Linde Q2 2026 Earnings Call Transcript

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Provided by Quartr
July 31, 2026

Key Takeaways

  • Positive Sentiment: Record quarterly performance: Second-quarter sales rose 9% to $9.3 billion and EPS increased 10% to $4.50, while the sale-of-gas backlog grew by $1 billion to a record $8.1 billion.
  • Positive Sentiment: Strong electronics and project pipeline: Linde secured new U.S. electronics projects and expects electronics to remain its largest backlog contributor, with more than 20 projects and approximately $1.3 billion of investments scheduled to start up during the rest of 2026.
  • Negative Sentiment: Margins declined: Operating margin excluding cost pass-through fell about 30 basis points year over year, primarily due to continued inflation, reimbursement and policy pressures in the U.S. home-care business; Linde is evaluating the unit’s strategic fit and expects sequential improvement beginning in the third quarter.
  • Positive Sentiment: Growth trends improved in several markets: Electronics grew 18% year over year, while manufacturing, aerospace, healthcare, food and beverage, and selected metals and mining markets showed healthy or improving demand, particularly in the U.S. and parts of APAC.
  • Neutral Sentiment: Guidance was modestly raised: Third-quarter EPS is expected at $4.45–$4.55, and full-year EPS guidance is now $17.70–$17.90, with only the bottom end increased as management waits for more evidence that base-volume recovery will persist.
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Earnings Conference Call
Linde Q2 2026
00:00 / 00:00

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Operator

Ladies and gentlemen, good day, and thank you for standing by. Welcome to the Linde Second Quarter 2026 Earnings Call and Webcast. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. I would now like to hand the conference over to Mr. Juan Pelaez, Head of Investor Relations. Please go ahead, sir.

Juan Pelaez
Juan Pelaez
Head of Investor Relations at Linde

Abby, thank you. Good morning, everyone, and thanks for attending our 2026 second quarter earnings call and webcast. I'm Juan Pelaez, Head of Investor Relations, and I'm joined this morning by Sanjiv Lamba, Chief Executive Officer, and Matt White, Chief Financial Officer. Today's presentation materials are available on our website at linde.com in the investor section. Please read the forward-looking statement disclosure on page two on the slides and note that it applies to all statements made during this teleconference. The reconciliations of the adjusted numbers are in the appendix to this presentation. Sanjiv will provide some opening remarks. Matt will give an update on Linde's second quarter financial performance and outlook. After which, we will wrap up with Q&A. Let me turn the call over to Sanjiv.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Thanks, Juan. Good morning, everyone. During the second quarter, we achieved record sales and EPS levels, with both growing at near double-digit % while increasing the backlog by $1 billion to a record $8.1 billion after securing a new electronics win in the U.S. In addition, the backlog project pipeline remains healthy, with several new project opportunities under development. For the remainder of the year, we're expecting to start up more than 20 projects that add up to approximately $1.3 billion in investments. Even after accounting for these startups, based on the opportunities I see today, I expect our sale of gas backlog to finish the year with an eight handle, underscoring the continued strength of our long-term growth outlook. While these results demonstrate the strength of our core business and the future growth prospects, we are not satisfied with our margin performance for this quarter.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Operating margins, excluding cost pass-through, declined approximately 30 basis points year-over-year, primarily driven by the Americas segment. Some of this is due to higher equipment and hard good sales in our packaged business, which actually I view as a good sign of U.S. manufacturing recovery. The majority is driven by the U.S. home care business. Even though we have been actively pruning this portfolio, it simply has not been enough to overcome the continued headwinds led by higher cost inflation and policy changes. We have a series of actions underway. I fully expect sequential improvement into the third quarter. At the same time, we continue to evaluate the strategic fit of this U.S. home care business within Linde, both in part and as a whole, while remaining focused on improving its performance and ensuring it earns its place in the portfolio.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Matt will speak more to the numbers, but I remain confident in our long-term margin expansion story. I'd like to touch on some growth trends, which can be found on slide three. Consumer-related markets grew versus prior year and sequentially. Healthcare and food and beverage grew along with demographic trends and consumption, with stronger sequential growth related to beverage seasonality. As expected, electronics is the fastest-growing end market, with the combination of project startups and higher demand tied to hardware associated with AI. As I mentioned earlier, we added $1 billion of new electronics wins to the backlog to support the expansion of advanced node fabs invest in U.S. Consistent with other backlog projects, we've already begun constructing the plants under reimbursable LOIs while the supply contracts were finalized.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

