Perfect. Good afternoon, everybody. Thanks for joining me. My name is Angel Castillo, and I'm the machinery analyst here at Morgan Stanley. Pleased to welcome here Lincoln Electric. We have Gabe Bruno, EVP and CFO of Lincoln. So thank you for joining us. Thank you, Angel, for having us, and also thank you for your interest in Lincoln Electric. Perfect. So, listen, we'll dive right in. I guess we'll start a little bit more higher level. I think, you know, as you think about Lincoln and how it's maybe changed over the years, one particular shift is you typically consider it a short cycle company, right? You're a consumables business, but automation and the growth that you've seen in that business, particularly most recently with Fori, you know, you have a little bit more of a longer term look with that backlog and maybe a different dynamic. So given that you have both of those pieces, we'd just love, you know, a high level maybe place to start is: How are you seeing the world today, and, you know, what's your consumables business telling you versus your automation business about the world in terms of demand? Yeah, Angel, I think that's a great place to start. When you think about how we have evolved our business model, you do have that history of being tied to a shorter cycle, and you do mention the mix of consumables being a function of real factory activity. But we've intentionally shaped our business model to tie in into that mid and long-term type of cycle as well. And it is a product line type of focus. You mentioned automation, I'll touch on that in a moment, but it is also the end markets and how we look to positioning in solutions across the various end markets. When you think about automation, let's go back to the products. You know, automation typically run into a 3- to 6-month type of backlog, and so we have very good line of sight on the investment cycle there. The Fori acquisition gets even longer types of projects, say, up to 12 months, in general. So you do have very good visibility there, and you do have the trajectory that leverages labor shortages and the need for productivity. We think that's a long investment tailwind that we'll see for years to come. We've invested in additional capabilities alongside automation. We've developed a business model that will continue to be focused on solutions that touch in a variety of drivers to long-term growth. So a product line, very intentional. When you think about end markets, I'll use the automotive end market as an example. You do have the shorter cycle dynamics in production, so when you read about, you know, what are the inventory positions around automotive? What is factory activity? You see that tying into consumables. When you think about the progression of electrification and what does EV mean to the automotive industry, you see a long tailwind. So there are drivers to long-term growth, electrification, labor, infrastructure investment, reshoring, the drive for a long-term growth trajectory for our business. And so, I like the balance within our business: short, mid, and long cycle. I think we've evolved to have a business model that is more resilient to different dynamics. You saw in the second quarter as an example of that, where General Industries was down in the low single digits, whereas our overall organic was up, and it's all about the mix of business and positioning of business. So, I do like the trajectory of our, the mix in the short, long-term cycle. So maybe, you know, a good place to kind of continue that is just to unpack some of those pieces a little bit more, right? In terms of what you're seeing within automotive. You talked about general industrial and, you know, maybe heavy industry and construction. Maybe if you could go through those and you know, kind of what's the latest. I believe you mentioned more recently as well that, you know, in terms of Americas, for instance, what you're seeing in August, but we can maybe get into that a little bit down the road. Start with just the end markets first. Yeah. So think about end markets. So I touched on automotive a bit. You know, we were down in the second quarter, mid-single digits. But when you peel that back, we were up in consumable activity. So it just tells you the production level activity within automotive continues to be strong. We know that. You just read what's going on from the demand profile and inventory positioning. However, the timing of projects, you know, we have a very good line of sight in the backlogs and the timing of when a lot of our automation projects come to play, so we feel very robust and that the profile of the automotive end market is strong. That will continue on, we believe, in the long term. Some risk with discussions with the UAW strike. We'll see how that progresses within the next day. That would have an impact on short cycle production, potentially, if it's the strike and depending on how long the strike goes and the scope of it. But you see that having an impact on consumables activity. Short cycle production has an impact on that. But we're very well positioned, excited about the long-term trajectory in automotive. Heavy industry has. It's been strong and continues to show good fundamentals. When you look at the big players there and with large ag or construction and that, we still see very robust activity there. They were up second quarter. Mm-hmm. Still off of our peak. Peak in heavy industry was in early part of 2019. So we do, we do believe there's some runway when you just consider peak in the cycle. So we're, we're just positive. When you think about energy, energy was up also, commensurate with the heavy industry second quarter. But way off our peak. We're more than 20% off our peak, and the dynamics between oil and gas. The fundamentals remain strong in terms of pricing and the level of long-term investment you've already seen, so we do feel that's a long tail for us as well. General industry, we were down low single digits. Not surprising. You know, we all tracked the longer term trajectory in industrial production, PMI, and so that's pretty active part of our monitoring. 