Lincoln Electric opened 2026 with record first quarter sales up approximately 12% to $1.121 billion and record adjusted EPS up 16% to $2.50, led by an exceptional 42% sales gain at Harris and improving Americas order momentum, though volumes declined 2.6% and price-cost was temporarily unfavorable 90 basis points. Management raised full-year sales growth guidance to high single digits on newly announced May pricing actions while maintaining its mid-20% incremental margin target and expecting price-cost neutrality by the third quarter. The company flagged a new Middle East conflict headwind of $8-$10 million per quarter and remained cautiously optimistic about an early-stage industrial recovery.
Thank you, Kathleen, and good morning, everyone. Welcome to Lincoln Electric's Q1 2026 conference call. We released our financial results earlier today, and you can find our release and this call's slide presentation at lincolnelectric.com in the investor relations section. Joining me on the call today is Steve Hedlund, Chairman and Chief Executive Officer, and Gabe 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 the actual results may differ materially from our expectations due to a number of risk factors and uncertainties, which are provided both in our press release and 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 at lincolnelectric.com. With that, I'll turn the call over to Steve Hedlund. Steve?
Thank you, Amanda. Good morning, everyone. Turning to slide 3, we achieved solid results led by record quarterly sales and adjusted EPS performance while also navigating heightened operating complexity from geopolitics and evolving trade negotiations. Teamwork exemplified our success this quarter. We remained agile in addressing short-term dynamics while staying customer-focused, investing in long-term growth, and reimagining how work gets done. The global launch of our new RISE strategy was successful. We celebrated a string of early wins, which include the U.S. launch of our elite customer program as part of our enterprise-wide Spotlight initiative, which raises the bar for customer service in our industry. It enables us to provide superior on-time delivery, hassle-free support, and value-added services to help customers grow their business with us.
In addition, we commissioned a new automated manufacturing line in one of our Harris facilities that triples the line's productivity while significantly improving quality. This investment also showcases the breadth of automated manufacturing solutions we engineer beyond traditional welding robots. We launched a new center-led process innovation function in welding consumables to accelerate our speed to market. I am pleased by the speed of progress, and we will work hard to maintain this pace. Turning back to quarterly performance, we are encouraged by improving sales and order momentum in the Americas region through April. This aligns well with 3 consecutive months of expanding manufacturing PMI data. In the quarter, we held our adjusted operating income margin steady with prior year. While we targeted a slight margin improvement, our 10% higher price did not fully offset inflation in the quarter.
To ensure we achieve our neutral price cost target this year, we have already announced new price actions across our welding segments, which go into effect in early May. Cash flows, while seasonally lower, were further affected by a temporary increase in inventory levels we put in place to maintain high fill rates and service levels while we pursue our Spotlight initiative and migrate select products to next-generation versions. We continue to invest in long-term growth through CapEx and R&D and return cash to shareholders through both dividends and share repurchases. ROIC performance remained at top quartile levels at 21.5%. Turning to slide 4 to spend a few minutes on demand trends. The Americas region continued to outperform other geographies. Consumables remained the most resilient product category.
This was driven by factory activity and infrastructure investments in energy and data centers, which helped offset slower auto production. These same end market drivers, along with an increase in capital spending from off-highway customers, supported modest automation growth in the Americas in the quarter as well. Globally, our automation portfolio achieved $210 million in sales versus $215 million in the prior year, with compression from international markets where we have a challenging prior year comparison. We have been encouraged by the continued acceleration in both equipment and automation order rates and backlog levels in the Americas through April. This should support modest volume growth in the Americas Welding segment starting in the Q2, with further improvement in the back half of the year if conditions are sustained.
Internationally, we also saw a broad improvement in sales from European customers, with organic sales pivoting to growth across Northern, Eastern, and Central Europe and in Turkey. India and Australia improved. The headwind in our international business was largely from challenging prior year comparisons in regional automation and energy projects and, to a lesser extent, the Middle East conflict. On a consolidated basis, the Middle East represents a relatively small portion of sales, and we estimate an approximate $8 million sales impact from the conflict as several customers suspended activity.
