Greetings. And welcome to the Lincoln Electric Fourth Quarter and Full Year 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode and this call is being recorded.It is now my pleasure to introduce your host Amanda Butler, Vice President of Investor Relations and Communications. Thank you. You may begin.

Thank you, Carmen, and good morning, everyone. We released our financial results earlier today and you can find our release as an attachment to this call's slide presentation, as well as on the Lincoln Electric website at lincolnelectric.com in the Investor Relations section.Joining me on the call today is Chris Mapes, Lincoln's Chairman, President and Chief Executive Officer; as well as our Chief Financial Officer, Vince Petrella. Chris will begin the discussion with an overview of full year results and Vince will cover the quarter performance in more detail. Following our prepared remarks, we're happy to take your questions.Before we start our discussion, please note that certain statements made during this call may be forward-looking and actual results may differ materially from our expectations due to a number of risk factors. A discussion of some of the risks and uncertainties that may affect our results are provided in our press release and in our SEC filings on Forms 10-K and 10-Q.In addition, we discussed financial measures that do not conform to U.S. GAAP. 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'll turn the call over to Chris Mapes. Chris?

Thank you, Amanda. Good morning, everyone. Our full year results demonstrate the business resilience in a challenging portion of the cycle. We remain focused on serving customers, executing our strategic initiatives and investing in long-term growth, to deliver value to our shareholders. As we celebrate our 125th anniversary in 2020, we are confident that this balanced approach continues to position the business for long-term growth and value generation for all of our stakeholders.In 2019, we generated record cash flows, 113% cash conversion, top quartile returns and returned $411 million to shareholders to $118 million in dividends and $293 million of share repurchases. We did this while working to mitigate the impact of decelerating global industrial production trends and weak capital spending.Our net sales declined 80 basis points to $3 billion, with 3.5% lower organic sales, largely driven by softer demand for consumables and automation systems. We successfully offset the impact of lower volumes in our core business by aligning operations to demand through reduced hours, lower incentive compensation and discretionary spending. Acquisitions unfavorably impacted our consolidated financial results.We reported a 50 basis point decline in our full year adjusted operating income margin to 12.9%, with a 69% decremental margin. If excluding acquisitions, our adjusted operating income margin would have held relatively steady, with a 10 basis point decline to 13.3% in the remainder of our business, which represents an approximate 15% decremental margin.Moving to slide four. Fourth quarter organic sales trends weakened through the quarter, driven by a 5.7% decline in volumes. Two persistent key factors impacted demand. A broad reduction in global industrial production rates across most of our end sectors lowered demand for consumables. And a slowdown in capital spending and project deferrals reduced orders for our automated systems. This has resulted in four quarters of an industrial…

Thank you, Chris. Moving to slide 6. Our consolidated fourth quarter sales declined 1% as a 5.9% benefit from acquisitions was offset by 5.7% lower volumes, an 80 basis point decline in price and a 30 basis point unfavorable impact from foreign exchange.Our fourth quarter gross profit margin decreased 100 basis points to 32.7%, as positive price costs including a $1.8 million LIFO credit was offset by weaker operating leverage and unfavorable mix, primarily from automation systems and acquisitions. Excluding acquisitions, the gross profit margin would have decreased approximately 10 basis points.Our SG&A expense declined 3.3% in dollar terms, as lower incentive compensation expense and lower discretionary spending offset added SG&A from acquisitions. SG&A as a percent of sales decreased 50 basis points to 20.3%. Reported operating income decreased 12.9% to $82.7 million or 11.2% of sales.Operating income results included approximately $8.9 million in special item non-cash charges, primarily related to rationalization and asset impairments in our International Welding segment. Excluding special items, adjusted operating income declined 5.3% to $91.6 million or 12.4% of sales, a 60 basis point decline versus the prior year. Excluding the unfavorable impact from acquisitions, our adjusted operating income margin would have been flat year-over-year at 13%.Our fourth quarter effective tax rate was 20.6% compared with 8.1% in the prior year period. Excluding special items, our fourth quarter tax rate was 20.4%. This compares with 14.7% in the prior year period. We expect our average full year 2020 effective tax rate to be in the low- to mid-20% range, subject to the future mix of earnings and the timing and extent of discrete tax items.Fourth quarter diluted earnings per share decreased 23.7% to $1.03 compared to $1.35 in the prior year period. Excluding special items, adjusted diluted earnings per share decreased 10.9% to $1.15 reflecting…

Thank you. And ladies and gentlemen at this time, we’ll be conducting the question-and-answer session. [Operator Instructions] And our first question is from Saree Boroditsky with Jefferies.