29 months since the peak, so that's an area that we monitor. And then structural infrastructure that we've come off a couple of very strong years, a little bit of that, just the comps and drivers of investment and project timing. So we do believe we're in an inflection point there. We do see some projects that mean incremental activity for us in that part of our business, but it's kind of a walkthrough of all the end markets. No, it's perfect. And maybe folding in the public and private investments, mega projects, et cetera, when do you kind of expect or, you know, as you're seeing kind of evidence of some of that maybe starting to flow through, what's kind of the timeline and kind of, you know, as we think about guardrails of what the impact might be, for you? Yeah. So I think it's still early on. You know, while the administration, particularly in the U.S., considers, you know, the timetables to be on schedule, it does take some time to release the funding into infrastructure. When we think about infrastructure, we do think about it more broadly than what we report out as structural infrastructure. For example, when you're dealing with heavy equipment construction, you'll see some of that come through in heavy industries. Our perspective that it's still early on in seeing the progression of investment, and that we should see a little bit of a tail in the next 12 months-18 months in that, so maybe at an inflection point there. Okay. And I do wanna remind the audience, if you have any questions at any point, feel free to raise your hand, we'll get a mic to you. But, you know, maybe going back to the dynamic around automation, right? So I think the target there that you had was about $1 billion. You're very close to that, and you're most likely, you know, to exceed that ahead of schedule, particularly given Fori. So can you just talk about your strategy, you know, within automation and how to think about that business? And, you know, as we get past kind of this $1 billion mark, you know, how do you see M&A fitting within that, the organic side of it? Just an update on that would be helpful. Yeah. So both drivers, organic and inorganic, are gonna be consistent drivers for long-term growth. Mm-hmm. As you point out, we're well on our way to exceed our billion-dollar target. In 2020, when we had announced that we were establishing this billion-dollar target, we did get a lot of questions: "Well, how are you gonna do that?" And we said, "Half through our M&A strategy and half through organic growth." So we are well positioned. We look at organic growth being the high single digit profile for the long term, and we'll continue to be active in looking at M&A opportunities for us that are both on continuing to drive our positioning, our capabilities around the globe. You saw that with the Fori acquisition and within North America. Maybe on the organic side, what, y ou know, any kind of data points you can discuss in terms of, you know, what the cadence been like of the order growth there as you think about, you know, and particularly as you fold it in Fori, what's kind of, h ow has that kind of progressed over the last few months and quarters? Look, we talked about our record levels of backlog. It's a function of active projects working through automotive, heavy industries, general industries. Mm-hmm. We've got a very strong line of sight. This gives us confidence in the organic growth assumptions that we put out there since the beginning of the year. We've been very much on top of that, so we feel very good about backlog and the level of activity. The long-term drivers that is the industry look to to drive productivity, to deal with the labor challenges, the solution is automation, and we believe that we're well positioned to participate in long-term, high single-digit organic growth with continued opportunities to shape our business. So we feel really good about it. Maybe sticking with, you know, again, what you can do kind of on an organic basis, which now that Fori is part of the business, you know, getting that, that part, or that acquisition to Lincoln or Lincoln margin structure. Can you talk about, you know, what, what is it gonna take? What do you need to do in order to achieve that? And what's kind of the timeline you have kind of contemplated for that? Yeah. So this year we've been very deep in our integration work. We're right on schedule. We have developed what we call our Lincoln Business System for our automation model, business model, and that encompasses all aspects of how we operate. You know, think about our ERP systems, think about project management practices, shared services. So we're integrating the Fori business into our standard business systems that we've developed over the last five years. And so we have a line of sight that gives us confidence that we're gonna first move Fori into our current average of the legacy business, which we doubled the EBIT profile since 2020. I would say half of that came from just the disciplines that I talk about from the Lincoln Business System, but also volume leverage, the significant growth that we've had. And that gives us confidence that we're well on our way to achieve our target. And our strategy is to be at the corporate average for automation, and we see fully moving along those lines. So this is a big year of integration. We'll continue to progress integration, some