Lincoln Electric reported solid third quarter 2025 results with sales up 7.9% to $1,061 million and adjusted EPS up 15% to $2.47, supported by disciplined pricing, gross margin expansion, $8 million in incremental permanent savings, and record cash flow at 149% conversion. Welding equipment in the Americas grew for the first time since 4Q 2023 and automation orders broadened encouragingly into October, though volumes still declined 2.2% on deferred capital spending and challenged European demand. Concluding its Higher Standard strategy on track, the company maintained its full-year framework, raised interest expense and cash conversion assumptions, and announced its 30th consecutive dividend increase.
Thank you, Janice, and good morning everyone. Welcome to Lincoln Electric's third quarter 2025 conference call. We released our financial results earlier today, and you can find our release and this call slide at lincolnelectric.com in the Investor Relations section. Joining me on the call today is Steven Hedlund, our Chairman, President, and Chief Executive Officer, as well as Gabriel Bruno, our Chief Financial Officer. Following our prepared remarks, we're happy to take your questions. Before we start our discussion, please note that certain statements made during this call may be forward looking, and actual results may differ materially from our expectations due to a number of risk factors and uncertainties, which are provided in our press release and in our SEC filings on Forms 10-K and 10-Q. In addition, we discuss financial measures that do not conform to 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 you can find on our Investor Relations website at lincolnelectric.com. With that, I'll turn the call over to Steven Hedlund.
Steve.
Thank you, Amanda. Good morning everyone. Turning to Slide 3, we reported solid third quarter results this morning. Sales increased 8% driven by pricing benefits from our M&A strategy and resilient demand for short cycle portions of our product portfolio in the Americas Welding and Harris Products Group segments. While we are still navigating a period of challenged capital spending in our automation portfolio and sluggish demand in the EMEA region, our results demonstrate the strength of our operating model. We are effectively offsetting inflation and volume headwinds through commercial and operational agility. We are achieving our targeted neutral price-cost position and generated an incremental $8 million in permanent savings this quarter. This resulted in both higher gross profit and operating income margins, a 15% increase in our adjusted EPS performance and record cash flow generation with 149% cash conversion.
Our strategic investments and operating model continue to compound earnings, are delivering top-quartile ROIC performance and are supporting a balanced capital allocation strategy that invests in long term growth while returning cash to shareholders through the cycle. Let's turn to Slide 4 to discuss organic sales performance. In the third quarter and into October, organic sales increased 5.6% on higher price and narrowing volume declines. Volumes reflected ongoing stabilization in the demand for our short cycle consumables, most notably in Americas and the Harris Products Group segments as well as in our North American industrial gas distribution channel. An encouraging area of improvement was the low single digit percentage volume growth we achieved in welding equipment in the Americas which has shown continued momentum in October. Our automation portfolio continues to be challenged from deferred capital spending in the automotive and heavy industry sectors.
In the third quarter we generated approximately $200 million in global automation sales. This was slightly below expectation and primarily due to project timing which will be recognized in the fourth quarter. We were encouraged by a broad increase in automation order rates in late September and through October. If this trend continues, we expect fourth quarter automation sales to be approximately 15%-20% higher sequentially but still below last year's sales level. Looking at end market organic sales trend, we continue to see three of our five end markets representing approximately 60% of revenue achieving steady to higher organic sales growth in the quarter. While largely price driven, we did achieve volume growth across general industries, the HVAC sector, and in midstream energy construction infrastructure. Organic sales were steady in the quarter from a high single digit % increase in Americas, which was offset internationally in heavy industries.
Organic sales trends improved on easier prior year comparisons, price, and higher customer production activity in construction and agricultural equipment, which we are encouraged to see. While automotive remained challenged due to slow capital spending, we are pleased to see consumable volume growth outpace domestic production rates in Americas. We are encouraged by the industry's latest October model launch survey that points to a re-acceleration in new model launch plans through 2029. This aligns with an increase in long cycle automation orders we closed in October. If this momentum continues, it's just an inflection to growth for auto capital spending in our business in early to mid-2026. To summarize, before passing the call to Gabe, we are in the final quarter of our five year Higher Standard 2025 strategy.
Our global team has done an outstanding job over five very dynamic years that have spanned a global pandemic and a global trade war. I am proud that our initiatives have delivered, and we are on track to achieve most of our financial and sustainability targets. Since 2020, our strategy baseline year, our operating income margin has increased 500 basis points and has averaged 16% across that time frame, which is on target. Our earnings have more than doubled at a high teens percentage annual compounded growth rate, and we have generated over 165% in total shareholder returns through the third quarter. Our relentless focus on serving customers, driving innovation and continuous improvement, and winning together positions the company for superior performance in the next growth cycle. Now I'll pass the call to Gabe Bruno to cover third quarter financials in more detail.
Thank you, Steve. Moving to Slide 5, our third quarter sales increased 7.9% to $1,061 million from 7.8% higher price, a 1.7% benefit from acquisitions, and 60 basis points from favorable foreign exchange translation. These increases were partially offset by 2.2% lower volumes. Gross profit dollars increased approximately 11% to $389 million and gross profit margin expanded 90 basis points to 36.7%. A $2.5 million benefit from our savings actions as well as diligent cost management and operational initiatives substantially offset the impact of lower volumes and a $5 million LIFO charge in the quarter. We expect a similar LIFO trend in the fourth quarter. SG&A expense increased 11% or approximately $21 million versus the prior year, primarily from a challenging prior year comparison.