I'm pleased to see this addition to our existing network of plants in Arizona and look forward to winning a few more large opportunities that we're currently pursuing. Not included in the backlog are a couple of electronics wins by our Taiwan JV, which will invest approximately $800 million to build, own, and operate ASUs and hydrogen production units to supply to new semiconductor fab and advanced packaging facilities there. Overall, I expect electronics to remain our largest backlog contributor and one of the fastest-growing markets for the foreseeable future. Moving to industrial-related markets, manufacturing remains the fastest-growing market. We experienced volume growth across APAC and the Americas, although the U.S. is still the primary driver, with both aerospace and construction activity related to data centers. In fact, aerospace accounted for more than a third of the manufacturing growth during the quarter.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Both metals and mining and chemicals energy markets grew low single-digits. Metals and mining activity was solid in the U.S. and Brazil, and most of the chemicals growth relates to project backlog contributions in APAC. Aside from these regions, both end markets remain flattish across other geographies. In summary, we've lapped the more difficult comps and are starting to see green shoots of growth across certain geographies and end markets. Furthermore, the project backlog reached a new record from the large-scale electronics wins, and we anticipate some further base CapEx investments to support our commercial space customers. Regardless of the current challenges, you can be assured that the entire Linde team is focused on being the best-performing industrial gas business globally. I'll now turn the call over to Matt to walk through our financial results.

Matt White
Matt White
CFO at Linde

Thanks, Sanjiv. Please turn to slide four for the consolidated results. Sales of $9.3 billion rose 9% from prior year and 6% sequentially. Versus prior year, FX was a 2% tailwind, while acquisitions and engineering each contributed 1%. Cost pass-through rose 1% on higher power in all segments, but was partially offset by lower natural gas for U.S. Hydrogen. Excluding these items, underlying sales rose 4%, split between higher volume and price. Almost half of the volume increase relates to project startups in APAC and Americas. The remaining is driven by organic growth in the U.S., China, Korea, India, and the advanced materials business. While aerospace and electronics continue to lead, industrial end markets are improving in select geographies, especially the U.S. The price increase of 2% was broad-based across all geographies and generally tracked with local inflation. Sequentially, underlying sales increased 4%, from 3% volume and 1% pricing.

Matt White
Matt White
CFO at Linde

More than half of the volume increase relates to seasonal factors, with the remainder being organic. Operating margins of 29.5% decreased 60 basis points from prior year, or 30 basis points when excluding the impact of cost pass-through. As Sanjiv mentioned, the U.S. home care business negatively impacted the Americas. Excluding this, margins would have increased. Regardless, actions are underway to improve. Separately, U.S. hard goods sales are up double-digit % from prior year. While this mix is dilutive to margins, it could bode well for U.S. manufacturing recovery. Finally, the APAC erosion is mostly due to lower margin equipment sales for electronic customers. Overall, we expect many of these margin headwinds to be temporary and thus recover in the coming quarters. Operating profit rolled down to an EPS of $4.50, or 10% over prior year from a combination of net income and lower share count.

Matt White
Matt White
CFO at Linde

Slide five provides an overview of capital management. The operating cash flow trend shows moderate year-over-year growth as higher earnings are partially offset by unfavorable timing in the engineering business. Recall that the first half results are seasonally lower. We expect the second half to step up like prior years. Available cash flow, which we define as operating cash flow less base CapEx, remains at healthy levels, enabling significant excess cash for secured growth and shareholder distributions, which can be seen in the pie chart. Year to date, we've deployed $6 billion of capital, split evenly between business investments and shareholder returns. $1.9 billion of secured growth represents capital deployed for acquisitions and the project backlog. When considering the record $8.1 billion sale of gas backlog, continued roll-up acquisition targets, and project pipeline opportunities, we expect this number to remain a significant use of capital for the foreseeable future.

Matt White
Matt White
CFO at Linde

I'll wrap up with guidance on slide six. Third quarter guidance range is $4.45-$4.55, or 6%-8% growth. This assumes no currency impact from prior year, but does assume a 1% FX headwind sequentially. Consistent with prior approach, the range assumes no economic improvement at the midpoint. The updated full year range is $17.70-$17.90, or 8%-9% growth, excluding a 1% FX tailwind assumption. This range raises the prior bottom end by $0.10 but leaves the top unchanged. While base volumes showed some recovery in the second quarter, we'd like a few more quarters under our belt before incorporating this trend into future guides. Therefore, we're leaving the back half guidance assumption the same as before. The Q2 to Q3 sequential EPS trend is projected to increase $0.05 at the midpoint when excluding FX, which reflects some of the actions being undertaken.

Matt White
Matt White
CFO at Linde

Of course, this is merely a guide. How we perform is what matters most. We know our owners expect more. The organization is committed to delivering on those expectations. I'll now turn the call over to Q&A.

