Lincoln Electric Q1 2023 Earnings Call Transcript

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Provided by Quartr
April 27, 2023

There are 10 speakers on the call.

Operator

Greetings, and welcome to the Lincoln Electric 2023 First Quarter Financial Results Conference Call. It is my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you. You may now begin.

Speaker 1

A call.

Speaker 2

Well, thank you, Gerald, and good morning, everyone. Welcome to Lincoln Electric's Q1 2023 conference call. We released our financial results a conference call. Earlier today, 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 Gabe Bruno, our Chief Financial Officer and Steve Hedlund, Chief Operating Officer.

Speaker 2

Chris will begin with quarterly highlights, Steve will provide a discussion of end market trends and Gabe will cover our quarterly financial performance listen only mode and answer session. 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 ks and 10 Q. In addition, we discuss financial measures that do not conform to U.

Speaker 2

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?

Speaker 3

Thank you, Amanda. Good morning, everyone. Turning to Slide 3. I'm pleased to report another record quarter of sales at over $1,000,000,000 expect a milestone for our organization. We also achieved record adjusted earnings per share performance at $2.13 and generated a record $124,000,000 in cash flow from operations, all of which demonstrate solid momentum in the business, a continuous improvement in our operational performance, leveraging our Lincoln Business System and higher standard 2025 strategy initiatives.

Speaker 3

And it reinforces how our innovative solutions, automation leadership and industry leading application experts are winning in the market. While we have challenging profit margin comparisons in the first half of this year, we're very pleased by the strong sequential profit improvement across expect to complete all of our reportable segments. This is most notable in our International Welding and Harris Products Group segments, a consolidated 16.3 percent adjusted operating profit margin in the quarter. Our ROIC performance remained top decile at 22.4% and we continue to return cash to shareholders with a 14% expect to be a higher dividend payout rate and share repurchases. We remain focused on putting our customers first, implementing our long term strategic initiatives and pursuing a balanced capital allocation plan, which is continuing to yield strong results.

Speaker 3

The Q1 also marked the conclusion of Foray Automation in our results, which had a slightly dilutive impact to margin as expected. We are pleased to report that the integration of the organization is on track and we're looking forward to supporting growth and margin expansion in the business expect to continue to deliver our Lincoln business system in the operation, which will support driving Forry's margins to our mid teens percent target

Speaker 1

expect to be in the range of

Speaker 3

20 25. We're also on track with our EV charger initiative and are actively investing in our operational platform expect to be ahead of our targeted 4th quarter start of production. These investments provide capacity to produce up to 500 units per month. All of this work is a true testament to our unique high performance culture and our values rooted in integrity and the Golden Rule. And during the quarter, I'm proud that our team was recognized externally for what I believe truly sets us apart, our culture.

Speaker 3

This year we were awarded for the 5th time as one of the world's most ethical companies by Ethisphere and for the second time by Newsweek as one of America's most trusted companies. These endorsements as well as our solid first quarter momentum position us well at the start of the year and our global team is energized to execute on our higher standard strategy. Now expect to be

Speaker 1

in listen only mode. To share more details

Speaker 3

on our Q1 performance, here is Steve Hedlund, our Chief Operating Officer. Thank you, Chris, and good morning, everyone. Turning to Slide 4, our 8.5% growth in organic sales reflected strengthening demand through the quarter, Ending with strong March results. We also had one additional shipping day in the quarter. On a consolidated basis, we achieved organic growth across all a few of the 3 product groups, led by strong sales in equipment, which increased low teens percent with strong demand across both our direct and distribution channels.

Speaker 3

We also achieved a high single digit percent increase in automation. Both automation and equipment backlogs have reached record levels from strong capital investments across key end markets, including automotive, heavy industry and energy applications where our innovative solutions continue to win in the market. Regionally, we are seeing the highest levels of industrial and project activity in Americas, Asia Pacific and the Middle East, with uneven areas of performance in Europe, primarily due to challenging comparisons expect to be in the first half of this year led by our decision to cease operations in Russia in 2022. Excluding the challenging comparison, European organic sales increased low single digit percent. A listen only mode.

