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    Linde PLC (LIN)

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    Linde plc is a leading global industrial gases and engineering company, primarily engaged in the production and distribution of atmospheric gases such as oxygen, nitrogen, argon, and rare gases, as well as process gases including carbon dioxide, helium, hydrogen, electronic gases, specialty gases, and acetylene . The company's operations are divided into two major product lines: industrial gases and engineering, with the industrial gases segment managed on a geographic basis across the Americas, EMEA (Europe, Middle East, and Africa), and APAC (Asia/South Pacific) regions, while the engineering segment operates globally . In 2023, approximately 90% of Linde's consolidated sales were generated from industrial gases, with the remaining 10% coming from the engineering segment and other activities .

    1. Industrial Gases - Produces and distributes atmospheric and process gases, managed geographically across the Americas, EMEA, and APAC regions.
    2. Engineering - Designs and constructs plants for air separation, hydrogen production, and other industrial gas applications, operating on a global scale.
    3. Advanced Material Technologies - Includes sputtering targets and coatings, contributing to the company's diverse product offerings.
    Initial Price$439.15July 1, 2024
    Final Price$475.02October 1, 2024
    Price Change$35.87
    % Change+8.17%

    What went well

    • Linde has a strong project backlog, including significant projects like the $2 billion investment with Dow Chemical, which provides secure, contracted growth and is expected to contribute 1% to 3% of EPS growth through about 30 project startups over the year.
    • Linde leverages its technological expertise and innovative solutions to secure large-scale decaptivation opportunities and low-carbon hydrogen projects, enhancing network density and creating value, as demonstrated by recent decaptivation of assets in India.
    • Linde continues to demonstrate strong pricing power across its base gases in the merchant and packaged gases businesses, sustaining positive pricing even in challenging economic conditions.

    What went wrong

    • Linde is experiencing mid-single-digit declines in hard goods sales, reflecting a broader industrial weakness in manufacturing sectors globally.
    • The company anticipates continued economic weakness, with no meaningful catalysts for improvement, and has initiated targeted cost reductions affecting approximately 2% of its global workforce.
    • Recovery in the electronics sector is moving slower than expected, indicating potential challenges in this key market segment.

    Q&A Summary

    1. Economic Contraction Guidance
      Q: Where are you seeing macro pressures today?
      A: We are seeing pressures in the European market, reflected in volume developments. In China, the underlying industrial progression is not reflecting the stimulus, and we are unlikely to see a catalyst for change in the near term. However, North America, primarily the U.S., has been resilient thus far. Other bright spots include India and Mexico, where we are seeing consistent growth.

    2. Q4 Volume Outlook
      Q: Does Q4 contraction reflect seasonal slowdowns or more?
      A: The expected economic contraction in Q4 is across base organic volumes and not seasonal. We view it as a sequential contraction due to macroeconomic pressures. Extended outages could indicate weakness as customers may not have the order intake or workload. We are taking actions around it and getting ahead to prepare.

    3. Capital Allocation and Buybacks
      Q: Will capital allocation split change in 2025-2026?
      A: No, our capital allocation policy remains consistent. After maintaining a single A credit rating and raising the dividend every year, our priority is to invest in the business using our investment criteria. With the increase in our sale of gas backlog to $7 billion, we'll allocate more CapEx to build these projects. We expect buybacks to be consistent next year with this year.

    4. Project Backlog and Growth
      Q: Can you discuss the path to $8–10 billion investment?
      A: We have signed up about half of the $8–10 billion target between OCI and Dow Phase I. We are doing front-end work on several projects and feel confident about reaching our target over the next few years. Despite some cancellations in the industry, we remain selective and focused on low-carbon hydrogen projects, where technology is mature and returns are promising.

    5. Cost Reduction Impact on EPS
      Q: Will new cost reductions lift EPS by 1–2%?
      A: We expect this action to provide a roughly one-year return. The full run rate will take effect in the second half of next year, and we anticipate the majority of the benefit in 2025. This is incremental and part of our management actions to get ahead in a weaker macro environment.

    6. Electronics Business Outlook
      Q: What happened with electronics sales this quarter?
      A: Electronics sales were up 9% year-on-year. Sequentially, gas sales were up, but our advanced materials business saw some destocking in electronics components during the quarter. We expect this to normalize in Q4, leading to solid sequential growth.

    7. European Industry Risks
      Q: Any concerns about European customer shutdowns?
      A: We have not heard from any major customers in Europe discussing major closures. We are tracking the situation closely, but our solid contracts protect our investments if customers decide on shutdowns.

    8. Healthcare Business Pruning
      Q: What's the status of healthcare portfolio pruning?
      A: The pruning of our home care business, largely in the U.S., is expected to be completed by the end of the year. We anticipate structural growth rates between low single-digit to mid-single-digit in healthcare moving forward. We continuously evaluate our portfolio and will consider further divestments as needed.

