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Lincoln Electric Holdings Inc (NASDAQ:LECO)
Q3 2019 Earnings Call
Oct 30, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Lincoln Electric 2019 Third Quarter Financial Results Conference Call.

[Operator Instructions]

It is now my pleasure to introduce your host, Amanda Butler, Vice President of Investor Relations and Communications. Thank you, may begin.

Amanda Butler -- Vice President, Investor Relations and Communications

Thank you, Latif and good morning everyone.

Welcome to Lincoln Electric's 2019 third quarter conference call. We released our financial results earlier today and you can find our release as an attachment to this call's slide presentation, as well as on the Lincoln Electric website at lincolnelectric.com in the Investor Relations section.

Joining me on the call today is Chris Mapes, Lincoln's Chairman, President and Chief Executive Officer, as well as our Chief Financial Officer, Vince Petrella. Chris will begin the discussion with an overview of third quarter results and Vince will cover the quarter performance in more detail. Following our prepared remarks, we are happy to take your questions.

Before we start our discussion, please note that certain statements made during this call may be forward-looking and actual results may differ materially from our expectations, due to a number of risk factors. A discussion of some of the risks and uncertainties that may affect our results are provided in our press release and in our SEC filings on forms 10-K and 10-Q.

In addition, we discuss financial measures that do not conform to US GAAP. And a reconciliation of non-GAAP measures to the most comparable GAAP measure is found in the financial tables in our earnings release, which again is available in the Investor Relations section of our website on lincolnelectric.com.

And with that, I'll turn the call over to Chris Mapes.

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

Thank you, Amanda. Good morning, everyone. As we move to Slide three, we continue to generate strong cash flows, solid cash conversion and top-quartile returns despite weaker market conditions in the third quarter. Lower capital spending and slowing global industrial production rates challenged volumes. This was most pronounced in our automation portfolio, where lower sales and unfavorable product line mix significantly impacted profitability, decremental margin and earnings performance. Excluding automation and acquisitions, we generated a low 20% decremental margin in the remainder of the business, as positive price cost and cost management actions helped mitigate the unfavorable impact of automotive sector weakness and a broader deceleration in global industrial production.

Moving to slide four. Third quarter results were below our expectations, due to weakening organic sales. Broad global deceleration demand resulted in a 4.1% reduction in volumes. This decline was from three primary areas. First, incremental compression in capital spending along with some challenging projects impacted our automation portfolio and acquisitions. Second ongoing manufacturing weakness in International Welding led by declines in Asia-Pacific and Europe, as well as a broad reduction in global industrial production impacted consumable demand in our Welding segments. While price declined 60 basis points in the quarter, price-cost was positive in all segments and Americas Welding 1.2% lower price reflected the removal of US tariff surcharges.

On a global product basis, we incurred low single-digit percent volume declines in both consumables and standard equipment and automation declined at a low double-digit percent rate in the quarter.

Looking at end market trends, the incremental slowdown in global industrial production in the quarter shifted approximately 60% of our revenue exposure to end markets that are compressing. This compares to approximately one-third of our revenue exposed to headwinds in the second quarter. The automotive/transportation sector compressed at a double-digit percent rate, which was a significant deceleration. General fabrication declined mid single digits, it's first decline this year. Heavy industry and energy demand continued to grow as shipbuilding and maintenance and repair activity rose substantially in the quarter and all energy and applications accelerated except pipeline, which has been primarily hampered by project delays and interruptions.

Moving to slide five. Although automation order rates improved sequentially in Q2 -- from Q2, we expect fourth quarter demand to remain below prior year levels. Given weak global manufacturing data, uncertainty in the market outlook and cautious customer sentiment, we are expecting continued softness through the fourth quarter. We will also continue to face challenging price comparisons in Americas Welding through the first half of 2020, until we anniversary the removal of the US tariff surcharges. We have operated successfully through economic cycles, with strong cash flow generation, cash conversion and returns and we've already implemented further cost reduction actions to mitigate the impact of the cycle.

