Lincoln Electric - Earnings Call - Q2 2014
July 28, 2014
Transcript
Speaker 0
Greetings and welcome to the Lincoln Electric twenty fourteen Second Quarter Financial Results Conference Call. At this time, all participants are in a listen only mode and this call is being recorded. It is now my pleasure to introduce your host, Vincent Petrella, Executive Vice President and Chief Financial Officer. Thank you, sir. You may begin.
Speaker 1
Thank you, Karen, and good morning to everyone. Welcome to the Lincoln Electric twenty fourteen second quarter conference call. We released our financial results for the quarter yesterday and you can find our release on the Lincoln Electric website at lincolnelectric.com or by contacting our Investor Relations office at (216) 383-2534. Joining me on the call today is Chris Mapes, Lincoln's Chairman, President and Chief Executive Officer. Chris will begin the discussion this morning with an overview of the quarter and then I will cover the numbers in more detail as well as our uses of cash.
Following our prepared remarks, we will take your questions. As part of our webcast today, we are using a slide presentation, which can be accessed on our website under the Company and Investor Relations tabs. Before we start our discussion, please be reminded that certain statements made during this call and in our discussions may be forward looking and actual results may differ from our expectations. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the company's operating results. Risks and uncertainties that may affect our results are provided in our press release and in our SEC filings on Forms 10 ks and 10 Q.
Additionally, we also discuss financial measures that do not conform to U. S. GAAP and you may find important information on our use of these measures and reconciliation to U. S. GAAP in the financial tables that we have included in our earnings release.
With that,
Speaker 2
let me turn the call over to Chris Mapes. Chris? Thank you, Vince, and good morning to everyone joining us on the call today. Moving to slide three. We are pleased to report that improving demand, favorable mix, benefits from productivity initiatives and disciplined cost management resulted in a considerable improvement in profit and earnings performance in the second quarter, both on a year over year and sequential basis.
Second quarter sales were steady at $729,000,000 Excluding foreign exchange, second quarter sales increased 2%, a marked improvement from our first quarter sales performance, which declined 3.5%, if excluding foreign exchange. The improvement in sales performance is primarily due to the positive year over year organic growth we achieved in our domestic North American and European markets. In North America, we saw both improved consumable and equipment demand. And in Europe, demand rose at a double digit percentage rate. Productivity improvement, operating leverage and improved mix from products and geographies drove a significant improvement in profitability with reported and adjusted operating income up 8%.
Margins improved as well with our adjusted operating margin up 120 basis points to a second quarter record of 16%. On a reported basis, EPS increased 10% to $0.96 and increased 11% to 1.01 on an adjusted basis, reflecting not only operational gains, but our accelerated share repurchasing activity in the quarter, which contributed $03 to EPS. Returns on invested capital remained solid at 18.9% and we generated good cash flow from operations,
Speaker 0
returning $87,000,000 through share repurchases and dividends. This is an 18%
Speaker 2
increase compared to the prior year from increases in both our dividend payout and share repurchases. And per my comments highlighted in the release, we now expect $250,000,000 of share repurchases in 2014. At this level, 2014 share repurchases would be approximately 50% higher than 2013 levels, reinforcing our confidence in our model and growth strategy. Moving on to slide four. It is clear that our second quarter volume performance bounced back with positive year over year growth across Europe and among North American domestic customers in The U.
S, Canada and Mexico. U. S. Exports improved sequentially from the first quarter, but were still soft year over year reflecting the choppy demand cycles due to some project based work. Our European performance in the quarter was a positive sign.
It was a broad based improvement across many products and regions and we saw positive demand for our new equipment offering. Looking at our market by key end sectors, the areas of strength and weakness were consistent with what we reported over several quarters. Our leading position in welding automation combined with our innovative equipment and consumables portfolio has allowed us to continue to benefit from the ongoing expansion in the transport sector, namely in automotive and in railcar production. Here we are gaining new business as we convert customers' plants to Lincoln products and are seeing continued adoption of our growing ability to support multinational needs. The energy sector is also an area of strength where we continue domestically and overseas with good second quarter wins in developing markets such as Vietnam, North Africa and in South America.
We also saw improvement in general fabrication, which is typically indicative of overall GDP health. Heavy fabrication, which is largely earthmoving and agricultural equipment and in the structural sector, which represents demand in non residential construction and infrastructure products. We do believe that many of our end markets are largely improving, but at a slow rate. Moving to slide five. We continue to stay focused on executing our plan to achieve our long term strategic goals.
