Lincoln Electric's Q3 2025 Earnings Call: Contradictions Emerge on Automation Demand, Pricing Dynamics, European Outlook, and 2026 Volume Expectations

Date of Call: October 30, 2025

Financials Results

• Revenue: $1.061B, up 7.9% YOY
• EPS: $2.47 adjusted EPS, up 15% YOY (reported diluted EPS $2.21)
• Gross Margin: 36.7%, up 90 basis points YOY
• Operating Margin: 17.4% adjusted operating income margin, up 10 basis points YOY; reported operating income up 21% YOY

Guidance:

• Maintaining top-line and margin assumptions for the year.
• Expect modest sequential improvement in operating income margin in Q4.
• Automation sales expected ~15%–20% higher sequentially in Q4; larger benefit expected in 2026 if order trends continue.
• Increasing interest expense assumption to low $50M range and raising cash conversion expectation to above 100%.
• Segment outlook: Americas Welding ~18%–19% EBIT; International Welding ~11%–12%; Harris record Q3 margin 18.3% and expected to operate in the 16% to 7% range for the balance of the year.

Business Commentary:

* Revenue Growth and Pricing Strategies: - Lincoln Electric reported an 8% increase in sales for Q3, driven by pricing strategies, M&A, and resilient demand in specific segments. - The growth was supported by effective commercial and operational agility, offsetting inflation and volume headwinds.

• Segment Performance and Margins:
• Americas Welding segment sales increased by 9%, with a 9.6% higher price contribution and 1.4% from acquisitions.

• International Welding sales rose by 1.6%, with increased volume stabilization in Asia Pacific and high single-digit growth in China.

• Automation Demand and Order Trends:

• Automation sales were slightly below expectations, but there was a broad increase in automation order rates in late September and October.

• Expectations for a 15% to 20% sequential improvement in automation sales for Q4, though still below last year's levels.

• Cash Flow and Capital Allocation:

• The company achieved record cash flow from operations, with a 149% cash conversion rate, driven by lower tax payments.
• Lincoln Electric plans to continue returning cash to shareholders, with an announced 5.3% increase in its annual dividend.

Sentiment Analysis:

Overall Tone: Positive

• Management: "We reported solid third quarter results" with "sales increased 8%"; "record cash flow generation with 149% cash conversion"; "achieving our targeted neutral price cost position" and generated incremental $8M permanent savings — all emphasizing operational strength and optimism.

Q&A:

• Question from Oliver Z Jiang (Morgan Stanley): This is Oliver Jiang 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.
  Response: Demand is strengthening into Q4 with Americas construction/infra improving and a broad-based acceleration in automation orders, though HVAC is expected to soften modestly.

• Question from Oliver Z Jiang (Morgan Stanley): Maybe just as a follow-up, in automation, it sounds like encouraging to see kind of that order rate tick 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.
  Response: Automation has higher fixed costs so margin benefits will be limited in Q4 and the biggest margin uplift from renewed capital spending will materialize in 2026; some short‑cycle product sales may slightly improve Q4 margins.

• Question from Bryan Blair (Oppenheimer & Co. Inc.): It would be great to hear a little more on how your team is thinking about cycle positioning and the potential for 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.
  Response: Company is well positioned for market expansion—consumables strength and improving automation order trends—yet management needs more consistent order activity before taking a definitive 2026 growth position.

• Question from Bryan Blair (Oppenheimer & Co. Inc.): 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. There will 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.
  Response: Order acceleration is broad-based (not only automotive), tied to recent program launches and higher quoting converting to committed orders.

• Question from Saree Boroditsky (Jefferies LLC): 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.
  Response: Pricing has proven more inelastic than feared; volume declines have narrowed and are beginning to flip positive, aided by easier comps and resilient demand.

• Question from Saree Boroditsky (Jefferies LLC): How you would expect to see a slower recovery? Would it be kind of a recovery? Or would you see some strong growth coming out of this downturn?
  Response: Management expects a gradual, steady build in volume growth rather than a sudden, sharp rebound.

• Question from Nathan Jones (Stifel, Nicolaus & Company, Incorporated): 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... 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?
  Response: Current environment implies high‑teens incremental margins; with mid‑single‑digit volume growth expect mid‑20s incrementals, and automation/international upside could push incrementals into the low‑to‑mid‑30s.

• Question from Nathan Jones (Stifel, Nicolaus & Company, Incorporated): Maybe just any commentary on your view of any inflection in European volume growth.
  Response: Cautiously optimistic on Europe given government defense spending commentary, but no meaningful order pickup yet; not relying on Europe for near‑term recovery.

• Question from Mircea Dobre (Robert W. Baird & Co.): 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... Also asking about margin differences for Q4 vs Q3?
  Response: Expect Q4 seasonality to lift margins modestly versus Q3; Americas automation up sequentially but still down YoY (low double digits behind prior year), with Americas operating at the higher end of the 18%–19% EBIT range and International near the high end of 11%–12%.

