Lincoln Electric (LECO) Q3 2025: Automation Orders Jump 15–20% Sequentially, Signaling Early Cycle Upside
Automation order momentum and resilient core demand offset global capital spending headwinds for Lincoln Electric in Q3 2025. While volume recovery remains uneven across regions and segments, sequential improvement in automation and record cash conversion highlight operational discipline. Management’s forward posture centers on leveraging cost structure gains and automation backlog to capture growth as end markets accelerate into 2026.
Summary
- Automation Orders Inflect: Sequential order rates rose sharply, setting up for a stronger 2026.
- Cost Structure Resilience: Permanent savings and disciplined SG&A management supported margin expansion.
- Early Cycle Signals: Consumables and Americas welding volumes point to a slow but steady demand recovery.
Performance Analysis
Lincoln Electric delivered an 8% sales increase in Q3 2025, driven by robust pricing and M&A contributions, with organic sales up 5.6% as volume declines narrowed. Pricing remained a key lever, particularly in Americas Welding and Harris Products Group, while international sales benefited from acquisition and foreign exchange, offset by persistent European demand softness. Gross profit margin expanded by 90 basis points to 36.7%, reflecting not only price realization but also $8 million in permanent savings and operational discipline that offset lower volumes and a $5 million LIFO charge.
Adjusted operating income rose 9%, and adjusted EPS climbed 15%, aided by share repurchases and cost actions. Record cash flow conversion (149% in the quarter, 119% year-to-date) and a 50 basis point improvement in working capital efficiency underpinned a strong balance sheet. Segment performance was mixed: Americas Welding posted high single-digit sales growth on price, Harris Products Group outperformed with 15% sales growth, while international volumes remained soft but margins rebounded on mix and cost actions.
- Automation Revenue Timing: Global automation sales came in slightly below expectations due to project timing, but order rates improved late in the quarter.
- Americas Welding Margin Stability: EBIT margin held in the 18–19% range, despite lower automation volumes and incentive cost headwinds.
- Harris Products Group Pricing Power: High single-digit pricing gains were sustained by commodity-linked pricing models and retail expansion.
Management’s capital allocation remained balanced, with $136 million invested in growth and $94 million returned to shareholders. A 5.3% dividend increase marks the 30th consecutive annual payout hike, underscoring confidence in long-term cash generation.
Executive Commentary
"We are achieving our targeted neutral price-cost position and generated an incremental $8 million in permanent savings this quarter. This resulted in both higher gross profit and operating income margins, a 15% increase in our adjusted earnings per share performance, and record cash flow generation with 149% cash conversion."
Steve Hedlund, Chairman, President and CEO
"Our adjusted operating income margin increased 10 basis points to 17.4%, reflecting a 19% incremental margin. We reported third quarter diluted earnings per share of $2.21. On an adjusted basis, EPS increased 15% to $2.47."
Gabe Bruno, Chief Financial Officer
Strategic Positioning
1. Automation Cycle Inflection
Automation order rates accelerated late in Q3 and into October, with management guiding to a 15–20% sequential sales increase in Q4. This is driven by broad-based demand, including automotive and heavy industry, with long-cycle capital spending projects beginning to unfreeze. Management expects the full revenue and margin impact to materialize in 2026, but near-term backlog growth signals the start of a new investment cycle for automation solutions, which comprise 80% of Americas segment automation revenue.
2. Pricing as a Defensive and Offensive Lever
Price realization offset volume softness, especially in Americas Welding and Harris Products Group. Pricing actions taken earlier in the year fully matured in Q3, and management expects price levels to hold sequentially. In Harris, a mechanical pricing model tied to commodity inputs (notably silver and copper) allowed for sustained high-single-digit pricing gains. These actions supported margin expansion and helped neutralize input cost inflation, with limited evidence of demand destruction so far.
3. Permanent Cost Structure Improvements
Permanent savings actions delivered $8 million in the quarter, with SG&A discipline helping to offset prior-year incentive compensation reversals. Structural cost reductions, achieved through process changes and operational efficiency, are expected to provide operating leverage as volumes recover. Management’s focus on “changing how we get the work done” positions the company for higher incremental margins in a future upcycle.
