Linde Q3 Earnings Call Highlights

Key Points

• Record third-quarter results: Sales rose 9% to $9.4 billion, operating profit increased 8% to $2.8 billion, and diluted EPS climbed 9% to $4.59. However, operating margin declined 30 basis points to 29.4% as inflation and weaker performance at Lincare pressured results.
• Restructuring and pricing actions: Linde recorded a $425 million restructuring charge, with roughly half tied to severance and the remainder focused largely on Lincare portfolio and asset actions. Lincare will move into the Global Other segment and report directly to the CFO as the company evaluates strategic alternatives.
• Positive outlook despite uneven demand: Electronics, chemicals and U.S. packaged gases showed strong growth, while Europe remained flat and China’s domestic demand was weak. Linde forecast fourth-quarter EPS of $4.40–$4.50 and maintained full-year EPS guidance of $17.82–$17.92, supported by restructuring benefits expected to build next year.

Linde NASDAQ: LIN reported record third-quarter sales, operating profit and earnings per share, while outlining restructuring actions and pricing initiatives intended to address underperformance in its home-care business and rising inflationary costs.

Chief Executive Officer Sanjiv Lamba said the company recorded a $425 million restructuring charge during the quarter to better align its cost base and portfolio with market conditions. About half of the charge related to severance, particularly in lower-growth regions, while the remainder was largely tied to portfolio and asset actions in Linde’s U.S. home-care business, Lincare.

Lamba said Lincare will now report directly to Chief Financial Officer Matt White and will move into the company’s Global Other segment. The reporting change is intended to provide greater visibility into the regional gases businesses as Linde restructures Lincare and evaluates strategic alternatives for the operation.

Record results, but margin pressure remains

Third-quarter sales rose 9% from the prior year to a record $9.4 billion. Operating profit increased 8% to $2.8 billion, while diluted earnings per share climbed 9% to $4.59, or 8% excluding currency effects.

White said underlying sales increased 5% after adjusting for currency, cost pass-through, acquisitions and engineering sales. Volume growth was 2%, split roughly between contributions from projects in the backlog and organic growth, while pricing increased 3%.

Operating margin was 29.4%, down 30 basis points from the previous year. Excluding cost pass-through, however, margin was essentially flat. Margin expansion in the combined gas segments was offset by declines in engineering and Global Other, according to White.

“The core gas business is healthy, but there are clear opportunities to improve,” White said, citing pricing and productivity actions amid higher inflation. He said Lincare has reduced year-to-date EPS growth by roughly 1.5% to 2%.

Linde generated $3.2 billion of operating cash flow in the quarter, up 8% year over year. The company said it deployed more than $9 billion of capital year to date, with roughly half invested in the business and the remainder returned to shareholders.

Demand varied across end markets and regions

Lamba said sales conditions remained uneven by geography and end market. Electronics was the strongest consumer-related category, with sales growth of 15%, supported by organic growth in Asia-Pacific and the U.S. Linde also has approximately $2 billion of electronics projects under construction in the U.S., South Korea and China, which Lamba said supports continued double-digit growth.

Food and beverage sales increased 3%, led by the Americas and EMEA, while healthcare sales increased 2%. Excluding Lincare, healthcare growth was in the mid-single digits, according to Lamba.

• Chemicals and energy: Sales rose 12%, reflecting stronger volumes in the U.S. and China as well as pricing actions, especially in the Americas.
• Metals and mining: Sales increased 3%, driven primarily by North American construction and industrial activity, partly offset by declines in EMEA and APAC.
• Manufacturing: Sales rose 7%, supported by price increases and higher volumes in the U.S., China and India, including continued aerospace demand.

Lamba said U.S. packaged-gas growth remained in the low teens, supported by construction and data-center activity. Merchant and onsite volumes were strongest in the U.S., including activity along the Gulf Coast in energy and chemicals, metals production and space-propellant demand.

In Europe, Lamba described the underlying market as flat after excluding equipment sales. He said improved comparisons have provided some stability, but that he sees no catalyst for a near-term recovery in European industrial activity.

In China, Lamba said steel production declined 2.5% amid government curtailment orders, while chemicals activity was flat. Electronics industrial production grew about 17% during the quarter, supporting Linde’s growth in the country. He added that export demand remained strong, but domestic consumption had not improved materially.

Backlog and project updates

Linde’s sale-of-gas project backlog stood near $8 billion at quarter-end. Lamba said the company expects to start projects representing about $1 billion during the remainder of the quarter and remains confident it can finish the year near the $8 billion backlog level, subject to customer timing.

The sale-of-plant backlog was just under $3 billion and is expected to grow during the next year, he said. Linde said it will provide more detailed outlook commentary for 2027 in February.

Regarding the Woodside project, Lamba said Linde began supplying nitrogen from its air separation unit in the third quarter and is temporarily supplying hydrogen through its existing pipeline network. The project’s two hydrogen trains are expected to start in a staggered fashion, with startup completion anticipated in the first half of next year. The carbon capture and sequestration component is being developed by ExxonMobil.

Lamba said the project’s financial contribution would begin in the second half of next year, with capacity utilization expected to ramp gradually and potentially reach full levels in 2028.

Outlook

For the fourth quarter, Linde forecast EPS of $4.40 to $4.50, representing growth of 5% to 7%. The company expects a 1% sequential foreign-exchange headwind and is not assuming an improvement in economic conditions or a meaningful near-term improvement in Lincare profitability.

The company’s full-year EPS outlook is $17.82 to $17.92. White said the guidance incorporates a foreign-exchange benefit of about 2% for the full year, compared with the company’s prior expectation of roughly 1%.

Linde expects the severance-related restructuring actions to begin contributing in the fourth quarter, with full run-rate benefits expected in the second half of next year. White said the severance portion of the restructuring program has an estimated undiscounted cash payback period closer to two years.

About Linde (NASDAQ:LIN)

Linde plc NASDAQ: LIN is a global industrial gases and engineering company. It produces and distributes atmospheric gases such as oxygen, nitrogen and argon, as well as hydrogen, helium, carbon dioxide and specialty gases. The company serves customers through packaged gases, bulk deliveries, on-site production and pipeline systems.

Linde's products and services support a broad range of industries, including healthcare, food and beverage, manufacturing, chemicals, energy, refining, electronics and metals.

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