• Question from Mircea Dobre (Robert W. Baird & Co.): From a LIFO charge standpoint, is this something that we should be contemplating in 2026 as well? Or are we starting to lap some of these issues... and how should people be thinking about incrementals?
  Response: Expect similar LIFO charges in Q4 as recent quarters; LIFO in 2026 will depend on future inflation trends and resets; temporary cost takeouts are modeled to revert as volumes recover.

• Question from Christian Zyla (KeyBanc Capital Markets) on behalf of Steve Barger: 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?
  Response: Underperformance was primarily timing and mix—automotive and heavy industries—resulting in a Q3 pacing shortfall that will be partly recouped in Q4; full‑year automation still implies a mid‑single‑digit decline with more material recovery expected in 2026.

• Question from Christian Zyla (KeyBanc Capital Markets): On your Harris business, your ability to get pricing has been incredible. 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?
  Response: Harris pricing is largely commodity‑linked (silver and copper) via a mechanical pricing model, so price moves reflect commodity cost changes more than pure demand dynamics.

Contradiction Point 1

Automation Demand and Order Activity

It involves differing perspectives on the demand and order activity in the automation segment, which is crucial for business outlook and investor expectations.

How are you tracking demand trends in the first month of the quarter, particularly in construction and infrastructure? - [Oliver Z Jiang](Morgan Stanley)

2025Q3: We've seen continued strength in automation segment order activity as we wrap up the third quarter and into this fourth quarter. There's an acceleration of orders that are broad-based, signaling progress in capital investment. - [Gabriel Bruno](CFO)

Can you discuss the current state of automation, particularly auto components, and any trends impacting it? - [Mircea Dobre](Robert W. Baird & Co. Incorporated)

2025Q2: Automation outlook for the second half is steady from the first half, with normal fourth-quarter pickup. Quoting activity is strong, indicating potential upside despite conservative expectations. - [Steven Hedlund](CEO)

Contradiction Point 2

Pricing and Volume Dynamics

It involves differing views on the relationship between pricing and volume, which is critical for assessing the company's ability to maintain profitability and drive growth.

Has pricing inelasticity exceeded expectations due to the absence of demand destruction? - [Saree Boroditsky](Jefferies)

2025Q3: Our initial concern was that price and volume would offset each other, but volume has been more resilient, allowing for net organic growth. - [Gabriel Bruno](CFO)

What drove the pricing offset expectation for Q2? - [Chris Dankert](Loop Capital Markets)

2025Q1: April order intake showed a rough balance between pricing and volume. It's uncertain how pricing will offset volume going forward, but current trends suggest they are offsetting each other. - [Steve Hedlund](CEO)

Contradiction Point 3

European Volume Growth Outlook

It highlights differing expectations on the potential recovery in European volumes, which is crucial for assessing regional growth opportunities and strategic investments.

Has your outlook on European volume growth improved as a competitor's has? - [Nathan Jones](Stifel, Nicolaus & Company)

2025Q3: We're cautiously optimistic about Europe, given government commentary, but we're not seeing order intake improvements yet. - [Steve Hedlund](CEO)

Can you explain why April order intake in Europe was better than March? - [Sara Boroditsky](Jefferies)

2025Q1: We're not seeing order intake improvements yet. We plan for some improvement, but nothing is certain. - [Steve Hedlund](CEO)

Contradiction Point 4

Demand Trends in Heavy Industries

It reflects differing perspectives on the demand trends in heavy industries, which are crucial for understanding market conditions and potential growth opportunities for Lincoln Electric.

What are demand trends in construction and infrastructure like in the first month of the quarter? - [Oliver Z Jiang](Morgan Stanley)

2025Q3: We've seen continued strength in automation segment order activity as we wrap up the third quarter and into this fourth quarter. There's an acceleration of orders that are broad-based, signaling progress in capital investment. - [Gabriel Bruno](CFO)

Can you clarify your expectations for flat organic sales growth per end market? - [James](Jefferies)

2024Q4: Heavy Industries should see continued pressure but stabilize later. - [Gabriel Bruno](CFO)

Contradiction Point 5

Volume Expectations for 2026

It involves differing expectations for volume recovery in 2026, which is important for forecasting Lincoln Electric's potential growth and revenue projections.

How do you envision volume recovery in 2026 as the second year of decline? - [Saree Boroditsky](Jefferies)

2025Q3: Short-cycle activities indicate growth leading to capital investment. We're seeing signs of stabilization in heavy industries and general industries. The trend is optimistic, but we need more consistency before predicting specific recovery patterns. - [Gabriel Bruno](CFO)

What assumptions does your guidance include for Q1 organic sales by segment? - [Stefan Diaz](Morgan Stanley)

2024Q4: We expect pressure on volumes for the first half of the year and then a stabilization later in the year leading into the second half. - [Gabriel Bruno](CFO)