I am pleased to report that our key initiatives remain on track. Profitable growth remains a top priority for us. In the quarter, we saw benefits from our recent acquisitions in automation and ongoing expansion of our market presence through the adoption of Lincoln Electric solutions. Additionally, we invested in innovation with a new licensing agreement with the NanoSteel company. This agreement allows us to leverage their intellectual property for use with consumables in weld overlay and thermal spray applications.
We see tremendous value in leveraging NanoSteel's technology with our own internal developments as we expect to expand applications for our growing alloy portfolio and leverage our extensive channel reach to target growth in the approximate $8,000,000,000 overlay in thermal spray marketplace. Sectors such as maintenance and repair, heavy fabrication, mining and oil and gas demand hard wearing erosion resistant surface treatments to extend the usable life of their products. NanoSteel's technologies deliver measurable value by extending the usable wear of a product over four times longer than traditional surface treatment technologies. We are confident that our partners and customers will look to Lincoln for these solutions. Looking ahead to the third quarter, we're excited about our pipeline of new solutions that will be launched from our efforts.
Operationally, the integration of higher growth automation, cutting and alloy based acquisitions is going well, not only with back office integration and process alignment, but also on our efforts to leverage product development and a seamless offering to our customers. As we have noted in prior calls, we are focused on a number of initiatives to drive commercial and operational excellence, which we have summarized on this slide. I am pleased to report that we are progressing well across each one and are starting to see the leverage the benefits from our investments in the business. Before I pass the call to Vince, I'd like to emphasize that this quarter's performance demonstrates the benefit from our strategic focus on value and higher returns. And while we certainly have more work and opportunity ahead of us, our initiatives focused on improved mix, solutions for our customers and slight operating leverage were apparent in our key North American and European segments in the quarter.
And now, I will pass the call to Vince.
Speaker 1
Thank you, Chris. Walking through the income statement highlights on slide six, our consolidated sales were up slightly compared with the first quarter of twenty thirteen. Volume decreased our reported sales by 1.4% and pricing was up 2.3%. Foreign exchange had a negative 1.9% impact on sales and acquisitions contributed an increase of 1.2%. Our second quarter gross profit margins increased 140 basis points to 34.4% compared with 33% in the comparable prior year period.
The improved gross margins were primarily attributable to a better sales mix and operational improvements. Second quarter twenty fourteen gross profit includes a $3,900,000 gain from an insurance settlement. SG and A expense for the second quarter was relatively flat increasing 20 basis points from the prior year or $1,900,000 The increased dollar amounts were primarily related to acquisitions. Operating income for the quarter increased 110 basis points. Adjusted operating income before rationalization charges and charges related to the Venezuelan foreign exchange losses was $116,600,000 or 16% of sales, a 120 basis point improvement over the prior year.
The effective tax rate for the quarter was 32.7% compared with 31.9% in the prior year. Factors driving the higher effective tax rate in 2014 include greater earnings in higher tax rate jurisdictions and additional provisions for valuation allowances. Diluted earnings per share increased 10.3% for the second quarter compared with the prior year. Excluding special items, our adjusted diluted earnings per share increased 11% in 2014 compared with 2013. Earnings per share include $03 per share from the insurance settlement in the second quarter of twenty fourteen.
Our Venezuelan operations contributed $04 per share to EPS in the second quarter of twenty fourteen. On a reportable segment basis and excluding special items, North America Welding adjusted EBIT margins increased by 150 basis points in the second quarter on flat volumes. However, domestic volumes did improve in the quarter while export volumes remained soft. Margins improved due to operational improvements, lower pension expense and the $3,900,000 gain from the insurance settlement previously mentioned. Europe's Welding's adjusted EBIT margin improved three ninety basis points in the quarter.
The improvement was attributable to the 3.1% increase in year over year volumes and improved product sales mix. We experienced better top line results across a broad range of geographies in Europe including The U. K, Germany, parts of Eastern Europe and Russia. The Asia Pacific segment recorded a 50 basis point adjusted EBIT in 2014. Our sales in Asia Pacific were down 3.2%, primarily due to foreign exchange translations.
