EPS grew 10% to $3.75, with a Return on Capital (ROC) increase to 25.6% and operating margins reaching 28.9%, despite a 1% volume decline.
Sales declined 1% year-over-year to $8.1 billion, with underlying sales increasing 1%. Price contributed a 2% increase, while volumes were down 1%.
Operating profit increased 6% from 2023, resulting in a margin of 28.9%, which is 200 basis points higher.
Capital expenditures (CapEx) increased by 26% over the previous year, with a revised full-year estimate for 2024 set to $4 billion to $4.5 billion.
Operating Cash Flow (OCF) was $2 billion, slightly above last year but 28% below the fourth quarter due to seasonal effects and collection timing.
Business Performance and Strategy
Linde faced stagnant economic conditions, particularly in the EMEA region, which impacted volumes negatively.
Growth strategies include focusing on pricing, small on-site projects, application technology, investments, and acquisitions to improve network density and trimming non-core areas like equipment hard goods.
Consumer-related markets, especially healthcare and food & beverage, showed resilience and growth. Healthcare remained stable, while food & beverage grew by 6%.
Electronics saw a 1% increase, with project startups in APAC contributing to growth, balanced by softer production levels in fabs.
Metals and mining were flat, with Linde signing new agreements for green steel production and expanding relationships in China for increased supply reliability.
Chemicals and energy sectors saw a 4% increase, driven by higher on-site volumes in the Americas and APAC.
Manufacturing end market was up 1%, mostly due to pricing, with volume declines in EMEA and the U.S.
Linde has a $5 billion backlog, expected to contribute to earnings in the next few years, with a focus on sectors like batteries, aerospace, and clean energy.
Outlook and Guidance
For Q2 2024, EPS is expected to be in the range of $3.70 to $3.80, representing 5% to 7% growth excluding a 1% assumed FX headwind.
Full-year guidance for 2024 is updated to a range of $15.30 to $15.60, indicating 9% to 11% growth excluding a 1% FX headwind.
The guidance assumes no significant economic improvement, maintaining a cautious outlook due to the uncertain macroeconomic and geopolitical landscape.
Capital Management
Linde executed $1 billion of share repurchases in the quarter and issued EUR 2.3 billion of long-term debt at attractive rates.
The company’s strong balance sheet and steady free cash flow position it well for ongoing shareholder value creation.
Question and Answer
Electronics Market Outlook
Question
How much leverage does Linde have to the electronics market, and are there signs of improvement in the electronics sector?
Answer
Electronics represents just under 10% of Linde’s overall portfolio, with about 30% of the current backlog attributed to electronics investments.
The company expects a recovery in the electronics market, particularly in the second half of the year, driven by AI chips and data centers.
Positive performance in China and signs of bottoming out in the rest of Asia suggest a potential recovery.
Low-Carbon Hydrogen Projects and OCI Partnership
Question
Can you provide an update on the low-carbon hydrogen market and the progress of projects, including the partnership with OCI and CO2 sequestration?
Answer
Momentum in clean energy projects, including low-carbon hydrogen, is moderating, with a focus on feasibility studies and project quality.
Linde’s pipeline of high-quality projects remains healthy, and the company expects to make investment decisions totaling $8 billion to $10 billion in the next few years.
The partnership with OCI for CO2 sequestration is progressing, with ExxonMobil contracted as the sequestration partner and Linde deploying its carbon capture technology.
Full-Year Guidance and Market Outlook
Question
Can you provide further insights into the full-year outlook and the factors influencing the guidance?
Answer
The company has narrowed its full-year guidance range due to a stagnant or declining economic environment in some regions.
The guidance is based on the current status and a sequential perspective, with no significant catalysts expected to change the outlook at this time.
Linde will continue to monitor the situation and take action if conditions deteriorate, with an update expected in July.
EMEA Margin and Pricing
Question
Can you discuss the factors contributing to the higher EMEA margin and the pricing environment in Europe?
Answer
The EMEA margin reflects a combination of factors, including price management, cost control, and managing the spread between the two.
The company’s use of AI in power management and other cost optimization efforts have contributed to the sustained margin improvement.
Linde’s pricing strategy focuses on product pricing rather than surcharges, ensuring sustainable pricing actions and product differentiation.
Volume Growth and Helium Business
Question
What is the contribution of new projects to volume growth, and how does the helium business impact overall margins?
Answer
New projects contribute approximately 1% to volume growth, with base volumes down around 2% reflecting the global industrial production trend.
The helium business is a very small, low single-digit part of sales and does not have a significant impact on overall margins.
CapEx and Productivity Initiatives
Question
Why is CapEx being reduced despite the lack of volume growth, and how are productivity initiatives being adjusted?
Answer
CapEx reduction is driven by optimization efforts in both the backlog and base CapEx, aligning with the current weak industrial activity.
The company remains open to increasing CapEx for high-quality growth projects, including small on-site and applications development.
Productivity initiatives in both Americas and EMEA continue to focus on cost management and project execution, with a track record of success in driving benefits.