Speaker 3

Similar to the Q4, end markets continue to trend positively in 4 of our 5 end markets, accounting for approximately 85 percent of revenue exposure. We are expecting continued strength in transportation expect to continue to be in listen only

Speaker 1

mode due to resilient production

Speaker 3

levels and continued capital spending on new platforms. We expect ongoing demand from heavy industries, a number of key areas of the business, notably in large equipment systems to support agriculture, construction and mining. Energy project activity is expected to continue both in oil and gas to support accelerated investments in LNG and pipe, as well as in on and offshore wind projects. A. Shipbuilding and defense applications, while small on a relative basis, are expected to accelerate.

Speaker 3

We are seeing continued challenges around the consumer at retail. In construction infrastructure, we are seeing strong orders for our proprietary automation solutions serving that sector. However, the timing of projects against the challenging prior year comparison and some softening in non residential spending a question is the primary driver of the quarterly decline in that sector. And now, I will pass the call to Gabe Bruno to cover Q1 financials.

Speaker 4

A. Thank you, Steve. Moving to Slide 5, our consolidated first quarter sales increased 12% expect to $1,039,000,000 The increase reflected a 5.7% benefit from acquisitions, a 4.3% increase in price and 4.2% higher volumes. These increases were partially offset by a 1.9% unfavorable foreign exchange translation, primarily from the euro and Turkish lira. Gross profit dollars increased approximately 8% expect to report $26,000,000 versus the prior year on higher volumes and benefits from acquisitions, a conference call, which is primarily Forre Automation.

Speaker 4

These gains were partially offset by an approximate $4,000,000 unfavorable impact expect to receive a $2,000,000 LIFO charge was recorded in the quarter. Our first quarter gross profit margin decreased 140 basis points to 34.2% expect to be in listen only mode due to acquisitions and the timing of price actions to offset inflation. Our SG and A expense increased approximately 14 expect to be in listen only mode and expect to be in listen only mode

Speaker 1

and expect to be in listen only mode and expect to be in

Speaker 4

listen only mode and expect to be in listen only mode and expect to be in listen only mode and as well as approximately $8,000,000 from acquisitions. SG and A as a percent of sales increased 30 basis points to 18.3%. Reported operating income increased 2% to $164,000,000 Excluding approximately $5,000,000 special items from rationalization charges and the amortization of step up of acquired inventories, adjusted operating income increased 4% expect to $169,000,000 Higher volumes, solid operational execution and contributions from acquisitions drove higher profit dollar growth, which helped to partially offset the unfavorable impact of raw material and wage inflation. Foreign exchange translation had an unfavorable $2,000,000 impact. Our adjusted operating income margin decreased 130 basis extend the balance sheet to 16.3%, primarily reflecting acquisitions and the timing of price actions.

Speaker 4

The interest expense net in the quarter more than doubled to $13,200,000 The increase reflects higher borrowings expect to receive a full year of earnings from the $400,000,000 term loan we entered into in November 2022. Our Q1 effective tax rate as reported and adjusted was approximately 21.5% due to our mix of earnings and discrete items. This compares to an adjusted tax rate of 20.7% in the prior year. We continue to expect our full year 2023 effective tax rate to be in the low to mid-twenty percent range subject to the mix of earnings and anticipated extent of discrete tax items. The Q1 diluted earnings per share was $2.09 Excluding special items, adjusted a diluted earnings per share was a record $2.13 We incurred a $0.03 unfavorable impact to EPS expect to be in listen only mode.

Speaker 4

Moving to our reportable segments on Slide 6. Americas Welding segment's 1st quarter adjusted EBIT increased approximately 19% expect to $133,000,000 The adjusted EBIT margin decreased 60 basis points to 19.2% expect to be recorded from acquisitions. Americas Welding sales increased 23% in the quarter, a constant currency translation led by a 16% increase in organic sales. The segment generated 11% higher volumes from growth across all of their product are encouraged by strong regional industrial productivity and capital investment. Additionally, U.

