Lincoln Electric (Nasdaq: LECO) produces and sells the largest number of industrial arc welding and cutting products, which are used primarily in construction, mining, and manufacturing to cut and join metal. The company's sales are linked to the strength of these sectors, which have higher growth in developing countries such as China.
Lincoln's sales are linked to the cycles of the economy, and so, unlike many of its competitors, it has entered markets across the globe to provide stability. Lincoln Electric has patents for some technologies used in its arc welders and relies on those patents to keep its competitive advantage, but some of the regions it has entered, such as Venezuela, have poor protection of intellectual property rights, The company is involved in pending litigation over illnesses caused by asbestos and manganese, which are used in the welding process.
Lincoln Electric is the world's largest producer of arc welding and cutting products. It sells both welding equipment and welding consumables. Arc welding is a process which uses the concentrated heat from an electric arc to melt and fuse metal parts.
These products are used in a variety of markets such as: metal fabrication, oil and gas pipelines, buildings, bridges, rails, ships, construction, farming and mining. It does not rely on a single customer and sales are not seasonal, but they are related to the cyclical changes in the economy.
In 2009, LECO generated a net income of $48.6 million on revenues of $1.73 billion. This represents a 77.1% decrease in net income and a 30.2% decrease in revenues from 2008, when the company earned $212.3 million on $2.48 billion in revenues.
Lincoln has 5 reportable business segments:
The majority of Lincoln's welding and cutting instruments are used in manufacturing, construction, and other industrial sectors. The company's sales are inherently linked to the growth of these sectors. When construction and manufacturing industries grow, so do the sales of Lincoln Electric equipment. These sectors are also related to movements in the economy. Industrial capital investments tends to occur during the growth section of the business cycle. Arc welders are also used extensively to build and attach oil pipelines. The economic development and industrialization in China, India, and other emerging markets have improved Lincoln's sales.
Unlike much of its competition, the majority of Lincoln Electric's sales are outside the US, and it specializes in arc welders and cutting tools. It is the largest producer of arc welders.