Linde Plc Q1 FY2025 earnings call

• Linde's business model is defensive with three categories: resilient end markets (healthcare, electronics, food & beverage), on-site customers with fixed facility fees, and rental payments on owned assets. These categories together make up almost two thirds of global gas sales.
• Q1 segment trends: APAC had strength in battery and electronics but lower rare gases/helium prices; EMEA had no meaningful improvement in industrial activity but positive decarbonization discussions; Americas had mixed results with Canada/US packaged gases weak and US Bulk North Latin America growing.
• Backlog stood at $10 billion, with over $7 billion in sale of gas projects under long-term contracts.
• Management focused on leveraging operating rhythm to adapt to volatility, using pricing and productivity programs to support margins.

In APAC, China trends remained consistent post-seasonal adjustment with strength in battery and electronics, though rare gases and helium prices were lower than prior year. Industrial end markets were soft but Tier 1 customers were stable. PAREA was tied to the electronics sector with a recent win from a large customer. Australia saw weaker manufacturing impacting packaged gas volumes, while India was a strong growth region. In EMEA, industrial activity didn't show meaningful improvement despite recent government spending news, but pragmatic decarbonization discussions could accelerate growth opportunities. The region was well-positioned for economic recovery or increased infrastructure spending. The Americas segment was mixed: Canada and US packaged gases were weak due to manufacturing uncertainty, while US Bulk North Latin America volumes grew low-to-mid single digits. The Americas had the highest segment price increase at 3%, with efforts to stay ahead of inflation via contractual pricing and productivity programs. Revenue contribution: Defensive sales (resilient end markets, fixed facility fees, rental payments) accounted for almost two thirds of global gas sales, consistent across segments.

For Q2, EPS guidance range is $3.95 to $4.05, representing 3% to 5% growth or 5% to 7% excluding a 2% currency headwind. The range assumes recessionary conditions at the midpoint, with a 2% EPS headwind from lower volumes. Full year guidance is updated to $16.20 to $16.50, holding the original midpoint but narrowing the range by a nickel on each end due to fewer remaining quarters.

• Potential delays in projects like Dow's Alberta project, with contractual protections in place but monitoring needed.
• Economic volatility impacting industrial activity globally, leading to softer base volumes.
• Uncertainties in global trade policy dampening overall industrial activity, causing volatility in end market trends.

Q: Michael Leithead asked about the impact of Dow's delayed Alberta project on Linde's associated project.

A: Sanjiv Lamba responded that on-site contracts have built-in protections for delays, with a grace period, and Linde will work with Dow to find alternatives while maintaining interests.

Q: Vincent Andrews inquired about EMEA margin performance and future margin profile.

A: Sanjiv Lamba stated EMEA margins were robust due to pricing and productivity efforts, expecting margins to continue growing as volumes improve.

Q: Duffy Fischer asked about the clean energy market and its sizing.

A: Sanjiv Lamba and Matthew White discussed the $50 billion opportunity over 10+ years, focusing on low carbon hydrogen (blue hydrogen) with support from 45Q, and confidence in the capital allocation algorithm including projects, buybacks, and acquisitions.

Q: David Begleiter questioned guidance and manufacturing weakness.

A: Sanjiv Lamba discussed manufacturing trends in the US, noting mixed sentiment but some resilience, and Matthew White talked about FX impact on guidance.

Q: Peter Clark asked about electronics backlog and EMEA margins.

A: Sanjiv Lamba mentioned strong project pipeline and backlog, with EMEA margins driven by the business model and hard work, expecting margins to continue.

Q: Laurent Favre asked about backlog delays and commitments.

A: Sanjiv Lamba discussed end market and geographic trends, with resilient markets growing but cyclical sectors softer, and focus on secular growth opportunities like electronics.

Q: Jeff Zekauskas asked about other income and SG&A.

A: Matthew White explained other income timing and SG&A reductions due to restructuring and lower incentive compensation.

Q: Stephen Byrne asked about productivity and pricing driving margin expansion.

A: Sanjiv Lamba and Matthew White discussed management actions as a key driver of margins, with productivity initiatives including AI and technology advancements.

Q: Michael Sison asked about 2025 outlook and industrial recovery.

A: Sanjiv Lamba and Matthew White discussed guidance placeholder and long-term industrial growth drivers like electronics, high growth markets, and new growth sectors.

Q: Patrick Cunningham asked about other income and SG&A.

A: Sanjiv Lamba and Matthew White responded on other income timing and SG&A reductions.

Q: John McNulty asked about U.S. on-shoring opportunities.

A: Sanjiv Lamba discussed potential growth in on-shoring, particularly in electronics, and other sectors as tariffs stabilize.

Q: John Roberts asked about pricing and inflation.

A: Sanjiv Lamba stated pricing is linked to globally weighted CPI, expecting inflation to support pricing.

Q: Kevin McCarthy asked about China's near term and productivity.

A: Sanjiv Lamba discussed moderated growth in China, productivity efforts including AI, and near term challenges in manufacturing sectors.

Q: Josh Spector asked about decarbonization in Europe.

A: Sanjiv Lamba discussed pragmatic decarbonization leading to potential regulatory changes supporting low carbon hydrogen projects, citing Equinor partnership as an example.