As standard, we are continuing to invest in our capital projects and our growth initiatives to ensure that we remain well positioned to capture growth as we move through the cycle. For customers and analysts visiting us at the upcoming FABTECH trade show, you will see a number of new solutions that we're launching there, including two that we released a few days ago, such as our New POWER MIG 360 multi-process, light industrial welter, which we view as the industry's new best-in-class, all in one performance welder. We also launched our new PIPEFAB solution for pipeline and vessel applications, having redesigned this new solution from the ground up, we view this as a game-changer. PIPEFAB uses our latest technologies to improve weld performance, quality and customer productivity.

These two equipment solutions reinforce our 52% equipment vitality Index, a measure of the percent of sales from new products launched in the last five years. Additionally, we just launched our new state-of-the-art advanced technology solution center in Germany, which gives us an unprecedented commercial presence in the European market. This new tech center allows us to feature our latest technologies and welding consumables, equipment and automation, and how they work together to deliver world-class solutions to customers.

And now I'll pass the call to Vince to cover the quarter in more detail. Vince?

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

Thank you, Chris. Moving to slide six. Our consolidated third quarter sales declined 90 basis points as a 5.4% benefit from acquisitions was offset by 4.1% lower volumes, a 60 basis point decline in price and a 1.6% on favorable impact from foreign exchange. Our third quarter gross profit margin decreased 150 basis points to 32.6% as positive price cost, including a $1.6 million LIFO credit was offset by weaker operating leverage and unfavorable mix. Automation products and acquisitions represented the bulk of the year-over-year margin decline.

Our SG&A expense was essentially flat in dollar terms, as lower incentive compensation expense and favorable foreign exchange offset added SG&A from acquisitions. SG&A as a percent of sales increased 20 basis points to 20.3%. Reported operating income decreased 12.1% to $88.5 million or 12.1% of sales. Operating income results included approximately $3.1 million in special item charges related to rationalization and asset impairments from our International Welding integration activities and amortization of step-up of acquired inventories.

Excluding these special items, adjusted operating income declined 12.2% to $91.6 million or 12.5% of sales, a 170 basis point decline versus the prior year. Acquisitions and the automation businesses had a 150 basis point unfavorable impact to the adjusted operating profit margin. Excluding acquisitions in our automation product lines, the third quarter decremental margin would have been 23%. Our third quarter effective tax rate was 21.1% compared with 26.3% in the prior year period. Excluding special items, our third quarter tax rate was 22.4%. This compares with 23.3% in the prior year period.

We now expect our fourth quarter 2019 effective tax rate to be in the low to mid 20% range, subject to the future mix of earnings and the timing and extent of discrete tax items. Third quarter diluted earnings per share increased 9.3% to $1.17 compared with $1.07 in the prior year. Excluding special items, adjusted -- diluted earnings per share decreased 9.9% to $1.9 reflecting the impact of lower organic sales. Unfavorable foreign exchange translation reduced EPS by $0.02 per share. Now moving to the geographical segments on slide seven. Americas Welding segment's third quarter adjusted EBIT [Technical Issues] $74.1 million. The adjusted EBIT margin declined 280 basis points to 15.6% as positive price costs, LIFO benefits and cost management actions were offset by lower volumes, primarily in the automation portfolio. Excluding the weakness in our automation business. The segment's adjusted EBIT margins would have decreased 80 basis points versus the prior year or 39% decremental margin.

Looking at the top line. Americas Welding reported a 5.7% decline in organic sales against a challenging prior year comparison of 14.9% organic sales growth. Americas Welding volumes declined 4.5%, largely due to a mid-teens percent decline in the automation portfolio. Additionally, broader weakness in general industrial production impacted consumable volumes at a low single-digit percent rate. Our standard equipment volumes increased modestly on demand for our new product solutions. The segment's 1.2% lower price reflects the removal of surcharges in the US business. We do expect pricing to be lower through the remainder of the year and through the first half of 2020, until we anniversary these surcharges. Americas Welding sales also benefited 3.8% from the three automation acquisitions that have been previously announced.

Moving to slide eight. The International Welding segment's adjusted EBIT decreased 5% to $10.2 million and the adjusted EBIT margin declined 10 basis points to 4.9%. Price cost management and benefits from rationalization and integration activities helped to mitigate the impact of lower volumes. Organic sales decreased 5.9% as a 6.2% decline in volumes was partially offset by 30 basis points of positive price. Volume weakness was predominantly in Asia Pacific from slowing regional automotive and heavy fabrications sector demand.