Speaker 4

S. Exports strengthened in the quarter. This demand strength increased backlogs to record levels in both equipment and automation. The price primarily reflected prior actions taken to mitigate inflation and we expect additional price contribution starting in the second quarter expect to recover rising costs and to position us to achieve our neutral price cost position for the full year. Acquisitions contributed 9% sales growth in the quarter.

Speaker 4

Moving to Slide 7. The International Welding segment's adjusted EBIT decreased approximately 20% or $8,000,000 to $30,000,000 the segment incurred a $1,000,000 unfavorable impact from foreign exchange translation. The adjusted EBIT margin declined 260 basis points to 11.4% due to lower cost absorption and the timing of pricing actions. Expect our margin performance to remain relatively steady sequentially and then improve to the lower end of their EBIT target range expect to be up 12% to 14% in the second half of the year. Organic sales were relatively steady versus prior year expect to be in listen only mode as 5.7% lower volumes were offset by price.

Speaker 4

As Chris mentioned, the volume decline was largely due to challenging prior year comparisons in Europe, including our decision to cease operations in Russia. Excluding these prior year factors, volumes would have declined at a more modest low single digit percent rate. Price increased approximately 6%, primarily reflecting prior pricing actions. Moving to the Harris Products Group on Slide 8. 1st quarter adjusted EBIT decreased approximately 3% expect to $19,000,000 The adjusted EBIT margin increased 10 basis points to 14.5%, reflecting effective cost management and operational improvements from integration activities.

Speaker 4

The company's sales declined approximately 3% on approximately 4% lower volumes and slightly higher price performance. The volume strength in Specialty Gas Solutions and HVAC was offset by continued weakness in the retail channel, a conference call, which we expect will continue through the first half of twenty twenty three. Moving to Slide 9, We generated a record $124,000,000 in cash flows from operations in the quarter, resulting in an 85% cash a conversion. Average operating working capital decreased to 19.6% on improved inventory levels. Inventory remains elevated to support sales to mitigate challenging supply chain conditions that persist in our equipment portfolio and reflects the impact of acquisitions.

Speaker 4

Moving to Slide 10. We invested $19,000,000 in expect CapEx spending and returned $70,000,000 to shareholders through our higher dividend payout and approximately $32,000,000 of share repurchases. We maintain a solid return on invested capital of 22.4%. Turning to Slide 11 and our full year assumptions. We have raised our full year sales growth rate assumption to a lowtomidteens percent rate given new pricing actions that are effective in the Q2 as well as better than expected demand trends in Americas and Automation, a call, which has raised equipment and automation backlogs to record levels.

Speaker 4

Our updated organic sales assumption is now in the mid at the high single digit percent range still split approximately fifty-fifty between volume and price. This compares to an initial assumption of a mid single digit percent organic sales growth rate. Expect to be in a listen only mode.

Speaker 1

We have

Speaker 4

lowered our interest expense assumption range to $45,000,000 to $55,000,000 in the year expect to reflect interest rate swaps entered into in March for $150,000,000 and the reduction a discussion in our short term debt. Our weighted average interest rate on $1,200,000,000 of debt is now 4%. We are maintaining all other assumptions. Given limited visibility in the back half of the year, we remain focused on putting our customers first, are winning in the market and managing the business through the cycle to continue to generate value for all of our stakeholders. And now I would like to turn the call over for questions.

Operator

A to ensure that everyone has an opportunity to participate, we ask that you ask only one question and one follow-up question and then return to the queue. Please standby while we compile the Q and A roster.

Speaker 1

A question comes

Operator

from the line of Brian Blair from Oppenheimer. Your line is now open.

Speaker 5

A Thank you. Good morning, everyone.

Speaker 3

Good morning, Brian.

