Lincoln Electric Holdings, Inc. (NASDAQ:LECO) Q2 2023 Earnings Call Transcript

Lincoln Electric Holdings, Inc. (NASDAQ:LECO) Q2 2023 Earnings Call Transcript July 27, 2023

Lincoln Electric Holdings, Inc. misses on earnings expectations. Reported EPS is $2.18 EPS, expectations were $2.32.

Operator: Greetings, and welcome to the Lincoln Electric’s 2023 Second Quarter Financial Results Conference Call. [Operator Instructions]. This call is being recorded. It is my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you. You may begin.

Amanda Butler: Thank you, Therese, and good morning, everyone. Welcome to Lincoln Electric’s Second Quarter 2023 Conference Call. We released our financial results earlier today, and you can find our release as an attachment to this call’s slide presentation as well as on the Lincoln Electric’s website at lincolnelectric.com in the Investor Relations section. And 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. Chris will begin with quarterly highlights. Steve will provide a discussion of end market trends and Gabe will cover quarterly financial performance in more detail as well as our 2023 assumption.

Following our prepared remarks, we are happy to take your questions. But before we start our discussion today, please note that certain statements made during this call may be forward-looking, and actual results may differ materially from our expectations due to a number of risk factors. A discussion of some of the risks and uncertainties that may affect our results are provided in our press release and in our SEC filings on Forms 10-K and 10-Q. In addition, we discussed financial measures that do not conform to U.S. GAAP. A reconciliation of non-GAAP measures to the 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?

Christopher Mapes: Thank you, Amanda. Good morning, everyone. Turning to Slide 3. I’m pleased to report we generated another quarter of record results. Record second quarter sales, adjusted operating income profit margin, adjusted earnings per share and cash flow generation all reinforced solid momentum in the business. We continue to win in the market supporting solid industrial production activity, strong capital spending and the continued adoption of automation. In the second quarter, we effectively managed dynamic operating conditions and achieved our neutral price cost target year-to-date. The team is doing an excellent job balancing the constraints of tight supply chain conditions and elevated inflation levels in our equipment portfolio with more normalized supply chain conditions across the rest of our portfolio.

In the quarter, all of our reportable segments generated profit margins within their higher standard strategy EBIT margin ranges, demonstrating the effectiveness of our commercial and operational initiatives. We also achieved over 100% cash conversion in the first 6 months of the year, which is ahead of plan on improved profit performance and inventory levels. We also maintained top decile returns with an adjusted ROIC of 22.9% and returned $90 million to shareholders in the quarter. Our integration of Fori Automation and Power MIG is on track, which will drive our automation portfolio margins from low double-digit percent to mid-teens percent by 2025. In addition, our planned fourth quarter 2023 production and launch of our 150-kilowatt DC fast charger remains on schedule, and we are planning a NACS and CCS compatible version in early 2024.

The team continues to do an exceptional job serving our customers, driving innovation and advancing operational excellence across our facilities. I couldn’t be more pleased by our progress, which positions us to meet and exceed our higher standard 2025 strategy targets. Now to share more detail on our second quarter sales performance, I’ll pass the call to Steve Hedlund.

Steven Hedlund: Thank you, Chris, and good morning, everyone. Turning to Slide 4. Our 4.5% organic sales growth reflects resilient industrial activity and strong capital investment across our Welding segments with higher volumes in our 3 main product groups and volume growth in all key regions, led by Americas, Asia Pacific and the Middle East. Second quarter’s organic growth rate moderated as compared with the first quarter primarily from the anniversarying of substantially all of our 2022 price actions. From an end-market perspective, we saw strong growth in energy, led by high levels of midstream activity in pipe mill and pipeline activity. And as we look ahead, we expect accelerating demand across our energy end markets.

Heavy industry also remains strong, led by large agricultural and construction equipment production as well as shipbuilding activity. Automotive transportation, while down in the quarter due to the timing of equipment and automation deliveries, had strong consumables growth which continues to serve auto production activity as OEMs work to replenish inventory levels. We expect automotive to inflect positively in the balance of the year, driven by the completion of automation projects. Our general industry organic sales rate declined low single-digit percent in the quarter from weakness in International Welding and Harris. In Americas, general industry grew and strengthened as we ended the quarter into July. The compression we have seen in our nonresidential construction infrastructure sector, narrowed to mid-teen percent in the quarter on challenging prior year comparisons and off-peak cycle conditions.