Operator

We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one a second time. If you're called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to one question. Again, it is star one if you would like to join the queue. Our first question comes from the line of Laurent Favre with BNP Paribas. Your line is open.

Laurent Favre
Laurent Favre
Analyst at BNP Paribas

Yes, good morning. Thank you. Sanjiv, I think you said it all within the first five minutes. Can I dig a little bit deeper in that healthcare comment? Can you give us a sense of how much of a headwind it has been over the last year? Is the business in the U.S. currently profitable at all, or how much of a margin drag it has been on the business, please?

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Thanks, Laurent. I think in the slides itself, we've laid out the fact that the Americas business, ex the U.S. home care or Lincare business would be up 20 basis points on margin, ex pass-through as we normally do. That is a reflection of the gases business doing well. As we said in the remarks as well, that there is a bit of a mix effect, which actually, to be honest, I see the gases business doing well. I will take the double-digit hard goods sales that we're seeing in the business. It's a good signal of manufacturing recovery in the U.S. Yes, it has a small dilutive impact on margin, which is temporary. Then, of course, we talked briefly about sale of equipment elsewhere, particularly APAC, where there was that impact as well. From our perspective, not happy with where the margins are.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Actions are aggressively underway to essentially attack the issues that we've identified in the Linde business. I expect that we will continue to see sequential improvement as we move forward.

Laurent Favre
Laurent Favre
Analyst at BNP Paribas

Thank you. Just as a follow-up on the electronic side, I think the contract that you announced had been, I guess, in the pipeline for a while. I was wondering in terms of geographies or maybe some of the key customers, where do you see the biggest opportunities on the electronic side? Is it still in the U.S. or elsewhere in Asia, maybe in Korea, Taiwan, et cetera?

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Laurent, absolutely. The electronics pipeline, as I said in my remarks as well, is looking healthy at this point in time. You certainly heard from me say that I expect that we'll end this year on the backlog with an eight handle despite bringing on investments of up to $1.3 billion. The backlog will go down from the current sale of gas backlog of $8.1 billion by about $1.3 billion, and we will add back into that backlog. It has to be supported by a robust pipeline. Those projects stand tall, to your point. I see bulk of those projects out of the U.S., but see strong pipelines in Taiwan and Korea as well, and some in China.

Laurent Favre
Laurent Favre
Analyst at BNP Paribas

Thank you.

Operator

Our next question comes from the line of Patrick Cunningham with Citi. Your line is open.

Patrick Cunningham
Patrick Cunningham
Analyst at Citi

Hi, good morning. Thanks for taking my question. I guess just talking about some of the manufacturing growth assumptions, particularly in North America, it doesn't seem like you have some of those base volume assumption trends sort of baked into the outlook. Is the bulk of that inflection that you're seeing coming from commercial space? I was hoping maybe you could dig into the health of some of the other end markets and what you're sort of anticipating for the second half.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Sure. Why don't I start off with a quick view? I think I provided a broad overview in my prepared remarks, Patrick, there. Let me just kind of give you a sense of what we think the outlook for the second half looks like. Traditionally, our resilient markets, healthcare and food and beverage, have been consistent, and we continue to expect the same outlook for the rest of the year there. Nothing significant to change. Electronics, as you saw year-over-year, had 18% growth in the second quarter. We expect electronics momentum to carry on for the rest of the year as well. Again, pretty positive in terms of that. Of course, adding to the backlog helps us get the future growth prospects locked in as well.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

A point on electronics worth noting, I think in APAC in particular, the sale of equipment that we provide to many of our electronics customers is very important for us because while from a margin point of view, not that exciting, the reality is the pull-through on gas sales that happen in the future, I think this kind of ensures that. Feel good about that as well as we look at the second half. On the industrial markets, I'd say to you manufacturing, which you kind of specifically mentioned, looks robust. Signals from the U.S. market in particular, where the recovery is most prominent looks good. The feedback from the customers suggests that they see that outlook for the rest of the year as things stand today.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Now, within that, the indicators that we look for, I reference this again in my remarks briefly, the sale in the U.S. package business is a good leading indicator. Here, the gases side has been growing mid to high single digit, with the hard goods themselves growing double digit. I think that's where the confidence that the manufacturing recovery that we're expecting, or not just recovery, I think the momentum that we're expecting in manufacturing in the U.S. likely to continue. We see that also elsewhere. Asia Pacific saw manufacturing momentum pick up as well. Despite the fact that there are some Middle East related challenges in Asia in particular, the manufacturing underlying seemed to continue to perform well. Again, the outlook for that continues to be reasonably robust. Aerospace did provide for more than a third of that growth for manufacturing.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

