Lincoln Electric (LECO) Q3 2026 Earnings Call Transcript

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DATE

Tuesday, Oct. 27, 2026

CALL PARTICIPANTS

• Vice President of Investor Relations and Communications - Amanda H. Butler
• Chairman and Chief Executive Officer - Steven Hedlund
• Chief Financial Officer - Gabe Bruno

TAKEAWAYS

• Net Sales -- $1,221.3 million, representing a 15.1% increase driven by 14.5% organic sales growth and robust volume demand.
• Adjusted EPS -- $2.98, representing a 21% increase from $2.47 in the prior year period.
• Volume Growth -- 8.8%, marking the first time in 30 months that volume growth outpaced price contributions on a consolidated basis.
• Automation Revenue -- $232 million, reflecting high teens percent organic growth and record-level backlogs heading into 2027.
• Americas Welding Sales -- $801.3 million, increasing 15.8% due to broad based volume demand across all end markets and product groups.
• International Welding Sales -- $226.9 million, increasing 3.3% as strength in the Asia Pacific region was offset by lower sales in Europe and the Middle East.
• Harris Products Group Sales -- $193.1 million, increasing 28.9% primarily due to 25.7% higher pricing resulting from elevated silver metal input costs.
• Adjusted Operating Income Margin -- 18.0%, a 60 basis point expansion driven by sales leverage that offset increased operating costs.
• Gross Profit Margin -- 34.8%, a 190 basis point compression attributed to the timing of new price increases and unfavorable product mix.
• Cash From Operations -- $215.8 million, supporting a 107% cash conversion rate for the quarter.
• Capital Expenditures -- $41.2 million, focused on upgrading operating capacity and accelerating RISE strategy initiatives.
• Shareholder Returns -- $143 million, including $99.4 million in share repurchases and $43.2 million in dividend payments.
• Full Year Sales Guidance -- Low teens percent growth, raised to align with strong demand trends observed through the first nine months of the year.
• Annual Capital Expenditure Guidance -- $140 million to $150 million, an increase from the initial 2026 assumption of $110 million to $130 million.
• Middle East Sales Headwind -- $5 million in the quarter, with management projecting a $6 million to $7 million headwind for the fourth quarter due to ongoing conflict.
• Equipment Organic Sales -- Low teens percent growth, supported by improving capital spending and record industrial activity levels.
• Consumable Volume Growth -- Mid-single digit percent rate, reflecting strength in the Americas and Asia Pacific infrastructure sectors.
• General Fabrication Organic Growth -- Mid-20% rate, driven by data center construction projects and rising HVAC demand.
• U.S. Organic Sales -- Over 20% growth, fueled by strong industrial production and infrastructure activity.
• Operating Working Capital -- 16.6% of sales, improving 130 basis points compared to the end of 2025.
• Segment Margin Outlook -- 20% to 21% for Americas Welding and 12% to 13% for International Welding in the fourth quarter.

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RISKS

• CFO Bruno stated, "Our gross profit margin compressed 190 basis points to 34.8% primarily due to the timing of our new price increases which went into effect late in the quarter and unfavorable mix," noting that pricing actions lagged rising inflationary costs.
• Bruno reported, "The ongoing conflict reduced segment sales by approximately $5 million in the quarter," referring to the negative impact of geopolitical instability in the Middle East.
• CEO Hedlund stated, "energy, logistics, and electronic component costs continue to increase with unprecedented AI data center demand creating spot shortages for some raw materials," identifying supply chain risks linked to the tech sector expansion.

SUMMARY

Lincoln Electric Holdings, Inc. (NASDAQ:LECO) reported record performance for the third quarter, led by organic volume growth and sales leverage that improved operating margins. Management raised full-year sales and capital expenditure guidance, citing robust demand across all five end markets and record-level backlogs in automation and equipment. The company is managing inflationary pressures in energy, logistics, and electronic components by implementing price actions intended to reach price-cost neutrality in the fourth quarter. Strategic focus remains on the RISE strategy, including the launch of physical artificial intelligence solutions and capacity expansions to support long-term growth objectives.

• CEO Hedlund noted that volume momentum remained strong through October, marking a shift where volume growth now leads pricing contributions for the first time in 30 months.
• The company launched ExpertLink, a physical artificial intelligence platform designed to enable welding robots to adapt to real-world part variability without manual programming.
• Management reported that the automotive sector is showing signs of recovery, with model launch activity projected to increase for 2029 and 2030 following a period of decision-making delays.
• Hedlund stated, "Our results highlight 2 important trends we navigated in the quarter. First, accelerating demand in core areas of the business and second, challenging operating conditions that we are diligently managing."
• The board of directors increased the annualized dividend by 10% to $3.48 per share, representing the 31st consecutive annual increase.
• Management estimated that data center-related activity currently accounts for approximately 5% of total company revenue, with specific exposure in the Harris segment ranging from mid-single to high-single digits.
• CFO Bruno indicated that international welding margins are expected to improve to a range of 12% to 13% in the fourth quarter, up from 10.3% in the current period.

