Lincoln Electric (LECO) Earnings Call Q3 2026: Umsatz steigt um 15 %, Ausblick angehoben

Lincoln Electric Holdings (NASDAQ: LECO) meldete für das dritte Quartal 2026 einen Rekordumsatz sowie ein bereinigtes Rekordergebnis, gestützt auf höhere Volumina in den Regionen Amerika und Asien-Pazifik sowie in den Bereichen Automatisierung und Ausrüstung. Höhere Beschaffungskosten und ein ungünstiger Produktmix belasteten die Bruttomarge, das Management rechnet jedoch für das vierte Quartal mit Preis-/Kostenneutralität.

Zentrale Ergebnisse

• Der Umsatz im dritten Quartal stieg im Jahresvergleich um 15 % auf 1,221 Milliarden US-Dollar, angetrieben von einem um rund 9 % höheren Volumen und 6 % höheren Preisen.
• Das bereinigte EPS stieg um 21 % auf den Rekordwert von 2,98 US-Dollar. Das bereinigte operative Ergebnis legte um 19 % auf 220 Millionen US-Dollar zu, während die bereinigte operative Marge um 60 Basispunkte auf 18,0 % stieg.
• Der Bereich Automatisierung erzielte einen Quartalsumsatz von 232 Millionen US-Dollar mit einem organischen Wachstum im hohen zweistelligen Prozentbereich. Ein Rekordauftragsbestand und starke Auftragseingänge stützen die Erwartung des Managements eines organischen Automatisierungswachstums im hohen einstelligen Prozentbereich in den nächsten 12 Monaten.
• Die Bruttomarge verringerte sich aufgrund verzögerter Preisanpassungen und eines ungünstigen Produktmixes um 190 Basispunkte auf 34,8 %. Für das vierte Quartal 2026 erwartet das Management Preis-/Kostenneutralität und eine Ausweitung der Bruttomarge im Jahresvergleich.
• Lincoln Electric hob seinen Ausblick für das Nettoumsatzwachstum im Jahr 2026 auf den niedrigen zweistelligen Prozentbereich an und erhöhte seine Prognose für die Investitionen auf 140 bis 150 Millionen US-Dollar.
• Der operative Cashflow erreichte 216 Millionen US-Dollar bei einer vierteljährlichen Cash-Conversion von 107 %. Das Unternehmen führte über Dividenden und Aktienrückkäufe 143 Millionen US-Dollar an die Aktionäre zurück.

Wichtige Finanzkennzahlen

Die SG&A-Aufwendungen blieben mit 206 Millionen US-Dollar relativ stabil. Als prozentualer Anteil am Umsatz verbesserten sich die SG&A-Aufwendungen um 260 Basispunkte auf 16,9 %, was den operativen Hebeleffekt widerspiegelt. Die Aufwendungen enthielten zusätzliche Unternehmensinvestitionen in Höhe von 5 Millionen US-Dollar im Zusammenhang mit der RISE-Strategie und zugehörigen Initiativen.

Geschäfts- und operative Entwicklung

Americas Welding

Der Umsatz stieg um rund 16 % auf 801 Millionen US-Dollar, angetrieben von einem um 13 % höheren Volumen und um 2,4 % höheren Preisen. Das Volumen bei Ausrüstung und Automatisierung wuchs jeweils im hohen zweistelligen Prozentbereich, während Verbrauchsmaterialien ein Volumenwachstum im mittleren bis hohen einstelligen Prozentbereich verzeichneten.

Das bereinigte EBIT stieg um rund 27 % auf 167 Millionen US-Dollar. Die bereinigte EBIT-Marge erweiterte sich um 190 Basispunkte auf 20,1 %, gestützt durch organisches Umsatzwachstum und eine verbesserte Leistung im Bereich Automatisierung, was teilweise durch Gegenwind von der Preis-/Kostenseite ausgeglichen wurde.

International Welding

Der Umsatz stieg um 3 % auf 227 Millionen US-Dollar. Preiserhöhungen trugen 2,4 % bei und Übernahmen steuerten rund 2 % bei, während das Volumen um 1 % zurückging. Das Wachstum in Asien-Pazifik wurde durch schwache Investitionen in Europa und geringere Umsätze im Nahen Osten zunichtegemacht.

Das bereinigte EBIT sank um 7 % auf 24 Millionen US-Dollar und die Marge verringerte sich um 100 Basispunkte auf 10,3 %. Der andauernde Nahostkonflikt schmälerte den Segmentumsatz im Quartal um rund 5 Millionen US-Dollar.

Harris Products Group

Der Umsatz stieg um 29 % auf 193 Millionen US-Dollar, was sich in um rund 26 % höheren Preisen und einem Volumenwachstum von 3 % widerspiegelt. Die Preisgestaltung spiegelte in erster Linie höhere Metallbeschaffungskosten wider, insbesondere für Silber. Die Nachfrage nach HLK- und Gasausrüstung stützte das Volumen, während der Einzelhandel durch die schwache Entwicklung am Wohnungsmarkt unter Druck blieb.

Das bereinigte EBIT stieg um 21 % auf 34 Millionen US-Dollar. Die bereinigte EBIT-Marge verringerte sich aufgrund eines ungünstigen Mixes und operativer Ineffizienzen um 100 Basispunkte auf 17,3 %.

Automatisierung und Endmärkte

Der organische Umsatz im Bereich Automatisierung wuchs im hohen zweistelligen Prozentbereich auf 232 Millionen US-Dollar. Starke Aufträge für Automatisierung und Ausrüstung hoben den Auftragsbestand auf ein Rekordniveau, was das Unternehmen laut Management für 2027 gut aufstellt.