In April, EMEA order rates continued to improve, and we are monitoring for consistency as activity may reflect pre-buying ahead of higher inflation and regional commodity supply concerns. In the Middle East, we are engaged with regional customers servicing active requests, and our global team of welding experts are ready to support their repair and expansion needs as called upon, whether for rapid large scale metal, 3D printing of replacement and spare parts to core welding and automation solutions. Pivoting to end market performance, we continue to see 3 of our 5 end markets achieving flat to higher organic sales growth in the quarter. Most notable is the high 30% growth rate in general fabrication, which represented accelerated factory and fabrication activity in the Americas, as well as in data center and HVAC projects. Heavy industries grew in the quarter, led by growth and off-highway globally.
Both construction and ag equipment grew across a broad mix of solutions, including automation. Energy was steady, but was bifurcated between a high teens% growth rate in Americas, which was offset Internationally. We remain bullish on energy and expect Americas to continue to outperform International with a strong pipeline of pending LNG projects and energy infrastructure projects needed to support data center investments. With our strong broad presence across oil and gas and power generation applications, including gas turbine, battery, nuclear, and renewables, our energy team is encouraged by the opportunities ahead. Our two challenged end markets, non-residential structural steel and transportation, are both project-oriented and capital intensive, which can result in choppy results quarter-to-quarter. Non-residential was largely impacted by International weakness, while transportation was broader and largely driven by lower capital spending versus prior year and a slight decline in production rates.
To conclude, before passing the call to Gabe, while we are operating in a more complex environment, we are well-positioned to adapt and react effectively to short-term dynamics. We are financially disciplined, maintained a solid balance sheet profile, and continue to generate strong cash flows and manage the business for long-term profitable growth. This is evident in our balanced capital allocation strategy, as well as our track record of compounding earnings and increasing shareholder returns through the cycle to deliver superior long-term value. This is an exciting time at Lincoln Electric with the launch of our new RISE strategy, and the entire team is energized to achieve our mission of being the essential link to help customers build better and execute on our 20/30 goals. Now I will pass the call to Gabe Bruno to cover Q1 financials in more detail.
Thank you, Steve. Moving to slide 5, our Q1 sales increased approximately 12% to $1.121 billion from approximately 10% higher price, 2% favorable foreign exchange translation, and a 1.6% benefit from the Alloy Steel acquisition. This was partially offset by 2.6% lower volumes. Gross profit increased approximately 9% to $399 million, reflecting higher sales. Our gross profit margin declined 80 basis points to 35.6% due to lower volumes, timing of price cost recovery, and an approximate $1 million LIFO charge. Price cost was unfavorable 90 basis points in the quarter. We continue to target a neutral price cost posture and have implemented new pricing actions in our Welding segment, which will go into effect in early May.
Our SG&A expense increased by 7% or $14 million-$211 million. The increase was driven by foreign exchange translation, higher discretionary spending, which was largely commercially driven, and from higher employee costs. SG&A as a percent of sales improved 80 basis points to 18.8% on higher sales levels. On April 1st, we implemented our seasonal merit increase, which raises employee costs by approximately $6 million per quarter on a year-over-year basis. We expect our quarterly SG&A run rate to be at $250 million for the balance of the year. For analysts reviewing our segment EBIT schedule, our corporate expense of approximately $1.4 million reflects our decision to allocate additional center-led enterprise investments to our reportable segments.
Looking ahead, we expect corporate expense to be approximately $1 million-$2 million per quarter for the balance of the year. Reported operating income increased 13% on higher sales. Excluding special items, adjusted operating income increased 11.5% to $189 million, and we held our adjusted operating income margin steady year-over-year at 16.9% with a 17% incremental margin. Our steady margin performance reflected favorable SG&A leverage, which offset the impact of lower volumes and an unfavorable price cost position. Q1 diluted earnings per share performance increased 18% to $2.47. On an adjusted basis, earnings per share increased 16% to $2.50. We recognize a $0.04 benefit from foreign exchange translation and $0.05 from share repurchases. Moving to our reportable segments on slide 6.