To your point, I expect that momentum to carry on into the second half as well. Chemicals energy has been a little bit spottier. I think low single-digit growth. We've obviously had the benefit of some good backlog contributions coming in in Asia, so I think that's looked good. I do not see a fundamental shift in the chemicals energy piece. Obviously, there's a lot of volatility in the market at the moment. There are lots of geopolitical events that could impact one way or the other. In part, you would see from our guidance that we've taken a neutral stand in terms of what's going to happen to the economy. We are happy for our investors to take a view on that, because at this point, it's all speculation. Metals and mining, again, pretty robust in the U.S. and in Brazil.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

I expect that trend to be about steady. Obviously, in the U.S., with all the build-out that's happening with data centers, et cetera, metals are getting a little bit of fill-up, so that's good. Listening to some of our customers' calls over the last few weeks, I've seen slightly higher degree of optimism as well on steel, so it'll be good to see that flow through into the next half as well. I think that kind of broadly gives you a sense of where we are seeing momentum and what the outlook for second half looks like at this point.

Patrick Cunningham
Patrick Cunningham
Analyst at Citi

Great. Thank you so much.

Operator

Our next question comes from the line of Duffy Fischer with Goldman Sachs. Your line is open.

Duffy Fischer
Duffy Fischer
Analyst at Goldman Sachs

Good morning, folks. A question just around the impact that you've seen on your business and on your customers from what's happening with the Strait of Hormuz and kind of the greater Persian Gulf area. Obviously, particularly with helium, just with the general business. If that issue resolves itself this year, what do you think the impact will be a year out as that starts to normalize?

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Duffy, the Middle East impact, as you know, and I'll start with helium just to begin with, because I think that's a good place to kind of give a sense of how we've managed and navigated that fairly complex set of issues, and then talk a little bit about what happens elsewhere. Starting with helium, I think as far as helium is concerned, I'm really pleased with how our team has navigated this whole set of developments over the last many months. Largely because we've done what we need to do in ensuring that reliable and safe supply has happened to our existing contracted customers, and we've had a lot of positive feedback coming from them because that's what they would expect from Linde. More importantly, our teams have also gone out and they've signed up new customers with long-term contracts as well.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Leveraging the fact that we have the confidence in our supply chain due to the diverse sources that we have supplying into the helium supply chain, the cavern that we maintain, and of course, quite importantly, the capability around supply chain logistics in terms of tanks, et cetera. All of that's played well into positioning this for new business growth that we've seen. We have had the pricing move along as well, which has been a good thing. Obviously, with dislocation costs related to helium, the overall recovery probably doesn't quite show through in the margins just yet, but I fully expect that it will over the next couple of quarters.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

I think equally important to just underscore on the helium piece is the fact that looking ahead, we continue to be confident in our ability to maintain that supply chain, despite the more recent developments in the Strait of Hormuz. Any change in the Strait of Hormuz and the fact that we restart helium production back in Qatar and get the alignment of all the supply chain elements that need to come together between tanks and shipping and so on and so forth, I think will have a lasting impact for the rest of the year. I don't think you will see normalization this year. Once those issues are resolved, which of course itself remains a little bit of a question mark today.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Once the issues are resolved, we will see normalization progress, but at a slower pace than most of us would like, and it'll kind of probably take us into the early part of next year. As things normalize, yes, next year we should see a more normalized helium market, but at this point in time, seeing the resolution of what happens in the Strait of Hormuz is probably more important than speculating what next year is going to look like. Let me talk about some of the other markets. Where we have seen an impact of the Middle East crisis is the fact that in Asia, countries highly dependent on hydrocarbons coming out of the Middle East have had to scale back industrial activity, and I think markets like India, some parts of ASEAN, Australia, and to a lesser extent, China have seen that.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

I think that's where the impact over this second quarter, as we've kind of mentioned to you, is probably a little bit more visible. Everybody's hoping for a resolution. Once that happens, you will see that normalization happen fairly quickly. Each of those countries has been looking at different strategies to manage these issues that they're currently contending with.

Duffy Fischer
Duffy Fischer
Analyst at Goldman Sachs

Terrific. Thank you.

Operator

Our next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is open.

Vincent Andrews
Vincent Andrews
Analyst at Morgan Stanley

Yeah, maybe just a two-part one. First on helium, just to clarify, did you all change anything in your guidance assumptions relative to what you had assumed back at the start of the year? Secondly, in Americas

Vincent Andrews
Vincent Andrews
Analyst at Morgan Stanley

The kind of year-on-year price step down, I think it was flat sequentially. Was that the hard goods mix issue or is underlying sequential price leveling off? Thank you.