Sales in China were relatively stable on a year over year basis. South America Welding adjusted EBIT margin decreased to 12.8% in 2014 because of declines in our Venezuela operation results and broad weakness across the South American region. The price increases were primarily caused by the higher inflationary environment, particularly in Venezuela. The South America segment included 3,500,000.0 of foreign exchange charges in 2014 and $2,500,000 of charges in 2013 related to the Venezuelan currency remeasurement and devaluations. Financial, regulatory and operational changes to our Venezuelan operations will continue to dampen the margins achieved from the South American segment.
These changes include the effect on earnings from devaluations in the Venezuelan currency, governmental limits on profit margins, disruptions to manufacturing operations from volatile supply sources and more costly raw material sourcing requirements. We expect second half earnings from the Venezuelan operations to remain insignificant relative to consolidated results of operations. The Harris Products Group second quarter EBIT margins improved by 70 basis points. Margins improved from product mix and operational improvements. During the quarter, we paid a dividend of $18,500,000 compared with a dividend of $16,600,000 in the prior year's second quarter.
Second quarter capital spending increased to $25,400,000 compared with the prior year's spend of $15,900,000 due to reinvestment programs in North America. Our 2014 capital spending plan is currently estimated at $70,000,000 to $80,000,000 primarily associated with these significant reinvestment projects in both North and South American businesses. During the quarter, we spent $68,300,000 repurchasing about 1,009,000 shares for treasury. As Chris pointed out, we have increased our target for share repurchases to two fifty million dollars in 2014. We ended the quarter with no net debt and $2.00 $4,000,000 of cash on the balance sheet.
We will continue to invest in the business for the long run and more aggressively return cash to our shareholders. With that, Karen, I would like to open the call for questions.
Speaker 0
Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. Session. Our first question for today comes from the line of Walter Liptak from Global Hunter.
Speaker 3
Hi. Thanks. Good morning, everyone.
Speaker 1
Good morning, Walt. Good morning, Walt.
Speaker 3
Vincent, you mentioned that the mix was favorable in North America. I wonder if you can talk about if it's coming from new products or if it's from welding equipment versus consumable?
Speaker 1
Yes. It's a product mix improvement towards higher margin equipment for the most part in North America well as Okay. In Europe for that
Speaker 3
And Chris you mentioned that North America improved during the second quarter and I think you were alluding to on a month to month basis. I wonder if you can talk about the progression during the quarter and what you've seen in July?
Speaker 2
Well, I mean, certainly excited about the trend line in the quarter, Walt, especially coming off of what we viewed as a much softer Q1 than we had expected in the business. So we continue to see improvements in some of the various sectors in North America and globally. We certainly saw a continuing trend in the North American business. And as you would expect second quarter for us generally one of the stronger quarters in the business for us. So very favorable trends.
And again, I think favorable trends across a broader group of industry segments as we look at the business not only in North America, but globally.
Speaker 3
Okay. Can we get any color on that especially some of the bigger sectors automotive, truck, non res? How are some of the sectors trending?
Speaker 2
Yeah. I think that as I look at it what I'm excited about is that at the end of the day we've seen a pretty strong movement in automotive and transport in the business for a period of time. And that's continuing and that trend really has continued here in North America especially. But we're beginning to see some improvements in a couple of the other spaces. So heavy fabrication, general fabrication, we saw some improvements.
We would hope that that would be resonant and maybe in a slightly improving GDP economy especially here in The U. S. So I wouldn't say that we have all trending in the right direction. We still see real weakness in the mining space globally as well as in the shipbuilding space. But we're seeing a couple of those segments that had been relatively flattish starting to trend in a more favorable direction.
Speaker 3
Okay. And what about non res? Some of your competitors and distributors have been talking about non res getting better?
Speaker 2
Yes. We see non res getting a little bit better. Residential construction for us is not a big economic driver. The non res business has been relatively flattish to a downward trend for a period of time. We're starting to see more work in structural.
We also see investment in that space now. If you'll recall the Burlington Automation business that we purchased last year has some technology that fits into that space and we're starting to see the demand for those products as some of those manufacturers are beginning to ramp up and look at productivity and investment in those particular businesses.
Speaker 3
Okay. All right. And then the last one kind of along the same lines. Just if you could comment on July and how that's trended for you versus second quarter or year over year?
Speaker 1
July has been stable with our run rates in the second quarter. So what we see so far is a continuing improvement on a year over year basis, but not a significant inflection point by any means.
Speaker 3
Okay. Got it. Okay. Thank you.
Speaker 0
Thank you. Our next question comes from the line of Kathryn Thompson from Thompson Research.
