Q4 2024 Earnings Summary
- Linde achieved a record $7.1 billion in sale of gas backlog, indicating strong future growth opportunities and winning more than their fair share of large projects.
- Linde expects margin expansion in 2025 across all regions, with no impediment to improving margins, suggesting improved profitability.
- 20% of Linde's record sale of gas backlog is in electronics projects, and the company is executing on these projects and expects to announce new wins soon, indicating strong demand in the electronics sector.
- Currency devaluations in key markets like Brazil and Mexico pose a significant foreign exchange headwind, impacting earnings growth. The CFO noted that "Brazil and Mexico were the larger ones" affected by currency devaluation, leading to unfavorable impacts on the working capital line.
- Uncertainty around regulatory changes and a pullback on green energy funding under the new administration could delay or reduce new project investments, affecting Linde's future growth prospects. The CEO mentioned that "we have seen people take a little bit more time and apply a bit more rigor before going to FID," partly due to "some uncertainty around the regulatory framework and requirements in terms of what the new administration may or may not do."
- Potential increased competition from peers adopting similar strategies could erode Linde's competitive advantage and pressure margins. An analyst questioned whether "the Linde playbook will be now employed by Air Products given the recent management change," which could impact industry pricing and Linde's market position.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | –0.24% (from $8,302 million to $8,282 million) | Total revenue remained essentially flat, showing a slight decline by 0.24%, indicating that while there were minimal changes in sales dynamics, overall market conditions and operational adjustments from Q4 2023 to Q4 2024 kept revenue stable at approximately $8,282 million. |
Operating Income | +11.9% (from $2,028 million to $2,270 million) | Operating income improved by 11.9%, driven by enhanced profitability measures such as cost controls and higher pricing which built on previous period initiatives. The increase from $2,028 million to $2,270 million reflects a continued focus on productivity and margin improvement compared to Q4 2023. |
Net Income | +11.7% (from $1,543 million to $1,725 million) | Net income increased by 11.7%, rising from $1,543 million to $1,725 million, largely as a result of the operating income improvement and enhanced cost efficiency measures that were also evident in Q4 2023, leading to better overall margins. |
EPS (Basic) | +12.9% (from $3.19 to $3.60) | EPS (Basic) rose by 12.9%, supported by the improved net income and a lower number of diluted shares outstanding, echoing prior period trends of share repurchases and earnings enhancements that magnified per share growth. |
Other Segment | Swing from +$1,097 million to –$1,629 million | The Other segment reversed dramatically, transitioning from a positive operating profit of $1,097 million to a loss of $1,629 million. This stark change likely reflects adverse developments such as higher costs and lower volumes in specific areas (e.g., global helium and advanced material technologies) that contrasted with the previously favorable performance in Q4 2023. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
EPS | Q4 2024 | $3.86 to $3.96 | No current guidance | no current guidance |
EPS | FY 2024 | $15.40 to $15.50 | No current guidance | no current guidance |
EPS | Q1 2025 | No prior guidance | $3.85 to $3.95 | no prior guidance |
EPS | FY 2025 | No prior guidance | $16.15 to $16.55 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
EPS - Basic | Q4 2024 | $3.86 to $3.96 | 3.60 | Missed |
EPS - Basic | FY 2024 | $15.40 to $15.50 | 13.69 (sum of Q1–Q4 2024 EPS: 3.38+ 3.46+ 3.25+ 3.60) | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Record or strong project backlog | Mentioned as consistently growing from about <strong>$8.3B</strong> in Q1 , <strong>$7.9B</strong> in Q2 , and then a record <strong>$10B</strong> in Q3. High-quality projects underpinned by fixed contracts. | Reported a <strong>record backlog of over $10B</strong>, with $7B in sale-of-gas projects and a $2B project in Canada. About 20% is tied to electronics projects, supported by contract provisions ensuring minimum returns. | Consistently highlighted across periods with growing size and strong economics. |
Electronics sector momentum and challenges | Showed signs of recovery in Q1 and Q2 but was impacted by slower demand in some regions. Q3 indicated about 9% year-on-year growth but slower-than-expected recovery and lingering inventory destocking. | Electronics represents <strong>20% of the record sale-of-gas backlog</strong> with new wins expected, although there is some helium demand softness and no major recovery in other China industrial sectors. | Sustained focus on electronics projects; overall optimism with pockets of demand softness. |
Margin expansion or pricing power | Q1 to Q3 showed ongoing margin expansion, from <strong>28.9%</strong> in Q1 to <strong>29.3%</strong> in Q2 and <strong>29.6%</strong> in Q3. Pricing aligned with globally weighted inflation. | Linde highlighted a continued track record of <strong>margin expansion</strong> and expects it to continue in 2025, citing pricing power of 2% over 2023 and 1% sequentially. | Remains a key strength, with pricing actions supporting higher margins. |