Matt White
Matt White
CFO at Linde

Hey, Vince. It's Matt. I could probably answer those. I think first on helium. Yeah, we left the guidance intact, by default, that kind of means no material change, helium would also be part of that. To your first point, we didn't change it, just building off what Sanjiv said. When you think about the helium business right now, what we're seeing, we are seeing strong price improvement, we're also seeing higher costs for dislocation, as Sanjiv mentioned. The contribution on a dollar basis, it is positive. It's not as large as we'd like it's positive. On a margin basis, that grossing up effect right now is a little bit dilutive. That should stabilize. It normally does.

Matt White
Matt White
CFO at Linde

As you can imagine right now, meeting our customers getting new contracts signed is the priority, doing it at positive dollar contribution is happening. It's just the margin gross up effect right now is a little bit dilutive on that front. On the Americas, just to make sure I understand. Price is up 2% year-over-year. Sequentially, we're flat. As you know, when we talk about sequential, I tend not to spend a lot of time on sequential, just given the different timings of some of the escalations that are done the pricing actions. Year-over-year always is a more important metric for me. When I think about that, it is, I'd say for Americas, delivering on expectations. Obviously, you're going to have, again, we talked about Lincare. There is not pricing in that business right now, a significant amount.

Matt White
Matt White
CFO at Linde

It is probably not keeping up with what it needs to be. That will be a little bit of a drag. That's been the case, though, for many years now. I would say pricing in Americas on the year-over-year is tracking where we'd expect and what we want to see. Hopefully, that answers your question, but just make sure, I don't know if you have a follow-up on that.

Vincent Andrews
Vincent Andrews
Analyst at Morgan Stanley

Nope. All good. Thank you.

Matt White
Matt White
CFO at Linde

Yep.

Operator

Our next question comes from the line of David Begleiter with Deutsche Bank. Your line is open.

David Begleiter
David Begleiter
Analyst at Deutsche Bank

Thank you. Good morning. Sanjiv, I know it's early, but if you look at next year, 2027, given project startups, helium maybe being a tailwind next year, helium growth in space, pricing productivity. Do you need much of any macro improvement to get to double-digit 10% EPS growth next year? Thank you.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Thanks, David. As you know, our EPS algorithm lays out the fact that between management actions and capital allocation combined, we should be delivering 8% to 12%. We're not looking for macro. As long as macro is not taking away from that, you should expect us to look at that 8% to 12% range, and I think we will be consistent on that as we look ahead to next year as well. Obviously, any tailwinds that we get will be factored straight in, and you will see that improvement come through at the EPS line. Now, as you know, this is very early to talk about 2027. Later in the year, and early next year is when our guidance will be more clear on that.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Late in the year, we'll obviously be doing a lot of work planning for next year to make sure that we have a good handle on how the business is going to play out.

David Begleiter
David Begleiter
Analyst at Deutsche Bank

To be clear, helium should be a tailwind next year. Is that fair?

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Helium will be normalized next year. I think we'll have to wait and see what that means. The complexity of volume and price mix, I think, will play a role in what helium does next year.

David Begleiter
David Begleiter
Analyst at Deutsche Bank

Thank you.

Operator

Our next question comes from the line of Josh Spector with UBS. Your line is open.

Josh Spector
Josh Spector
Analyst at UBS

Yeah. Hi, good morning. I wanted to ask on the CapEx raise for this year. I think you addressed it in the prepared remarks briefly, but did you indicate that a lot of that increase went to commercial space? I guess if you can give maybe any other breakdown of that $500 million increase, that'd be helpful. I'm just curious with that, if you are building more for that market through your merchant pipeline, what does that mean for space customers approach, in your view, to make versus buy in terms of oxygen, nitrogen, and the gases for that market? Thanks.

Matt White
Matt White
CFO at Linde

Hey, Josh, it's Matt. I could probably handle those. Starting on the CapEx, yes, you are correct. The CapEx number on the estimate was bumped up. Clearly, with backlog wins, that will drive that. By adding the new project that Sanjiv mentioned in the prepared remarks, that is contributing to that. Yes, there are going to be more commercial space activities in the base CapEx that also are contributing to that as well. The combination of those two, both the project backlog and some of the base CapEx, will drive that. As far as the make versus buy, when you think about our traditional on-site customers, that always is something that has been something we managed for many decades. Right?