Due to lower employee costs in the prior year, we had a decrease in variable costs associated with incentive compensation programs as well as an approximate $7 million adjustment to long-term performance-based incentive programs. The year-over-year increase was partially offset by $6 million benefit from our permanent savings actions. SG&A expense as a percent of sales was 19.5% in line. Sequentially, reported operating income increased 21%. The year-over-year increase primarily reflects special item charges in the prior year period. Excluding special items, adjusted operating income increased approximately 9% to $185 million. Our adjusted operating income margin increased 10 basis points to 17.4%, reflecting a 19% incremental margin. We reported an effective tax rate of 26.1% which is 250 basis points higher versus prior year, primarily from an approximate $9 million special item tax expense from the election of provisions from the One Big Beautiful Bill Act.
This election also reduces tax payments by approximately $25 million per quarter starting in the third quarter and through the first quarter of 2026. Excluding special items, our effective tax rate was 21.1% which was a 250 basis point improvement versus the prior year. We reported third quarter diluted earnings per share of $2.21. On an adjusted basis, EPS increased 15% to $2.47. Our EPS results include a $0.07 benefit from share repurchases and a $0.01 unfavorable impact from foreign exchange translation. Moving to our reportable segments on Slide 6, Americas welding sales increased approximately 9% driven by 9.6% higher price and a 1.4% contribution from our Vanar acquisition which anniversaried August 1. Volume declines narrowed to approximately 2%. The increase in price reflects actions taken through the first half of the year to address rising input costs that fully matured in the third quarter.
We anticipate price levels to hold sequentially in the fourth quarter. We will continue to monitor trade policy decisions and take appropriate actions as needed. Americas Welding segment's third quarter adjusted EBIT increased 5% to $132 million. The adjusted EBIT margin declined 60 basis points to 18.2% primarily due to the challenging prior year comparisons from lower employee costs related to incentive compensation programs previously discussed and lower automation volumes. These factors offset the benefits of diligent cost management and $4 million in permanent savings. We expect Americas Welding to continue to operate in the 18%-19% EBIT margin range for the remainder of the year. Moving to Slide 7, the International Welding segment sales increased 1.6% as an approximate 4% benefit from our Alloy Steel acquisition and 2% favorable foreign exchange translation were partially offset by 4% lower volumes.
Volume compression narrowed in the quarter on prior year comparisons and growth pockets in Asia Pacific including high single digit percentage growth in China. The segment continued to navigate challenged European demand trends. Adjusted EBIT increased approximately 29% to $26 million. Margin increased 230 basis points to a more normalized rate of 11.3% which reflects mix seasonality and $3 million of permanent savings. We expect International Welding's margin performance to continue to operate in the 11-12% range for the balance of the year. Moving to the Harris Products Group on Slide 8, third quarter sales increased 15% with 2% higher volumes and nearly 12% higher price. Volumes reflect HVAC sector strength this year and our expanded retail channel presence. We expect softening HVAC production in the fourth quarter. Price continued to increase on metal costs and pricing actions taken to mitigate rising input costs.
Adjusted EBIT increased approximately 28% to $28 million and margin improved 190 basis points to a record 18.3% on volume growth. Effective cost management and strategic initiatives, the Harris segment is expected to operate in the 16%-17% range for the balance of the year due to seasonality and reduced HVAC production activity previously mentioned. Moving to Slide 9, we generated record cash flows from operations in the quarter, aided by lower tax payments. Year to date, cash flows have increased approximately 13% with a 119% cash conversion ratio. Average operating working capital improved 50 basis points to 18.6% versus the comparable prior year period. Moving to Slide 10, we're executing well on our capital allocation strategy. In the quarter, we invested $136 million in growth, reflecting CapEx investments and our final investment in Alloy Steel. Our adjusted return on invested capital increased to 22.2%.
We also returned $94 million to shareholders through a combination of our dividend and $53 million in share repurchases. Looking ahead, we announced our 30th consecutive annual dividend payout rate increase, which is 5.3% starting early next year. We continue to expect superior shareholder returns through our strategic growth initiatives and our capital allocation strategy. Moving to Slide 11 to discuss our operating assumptions for the year, we are maintaining our top line and margin assumptions given performance to date, order trends, effective cost management, and benefits from our savings programs. We expect traditional seasonality in our sales performance as we move from the third quarter to the fourth quarter, with a modest sequential improvement in our operating income margin.
We are increasing our interest expense assumption to a low $50 million range due to recent borrowings for the Alloy Steel transaction, and we are increasing our cash conversion range to above 100% to better align with performance. To wrap up, our manufacturing footprint and supply chain strategy have proven to be well positioned and resilient in this operating environment. Combined with diligent cost management and a focus on long term growth, we will continue to effectively manage any headwinds and leverage opportunities to drive superior long term value. Now I would like to turn the call over for questions.