of the international parts of Fori into next year, but we've just been live in our new systems there, and we're well on our way with all the work required to improve the margin profile. How have supply chain issues, and maybe just more broadly, not just automation, but with equipment, you know, what's kind of the status in terms of supply chain challenges? And, you know, when do you kind of see that, or one, how has it impacted your automation strategy and, you know, how do you kind of see that playing out over the next, you know, 6 months-12 months? Yeah. So when you think about supply chain challenges that we've managed through on the consumable side, the automation side of our business, I mean, that's largely behind us. We continue to have some component challenges within standard equipment. Really not a driver to automation, execution, projects, and otherwise. But we're starting to shift back into our historical posture for inventories and working capital. You see some of that translate into the cash generation of our business. Cash conversion was over 100% for the first half of 2023, a little bit ahead of our schedule. But we're returning back in our inventory posture in consumables, automation, and more so continued opportunities to manage through on the equipment side. You know, maybe pivoting to the EV charging stations. So this is, you know, another initiative that you've talked about as kind of a growth opportunity. So maybe for, you know, others like myself, who are kind of new to this story, you know, why does this make sense for, you know, as part of the Lincoln? And kind of more broadly, how do you think about the business model and the timeline to market of this strategy? Well, look, we're really excited about this opportunity, because as we look at the product configuration of a 150-kW DC fast charger, it looks a lot like a piece of welding equipment, a power source. So we know that there's a newer market developing, and we've got the capabilities and to delivering reliable, high quality DC fast chargers in an industry that requires a little bit more customer satisfaction in the use of DC fast chargers. We have talked about work streams that tie into our commercial strategy. How are we addressing the public sector opportunities there, the private sector with fleets? How are we developing our products and developing the capacities required to be able to serve the market? I'm pleased to announce that we have our first order of DC fast chargers. We have an order with a charge-point operator called DC-A merica, that they have one RFP in West Virginia. So we got a first order of four units that we're working through for shipment in the fourth quarter. So we're on track. Mm-hmm With all of, the work streams, and we're excited that this is an opportunity that leverages our core capabilities. We're not starting off with a greenfield. We're leveraging our manufacturing footprint, the engineering capabilities, and developing a commercial strategy that could be a very exciting growth opportunity for us as a business. That is incremental, so it's not core to the execution of all the things we talk about in automation and core welding, but certainly an interesting opportunity for growth. So we're gonna be very measured and very focused in ensuring we put our right foot forward as we develop our entry into this market. Well, congratulations. Thank you. That's exciting. You know, and as you think about that, again, that initiative, is just what, what challenges, you know, or concerns would there be, or risks as you think about, again, the pros and cons of this? Well, look, for us, it's first getting the product portfolio in place. Mm-hmm. And we're starting off with 150-kW DC fast charger. We're developing the design in such a way, it's a modular design that allows us to scale at 50-kW levels and units, and to be able to scale to address a much bigger power source, up to 1 MW. So it's an opportunity for us to continue to challenge what a product portfolio means, how you deal with the pressures of the Tesla introductions and expansions in the footprint, private sector consortiums that are developing. But we feel that, as we introduce our high-quality, reliable-type products, that we'll be able to navigate and develop commercialization as market demand evolves. No, that's, that's very helpful. Thank you. Maybe switching to, to the segment, sort of, I guess, the regions in terms of Americas, you know, you had talked about, I think, at 2Q about an acceleration in demand, in terms of orders and, you know, as you were kind of exiting the quarter. Mm-hmm. More recently, though, I think you also mentioned a little bit of moderation in August, right? I'm curious, how is that continuing in September? But also, can you give us just a little bit more color as to, you know, what exactly do you kind of view as the implications of that cadence? Yeah. So we talked about at our second quarter earnings, that we did see an acceleration of consumable activity, as we ended the quarter, but also into July. So that's very good. And as we talked, consumable is a fair indication of factory activity and short cycle type work. So because we talked about the robustness, we also wanted to highlight that in August, we saw a little bit of a flattening year-over-year of activity. So all in all, still strong overall consumable activity, but we did see a little moderation from what we indicated coming into the third quarter. August is always difficult to really make a clear assessment on what the market progression looks like. But as we continue into this third quarter, we'll highlight the markets and what that means to us in real activity. Strong coming into the quarter, leveling off into August. Got it. So I guess no