Alle fünf Endmärkte wuchsen im Laufe des Quartals. Der organische Umsatz in der allgemeinen Fertigung stieg im mittleren 20-Prozent-Bereich, während Energie und Nicht-Wohnungsbaustahl im mittleren zweistelligen Prozentbereich zulegten. Schwerindustrie und Transportwesen verzeichneten jeweils ein Wachstum im niedrigen zweistelligen Prozentbereich.

Der Umsatz in den USA stieg um mehr als 20 %. Asien-Pazifik verzeichnete Zuwächse in China, Indien und Nordasien, während Kerneuropa im Jahresvergleich relativ stabil blieb.

Prognose des Managements

Das Management hob das erwartete Nettoumsatzwachstum für das Gesamtjahr 2026 auf den niedrigen zweistelligen Prozentbereich an, was mit der bisherigen Jahresentwicklung übereinstimmt.

Für das vierte Quartal 2026 erwartet das Unternehmen:

• Eine neutrale Preis-/Kostenentwicklung, die eine Ausweitung der Bruttomarge im Jahresvergleich stützt.
• Eine inkrementelle bereinigte operative Marge im mittleren 20-Prozent-Bereich.
• Eine bereinigte EBIT-Marge für Americas Welding von 20 % bis 21 %.
• Eine bereinigte EBIT-Marge für International Welding von 12 % bis 13 %.
• Eine bereinigte EBIT-Marge für die Harris Products Group von rund 18 % unter der Annahme aktueller Metallpreise.
• Umsatzgegenwind für International Welding in Höhe von 6 bis 7 Millionen US-Dollar durch den Nahostkonflikt.
• Quartalsweise SG&A-Aufwendungen von 210 bis 215 Millionen US-Dollar, einschließlich Unternehmensausgaben von rund 4 bis 5 Millionen US-Dollar.

Das Unternehmen erhöhte seine Prognose für die Investitionen im Jahr 2026 von ursprünglich 110 bis 130 Millionen US-Dollar auf 140 bis 150 Millionen US-Dollar. In den ersten neun Monaten wurden 112 Millionen US-Dollar investiert, und es sind weitere Ausgaben für Kapazitäten und operative Fähigkeiten geplant.

Die Annahmen für das Gesamtjahr bezüglich Zinsaufwand, Steuersatz und Cash-Conversion blieben unverändert. Das Management strebt für 2026 weiterhin eine Cash-Conversion von rund 100 % an.

Risiken und zu beobachtende Bereiche

Die Kosten für Energie, Logistik und elektronische Bauteile stiegen weiter an, da Investitionen in KI-Rechenzentren bei einigen Rohstoffen zu kurzfristigen Engpässen führten. Obwohl Lincoln Electric in allen drei Segmenten Preisanpassungen vornahm, bezeichnete das Management die Inflation als anhaltend und gab an, dass das Unternehmen hinter den Kostensteigerungen der Lieferanten hinterherhinke.

Weitere Belastungen umfassen einen ungünstigen Produktmix, operative Ineffizienzen bei Harris, schwache Investitionen in Europa, eine verhaltene einzelhandelsbezogene Nachfrage im Wohnungsbau und anhaltende Störungen im Nahen Osten.

Der Silberpreis stellt im Jahr 2027 ein Vergleichsrisiko für Harris dar, da sich der im Jahr 2026 verzeichnete starke Anstieg zum ersten Mal jährt. Das Management geht davon aus, dass eine stärkere Nachfrage nach Kühlsystemen für Rechenzentrenprojekte einen teilweisen Ausgleich bieten wird.

Höhepunkte der Analysten-Fragerunde

Automatisierungsausblick und Auftragsbestand

Das Management erwartet für die nächsten 12 Monate ein organisches Automatisierungswachstum im hohen einstelligen Prozentbereich, gestützt durch Auftragseingänge und einen Rekordauftragsbestand. Einige langzyklische Automobilprojekte im Zusammenhang mit Modellstarts in den Jahren 2029 und 2030 könnten nach der Percentage-of-Completion-Methode schon früher zum Umsatz beitragen.

Das Management beschrieb die jüngste Nachfrage nach Automobilautomatisierung als eine Rückkehr zur normalen Geschäftstätigkeit nach einer zweijährigen Pause bei Investitionsentscheidungen rund um Verbrenner-, Hybrid- und Elektrofahrzeugplattformen. Kapazitätsbezogene Automobilinvestitionen bleiben begrenzt, da die aktuellen Produktionsraten nach wie vor relativ niedrig sind.

XpertLINC und wiederkehrende Umsätze

Lincoln Electric hat XpertLINC als physische KI-Plattform eingeführt, die es Schweißrobotern ermöglichen soll, sich ohne zusätzliche Programmierung an Abweichungen von Bauteilen in der Realität anzupassen. Das Management glaubt, dass die Technologie die Nutzung von Automatisierung bei Herstellern mit hoher Produktvarianz und geringen Stückzahlen ausweiten könnte, gab jedoch an, dass das Produkt noch zu neu sei, um die Erweiterung des adressierbaren Marktes zu quantifizieren.

Das XpertLINC-Abonnement für das erste Jahr ist im ursprünglichen Kauf enthalten. Die fortlaufende Abonnementgebühr beträgt rund 3.000 US-Dollar pro Jahr und Cobot oder Roboter.