Americas Welding sales increased approximately 8% in the quarter, driven by nearly 8% higher price and 1% favorable foreign exchange translation. Volume declines narrowed to 40 basis points as orders accelerated through the quarter across all 3 product areas on improving demand trends from most end markets. We expect volumes to inflect to modest growth in the Q2. Q1 Americas price marked peak levels in the segment as we started to anniversary last year's actions in the Q2. The team has recently announced new pricing actions to mitigate rising raw material and logistics costs. We expect Americas Welding to achieve a full quarter benefit of these new actions starting the Q3 at 150 basis points per quarter run rate. We will continue to monitor evolving operating conditions and will respond as necessary.
Americas Welding segment's Q1 adjusted EBIT increased approximately 3% to $128 million on higher sales. The adjusted EBIT margin declined 100 basis points to 17.2%, primarily due to timing of price cost recovery and higher corporate expense allocated to the segment. We expect Americas Welding margin to perform in the mid-18% to mid-19% EBIT margin range for the remainder of the year. Moving to slide 7. The International Welding segment sales increased approximately 4%, primarily from favorable foreign exchange translation and strong sales in our Alloy Steel acquisition, which will anniversary in early August. This increase was partially offset by 10% lower volumes, primarily from automation, and to a lesser extent, a temporary decline in customer activity due to the Middle East conflict. Adjusted EBIT decreased 1.5% to $23 million.
Margin declined 50 basis points to 9.7% as the benefit from Alloy Steel was offset by lower volumes and higher corporate expense allocated to the segment. We now expect International Welding's margins performance to improve sequentially, but remain in the 11% range until conditions improve in the Middle East. Moving to the Harris Products Group on slide 8. Q1 sales increased 42%, led by 41% higher price. The outsized price impact reflects actions taken to mitigate record high metal costs, most notably in silver and copper. The segment effectively managed costs and achieved their neutral price cost target in the quarter. While metal prices remain elevated, we expect Harris's price to moderate from Q1 record levels based on current metal price trends and prior year comparisons.
Harris volume compression narrowed, benefiting from the growth in the retail channel, as well as an improvement in HVAC production activity, which we anticipate will inflect positive by mid-year. Looking ahead to the Q2, we expect segment volumes to compress due to a challenging comparison from last year's retail channel load in of a new customer. Volumes are expected to pivot to growth in the back half of the year. Adjusted EBIT increased approximately 68% to $41 million and margin improved 330 basis points to 21.2%. The profitability improvement reflects SG&A leverage from higher sales dollars and favorable mix. We expect the Harris segment will operate in the 19%-20% margin range at current metal prices. Moving to slide 9.
We generated $102 million in cash flows from operations in the quarter, which was lower due to higher uses of working capital. We strategically increased inventory levels on a short-term basis to ensure high customer service levels while we transition select products to newer models and ensure we capitalize on early strengthening of demand, especially in the Americas. We expect to reduce inventory levels in the second half of the year. The increase in inventories resulted in an 80 basis point increase in our average operating working capital to sales ratio to 18.6%. Moving to slide 10. We continued to execute on our capital allocation strategy by investing $39 million in CapEx, and returned $101 million to shareholders from a combination of our higher dividend payout and from share repurchases.
We maintained a solid adjusted return on invested capital ratio of 21.5%. Moving to slide 11 to discuss our operating assumptions for 2026. We have increased our net sales growth assumption to incorporate recently announced price actions taken to offset rising input costs. We now expect net sales growth to be in the high single-digit % range as compared to our initial assumption of mid-single-digit % growth. Our organic sales mix is now expected to be three-quarters price at a mid-single-digit % rate and Q1 volume. Given how early we are in the year and the potential trade-off of strong order rates in Americas offsetting lower sales from the Middle East conflict, we have not changed our original volume growth assumption of a low single-digit % growth rate.
We estimate the sales impact from the Middle East conflict to be $8 million-$10 million per quarter while the conflict persists, which is split evenly between the Americas Welding and International Welding segments. We also continue to anticipate a 70 basis point M&A benefit from the Alloy Steel acquisition, which again anniversaries in early August. We're maintaining our other full-year assumptions on operating income margin improvement at mid-20% incremental margin, interest expense, tax rate, CapEx, and cash conversion. Now I would like to turn the call over for questions.