European volumes are largely flat in the quarter, despite weakening macro-economic conditions in France and Germany on easier prior-year comparisons. Moving to the Harris Products Group. Third quarter adjusted EBIT increased 27.2% to $11 million. Adjusted EBIT margin increased 160 basis points to 13.2% on favorable mix, accretive acquisitions and productivity improvements. Volumes increased 4.7% on continued solid demand in the OEM channel and in aluminum products. Harris also recognized a 6.5% sales improvement from the acquisition of Worthington Industries Soldering business.

Moving to slide 10. Cash flows from operations increased 21% to $129 million reflecting improved working capital and lower tax payments, which helped to generate a 165% cash conversion ratio. Our working capital ratio increased due to lower sales. Moving to Slide 11, we maintained a balanced approach to capital allocation, deploying $136 million in the quarter. We paid $29 million dividend to shareholders, reflecting the 21% higher dividend payout rate and we also repurchased $61 million of shares. We invested in the business with $17 million in capital expenditures and $29 million in acquisitions. For the balance of the year, we continue to prioritize growth investments and the return of cash to shareholders through a higher dividend payout rate and share repurchases.

And with that, I would like to turn the call over for questions. Latif?

Questions and Answers:

Operator

Ladies and gentlemen at this we will be conducting question-and-answer session. [Operator Instructions] Our first question comes from the line of Rob Wertheimer of Melius Research. Your line is open.

Rob Wertheimer -- Melius Research -- Analyst

Hey, it's Rob Wertheimer. Good morning, everyone. I just wanted to chat about incremental margins for a second. I mean obviously you have one of the more flexible operating systems out there and then incrementals weren't great this quarter. And just -- did the decline catch you by surprise or is it just normal. I mean, obviously, a quarter is only a quarter, is it just normal time to sort of accelerate changes.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

Rob, I'd start by saying that -- that's why we -- I provided some decremental information ex-automation, because the automation performance was certainly distortive to our normal decremental margin performance. Without that, I would tell you that the Americas was a little higher than what our historical performance has been in that segment and overall businesses is more in-line with our decremental experience ex-automation. So automation's performance was particularly weak in the quarter. The slowdown in order activity and the deferral of projects and most importantly, the mix of what we delivered in the quarter really impacted our consolidated results and certainly the Americas.

Rob Wertheimer -- Melius Research -- Analyst

Okay. And then if I can, just on pricing, you're giving back some of the surcharges, which I guess, we've long known was going to happen. When you sort of look cycle to cycle, did you keep as much pricing through those surcharges. Do you think or is pricing perhaps eroding a little bit more than you would have guessed? And I'll stop there. Thanks.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

Thanks, Rob. Now -- the pricing impact is really in almost totality of the surcharge removal. So I would tell you that our pricing in the business ex-surcharges is relatively stable and we actually took a little bit of price in some of our business segments, outside of the Americas. So that whole decline is really associated with the removal of those tariffs. Now, we haven't put in a significant additional price increases in the Americas. So it's really that flow through that you see on the surcharges.

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

Yeah, Rob, I would just add that in our application of those surcharges where most of them are occurring here in our Americas segment. We were very transparent with our customers as to the cost of the surcharge and they would be able to see that very clearly in our communications and our transaction with them. So the removal of that once we -- once those -- these have been exempted or dropped is something that's very clear and transparent with our customer base.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

So again, just to finish this off Rob, we took 30 basis points of price in International on declining volumes of over 6% and we took a 100 basis points in the Harris Products Group. And so the Americas because of surcharge came down 120 basis points.

Rob Wertheimer -- Melius Research -- Analyst

Okay, thank you.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

You're welcome.

Operator

Thank you. Our next question comes from the line of Saree Boroditsky of Jefferies, your line is open.

Saree Boroditsky -- Jefferies -- Analyst

Thank you. Good morning.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

Good morning.

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

Good morning Saree.

Saree Boroditsky -- Jefferies -- Analyst

So you previously expected volumes to be flat to low-single digits in the second half of the year. Could you just provide more color on what end-markets or regions [Phonetic], have really deteriorated since your previous commentary?