Thank you. Good morning.

Good morning, Saree.

In your slide that you highlighted the improved demand in APAC. Could you provide any color on what you saw by end market there? And any indication if you expect to be impacted by some of the factory shutdowns and supply chain issues occurring in China during the first quarter?

Well, certainly, we're watching and concerned about the impact that we may see from the coronavirus relative to our business as well as our customers' businesses as we're migrating through the first couple of quarters of the year.To provide you with an update on the Lincoln Electric businesses, so our facilities there we were intending to start our facilities back up on February 10th. As you may be aware that requires not only a governmental approval, but also a provincial approval. We have been working with the government to receive those approvals.Although at this time, we've been unable to operate all of our facilities there at this point. We have one facility that's operating but only at about 25% capacity. So, some of those facilities have been closed because of the Chinese New Year for nearly a month. We'll continue to work with the government as in our ability to be able to get those up and operating and then I think we'll have to see what the visibility is to our supply chains and our ability to continue to operate as well as our customer supply chains and their ability to get their facilities up and operating.So, I certainly believe it will be an impact for us in Q1 and probably trend into Q2 as they work through those supply chain issues. But confident that we'll be able to work through those issues.On a more important note I'm unaware of any of our employees that have been -- that have contracted the virus and we did not have any operations in that broad Wuhan area.As it relates to the demand side in that Southeast Asia area, as you may be aware, we had placed technical centers in that region over the last couple of years. I was actually in our Singapore office in the January window talking to the team. They just had some very good execution of some customers that came through that particular region.We actually had some nice offshore activity that I know was executed on in that particular marketplace. As well as seeing some benefits from offshore wind that are actually moving through that area of the world. And then we had several equipment wins that occurred there in that marketplace throughout 2019. So, it was broad.But I would also say, Saree, that I wouldn't necessarily say that those wins may be representative of those segments on the global market basis. Other than certainly we see offshore wind and wind continuing to be one of those markets where we think there could be some opportunities for us as we move into 2020.

I appreciate the color. Then just in light of the new share repurchase authorization in place, could you just talk a little bit more about how you're thinking about capital deployment and the cadence of share buybacks? Especially given that I think with the new authorization it represents around 20% of your share count?

Right. So, I would say that our priorities haven't changed in this market or our experience in 2019, Saree. We're still focused on growing the business, reinvesting in our own capital stock, and identifying those opportunities around M&A that that may be attractive that fit our strategy and are priced appropriately.And so I would tell you that our outlook for 2020 is to continue our share buyback activities at least at a maintenance level and be opportunistic depending upon those factors as well as our share price to take our share repurchase activity and drive our total gross debt to EBITDA to within the range that we've established for our capital allocation planning.

Thank you. I appreciate the color guys.

You're welcome.

Thank you. Our next question comes from Joe O'Dea with Vertical Research.

Hi, good morning. With respect to the additional cost actions planned for 2020. Just now that we're four quarters into volume declines in the Americas segment and so why the cost actions now, why not earlier? Is a matter of -- as you assess the outlook, it's more about persistent pressure that you're anticipating? Just sort of timing around some of these additional cost actions?

Yes. Look my perspective on it would be that we're actually accelerating the cost actions. If you take a look at some of our ratios as we migrated through the year, you saw some slight improvements in our SG&A ratios within the business. That was of the cost actions that we were taking in 2019 as we were trying to understand the extent of the challenges that we were experiencing in the marketplace.And especially in the Americas side of the market, you also had the headwind associated with the acquisitions that were coming in and some of the SG&A associated with that piece.The announcements that we've made today were things that we have been working on for a few months. So, it wasn't as if this was just a response to the end of the year. The activities that we're doing here internationally, I have reviewed and seen over the last couple of months. But we wanted to get them in front of the market today, so that they could see the next step of activities.But what I really think of our approach to this, we view that quite frankly we made some cost initiatives to try to mitigate some of the volume impacts. Those volume impacts have continued to accelerate some as we move through 2019. And we really went and wanted to bring further forward, some other productivity measures to mitigate some of that volume challenge that we're seeing in the marketplace. Expecting to mitigate that and also expecting that we would see a more favorable potential environment as we are migrating through the back half of 2020.