Speaker 4
Hi. Thanks for taking my questions today. First, obviously, you've put together a string of very good quarters in terms of increasing margins. But where do you is there a ceiling to pushing up margins in light of sales improvement? And how should we think about where you think margin should go?
And particularly as you we progressed through this recovery, if you think about not only volume improvement, but also mix and how that should be factored into margin improvement? Thank you.
Speaker 1
Catherine, I would start by saying there's it's our view that there isn't any limit on the improvements that we continue to believe we can make in our business. We're working hard at every day stripping costs out. We've had some great success in my opinion rationalizing and repositioning our business in Europe and that's I think a primary reason for the improvements in the margins there. We're working at the top line to develop and introduce newer and better products to help push a value realization for our customers and Lincoln. So we're working on all fronts to continue to gain leverage in the business and add value and expand margins.
So we are pleased with the progress that we've made over the last year or so in a relatively soft macro environment where we do business. But we think there's still a lot of areas for improvement to continue driving expanding margins.
Speaker 4
And just as a follow-up to that question. If you look on a go forward basis, if you were to put in broad buckets, would it be more of that new products, new and better products adding to margins or more on the in terms of additional cost cutting and rationalization that would add to margin improvement save the next two years?
Speaker 1
I think ultimately the greater leverage points are on the revenue line. We'll keep chipping away at costs and improving our manufacturing and our operational capabilities on the SG and A side. At the end of the day, I'd put a more disproportionate emphasis on ultimately growing that top line and gaining leverage there. From a longer term perspective, we have targeting high teens type of operating profit margin and we think that that's certainly a very realistic intermediate to longer term target for the company.
Speaker 4
Right. Thank you.
Speaker 0
Thank you. Our next question comes from the line of Sean Williams from BB and T Capital Markets.
Speaker 5
Hi. Good morning.
Speaker 1
Good morning, Sean. Morning.
Speaker 5
Could we just talk a little bit about pricing? Obviously, new pricing went through in North America on the in the quarter. I just want to see, is this kind of the high watermark for the year, I guess, both for North America and maybe Europe as well pricing more kind of flattish there. I'm just trying to get a sense of is there any incremental gains in pricing that could be coming in the back half of the year for those two markets?
Speaker 1
Yes, Sean, I'll respond first. As Chris pointed out, I think in the previous comments, our second quarter tends to be one of our high watermark margin quarters during the course of the year. It comes on the heels of our annual pricing adjustments within our industry. It's also stronger volume quarter traditionally. So I would expect this second quarter to be one of our highest margin quarters during the course of the year.
In regards to pricing, generally speaking pricing is largely completed across the board during the first half of the year. That's not always the case. If there are adjustments required because of more highly inflationary conditions in a particular geography or because raws or steel or key inputs are rising. We have in the past looked at pricing adjustments to recover those costs in the latter part of the year, but that's not a common circumstance over the past decade or so. So I would tell you that most of the pricing is in place barring any kind of macro changes that would require us to act in the last half of the year.
Speaker 5
And just as a follow-up, what are you seeing in terms of your raw materials steel and some of the other elements? I mean is that stable? Is that increasing?
Speaker 1
It's relatively stable. We're seeing some slight increases in our most significant raw input costs during the first half of the year. And our expectations are that the rest of the year will be a modest moderate to modest inflationary environment across our portfolio.
Speaker 5
Okay. And then separately, I'd like to maybe dive into Harris a little bit. The volumes there maybe a bit weaker than what I expected. You noted, I guess, was more kind of on the equipment side. Anything unusual that you would or specifically you would highlight there?
Speaker 2
Well, really two issues. I mean, the equipment offering was softer for us in the quarter. At our Harris Products business, we actually had a quality issue that we were impacted with at the latter part of the quarter. We were very conservative in our approach to that and actually put some product on hold for a period of time. It did impact our supply position in the quarter.
We also had a very challenging quarter on a year over year basis just because of metal costs in the consumable side of the business. So I actually was very pleased with the way the Harris team actually managed the situation there as well as their ability to maintain the operating margins that we had in the business and still in very favorable on our performance of that business in the back half of the year as we move beyond this And that issue should have no impact for us in Q3 or Q4 or moving on forward.
Speaker 5
All right. That's helpful guys. Thanks.
Speaker 0
Thank you. Our next question comes from the line of Rob Wertheimer from Vertical Research Partners.