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

Well, you know, that's really the challenge that occurred for us in looking at our third quarter performance. As we exited Q2, we thought that we had seen some signals from the market that we were going to see a flattening marketplace in Q3. And unfortunately, we continued to see the compression within the business. Part of the acceleration in that compression as I mentioned in the earlier comments, we had a portion of that that came from Europe, portion of that that came from China. And on an industry segment basis, we saw an acceleration in the compression in the automotive segment. A portion of that certainly could be aligned with some of the challenges in the US market relative to the strike that occurred. But that would only be one of those elements. The compression across that segment was much more broad. But automotive was certainly the other segment that we saw that compression. And then my final comment, Saree, on the segment side would be. For the first time this year, we actually saw general fabrication compressed for us in the marketplace. So those two industry segments and then globally, certainly the compression that we saw in China and in Europe would be the areas that I would focus on.

Saree Boroditsky -- Jefferies -- Analyst

That's helpful. Thank you. And then you highlighted the weakness obviously in APAC, International. I was wondering if you would comment on what you saw in exports in Americas segment and any color by end-market.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. So, the exports were flat on a year-over-year basis, which was very encouraging. And our export business is largely equipment and so we do think that some of our newer product introductions were taken well in the International markets. So we were flattish in exports out of the US.

Saree Boroditsky -- Jefferies -- Analyst

I appreciate the color. Thanks guys.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

You're welcome.

Operator

Thank you. Our next question comes from Nathan Jones with Stifel, your question please.

Nathan Jones -- Stifel -- Analyst

Good morning, everyone.

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

Good morning.

Nathan Jones -- Stifel -- Analyst

Chris, I think, when you -- in your prepared comments that you talked about a difficult or problematic automation project, was there an impairment to the margin on a project there or something that didn't chip in the quarter that made automation weaker than it otherwise would have been?

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

Well, I'd say -- first of all, a couple of quick comments on automation. First, I'm got to tell you, I had great -- I've got great confidence in the long-term secular trends and the strategy we're deploying in our automation business. We absolutely are confident that globally the challenge in finding the qualified welder and the desire to drive productivity that our approach to automation is the right approach and we're going to continue to drive that business and seek acquisitions to continue to expand upon that business. But in the quarter, certainly beyond coming-off a very challenging comparable [Phonetic] prior year. We certainly had a couple of projects that were more difficult for us. And those projects did materialize in Q3 and we recognized some of those challenges there.

But I'm cautious because we could certainly have a challenging project in our future. And as I said in my prepared remarks, although our automation business has sequentially improved from Q2 into Q3. I don't believe our Q4 results will meet our prior year results. We still expect to see a challenged situation on a year-over-year basis for our automation business in Q4. But we will work through those issues and have great confidence in our strategy there, as we continue to build out our automation portfolio.

Nathan Jones -- Stifel -- Analyst

Okay. But -- so those challenging project or few projects did impact the automation margins or the automation shipments during the quarter. So kind of fundamentally the demand is, maybe not as bad as the results indicate?

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

No. The demand is down year-over-year mid-teens. So from a revenue perspective, ex-acquisitions, the order -- or the orders that translated into sales in the quarter were down significantly, but just piling on, we had some unusually a large underperforming projects in the quarter that also contributed to a poor result in our automation portfolio. So it was also the top-line. And then finally, just to pile on some more, we had a poor mix as well. So our highest margin part of the portfolio was a good part of the decline on a year-over-year basis. So the richness of the mix was weak on top of being down mid-teens of sales volume. So we had a weak quarter in automation for sure.

Nathan Jones -- Stifel -- Analyst

Perfect Still in there in automation. You guys talked about really the price down in the Americas being only the removal of the surcharges and Lincoln has got a very good record historically of hanging on to price in deflationary environment. What is your outlook going forward for the pricing environment? Do you think you can hold pricing here, ex-anything that moves around with tariffs and things like that or do you think that the market is going to require you to give some pricing back?

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

Yes, I think, where we sit today, because of the requirement to anniversary the tariffs, you will continue to see in the fourth quarter on pricing declines in the Americas. I don't believe that we're in an environment now, where a lot of price can be taken when we have mid, mid-to-high single digit volume pressure on the business, and with a little bit of softening in our major input costs being steel as we've talked about, we did take some LIFO credits that will likely continue into the fourth quarter. So we get a little bit of assistance there. But I don't think we're in an environment enough of a strong volume environment and inflation to be pushing through a whole lot of price here in the next quarter or so.