Speaker 5

I was hoping you could offer a little more color on the demand environment. So I guess kind of following up on Steve's prepared remarks, what you're seeing in early Q2, whether there are any notable changes relative to the Q1 profile, whether in the Americas or international markets.

Speaker 3

Yes, really no significant changes. We were very excited and pleased with the continued progression of the demand model and the fact that our backlog was so strong as we were Really strong as we were exiting 2022 and stronger as we were exiting the Q1 of 2023. Obviously, we're only the 1st couple of weeks in April. It's way too early to be thinking about it. But with the backlog we have and the strength of the multitude of markets moving favorably, we're very positive expect to be on our demand profile and that's also one of the reasons why we felt like it was necessary to provide you an updated expectation as it related to our growth for the full year.

Speaker 5

Excellent to hear. It would be great to hear a bit more about the continued momentum in automation. What's your team contemplating for all in automation growth this year or I guess, framed differently. What's a reasonable run rate relative to the $850,000,000 that you had coming into the year?

Speaker 3

With the growth that we've seen and the significance of the backlog, it's very easy for us to see automation now at closer to a $900,000,000 run rate That may be where we started the year. We just have got some really solid momentum in some solutions that we're providing to the marketplace. Our advanced engineered systems have been strong. And I really think it goes back to some discussions that we've had for the last several quarters that Potentially with the inflation that people are still confronted with in the marketplace and the wage inflation and the scarcity We're still in a very low cost to capital environment and we could be in a longer term secular trend where automation It is really an opportunity set for us and we're seeing it in the business today. So We know we're running at a faster rate, closer to $900,000,000 We're still very interested in continuing to acquire the businesses in that space.

Speaker 3

I'm very excited about the 1st few months of Forry's integration into Lincoln Electric. The Fori team and the employees that we found there are very passionate about what they're doing. We found a group that we think fits very well with us. So I think that is going to be a catalyst for this business as we move forward because it brought a couple of solutions that we didn't currently have in the core basket within Lincoln Electric, especially with the AGV profile and those solutions, how they fit into advanced automation sales. So lots of positive threads and still excited about our continuing build out of the automation business at Lincoln Electric.

Speaker 3

And as you can imagine, a lot of confidence that we'll meet that $1,000,000,000 target and should exceed that $1,000,000,000 talk rate where we're talking about our higher standard 2025 objectives.

Operator

One moment please as I prepare the queue. Our next question comes from Mig Dobre from R. W. Baird. Your line is now open.

Operator

A

Speaker 6

Thank you. Good morning, everyone. Good morning, Rick. I guess, I want to follow-up on the previous question that was asked here in terms of demand, I guess the way I kind of heard it in the prepared remarks, demand accelerated through the quarter. So I guess I'm a little bit curious what essentially what picked up relative to where we were maybe 3 months ago?

Speaker 6

And then are you sort of seeing any of your verticals or end markets growing in excess of your own kind of internal expectations. So put differently, what surprised you?

Speaker 3

Well, Mig, I guess a couple of comments and then I'll let Gabe chime in also. But I think the first thing was, you know our business very well, it's not uncommon for us to be accelerating as we're moving into the March April timeframe in our business. So, I would share with you that out of the gate in our business, our July or our January was just a little a softer than what we thought and we saw a lot of acceleration through the quarter and a very, very busy March window for us. So I can't tell you that what I can point to any particular segment or area of the business. It just started out expect the first couple of weeks a little slower than we had expected and then we felt and experienced that acceleration through the rest of the quarter.

Speaker 3

I'll also tell you that I think our automation business, which tends to move a lot of the products out at the end of the year because you have some individuals that want to get that capital in their books at the end of the year and there's some targeting around that. Our automation business probably doesn't start the 1st couple of weeks of the year out as aggressively as maybe some of our other product categories and we saw that again in automation. But our automation business performing very well, I mean record backlogs for that business Even without the backlog accretion that we had from the Forry business. So the depth of the backlog and the depth of the momentum was are very broad. But to specifically answer your question, I can't really point towards any one region or any one segment that would have minimized The start, but we saw acceleration throughout the quarter.

