Conferencia de resultados del 3T de 2026 de Lincoln Electric (LECO): las ventas suben un 15%, se elevan las perspectivas

Lincoln Electric Holdings (NASDAQ: LECO) registró ventas y beneficios ajustados récord en el tercer trimestre de 2026, impulsados por mayores volúmenes en las regiones de América y Asia-Pacífico, así como en los segmentos de automatización y equipos. El aumento de los costes de los insumos y una mezcla de ventas desfavorable ejercieron presión sobre el margen bruto, aunque la dirección prevé neutralidad entre precios y costes en el cuarto trimestre.

Puntos clave

• Las ventas del tercer trimestre aumentaron un 15% interanual hasta alcanzar los 1.221 millones de dólares, impulsadas por un incremento de aproximadamente el 9% en el volumen y del 6% en los precios.
• El BPA ajustado subió un 21% hasta la cifra récord de 2,98 dólares. El resultado operativo ajustado aumentó un 19% hasta los 220 millones de dólares, mientras que el margen operativo ajustado se amplió 60 puntos básicos hasta el 18,0%.
• El segmento de automatización generó 232 millones de dólares en ventas trimestrales, con un crecimiento orgánico de entre el 15% y el 19%. La cartera de pedidos récord y el sólido ritmo de órdenes respaldan la previsión de la dirección de un crecimiento orgánico de la automatización de entre el 7% y el 9% durante los próximos 12 meses.
• El margen bruto se contrajo 190 puntos básicos hasta el 34,8% debido a retrasos en las medidas de fijación de precios y a una mezcla desfavorable. La dirección prevé neutralidad entre precios y costes, así como una expansión interanual del margen bruto en el T4 de 2026.
• Lincoln Electric elevó su perspectiva de crecimiento de ventas netas para 2026 a un rango de entre el 10% y el 13%, y aumentó su previsión de gasto en capital a entre 140 y 150 millones de dólares.
• El flujo de caja de las operaciones alcanzó los 216 millones de dólares, con una conversión de caja trimestral del 107%. La empresa devolvió 143 millones de dólares a los accionistas mediante dividendos y recompra de acciones.

Resultados financieros clave

Los gastos de venta, generales y administrativos (SG&A) se mantuvieron relativamente estables en 206 millones de dólares. Como porcentaje de las ventas, los gastos SG&A mejoraron 260 puntos básicos hasta el 16,9%, lo que refleja el apalancamiento operativo. Los gastos incluyeron 5 millones de dólares de inversión corporativa adicional relacionada con la estrategia RISE e iniciativas asociadas.

Rendimiento operativo y del negocio

Americas Welding

Las ventas aumentaron aproximadamente un 16% hasta alcanzar los 801 millones de dólares, impulsadas por un incremento del 13% en volumen y del 2,4% en precios. Los volúmenes de equipos y automatización crecieron entre un 15% y un 19% cada uno, mientras que los consumibles registraron un crecimiento del volumen de entre el 5% y el 9%.

El EBIT ajustado aumentó aproximadamente un 27% hasta los 167 millones de dólares. El margen EBIT ajustado se amplió 190 puntos básicos hasta el 20,1%, respaldado por el crecimiento orgánico de las ventas y la mejora del rendimiento en automatización, compensado en parte por vientos en contra en la relación precio/coste.

International Welding

Las ventas aumentaron un 3% hasta los 227 millones de dólares. Los precios aportaron un 2,4% y las adquisiciones contribuyeron con aproximadamente un 2%, mientras que el volumen disminuyó un 1%. El crecimiento en Asia-Pacífico se vio compensado por el débil gasto en capital en Europa y por menores ventas en Oriente Medio.

El EBIT ajustado disminuyó un 7% hasta los 24 millones de dólares y el margen se contrajo 100 puntos básicos hasta el 10,3%. El conflicto en curso en Oriente Medio redujo las ventas del segmento en aproximadamente 5 millones de dólares durante el trimestre.

Harris Products Group

Las ventas subieron un 29% hasta los 193 millones de dólares, lo que refleja un aumento de precios de aproximadamente el 26% y un crecimiento del volumen del 3%. La fijación de precios reflejó principalmente los mayores costes de los insumos metálicos, en particular la plata. La demanda de equipos de calefacción, ventilación y aire acondicionado (HVAC) y de gas respaldó los volúmenes, mientras que el sector minorista siguió bajo presión debido a las débiles tendencias del mercado residencial.

El EBIT ajustado aumentó un 21% hasta los 34 millones de dólares. El margen EBIT ajustado disminuyó 100 puntos básicos hasta el 17,3% debido a una mezcla desfavorable e ineficiencias operativas.

Automatización y mercados finales

Las ventas orgánicas de automatización crecieron entre un 15% y un 19% hasta los 232 millones de dólares. Los sólidos pedidos de automatización y equipos elevaron la cartera a niveles récord, lo que posiciona favorablemente a la empresa para 2027, según la dirección.

Los cinco mercados finales crecieron durante el trimestre. Las ventas orgánicas de fabricación general aumentaron en torno al 25%, mientras que la energía y el acero estructural no residencial crecieron a un ritmo cercano al 15%. Las industrias pesadas y el transporte registraron, cada uno, un crecimiento de entre el 10% y el 13%.

