Lincoln Electric at Morgan Stanley Conference: Strategic Growth Focus

On Thursday, 11 September 2025, Lincoln Electric Holdings Inc (NASDAQ:LECO) presented its strategic vision at Morgan Stanley’s 13th Annual Laguna Conference. The company outlined its growth plans, emphasizing innovation and acquisitions while addressing challenges like tariffs and market competition. Lincoln Electric aims for sustainable growth despite macroeconomic uncertainties, balancing opportunities in automation and international markets with disciplined cost management.

Key Takeaways

• Lincoln Electric targets high single-digit to low double-digit growth through technology, automation, and acquisitions.
• The company maintains a price-cost neutral strategy to handle tariff impacts.
• Resilient consumable volumes in the Americas contrast with challenges in heavy industries.
• Europe remains competitive, while growth opportunities are identified in the Middle East and Southeast Asia.
• The company plans to increase dividends and pursue opportunistic share repurchases.

Financial Results

• Targeting high single-digit to low double-digit growth.
• Aims to expand operating margins by 200 basis points in each cycle.
• Average operating profit at 16% during the current strategy period, exceeding 17% over the past three years.
• A $10 million LIFO charge was accelerated into the second quarter.
• Permanent cost savings of $10 million to $15 million expected in the second half of the year.
• International EBIT margins stood at 11.5% for the first half of 2025.
• Share repurchases target of $300 to $400 million, with $230 million completed by Q2.

Operational Updates

• Tariffs: Evaluating expanded Section 232 tariffs and implementing pricing actions for price-cost neutrality.
• Americas: Resilient consumable volumes; heavy industries face challenges, while automotive and energy sectors show positive momentum.
• International: Europe remains challenging; growth opportunities in the Middle East and Southeast Asia.
• Automation: High quoting activity, but order delays due to macro uncertainty; expecting flattish trends near-term.
• Initiatives: Permanent cost savings initiatives of $10-15 million in the second half; seeking alternative suppliers, including U.S. steel.

Future Outlook

• Growth: Aiming for high single-digit to low double-digit growth, driven by innovation and automation.
• Margins: Targeting a 200 basis point expansion in the operating model.
• Strategy: Announcing 2030 key themes in early 2026, focusing on technology, market position acceleration, automation, and acquisitions.
• Markets: Heavy industries not expected to grow until 2026; hopeful for more industrial investment in Western and Northern Europe.
• Automation: Targeting $1 billion in revenue.

Q&A Highlights

• Tariffs: Monitoring impacts and taking pricing actions to maintain price-cost neutrality.
• Demand: Steady demand with resilient consumable volumes in the Americas; automotive performing better than expected.
• International Markets: Challenges in Europe, with opportunities in the Middle East and Southeast Asia.
• Automation: High quoting activity, but order delays due to uncertainty; optimistic about long-term potential.
• Capital Allocation: Focus on internal growth investments and strategic acquisitions; committed to returning cash to shareholders.

In conclusion, Lincoln Electric remains focused on its long-term strategic goals, balancing growth and challenges. Readers are encouraged to refer to the full transcript for more detailed insights.

Full transcript - Morgan Stanley’s 13th Annual Laguna Conference:

Angel: Provide it in a little bit more detail later on, but to the extent that you can provide a preview or kind of set the stage for how you’re thinking about the next few years, with margins already kind of in the high teens, that is above what you had kind of laid out in your original plan, and just how you kind of expect to perhaps focus more on consumables or equipment mix versus automation in organic, et cetera. Just would love to start there.

Cape: All right. Thank you, Angel, again. When we think about our strategy, we’re going to announce 2030 kind of key themes first part of 2026. The foundational building blocks are already established. When we think about growth, think about leading with innovation. In our 2025 higher standard strategy, our objective is to achieve high single-digit, low double-digit type growth. Fundamental drivers are leading with technology, innovation. We’ll continue to drive accelerated growth through automation. You’ve seen the continued investment and shaping of our business model there. Acquisitions become an important part of our growth agenda, which again, 300 to 400 basis points of type of growth. Foundationally, those elements aren’t changing. We’ll look for opportunities and adjacencies maybe to accelerate growth. Leading with technology, accelerating our position in the market, automation, acquisitions. If you think about margins, you go way back in time.