Speaker 4

Yes, Mig. So I would just follow-up and just highlight the strength that we saw in the Americas, Right, 16% organic sales, the strength you saw in volumes, the mix broad based. The one thing that I spent a lot of time monitoring is what's going on with industrial production and PMI. When I saw the flash PMI last week, it kind of pointed some of the activity we were seeing as we progressed towards the end of the quarter. So it may not be a perfect correlation, but we did see strengthening and I just highlight the the strength that we our results point to in the Americas, including the automation continued strength.

Speaker 6

Okay, that's helpful. Obviously, the one area in your slide that you highlighted that is being maybe a bit weaker is Construction and Infrastructure and I understand the comparisons comment the year over year comment. But maybe you can give us a little more of a attention as to what's happening in non residential. And it's better to understand sort of your exposure, right? So what is your expect on that market.

Speaker 6

What are you selling into this market? And where you are reporting softness? What exactly are you seeing there?

Speaker 3

Yes. So Megan, non residential construction, we sell a very wide set of products and solutions, expect to be in listen only mode. And we have some very compelling automation solutions for customers that are engaged in the structural steel, for building construction and project work and the like. And that just tends to be very lumpy for us in terms of how we recognize the revenue when the system is completed and shipped out of our Xemen business that we acquired and the the Burlington business that we acquired about a decade ago. And so it's just a very choppy portion of the business for us.

Speaker 3

The residential side It's clearly weaker with what the Fed is doing to try and cool the economy. We still see a lot of interest in our automation solutions and our other products expect to explore the non res market, but it's just a very choppy segment for us. Yes. Mig, this is Chris. I would add that, look, I expect there'll be a lot of conversations having issues and I can share with you that we've not seen any of that in our business.

Speaker 3

We don't have we haven't seen situations where we've had people come forward and say they need to change their demand patterns or they're waiting on their demand patterns because of financing. So We recognize that's a potential risk, but we are not seeing that in our business today, in our core business or our automation business.

Speaker 6

Right. It would be a bit early for you to see that, but I appreciate that perspective nonetheless. Maybe my final question, going back to the charging product that you're working on, Maybe a quick update here in terms of where you are in your capacity build out, anything that we need to understand in terms of how you see demand evolving over time and how are you going about commercializing this product at this point? Thank you.

Speaker 3

Yes. So Mig, this is Steve. We remain on track with our schedule to launch into production in the Q4 of this There's a lot of activity going on, on several fronts in terms of industrializing and readying the design for production, making the investments in the manufacturing capacity and having lots of very positive discussions with prospective customers. So I'd say we're still on track for our targeted 4th quarter start of production. If you look at the sort of general business press and Some of the commentary on social media, it just reinforces our belief that there is an unmet need in the market for a much more robust and a reliable charging solution.

Speaker 3

There's a lot of articles and social media posts about people's frustration of pulling up to a charger that's offline, and we believe we're going to be able to help address that. So we remain very confident in our value proposition. The feedback we're getting from prospective customers is very encouraging. So we just need to stick to our plan and keep driving

Speaker 6

it. Appreciate it. Thank you.

Speaker 1

A

Operator

question. Our next question comes from Walt Liptak of Seaport Research. Your line is now open.

Speaker 7

Hi, thanks. Good morning, everyone. Thanks for taking my question. I wanted to ask about the international volumes and And understanding that there are difficult comparisons, when do you think that you'll be through sort of those tough the comps and maybe on to some positive volume comps. And then I think in The prepared remarks you talked about the second half international margins being in the 12% to 14% range.

Speaker 7

And And so, I wonder what the pluses and minuses are in getting to the high end of that range?