We are managing through a strong order book in this sector and expect improved sequential performance. For Harris, we remain cautious on retail and residential related trends in the back half of the year, given the seasonality in that segment, challenged demand trends and a challenging third quarter comparison. Overall, while end market performance was mixed in the quarter, we remain in growth mode. We entered the third quarter supported by solid industrial demand across all product areas, more favorable timing of equipment and automation deliveries and high backlog levels. And now I will pass the call to Gabe Bruno to cover second quarter financials.

Gabriel Bruno: Thank you, Steve. Moving to Slide 5. Our consolidated second quarter sales increased 9% to $1.061 billion. The increase reflected a 5.2% benefit from acquisitions, 3.6% higher volumes and a 90 basis point increase in price. Foreign exchange translation was relatively steady versus the prior year. Gross profit dollars increased approximately 12% or $40 million versus the prior year on higher volumes, effective cost management and benefits from acquisitions. Our second quarter gross profit margin increased 80 basis points to 35.2% on volumes and effective cost management, including a neutral price cost position for the first half of the year. Our SG&A expense increased approximately 16% or $26 million, primarily due to higher incentive compensation and employee-related costs and unfavorable foreign exchange transaction costs.

SG&A, as a percent of sales, increased 100 basis points to 18.2%, which is comparable to first quarter results. Reported operating income increased 6% to $178 million. Excluding approximately $6 million of special items from rationalization charges and the amortization of step-up of acquired inventories, adjusted operating income increased 10% to $184 million. Higher volumes, cost management and contributions from acquisitions drove higher profit dollar growth, which helped to offset elevated inflation in the business. Our adjusted operating income margin increased 10 basis points to 17.4%. On challenging prior year comparisons as higher volumes and effective cost management was partially offset by the impact of acquisitions. We recorded approximately $12 million of interest expense net in the quarter and continue to expect full year interest expense of $45 million to $55 million.

We recognized approximately $7 million of other income in the quarter, which represents non-recurring items, including nonoperating gains, of which approximately half is offset in SG&A. Our second quarter effective tax rate as reported and adjusted was approximately 20.6% due to our mix of earnings and discrete items. This compares to an adjusted tax rate of 20.2% in the prior year. We continue to expect our full year 2023 effective tax rate to be in the low to mid-20% range, subject to the mix of earnings and anticipated extent of discrete tax items. Second quarter diluted earnings per share was $2.36. Excluding special items, adjusted diluted earnings per share was a record $2.44. Moving to our reportable segments on Slide 6. Americas Welding segment second quarter adjusted EBIT increased approximately 19% to $140 million.

The adjusted EBIT margin increased 90 basis points to 19.8% on higher volumes and effective cost management, which was partially offset by acquisitions. Americas Welding sales increased 14% in the quarter, driven by an approximate 7% increase in organic sales and a 7% benefit from acquisitions. The segment generated 6% higher volumes from growth across all product lines on continued momentum in regional industrial activity and capital investments. U.S. exports continued to strengthen in the quarter. Backlogs remain high at quarter end in both equipment and automation. Price primarily reflects targeted pricing actions implemented in early second quarter 2023 to mitigate inflation as well as the anniversary of prior price increases in 2022. Moving to Slide 7.

The Industrial Welding segment’s adjusted EBIT decreased 3.5% or approximately $1 million to $34 million. The adjusted EBIT margin declined 130 basis points to 12.9% versus prior year but improved 150 basis points sequentially and is within the targeted higher standard range of 12% to 14%. Organic sales increased approximately 4%, led by 4% volume growth with greater strength in Asia Pacific and the Middle East and Africa. Price increased 40 basis points, reflecting select new pricing actions year-to-date and the anniversary of prior year price actions. Moving to the Harris Products Group on Slide 8. Second quarter adjusted EBIT increased approximately 9% to $19.5 million. Their adjusted EBIT margin increased 190 basis points to 14.7% reflecting effective cost management and operational improvements from integration initiatives.

Harris’ organic sales declined approximately 5% on approximately 6% lower volumes and 1% higher price performance. Volumes reflected continued softness in retail, modest compression in HVAC in a challenging prior year comparison in industrial applications. Moving to Slide 9. We generated a record $199 million in cash flows from operations in the quarter, resulting in 125% cash conversion. Our average operating working capital to sales ratio decreased to 18.9% on improved inventory levels. While we have largely normalized inventory levels in our consumables portfolio, we continue to maintain elevated inventory to mitigate challenging equipment supply chain conditions and support sales. Moving to Slide 10. We invested $54 million in growth initiatives in the quarter, reflecting our Power MIG acquisition and $22 million in CapEx spending.