We like to share a slide in our investor deck that shows the shaping of our operating model over a 20-year period. For each cycle, we’ve expanded our operating margins by 200 basis points. You point to like in the current strategy period, and we’ve been exceeding the last few years the average operating profit that’s based in our model. While our average is 16% in the strategy period, we’ve been in excess of 17% now for now pushing three years. We’ll reset kind of how we think about the shaping of the next strategy period. You can expect continued improvements in the operating model. If you just look historically at 200 basis point type of an expansion in our operating model, it’s probably a pretty reasonable place to be to start. We think about fundamentals of cash and capital allocation, ROIC, how we’re deploying capital.

When you think about growth and investing in acquisitions and that, you’ve got core welding as well as automation. On the core welding side, we just announced an acquisition in August. That was core welding. Then we had one last year, core welding. You have a nice mix between automation types of opportunities as well as core welding. That’s kind of how we think about it. Very much balanced across all of our business. Fundamentals of cash management, cash conversion, ROIC are all part of the structure we have in our business. You can expect those kind of things to continue into the 2030 strategy.

Angel: That’s very helpful. As you think about it, I think this kind of leads us into a topic that’s been probably the biggest area of debate, right? Just in terms of what the implications are of tariffs. Now we had the expanded Section 232. You still have an outlook for the year of price cost neutral. As you think about both this year and kind of the longer-term ability to hit 200 basis point expansion, how is that kind of expectation being impacted by tariffs near term and just your overall strategy?

Cape: Our overall strategy is to also be price-cost neutral. We’ve got to be agile and responsive to the cost dynamics we see in our business. This is not a new thing for us. It’s now in a different shape or size with tariffs, but the fundamentals are there. We have to be very disciplined about understanding the changes in our cost structure and how we respond with our pricing strategy. Back to this strategic question, when you think about how we’ve performed in this 2025 strategy period, you start off with COVID in 2020, where the 2025 season has been covered with a lot of tariffs and administrative policy types of discussion. When you look at how we’ve performed, organic actually is within the range. A little bit more pricing than volume, but all within the range. That’s how we think about it. We think about it long term.

We think about being very disciplined in protecting our model, in understanding the fundamental cost challenges we have, and in putting in place pricing where needed to be able to protect our model. Keep on thinking about long term. What are the drivers for incremental growth across the end markets and geographies that we serve?

Angel: Specifically to the expanded Section 232, is there any kind of ability to quantify the incremental impact of that? How are you already rolling through prices for that? How’s the strategy on that?

Cape: Yeah, no, we’re still evaluating the impact of just what’s been announced over the last couple of weeks. Once we quantify, then we’ll put in place pricing actions to be able to deal with the same fundamental discipline of price-cost neutral.

Angel: Got it. I do want to remind the audience, if anybody has any questions, feel free to raise your hand and we can get a mic to you. Maybe just sticking with the Americas for a little bit, one of the things that has been a little bit surprising, as you had talked about, I think at the beginning of the year, an expectation for perhaps some elasticity from the customer to the price increases, which you really haven’t seen as much. It seems like you’ve been able to flow that through and still see pretty decent volumes. Can you just update us on maybe how that’s progressing, how your order intakes have been kind of flowing versus your quoting activity? Just overall.

Cape: Yeah, so we’re seeing more resilience, generally speaking, in actual volumes. We saw that continuing into the July time frame and we continue to see it today. It’s just more steadiness in activity, not significant increases or any cliffing going on in our business, but in general, just stability. You’re right. We did anticipate. We planned for it. When you think about operating assumptions, they’re the assumptions that we’re framing how we’re addressing our short-term business operations. We’re planning to be ready that if volumes are impacted by pricing actions, we’re ready for that. That was the basis for our assumptions going into the second quarter. As you point out, the volumes were more resilient, more so on the consumable side of our business.