INDUSTRY GLOSSARY

• RISE Strategy: The company's long-term strategic framework focused on driving higher growth and improved financial returns through 2030.
• ExpertLink: A physical artificial intelligence solution that allows robotic welding systems to adapt to part variability in real time.
• Physical AI: Artificial intelligence integrated into physical machinery to automate complex manufacturing tasks through sensing and adaptation.
• Cobot: A collaborative robot designed to work safely alongside human operators in a manufacturing environment.
• Deposition Rate: The amount of filler metal melted and deposited into a weld joint per unit of time.
• Price-cost Neutrality: A financial state where price increases exactly offset the impact of input cost inflation.
• Submerged Arc Welding: A high-productivity welding process where the arc is struck beneath a layer of granular flux.

Full Conference Call Transcript

Operator: Greetings, and welcome to the Lincoln Electric's 26 Third Quarter Financial Results Conference Call. This call is being recorded. It is my pleasure to introduce your host, Amanda H. Butler, vice president of investor relations and communications. Thank you. Amanda, you may begin.

Amanda H. Butler: Thank you, Melissa, and good morning, everyone. Welcome to Lincoln Electric's third quarter 2026 conference call. We released our financial results earlier today, and you can find our release and this call slide presentation at lincolnelectric.com in the Investor Relations section. Joining me on the call today is Steven Hedlund, our Chairman and Chief Executive Officer as well as Gabe Bruno, our Chief Financial Officer. Following our prepared remarks, we are happy to take your questions.

But 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 and uncertainties, which are provided in our press release as well as in our SEC filings on Forms 10-K and 10-Q. In addition, we also discuss financial measures that do not conform to U. S. GAAP. 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 will turn the call over to Steven Hedlund. Steven?

Steven Hedlund: Thank you, Amanda. Good morning, everyone. Turning to slide 3, we reported record third quarter sales and earnings performance with adjusted EPS increasing 21% to $2.98. Our results highlight 2 important trends we navigated in the quarter. First, accelerating demand in core areas of the business and second, challenging operating conditions that we are diligently managing. Our strong earnings were driven primarily by operating leverage from mid teens percent organic sales growth led by 9% volume growth. This is the first quarter in over 2.5 years that volume growth has outpaced price and volume momentum remains robust through October.

However, energy, logistics, and electronic component costs continue to increase with unprecedented AI data center demand creating spot shortages for some raw materials. While our supply chain and operations teams great teamwork and agility in managing these supply challenges, the additional cost impacted our gross profit margin. We implemented price actions during the quarter in all 3 segments, which will enable us to achieve price cost neutrality in the fourth quarter. We improved our adjusted operating income margin by 60 basis points to 18% at a 22% incremental margin which was in line with our September update and delivered top quartile ROIC at 23.9% up a 170 basis points compared with the prior year.

We also focused on long term growth and returns as we executed our capital allocation strategy. We invested $41 million in growth and $143 million to shareholders in the quarter. We remain focused on serving our customers, advancing our RISE strategy, and positioning the company for long term success. Turning to slide 4 to cover growth drivers in the quarter. Organic sales growth was broad with growth across all 3 reportable segments, product areas, and in all 5 end markets. Organic growth was largely driven by higher volume demand in The Americas region, and Asia Pacific and in select product areas in the Harris product segment. Sales in the U.S. increased over 20%.

Asia Pacific continued to expand with growth in China, India, and North Asia. Core Europe was relatively steady versus prior year, and we are starting to see benefits from European import tariffs and some defense spending. The Middle East was more resilient than expected with a $1 million sales headwind in the quarter. Capital spending continued to improve with high teens percent organic sales growth on automation resulting in $232 million in automation sales in the quarter. Equipment organic sales growth also accelerated to a low teens percent rate in the quarter. Strong order rates in both automation and equipment in the third quarter have elevated our backlog to new record levels. Which positions us well for 2027.

Consumable volumes increased to the mid single digit percent rate on a consolidated basis performed higher in Americas and Asia Pacific where we are seeing the strongest level of industrial and infrastructure activity. Looking at end sector trends on a consolidated basis, all 5 end markets grew in the quarter. General fabrication organic sales grew mid 20% with the outperformance reflecting solid industrial production activity in The Americas, as well as data center related projects and rising HVAC demand in Harris. Energy and nonresidential structural steel organic sales increased mid-teens percent with energy outperforming in Americas Welding and oil and gas due to strong project activity given the region's optimal positioning for the energy market.