Speaker 6
Hi, good morning. It's Joe O'Dea on for Rob. Maybe first on Europe just with the nice step up in the margin activity there in 2Q. Trying to understand a little bit better the contribution from mix, the stability of that mix going forward to continue to support those margins? And if there was anything any kind of transitions in the quarter that created that kind of demand to shift more toward the favorable mix?
Speaker 2
Well, certainly we were very pleased with the performance of our European operations in the second quarter and really a business that performed very well for us in the fourth quarter of twenty thirteen as we began to see some of those businesses turn and some of operational improvements take hold in the business. We were a little shallower in Q1 and then now we've had very strong performance in Q2. A portion of those improvements are really from productivity items that were executed on over the last two or three quarters. You may recall that we did some restructuring of our solid wire business in that particular marketplace with moving some capacity to another location as well as the consolidation of some machine capabilities from Italy into our operations investor. Those were announced and we were executing on those in 2013 and now we're seeing the full benefits productivity improvements.
And certainly those are structural improvements that we would expect to remain within the business. We did launch a new equipment offering at the Essen Show in Europe in the third quarter of last year. That offering has been received very well. We're actually a little challenged today on our ability to keep up with demand for some of those products in the marketplace. So certainly that mix would be from those products coming into the marketplace which are favorable to the overall margins of the portfolio.
And probably most importantly and when I look at the business is the breadth of some of the improvements that we saw in Europe. So many of our businesses were up on a year over year basis. It's just too early for me to have confidence that there's an overall structural shift in that economy. We'd like to see a couple more quarters of improvement before we get much more confident in the broader European economy.
Speaker 6
Great. Thanks for the details there. And then second question just on China and maybe framing it both in terms of equipment export into China as well as what you're seeing on the consumables side. And then just any shift in kind of broad expectations across markets there from what you saw three months ago?
Speaker 2
I wouldn't say we're seeing any broad shifts in the market in China. Our export business into that marketplace continues to be very solid. As we mentioned, our exports in general have been relatively choppy through the first six months of the year, which that tends to be project based business. It's not surprising for us. It's not dissimilar from the way we've seen those markets participate here at Lincoln.
We continue to work on our China business and our China strategy as we continue to try to evaluate how we drive higher value added solutions into those markets and it continues to be a focus area for us.
Speaker 6
Okay. Thanks a lot.
Speaker 0
Thank you. Our next question comes from the line of Mark Douglas from Longbow Research.
Speaker 7
Hi. Good morning, everyone.
Speaker 2
Hey, good morning, Mark. Morning, Mark.
Speaker 7
Going back to Europe and your equipment sales, are these introduced new power supplies? Or is it a combination of new automation equipment you're pulling in? And the double digit growth was that organic that include Revolution? Just a little more color I guess on European equipment?
Speaker 1
Yes, Mark. This is organic growth. This is in the equipment portfolio where we've introduced broad new product lines into the marketplace. It's not on the automation side. It does not include the acquisition of Robolution.
We think it's a deeper penetration of the market and at least in my view a clear improvement in our share position in Europe.
Speaker 7
Yes. It certainly implies a better market share. Good. And then Asia Pacific, in total what are the how are China and Australia sized relative to the segment? And you seeing a bottoming in the Australian mining?
I assume that's dragging you down in Asia Pacific.
Speaker 2
Well, Mark, you can imagine Australia and China are the largest components of our Asia Pacific We are beginning to see we would hope a bottoming in the mining piece in Australia. Although as you're probably well aware there are a couple of other segments within Australia that are also suffering the automotive business and Australia suffering with a couple of large global OEMs recently announcing in the last couple of quarters closure of facilities. Very pleased with the way our management team in Australia has reacted. We're actually investing in Australia in a new technical center region to be able to assist our teams in driving solutions to that particular marketplace. Some strength in some energy spaces, especially LNG in the Australian marketplace.
So do think mining is kind of bottoming, but again there are a couple of other segments that are a little shallower also.
Speaker 7
Okay. And then finally, I know some investors have complained about a suboptimal capital structure within that cash position. You've juiced the share repurchases here. What other plans do you have to reinvest or return even more to shareholders? I mean your dividend payout is still relatively modest.
I think you get to 30% even faster without breaking a sweat. Can you discuss your plans on your capital deployment?