When you think about the consumables portion, which is about a little over half of our business, that is the function of factory activity, industrial production trends. When you see more of a steadiness in that, that’s actually more positive for us. When you look at overall industrial production activity being slightly up, that’s what you’re seeing in our consumables. The consumable numbers are higher than that because of pricing in general. The steadiness is important for us because that gives us an inflection point on if we do see real growth, we’re very well positioned to participate in a growth trajectory.

Angel: I just wanted to clarify, I guess, the steadiness that you were seeing in July, you’re seeing that continue into August?

Cape: Yeah, we see that. That’s the current atmosphere in our operations.

Angel: Great. No, and maybe could we drill a little bit into kind of the specific end markets? I think you had mentioned a little bit on kind of the ag and the construction side. If we could drill into kind of the various end markets, particularly within the Americas, how are those all kind of holding in that steadiness, or is there some puts and takes?

Cape: Yeah, no, they’re different. As you point out, heavy industries have been challenged for the last now a little over a year and a half or so. We continue to see pressure on the heavy industry side. You’re tracking things like the destocking going on in ag, for example. That has an impact on a heavy industry. We don’t see that inflecting to growth until sometime in 2026. Can’t tell you when, but that’s kind of how we see things. Seeing good progress, destocking, but we just don’t see growth there. That’s heavy industries, which is almost 20% of our business. When you move from heavy industries into general industries, you saw we were up second quarter, high single digits, and just some pricing within that. That comes back to our dialogue on what’s consumable activity. Is it steady?

What are you seeing in the sentiment, PMI, and what are you seeing in actual production? We were up, and some of the drivers we’re hopeful are going to turn more least steady to more positive as we progress in the next, I don’t know, 12 months or so. Automotive actually has held up a little better than anticipated. You see the retail sales actually are stronger. For us, it’s understanding in automotive the difference between what’s happening in factory production, which is the same conversations on consumables. The production levels on the automotive side are going to drive more consumable activity. The second part of that is investment. You think about automation. 80% of our automation business is tied to our Americas. When you see deferral decision-making on the capital side, that’s where you’re seeing the impact on volume.

It’s both standard equipment as well as automation while consumables is holding up. That’s kind of an automotive dynamic. Energy, we’re more bullish on energy. When you see potential investment progressing in oil and gas, particularly mid-stream, which is about half of our, a little more than half of our oil and gas concentration, that’s pipe mill, that’s pipeline activity. That’s positive. We’re positive in the second quarter. We expect that to continue. Good momentum there. That’s just the method in Americas, but you also have that dynamic in the Middle East and in Southeast Asia as well. Energy is positive. That’s kind of the key end markets. Does that give you some perspective there?

Angel: No, that’s very helpful. I guess maybe just to go back quickly to the price cost before I forget, I wanted to ask, so you’re a LIFO accounting. What are the implications of that ultimately, I guess, in terms of your business and again, the speed at which you can flow through some of these tariffs and the speed at which you actually see them versus others while you also maybe have the offset of having more distribution?

Cape: Yeah, not many companies, I guess, still account for their inventories, particularly in the U.S., on a LIFO basis. I am getting that question more often from investors because we’re talking about the impact of costs more immediately than going through a turn. Our team is very sensitive to understanding that pricing actions need to take effect now because of the cost implications that are having an impact on our business now. We don’t have the turn to be able to respond to that. You saw in the second quarter, we had an accelerated charge. We call it a LIFO charge, which means that the cost impact of selling the current inventory first reflects a higher cost that’s within a LIFO charge. You saw for the half, we’re at $10 million. Most of that accelerated into the second quarter. That’s what’s built into our assumptions for the year.

Our team is very disciplined in understanding pricing inherently, but then also what’s the impact on inventory. We don’t have much time to react being a LIFO accounting. We’re very disciplined about understanding that in our model.

Angel: From the pricing perspective, to your point, understanding kind of the urgency to pass that through, can you talk about what you’re seeing in your distribution channel versus on your OE side?