Nathan Jones -- Stifel -- Analyst

But it sounds like you don't think you're going to have to give any back either outside of what you've already done on the surcharges?

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

No, I think, this kind of a volume environment. It's not mid maybe trending in the high single digits won't be enough for the market to lose a lot of discipline.

Nathan Jones -- Stifel -- Analyst

Great, thanks very much.

Operator

Thank you. Our next question comes from the line of Mig Dobre of Baird. Your line is open.

Mircea Dobre -- Baird -- Analyst

Good morning, everyone.

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

Good morning, Mig.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

Good morning, Mig.

Mircea Dobre -- Baird -- Analyst

So, to be honest with you guys this quarter is a bit of a head scratchier for me, especially as it pertains to automation. And maybe you can kind of set me straight on a few items here. My understanding is always been that the automation business carried a little bit of lower margin than the overall segments. So maybe you can set me straight on that. I'm also curious as to how you think about incremental and decremental margin, the normal incremental and decremental, on dollars of volume swings in automation.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

All right, I'll answer the first one. Last year's third quarter, we actually achieved an automation of mid-teens operating profit margin. So we were a little, we had a particularly good quarter, last year's third quarter, rich en the mix of the total corporation. And then this year, make that operating profit margins essentially have been cut in half because of the factors that we've talked about earlier.

So we went from mid teens to mid-single digits on a year-over-year basis and that certainly exasperates our comparisons. And we talked about those in response to a previous question. Again, volumes down mid-teens, mix weak some loss projects. And so we certainly don't expect to continue to perform in the automation portfolio at a single-digit type of operating profit margin and we would expect to migrate back up over the longer term to something that approximates the group average. But we do have a tough year-over-year comparison in the third quarter related to a very strong out-performance in the prior year versus the strong under performance in the current year.

As far as decrement's are concerned, I think this business will likely have -- over the longer term, a little bit more of a decremental margin impact on the downside, because the costs are largely more fixed than some of our other businesses, it's mostly SG&A type of engineering and white collar workforce that can't be flexed as easily as the rest of our businesses in the US. And so I think you're going to see a little bit more decremental on the downside in this business. And again, it will move around depending upon the mix. But it will be higher than what we've experienced traditionally as a corporation and as an Americas segment, which is roughly, been in the mid-20's type of region.

Mircea Dobre -- Baird -- Analyst

Okay. So the decrement's and I'm presuming incrementals for automation are going to be higher than this 25%.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

Right. It be a little bit more volatility than what our core business is.

Mircea Dobre -- Baird -- Analyst

And with that, I am still trying to understand what was the extraordinary or one-time, however you want to call it, impact in this automation business in the quarter. I mean, if you're sort of looking at what would have been normal versus these projects. Is it that we're talking $4 million, $5 million. Can you quantify that?

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

I really can't I would tell you though that, I wouldn't expect us to replicate this quarter. Often, like I said in some pretty detailed comments about it. There are a lot of headwinds in this quarter that I do not expect to occur in sequence as we roll through the rest of 2019 and into 2020.

Mircea Dobre -- Baird -- Analyst

Well, I'm sorry. I'm still unclear, because you said that the fourth quarter is challenging as well. So, have we kind of taken our pain in the third quarter or are we setting up for a rough fourth quarter number?

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

What we're saying is that we're still going to be down year-over-year in the automation business. We were down mid-teens, we believe -- based on our order rates we see Chris pointed out that they are improving sequentially, but still not enough to wipe-out that 15% type of year-over-year decline. I don't expect these projects to be replicated in the fourth quarter. And I also expect that our mix should improve a bit. So as far as automation is concerned, this should be a trough and we should see some improvement and then we have the rest of the business to worry about obviously.

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

Yeah, Mig, as you know with the automation business with us sequentially improving from Q2 to Q3 and as Vince said, we expect improvement from Q3 to Q4, although not operating at prior year levels. But when we have those sequential improvements, it also makes it very difficult for us to be more aggressive and necessarily addressing some areas of the cost structure. So that is part of that conflict that we had that certainly materialized in Q3. And as Vince said, we're hopeful that quite frankly, we're seeing a troughing of the automation business as it relates to our Q3 performance and we'll continue to drive that strategy within the business as we move through the rest of the year.

