Linde Plc Q3 FY2024 earnings call

• Sanjiv Lamba noted third quarter results showed resilience despite challenging economic conditions, with EPS, ROC, and operating margin at new highs. Anticipated sluggish industrial activity and took proactive actions like targeted cost reductions affecting ~2% of workforce. End market trends: industrial-related down 1-2% sequentially, North America a bright spot (40% of global sales), consumer-related slightly positive with growth in food/beverage, stability in healthcare, and electronics up high single-digit year-over-year but slower recovery. Mentioned a large sale of gas project with Dow Chemical, a $2 billion plus investment for Dow's net zero emissions initiative.
• Matt White discussed third quarter financial results: sales up 2% from last year and 1% sequentially, operating profit up 7%, EPS up 9% (excluding currency), operating cash up 8% from last year and 42% higher than second quarter. Capital allocation policy with $3.4 billion invested in the business and $5.1 billion returned to shareholders, with CapEx spending up 12% vs prior year, project CapEx up 40%, and base CapEx down 4%.

No detailed breakdown of product segment financial performance by absolute terms and revenue contribution % was provided in the transcript. Sales were $8.4 billion, operating profit was $2.5 billion, operating margin was 29.6%, EPS was $3.94, and operating cash for the quarter was $2.7 billion.

• For the fourth quarter, EPS guidance range is $3.86 to $3.96, or 8% to 10% growth from prior year, assuming economic contraction at the midpoint. Full year range is $15.40 to $15.50, or 9% to 10% growth excluding a 1% FX headwind. The top end was reduced by $0.10 from prior quarter due to updating sequential economic assumption from neutral to contraction.

• Geopolitical tension and economic uncertainty have suppressed large ticket purchases in most of EMEA and parts of APAC (primarily China), which tend to correlate with industrial markets like steel, glass, and chemicals. Currently, no meaningful catalyst to reverse this trend for the remainder of the year.
• Industrial-related end markets have declined 1% to 2% sequentially from the second quarter, with most of EMEA and parts of APAC, primarily China, experiencing negative trends.

Q: Mike Leithead asked about where in the business regionally or end market seeing the most macro pressures.

A: Sanjiv Lamba said European market, EMEA, China, and broadly industrial recession/weakness, with North America (U.S.) being a bright spot, India and Mexico also seeing growth.

Q: Vincent Andrews asked about pruning in healthcare.

A: Sanjiv Lamba said pruning of home care business in U.S. largely completed by end of year, expecting health care growth rates between low single-digit to mid-single-digit.

Q: David Begleiter asked about whether economic contraction in Q4 reflects seasonal slowdowns.

A: Matt White said it is sequential contraction across base organic volumes, not including seasonality, and could see extended outages due to customer order intake/workload issues.

Q: Peter Clark asked about the $8 billion to $10 billion investment target.

A: Sanjiv Lamba said confident about being halfway there, with developments in hydrogen, and projects like Dow Phase 1 and others in progress.

Q: Jeff Zekauskas asked about sequential prices.

A: Matt White said still seeing positive pricing across base gases, with merchant and package having positive sequential and year-over-year pricing, and helium having some supply/demand impact but still positive overall.

Q: Steve Byrne asked about building ATR for Dow and potential in U.S. Gulf.

A: Sanjiv Lamba said Linde has experience with ATR technology, is building it for Dow, and has a track record in U.S. Gulf Coast with similar projects.

Q: Stephen Richardson asked about conversations with customers on potential closures in Europe.

A: Sanjiv Lamba said no major conversations with major customers in Europe about closures yet, but have solid contracts to protect investment.

Q: Mike Sison asked about 2025 guidance.

A: Sanjiv Lamba said will provide comprehensive view in February after internal planning.

Q: John McNulty asked about sale of gas backlog mix and timing.

A: Matt White said traditional projects usually 3 years from announcement to completion, larger clean energy projects like Dow's can be longer (4+ years) due to scope.

Q: Patrick Cunningham asked about capital allocation split in 2025/2026.

A: Matt White said capital allocation policy remains stable, with buybacks expected to be consistent next year due to excess free cash flow generation.

Q: Josh Spector asked about electronics performance.

A: Sanjiv Lamba said electronics sales up 9% year-on-year, sequential electronics recovery slower than expected, with destocking in components in the quarter expected to normalize in Q4.

Q: Kevin McCarthy asked about project pipeline volume growth.

A: Sanjiv Lamba said projects in electronics, India, and traditional end markets contribute to EPS growth, with backlog translating to revenues and earnings, and Matt White added on the EPS algorithm including management actions, capital allocation, and macro.

Q: John Roberts asked about ASU and ATR projects and customer usage.

A: Sanjiv Lamba said anchor customers take about 70% of ASU products, with surplus oxygen, nitrogen, argon sold, and plans to build hydrogen network in Alberta from Dow project.

Q: Dan Rizzo asked about second phase with Dow and pruning in other areas.

A: Sanjiv Lamba said second phase investment expected to be less than first phase, and Linde is constantly evaluating portfolio for tuck-in acquisitions and divestments.

Q: Tony Jones asked about cost reduction impact on EPS.

A: Matt White said cost reduction expected to have majority benefit in 2025, incremental to normal 4% to 5% EPS growth from price vs management actions.

Q: Mike Harrison asked about hard goods and equipment demand and customer behavior on lower interest rates.

A: Sanjiv Lamba said hard goods sales in U.S. showing mid-single-digit declines, underlying industrial weakness, and consumer behavior globally is more cautious with no significant change due to lower interest rates yet.