Cape: Yeah, so you know, think about the first half of the year, and we put five price increases in place. We’re very sensitive to be working with our channel partners to respond in a very disciplined way and give them as much notice as possible so that they can react to the pricing challenges that they have. We’re very sensitive to that, and we do our best to accommodate our pricing actions to the needs of our customers. OEMs, let’s say 60% of our business is sold through industrial distributors who are also very disciplined in managing their own models and pricing. The OEM conversation becomes a little bit more challenged from time to time, but it is working with our customers for them to understand the dynamics we’re operating with and being sensitive to how we need to respond.

Angel: Got it. In this environment, are you seeing the pressure or the pushback from OEMs change? Are they, I mean, in some ways, I’m sure it’s tough negotiation, but just are you seeing that evolve at all?

Cape: There’s nothing different in our discussions. Pricing is always a challenging conversation at any level, but nothing fundamentally has changed in how we approach the markets.

Angel: Got it. Maybe sticking to that kind of price-cost, one last thing, just in terms of cost management, can you talk about some initiatives there and what you can do on that side in terms of additional opportunities to mitigate some of these headwinds both near term and into 2026?

Cape: Yeah, I had covered that first from a supply standpoint. I mean, our teams are actively looking for alternatives in the supplier base. Think about steel, for example. We’ve talked about the source of steel being largely up north. The development of key U.S. suppliers is important for us. That’s a pretty active part of how we look at the markets. That’s not just on steel. That’s on other components where incremental costs, tariffs, and that have a real impact on our business model. We’re doing things to try to soften that impact. From a more longer-term perspective on costs, we’re challenging our operating model. You’ve heard us talk about permanent cost savings in the second half of the year being between $10 million, $15 million. That’s all about how do we shape our business model for the long term. That’s a key theme. You’ve seen that throughout our business.

It’s just a continued emphasis on how do we shape and improve how we operate. That’s part of my original comments of what are the things we’re doing to improve the margin profile of our business. It takes a lot of work to continue to shape to 200 basis points plus on each cycle. Our teams are very much sensitive to needing to operate in that manner.

Angel: Yeah, that makes a lot of sense. On the steel sourcing side, I guess that’s an area I kind of understand to be challenging in order to get the kind of quality or the specific type of steel that you need sourced in the U.S. Could you maybe elaborate a little bit more on what the potential magnitude of the steel source?

Cape: When you look at welding grade broad capacity versus the other flat long, it’s not the top of a steel manufacturer’s agenda. We do have opportunities to kind of work through that. We’re hopeful, call it the next 6 to 12 months, that we will have a couple of suppliers that we can work with. It’s an ongoing work of our team.

Angel: Yeah, no, that’s helpful. Maybe one last one on the Americas side. You mentioned automotive has kind of held them better than you kind of anticipated. One, could you elaborate on that, but also on the automation side of the autos? I recall, I guess, the last six months or so or a little bit more, you’ve been talking about maybe orders or how quickly things are turning from quoting to orders, remaining a little bit more of kind of a wait and see at the customer level. I guess, how are you seeing that evolve? As autos have held them better, are you seeing any kind of more on the automation side also move forward?

Cape: Yeah, no, we’ve seen more of the same on the automation side. Typically, you would see, you think about automotive, the back half of the year with the seasonality, which generally leads to an uptick in the second half of the year, just the staging of project completions of that. We haven’t seen that level of activity that would play out to a seasonally higher level of sales in the back half than you would see in the first half. Our tone has been more of a flattish trend. The implications of that is that we’re down for the year in automation by the single digits for the full year.

Angel: For the full year.

Cape: You’re seeing a steadiness of almost like a run rate of $250 million a quarter, seeing more of the same. Now for automotive, on the capital side, we are very interested in seeing how the new program launches for 2027, 2028 play out on long lead time items. Every April and October, the industry publishes kind of this reset on program launches. In October is the next kind of reset in communication from an industry standpoint. We’re hopeful that would lead into more longer lead time capital investment on the automotive side. We haven’t seen anything to date. High-level quoting activity gives us perspective that the orders and ultimately the revenue recognized would be any different than what we’ve seen the first half of the year.

Angel: Are customers telling you anything in particular as they maybe hold off on that quote, turning it to an order as to what it is? Is it just macro uncertainty? Is it interest rates? Anything notable?