Speaker 1
Thank you, Mark. First, I'd say that we're using our balance sheet and our capital allocation in all respects to improve our performance and our return of cash to shareholders. We're investing in all opportunities from a capital investment standpoint to internally improve our returns on invested capital. We're seeking out and acquiring all businesses that we think can improve our product portfolio, our geographical presence. On the return of cash to shareholders issue, yes indeed we are ramping up our share repurchase activity.
You can see that in the last couple of years that we have stepped that up. As far as the dividend is concerned, we've had two sizable double digit increases over the past two fiscal years. Our annual dividend review process occurs in the fall late fall of the year. And I think our shareholders can count on another very robust healthy dividend increase here in the October to December time frame. So we are pulling all levers available to us to improve our returns for all shareholders.
Thanks.
Speaker 0
Thank you. Our next question comes from the line of Liam Burke from Janney Capital Markets.
Speaker 8
Thank you. Good morning, Chris. Good morning, Vince.
Speaker 2
Good morning. Good morning.
Speaker 8
Chris, how does the acquisition pipeline look for you now? And are you seeing valuations get out of hand?
Speaker 2
Well, I would tell you, think the pipeline continues to have a multitude of assets for us to evaluate. It's probably not the valuation or the pipeline that I'm concerned about. It's actually continuing to identify those quality assets that are going to be accretive to the portfolio as we execute on the 2020 vision strategy. So if we can find some more assets like we have in the past twelve, eighteen months like Tennessee Rand, like Burlington Automation, I can assure you we'd be very quick to bring them into the portfolio. Valuations, those tend to move between regions and between products and businesses.
So I'm probably less concerned about that as an inhibitor and more just really trying to find those valued assets that we can bring into the portfolio that have the people and the technology that are accretive to our overall strategy for the company.
Speaker 8
Okay. And during the prepared comments, Vince mentioned highlighted some of the countries in Europe that have been doing okay for you. Is the southern part of your European market getting any better? Or is it stabilizing at all?
Speaker 2
That was the one thing about the European business in the quarter that we were probably most happy with was that when we evaluated the businesses across the portfolio, we saw nearly every entity showing at least a slight improvement over the prior year. So even some of those portions of the region like the South that had been much more difficult, although coming off a very low baseline did show improvement over prior year. We just need to see a couple more structural improvements in the demand model there a couple more quarters before we have more confidence in Europe moving forward.
Speaker 8
Great. Thank you.
Speaker 2
But mentioned as in the comments, the execution of the productivity improvements in solid wire, the consolidation of our plasma Vester business. Those things are completed and we're seeing those benefits in the portfolio today.
Speaker 8
Great. Thank you, Chris.
Speaker 0
Thank you. Our next question comes from the line of Stanley Elliott from Stifel.
Speaker 9
Hey, good morning everyone. Thank you for taking my questions. Could you guys break out the mix between consumables and equipment in the quarter? And then maybe how that tracked relative to last year?
Speaker 1
Yeah. The mix Stanley is roughly 6362%, 63% consumables, 37%, 38% equipment. That mix is relatively stable. The equipment mix did tick up ever so slightly on a year over year basis, but still relatively stable ex acquisition effect.
Speaker 9
Then for the export business, said it was still a little soft. Could you give us an idea of maybe how what that was on a percentage basis? And then is this if I remember correctly, when we get into the back half of year, the export volume should start to face less challenging comparisons. Is that a fair way to think about that part of the business?
Speaker 1
Yes. The exports in the second quarter were down still mid teens. You might recollect in the first quarter our export business out of The U. S. In dollar terms was down about 32%.
So we did narrow that shortfall in the second quarter, but we're still down by a double digit pace year over year. The last half of the year will be moderately challenging. That turnabout export volumes really accelerated in the first quarter of this year. So the comps will be moderately difficult, but not easy for sure.
Speaker 9
Okay. And then kind of turning back to Asia Pacific with the plan of I guess eighteen months ago, two years ago you did a lot of kind of culling the revenues and making sure the profitability. But volumes were still kind of flattish and so were margins. Does that mean that some of the projects that you'd hoped to find more profitable projects got pushed to the right? Or is that just still kind of an ongoing evaluation?
Speaker 2
Well, I'd tell you that it's an ongoing evaluation. We recognize that success for us in that market is an important part of our overall strategy. We continue to evaluate those products and services that we're providing in that market. And I'm actually excited about a couple of the things that we've seen there actually improvements in our equipment market there in China and Asia Pacific, but still some challenging segments. And again, we continue to execute on that strategy for that region.