Matt White
Matt White
CFO at Linde

A traditional on-site customer would look to buy a plant versus outsource on a sale of gas model, and that's something we had always managed through usually a hybrid approach because we have the capability to do both. I would say with commercial space, given the quantities of propellant they require, you're seeing a similar dynamic, at least with certain players that have comfort and the access to capital to have a desire to vertically integrate. This right now is primarily only with certain players in atmospherics. We are not seeing it in the hydrogen side, which is a very different dynamic for any Hydrolox-based engines. It's a normal occurrence, I'd say, when you start seeing these kind of quantities. It's something that's very akin to how we've navigate the on-site business for many decades, and we're very comfortable with it.

Matt White
Matt White
CFO at Linde

Absolutely, I expect you'll see a blend of sale of gas and some sale of plant. Generally, those sale of plants can come with what's called an operate and maintain. You tend to run it all as a system. You may run customer-owned plants with your own plants on sale of gas, and that gives the customer the best of both, and it also helps manage our both capital and management of product. I would anticipate that for certain customers, not all customers, and it also would probably only be on certain atmospheric. I don't anticipate it at this stage at hydrogen. That's how I see that develop.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

The only thing I'd reiterate there, Matt, would be the fact that we will play for both sale of gas as well as sale of plant. We do participate in the opportunity, even if it is a sale of plant, in case people want to vertically integrate that.

Josh Spector
Josh Spector
Analyst at UBS

Okay. Thank you both.

Operator

Our next question comes from the line of Matthew DeYoe with Bank of America. Your line is open.

Matthew DeYoe
Matthew DeYoe
Analyst at Bank of America

Morning, everyone. Congratulations for getting the large electronics customers over the line. Can you share maybe some revenue intensity of the CapEx or give some guidance? Your European competitors kind of flagged like a 25% CapEx to revenue conversion on some of these projects. Is that a reasonable ballpark for you?

Matt White
Matt White
CFO at Linde

Hey, Matt. This is Matt. The revenue to CapEx is always going to be a function of whether it's atmospheric or whether it's process gases like hydrogen. As you can imagine, if you have a more process hydrogen base that has energy pass-through, that might be higher. Traditionally for us, revenue has ranged anywhere from 20%-50%, depending upon energy pass-through or totally. I would just say, of the ones we've won, they're very similar to the structure and ones we've already had in place on the first few phases. There's no real difference from that perspective, because those contracts follow a very similar construct on both the molecules and how energy is managed.

Matthew DeYoe
Matthew DeYoe
Analyst at Bank of America

Thanks. If I could, the other business, typically a bit all over the place, but it was kind of maybe not immaterial this quarter. If my memory serves me right, that's where Linde AMT is and some of the sputtering targets and that stuff. Is that the semi cycle build here, and this should be kind of like an indication of the direction of profits? Or is this kind of a little bit of a one-off positive quarter?

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Hey, Matt, I'd say that the materials business overall has been doing well. Sitting within that are coating services, atomizers, and some sputtering, et cetera. I think all in, that portfolio is performing reasonably well under these conditions, driven by aerospace, a little bit of the commercial space build-out as well. I think you would put that together, I think the outlook seems pretty robust for the second half as well.

Operator

Our next question comes from the line of Jeff Zekauskas with JPMorgan. Your line is open.

Jeff Zekauskas
Jeff Zekauskas
Analyst at JPMorgan

Thanks very much. If I did the math correctly, the home care penalty was $30 million in the second quarter. Order of magnitude, is it a $100 million penalty for this year? Is Lincare all of your 23% of healthcare revenues for the Americas?

Matt White
Matt White
CFO at Linde

Hey, Jeff, it's Matt. I think the number's a little higher than what you have.

Matt White
Matt White
CFO at Linde

You're close, but I'd say it's probably higher, though. You could probably say 30% higher than that number, give or take.

Jeff Zekauskas
Jeff Zekauskas
Analyst at JPMorgan

Okay.

Matt White
Matt White
CFO at Linde

That is the headwind we have. That's what we're facing. I think when you think about the Americas, it is clearly the largest piece. It does not include the institutional portion, which is actually run through our traditional gas business because of the nature of the contracts and the structure. It is by far the lion's share of the Americas healthcare, just given the size of the revenue of that business.

Jeff Zekauskas
Jeff Zekauskas
Analyst at JPMorgan

Okay. When we look at your healthcare revenues, they look pretty flat year-over-year. Can you talk about the dynamic that's pressuring profitability? Have you come to a decision as to whether you want to divest this business, or is this going to be contemplated over the next quarter? Does it take longer? Can you help us with those issues?