    9. Decaptivation Opportunities
      Q: Are you seeing more decaptivation opportunities?
      A: We assess 8 to 10 decaptivation opportunities globally each year and are selective. The recent decaptivation of two ASUs in India allowed us to integrate them into our network, enhancing network density and creating value.

    10. ATR Design and Hydrogen Network
      Q: Have you designed an ATR like this before?
      A: Yes, we have designed and operated ATRs before, including one in La Porte, Texas. We are building similar technology at OCI. We plan to leverage our established footprint to build a significant hydrogen network in Alberta, promoting network density and value creation.

    11. Pricing and Margin Outlook
      Q: Did price/mix grow sequentially in packaged and merchant?
      A: We continue to see positive sequential and year-over-year pricing in our merchant and packaged gases. Pricing in merchant and package is about double the global number we report. Helium pricing is slightly declining to flat, but overall, our pricing tracks with the globally weighted CPI in our regions.

    12. Hard Goods Demand and Consumer Behavior
      Q: How is hard goods demand and customer behavior?
      A: We are seeing mid-single-digit declines in hard goods sales, reflecting industrial weakness, particularly in manufacturing. Globally, consumers are cautious on large spending due to economic uncertainties. In the U.S., while consumer behavior has been strong, we are seeing signals of concern, like rising delinquencies on auto loans.

    13. Initial View on 2025
      Q: Will 1H '25 be similar to 2H '24?
      A: We will come back in February to provide a comprehensive view on 2025. We are currently planning and will share more details at that time.

    14. Dow Project Phase II
      Q: Will Dow Phase II be larger than Phase I?
      A: We expect the investment in Dow Phase II to be a little bit lower than in the first phase. We have done initial planning, and the decision will be made over the agreed timeline.

    15. Portfolio Management
      Q: Any plans to divest in other regions?
      A: We continuously evaluate our portfolio and consider divestments where appropriate. We have a healthy pipeline of tuck-in acquisitions and will continue to optimize our portfolio for value creation.

    16. Sale of Gas Backlog Timing
      Q: What's the timing on new backlog projects?
      A: Traditional projects take about 3 years from announcement to completion. Larger clean energy projects, like Dow, may take 4 years plus due to scope. The remainder of the backlog follows a more normalized timeline.

    Guidance Changes

    Quarterly guidance for Q4 2024:

    • EPS: $3.86 to $3.96 (no prior guidance)

    Annual guidance for FY 2024:

    • EPS: $15.40 to $15.50 (lowered from $15.40 to $15.60 )
    NamePositionStart DateShort Bio
    Sanjiv LambaChief Executive OfficerMarch 1, 2022Sanjiv Lamba became the Chief Executive Officer of Linde plc on March 1, 2022. He previously served as COO and Executive Vice President for the APAC region. He began his career with BOC in India in 1989 .
    Guillermo BicharaExecutive Vice President & Chief Legal Officer2006Guillermo Bichara joined Linde in 2006 as Director of Legal Affairs at Praxair Mexico. He was later promoted to Vice President and General Counsel of Praxair Asia .
    Sean DurbinExecutive Vice President, North AmericaSeptember 1, 2023Sean Durbin became Executive Vice President, North America at Linde effective September 1, 2023. He previously served as Executive Vice President, EMEA and joined Praxair, Inc. in 1993 .
    Kelcey E. HoytChief Accounting OfficerOctober 2018Kelcey E. Hoyt became the Chief Accounting Officer of Linde in October 2018. She joined Praxair in 2002 and held various positions, including Vice President and Controller .
    Juergen NowickiExecutive Vice President and CEO, Linde EngineeringApril 2020Juergen Nowicki was appointed as Executive Vice President and CEO of Linde Engineering in April 2020. He joined Linde in 1991 and has held various positions in Finance and Controlling .
    John PanikarExecutive Vice President, APACJanuary 2021John Panikar was appointed as Executive Vice President, APAC of Linde effective in January 2021. He previously served as President UK & Africa of Linde .
    Oliver PfannSenior Vice President, EMEASeptember 1, 2023Oliver Pfann was appointed as Senior Vice President, EMEA at Linde effective September 1, 2023. He has been with Linde since 1995, starting in Product Development .
    David P. StraussExecutive Vice President and Chief Human Resources Officer2022David P. Strauss has been serving as the Executive Vice President and Chief Human Resources Officer at Linde since 2022. He joined Linde in 1990 and has held various positions .
    Matthew J. WhiteExecutive Vice President and Chief Financial OfficerOctober 2018Matthew J. White became the Executive Vice President and Chief Financial Officer of Linde in October 2018. He previously served as the Senior Vice President and CFO of Praxair, Inc. .
    Binod PatwariSenior Vice President-APACNovember 1, 2024Binod Patwari currently serves as the Senior Vice President-APAC at Linde, effective November 1, 2024. He was previously the Managing Director of Linde’s South Pacific Region .
    1. Given the ongoing economic weakness in regions like Europe and China, and the decline in industrial-related end markets by 1% to 2% sequentially, what specific measures are you taking to mitigate these challenges and maintain growth in these markets?