Speaker 9
I think the recent wins you're talking about on the emerging markets, I think it's encouraging when it speaks to the whole value proposition you all bring. Were those more around energy markets? Or is there any more color you can give specifically on end market? And I apologize if you did say that and I missed it.
Speaker 2
No. Actually those particular wins that we're having are kind of broad based. So we've had some nice wins in the pipe marketplace globally as well as some nice wins in the energy market. But it is really the benefits that we have of our global solutions and our dedication to industry segments around the world and providing focused technology solutions into the various industries that we're servicing. And we've seen some nice wins there and certainly expect to have some more through the end of the year.
Speaker 9
Perfect. Well, on a nice quarter and best of luck.
Speaker 1
Thank you. Thanks, Stanley.
Speaker 0
Thank you. Our next question comes from the line of Steve Barger from KeyBanc Capital Markets.
Speaker 2
Hey, good morning. Good Question
Speaker 10
I get all the time from investors is trying to get a little more color around the whole process of going to Seacat II. Is there any discussion you can give us in terms of what the considerations are? If that has to happen, when that might happen?
Speaker 1
I would tell you Steve there's still a lot of uncertainty going on in the Venezuelan market. The way that I would approach this question is just to remind all of our institutions and investors of the historical earnings stream that has come out of Venezuela and where we are today. And so as a reminder, we've disclosed in the second quarter that our EPS from Venezuela was $04 per share. The comparable earnings from Venezuela was about $06 in the prior year's second quarter. Additional reminder is that the first quarter of twenty fourteen we had $0.14 per share come out of Venezuela.
We've warned and disclosed I think pretty robustly that that $0.14 was going to come down pretty dramatically. It's my view that the $04 is now not material to the operations of the consolidated business. It's also my view that the second half of the year will not be material. That $04 per share is not a bad proxy for what we might be making on a quarter by quarter basis. And maybe the final reminder I would give you is that the third quarter of last year, that's third quarter twenty thirteen, we had $0.11 per share from Venezuela.
And in the fourth quarter of twenty thirteen, we had $0.22 per share come out of Venezuela. That's something to be mindful of when we think about the last half of the year as far as our consolidated results are concerned. We had that hyperinflationary impact in 2013 from Venezuela where the prior year had $0.06 in the second quarter, $0.01 1 in the third, $0.02 2 in the fourth and we rolled the calendar this year and had another $0.01 4 And now it's my view that you're going to see Venezuela be quite a bit less significant to the go forward view of Lincoln Electric's consolidated earnings.
Speaker 10
That's good detail. Thank you, Vince.
Speaker 1
And just one last comment. So if we go to CCAD II, the $04 per share will likely go down to $0.00 to $01 per share. So it's not a there's not a big impact on our consolidated earnings going forward.
Speaker 10
Would there be a balance sheet impact from a write down of assets or anything?
Speaker 1
Yes. And that's disclosed in our 10 Q that will be filed later today, which is basically another charge to our net monetary asset position there.
Speaker 10
Got it. And my follow-up on a happier subject. Back to the capital allocation question. Has LECO ever paid a special dividend? And is that something the Board would consider just in terms of being able to work down the cash and maybe give a little bonus to shareholders because you guys are clearly executing very well?
Speaker 1
Well, I can't recollect in the history of Lincoln that we have paid a special dividend. We do evaluate all opportunities to return cash to shareholders. It's more likely that you will see a more rapid ratcheting up of our regular dividend and our annual review process as well as our return of cash to shareholders through the share repurchase program. And that's what we continue to look at presently in the go forward strategy.
Speaker 10
Got it. Thanks very much.
Speaker 1
You're welcome.
Speaker 0
Thank you. Our next question comes from the line of Joe Mondillo from Sidoti and Company.
Speaker 11
Hi, guys. Good morning.
Speaker 1
Good morning,
Speaker 11
Joe. Quick question on the export part of the business in North America. Can you tell us what the sequential quarter to quarter growth looks like? And also remind us what the margins of export versus I guess the rest of the North America segment looks like?
Speaker 1
Okay. Well, Joe, the actual numbers for the second quarter were about $63,000,000 of U. S. Dollar exports out of our domestic operation here compared to about $73,000,000 in the prior year.
Speaker 11
So how about the first quarter of this year? Was there was it sort of stable or?
Speaker 1
Well, the year to date numbers were $143,000,000 last year and $108,000,000 this year.