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Sure, Jeff. Look, the challenges at Lincare are not new, right? The business has served us well through the COVID period and the immediate couple of years after that. Over the last couple of years, in particular, you heard us reference it as well, it has faced persistent headwinds, right? From labor cost inflation and changes in reimbursement environments. I think those have contributed to these penalties that you referenced earlier on. We put a new management team in place. Their focus is on improving the quality of that business. We've been pruning the portfolio. Again, you've heard us say that in a couple of the calls over the last couple of years as well. There are aggressive actions currently in place to look at operational improvements and productivity.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Those actions will create the impact that we're looking for, which is why I expect as we move forward, we will see improvements in that business. In parallel to those aggressive set of actions that we put in place, we're also evaluating what the strategic options for this business are. I want to make sure that we do that exercise with diligence, and determine one way or the other, this business is going to have a meaningful positive impact on our portfolio.

Jeff Zekauskas
Jeff Zekauskas
Analyst at JPMorgan

Great. Thank you.

Operator

Our next question comes from the line of James Hooper with Bernstein. Your line is open.

James Hooper
James Hooper
Analyst at Bernstein

Hi. Thank you very much. Just in terms of the backlog projects, can you give a little bit more indication of the margins of these projects? Are these going to be some of the drivers of an uplift from this point in future years? Thank you.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Thanks, James. As you know, the backlog projects take typically between two to three years in terms of execution. By the time they come on, we then typically expect a ramp-up to happen across the board. The projects that we have in our backlog at the moment all met our investment criteria. We tend to look at them from a post-tax, double-digit, unlevered IRR perspective. They kind of hit the investment criteria and therefore are an attractive part of the future business growth that we're likely to see. They do have a ramp that they go through before they actually hit their final kind of margin contributions that they make. You should expect that cycle of backlog projects coming up, starting up, starting to deliver on margin contribution, and then through the ramp process, ensuring that that moves up.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

I always expect backlog projects to continue to improve on their margin till they reach their full capacity utilization.

James Hooper
James Hooper
Analyst at Bernstein

Thanks.

Operator

Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Your line is open.

Kevin McCarthy
Analyst at Vertical Research Partners

Yeah. Thank you and good morning. Sanjiv, if I look at your volume trend in Asia, it was up 6% for a second consecutive quarter, versus call it either side of flat, throughout 2025. Can you unpack that a little bit for us? My sense is you've had project startups there and maybe some sale of equipment. Just trying to get a better sense of whether the baseline demand is improving in APAC.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Kevin, I think in part you've already answered your question. There are three components to what is happening in the Asia volumes, right? There is obviously base volume, which is positive. There are significant sale of equipment elements sitting within there for the electronics customers that have had a somewhat disproportionate impact, in this last quarter that we're talking about. Last but not least, there are some ramp-ups. I was just referencing to James earlier on how we expect projects to ramp up. We're seeing a ramp-up of our backlog projects that were started up and are ramping up in ASEAN in particular, also contributing to that. You put those three together, I think you see that healthy 6% sitting over there.

Kevin McCarthy
Analyst at Vertical Research Partners

Okay. Then, I wanted to ask maybe a general question on your backlog. It seems that the electronic space in particular is quite vibrant and you're winning a fair amount of business there. Does that create a positive mix effect at all? In other words, if you look at your returns, let's say over the last decade, are they any better in the electronic space relative to all of the other end use markets combined, or would you say that they're similar?

Matt White
Matt White
CFO at Linde

Hey, Kevin. It's Matt. I can handle that. As you probably know, and as we said, we make our decisions on IRR, right? That's how we make our backlog and our capital decisions. It's not really a revenue or a margin kind of view, more of an IRR, undiscounted, or discounted unlevered view. From that perspective, I would say all of our projects, whether it's in any end market, electronics, energy, they tend to all fall within a certain consistent range because it's based on the risk and the terms and the conditions of what we're undertaking. Of course, in electronics, you're going to have more purity requirements and you're going to have probably more redundancy, which generally means more capital, but your return profiles tend to be consistent nonetheless. We don't really see much disparity in on-site returns by end market.

Matt White
Matt White
CFO at Linde

That tends not to happen. Where you can see different margin profiles is when you get the incremental process gases, rare gases, specialty gases that tend to come with large electronic clusters because those are more specialized, require a lot more effort on purity and manufacturing. That bolt-on the after fact, it can create some incremental margin opportunities. The on-sites themselves are very similar across all end markets, and again, IRR is what drives those decisions.

Kevin McCarthy
Analyst at Vertical Research Partners

Very helpful. Thank you both.

Operator

Our next question comes from the line of John McNulty with BMO Capital. Your line is open.

John McNulty
John McNulty
Analyst at BMO Capital

Yeah, good morning. Thanks for taking my question. Sanjiv, maybe can you speak to what you're seeing in particular out of APAC on the industrial side in terms of longer term investment? I know you spoke to right now there's kind of a mix of things going on just given what's going on in the Strait and the Iran conflict. Is that having any slowdown effect or pausing effect on future projects, future growth in the industrial markets looking out over, say, the next two to three years, or is it business as usual and things are going to keep kind of coming on over time and adding to your growth as well?