Heavy industries and transportation both grew at a low double digit percent rate. Heavy industries continue to see strengthening in construction and mining to support infrastructure, data center, and mineral investments, while agricultural demand appears to be stabilizing. Transportation automotive growth benefited from easier prior year comparisons in both production rates and in timing of automation shipments. We expect growth to continue in the fourth quarter as well. Separately, the October domestic auto industry survey indicated a pickup in 2029 and 2030 model launches following 2 years of unprecedented compression. That outlook is consistent with the increase in quoting activity we are seeing for long lead time automation systems for transportation customers. Moving to slide 5.

At the FabTech trade show last week, we launched over a dozen new solutions that address customer pain points and expand the addressable markets we serve. For example, ArcTracker AIR provides customers with an easy to deploy that enables them to track productivity across their welding operations regardless of the mix of brands or type of welding equipment in use. We also launched a hot wire submerged arc welding solution for our heavy industry sector customers that delivers up to 50% improvement in deposition rates using their existing installed base of Lincoln equipment with only modest incremental investments. Our new InstructArc extended reality welding trainer supports workforce development and training by providing a more realistic simulation of the welding experience.

And finally, I am most excited about the launch of ExpertLink, our Physical AI solution that will revolutionize welding automation. Featured initially on our Cooper Cobot, ExpertLink enables a welding robot to adapt on the fly to real world conditions like an experienced human welder would. This capability significantly reduces barriers to adoption and broadens the market for cutting and welding automation. We will be integrating ExpertLink technology into our automation portfolio over the next few years which will further differentiate the value of our innovation and support our RISE growth objectives. I will now pass the call to Gabe Bruno to cover third quarter financials in more detail.

Gabriel Bruno: Thank you, Steven. Moving to slide 6. Third quarter sales increased 15% to $1.221 billion. Sales growth reflected approximately 9% higher volumes and 6% higher price. We anniversaried the acquisition of Alloy-Steel in August and contributed 50 basis points to sales growth. Gross profit increased 9% to 4 hundred and 25 million dollars on higher sales. Our gross profit margin compressed 190 basis points to 34.8% primarily due to the timing of our new price increases which went into effect late in the quarter and unfavorable mix. On a year to date basis, we are lagging on neutral price cost target by 100 basis points and expect to achieve a neutral price cost position in the fourth quarter.

SG&A expense was relatively flat versus prior year at $206 million while SG&A as a percent of sales improved 260 basis points to 16.9% as a result of sales leverage. SG&A expense included an additional $5 million in corporate investments related to the rollout of our RISE strategy and related initiatives. Given current RISE investment activity and business performance, we are maintaining our quarterly SG&A estimate at $210 million to $215 million with corporate expenses likely in the $4 million to $5 million range in the fourth quarter. Reported operating income increased approximately 20% to $211 million primarily on higher sales leverage.

Adjusted operating income increased 19% to $220 million and our adjusted operating income margin improved 60 basis points to 18% with a 22% incremental margin. Third quarter diluted earnings per share increased 19% to $2.63. Adjusted earnings per share increased approximately 21% to a record $2.98. We recognized a $0.04 benefit from share repurchases and there was no impact from foreign exchange translation. Moving to our reportable segments on slide 7. America's welding sales increased approximately 16% to $801 million, primarily from 13% higher volume and 2.4% higher price. Americas volume growth was broad based across all product groups and end markets and in key market channels.

Equipment and automation each delivered high teens percent volume growth supported by strong capital spending. Consumable volume growth increased to a mid to high single digit percent rate as industrial activity accelerated. Price reflects the benefit of the May price action. We expect price in the Americas to be in the low to mid single digit percent range in the fourth quarter reflecting third quarter price actions. Americas adjusted EBIT increased approximately 27% to $167 million. Adjusted EBIT margin expanded 190 basis points to 20.1%. The increase was driven by higher organic sales and improved automation performance, which was partially offset by price cost headwinds.

We expect America's welding margin to perform in the 20% to 21% EBIT margin range for the fourth quarter given sales momentum and improved price cost performance. Moving to slide 8. International Welding sales increased 3% to $227 million on 1% lower volume, 2.4% higher price, and approximately 2% benefit from acquisitions. Within International Welding, continued strength in Asia Pacific, was offset by weak capital spending across Europe and lower sales to the Middle East. The ongoing conflict reduced segment sales by approximately $5 million in the quarter. We continue to expect a $6 million to $7 million sales headwind in the fourth quarter.

Adjusted EBIT decreased 7% to $24 million Adjusted EBIT margin compressed 100 basis points to 10.3% primarily due to lower volumes and unfavorable automation performance. Sequential performance versus the second quarter was better than seasonal trends due to a pickup in demand in our Alloy-Steel acquisition and incremental structural savings. We expect international welding margin performance to be in the 12% to 13% range for the fourth quarter. Moving to the Harris Products Group on slide 9. Third quarter sales increased 29% to $193 million primarily from a 3% increase in volumes and approximately 26% higher price. Price primarily reflects higher metal input cost in consumables, particularly silver.