Cape: I think it’s an overall just confidence in kind of where we are in the economic cycle. As you know, on the administrative side of things and policy-wise, just kind of wait a little bit, wait and see kind of how that plays out. As you mentioned, quoting activity is very high. We do think it’s just a matter of timing because the value proposition we’re presenting with productivity and efficiencies and facilities and introducing automation is very much sound. The way we track our quotes is we assess the probability of this becoming an order in this month and the next. They’re very high-level probabilities. The dynamic we’ve seen, though, is that every month that’s been pushed out another month. It’s been going on all year.

That has translated into a relatively steady level of business activity, but not the incremental volumes that we would otherwise expect from a quoting standpoint.

Angel: Got it. No, that’s very helpful. Maybe just switching over to the international market, if no one has any questions on kind of the Americas here. I guess just, you know, this is an area where I think of your international business as being more competitive and perhaps a little bit more difficult to pass through price. You actually had still 40 basis points of positive price in that market. I was wondering if you could kind of talk about both your strategy in the international market as well as just kind of the execution and what’s driving, you know, perhaps some of the flattish to more positive pricing in the international as well.

Cape: Yeah, so pricing, when I see flattish, that’s just kind of holding position, right? That’s what it is. When you think about international long term, taking a business, and I think about what it was in 2015, mid-single-digit type business. We acquired a business in 2017, integrated 2018, 2019, kind of drove the margins down because it was pretty much zero margin type business. We come into the strategy period into kind of getting the low mid-single digits EBIT. We’ve more than doubled that. We had a target that we established at the beginning of the strategy period to be between 12%, 14% EBIT. With some volumes, we believe we’re there. We’re tracking a little less than that for the first half of 2025. We’re at 11.5% in the EBIT margins for international. What does that mean for us? We need to continue shaping the operating model.

We’re excited about markets like the Middle East and Southeast Asia. We bought a business in Australia in August that’s going to give us the ability to leverage its capabilities in other parts of the world. Europe continues to be, call it a challenging environment. We’re hopeful, though, that more investment on the industrial markets in Western Europe, Northern Europe, as well as maybe defense does contribute to more industrial activity. In the meanwhile, until we see some real volumes, we’re going to continue shaping our business model. We do believe that with some volumes, we’ll be in the higher end of that range. That’s kind of where our posture is on the international side.

Angel: That’s very helpful. Maybe just kind of honing in on the Europe side, you mentioned it remains challenging. I guess, could you talk about that from the competitive landscape? How are you seeing the competitive behavior in terms of discipline? Even holding steady in an environment that’s a little bit more challenging, I think, seems like a positive.

Cape: Yeah, no, we’re a number two player in Europe. Competitive environment is you get a lot more fragmentation, for sure. I mean, you know, the big player there, and then we’re number two. I can’t point to anything materially different competitively. It is more fragmented. Structurally, it’s more challenging to maneuver in the operating model. Nothing else to pretty denote there.

Angel: Maybe just in terms of kind of a preview of 2026, you mentioned some optimism, I guess, on the Middle East, Southeast Asia. Again, maybe some hopes for infrastructure. First, is that to mean you’re not necessarily seeing any step change yet from infrastructure spending in Europe? Second of all, how do you kind of see that as you think about 2026 or potential for improvement?

Cape: Yeah, no, we haven’t seen anything that gives us in the short term any confidence that we’re going to go into a growth cycle here on the industrial side. We’re hopeful.

Angel: In Europe?

Cape: In Europe, our posture is to be able to participate and grow and to get our fair share of activity in the European markets. We just haven’t seen that yet.

Angel: Maybe switching over to Harris, I think you had this one-time kind of retail sell-in in that last quarter for Harris. Can you talk about just what normalized kind of pull-through of demand that perhaps Tractor Supply in our partnership potentially gives you?

Cape: Yeah, no, we were very excited. I think it’s very public that Tractor Supply has moved to Lincoln Electric as the supplier for the welding industry. We’re pretty excited about that. I estimate about two-thirds of the growth volume in Harris in Q2 was driven by this new customer of ours, which included the initial stocking requirements there. Normalized level of business there is probably somewhere half of that, so it’s in the range there. We’ll have probably a little bit more stocking into Q3, and then it’ll normalize. We’re pretty excited about our retail position in Harris and it continues to grow.