Engagement im Bereich Rechenzentren

Das Management schätzte, dass Aktivitäten im Bereich Rechenzentren einen mittleren bis hohen einstelligen Prozentsatz des Umsatzes der Harris Products Group und weniger als 5 % des Gesamtgeschäfts von Lincoln Electric ausmachen. Das Engagement umfasst die Nachfrage nach Kühlsystemen bei Harris sowie ausgewählte Automatisierungsprojekte, obwohl ein Großteil der Beteiligung des Unternehmens indirekt erfolgt.

Kapitalallokation

Lincoln Electric tätigte im Laufe des Quartals Investitionen in Höhe von 41 Millionen US-Dollar und führte 143 Millionen US-Dollar an die Aktionäre zurück, darunter 43 Millionen US-Dollar an Dividenden und 99 Millionen US-Dollar an Aktienrückkäufen. Der Verwaltungsrat erhöhte die kumulierte Jahresdividende um 10 % auf 3,48 US-Dollar je Aktie, was die 31. jährliche Dividendenerhöhung in Folge für das Unternehmen darstellt. Die erste Zahlung zum höheren Satz ist für Januar 2027 geplant.

Vollständiges Transkript der Telefonkonferenz

Vollständiges Transkript der Telefonkonferenz

Ausführungen des Managements

Operator

Greetings, and welcome to the Lincoln Electric 2026 Third Quarter Financial Results Conference Call. This call is being recorded.

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

Amanda Butler

Thank you, Melissa, and good morning, everyone. Welcome to Lincoln Electric's Third Quarter 2026 Conference Call. We released our financial results earlier today, and you can find our release and this call slide presentation at lincolnelectric.com in the Investor Relations section.

Joining me on the call today is Steve Hedlund, our Chairman and Chief Executive Officer; as well as Gabe Bruno, our Chief Financial Officer. Following our prepared remarks, we're happy to take your questions.

But 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 and uncertainties and which are provided in our press release as well as in our SEC filings on Forms 10-K and 10-Q.

In addition, we do discuss financial measures that do not conform to U.S. GAAP. 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, lincolnelectric.com.

And with that, I'll turn the call over to Steve Hedlund. Steve?

Steven Hedlund

Thank you, Amanda. Good morning, everyone. Turning to Slide 3. We reported record third quarter sales and earnings performance with adjusted EPS increasing 21% to $2.98. Our results highlight two important trends we navigated in the quarter. First, accelerating demand in core areas of the business; and second, challenging operating conditions that we are diligently managing. Our strong earnings were driven primarily by operating leverage from mid-teens percent organic sales growth led by 9% volume growth. This is the first quarter in over 2.5 years that volume growth has outpaced price and volume momentum remains robust through October.

However, energy, logistics and electronic component costs continue to increase with unprecedented AI data center demand, creating spot shortages for some raw materials. While our supply chain and operations teams demonstrated great teamwork and agility in managing these supply challenges, the additional cost impacted our gross profit margin. We implemented price actions during the quarter in all 3 segments, which will enable us to achieve price cost neutrality in the fourth quarter.

We improved our adjusted operating income margin by 60 basis points to 18% at a 22% incremental margin, which was in line with our September update and delivered top quartile ROIC at 23.9%, up 170 basis points compared with the prior year. We also focused on long-term growth and returns as we executed our capital allocation strategy. We invested $41 million in growth and returned $143 million to shareholders in the quarter. We remain focused on serving our customers, advancing our RISE strategy and positioning the company for long-term success.

Turning to Slide 4 to cover growth drivers in the quarter. Organic sales growth was broad with growth across all 3 reportable segments, product areas and in all 5 end markets. Organic growth was largely driven by higher volume demand in the Americas region and Asia Pacific and in select product areas in the Harris Products segment.

Sales in the U.S. increased over 20% and Asia Pacific continued to expand with growth in China, India and North Asia. Core Europe was relatively steady versus prior year, and we are starting to see benefits from European import tariffs and some defense spending. The Middle East was more resilient than expected with a $1 million sales headwind in the quarter. Capital spending continued to improve with high teens percent organic sales growth on automation resulting in $232 million in automation sales in the quarter. Equipment organic sales growth also accelerated to a low teens percent rate in the quarter.

Strong order rates in both automation and equipment in the third quarter have elevated our backlog to new record levels, which positions us well for 2027. Consumable volumes increased to a mid-single-digit percent rate on a consolidated basis and performed higher in Americas and Asia Pacific, where we are seeing the strongest level of industrial and infrastructure activity.

Looking at end sector trends on a consolidated basis, all 5 end markets grew in the quarter. General fabrication organic sales grew mid-20% with the outperformance reflecting solid industrial production activity in the Americas as well as data center-related projects and rising HVAC demand in Harris. Energy and nonresidential structural steel organic sales increased mid-teens percent with energy outperforming in Americas Welding and oil and gas due to strong project activity given the region's optimal positioning in the energy marketing.

Heavy industries and transportation both grew at a low double-digit percent rate. Heavy industries continue to see strengthening in construction and mining to support infrastructure, data center and mineral investments, while agricultural demand appears to be stabilizing. Transportation and automotive growth benefited from easier prior year comparisons in both production rates and in timing of automation shipments. We expect growth to continue in the fourth quarter as well.

Separately, the October Domestic Auto Industry survey indicated a pickup in 2029 and 2030 model launches following 2 years of unprecedented compressor. That outlook is consistent with the increase in quoting activity we are seeing for long lead time automation systems for transportation customers.