Speaker 4

Yes. So, Walt, just think about an environment that we believe is relatively stable when you pull out all of The noise with Russia and timing of project and that sort of thing. We're seeing a little bit more strength in Asia. Some pressure continued in Europe, but an overall stability in terms of actual activity. When you think about that in the context of our margin profile, we knew that we had to take some actions on the pricing side to address some of the volume pressures we had back half of last year to drive the higher level of conversion costs.

Speaker 4

So we believe that that would continue to improve as as we progress into the back half of the year, you saw the improvement in this first quarter and we expect that to continue into the second quarter and then to progress into our EBIT range that we target in the back half. Those are the drivers.

Speaker 7

Okay, great. So the high end of that 12% to 14% has more to do the pricing is already in place, it's got more to do with whatever The volumes are? Is that fair?

Speaker 3

Yes. I think that's very consistent with the way we thought about that business. That team has done a really good job of repositioning that business for success in the from a cost structure perspective in the broad markets, but especially in the European markets. And as we've said, That business now needs some volume. And I was very excited about the sequential improvements that the team made.

Speaker 3

And certainly, as Gabe said, there's a little more noise than the numbers and we take out the noise, I would say, stabilized. So I think that quite frankly, as we migrate through the rest of this year, we should be able to see a little bit of that volume and with that Be able to drive that business more confidently in our range targets that we have for them from a higher standard perspective.

Speaker 4

Well, maybe just one more comment on that to keep in mind, Walt, is that when you look at our consolidated business, we're at 2019 levels. Expect to continue to drive our the volumes that will be at the higher end of the range.

Speaker 7

Okay, got it. And then just as a follow on, you mentioned Asia strengthening. I wonder if you could just provide a little bit more color how is the China market doing?

Speaker 3

Well, as you're well aware, Walt, China is Not a significant piece of the overall portfolio at Lincoln Electric and certainly we saw some of that reopening in China. I would also share with you though that when we think about broad Asia, some really nice strength in the offshore markets extend portions of our business in Asia and Southeast Asia, some strength. So coming off of very favorable comparisons, but trending favorably.

Speaker 7

Okay. All right. Sounds great. Thank you.

Operator

Thank you. It seems the last question has been withdrawn. Oh, there he is. He's put it back up. Excuse me one moment.

Operator

Our next question comes from Steve Barger from KeyBanc. Your line is now open.

Speaker 8

Hi, thanks. Chris, last quarter you noted much of your the Automation business was America centric. And I know it's only been a quarter since you said that, but I think traditionally Europe was already ahead in terms of general automation adoption. So can you talk about how you'll approach that and how big you see the untapped non U. S.

Speaker 8

Market being?

Speaker 3

Yes. Look, that's a great question, Steve. And I would tell you that as we build out our automation portfolio, we've been We've had an opportunity to look at a lot of different solutions and assets and people, and we stayed very focused in identifying those expect solutions and organizations that were accretive to the strategy, but also had those solutions that were driven towards Industries and markets and profit pools that we thought could be successful for us over the longer term. And we stayed pretty diligent to that approach. So we've tried not to be regionally focused.

Speaker 3

As you're well aware, you could run this strategy and say you're looking for some balance within regions. We've stayed very disciplined in our approach in looking at those solutions. And then where we have opportunities, a great example of that would be the structural steel marketplace where we found a solution a few years ago and then our accretive value was taking that solution and providing it globally. So we might not be always manufacturing that particular solution in the local market, but we could be providing part of those automation solutions in the local market. I still see elements of Europe and Latin America as upside opportunities.

Speaker 3

And the reason I feel so strongly about that, Steve, is that when we think about our business and are talking to our customers globally, over the last couple of years, the challenge with finding labor and the inflation in labor has been a global phenomenon. It's not been just a U. S. Phenomenon. Those are the secular drivers then which drive demand.

Speaker 3

And so I think that creates a very a favorable opportunity set for us to be able to continue to look at, identify and expand our automation business globally.

