the trainee class that we bring in, which we've brought in here to Lincoln Electric for decades, this continues to be what we believe we need to do to facilitate the execution of our 2020 vision and strategy. It's not because of any loss of talent or because of any attrition occurring within the business. It's just an acknowledgment and the recognition of needing to have that type of a capability within our portfolio to be able to build out our long-term strategy. And you're right; this is probably the third year in a row where we've had record size of the engineering trainee classes that we're bringing in. And we're bringing them in not only into our U.S. marketplace, but we're also bringing them in to our European marketplace and our Asia Pacific marketplace as we expand upon that philosophy of bringing individuals in, training them on our brand and our technologies, and then having them take roles within the organization. As it relates to how our brand translates into some of these various technologies, I would tell you that the brand translate very strong. Lincoln Electric, with our 120 years of participation and excellence in this particular industry resonates with users, and we can use that brand strength as it relates to sharing the innovations or technologies that we're bringing to the various industry segments and customers around the world. So we believe it translates strongly, and we'll continue to leverage it as we bring more solutions to the global marketplace. Stanley S. Elliott - Stifel, Nicolaus & Co., Inc.: Perfect. And then, one last question, back to the oil and gas where they're down mid-single digits, talked about that more on the extraction side. But what sort of conversations are you having with more of your mid and downstream sort of end markets as it relates to project deferrals, cancellations or the outlook and visibility on at least this first set of projects that should be happening along the Gulf Coast still pretty firm? Christopher L. Mapes - Chairman, President & Chief Executive Officer: I think we hear what we all read in the papers, that it's still early in some of the decision-making relative to some of those projects and cycles. And the conversations that we're having is that those companies are continuing to evaluate those projects and the capital for those projects. But I think the other point, which is very important is recognize that irrespective of the price points for oil, there is still an enormous amount of repair and maintenance of those larger chemical processing facilities that are required on just a utilization basis. So there is a level of demand there from those particular industries even if they're not moving forward with some of these larger projects. We'll just have to evaluate some of those capital decisions as we move throughout the rest of 2015. Stanley S. Elliott - Stifel, Nicolaus & Co., Inc.: That's great. Thank you very much and best of luck. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Thank you.

Thank you. I would now like to turn the call back to Vince Petrella for any further remarks. Vincent K. Petrella - Executive Vice President, Chief Financial Officer & Treasurer: Thank you, Kat. And I'd like to thank everyone for joining the call today and for your continued interest in Lincoln Electric. Our first quarter results demonstrate the company's strength even in a mixed economic environment. We continue to believe that we are very well-positioned to take advantage of the opportunities that are available to us in the marketplace, and we expect our competitive advantages to drive strong cash flow generation throughout the cycle. I would like to thank you again for joining us today, and we very much look forward to providing you with an update of our progress at the end of July on our second quarter 2015 results.