We returned $90 million to shareholders through approximately $53 million of share repurchases and our higher dividend payout. We maintained a solid return on invested capital of 22.9%. Turning to Slide 11 and our full year assumptions. We are maintaining our full year assumptions, but are adjusting the mix of organic growth drivers to reflect volume strength in the business. We now expect approximately 2/3 of our full year organic growth from volumes and the balance from price. Our full year price assumption returns price contribution to a more normalized rate. We recognize that cash conversion has outperformed our initial assumption, and we are highly confident that we will exceed our full year 2023 estimate. We continue to expect to progress seasonally in the back half of the year.

And now I would like to turn the call over to Chris for concluding remarks.

Christopher Mapes: Thank you, Gabe. Earlier today, we announced my upcoming retirement as President and CEO of Lincoln Electric at year-end. Effective January 1, 2024, I will serve as Executive Chairman of the company and will work closely with Steve Hedlund, who will be promoted to the position of President and CEO and will be appointed as a member of our Board. After what will be 11 years in the CEO role, my planned retirement comes after a very thoughtful multiyear succession planning process. I believe the timing aligns well with the near completion of our higher standard 2025 strategy and as the organization advances to its next long-term strategy. I’m tremendously thankful for the support of our organization, the Board and the investment community during my tenure as CEO.

It has been a privilege working with the industry’s best team in serving great customers. I’m especially proud of how we have transformed the business over the last decade by accelerating innovation, growth and operational excellence, which has led to significant value creation and accelerated our position as a high-performing global industrial company and the global leader in welding, cutting and automation solutions. During these years, I’ve worked alongside Steve and our leadership team, and I’m confident in Steve’s ability to lead the company and continue the strong momentum we have achieved together to ensure the company’s future success. Please join me in congratulating Steve on his new role. And now I’d like to turn the call over for questions.

Q&A Session

Operator: [Operator Instructions]. Our first question comes from Saree Boroditsky from Jefferies.

Saree Boroditsky: Congratulations to Steve on the new role. And Chris, on your retirement, following over a decade of strong performance leading Lincoln, and you’ll be very missed. I just wanted to go through some of the end markets in more detail. It looks like auto and general industries turn more negative in the quarter. You noted that auto should inflect positively in the second half. So any color on that? And then maybe just on general industrial, if that was also timing or expected to continue.

Steven Hedlund: Yes. Saree, this is Steve. If we look at automotive, the decline there was really driven by capital projects, automation and large equipment purchases. The volume we had in consumables was up, which gives us an encouragement that that’s really a bellwether of automotive production and continuing strong demand in that category. And in General Industry, it was really driven by the residential and retail exposure that we have in the Harris Products Group and by softness in Europe in the International segment. The U.S. General Industry sales growth was very strong, and we saw it accelerate during the quarter.

Christopher Mapes: Yes. Saree, I think Steve’s comment, that’s a really important thematic as it relates to the performance of the business in the quarter. we saw momentum throughout the quarter, ended the quarter with strong momentum. And where we did see softness in some areas of some of our industrial segments, portions of that were in the Harris business where we knew that was going to be a softer quarter for us and not surprising that as we recognize certain of the markets internationally, especially in Europe, have turned slightly more negative than we would see that there. When I think about our business, and I think about our Americas business that’s generating 5.8% volume in the quarter, that is just really strong momentum across the business. And I like the positioning of the company, although we’re having some regional impacts right now, the strength in Americas and the volume performance in Americas has been very strong.

Saree Boroditsky: I appreciate the color. And just given that expected increase in auto in the back half of the year, should we expect to see volumes step up versus 2Q levels? Or will there be any offsets to this?

Christopher Mapes: Saree, I think what’s important is, as you heard in Gabe’s comments, we’re actually — where at the start of the year, we thought that we would really be almost an even mix between volume and price as we were thinking about the business. As we’re looking at the back half of the business, the volumes have actually stepped up and are probably about 2/3 of what we believe we’ll see within that portion of the organic. So that just naturally tells us that we believe our volumes are stepping up from what we’ve seen in the first half. The momentum that we’ve seen exiting Q2, we would certainly expect to see that. I would also acknowledge that when you think about the back half of the year, we do have 2 less days, one each quarter that will be confronted with as we think about the year-over-year comparison.