Moving to Slide 5. At the FabTech trade show last week, we launched over a dozen new solutions that address customer pain points and expand the addressable markets we serve. For example, Arc Tracker Air provides customers with an easy to deploy platform that enables them to track productivity across their welding operations regardless of the mix of brands or type of welding equipment in use. We also launched a hot wire emerged arc welding solution for our heavy industry sector customers that delivers up to 50% improvement in deposition rates using their existing installed base of Lincoln equipment with only modest incremental investments. Our new instruct arc extended reality welding trainer supports workforce development and training by providing a more realistic simulation of the welding experience.

And finally, I am most excited about the launch of XpertLINC, our physical AI solution that will revolutionize welding automation. Featured initially on our Cooper cobot, XpertLINC enables a welding robot to adapt on the fly to real-world conditions like an experienced human welder wood. This capability significantly reduces barriers to adoption and broadens the market for cutting and welding automation. We will be integrating XpertLINC technology across our automation portfolio over the next few years, which will further differentiate the value of our innovation and support our rise growth objectives.

I will now pass the call to Gabe Bruno to cover third quarter financials in more detail.

Gabriel Bruno

Thank you, Steve. Moving to Slide 6. Third quarter sales increased 15% to $1.221 billion. Sales growth reflected approximately 9% higher volumes and 6% higher price. We anniversaried the acquisition of Alloy Steel in August, which contributed 50 basis points to sales growth. Gross profit increased 9% to $425 million on higher sales. Our gross profit margin compressed 190 basis points to 34.8%, primarily due to the timing of our new price increases, which went into effect late in the quarter and unfavorable mix. On a year-to-date basis, we are lagging on neutral price cost target by 100 basis points and expect to achieve a neutral price cost position in the fourth quarter.

SG&A expense was relatively steady versus prior year at $206 million, while SG&A as a percent of sales improved 260 basis points to 16.9% as a result of sales leverage. SG&A expense included an additional $5 million in corporate investments related to the rollout of our RISE strategy and related initiatives. Given current RISE investment activity and business performance, we are maintaining our quarterly SG&A estimate at $210 million to $215 million, with corporate expenses likely in the $4 million to $5 million range in the fourth quarter.

Reported operating income increased approximately 20% to $211 million, primarily on higher sales leverage. Adjusted operating income increased 19% to $220 million, and our adjusted operating income margin improved 60 basis points to 18% with a 22% incremental margin. Third quarter diluted earnings per share increased 19% to $2.63. Adjusted earnings per share increased approximately 21% to a record $2.98. We recognized a $0.04 benefit from share repurchases, and there was no impact from foreign exchange translation.

Moving to our reportable segments on Slide 7. Americas Welding sales increased approximately 16% to $801 million, primarily from 13% higher volume and 2.4% higher price. Americas volume growth was broad-based across all product groups and end markets and in key market channels. Equipment and automation each delivered high teens percent volume growth supported by strong capital spending. Consumable volume growth increased to a mid- to high single-digit percent rate as industrial activity accelerated. Price reflects the benefit of the May price action. We expect price in Americas to be in the low to mid-single-digit percent range in the fourth quarter, reflecting third quarter price actions.

Americas adjusted EBIT increased approximately 27% to $167 million. Adjusted EBIT margin expanded 190 basis points to 20.1%. The increase was driven by higher organic sales and improved automation performance, which was partially offset by price cost headwinds. We expect Americas Welding margin to perform in the 20% to 21% EBIT margin range for the fourth quarter, given sales momentum and improved price cost performance.

Moving to Slide 8. International Welding segment sales increased 3% to $227 million on 1% lower volume, 2.4% higher price and approximately 2% benefit from acquisitions. With an international welding continued strength in Asia Pacific was offset by weak capital spending across Europe and lower sales to the Middle East. The ongoing conflict reduced segment sales by approximately $5 million in the quarter. We continue to expect a $6 million to $7 million sales headwind in the fourth quarter.

Adjusted EBIT decreased 7% to $24 million. Adjusted EBIT margin compressed 100 basis points to 10.3%, primarily due to lower volumes and in automation performance. Sequential performance versus the second quarter was better than seasonal trends due to a pickup in demand in our Alloy Steel acquisition and incremental structural savings. We expect international welding margin performance to be in the 12% to 13% range for the fourth quarter.

Moving to The Harris Products Group on Slide 9. Third quarter sales increased 29% to $193 million, primarily from a 3% increase in volumes and approximately 26% higher price. Price primarily reflects higher metal input costs in consumables, particularly silver. HVAC and gas equipment demand supported volume growth while the retail channel remained challenged on soft housing trends. We expect HVAC demand to remain strong in the fourth quarter, further aided by an easier prior year comparison.

Adjusted EBIT increased 21% to $34 million on higher sales. Adjusted EBIT margin declined 100 basis points to 17.3%, which was below our expected range due to unfavorable mix and operational inefficiencies. We expect the Harris segment to operate at approximately 18% margin in the fourth quarter at current metal prices.

Moving to Slide 10. Cash generation was strong with $216 million in cash flows from operations. Working capital improved to 16.6% of sales on higher sales levels as well as improved inventory positions. We achieved 107% cash conversion for the quarter and are at 99% on a year-to-date basis, which is in line with our 100% target for the year.