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

John, I'd say the headline over there would be business as usual, reflected in a bit of a change in the mix. Clearly strong electronics growth. We talked about the backlog development. We expect the project pipeline for electronics growth in Asia Pac to remain fairly robust, and I think that helps with some of that long-term investment profile that you're thinking about. Where we do see a little bit of a mix effect is where the traditional end markets, for instance, I do not expect to see significant steel investments happen in China, as an example. Now, if you go back a decade, clearly that was the case, but going forward, that's unlikely to be the area where you see.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

On the other hand, the flip side to that is in India you're seeing traditional end market investments happen, which results in us seeing an investment cycle as well over there. Those are in the more traditional end spaces like steel and like refining, and other elements of manufacturing as well. I think I'd say to you business as usual broadly. The mix is changing a little bit, getting more positively impacted by electronics and then the rest being made up of the more traditional end markets.

John McNulty
John McNulty
Analyst at BMO Capital

Got it. Thanks very much for the color.

Operator

Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Your line is open.

Arun Viswanathan
Arun Viswanathan
Analyst at RBC Capital Markets

Thanks for taking my question. Apologies if this has already been asked, but if you could just elaborate a little of the margin recovery. I know that you did have some of that within the Americas, some compression. Then if you could look into maybe the back half or next year, do you expect that negative operating leverage to be resolved? What would drive that? Is it increased management actions in pricing or productivity, or how do you see that? Thanks.

Matt White
Matt White
CFO at Linde

Hey, Arun. This is Matt. I think a couple things. First, let's just talk about the comps in year-over-year. If you may recall, 2025, we had strong front half margins, weaker back half margins. When you think about the whole year in the context, I'm fully expecting us to see better year-over-year, just given how last year played out. That's just a bit of a comp scenario. As mentioned in the prepared remarks, and as we've stated, we have a series of actions underway that we need to undertake to improve margins. Lincare is going to be the focus, given that's the biggest driver. I do think some of the other aspects, like higher hard good sales and some of the sale of equipment, as Sanjiv mentioned, we view that as actually positive.

Matt White
Matt White
CFO at Linde

That's something we will continue to do that will get us greater wallet share and greater connection to future gas sales. Those are an integral part of our model, always have been and will continue to be. You do tend to see those grow stronger in certain recoveries and as markets start to expand. We will likely look to take some cost actions this quarter. Depending on the size, that's something we want to get ahead of. It is clear you're seeing more inflation around the world, and that's something that we have to manage through our productivity and our actions. In some regions, you're seeing growth, which supports it. In other regions, you're seeing inflation without the growth.

Matt White
Matt White
CFO at Linde

That's an area we're going to focus on specifically for this quarter, above and beyond our normal productivity initiatives we normally take as part of our everyday DNA. More to come on that. It's something we'll probably give a little more color on in what we've done in the October call. I can tell you right now, these actions are already underway, and we're accumulating all of them to get ahead of the next several quarters.

Arun Viswanathan
Arun Viswanathan
Analyst at RBC Capital Markets

Thanks.

Operator

We will now take our final question from the line of Abigail Eberts with Wells Fargo. Your line is open.

Abigail Eberts
Abigail Eberts
Analyst at Wells Fargo

Hi there. Thanks for taking my question. In the past, you called out space being a billion-dollar opportunity. I'm just wondering if you have any update on that number. Thanks.

Sanjiv Lamba
Sanjiv Lamba
CEO at Linde

Space sector, Abigail, continues to grow well. We consider that we talked briefly about some of the options around space earlier on in the call. We are on track for that billion-dollar opportunity that we laid out over the next few years. I think 2030 was the timeline. Billion-plus is what our expectation around the space markets was. Once it reaches a certain size, you'll see us split that out in our end markets and have more visibility around it.

Abigail Eberts
Abigail Eberts
Analyst at Wells Fargo

Got it. Thank you very much.

Operator

That concludes our question and answer session. I would now like to turn the call back to Juan Pelaez for additional or closing remarks.

Juan Pelaez
Juan Pelaez
Head of Investor Relations at Linde

Abby, thank you. Thanks, everyone, for participating in today's call. If you have any further questions, please feel free to reach out. Have a great day.

Operator

Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

Executives
    • Juan Pelaez
      Juan Pelaez
      Head of Investor Relations
    • Sanjiv Lamba
      Sanjiv Lamba
      CEO
    • Matt White
      Matt White
      CFO
Analysts
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