But again, strong momentum, a shift towards more volume. And I think you’ve seen us be able to operationally leverage that volume as it comes into our business.

Operator: Our next question is coming from Bryan Blair with Oppenheimer.

Bryan Blair: Congratulations to Chris, very successful tenure and Steve on well-deserved promotion.

Christopher Mapes: Yes. Thank you.

Bryan Blair: I Just wanted to level set. It seems like they’re — in terms of capital spending in particularly automation, there was some pushback — timing shifted to Q3 or perhaps Q4. What was that impact in the quarter, if you don’t mind quantifying that? And is it a Q3 or Q4 catch-up in terms of that demand?

Gabriel Bruno: Bryan, I wouldn’t describe that as some kind of shifting in our business. And I’d just remind you of our assumptions for the year, right? So we’re mid-to high single-digit assumptions. At the midpoint, we’re at 6.5% organic growth. So we’re right on top of our operating assumptions. That said, the mix of our business in automation, we do expect to accelerate in the back half of the year with contributions as we’ve talked about on the automotive sector. So I don’t see any particular shifting in our posture between what we saw in automation for the first half of the year.

Christopher Mapes: Yes, Bryan. And probably the only other comment I would add to Gabe’s is that we have been talking about the Fori acquisition, which was a large addition into our automation portfolio. We brought that into our portfolio in December last year. And we knew that we had quite a bit of integration work to do — the early portion of that ownership of the team. And we just had our Board meeting up there last week. It’s, they’re just doing a spectacular job for the company. So I couldn’t be happier with the progress we’re making. But as you can imagine, integration in the first couple of quarters, that just is continuing to get better and better, and we would expect the back half of the year to be better than the first half of the year and that’s another thing we’ve been talking about as it relates to automation, but I completely agree with Gabe.

I’m not aware of anything that has moved to the back half because some sort of softness in demand or operational issues.

Steven Hedlund: Bryan, it’s quite a contrast, we still see very good order activity in the automation business. We see very strong proposal activity in the automation business. There is some timing of large projects in terms of when they get completed and the revenue gets recognized that might move business from one quarter to another, but we don’t — we didn’t see any softening in automation in the second quarter.

Bryan Blair: Okay. Understood. That’s great to hear. And sticking with automation, what should we think about as an organic growth rate for the platform this year. We know with Fori, there’s substantial stepped-up growth for the full year.

Gabriel Bruno: Organic, mid- to high single digits.

Operator: Our next question comes from Mig Dobre from RW Baird.

Mircea Dobre: Chris, like everybody else, congratulations on a great career, and Steve, congrats to you as well. I have 2 questions. Two questions for me. One on shorter-term one and maybe a longer term to follow up. From a shorter-term perspective, I guess, a bit of a head scratcher for me in terms of how you’ve kind of tweaked the components of the guidance, pricing coming down a bit. I’m looking to sort of understand — kind of what’s driving that? And should we actually think pricing turns negative at any point in time in the year, maybe Q4, for instance? And then on the volume side, tweaking that up. I’m sort of curious as to how much visibility you have on that volume? What gives you the confidence that volumes accelerate? Is it purely a function of the automotive business and automation? Or is there something else going on in there?

Gabriel Bruno: Yes. So Mig, let me just start off with the volume side of it. So as we noted, our backlogs remain strong. We have strong orders entering the third quarter. So what does that mean? Think about the mix of our business in the second quarter, while we speak to General Industries, being low single digits and Automotive being down to mid-single digits. I mean we see progression within Automotive that tips to strengthening in volumes. And we see more strengthening on the General Industry side. So that gives us confidence that our overall organic mix is going to lean on the volume side. In terms of pricing, we continue to operate in an inflationary environment, and I’d like to point to — I didn’t mention this in my comments, but what’s our run rate for LIFO for the year, we’re running now at $5 million.

We did deploy wage increases in the second quarter. So we’re operating in an inflationary environment, but we’re anchored on our philosophy of price cost neutral. And we’ll enact pricing as required. And right now, we’re at that neutral posture. And we feel very confident that we’ll continue to execute along those lines as you’ve seen in the long term.

Mircea Dobre: But Gabe, to clarify, your outlook for full year pricing has moderated relative to 3 months ago. Is that a function of raw materials and how that flows through consumables? Or am I misunderstanding something?