Speaker 11
Okay. Perfect. Thank you. And then just wondering if you could just give us sort of an update on the automation part of the business. I know that's a big part of sort of the secular growth within the industry and how you guys are tapping organic growth.
Any updates on sort of how that's been progressing? And whether we saw was there any lumpy large sales that hit in the quarter that helped that product mix out?
Speaker 2
Well, I think the nice thing is that business just continues to grow within Lincoln. And as it continues to grow some of the lumpiness associated with large projects or completion accounting will begin to continue to be minimized. I'll tell you I'm very excited about the teams that we brought in. Our global automation and automation solutions group continues to work on really customer facing technologies so that we can be one face to the customer globally and ensuring that we're driving those solutions to the various markets around the world. We continue to work on integrating back office solutions so that we can ensure that seamless offering is brought there productively.
And probably most importantly, it certainly is one of those key areas that we continue to seek out acquisitions for in the space. The Robolution acquisition has been integrated very well and we continue to try to evaluate opportunities for us to expand that offering globally. And I just believe that it's going to be a significant portion of our 2020 vision and strategy as we continue to identify other solutions and assets and people that we can bring into Lincoln Electric as we build out our Automation Solutions group.
Speaker 11
Just a follow-up lastly with that. How integrated is the automation part of the business geographically within all your footprint?
Speaker 2
Well, it's integrated in that we have all of those individuals around the world working as one team. There's a group that manages that for us. So they understand the various technologies that we're developing and providing. We share those solutions across our global platform. We have not linked all of those systems together.
However, we do have systems that allow them to be able to share the various technologies and solutions so that while we're servicing global OEMs, we want to be able to ensure that can provide them that automation solution whether they're in Brazil or in Europe or in Asia Pacific. So it's important for us to be able to link those businesses together and provide those solutions on a global basis.
Speaker 3
All right. Great. Perfect. Thanks a lot.
Speaker 0
Thank you. Our next question is a follow-up from the line of Walter Liptak from Global Hunter.
Speaker 3
I wanted to ask about the double digit equipment growth in Europe. And I want to find out about whether that's sustainable or not. Was it related to a channel fill? Or is it good sell through that we could see in the back half of the year as well?
Speaker 2
So I'll tell you Walt, it wasn't any channel fill. So we did a broad update of our equipment offering for the European marketplace that we brought out in the Essence Show that I mentioned really in the third quarter of twenty thirteen. That offering has been received very well. So I certainly have expectations that we will continue to see improvements in the demands for those products as we continue to move through the rest of 2014. So I didn't see anything unusual relative to the offering.
Again, I just think this is quite frankly Lincoln Electric making improvements in that market probably taking some share in that market as our improved equipment offering is being received very well by the marketplace.
Speaker 3
Okay. Okay. Sounds good. And with the 3% organic growth in the quarter and double digit in equipment that implies a decline I guess in the consumable part of the business. I wonder if you can just give us some view on what's happening in Europe with consumables?
Speaker 2
I don't really see the consumable market as declining. When I look at that on a year over year basis, I expect that although I don't have that data in front of me Walt, I expect that some of that may have to do with our consolidations of that solid wire strategy that I mentioned earlier. We still see our consumable business as performing very well in there. And as I mentioned, when we looked across the broad portfolio in Europe, which would include our consumables offering, most of our businesses showed at least a slight increase on a year over year basis. So again, very confident and think that our consumables business is performing well for us in Europe.
Speaker 3
Great. All right. Thank you.
Speaker 0
Thank you. And that concludes our question and answer session for I would like to turn the conference back to Vincent Petrella for closing comments.
Speaker 1
Thanks, Karen. And just to provide additional update on Venezuela in response to Steve's question about our balance sheet position. At the June, we have a net monetary asset position in Venezuela of about $24,000,000 That includes about If we were to move from the CCAD I rate to the CCAD II rate, the bulk of the $24,000,000 would have to be written down. We have further disclosures in our Q that will come out today that suggests that that charge could be around $19,000,000 to SG and A with an additional $6,000,000 that would flow through cost of goods sold based on current inventory levels and use of the CCAD1 exchange rate.
So hopefully that provides you Steve with and our shareholders with additional information on Venezuela. And with that, I would like to wrap up the call for today and thank you all for joining us and expressing your continued interest in Lincoln Electric. Very much look forward to reporting our progress on improving our business and returning cash to shareholders at our October call at the end of that month. Thank you very much.
Speaker 0
Thank you. This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.