Americas Performance and Aerospace Industry
Question
Can you quantify the impact of volume walkaways and one-time issues in the Americas, particularly in the manufacturing and healthcare segments?
Answer
The decline in manufacturing volumes is partly attributed to the rationalization of the hard goods equipment portfolio.
The healthcare segment saw continued demand in areas like sleep, oxygen, and respiratory, but this was offset by the rationalization of the DME portfolio.
The decline in healthcare and mid-single-digit decline in manufacturing were intentional actions to improve the quality and focus of the business.
Aerospace volumes were impacted by the lumpy nature of the industry, with a rebound expected in the next three quarters due to a higher number of launches and satellite deployments.
Project Cost Inflation and Sale of Gas vs. Sale of Plants
Question
Does project cost inflation influence the decision between selling gas or plants in new project discussions, and how does Linde evaluate the risk-return profile?
Answer
Project cost inflation is not a primary factor in the decision between sale of gas and sale of plants.
The company evaluates projects based on fundamental economics, risk-return profile, and alignment with investment criteria.
The optionality of selling gas or plants provides a competitive advantage and allows Linde to pursue projects that best fit its strategy.
Recent Decaptivation and Electrolyzer Investments in Latin America
Question
Is the decaptivation from a metals customer in Asia contributing to the books now, and can you provide insights into the electrolyzer investments in Latin America and the local environment?
Answer
The decaptivation from a steel customer in Asia is contributing to the books and reflects Linde’s strategy of enhancing network density and efficiency.
Decaptivation opportunities must meet the same investment criteria as organic investments, and the company is selective in pursuing them.
The electrolyzer investments in Brazil are attractive due to the high renewable energy mix and competitive pricing, making green hydrogen economically viable for customers.
Productivity Initiatives and Macro Outlook
Question
Have productivity initiatives in the Americas and EMEA been adjusted in response to the changing macroeconomic outlook?
Answer
Productivity initiatives remain a key focus, with a track record of success in driving cost management and project execution.
The company is actively managing costs and taking mitigation actions to navigate the current economic conditions and hold the guidance at the midpoint.
Pricing and Cost Dynamics in APAC
Question
How do you assess the balance between pricing and costs in the APAC region, particularly in light of recent moderation in pricing and a deflationary cost environment?
Answer
The company evaluates the spread between pricing and costs in each region, with a focus on managing the spread effectively.
In APAC, the deflationary conditions in China are offsetting the impact of flat pricing, resulting in a positive spread.
The spread management approach contributes to the margin expansion observed in the APAC region.
Acquisition Strategy and Targeted Acquisitions
Question
What is the pipeline of targeted acquisitions, and in which regions are there opportunities for tuck-in acquisitions to increase network density?
Answer
Linde is committed to pursuing tuck-in acquisitions globally to enhance network density and drive growth.
The company has a track record of successful tuck-in acquisitions in the U.S., with the recent nexAir acquisition in the Southeast region.
Similar opportunities are being explored in other regions, including Asia, Australia, China, Eastern Europe, the Middle East, and Western Europe.
Project Intake and Quality of Projects
Question
Is the lower project intake attributed to a focus on higher-quality projects, or are there other factors at play?
Answer
The lower project intake is not solely due to a focus on higher-quality projects, as the company has a healthy order intake pipeline and is actively pursuing opportunities.
Linde’s engineering business is a leader in the gas processing space and is well sought after by customers, contributing to a strong project intake.
The company expects to add back into the sale of gas backlog and engineering order intake to maintain a healthy project pipeline and end the year with a similar backlog level.
Involvement in H2 Green Steel Projects
Question
Why is Linde’s involvement in H2 Green Steel projects limited to the ASU contract and not the hydrogen supply, and should we expect larger exposure in future green steel projects?
Answer
The scope of Linde’s involvement in H2 Green Steel projects, including the supply of hydrogen, depends on the specific agreement with the customer and the project economics.
The company is selective in its approach to electrolysis projects, considering factors such as renewable energy availability, reliability, and capital intensity.
Linde is currently developing projects in Europe that include the supply of hydrogen for green steel production.
Working Capital Outflow and Q1 Cash Flow
Question
Can you quantify the impact of the Good Friday cutoff date on the working capital outflow in Q1 and whether we should expect a reversal in the second quarter?
Answer
The majority of the unfavorable year-on-year working capital impact is associated with the timing dynamics around the Good Friday cutoff date.
The company expects a rebound in working capital in the second quarter as the timing effects normalize.
Pricing Philosophy and Project Pipeline
Question
Does Linde’s pricing philosophy translate into share gains, and how is the current uncertainty, including elections, impacting the project pipeline and backlog?
Answer
Linde’s pricing philosophy focuses on product pricing and sustainable pricing actions, ensuring alignment with the globally weighted inflation and driving differentiation in the market.
The impact of elections on the project pipeline is minimal, with a healthy pipeline of traditional projects and a moderate slowdown in clean energy projects due to the need for clarity on incentives and penalties.