Moving to Slide 11. We invested $41 million in capital expenditures and returned $143 million to shareholders, including $43 million in dividends and $99 million in share repurchases. Adjusted return on invested capital improved to 23.9%. Our dividend is an important component of our capital allocation strategy. The Board recently announced the company's 31st consecutive annual increase in the dividend payout rate, raising the annualized rate by 10% to $3.48 per share. The increase reflects confidence in the execution of our RISE strategy, the strength of our cash generation and our commitment to return value to our shareholders. The first payment at the increased rate is payable in January 2027.

Moving to Slide 12 to discuss our 2026 operating assumptions. We are raising both our full year sales growth rate and our capital expenditure range to reflect stronger demand trends and higher RISE strategy investments. We now expect net sales growth to be in the low teens percent range for the full year, which aligns with our performance year-to-date. We are maintaining the updated assumption we provided in September for price/cost and our adjusted income incremental margin.

We expect price/cost will be neutral in the fourth quarter which will support year-over-year gross margin expansion in the period as well as a mid-20% incremental adjusted operating income margin. We are increasing our 2026 capital expenditure range to $140 million to $150 million as compared with our initial assumption of $110 million to $130 million. We have invested $112 million in the first 9 months and are continuing to invest to upgrade operating capacity and capabilities in the fourth quarter.

Our full year interest expense, tax rate and cash conversion assumptions are unchanged. Looking ahead, our priorities are to execute on our RISE initiatives, serve demand in growing areas of the market and invest for long-term returns. We continue to expect strong earnings performance as we advance those priorities.

And now I would like to turn the call over for questions.

Operator

[Operator Instructions] Your first question comes from the line of Bryan Blair with Oppenheimer.

Fragen und Antworten

Bryan Blair

I was hoping you could offer some more color on the momentum and outlook for your automation strategy. It seems like demand is broadening you mentioned kind of the medium-term outlook with changeover activity in the automotive space. Maybe touch on quoting activity across other end markets there. And then given your backlog position in current REIT, where do you see automation revenue shaking out for 2026? And what's the preliminary outlook to the extent you're willing to speak to that for 2027?

Gabriel Bruno

Yes. So Bryan, so I just reiterate the level of growth we've seen very active quoting activity and broad-based. And we pointed to the mix of end market progression, including the automotive market. So we're pleased to see the long-term trajectory of model launches turning positive in 2029 and 2030, which leads us to believe that a lot of the quoting activity that we've seen in longer lead time items would progress into orders as the months progress.

So we're really keen on a continued progression of growth in our automation business. I think about that in the high single-digits organic type growth I'm very much positioned to continue to expand the margin profile of our business. We exited the third quarter at a low double-digit type EBIT profile, and we expect more of the same in the fourth quarter.

Steven Hedlund

Bryan, I would just add that Gabe's comments really apply to the historical base of the business, which has been large portion of automotive automation projects, some for heavy industries, particularly supporting mining, construction, agricultural equipment. We're seeing improvement across the legacy base of the business. We're also very excited about the opportunity to grow the addressable market, particularly in the general industries, general fabrication space by making the technology more easily -- easy for customers to adopt.

One of the big problems those customers have is their parts aren't entirely consistent lot-to-lot due to upstream variation. And historically, that's made it hard for them to adopt robotic solutions, whether that's an industrial robot or a cobot. And we're really excited about the launch of the XpertLINC platform that's going to address that pain point and significantly open the market up for the long-term.

Bryan Blair

That's encouraging. I appreciate the color. And then in terms of your Middle East exposure, we know the headwind that has been there and you've framed anticipated Q4 in fact. Looking forward to hopeful resolution of the war. How should we think about how much of a catalyst rebuild efforts and redundancy security investments may be for your business at least over the medium term?

Gabriel Bruno

This is Bruno, Bryan. You saw that while in the international segment, we had a headwind of $5 million overall. We were down once. We saw strength in exports coming out of the Americas and Harris segments. So we're well positioned. And you can think about the headwinds turning into volume opportunities for us as projects progress in their investment trajectory as well as any rebuilding. So we're well positioned in the Middle East, and we look to growth as the conflict is resolved. And markets return to some basis of what is normal.

Operator

Your next question comes from the line of Angel Castillo with Morgan Stanley.

Angel Castillo Malpica

I wanted to touch on the pricing power a little bit, maybe just to unpack the price/cost dynamic in a bit more detail. Just you noted passing through a little bit more price towards the end of the quarter. So just curious, as you're having discussions with customers, OEMs or distributors. Just can you kind of update us on what you're seeing or hearing in terms of overall kind of elasticity to kind of price given the organic volumes, it would suggest that you're not really seeing any deterioration there just but given how much inflation we've been having, would be curious to see your thoughts on your ability to continue to kind of push price?

Steven Hedlund

Angel, I would say that our channel partners and our end users are experiencing the same inflationary pressures that we are. So this isn't coming as a shock to them. Nobody likes talking about pricing because it takes your attention away from other matters, but we're not getting a tremendous amount of pushback in either case because people understand that certain parts of the economy are running hot with the AI data center build-out. And it's a constant surprise the breadth of commodities on products that are impacted by that. So it's never at the old moment, and we're doing our best to be agile and stay on top of it, but it's a constantly chasing target that we're going after.

Gabriel Bruno

Yes. Angel, I would add that in a firm what we've updated the market in September as we expect in the welding business, about 100 basis points incremental pricing impact that would lead us into a price cost neutral posture in Q4. So we've maintained that posture. But as you know, we'll continue to monitor the persistent inflationary dynamics and respond as appropriate.