Mircea Dobre -- Baird -- Analyst

I see. Then my follow-up, I want to ask a question on international. If I understand correctly, Europe volumes were flat, which is good. I am looking at flat margins as well, maybe down a little bit on a year-over-year basis. And I guess my question is this, if we're finally to the point that we're seeing some stability in Europe overall, given everything that you've done with Air Liquide and your business over there, what point in time, should we start seeing in some real margin expansion. Especially, as we think about your framework for double-digit margin for this segment?

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah. So it was a very encouraging to see that the top-line did stabilize in the face of what we would describe as an accelerating softness in the industrial environment in Europe. So I think, it's going to be challenging Mig and as the softness continues in our major markets in Europe to see margin expansion at this time. So we really, from my perspective, need to see a stabilization in the macro-environment there and start to see some growth in the top-line, aided by those tailwinds when they do come. I think we are continuing though on the cost side to compress out costs in that region, that's not completely behind us. So you'll-- we'll have some opportunity as we move through 2020 to even with challenging top-line environment start to see some leverage come through that business, provided again that we don't have another step down in macros and industrial activity in the European region.

Mircea Dobre -- Baird -- Analyst

All right, thank you.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

You're welcome, Mig.

Operator

Thank you. Our next question comes from Walter Liptak of Seaport Global. Your line is open.

Walter Liptak -- Seaport Global Securities -- Analyst

Hi, thanks. Let me start with just some follow-onus from the last discussion with Mig. You said that the EU was flat, but the market is deteriorating. Why do you think you guys were flat. Was it a market share win back or was there like a channel fill that had happened? Why is it stabilizing?

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

Well, certainly one of the things that we've been focused on in our business in Europe is that as we've been moving through the integration. We've been very focused in ensuring that our customer delivery metrics and our ability to serve the marketplace we're improving. And we've been managing and tracking those expectations in that data for the last several months. Matter of fact, we actually had a communication with our customers in the marketplace in the third quarter, sharing with them the improvements we've made and the confidence that we have walled and our ability to serve the marketplace there in Europe.

So I certainly believe that as a catalyst for some of that improvement. I don't want to go as far as to say that flattening although, we know the market is deteriorated there, especially the automotive market is a market share when you know, we don't think about market share from a quarter-to-quarter basis. But certainly the stabilization is a positive sign and we're going to continue to work at making the improvements and finding growth in that market there in Europe. It certainly was positive to be there for the grand opening of our new technical center outside of Frankfurt. We launched that last week and believe that also can be a way for us to bring our solutions and technologies closer to our customers there in the region.

Walter Liptak -- Seaport Global Securities -- Analyst

Okay, thanks for that. And it sounds like based on Vince's comment, that there is more restructuring that's still needs to be done with Air Liquide Welding. What do you think of the costs and timing for that?

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

We are not in a position at this point to make any kind of estimates on what we might have in terms of actions or costs, but we are continuing to look at opportunities to compress the head count down there to match our new volume levels at this present time.

Walter Liptak -- Seaport Global Securities -- Analyst

Okay, all right. And then in your prepared remarks, you guys talked about cost-cutting, but then it was more kind of variable costs, lower work hours less overtime watching spending. Are you guys contemplating some bigger cost actions maybe outside of Air Liquide Welding business to mitigate? Or is this it? Is it more variable costs coming out?

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

Well, I think, as we look at what we're going to be able to actually impact through the rest of 2019 that we're really looking strongly at these variable cost actions that we can go out and address with the lack of clarity we see for the business moving into Q4 and expecting Q4 to look a lot like Q3. Certainly, if we're not troughing and not seeing the improvements that we expect to see in the business moving into 2020, then we'd be looking at taking broader actions to try to mitigate some of the negative impacts from the marketplace.

But as it relates to the rest of 2019, I think, the actions we've talked about is the path that we will go. And then again once we get more clarity into what type of demand market we think we will be participating in moving into 2020, will determine whether we need to take further actions to be able to mitigate the impact.

Walter Liptak -- Seaport Global Securities -- Analyst

Okay, all right. And then last one for me, is on the decrement's. So that -- I wasn't sure I understood, is the 23%, it sounds like that was worse than expected because of North America and the out sized decrement's there, like is 23% what -- we should be thinking about kind of into the future until revenue stabilizes? Or are you going to be able to improve that and get lower decrement's?