Las ventas en Estados Unidos aumentaron más del 20%. Asia-Pacífico se expandió en China, India y el norte de Asia, mientras que Europa central se mantuvo relativamente estable en términos interanuales.

Orientación de la dirección

La dirección elevó el crecimiento previsto de las ventas netas para todo el año 2026 a un rango de entre el 10% y el 13%, en consonancia con el rendimiento registrado en lo que va de año.

Para el T4 de 2026, la empresa prevé:

• Un rendimiento neutro entre precio y coste, lo que respaldará la expansión interanual del margen bruto.
• Un margen del resultado operativo ajustado incremental en torno al 25%.
• Un margen EBIT ajustado para Americas Welding del 20%-21%.
• Un margen EBIT ajustado para International Welding del 12%-13%.
• Un margen EBIT ajustado para Harris Products Group de aproximadamente el 18%, asumiendo los precios actuales de los metales.
• Impactos negativos en las ventas de International Welding de entre 6 y 7 millones de dólares derivados del conflicto en Oriente Medio.
• Gastos SG&A trimestrales de entre 210 y 215 millones de dólares, incluidos gastos corporativos de aproximadamente 4 a 5 millones de dólares.

La empresa aumentó su previsión de gasto en capital para 2026 a un rango de 140 a 150 millones de dólares, frente a un rango inicial de 110 a 130 millones de dólares. Invirtió 112 millones de dólares durante los primeros nueve meses y planea desembolsos adicionales en capacidad y capacidades operativas.

Los supuestos para todo el año respecto a gastos por intereses, tasa impositiva y conversión de caja se mantuvieron sin cambios. La dirección mantiene su objetivo de alcanzar aproximadamente un 100% de conversión de caja en 2026.

Riesgos y aspectos a vigilar

Los costes de energía, logística y componentes electrónicos continuaron aumentando a medida que las inversiones en centros de datos de IA generaron escasez puntual de algunas materias primas. Aunque Lincoln Electric aplicó ajustes de precios en los tres segmentos, la dirección describió la inflación como persistente y afirmó que la empresa había estado rezagada respecto a los incrementos de costes de los proveedores.

Otras presiones incluyen una mezcla desfavorable de productos, ineficiencias operativas en Harris, un débil gasto en capital en Europa, una floja demanda minorista vinculada a la vivienda y continuas perturbaciones en Oriente Medio.

El precio de la plata representa un riesgo comparativo para Harris en 2027, a medida que la empresa comience a comparar los datos con el vertiginoso incremento registrado en 2026. La dirección prevé que una mayor demanda de sistemas de refrigeración procedentes de proyectos de centros de datos compense parcialmente este impacto.

Puntos destacados de la sesión de preguntas y respuestas con analistas

Perspectivas de automatización y cartera de pedidos

La dirección prevé un crecimiento orgánico de la automatización de entre el 7% y el 9% durante los próximos 12 meses, respaldado por las nuevas órdenes y una cartera de pedidos récord. Algunos proyectos de automoción de ciclo largo vinculados a los lanzamientos de modelos de 2029 y 2030 podrían empezar a aportar ingresos antes en virtud de la contabilidad por porcentaje de realización.

La dirección caracterizó la reciente demanda de automatización en la industria automotriz como un retorno a la actividad normal tras una pausa de dos años en las decisiones de capital sobre plataformas de vehículos de combustión interna, híbridos y eléctricos. La inversión automotriz relacionada con la capacidad sigue siendo limitada debido a que los ritmos de producción actuales se mantienen relativamente bajos.

XpertLINC e ingresos recurrentes

Lincoln Electric presentó XpertLINC como una plataforma de IA física diseñada para permitir que los robots de soldadura se adapten a la variación de piezas en el mundo real sin necesidad de programación adicional. La dirección cree que esta tecnología podría ampliar la adopción de la automatización entre fabricantes de gran variedad y bajo volumen, aunque señaló que el producto es demasiado nuevo como para cuantificar la expansión del mercado total direccionable.

La suscripción del primer año a XpertLINC está incluida en la compra original. La cuota de suscripción periódica es de aproximadamente 3.000 dólares anuales por cada cobot o robot.

Exposición a los centros de datos

La dirección estimó que la actividad de centros de datos representa entre un 5% y un 9% de las ventas de Harris Products Group y menos del 5% del negocio total de Lincoln Electric. La exposición incluye la demanda de sistemas de refrigeración en Harris y proyectos seleccionados de automatización, aunque gran parte de la participación de la empresa es indirecta.

Asignación de capital

Lincoln Electric invirtió 41 millones de dólares en gasto en capital durante el trimestre y devolvió 143 millones de dólares a los accionistas, incluidos 43 millones de dólares en dividendos y 99 millones de dólares en recompra de acciones. El consejo de administración incrementó la tasa de dividendo anualizada un 10% hasta los 3,48 dólares por acción, marcando el trigésimo primer incremento anual consecutivo de dividendos de la empresa. El primer pago con la tasa incrementada está programado para enero de 2027.

Transcripción completa de la llamada de resultados

Transcripción completa de la conferencia de resultados

Comentarios de la dirección

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.

Preguntas y respuestas

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.