Angel Castillo Malpica

That's very helpful. And maybe just on that note, as we think about kind of your preliminary thoughts or what you're able to see into 2027, can you talk about the kind of key kind of cost buckets and what you're seeing across all of those. I think you noted earlier maybe some pockets of kind of shortages of supply. So just any kind of thoughts on what kind of inflation or cost inflation you're kind of anticipating into next year?

Gabriel Bruno

Well, Angel, I would say just not get into specifics about inflationary type conditions into 2027. But I would say that we're very well postured with what we're seeing in the market for what our strategic framework on organic sales are, which I would just reiterate it's mid- to high single-digit type organic growth of which would lean on an acceleration in automation growth in the high single digits. So we're very well postured for that kind of trajectory as we get into 2027.

Operator

Your next call comes from the line of Neal Burk with UBS.

Neal Burk

Maybe another way to kind of ask about automation growth trends. I mean is there any way to kind of bifurcate between more cyclical improvement on 1 hand, but also more secular growth from increased automation adoption. I asked because the comments about the automotive end markets seem more cyclical. I'm not sure is that quoting activity is hitting revenue yet, but automation sales are broadly outperforming your other product categories despite low double-digit growth broadly outperformance of automation on top of that.

So just trying to get at how much of this high-teens automation growth is cyclical versus more kind of automation adoption driving secular growth?

Steven Hedlund

Yes, Neal, cyclical is an interesting word. Important to realize that we had an unprecedented 2-year period where the automotive manufacturers we're walking back their commitment to transition from ICE to EVs. And then trying to figure out whether they were going to go headlong into the hybrid platform, whether they're going to return to ICE, et cetera. And that caused what we described as an air pocket of decision-making among those end users. They knew they were going to do something, they didn't know exactly what they were going to do. And as a result, that really created a period where the end users were unable to make a decision regarding automation CapEx.

We're now getting through that, and we're seeing the resumption to more normal level of activity. So on year-over-year basis, it does look like a significant step up. I would say it's more a return to normalcy in the automotive market. In terms of using technology to broaden the applicability of automation. I think we're still in the very early innings of that. It started first with the launch of cobots and the Cooper software that made a cobot easier to program. We got a lot of feedback from customers that an operator still had to have a fair amount of welding knowledge to be able to set the feeds and speeds on the welding procedure in order to make the cobot useful to them.

So we were hard at work at trying to address that with the physical AI solution and we're very confident that, that platform is going to significantly broaden the market going forward. But again, that's a product that was just launched last week. So I don't think we're seeing the benefit of that yet in our order book.

Gabriel Bruno

And Neal, just to add to that, when you think about the mix of our business, you've heard us emphasize the intentionality of driving more activity and small, midsized fabricators and general industries in general and structural and heavy fab.

So you're seeing a progressive mix in those end markets in a smaller percentage of the overall mix in automotive, although automotive is an important part of our mix of business. So all the investments we're making in the technologies will progress our positioning in general industries.

Neal Burk

That's helpful. And one follow-up on margin. You're expecting improvement from low to mid-20% incremental margins for the company in 4Q. I know there's a lot of moving parts around cost inflation, which continues. But based on where we are today, is kind of mid-20s is the right way to think about incrementals going into next year? Or are there enough sort of price cost tailwinds or normalization to maybe think about approaching your high-20 incremental target for the long-term?

Gabriel Bruno

Yes, one, I would start with that mid-20s as we exit Q4, but our line of sight is to drive to that high 20s incremental margin. So very much focused on expanding our margins as part of our 2030 objectives, 300 basis points. That implies about 60 basis points per year of improvement. So that's really our focus. So you'll continue to see a level of execution that's anchored around that 60 basis points improvement on an annual basis.

Steven Hedlund

Yes, Neal, I would say is pleased as we are with the performance of the business, particularly with organic growth resuming. We recognize that the incremental margins are a little shy of where we would like them to be. And the persistent inflation we've seen in the business has been a constant game of whackable in terms of being hit with a surprise cost increases from our suppliers who are seeing themselves increased demand from data centers. So we're competing for the same parts as people building data centers in many cases.

And so -- we've been aggressive in taking price actions to cover that. We've just been constantly 1 step behind, which is not a position we'd like to be in. So we believe that we've taken enough price to cover what we already know in the business. We'll be diligent about continuing to manage price going forward. And we're very focused on driving productivity in the operations, whether that's manufacturing or the back-office operations of the company to help us hit that incremental margin target.

Operator

Your next question comes from the line of Mig Dobre with Baird.

Mircea Dobre

Good morning, everyone. Sorry, I want to go back to automation as well, that's what the focus of the day is. But I'm just looking to make sure that I understand kind of what you're communicating here. It sounds like essentially, you're pretty much said at the beginning of the year, acceleration in automation in the back half that is happening. What I'm hearing is incremental is your comment on auto and especially on '28 and '29.

So I guess my question is, do you have enough near-term sort of visibility to shipments to suggest that automation can continue on this growth trend in 2027? Or is more 2028, 2029 business that you're booking. So our expectations really ought to be more about those out years.

Gabriel Bruno

Yes. So Mig, we're talking about the next 12 months. I'm talking about high single-digit type growth. We've seen enough in incoming orders and another record level of backlog that gives us confidence of strong momentum going to 2027.

The long lead time items will also have an impact depending on how the orders progress for fulfilling 2028 to 2029 build-outs still. So -- but we have the confidence based on what we've seen in orders and our backlog levels that carry the momentum into 2027.