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. So the 23% is what is in-line with what we have historically experienced through downturns in volumes, Walt. And that is ex -- our automation businesses and acquisitions. So obviously it was a lot higher, but we wanted to give you a read through on our core business. And it is in this soft environment in-line with our historical performance from a decremental perspective and we wanted to take out the one very poor quarter from a performance perspective in the automation business.

We'll see how that shakes out in the fourth quarter, but it was just a with and without calculation that gives you an idea of the core business performance from a decremental perspective. And that is again in-line with our historical performance from that perspective.

Walter Liptak -- Seaport Global Securities -- Analyst

Okay, got it. Okay, thank you.

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

You're welcome.

Operator

Thank you. Our next question comes from Chris Dankest of Longbow Research. Your question please.

Brian Bollenbacher -- Longbow Research -- Analyst

Good morning, this is Brian on for Chris.

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

Good morning, Brian.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

Good morning, Brian.

Brian Bollenbacher -- Longbow Research -- Analyst

Just around the Europe sales. I know you guys identified about $100 million to $110 million in some pruning, have you been able to identify any further there or is that still kind of the rate we are looking at?

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

No, that's about what we're looking at it around those numbers.

Brian Bollenbacher -- Longbow Research -- Analyst

All right. And then kind of jumping over to the China growth rates, were those kind of in line with the Asia down double-digits and is stabilization expected during 4Q or does that trade macro uncertainty causes softness to kind of spill over into early 2020?

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

Look, I think that softness is going to continue into 2020 until we start to get more clarity around trade and a couple of the other tariff issues that are impacting imported equipment into that marketplace and those -- the China declines would have been greater than the average declines for international or Asia-Pc. It's certainly -- it was a very challenging quarter for them, and we expect another challenging quarter for them in Q4.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

Right, Brian just as a reminder, we had our big step down in China in the second quarter. So, now we've had the third-quarter that was around the same sort of year-over-year declines. And so I would think we've got, as long as the environment is consistent with what we've seen in the last two quarters, we're going to have difficult comparisons for a couple of more quarters where we're going to see in the fourth quarter and the first quarter of next year some big declines because of the tough comparisons based on the current trends and operating environment that we see now.

Brian Bollenbacher -- Longbow Research -- Analyst

All right. Got it. Thank you.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

You're welcome.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Joe Ode of Vertical Research. Your line is open.

Joe O'Dea -- Vertical Research -- Analyst

Hi, good morning. Related to some of the comments on that last question. Just kind of interested in your perspective on kind of the demand transition that's under way. And I think you're seeing maybe a little bit of flattening in Europe, you're talking about China. A couple of tough quarters but if that's stabilizing at current demand levels, you get a couple more North America maybe some recent trends in terms of down shift, when you talk about general fib. I'm just curious if you -- putting that all together, kind of what your view is of the demand transition and kind of how you can put any perspective on how that's likely to continue maybe into 2020 by regions. When we can expect some overall stabilization across LECO?

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah, look, I think that's a really tough read through. When we look at what happened in the third quarter, we did see some greater deterioration as the quarter unfolded. I think based on what we've seen in October, we're going to likely see the same kind of trending and environment that we experienced, certainly in the third quarter. I think, 2020 is just for at least me is just too far off based on the kind of dynamics that we see going on in the marketplace right now. And there's just too much uncertainty at least from our perspective on that outlook. But the most I could give from what we're seeing in the trends throughout our business is we're going to see more of the same in the fourth quarter and then 2020 is something we're going to have to -- have a updated view on, once we get through the fourth quarter, when we talk to you again in February.

Joe O'Dea -- Vertical Research -- Analyst

Okay. And then on costs, I mean you touched on it a little bit with some steel costs coming down, but can you frame it at all in terms of what kind of steel inflation you saw kind of subsequent to tariffs. And then, to what degree that's come off. And I guess any sort of insight on, are there further opportunities that you have through negotiations to drive that lower?

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

So look, we recognized that when the demands are compressing out in the broad industrial marketplace out there. Our teams will continue to work with our supply base, but we don't see that as an enormous opportunity. As we're moving through the rest of the fourth quarter or certainly a visibility that we have right now moving into Q1. I think, our teams have done an excellent job in the past of managing that price cost dynamic here within Lincoln Electric will continue to manage it very closely, but I certainly don't see that as any greater opportunity for us, as I think about Q4 as we're moving into 2020.