HVAC and gas equipment demand supported volume growth, while the retail channel remained challenged on soft housing trends. We expect HVAC demand to remain strong in the fourth quarter further aided by an easier prior year comparison. Adjusted EBIT increased 21% to $34 million on higher sales. Adjusted EBIT margin declined 100 basis points to 17.3% which was below our expected range due to unfavorable mix, and operational inefficiencies. We expect the Harris segment to operate at an approximately 18% margin in the fourth quarter at current metal prices. Moving to slide 10. Cash generation was strong with $216 million in cash from operations.

Working capital improved to 16.6% of sales on higher sales levels as well as improved inventory positions. We achieved 107% cash conversion for the quarter, and are at 99% on a year to date basis. Which is in line with our 100% target for the year. Moving to slide 11. We invested $41 million in capital expenditures and returned $143 million to shareholders including $43 million in dividends and $99 million in share repurchases. Adjusted return on invested capital improved to 23.9%. Our dividend is an important component of our capital allocation strategy. The board recently announced the company's 30 first consecutive annual increase in the dividend payout rate raising the annualized rate by 10% to $3.48 per share.

The increase reflects confidence in the execution of our RISE Strategy the strength of our cash generation and our commitment to return value to shareholders. The first payment at the increased rate is payable in January 2027. Moving to slide 12 to discuss our 2026 operating assumptions. We are raising both our full year sales growth rate and our capital expenditure range to reflect stronger demand trends and higher RISE Strategy investments. We now expect net sales growth to be in the low teens percent range for the full year which aligns with our performance year to date. We are maintaining the updated assumptions we provided in September for price cost our adjusted operating income incremental margin.

We expect price cost will be neutral in the fourth quarter, which will support year over year gross margin expansion in the period. As well as a mid 20% incremental adjusted operating income margin. We are increasing our 2026 capital expenditure range to $140 million to $150 million as compared with our initial assumption of $110 million to $130 million. We have invested $112 million in the first 9 months, and are continuing to invest to upgrade operating capacity and capabilities in the fourth quarter. Our full year interest expense tax rate and cash conversion assumptions are unchanged.

Looking ahead, our priorities are to execute on our RISE initiatives, serve demand in growing areas of the market, and invest for long term returns. We continue to expect strong earnings performance as we advance those priorities. And now I would like to turn the call over for questions.

Operator: Ladies and gentlemen, at this time, we will be. We will now be conducting a question and answer session. If you would like to ask a question, simply press star 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. To ensure that everyone has an opportunity to participate, we ask that you ask 1 question and 1 follow-up question. And then return to the queue. Please remember to unmute your device locally. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Bryan Blair with Oppenheimer. Your line is now open. Please go ahead.

Brian Blair: Thank you. Good morning, everyone. Morning, Bryan. Morning. Was hoping you could offer some more color on the momentum in Outlook for your automation strategy. Seems like demand is broadening You mentioned the medium term outlook with changeover activity in the automotive space. Maybe touch on quoting activity across other end markets there. And then given your backlog position and current rates, where do you see automation revenue shaking out for 2026 and what is the preliminary outlook? To the extent you are willing to speak to that for 2027?

Gabriel Bruno: Yeah. So, Bryan, so I just would reiterate the level of growth we have seen, very active quoting activity, in broad based. And we pointed to the mix of end market progression, the automotive market. So we are pleased to see the long term trajectory of model launches turning positive in 2029 and 2030, which leads us to believe that a lot of the quoting activities that we have seen on longer lead time items would progress into orders as the months progress. So we are we are really keen on a continued progression of growth in our automation business and think about that in the high single digits organic type growth.

I am very much positioned to continue to expand the margin profile of our business. We exited the third quarter at a low double digit type EBIT profile and we expect more of the same in the fourth quarter.

Steven Hedlund: Bryan, I would just add that, Gabe's comments really apply to the historical base of the business. Which has been a large portion of automotive automation projects, some for heavy industries, particularly supporting mining, construction, agricultural equipment. We are seeing improvement across the legacy base of the business. We are also very excited about the opportunity to grow the addressable market, particularly in the general industries general fabrication space by making the technology more easily. Easy for customers to adopt.

1 of the big problems those customers have is their parts are not entirely consistent from lot to lot due to upstream variation, and historically, that is made it hard for them to adopt robotic solutions, whether that is a industrial robot or a cobot. And we are really excited about the launch of the ExpertLink platform that is going to address that pain point and significantly open the market up for the long term.