Speaker 8

Yes. And obviously, integration is a local business and you've bought some great regional companies in the U. S. To help kind of spread the portfolio, have you found that that distribution the channel or the integration channel is the same in Europe and Latin America as it is here or do you have to adopt to some kind of different structure Those markets have evolved towards?

Speaker 3

No, I don't think we have a huge adoption. Actually, we've been seeing that we've been able to get some leverage. I think the big the catalyst for Lincoln Electric has been the fact now that we have scale. Remember when we were talking about this business just a few years ago and it was $300,000,000 or $400,000,000 and we were a lot more lumpy in our discussions as we build out more a scale. And as I said earlier, now this business trending more towards $900,000,000 a year on a run rate basis.

Speaker 3

That the scale has allowed us to take some of these systems and processes and assist us globally in the way we're looking at and managing some of these businesses. So expect to see some things globally that tells me we need to run this business differently in a certain area of the world, But there certainly are different types of opportunities depending upon the solution and the business that we have in those markets, but Very positive on what we're accomplishing in the automation business and the upside that we have for the company over the next few years.

Speaker 8

Got it. And in terms of the technology strategy, you've obviously built a great external portfolio of robotics and IoT enabled equipment. I don't think we've talked about as your internal data strategy as much. Are you collecting shop floor information for analytics some better decision making or where are you in your own internal kind of technology progression?

Speaker 3

Yes. And Steve, we've taken a very customer first approach to that. So versus us necessarily are pushing some requirement out there to the marketplace as it relates to what we would do with the data. We've taken a customer first approach. So if a customer comes to Lincoln Electric and they need help with that data, are we grabbing that data and providing that data back to them so that they can become more productive?

Speaker 3

Absolutely. But it really does depend on what that customer is looking for and as we've learned where that customer is in their IoT or data analytics journey. And sometimes we need to make sure that those customers are walking before they're running and some of them are more advanced. So But quite frankly, we see it as a way for us to allow our teams to work with our customers to become more productive. And And we also see that we do have some offerings where quite frankly we do sell some of those products out as additional services where or subscriptions for particular capabilities, But that's a small portion of our business today.

Speaker 3

Yes, Steve, I'd add in our own operations, we're investing in IoT solutions where it makes sense. So we're investing in systems that provide up to date assembly instructions and engineering drawings for our equipment manufacturing assembly. So as we make minor design changes expect to that equipment, the people operating on the shop floor have the most recent information and work instructions and prints to work off of. And and then on the consumable part of our business, being able to interrogate the PLCs on the equipment and add other sensors so that we can monitor expect the production process to drive higher productivity and higher quality. So we're investing in those kind of technologies.

Speaker 3

I wouldn't say we're doing it as a blanket approach where we're trying drive some predefined Industry 4.0 strategy, but we're investing where it makes sense for us.

Speaker 8

Understood. Thanks.

Operator

A

Speaker 1

a

Operator

question comes from Adam Farley from Stifel. Your line is now open.

Speaker 9

Thank you. This is Adam Farley on for Nathan Jones. What impact, if any, to date is expect the a tailwind as the infrastructure bill spending picks up over the next, call it, 12 to 24 months?

Speaker 3

Yes. Adam, it's hard to point to specific sales or orders in terms of things that we would attribute specifically to the Infrastructure Act, there's expectation that it will provide a tailwind to demand in the future. But as of yet in our orders and sales, I wouldn't point to it as a material uplift in the business.

Speaker 9

Okay. Thank you for taking my question.

Operator

Thank you, Adam. This concludes our question and answer session. I would like to turn the call back to Gabe Bruno for closing remarks.

Speaker 1

A conference

Speaker 4

call. Thanks, Gerald. I would like to thank everyone for joining us on the call today and for your continued interest in Lincoln Electric. We look forward to discussing the progression of our strategic initiatives in the future. Thank you very much.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Just in case there's anything you want to type or communicate. You all have a good day.

Operator

Bye.

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Lincoln Electric Q1 2023
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