Linde plc (LIN) Earnings

Management highlights

### Overall Financial and Backlog Performance - Record Q2 sales and EPS, both growing near 10% YoY - Total project backlog increased by $1 billion to a new record of $8.1 billion, driven by a large new U.S. electronics win - Management expects to complete more than 20 new project startups in the remainder of 2026, representing approximately $1.3 billion in total capital investment, and still exit the year with an $8+ billion backlog ### End Market Growth Trends - **Consumer-related markets**: Grew YoY and sequentially; healthcare and food and beverage grew in line with demographic trends, with stronger sequential seasonal growth in beverage - **Electronics**: The fastest growing end market, driven by new project startups and AI-related hardware demand; added $1 billion in new U.S. advanced semiconductor fab backlog, with additional large opportunities currently in the pipeline; an 800 million USD Taiwanese joint venture will build new production units to supply local semiconductor fabs, not included in the current backlog; management expects electronics to remain the largest backlog contributor long-term - **Industrial-related markets**: Manufacturing is the fastest growing segment, with volume growth across APAC and the Americas, led by the U.S. aerospace and data center construction activity; aerospace accounted for more than a third of Q2 manufacturing growth; metals and mining and chemicals/energy grew low single digits, with solid activity in the U.S. and Brazil for metals, and APAC backlog contributions driving chemicals growth; other regions remained flattish for both end markets ### Capital Deployment Strategy - Year-to-date, $6 billion in total capital has been deployed, split evenly between business investments and shareholder returns - $1.9 billion has been allocated to secured growth, including acquisitions and backlog project execution; given the record backlog and active pipeline, growth capex is expected to remain a significant use of capital for the foreseeable future ### Strategic and Operational Actions - Management is actively addressing U.S. LinkCare underperformance, with aggressive portfolio pruning, operational efficiency actions, and new management in place; management expects sequential margin improvement starting in Q3, and is currently evaluating full or partial strategic alternatives (including potential divestiture) for the business - Helium supply chain disruptions from Middle East tensions have been successfully managed to meet all contracted customer demand; new long-term contracts have been signed, leveraging Lindy's diverse supply sources and logistics capabilities

Guidance

- Q3 2026 diluted EPS guidance is set at $4.45 to $4.55, representing 6% to 8% YoY growth; the forecast assumes no YoY currency impact, but a 1% sequential FX headwind; the midpoint of the range reflects a 5 cent sequential EPS increase from Q2 excluding FX, driven by ongoing margin improvement actions - Full year 2026 diluted EPS guidance is updated to $17.70 to $17.90, representing 8% to 9% YoY growth excluding a 1% assumed FX tailwind; the guidance raised the prior low end of the range by 10 cents while leaving the top end unchanged - Management maintained its prior back half of 2026 growth assumptions, choosing to wait for additional quarters of base volume recovery before updating forecasts to reflect the emerging growth trend - Helium market normalization is not expected to be complete until early 2027, even if Strait of Hormuz tensions are resolved this year - Management reaffirmed its long-term target of 8% to 12% annual EPS growth, which does not require material macroeconomic improvement as long as there is no significant downturn; this target is expected to hold for 2027 - Lindy remains on track to hit its $1 billion+ commercial space revenue target by 2030

Segment performance

Consolidated total sales for Q2 2026 were $9.3 billion, an increase of 9% year-over-year (YoY) and 6% sequentially. FX provided a 2% tailwind, while acquisitions and engineering each contributed 1% to total sales growth. Excluding FX, acquisitions, and cost pass-through, underlying sales rose 4% YoY, split evenly between higher volume and pricing; half of the volume increase came from project startups in APAC and the Americas. Operating margin was 29.5%, down 60 basis points YoY, or 30 basis points when excluding cost pass-through impacts. Diluted EPS was $4.50, up 10% YoY, driven by higher net income and a lower share count. The Americas segment was the primary driver of margin weakness, almost entirely due to underperformance from the U.S. home care (LinkCare) business; excluding this segment, Americas margins would have increased 20 basis points YoY. Double-digit growth in U.S. hard goods sales had a small temporary dilutive impact on margins, but management views this as a positive signal for U.S. manufacturing recovery. The APAC segment saw margin pressure from lower-margin equipment sales to electronics customers. Overall, management notes most current margin headwinds are expected to be temporary and recover in coming quarters.