early indicators into September as to how that's kind of trending from, from August? No, I wouldn't change that position. Okay. No, that's helpful. And then maybe on, on price cost, as you think about this segment heading into kind of, you know, 2024, how should we think about price cost? I, I believe you normally think about it as kind of aiming to be neutral. Is, you know, as we think about then 2024, is that kind of the right approach, and, you know, what are you seeing from a cost standpoint? Yeah, well, we haven't talked about 2024. Yeah, we'll come back to that in a couple of quarters. But, you know, our posture is price, cost neutral, and that's how we execute on, w e continue to work in an inflationary environment. What we've indicated, essentially, is that for the first half, we're at neutral. We're gonna maintain that posture, and while still operating in an inflationary environment, the puts and takes, that we don't anticipate additional pricing at this point. So we did shift on the organic assumptions for 2023 to more of a volume level of driver for the balance of the year. So we moved from 50/50 price volume to more 2/3 volume into price. So we don't see a lot of activity now on pricing. We see more of that price cost neutral without a need for additional pricing in the market. Maybe switching gears to international. So I think this is an area that you had talked about as, you know, maybe one that you were viewing with caution, part of that driven by the holidays in Europe. So how is that, you know, part of the business playing out thus far? Now, look, the caution that we express on the international, particularly in core Europe, because of the choppiness that we have seen in the market, we had continued to see strength in the Middle East and Southeast Asia, project-driven oil and gas types of activity. What we're seeing so far in the third quarter is, we talked about more of a seasonal cadence to what we would normally see in the third quarter. So nothing really an outlier in that. Again, tough to see as we progress through August now into September, but generally following the seasonal cadence that you would see internationally. And maybe on Harris, just or the Harris Products Group, the volume weakness there in 2Q and, you know, caution kind of similarly as we head into second half. Can you just unpack that a little bit more and also provide any kind of incremental commentary as you're seeing it play out in 3Q? Well, we indicated that the third quarter, tough comps, last year's third quarter, strong HVAC and otherwise, it was, it's gonna be a tough comp in the third quarter. But we have seen a lot of pressure on the retail side, with this big box type of activity within the Harris segment. We do believe 'cause it's, the impact there is not just consumer demand, but also inventory. That's the one area of our business where destocking- Yeah I t does have an impact, and we see that. We're more hopeful that we're at an inflection point on the retail side. We see a little bit of restocking within the big boxes, but so we're at a point of inflection. Mm-hmm. We're just gonna have to monitor how that progresses into third and fourth quarter. Third quarter, tougher comps, fourth quarter, become easier comps, but more hopeful that we're at an inflection point on the retail side. Got it. Okay. And then maybe, you know, lastly, kind of shifting over to capital allocation. You talked about the importance, still within something like automation. You know, as you think about your M&A pipeline, I think you have discussed in the past 300 basis points-400 basis points of kind of growth driven by this, by this initiative or this capital allocation strategy. Can you just help us understand the pipeline? What, you know, what exactly are you targeting there? What aspects of whether it's automation or other parts of your business that you view as kind of white spaces or technology that you might be interested in? Yeah. So you're right. I mean, we're very much anchored in this 300 basis points-400 basis points of long-term CAGR of sales growth from M&A activity, and we have a very active pipeline level of engagement that starts off, we have a senior executive that is focused on strategy and M&A type of work, and so they're identifying opportunities for us, largely bolt-ons, that while you see a lot more activity on the automation side, it covers all parts of our business. And then we also have our segment leaders that are identifying opportunities within the markets, and again, more bolt-ons that look to shape either geography or product or capabilities in general. So it is a key part of our strategy. We prioritize growth when we think about capital allocation. I mean, we have expanded the level of investment internally in CapEx, very much focused on an active M&A agenda. Mm-hmm. And, you know, as we think about staying with the capital side, I guess, working capital, you mentioned earlier that, you know, it's an area of focus. Can you just give us the kind of latest of how you're viewing that, what kind of needs to be done, you know, as you head kind of into the end of the year, and how you're kind of perceiving, you know, your position in terms of your inventory, is not so much, you know, destocking to your point, at the customer level, if they're not necessarily stocking consumables, but for Lincoln specific? Yeah, no, our message internally is to begin to return back to our top decile performance in working capital. We use working capital as a percentage of sales, and how we measure that among our peers. So as I mentioned, consumables, automation, pretty healthy. We're kind of slowly repositioning back to history. Equipment's still a little challenged, so we're gonna be slow about returning