Gabriel Bruno: It is a function of how we see overall inflation, right? And that includes material cost trends. So we don’t see the acceleration in our business that we’ve seen over the last few years. So that’s going to drive a moderation in pricing actions and will respond with pricing in how we see the progression of inflation. But we feel we’re in a very good positioning currently when we look at price cost. And right now, we don’t see any drivers to accelerate our pricing posture currently. So we’ll continue to manage price cost in a very disciplined way, as you know, we do.

Mircea Dobre: Understood. Then I guess my longer-term question, and this might be for Chris or maybe even more so for Steve as the transition is happening here from a leadership perspective, I’m kind of curious as to how you’re thinking about the company 3, 5 years out, where you see the biggest opportunities? And obviously, Fori has started to expand the definition of automation within Lincoln Electric. So I’d love to hear Steve’s thoughts on that. And then, of course, the EV charging opportunity, you mentioned it a little bit in your prepared remarks, but I’d love to hear more about how you see that playing out longer term?

Christopher Mapes: Well, Mig, this is Chris. So look, a couple of comments. First, I will talk with you that I think the future for Lincoln Electric looks enormously strong. And it looks enormously strong because of what I believe has occurred within the company over the last several years as we’ve just transformed it into what I believe to be a higher-performing industrial company in the space. And we have these underlying catalysts in our business like the automation business. And the automation business today, which is well over a $900 million run rate, and we’re going to continue to deploy capital and with high single-digit growth rates that we’re looking for that business. And I believe secular trends that, quite frankly, may permeate even beyond what we might see in industrial cycles, there’s no reason to believe that, that won’t become a larger and larger portion of the portfolio over the next 3, 5, 7 years.

We’re very committed to that. And then we have these other growth elements associated with business, whether that’s additive or the charger initiative that create other catalysts for value creation within the company as well as continued investment as the global leader in welding and cutting technology. So when we aggregate those, I think you’ll see Lincoln continuing to accelerate and Steve and the leadership team probably because of being a larger company needing to make even larger investments in some of those areas in the business, but I think just enormously well positioned as we think about the company. And I think Steve and the leadership team are ready to do that and to drive that. And that’s why it’s the right time for me to step into the Chairman’s role and support them and be a voice in those discussions, but let the team take over the operating side associated with that.

Steve and I have worked together since the day I came to Lincoln. So I’m very familiar with his perspectives on the business. And I know you look forward to the February time frame when Steve steps in as CEO and starts to provide more guidance to you as it relates to that next long-term strategy we’ll be providing for the company.

Operator: [Operator Instructions]. Our next question comes from Nathan Jones with Stifel.

Nathan Jones: I’ll add my congratulations and best wishes to Chris, and congratulations to Steve. I just had a question on the commentary about strengthening throughout the quarter. I think it’s fairly typical to see strengthening throughout the quarter. So are you talking about it having strengthened more than typically would as you went through the quarter? And maybe you could talk just a little bit more about the businesses and underlying trends that you think are driving that?

Christopher Mapes: Yes. Look, I would tell you that I think that’s the right tone, which has strengthened a little more than what we had normally seen seasonally within the business with a lot of strength as we were exiting the quarter. And I think the other catalyst that I think about when we think about that strength is that strength in the Americas Welding segment and seeing that underlying volume at 5.8%. So I wouldn’t want to tell you that the quarter was backloaded, that wouldn’t be fair. I mean, we had solid progression through the quarter, but real acceleration at the end of the quarter and we saw nice demand trends over the first couple of weeks of July as we’re continuing to see some of those favorable attributes within the business.

Nathan Jones: And then my follow-up question is going to be on International Welding. Still pretty good, 4% volume growth, I think, in International Welding, given some of the challenges and some of the macro numbers coming out of Europe is really quite strong. Maybe some comments on the outlook there, whether or not you think you can continue to see volume growth in international world given particularly some of the macro data coming out of Europe?

Christopher Mapes: Yes. I think that will be really an area that we’ll need to stay focused with, Nathan. It’s probably — if I think about the elements of the business in the back half of the year, where there could be risk, I mean, we could probably point towards the International business just simply from a demand perspective. Our demand held up well in the quarter, very proud of our teams, their ability to manage through this portion of the International cycle. But we also know we’ve got August coming up, which at least in that core European market tends to be when we see businesses have closures. Will they extend some of those. We’ve not seen anything yet or heard of anything, but because of the softness in that market, could those be extended, but the confidence I have is that we’ve shown an ability to manage through these cycles, and they’ve exhibited that in their Q2 performance.