Steven Hedlund

Mig, it's important to remember that for some of the very long cycle projects, we're on percent completion accounting. So as we do the work in 2027 to get ready for a project that might be supporting a '29 launch, we're recognizing some of the revenue in '27. We also have more confidence in the general industry, general fabrication part of the business. that is a little shorter cycle, right? So more standard weld cells and cobots that we would ship in several weeks, not several quarters. And given the demand trends we're seeing in the business right now, we have more confidence in that part of the business for 2027.

Mircea Dobre

That's great. My follow-up want to talk a little bit about Harris Products Group. And here, obviously, pricing has been very strong, but silver prices have pulled back. So when should we expect negative pricing, if at all, presumably, we will have some based on current commodity prices. And is there a rule of thumb about how that flows to EBIT in terms of the contribution to either incremental dollars or margin or EBITDA, however you want to frame it for us.

Gabriel Bruno

Yes. So Mig, I think it's important to note that our discussions are all based on what we currently see in the market. So let's say you're tracking in the high 50s, low 60s petrol, gas, on silver prices. if you just use that kind of assumption in Q4, we're talking about low double-digit type price increases versus the mid-20s that we saw in Q3. That's the framework that gives us confidence at that 18% EBIT profile. And that's kind of what we see at this point in the model. We'll have some positive impacts on volumes. We're starting to see that. But right now, we see our business model and Harris at that 18% type profile.

Steven Hedlund

And then Mig, maybe we'll start anniversarying against some of the big run-up in silver earlier this year as we turn into 2027. The way that we manage pricing in that part of the business is to try to maintain a fairly constant gross margin percentage on those sales. Obviously, if silver prices double, you have twice as many dollars running through the P&L. So you get some nice SG&A leverage.

And on an EPS basis, you get a little bit of a tailwind from that. So as we look forward in the Harris business, we're aware that there is a looming comp issue on silver pricing going into next year, but we're also seeing a strong pickup in demand for people who are providing cooling systems, data centers, and that's going to help that part of the business as we go forward. So some -- so various puts and takes as we think about the Harris business in '27.

Mircea Dobre

I appreciate that.

Operator

Your next question comes from the line of Chris Dankert with D.A. Davidson.

Unknown Analyst

This is Peter on for Chris today. Coming off FabTech last week of customers reacted to new product launches, including XpertLINC and I think secondly, in regard to physical AI, are these new products are a result of customer-specific requests to the company trying to source new opportunities?

Steven Hedlund

Yes. Great question, Peter. I would say the reaction to customers across the board to the products that we highlighted at FabTech was extremely positive and very encouraging. And I'd like to give kudos to the team that was working the booth there. I thought they did a tremendous job sharing their passion for our products and helping customers resolve their issues around productivity and quality and the like.

And all of the products we're launching are directly aimed against customer pain points. including XpertLINC, which was not necessarily customer driven in the sense of people asking specifically for it that more reflects our decades of experience in the welding industry and our knowledge of what tends to go wrong when people try to automate their wealth cutting and welding processes.

So you could say that at some level that reflected our understanding of customer needs, but it was primarily internally driven.

Unknown Analyst

That's helpful. And I guess for my follow-up, in terms of the raised CapEx outlook for the year, could you provide some additional color on that?

Gabriel Bruno

Yes. You've seen a trend, Peter, over the years of our continued investment in our operations. And you point to the ROIC performance. We will invest in capacity and any capabilities, including automation within our own facilities and new products to be able to drive organic growth. So we're very much focused on an increasing level of investment in our operations.

Steven Hedlund

Peter, I would say that historically, the rate limiting factor on organic internal CapEx, which is the highest returning investments we make in the business. The rate-limiting factor hasn't been our willingness to invest. It's our capacity to execute the projects. And we've been working very diligently to improve our capability and capacity to execute these projects on time, on budget and to do more of them faster. So that's why you're seeing a pickup in the CapEx investment.

Unknown Analyst

Great. I'll pass it on.

Operator

Your next question comes from the line of Nathan Jones with Stifel.

Nathan Jones

[indiscernible] to talk a couple of questions on automation. I think, Steve, you talked about the automotive side of this getting back to a more normal level. I think the planned model launches in '29 and '30 are anything but a normal level, they're significantly above a normal level. Now it's questions about whether or not they can get them all launched. Can you talk about the opportunities that creates a little bit further out for the automation side of the business, just given the magnitude of those product launches and would that be a '28 event primarily? I know you said some long lead time stuff in '27, but that would primarily be running through revenue in '28 from that kind of thing?

Steven Hedlund

And Nate, I would say if you think about automotive, in particular, right, there's 2 drivers of CapEx related to automation. One is model changeovers which historically have happened pretty much like clockwork, right? And we talked a little bit earlier on the call about the air pocket and the recovery from that. The second is production rates, right? As production rates increase, we see investments in capacity to help those customers keep up with demand.

And right now, automotive build rates are still fairly low, right? So we're benefiting from the pickup now and model changeover investments, but we're not really seeing the big capacity-driven investments. So I think it's fair to say that we're encouraged by where the automotive portion of automation is headed. It's still early innings, and we're hopeful that we're going to continue to grow that business, both in automotive and in the other end markets that we serve.

Nathan Jones

Okay. The second one I wanted to ask was more around the AI-powered cobot outlook and how that could change the growth profile? I think over the years, a lot of the automation increase in the addressable market has been improvements in the software that enabled more automation or material handling that enabled more parts of the market to be automated. Can you talk about how you think this AI-powered cobalt something that could be a bit more flexible and well something that's maybe a little less predictable plays out over the next few years in terms of increasing the TAM that is addressable by automated welding that maybe isn't today, if that makes sense?