Can you just talk about how the 15% to 18% flows through at the segment level? And are these costs that come back if volumes get better?

I could start by saying Joe that the split is relatively equal between the Americas and the International segment. So our expectation is that it would be well balanced between those two. And then Harris has very modest amounts associated with it. So it will be fairly equally distributed between Americas and International.And then as far as the restoration of these costs. Yes, certainly, if volume turns at that point in time some of these cost reductions will be restored. But I will stress that particularly in the International segment, these actions are – some of them related to improving our manufacturing utilization and compressing some of our people and facilities that will likely be more permanent. So I'd say, the Americas could be restored with improved volumes. Much of the International improvements are likely part of our permanent cost structure going forward.

Thanks very much.

You’re welcome.

Thank you. And our next question comes from Mig Dobre with R.W. Baird.

Hi, good morning, everyone. It's Joe Grabowski on for Mig this morning.

Good morning, Joe.

Hey, good morning. So last quarter you mentioned an acceleration in the volume compression within automotive. I think it was partly due to the DM strike but also from just broad global weakness. How did the automotive end market trend in the fourth quarter?

I would tell you Joe, it's similar to what we experienced in the previous quarter. We have mid-teens type of volume decline compressions across the automotive and transportation segment. So on its own, automotive is one of the most significant year-over-year declines in our business simply, because of it's size and the magnitude of the year-over-year declines. And then that's followed by heavy industries. But automotive is certainly weak both in the Americas and internationally.

Got it. Okay. Thanks. Thanks for that color. I guess switching to International. As you guys know volumes have been down each quarter for the last couple of years. A lot of that has been self-inflicted after the Air Liquide acquisition. As we sit here now and maybe going forward into 2020, are most of the declines now due to the challenging macro, or are there some still – still some impacts from rightsizing the business?

No. I think that most of the declines that we've been experiencing and will experience if those markets don't become more favorable moving into 2020 are more market-driven. We put a strong focus on being able to align our business model in Europe to be able to meet customer expectations from a supply chain and a service perspective.Those service metrics have rebounded. And quite frankly are outstanding for me to look at the business, especially over the last what I'd say, four to six months. So thinking about the business as we move into 2020, my concerns with the business are really the underlying economic environment and the challenges that we've seen from some of the industrial production numbers not only across Europe but from a couple of the specific larger countries. But I believe that the revenue outlook is much more impacted by that versus me thinking about this is furthering for maybe the integration work that we've done.

Got it. And if I could just squeeze in one more. You don't get a lot of questions on Harris Products Group. But they had a very strong quarter both volume and pricing. Maybe just a little more color on what drove the strength there during the quarter?

Look, the Harris team had not only a strong quarter, but an outstanding 2019 an all-time record for the business. And it just comes from execution. They're very focused on their customers. They've had some new product introductions. We made some investments in that business. Over the last couple of years for them to launch a new product line, that was targeted towards the HVAC marketplace in the wholesaling marketplace in the aluminum product category. They conducted an acquisition at the end of 2018 that migrated into 2019 that the team did a very, very good job of integrating and then executing on those products into our portfolio. And quite frankly, we expect them to continue to be able to grow and look to make continued investments within that portion of the business.

Okay. Great. Thanks for taking my questions.

You're welcome.

Thank you. Our next question comes from Bryan Blair with Oppenheimer.

Good morning everyone. Thanks for taking my questions.

Good morning.

Good morning.

You just mentioned the continued auto weakness which obviously impacts your automation portfolio. Based on what you can see today and understanding that there are easier comps going forward, is there a realistic chance that the automation and added strategy growth rate reaccelerates during 2020?

Well, I'd say a couple of things. One is, I don't think about automation and additive when I think about the growth rates as a combined entity. So our additive strategy is a long-term investment strategy that we have. We're certainly investing in that technology. We're excited about that technology, but that's really incubating a new business inside the company. And there are other elements within that strategy that we're working on as I think about additive.As it relates to automation, I certainly expect that our automation business is going to stay challenged in thinking about our performance in Q1. It may have some challenges as we're migrating into Q2. As we think about the backlog that, we're looking at and the order activity that we've seen, we're expecting improvements in that business as we move into the rest of 2020.As I look at capital spending dynamics within the industrial space, some of the larger companies have come out and said, they're increasing capital spend in their 2020 business plan. I believe part of that will be towards productivity. And productivity in the welding space certainly leads you right towards automation. So, again expecting some challenges still in Q1. Expecting us to start to migrate out of those challenges in Q2 and then expecting improvements in that business as we're looking at the back half of the year.