    2. With the targeted cost reductions affecting approximately 2% of your global workforce, how do you anticipate this will impact your operational efficiency and ability to serve customers, especially in areas where you're seeing growth like North America and India?

    3. Considering the significant investment of over $2 billion in the Dow Chemical project expected to start up in late 2028, what are the key risks associated with this long-term project, and how confident are you in achieving the expected returns given potential economic uncertainties?

    4. Despite not having heard from any major customers in Europe about shutdowns, how are you preparing for potential future closures or restructuring in the European industry that could impact your contracts and supply agreements?

    5. With mid-single-digit declines in hard goods sales reflecting industrial weakness, particularly in the U.S., what strategies are you implementing to address this trend and bolster demand in your hard goods and related businesses?

    Program DetailsProgram 1
    Approval DateOctober 23, 2023
    End Date/DurationUntil maximum authority is reached or board terminates
    Total additional amount$15.0 billion
    Remaining authorization$13.3 billion (as of September 30, 2024)
    DetailsOptimize excess free cash flow, leverage robust balance sheet, return capital to shareholders

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024 and FY 2024
    • Guidance:
      1. EPS Guidance for Q4 2024: $3.86 to $3.96, representing 8% to 10% growth, assuming an economic contraction at the midpoint and no currency impact .
      2. Full Year 2024 EPS Guidance: $15.40 to $15.50, reflecting 9% to 10% growth, excluding a 1% foreign exchange headwind. The top end was reduced by $0.10 due to an updated economic assumption .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024 and FY 2024
    • Guidance:
      1. EPS Guidance for Q3 2024: $3.82 to $3.92, representing 6% to 9% growth, excluding a 1% FX headwind, assuming no economic improvement at the midpoint .
      2. Full Year 2024 EPS Guidance: $15.40 to $15.60, reflecting 9% to 11% growth, excluding a 1% FX headwind. The bottom end was raised by $0.10 .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: Q2 2024 and FY 2024
    • Guidance:
      1. EPS Guidance for Q2 2024: $3.70 to $3.80, representing 5% to 7% growth, excluding a 1% FX headwind .
      2. Full Year 2024 EPS Guidance: $15.30 to $15.60, indicating 9% to 11% growth, excluding a 1% FX headwind. The range was narrowed by $0.05 on both ends .
      3. CapEx Guidance for Full Year 2024: $4 billion to $4.5 billion .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: Q1 2024 and FY 2024
    • Guidance:
      1. Full Year EPS Guidance: $15.25 to $15.65, representing 8% to 11% growth, excluding a 1% FX headwind .
      2. First Quarter EPS Guidance: $3.58 to $3.68, translating to 6% to 9% EPS growth, excluding FX .
      3. Backlog Contribution to EPS Growth: 1% to 2%, with expectations at the top end .
      4. Share Buybacks and Share Count Impact: Expected to contribute about 2 percentage points to EPS growth .
      5. Capital Expenditure (CapEx): $4.5 billion to $5 billion .

    Competitors mentioned in the company's latest 10K filing.

    • L’Air Liquide S.A. - Global competitor in the industrial gases industry .
    • Air Products and Chemicals, Inc. - Global competitor in the industrial gases industry .
    • Messer Group GmbH - Global competitor in the industrial gases industry .
    • Mitsubishi Chemical Holdings Corporation (through Taiyo Nippon Sanso Corporation) - Global competitor in the industrial gases industry .

    Recent developments and announcements about LIN.

    Financial Actions

      Debt Issuance

      ·
      Dec 4, 2024, 9:43 PM

      The document indicates that LIN has created a direct financial obligation or entered into an off-balance sheet arrangement. This is referenced under the section titled "Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant" . However, the document does not provide specific details about the nature of the obligation or its potential effects on the company's balance sheet and financial health. For a comprehensive understanding, it would be necessary to refer to the section "Item 1.01. Entry into a Material Definitive Agreement," which is incorporated by reference but not included in the provided text.

    Corporate Leadership

      Leadership Change

      ·
      Nov 4, 2024, 12:00 AM

      John Panikar is leaving his position as Executive Vice President-APAC at Linde, effective November 1, 2024, as he plans to retire on March 31, 2025, after 33 years with the company. Binod Patwari will step up as the new Senior Vice President-APAC, taking over Mr. Panikar's responsibilities for the APAC region .