Brian Blair: that is encouraging. Appreciate the color. And then in terms of your Middle East exposure, we know the headwind that has been there and you have framed anticipated Q4 in that Looking forward to the hopeful resolution of the war, how should we think about how much of a catalyst rebuild effort and redundancy and security investments may be for your business, at least over the medium term?

Gabriel Bruno: In general, Bryan, you saw that while in the international segment, had a headwind of $5 million overall, we were down 1%. We saw strength in exports coming out of The Americas and Harris segments. So we are well positioned. You can think about the headwinds turning into volume opportunities for us as projects progress in their investment trajectory as well as any rebuilding. So we are well positioned in the Middle East, and we look to growth as the conflict is resolved and the market returns to some basis of what is normal.

Brian Blair: Understood. Thanks again.

Operator: Your next question comes from the line of Angel Castillo with Morgan Stanley. Your line is now open. Please go ahead.

Analyst: Hi. Good morning, and thanks for taking my question. To touch on the pricing power a little bit, maybe just to unpack the price cost dynamic in a bit more detail. Just you noted passing through a little bit price toward the end of the quarter. So just curious as you are having discussions with customers, OEMs or distributors, just can you kind of update us on what you are seeing or hearing in terms of overall kind of elasticity to kind of price?

Given the organic volumes, it would suggest that you are not really seeing any deterioration there just given how much inflation we have been having, would be curious to get your thoughts on your ability to continue to kind of push price?

Steven Hedlund: Yeah. Angel, I would say that our channel partners and our end users are experiencing the same inflationary pressure. Pressures that we are. So this is not coming as a shock, to them. Nobody likes talking about pricing because it takes your attention away from other matters, but we are not getting a tremendous amount of pushback in either case because people understand that parts of the economy are running hot with the AI data center build out. And it is a constant surprise the breadth of commodities and products that are impacted by that.

So it is never a dull moment, and we are doing our best to be agile and stay on top of it, but it is a constantly chasing target that we are going after.

Gabriel Bruno: Yeah. So, Angel, I would add to that and affirm what we have updated the market since September is we expect in the welding business about a 100 basis points incremental pricing impact that would lead us into a price cost neutral posture in Q4. So we have maintained that posture, but as you know, we will continue to monitor the persistent inflationary dynamics and respond as appropriate. that is very helpful. And maybe just on that note, as we think about kind of your preliminary thoughts or what you are able to see into 2027, Can you talk about the kind of key kind of cost buckets and what you are seeing across all of those.

Think noted earlier maybe some pockets of kind of shortages of supply. So just any kind of thoughts on what kind of inflation or cost inflation you are kind of anticipating into next year? Well, Angel, I would say not to get into too many specifics about inflationary type conditions into 2027, but I would say that we are very well postured with what we are seeing in the market for what our strategic framework on organic sales are, which would just reiterate, it is mid to high single digit type organic growth. Of which would lean on an acceleration in automation growth in the high single digits.

So we are very well for that kind of trajectory as we get into 2027.

Analyst: Very helpful. Thank you.

Operator: Your next call comes from the line of Neil Burke with UBS. Your line is now open. Please go ahead.

Analyst: Hey. Good morning. Thanks for the question. Maybe another way to ask about automation growth trends. I mean, is there any way to bifurcate between more cyclical improvement, on 1 hand, but also more secular growth from increased automation adoption I ask because the comments about the automotive end market seem more cyclical. I am not sure if that quoting activity is hitting revenue yet, but automation sales are broadly outperforming your other product categories, despite low double digit growth broadly, outperformance of automation on top of that. So just trying to get at how much of this high-teens. Automation growth is cyclical versus more automation adoption driving secular growth?

Steven Hedlund: Neil, cyclical is an interesting word. Important to realize we had an unprecedented 2 year period where the automotive manufacturers were walking back their commitment to transition from ICE to EVs. And then trying to figure out whether they were going to go headlong into the hybrid platform, whether they were going to return to ICE, etcetera. And that caused what we described as an air pocket of decision making among those end users. They knew they were gonna do something. They did not know exactly what they were gonna do. And as a result, that really created a period where the end users were unable to make a decision regarding automation CapEx.

We are now getting through that, and we are seeing the resumption to more normal level of activity. So on a year over year basis, it does look like a significant step up. Would say more a return to normalcy in the automotive market. In terms of using technology to broaden the applicability of automation I think we are still in the very early innings of that. It started with the launch of cobots and the Cooper software that made a cobot easier to program.

We got a lot of feedback from customers that an operator still had to have a fair amount of welding knowledge to be able to set the feeds and speeds on the welding procedure in order to make the cobot useful to them. So we were hard at work at trying to address that with the Physical AI solution, and we are very confident that platform is going to significantly broaden the market going forward. But, again, that is a product that was just launched last week. So I do not think we are seeing the benefit of that yet in our order book.