Currency devaluations and FX headwinds | Q1 assumed a 1% FX headwind , Q2 saw a 3% negative impact year-over-year , and Q3 had about a 1% to 2% headwind factored into guidance. Challenging conditions persisted in Latin America and some major currencies. | Q4 guidance includes a <strong>4% FX translation headwind</strong> for 2025. Significant devaluations in Latin America and a flight to the U.S. dollar impacted earnings, though management actions partially offset these effects. | Continued FX challenges, with the U.S. dollar’s strength creating headwinds. |
Regulatory changes and green energy funding uncertainty | Q1 cited IRA incentives (e.g., 45V) and European frameworks affecting project final investment decisions. Q2 had no direct mentions. Q3 noted unclear incentives causing green hydrogen project cancellations. | Management highlighted uncertainty with a “new administration,” but emphasized that <strong>45Q</strong> (predating the IRA) still underpins about 90% of U.S. projects. Clients remain cautious but no major cancellations cited. | Still relevant, with cautious optimism as existing tax provisions (45Q) remain in effect. |
Potential increased competition from peers | No specific mentions in Q1, Q2, or Q3. | Management stated that <strong>Linde’s leadership position</strong> is based on an operating model and network density “that cannot be fully replicated,” reaffirming confidence despite peer ambitions. | Newly mentioned in Q4, emphasizing Linde’s unique advantages. |
Industrial and manufacturing sector weakness | Q1 and Q2 showed <strong>sluggish industrial demand</strong>, with hard goods sales down mid-single digits. Q3 reported continued weakness in metals, mining, and manufacturing, with no near-term catalyst for recovery. | Q4 volumes were <strong>flat overall</strong>, with softer EMEA metals and mining offset by projects in the Americas and APAC. Seasonal effects and currency impacts also contributed to lower volumes. | Ongoing weakness across regions, partially offset by backlog projects. |
Decarbonization and hydrogen initiatives | Discussed in all prior periods, with a $50B 10-year plan in Q2, major blue hydrogen projects in Q3, and an electrolyzer in Brazil in Q1. Momentum was steady, though some projects awaited regulatory clarity. | Linde is pursuing a strong <strong>hydrogen pipeline</strong> in North America, Middle East, and Europe, with 59 on-site projects and confidence in <strong>45Q</strong> for U.S. incentives. They see no major regulatory rollback affecting their decarbonization agenda. | Continues to be a major growth pillar, with selective, high-quality investments and favorable tax incentives. |
-
Industrial Production Outlook
Q: What's the impact of 1% IP change on EPS?
A: Base volumes closely track industrial production (IP), especially in developed nations. A 1% change in IP can significantly affect EPS, with higher leverage in developing countries due to expanding markets. Globally, IP is close to zero, with EMEA dragging, Americas solid, and China expected to be flat in 2025. -
Margin Expansion Expectations
Q: Will Americas margins improve in 2025?
A: Yes, margins are expected to continue improving across all segments, including Americas and APAC. There's no impediment to achieving the highest margins anywhere in our business. We anticipate margin expansion of 20 to 50 basis points in 2025. -
Project Pipeline and Regulatory Impact
Q: Have pre-FID project discussions slowed due to politics?
A: Discussions are taking more time as partners apply more rigor before final investment decisions (FID), partly due to regulatory uncertainties with the new administration. However, we're confident in our projects, especially with incentives like the 45Q provision, which supports 90% of our U.S. projects and predates the IRA. Our path to $8–10 billion in clean energy investments over the next few years remains intact. -
Cash Flow vs. EPS Growth
Q: Why did OCF grow only 1% vs. 10% EPS growth?
A: The slower operating cash flow growth was due to unwinding our engineering portfolio related to sanctioned projects, leading to a large cash outflow. We expect 2025 to have OCF growth more aligned with EBITDA and EPS growth. -
Market Share Trends
Q: Are you gaining or losing market share?
A: We focus on network density rather than market share. Our record $7+ billion sale of gas backlog indicates we're winning more than our fair share of large projects. Linde remains the market leader, and we expect our leadership to continue. -
Returns on Small On-site Projects
Q: How do small on-site returns compare to large ones?
A: Small on-site projects have similar long-term contracts (10–15 years) and terms as large ones but offer higher returns. They're highly accretive, with shorter execution timelines of 9 to 15 months, and involve gases like oxygen and nitrogen. -
Health Care Segment Growth
Q: What's causing flat growth in health care?
A: Flat growth is due to portfolio rationalization in our U.S. home care business. As we complete these actions, we expect to return to long-term low to mid-single-digit growth, driven by the hospital care segment. -
CapEx Increase for 2025
Q: Is CapEx rising due to large projects?
A: Yes, the step-up in 2025 CapEx is driven by our all-time high $7.1 billion sale of gas backlog, including two large clean energy projects and several electronics projects. -
Electronics Project Pipeline
Q: Are you seeing new electronics projects?
A: Absolutely. Electronics comprise 20% of our record sale of gas backlog. We're executing several projects now and will announce new wins soon, reflecting our strong position in this sector. -
Hydrogen Projects in EU and Japan
Q: What's the hydrogen project pipeline in EU and Japan?
A: In Japan, project development is minimal as the focus is on importing clean hydrogen. In Europe, while there's significant interest, the complex regulatory framework slows investment decisions, potentially hindering Europe's hydrogen aspirations.