So I see it as upside for the business when we see some better demand trends in international longer term. And certainly, as it relates to thinking about the business in the back half of the year, a lot of confidence in the demand trends we see in Americas Welding.

Operator: And our final question of the day comes from Steve Barger with KeyBanc Capital Markets.

Robert Barger: I want to focus on some of the newer businesses. For the charging station initiative, we’ve gotten a lot of questions about why a customer or a partner would pick Lincoln versus some other manufacturer. Can you talk through the value proposition you’re presenting to customers? And any initial feedback as you start those conversations?

Steven Hedlund: Sure, Steve. This is Steve Hedlund. We hear consistently from everyone we talk to, the 2 main drivers in the market right now are reliability and availability. So outside of the Tesla Supercharger network, the network that’s been built is highly unreliable. There’s all kinds of press you can read or social media you can follow about. Consumer frustration with pulling up to an EV charger that the app says is online and they pull up and it’s either not working or it’s derated from a power perspective. And then there are also a very long lead time on getting charging equipment from the established manufacturers as the U.S. ramps up its investment in DC fast chargers. I think that’s really behind what you saw with all the announcements of the automakers adopting the NACS standard is that they’re looking for a reliable network for their vehicle customers to be able to use.

So as we’ve talked to prospective customers, they understand our value proposition, they get it. They’re excited about it, and they’re anxious to get sample product in their hands. So we continue to focus on driving the industrialization and manufacturing ability of this product. So we remain very optimistic about the future.

Christopher Mapes: Yes. And Steve, I would say the other value proposition that I see for it is that let’s just acknowledge that we would be one of only a handful of individuals, a U.S.-based company making these chargers in Cleveland, Ohio. And I think that a lot of the individuals are having conversations with us about the build-out that’s necessary here in the United States, are excited about dealing with an established successful manufacturing company based here in the U.S. that’s going to manufacture these locally because we’ve got our own print circuit board manufacturing facilities, and we’ve been doing these types of power electronics for decades. And I think that gives the marketplace some comfort in our ability to be able to execute on this strategy for this product portfolio.

Robert Barger: I know you’re capacitizing for 2024, but what — what’s the time line for getting some of the prototypes out into customers’ hands?

Steven Hedlund: That will be happening later this year.

Robert Barger: Got it. And then in the automation business, once you sell an arm or a welding sell to a customer, what percentage of the time are you able to convert that into additional sales or higher dollar systems? And how is the sales force incentivized if one way or another on new customers versus existing?

Steven Hedlund: Well, there’s 2 aspects to keep in mind, Steve, of an automation sale. First is we have a very high retention rate on the consumables that, that robot uses. So the welding wire, our wire is highly differentiated for those types of high-volume robotic applications. So we think automation we get not only the onetime first sale of the system, but also the ongoing consumable annuity stream associated with it. And then we see a tremendous amount of repeat business from customers. Buying an automation system is a risky prospect for the decision maker because they have to take either their existing production down or they have to use a summer shutdown or some other narrow window of opportunity to get the new equipment in place.

And it’s imperative that the system function as intended the first time and that the supplier hits the schedule in terms of delivery and commissioning. And so once we’ve demonstrated to them we can do that, they start pointing to, hey, can you help me with this? Can you help me with this other thing? And we just see an opportunity to expand the relationship with that customer, and that’s right in the wheelhouse of our selling model.

Robert Barger: Got it. And maybe one quick follow-up. with automation trending towards $1 billion and getting into charging now. Is there any thought at some point of pulling out automation additive and charging into a stand-alone segment, so we can get a better sense of how those growth initiatives are progressing?

Christopher Mapes: Steve, as we continue to advance those areas of the business, and we acknowledge they’re getting larger and larger, and they’re a very important piece of the portfolio, we’ll continue to evaluate that as we’re looking at the next long-term strategy for the company. But I certainly believe that as we’re executing on the next 3 to 5 years as a company, those areas are going to continue to be growth engines for Lincoln Electric, and we’ll have to continue to emphasize those and provide details on those for our investment community as well as the other individuals that are stakeholders at Lincoln Electric.

Robert Barger: Congratulations to both of you.

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

Gabriel Bruno: 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.