Risks & headwinds

- Persistent underperformance of the U.S. LinkCare (home care) business, driven by ongoing labor cost inflation and unfavorable changes to reimbursement policy, is creating material margin drag in the Americas segment - Ongoing geopolitical tensions in the Strait of Hormuz and broader Persian Gulf region have created supply chain disruptions for helium and driven higher dislocation costs; the timing of resolution and market normalization remains uncertain - Industrial activity in hydrocarbon-dependent Asian markets (India, parts of ASEAN, Australia, and to a lesser extent China) has been negatively impacted by Middle East tensions - Volatility in global energy and commodity markets, driven by geopolitical events, creates uncertainty for chemicals and energy end market growth - While backlog projects all meet required return thresholds, they require 2-3 years of execution and ramp-up before reaching full margin contribution - Some large commercial space customers are pursuing vertical integration (in-house production of atmospheric propellant gases), which could impact future gas sale volumes, though this is not expected to impact hydrogen for space applications

Analyst Q&A

• Q: How large is the current margin drag from the U.S. home care business, and where are the biggest electronics growth opportunities geographically? /

  A: Excluding U.S. home care, Americas segment operating margins (excluding cost pass-through) would be up 20 basis points YoY. Aggressive corrective actions are underway, and management expects sequential margin improvement going forward. The majority of the current electronics project pipeline is concentrated in the U.S., with strong active pipelines also present in Taiwan, Korea, and China. The overall backlog pipeline remains robust enough to end 2026 with an $8+ billion backlog even after $1.3 billion in project startup investments.

• Q: What is the current outlook for second half 2026 end market growth, particularly for North American manufacturing? /

  A: Resilient end markets (healthcare, food and beverage) are expected to maintain consistent performance for the rest of the year. Electronics momentum is expected to continue, with low-margin upfront equipment sales positioning the company for long-term recurring gas revenue. U.S. manufacturing growth remains robust, with double-digit hard goods growth and mid-to-high single digit gas growth in the packaged business confirming ongoing recovery; aerospace accounts for over a third of current manufacturing growth and momentum is expected to continue. Metals and mining remains solid in the U.S. and Brazil, while chemicals/energy sees low single digit growth driven by APAC backlog contributions. Management took a neutral macro assumption in guidance due to ongoing geopolitical uncertainty.

• Q: How has the Strait of Hormuz crisis impacted helium and broader business operations, and when will normalization occur? /

  A: Lindy has successfully maintained reliable supply for all existing contracted helium customers, leveraging its diverse supply sources, storage caverns, and logistics capabilities. The company has also signed new long-term helium contracts, and helium pricing has moved up, though higher dislocation costs have limited near-term margin improvements. Middle East tensions have reduced industrial activity in hydrocarbon-dependent Asian economies, though activity would normalize quickly if tensions resolve. Full helium market normalization will not occur this year even if tensions are resolved, and is expected to be completed by early 2027.

• Q: What is driving the increase in 2026 capex, and how is vertical integration in commercial space impacting Lindy's business? /

  A: The capex increase is driven by new won backlog projects (including the large U.S. electronics win) and higher base capex for commercial space activities. Vertical integration for atmospheric propellants among some large space customers is a normal dynamic similar to the traditional on-site gas business, and is only occurring among a subset of players; it is not seen in hydrogen for space applications. Lindy is comfortable competing in this environment, offering a blend of gas sales, plant sales, and operations & maintenance services to meet customer needs, and participates in all business models.

• Q: What margin recovery actions are underway, and when will the negative operating leverage from the U.S. home care business be resolved? /

  A: Easy YoY comparables are expected in the back half of 2026, as 2025 saw stronger first half margins and weaker second half margins. LinkCare (U.S. home care) remains the top focus for improvement; higher hard goods and electronics equipment sales are viewed as strategically important for future long-term gas growth, despite their temporary margin dilution. Management is planning additional targeted cost actions beyond routine productivity initiatives to address inflation in low-growth regions, with more details expected on the Q3 earnings call. Actions are already underway to drive sequential margin improvement in coming quarters.