I'd also just like to amplify Vince's comments, look at -- especially coming out of Q2, where we thought we were going to see a more favorable volume environment in Q3 and then that didn't materialize and we saw that volume compression again in the quarter and are expecting that volume compression in the fourth quarter. It's just very challenging for us right now to give confidence and where we think we might be moving as it relates to 2020. We'll certainly be working with our customers and looking at industry and macro data and trying to determine what that will be and certainly will provide an update when we're back together in February.

Joe O'Dea -- Vertical Research -- Analyst

I appreciate it. Thanks very much.

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

You're welcome Joe.

Operator

Thank you. Our next question comes from Steve Burger of KeyBanc Capital Markets. Your line is open.

Stephen Barger -- KeyBanc Capital Markets -- Analyst

Hey, good morning guys. I was on and off the call, but I just wanted to go back to the conversation that I heard on the automation. I know that there was -- there were impacts in 3Q and order inquiry came down. But what is the general view toward how people are thinking about investing in automation as we go into an environment where organic growth is down in the back-half and maybe into 2020 for your customers.

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

So look, I still believe Steve very strongly in the long-term secular trends. So that's the long-term piece. The need to identify ways to mitigate the challenges in finding the qualified welder and the productivity that can be advanced through the automation and the quality that can be advanced through the automation.

So the long-term secular trends, I'm very confident with. I think, we are going to see some challenges associated with customer behavior as we're exiting Q4. I think, we might see that in our automation business and we might see that in our core business, because I can't imagine that they have much greater clarity than what we have today at Lincoln Electric which means they may pause associated with looking at some of those projects or looking at how they may bring some of their demands into their business as they exit 2019. Positive that quite frankly automation was improved sequentially, Q2 to Q3 and likely Q3 to Q4. Although Q4, will still be materially down from where we saw it participate off of a record 2018 quarter for us in automation. But I think we're going to continue to see some challenges around the capital spend. I'd like to see more clarity and certainty in the marketplace and we will just have to manage through this portion of the automation cycle here over the next couple of quarters.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

Yes. I would describe, Steve there is a little bit sense of a greater sense of cautiousness and -- certainly in the capital equipment spending arena among our customers in the most recent quarter.

Stephen Barger -- KeyBanc Capital Markets -- Analyst

Yeah. And you guys have been I think foreshadowing a tougher 4Q and the first part of 2020. But just to that point, thinking about what we've heard from various machinery names through earnings so far, orders are down year-over-year, backlogs are contracting. So without getting too far into guidance, we should be thinking that Americas and International revenue will be down, similar to what we're expecting in the back half here into the first part of 2020, is that a fair statement?

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

You must not have been on the call when I answered that one. But I think it's too early for us to comment on the 2020. I think, we're comfortable that we're going to see a replication or continuing softness on a year-over-year basis in the fourth quarter. I think, it's safe to say, Steve, that based on the order levels and the trends that we have today that are comparisons in the first half are going to obviously be a lot more difficult.

Stephen Barger -- KeyBanc Capital Markets -- Analyst

Yeah. Okay, understood. Thanks.

Operator

And this concludes our question-and-answer session. I would like to turn the call back to Vincent Petrella for closing remarks.

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

And thank you. Thanks everyone for joining us on the call today and look forward to discussing our fourth quarter with you in February and also the progression of our strategic programs for the future. So thank you very much again. Have a nice day.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Amanda Butler -- Vice President, Investor Relations and Communications

Christopher L. Mapes -- Chairman, President and Chief Executive Officer

Vincent K. Petrella -- Executive Vice President, Chief Financial Officer and Treasurer

Rob Wertheimer -- Melius Research -- Analyst

Saree Boroditsky -- Jefferies -- Analyst

Nathan Jones -- Stifel -- Analyst

Mircea Dobre -- Baird -- Analyst

Walter Liptak -- Seaport Global Securities -- Analyst

Brian Bollenbacher -- Longbow Research -- Analyst

Joe O'Dea -- Vertical Research -- Analyst

Stephen Barger -- KeyBanc Capital Markets -- Analyst

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