4. Selective End Market Recovery
Short-cycle consumables and Americas equipment volumes improved, with low-single-digit growth in welding equipment for the first time since Q4 2023. End markets like general industries, HVAC, and midstream energy posted steady or higher organic sales, while heavy industry and automotive showed early signs of capital investment returning. International markets remain challenged, particularly Europe, where management is “cautiously optimistic” but not yet seeing order inflection from defense or industrial stimulus.
5. Capital Allocation and Shareholder Returns
Lincoln Electric maintained a balanced capital allocation approach, investing in growth (including final alloy steel capex) while returning capital via dividends and buybacks. The announced dividend hike and continued share repurchases reflect confidence in cash generation and long-term return on invested capital, which reached 22.2% this quarter.
Key Considerations
This quarter’s results reflect a company at a cyclical crossroads, with operational discipline and automation order momentum offsetting macro headwinds and regional demand disparities.
Key Considerations:
- Automation Demand Pacing: Sequential order and sales improvement in automation foreshadow a stronger 2026, but timing and project mix will influence margin realization.
- Volume Recovery Trajectory: Management expects a gradual build in volume growth rather than a sharp rebound, with short-cycle consumables leading the way.
- International Margin Normalization: International segment margins rebounded on mix and cost actions, but top-line growth remains dependent on a broader European recovery.
- Pricing Durability: Price inelasticity observed in Americas and Harris suggests further upside if inflationary pressures persist, though competitive and customer pushback could emerge if volumes lag.
Risks
Key risks include uneven regional demand recovery, especially in Europe, and the potential for delayed capital spending in automation to reverse if macro uncertainty persists. Cost inflation and LIFO accounting volatility could pressure margins if input costs rise faster than price realization. Temporary cost savings may revert as volumes recover, potentially diluting incremental margins if not offset by operating leverage.
Forward Outlook
For Q4 2025, Lincoln Electric guided to:
- Automation sales up 15–20% sequentially, though still below prior-year levels
- Americas Welding EBIT margin in the 18–19% range
- International Welding margin at the high end of the 11–12% range
For full-year 2025, management maintained guidance:
- Top-line and margin assumptions unchanged
- Interest expense raised to low $50 million range due to recent borrowings
- Cash conversion expected above 100%
Management highlighted several factors that will shape the outlook:
- Continued stabilization in short-cycle consumables and Americas demand
- Seasonal softening in HVAC expected in Harris Products Group
Takeaways
Lincoln Electric’s Q3 2025 results signal an early-cycle inflection, with automation order momentum and disciplined cost structure setting the stage for above-peer incremental margin capture in a recovery. While volume growth is building slowly, pricing resilience and operational agility provide downside protection. Investors should monitor automation backlog conversion, European demand signals, and the sustainability of pricing power as key drivers into 2026.
- Automation Order Acceleration: Broad-based order improvement positions LECO to capture long-cycle project growth as capital spending resumes.
- Structural Margin Gains: Permanent cost actions underpin margin expansion, with upside as volumes recover and automation mix improves.
- Watch for International Inflection: European recovery remains a wildcard; sustained improvement would unlock further upside.
Conclusion
Lincoln Electric is navigating the late-cycle trough with operational discipline and early signs of demand recovery, particularly in automation and core consumables. Execution on cost structure and capital allocation positions the company to outperform as the cycle turns upward in 2026.
Industry Read-Through
Lincoln Electric’s automation order inflection and resilient pricing reinforce a broader early-cycle recovery theme for industrial technology providers. Capital spending in automotive and heavy industry is beginning to thaw, signaling opportunity for suppliers with robust automation and digital manufacturing portfolios. Pricing discipline and cost structure agility are critical levers as end markets transition from stabilization to growth. European demand remains a risk factor across the sector, with tangible order recovery yet to materialize despite policy tailwinds. Investors should monitor automation order books, pricing power, and working capital trends as leading indicators for the industrial cycle’s next phase.