Gabriel Bruno: And, you know, just to add to that, when you think about the mix of our business, you have heard us emphasize the intentionality of driving more activity and small midsize fabricators in general industries, general, and structural and heavy fabrication. So if you are seeing a progressive mix, in those end markets in a smaller percentage of their overall mix in automotive, although automotive is an important part of our mix of business. So all the investments we are making in the technologies will progress our positioning in general industries. Thank you. that is helpful. And 1 follow-up on margin. Expecting improvement from low to mid-20% incremental margins for the company in Q4.

I know there is a lot of moving parts around cost inflation, which continues, but based on where we are today, is mid-twenties the right way to think about incrementals going into next year? Or are there enough sort of price cost tailwinds or normalization to maybe think about approaching your high 20 incremental target? For the long term? Yeah. So, yeah, I would start with that mid twenties as we exit Q4, but our line of sight is to drive to that high 20s incremental margin. So very much focused on expanding our margins, as you know, as part of our 2030 objectives. 300 basis points. That implies about 60 basis points per year of improvement.

So that is really our focus. So you will continue to see a level of execution that is anchored around that 60 basis points improvement on an annual basis.

Steven Hedlund: Yeah, Neil, I would say as pleased as we are with the performance of the business, particularly with organic growth resuming we recognize that the incremental margins are a little shy of where we would like them to be in the persistent inflation we have seen in the business has been a constant game of whack a mole in terms of being hit with surprise cost increases from our suppliers who are seeing themselves increase demand from data. So we are competing for the same parts as people building data centers in many cases, and so we have been aggressive in taking price actions to cover that.

We have just been constantly 1 step behind, which is not a position we would like to be in. So we believe that we have taken enough price to cover what we already know in the business. We will be diligent about continuing to manage price going forward, and we are very focused on driving productivity in the operations, whether that is manufacturing or the back-office operations of the company, to help us hit that incremental margin target.

Analyst: Great. Thank you.

Operator: Your next question comes from the line of Mig Dobre with Baird. Your line is now open. Please go ahead.

Mircea Dobre: Good morning, everyone. Sorry. I wanna go back to automation as well. I get that is what the focus of the day is. But I am just looking to make sure that I understand what you are communicating here. Sounds like essentially, you are pretty much at the beginning of the year an acceleration in automation in the back half that is happening. What I am hearing is incremental is your comment on auto in especially on 2028 and 2029 model years. So I guess my question is, do you have enough near term sort of visibility to shipments to suggest that automation can continue on this growth trend in 2027.

Or is this more 2028, 2029 business that you are booking, so our expectations really ought to be more about those out years.

Gabriel Bruno: Yeah. So, Mig, we are talking about the next 12 months. So I am talking about high single digit type growth. We have seen enough in incoming orders and another record level backlog that gives us confidence of strong momentum going to 2027. The long lead time items will also have an impact depending on how the orders progress. For fulfilling 2028 and 2029 build outs. Still. But we have the confidence based on what we have seen in orders and our backlog levels that carry the momentum into 2027.

Steven Hedlund: Yeah. Mig, it is important to remember that for some of the very long cycle projects we are on percent completion accounting. So, as we do the work in 2027 to get ready for a project that might be supporting a 2029 launch, we are recognizing of the revenue in 2027. We also have more confidence in the general industry, general fabrication part of the business. That is a little shorter cycle. so more standard weld cells and cobots that we would ship in several weeks, not several quarters, And given the demand trends we are seeing in the business right now, we have more confidence in that part of the business for 2027.

Mircea Dobre: that is great. My follow-up, talk a little bit about Harris Products Group. And here, obviously, pricing has been very strong, but still the prices have pulled back. So when should we expect negative pricing, if at all, presumably, we will have some based on current commodity prices. And is there a rule of thumb about how that flows to EBIT in terms of the contribution to incremental dollars or margin or EBITDA, however you wanna frame it for us. Thank you.

Gabriel Bruno: Yeah. So, Mig, I think it is important to note that, our discussions are all based on what we currently see in the market. So let's say you are tracking the high fifties, low sixties, per troy ounce. On silver prices. If you just use that kind of assumption in Q4, we are talking about low double digit type price increases versus the mid twenties that we saw in Q3. that is the framework that gives us confidence at that 18% EBIT profile. And that is kind of what we see at this point in the model. We will have some positive impacts on volumes.

We are starting to see that But right now, we see our business model here is at that 18% type profile. And then maybe we will start anniversarying against some of the big run up in silver earlier this year as we turn into 2027.

Steven Hedlund: The way that we manage pricing in that part of the business is to try to maintain a fairly constant gross margin percentage on those sales. Obviously, if silver prices double, you have twice as many dollars running through the p and l, so you get some nice SG&A leverage. And on an EPS basis, you know, you get a little bit of a tailwind from that.