back to historical levels. We do have a customer first type of strategy in making sure that we are servicing our customers, and we'll be very measured before going back to more historical trends. When you think about working capital to sales ratios. But you're seeing it in cash conversion. Mm-hmm. I mean, we expect to have a much less growth in working capital despite the increase in overall sales, and you'll start to see improvements in the ratios and cash generation because of that. What's your kind of expectations around your COGS basket as you think about the second half, more broadly, and you know, heading into next year? Any early preliminary thoughts? Well, I mean, we're still operating in an inflation environment, right? So cost, when we look at that, we look at two key drivers to address that. When you look at overall product costs, we're gonna be price cost neutral, as we talked about, but we also have to drive productivity across our business. So each of our operating teams have objectives in introducing, could be automation internally within our own factories, but opportunities to shape and drive improvements in productivity. Historically, our posture has been, we have to identify productivity improvements that offset labor inflation. So that 3% type of long-term trajectory of driving productivity improvements that deal with cost is inherent in our DNA and how we look at the operating model of our business. You've seen it on the long term, where we've got consistent 200 basis points expansion in our operating profit, and we measure the average operating profit by cycle to be able to, to assure ourselves that we are making improvements in the operating model that can be long-term and sustainable. And maybe, you know, we've been talking about demand and kind of the underlying, you know, again, whether it's near term or longer term, but from a competitive standpoint, you know, can you talk about your businesses and what you're seeing? Are there any areas that, you know, whether it's because of a more attractive longer term, you know, infrastructure spend, et cetera, what you're seeing any kind of competitive dynamic shift, and particularly as you get into more automation, you know, how does that differ versus your kind of core business? No, I mean, that's an important point, Angel. We look at the traditional competitive footprint within core welding, similarly in the Big Three full portfolios of products, and automation is different. Mm-hmm. I mean, we're not looking to the other two big players in welding as the key competitive drivers in automation. The automation footprint is very fragmented. You know, when we're talking about a billion-dollar type target, our competitors in the core welding space aren't close to that. They're talking a much different scale. So we have differentiated ourselves in the level of automation footprint and what it means to us long term. We're very invested in what we believe is an accelerated growth trajectory in automation, and building out the capabilities to be able to drive that long-term growth. Okay. And, we have time for maybe one or two more questions. I think we have one back here. Hi. Hello, sorry. Can you—you've mentioned that EVs are an important long-term tailwind for your auto business. Can you maybe just elaborate on exactly why that is the case? Yeah. So think about long-term capacity being shaped across the automotive industry, moving from ICE to EV. When you think about the industry inherently, the investment trajectory isn't reusing history or legacy equipment. So we look at that as being a level of incremental investment in building out capacities to serve the EV market. So as that capacity is being built out, our automation solutions and how we engage in the automotive industry becomes a tailwind for growth. So we see the shifting from ICE to EV to give us an accelerator to grow, particularly in providing automation in the lines that are associated with the solutions we provide. And you know, maybe one that I wanted to go back to was, you kind of... You mentioned it in terms of the UAW, or I guess the union, you know, discussion with the Big Three, and how there's still a little bit that we'll hopefully get more clarity soon. But you know, how does that impact specifically your business, and maybe more broadly, how do you see kind of labor at this point for your own business, right? And any kind- Mm-hmm ... implications there? Well, let me, I'll answer the labor question. So we're essentially at our target levels of labor, so we're at the capacity levels that are required to serve the markets and how we look at demand. A strike would surely impact production. So, think about an industry that is already at a low inventory level, relatively speaking- Mm-hmm ... and a cease in production. Let's say it's pockets of strike to have an impact in ceasing production, and that's gonna have potentially an impact on consumable activity. Consumables is a function of factory activity, and if a strike, a prolonged strike occurs, then you're gonna see some containment in short-term demand on consumables. Overall, automotive is about 19% of our business. Think about consumables on average to be around 55% of our overall mix. You can see that kind of dynamic playing out in real consumable activity. So we're gonna monitor, we're gonna stay on top of the progression there and see what kind of scale we see if a strike should progress, what kind of disruption that would look like. Okay, well, let's hope for the best, and I think that brings us to end of time. I hate to end on a, you know, bad note, but just, thank you for your time, and I appreciate you coming today. Thank you, Angel. Thank Angel. Thank you for all your questions. Thank you. Sorry.