Angel: Given the differences in the distribution channel for Harris, I guess, perhaps being a little bit closer to the consumer in a way, could you just talk about what this kind of tells you about the broader economy, the health of the macro as you see it out there?

Cape: Yeah, the biggest difference in the Harris side is the retail positioning, the consumer end of things. If you take outside of the Harris Products Group’s retail partnership with Tractor Supply business in Q2, we’re probably more of a flattish type environment, which is more in line to what we’re seeing across industrial distribution. Frankly, the tone that we’re sharing across in general is just more of a stability, flattish, some challenge there. Consumer activity, if you just use the proxies of kind of the Home Depot, Lowe’s types of reports, kind of a framework for us.

Angel: Got it. Maybe just a little bit on the capital allocation side, just between Americas, international, and Harris, I guess, where do you see yourself wanting to be more or less, or bigger in the next few years? Just which product lines, geographies, and markets you might be looking to allocate more capital to? You mentioned some of the inorganic side and automation is still an interest, but just more broadly would be helpful.

Cape: Yeah, you know that we’ve been leaning on capital investment, internal capital investment, doubling it over the last five years plus. It’s really broad-based. When we think about capital allocation, our first priority is growth. Our highest returning investments are all the internal investments we do. This is why it’s important for us to make sure we’ve got capital and resources assigned for new products, capacity, operating capabilities in our business. That’s across all of our businesses. That’s a pretty active level of capital allocation. We mentioned acquisitions. While I would call that we’ve had individually more transactions on the automation side, we think about a TAM in that space of $35 billion. In total, we look at M&A comments within our investor decks of $60 billion type TAM, of which $35 billion in the automation space, $25 billion kind of core welding, we estimate.

It just tells you that we’ll probably have on average a little bit more transactions around the automation space, but very much balance I’m looking at across the markets. The reason is because of the level of fragmentation. In core welding, outside of some of the top three players and some of the regional players, it’s a very fragmented market. We’ll continue to navigate opportunities there. On the automation side, it’s just a lot of fragmentation. We’ll be allocating capital first to drive internal growth investment and also for inorganic type growth. It’s not anchored on one particular segment or not.

Angel: It is just the general level of kind of macro uncertainty impacting either the timing of some of these investments or the kind of attractiveness of any of these. Just wondering, you know, even from a kind of an interest rate perspective, like, are there reasons to perhaps wait for more cuts? Are there reasons to move faster because of the opportunities that you might be affording now? I guess, just if you could talk about that context.

Cape: No, it hasn’t had an impact on how we think about capital allocation. I mean, we’re looking at long term. We’re not pulling back on the internal investment, very active. Same thing on acquisitions. We’re looking to what strategically fits, how we can create incremental value, and how do the synergies of the business case line up within our three-year framework. Those are the drivers in our decision-making, less about interest rates and the cost of capital.

Angel: Yeah, no, that makes sense. Maybe just last one, kind of on the capital allocation side. You recently had the alloy steel announcement. I’m just curious, you know, how the full kind of integration of that or just the acquisition of this kind of stake has gone. I guess, any incremental or potential kind of cross-selling or just other opportunities that this affords you in the business?

Cape: Yeah, we’re really excited about the potential for the business. We had acquired 35% of the business back in April, so we had already been pretty deep in some of the integration work. The integration is going very well. Our teams are in place and thinking about how do we scale capabilities in a business that is tied to mining and repair and has a unique positioning that leverages core technology that we’re already in. It’s an adjacency that aligns up to a lot of the work we do today. It works nicely. We think that this is an opportunity for us in the Americas and other parts of the world to deploy what’s called wear plate type technologies. They’re hard-facing technologies that are used in the heavy industry type of markets that provide strong maintenance and repair capabilities.

We think it’s a great opportunity for us to now deploy that same technology around the globe.

Angel: We’ve talked about, you know, the deployment perhaps organic and inorganic. Can you maybe talk about the shareholder side or the shareholder return side? I think you had the target of $300 to $400 million of 5X this year. You’ve already done $230 million as of 2Q. If you could kind of expand on that, maybe the cadence for the rest of the year, the attractiveness, you know, repurchasing more shares at this level.