As we look forward, in the Harris business, we are aware that there is a looming comp issue on silver pricing going into next year, but we are also seeing a strong pickup in demand for people who are providing cooling systems, data centers, and that is gonna help that part of the business as we go forward. So some various puts and takes as we think about the Harris business in 2027.

Mircea Dobre: Alright. I appreciate that.

Operator: Your next question comes from the line of Christian Dankert with D. A. Davidson. Your line is now open. Please go ahead.

Analyst: Hey. Good morning. This is Peter for Christian today. Coming off FabTech last week, customers reacted to new product launches including ExpertLink. And I think secondly, in regard to Physical AI, are these new products a result of customer specific requests that the company is trying to source new opportunities.

Steven Hedlund: Yeah. Great question. Peter, I would say the reaction to customers across the board to the products that we highlighted at FabTech was extremely positive and very encouraging. And I would like to give kudos to the team that was working the booth there. I thought they did a tremendous job sharing their passion for our products and helping customers resolve their issues around productivity and quality and the like. And all of the products we are launching are directly aimed against customer pain points. Including ExpertLink, which was not necessarily customer driven in the sense of people asking specifically for it, that more reflect.

Reflects our decades of experience in the welding industry and our knowledge of what tends to go wrong when people try to automate their, well cutting and welding processes. So you could say that it, at some level,, it reflected our understanding of customer needs, but it was primarily internally driven.

Analyst: that is helpful. And for my follow-up, in terms of the raised CapEx, outlook for the year, could you provide some additional color on that?

Gabriel Bruno: Yeah. So you have seen a trend, Peter, over the years of our continued investment in our operations, and you point to the ROIC performance. So we will invest in capacity and in any capabilities, including automation within our own facilities. And new products to be able to drive organic growth. So we are very much focused on an increasing level of investment in our operations.

Steven Hedlund: Yeah. Peter, I would say that, historically, the rate limiting factor on organic internal CapEx, is the highest returning we make in the business. The rate limiting factor has not been our willingness to invest. it is our capacity to execute the projects. And we have been working very diligently to improve our capability and capacity to execute these projects on time, on budget, and to do more of them faster So that is why you are seeing a pickup in the CapEx. Investment.

Analyst: Great. Thank you. I will pass it on.

Operator: Your next question comes from the line of Nathan Jones with Stifel. Your line is now open. Please go ahead.

Nathan Jones: Good morning, everyone. I am gonna go back to a couple questions on automation. Steven, you talked about the automotive side of this getting back to a more normal level. I think the planned model launches in 2029 and 2030 are anything but a normal level. They are significantly above normal level. Now, it is a question about whether or not they can get them all launched. Can you talk about the opportunities that creates a little bit further out for the automation side of the business just given, you know, the magnitude of those product launches? And would that be a 2028 event primarily?

I know you said some long lead times in 2027, but that would primarily be running through revenue in 2028 from that kind of thing.

Steven Hedlund: Nate, I would say, if you think about automotive in particular, right, there are 2 drivers of CapEx related to automation. 1 is model changeovers. Which historically have happened pretty much like clockwork. Right? And we talked a little bit earlier in the call about the air pocket and the recovery from that. The second is production rates. As production rates increase, we see investments in capacity to help those customers keep up with demand. And right now, automotive build rates are still fairly low. Right? So we are benefiting from the pick up now and model changeover investments, but we are not really seeing the big capacity driven investments.

So I think it is fair to say that we are we are encouraged by where the automotive portion of automation is headed. it is still early innings, and we are hopeful that we are gonna continue to grow that business both in automotive and in the other end markets that we serve.

Nathan Jones: Okay. The second 1 I wanted to ask was more around the, you know, the AI powered cobot Outlook and how that could change the growth profile. I think over the years, a lot of the automation increase in the addressable market has been, you know, improvements in software that enabled more automation or material handling that enabled more parts of the market to be automated. Can you talk about how you think this you know, AI powered cobot, something that can be a bit more flexible and weld, you know, something that is maybe a little less predictable.

Plays out over the next few years in terms of increasing the TAM that is addressable by automated welding that may not be using today, if that makes sense.

Steven Hedlund: Yeah, fair question, Nate. Look, I am really excited about it because, over the years, as I have talked to customers, their biggest frustration is my parts are not perfect. And I know my parts are not perfect. And if I had a human doing the welding operation, they would see, for example, the gap getting wider, they would slow down, they would weave, they would increase the wire feed speed. They know what to do to adapt to those parts.

The problem with a robot or a cobot historically is you have given it 1 path and 1 set of parameters, and it just repeats those irrespective of what the actual reality of the parts in front of it is. So that is been a huge pain point for customers. Historically, the only real option was to invest in fixturing or tooling to force the parts back in the tolerance, which automotive can afford to do given the production volumes. But if you are a high mix, low volume manufacturer, it is just been uneconomical and infeasible for them to automate certain parts of their operation.