Steven Hedlund

Yes. A fair question, Nate. Look, I'm really excited about it because over the years, as I've talked to customers, their biggest frustration is my parts aren't perfect, and I know my parts aren't perfect. If I had [indiscernible] human doing the welding operation, they would see, for example, the gap getting wider, they would slow down, they would leave they would increase the wire feed speed. They know what to do to adapt to those parts.

The problem with a robot or a cobot historically is you've given it one path and one set of parameters and it just repeats those irrespective of what the actual reality of the parts in front of it is. So that -- that's been a huge pain point for customers. Historically, your only real option was to invest in fixturing or tooling to force the parts back in the tolerance, which automotive can afford to do given the production volumes. But if you're a high-mix, low-volume manufacturer. It's just been uneconomical and infeasible for them to automate certain parts of their operation.

The feedback that we were getting at the show is this is an absolute game changer. It basically allows a robot to operate like a human wood and adapt on the fly with no additional programming, no additional training. And so people are really excited about it. How much it will increase the TAM, great question. And as we go through the course of 2027, we'll probably have a better perspective on that when we see what customers or how they're actually deploying XpertLINC and what applications they're using it for.

Nathan Jones

We look forward to hearing about that next year.

Operator

[Operator Instructions]

Your next question comes from the line of Steve Barger with KeyBanc Capital Markets.

Unknown Analyst

Steve, I just want to follow up on that last comment with end markets broadening out and automation looking like it's picking up, is the sales team focused now on adding customers who haven't automated because they've been scared of the programming or just the difficulty of getting it to work, or are you more focused on increasing the number of automated applications with customers who already get it because they've already bought systems?

Steven Hedlund

Yes. Great question, Steve. I'd say both, right? So if we look at some of the businesses we have within the automation portfolio, for example, Zieman that the structural steel welding we're going to deploy XpertLINC into their systems to make them even more effective than they are already, right? So to create competitive differentiation with other solutions that are targeting existing automation customers.

And then more importantly is to look at all those customers that have attended a demo of a cobot and decided that's neat, but I just can't use that in my operations, right? I have too much part variability I have too much -- too many changeovers. This isn't going to work for me. And we've had a lot of customers get excited about what they believe the potential of a cobto was and then disappointed with the reality of what it actually took to make one work. And so that's what we're trying to address with this technology platform is to really deliver on what the initial promise and premise of cobotic welding was, right? Very easy to use, doesn't take a skilled or trained operator and significantly addresses real-world problems that our customers face.

Unknown Analyst

Got it. Does XpertLINC have a subscription element to it? Or is it a onetime sale?

Steven Hedlund

It has a subscription element to it. The way that we're pricing it is the first year subscription is included as part of the original purchase. And then there is an ongoing subscription fee that is about $3,000 a year per use or per cobot or robot.

Unknown Analyst

Per device, yes. Okay.

Steven Hedlund

Yes.

Unknown Analyst

And then, Gabe, 1 quick follow-up. I just want to make sure I understand. You get to neutral price cost in 4Q. What -- how much temporary gross margin pressures remain, and I guess what is the clean underlying incremental margin starting point for 2027? Are you back to mid- to high 20s?

Gabriel Bruno

Yes, I would say we would start off at mid 20s. We do expect -- I don't know if you picked up on my comments, Steve, that gross profit margin will exceed the prior year fourth quarter. So we do believe that we took the pricing actions necessary to get to neutral. And as we progress into Q4 and into 2027 that we've achieved that mid-20s type incrementals.

Unknown Analyst

Okay. Got it.

Operator

The last question comes from the line of Walt Liptak with Seaport Research.

Walter Liptak

Okay, and good quarter, guys. I wondered, you guys called out equipment being up really solid double digits. And coincidentally, one of your competitors had a tornado and the market seems to have gotten impacted. Did you see a pickup related to that? And is -- and help us understand if that's what happened, if there was -- if it's like a onetime thing or if there was a market share gain related to that?

Gabriel Bruno

Well, it's very difficult to assess that. What we do know is that we've seen consistent demand on standard equipment to track at the high teens level. So I won't comment on the competitive positioning, but we've got a robust level of activity, and we see the same momentum going into Q4.

Walter Liptak

Okay. All right. Great. And then, just the last one. You guys called out data center a number of times and the impact on the welding market. I wonder, have you been able to quantify it either at Harris or at kind of the welding business overall?

Gabriel Bruno

Yes. So Walt, at Harris, we estimate between mid- to high single digits of our Harris segment to be exposed to data center activity. And just to remind you, last year, there was a destocking progression in the fourth quarter 2025. So we've got easier comps. But we're seeing a very good activity, and we expect good momentum on the Harris side to progress into the fourth quarter.

On an overall basis, we do have pockets of projects on the automation side, supporting data center activity. But a lot of the work we do is indirect into the markets. And so we estimate about less than 5% of our overall business that's tied into data center activity.

Walter Liptak

Okay. Great.

Operator

This concludes our question-and-answer session. I would now like to turn the call back to Gabe Bruno for closing remarks.

Gabriel Bruno

Thank you, Melissa. I would like to thank everyone for joining us on the call today and for your continued interest in Lincoln Electric. Our focus remains on converting demand into profitable growth, improving our price/cost performance and investing in differentiated solutions through our RISE strategy. We look forward to updating you on our progress. Thank you very much.

Operator

Thank you, ladies and gentlemen. This concludes today's conference.Thank you for participating. You may now disconnect.