Q3 2024 Earnings Summary
- 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.
- 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.
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
EPS (Diluted) | Q3 2024 | $3.82 to $3.92 | $3.23 | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Sustained gas backlog expansions across multiple quarters | Q2 2024: $7.9B backlog, robust pipeline. Q1 2024: ~$5B backlog, cycle of project execution and new intake. Q4 2023: +10% vs. prior quarter, $8–$10B potential clean energy additions. | Backlog grew to $10B, bolstered by a $2B+ Dow project and ~29–30 project startups that support annual EPS growth. | Continues to expand each quarter, remains a core growth driver |
Consistent industrial weakness in key regions (EMEA and China) | Q2 2024: No explicit “weakness” mention, but focus on cost/productivity in China. Q1 2024: Broad-based declines in EMEA, deflation in China. Q4 2023: Soft industrial recovery in China, negative volume trends in EMEA but strong profit. | Ongoing volume pressures in EMEA and China, with no near-term catalyst. Part of a global industrial slowdown. Linde implemented a 2% workforce reduction to address this. | Remains weak; prompting proactive cost actions |
Shifting projections for electronics end-market recovery | Q2 2024: Early recovery signs; new fab projects (TSMC, Samsung), but short-term challenges. Q1 2024: ~10% of portfolio, potential 2H rebound not in guidance. Q4 2023: Mild recovery overshadowed by geopolitical risks. | Electronics up 9% YoY, but slower-than-expected recovery. Destocking in advanced materials, expecting better sequential growth. | Still positive but recovering slower than initially anticipated |
Stable capital allocation policy and share buybacks | Q2 2024: Long-standing strategy; $1.4B shares repurchased, flexible pace. Q1 2024: $1B in share repurchases, strengthened balance sheet. Q4 2023: Buybacks integral, contributed ~2% to EPS growth. | Confirmed no change to capital allocation (single A rating, annual dividend raises, then buybacks). Higher CapEx for backlog build may slightly cap repurchases but policy remains consistent. | Continuously reaffirmed as a core element of financial strategy |
Healthcare segment challenges no longer emphasized after Q2 | Q2 2024: Ongoing home care rationalization caused flat results; underlying demographics still supportive. Q1 2024: No specific updates on post-Q2 emphasis. [No mention] Q4 2023: No mention. [No mention] | Pruning of home care largely complete, expecting low-to-mid single-digit growth going forward. | Previously highlighted issues now mostly resolved |
New large-scale Dow Chemical project exceeding $2 billion | Q2 2024: No mention. Q1 2024: No mention. Q4 2023: No mention. | Highlighted as the biggest sale of gas project in Linde’s history, supporting Dow’s net-zero goals in Alberta. Over $2B total investment, targeted late 2028 start-up. | Newly disclosed major project with significant potential impact |
Planned 2% workforce reduction reflecting macro caution | Q2 2024: No mention. Q1 2024: No mention. Q4 2023: No mention. | 2% global headcount cut in regions with weaker volumes, costing $150M in severance. Full savings by 2H 2025. | Newly introduced cost measure, underscores cautious outlook |
Emerging focus on India for future growth opportunities | Q2 2024: No mention. Q1 2024: Brief note on short-term election-related slowdown but not long-term decisions. Q4 2023: Long history in India, winning key projects, plans continued expansion. | India cited as a consistent growth region with strong market leadership and ongoing near-shoring benefits. Projects in backlog expected to boost earnings. | Increasingly emphasized region for expansion |
Clean energy pipeline valued at $8–10 billion | Q2 2024: $8–$10B near-term pipeline mainly in Chemicals & Energy. Q1 2024: Pipeline remains healthy but with slower momentum. Q4 2023: $8–$10B pipeline translating into backlog; includes decarbonization retrofits. | About half of the pipeline is already secured (e.g., OCI, Dow). Strong emphasis on blue hydrogen over green, citing economic feasibility. | Remaining a strategic focus, roughly half committed so far |
Evolving sentiment on electronics (anticipated rebound, slower recovery, geopolitical risks) | Q2 2024: Early rebound signs but cautious outlook. Q1 2024: Expect 2H pickup, not in guidance, watching China self-sufficiency push. Q4 2023: Mild Q4 recovery, uncertainties persist. | Recovery is slower yet positive, with 9% YoY growth. Geopolitical concerns noted, especially in China. | Moderately improving but hindered by geopolitical and macro factors |
Continued emphasis on hydrogen demand as a growth driver | Q2 2024: High hydrogen volumes in Chemicals & Energy; decarbonization focus. Q1 2024: U.S. Gulf Coast demand strong, expanding electrolyzer footprint. Q4 2023: Focus on large-scale blue hydrogen, green projects facing tech hurdles. | Pursuing $8–$10B in hydrogen investments, prioritizing blue hydrogen projects like Dow Alberta. Sees strong long-term potential. | Hydrogen remains central to long-term growth strategy |
Ongoing macroeconomic caution limiting volume growth and prompting cost actions | Q2 2024: Flat volumes year-over-year, disciplined approach, cost/productivity focus. Q1 2024: Base volumes down, heavy cost management and project rationalization. Q4 2023: No economic growth assumption for 2024, cost actions in China. | Industrial production remains soft; volume growth challenged. Linde incorporating cost actions and a 2% headcount reduction into outlook. | Persistent caution shaping volume forecasts and restructuring moves |
-
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.