Cape: Yeah, we think strategically in returning cash to shareholders versus the dividend. For 29 years in a row, we’ve increased our dividend rate. We’ll go through policy in our October meeting with our board. In terms of share repurchases, first we want to cover maintenance. We want to make sure we’re covering the dilution impact of any employee programs. We’re opportunistic in looking at excess strategic cash. This is the reason why we decided to provide an expanded framework in Q2. You mentioned that we’re over $200 million already for the half. That’s kind of the range that we’re set for this year. We’ll be steady in looking at the level of share repurchases that are within that range.

Angel: Got it. Just want to check any questions from the audience. Remember to raise your hand if you have anything. If not, just wanted to go back to automation a little bit. I think we talked about, obviously, some of the challenges right now. Also wanted to, I guess, on two sides of that, right? On the near term, the potential impact from a higher fixed cost of this business at $250 million versus perhaps the ramp-up and potential kind of longer term. If you could just remind us again the structural margin that you see that business ultimately attaining. Can that just be achieved organically? Or do you need some inorganic help?

Cape: Yeah, so you know that our target is for the automation businesses to be at the corporate average operating margin. Think about the EBIT margin of the business. We haven’t achieved that yet. If you look at 2024 as a proxy, our sales were $911 million, and we were a low-teens type of EBIT. Our target is to be at the corporate average. We still have about 300 or so basis points of margin improvement, of which half of it is going to be driven by volume improvements or increases. You have continued shaping of our model. As we’ve integrated acquisition, as we’ve incorporated the businesses into our Lincoln business system, those are avenues for us to continue shaping our model. We have a clear line of sight to be able to achieve our corporate average margin while we’re navigating kind of the markets currently.

We started off the strategy period targeting a billion dollars in revenue in automation. As I mentioned, $911 million last year. I mentioned that just based on the level of activity, we’re probably going to be down mid-single digits. Our business model is in place to be able to meet and exceed the objectives of a billion plus. You’ll see an improvement in our margin profile as we achieve that, as you start to see quoting activity become real orders. We recognize the revenue, a large part of it over time, will be right on top of meeting not only the sales objectives, but getting closer to the margin objectives as well.

Angel: Maybe just going back to kind of the original question around your next five years and longer term. That $1 billion mark was kind of, again, what’s that for kind of this 2025 time frame? $900 million, you know, even down a little bit from there, still pretty darn close to that, I guess. As you think about the next five years, do you see that growing exponentially, both inorganically, as you go off and get that recovery?

Cape: Yeah, so think about it. I’m giving a history first. In 2020, our automation business was $400 million. We targeted a billion. Our model is essentially there, right? Accelerated growth on the organic side and a very fragmented kind of market on the inorganic side. We’ll continue to push both avenues in terms of our business model. You see the top line growth more accelerated than core welding, and you’ll see continued expansion in the margin profile.

Angel: Got it. No, that’s very helpful. One last one I had, just in terms of maybe going back to Americas and a little bit of the core, what does the, I guess, the cadence of consumables versus equipment deliveries in your business tell you about the market or the opportunity either down the line of growth and just your overall kind of establishing and stickiness with the business?

Cape: Yeah, no, it’s pretty important for us. Consumables, again, the function of what factory activity is, what production levels are, industrial production trends are a good barometer of that. When you start seeing more growth, not just steadiness, but more growth, that typically would lead into an investment cycle. We look at standard equipment, standard welding equipment separate from the automation side. You should see more investment in capital investment on the equipment side with steady and improving trends on the consumable side. Automation is a little bit different. You’re going to have more of the confidence on investing in capital and plants and productivity and efficiencies. For us, it’s just a matter of timing now in the broader market to the confidence to start accelerating investment there. For us, it’s timing.

Angel: Perfect. All right. I think that brings us to the end of time. Thank you so much, Cape. Appreciate it.

Cape: All right. Thank you, Angel. Nice talking to you.

Angel: Of course. Take care.

Cape: Thank you.

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