The feedback that we were getting at the show was this is an absolute game changer. It allows a robot to operate like a human would and adapt on the fly with no additional programming, no additional training, And so people are really excited about it. How much it will increase the TAM Great question. And as we go through the course of 2027, we will probably have a better perspective on that when we see what customers are. How they are actually deploying ExpertLink and what applications they are using it for.

Nathan Jones: Look forward to hearing about that next year. Thanks for taking the questions.

Operator: As a reminder, if you would like to ask a question, please press star 1 to be added to the queue. Your next question comes from the line of Steven Barger with KeyBanc Capital Markets. Your line is now open. Please go ahead.

Analyst: Thanks. Good morning. Steven, I just wanna follow-up on that last comment. With end markets broadening out and automation looking like it is picking up, is the sales team focused now on adding customers who have not automated because they have been scared of the programming or just the difficulty of getting it to work? Or are you more focused on increasing the number of automated applications with customers who already get it because they have already bought systems.

Steven Hedlund: Yeah. Great question, Steven. I would say both. Right? So if we look at some of the, businesses we have within the automation portfolio, for example, Xiemann that does structural steel welding, We are gonna deploy ExpertLink into their systems to make them even more effective than they are already. Right? So to create competitive differentiation with other solutions that are targeting existing automation customers. And then more importantly is to look at all those customers that have attended a demo of a cobot and decided that is neat, but I just cannot use that in my operations. Right? I have too much part variability I have too much, too many changeovers. This is not gonna work for me.

And we have had a lot of customers get excited about what they believed the potential of a cobot was and then disappointed with the reality of what it actually took to make 1 work. And so that is what we are trying to address with this technology platform is to really deliver on what the initial promise and premise of a robotic welding was. Right? Very easy to use. Does not take a skilled or trained operator. And significantly addresses real world problems that our customers face. Got it. Does Expert Link have a subscription element to it, or is it a 1-time sale? It has a subscription element to it.

The way that we are pricing it is the first year subscription is included as part of the original purchase. And then there is an ongoing subscription fee that is about $3 thousand a year per user. Or per cobot or robot arm.

Gabriel Bruno: Per device. Yeah. Okay. Yeah. And then Gabe, 1 quick follow-up. Just wanna make sure I understand. You get to neutral price cost in Q4. What. How much temporary gross margin pressures remain And I guess, what is the clean underlying incremental margin starting point for 2027? Are you back to mid to high twenties? Yes. I would say we would we would start off at mid twenties. We do expect. I do not know if you picked up on my comments, Steven, that gross profit margin will exceed the prior year fourth quarter.

So we do believe that we took the pricing actions necessary to get to neutral And then as we progress, into Q4 and into 2027 that we have achieved that mid twenties type incrementals.

Analyst: Okay. Got it. Thank you. Welcome.

Operator: The last question comes from the line of Walter Liptak with Seaport Research. Your line is now open. Please go ahead.

Walter Liptak: Okay. Thanks. And good quarter, guys. I wondered if you guys called out equipment being up, really solid double digits and you know, coincidentally, 1 of your competitors had a tornado, and the market seems to have gotten impacted. Did you see a pickup related to that? And is. And help us understand if that is what happened If there was, if it is like a 1-time thing or if there was a market share gain, related to that.

Gabriel Bruno: Well, you know, it is very difficult to assess that. What we do know is that we have seen consistent demand on standard equipment. To track at the high teens level. So I will not comment on the competitive positioning, but we have got a robust level of activity and we see the same momentum going into Q4.

Walter Liptak: Okay. Alright. Great. And then just the last 1. You guys called out data center a number of times. And the impact on the welding markets. I wonder, have you been able to quantify it either at Harris or at the welding business overall?

Gabriel Bruno: Yeah. So, Walter, at Harris, we estimate between mid to high single digits of our Harris segment to be exposed to data center activity. Just to remind you, last year there was a destocking progression in the fourth quarter of 2025. We have got easier comps. But we are seeing very good activity, and we expect good momentum on the Harris side to progress into the fourth quarter. On an overall basis, we do have pockets of projects on the automation side supporting data center activity. But a lot of the work we do is indirect into the markets. So we estimate about less than 5% of our overall business that is tied into data center activity.

Walter Liptak: Okay. Great. Thank you.

Operator: This concludes our question and answer session. I would now like to turn the call back to Gabe Bruno for closing remarks.

Gabriel Bruno: Thank you, Melissa. I would like to thank everyone for joining us on the call today. For your continued interest in Lincoln Electric. Our focus remains on converting demand into profitable growth improving our price cost performance and investing in differentiated solutions through our RISE strategy. We look forward to updating you on our progress. Thank you very much.

Operator: Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.

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