Got it. Appreciate the color there. Obviously, good contribution this year from your new products helped to offset some of the underlying market weakness on the equipment side. I was wondering if you could parse that out for us? And maybe the expected impact to continued run rate weakness on a market level in the first half?

Well, I think it's awfully difficult for us to parse it out because when I look at our new product introductions, there were a host of them. And we saw that come across our Vitality Index across the equipment portfolio. So, it's not any one application, it's a multitude of applications. However, I will bring up our new HyperFill technology, which is growing globally. And it's a technology that quite frankly allows users to be able to take twin wire technology, to improve deposition rates and improve the productivity in the welding process.During my travels, in the first part of the year, I saw that application in a couple of international applications and believe that, it can continue to provide a nice growth vector for us as we're moving into 2020. But even that application can be utilized across the multitude of the segments. So, it's very difficult for us to point towards that, towards any one segment. I've got confidence in the investments that we've made and the new products that we've launched even in late 2019. And what we have coming in our portfolio in 2020, that we should be able to continue to drive improvements in our equipment portfolio across those segments as we're moving through the year.

Okay. Thank you for that. And then one last one. Vince, you touched on capital deployment strategy, how that's unchanged at a high level. If you had the right opportunities come along particularly on the M&A side. What do you see as deployment of capacity over the near term?

We could certainly for the right acquisition that we'd be comfortable taking our debt-to-EBITDA up to 3 and above. Up to -- between 3 and 4 times for the right transaction.

Okay. Thank you again.

Thank you. Our next question comes from Steve Barger with KeyBanc Capital. Please go ahead.

Good morning Steve.

Good morning Steve.

Chris you made a comment about how end market conditions and a higher tax rate are going to bring earnings down in 2020. Does that comment from 1Q, one half or full year?

Yes. Look I would tell you that that's a full year. But certainly the first half of the year is where we're focused that – that we have our best visibility of the headwinds facing us. But I think, even if we do have a turn Steve in the second half of the year, we're going to be very challenged based on sort of the run rates that we're experiencing in the early part of the first quarter.And knowing that our tax rate will likely be higher than what we experienced in 2019. So I would tell you that those comments apply to the full year. So really the first half being the most challenging.

Got it. And so just thinking about organic decline rates in 1Q will that mirror what you saw in 4Q? It went kind of down high single-digit in Americas and international, or is that -- will it get kind of sequentially better on a year-over-year rate?

No. That's what we see right now. Based on our order trends and our experience in sales for the first month of the year, we're tracking at that mid-single-digit year-over-year decline that we experienced in the fourth quarter.So no our expectations are with what's going on in China and the knock-on effect that that might have on global economies that the first and probably the second quarter of the year will likely be tracking at those kinds of year-over-year declines. And second half of the year, it's a little too early to make those kinds of predictions, but certainly first half similar kind of performance from a top line perspective.

Okay. And then just one more I guess. If the Americas is running down at that level or at that similar level how sustainable are margins versus where we came in at 4Q, or how should we think about decremental margin in that segment given the headwinds?

Yes. So I think we're -- we've got the not only those headwinds from the year-over-year declines in the topline, but we have incentive pay headwinds as we reset our objectives for the year. And part of the need for these cost savings initiatives that we're driving through our Americas segment as well as International is to hope to offset those costs that we will incur from incentive management systems.We're also seeing a little bit of input cost inflation as we enter 2020. We did have some declines as we finish 2019 that will likely be another headwind we will have in the first quarter and perhaps first half of the year. So we believe that the cost savings initiatives should largely mitigate some of these headwinds that we know are in front of us. But we do have, I believe at this point some downside risk to maintaining those types of margins in the -- certainly in the first quarter and the first half of the year.

Understood. Thanks.

You’re welcome.

And this concludes our Q&A session. I would like to turn the call back to Vincent Petrella for his closing remarks.

Thanks Carmen and thanks everyone for joining us today on the call and for your continued interest in Lincoln Electric. We look forward to discussing our progression of our results as we move into the first quarter of 2020. Thank you again.

And with that ladies and gentlemen we thank you for participating. And you may now disconnect.