Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Linde PLC (LIN, Financial) reported a record EPS of $3.85, operating margins of 29.3%, and return on capital of 25.7%, showcasing strong financial performance.
- The company experienced a 3% sequential volume growth, indicating some positive momentum despite a flat year-on-year volume trend.
- Food and beverage end markets grew by 8% over the prior year, driven by increased demand for innovative frozen foods, food packaging, and meal delivery services.
- Linde PLC (LIN) successfully started up phase one of its supply system in Phoenix, Arizona for TSMC, contributing to the 7% growth in electronic sales.
- The company maintained a disciplined approach to pricing and proactive actions, ensuring earnings growth even in a challenging economic environment.
Negative Points
- Healthcare end markets were down 1% from the prior year and flat sequentially, primarily due to rationalizing Homecare product and service offerings.
- Metals and mining volumes decreased year-over-year, mainly due to lower North American steel volumes serving the automotive and construction markets.
- Foreign currency and cost pass-through presented headwinds, with a minus 3% year-over-year and minus 2% sequential impact on sales.
- Operating cash flow was 10% below last year, driven by project prepayments and seasonal effects on interest and tax payments.
- The company remains cautious about the economic outlook, not assuming any meaningful recovery in its guidance, reflecting uncertainty in the industrial macro environment.
Q & A Highlights
Q: When we look at your results and your peers, it doesn't seem like there's much industrial gas demand out there right now. Can you talk through your confidence in how you expect to continue driving 10 plus percent earnings growth just in this macro backdrop?
A: (Matthew J. White, Executive VP & CFO) Despite the industrial recession over the past few quarters, we've managed to deliver consistent EPS growth through proactive management actions. Our EPS growth algorithm includes contributions from project backlog, pricing and productivity, potential volume uptick, and share buybacks. We remain confident in achieving 10 plus percent EPS growth even in a no-growth environment.
Q: On the sequential volume growth of 3% in the quarter, why wouldn't we see volume growth through Linde in Q3 year over year?
A: (Matthew J. White, Executive VP & CFO) The comps get easier in the back half, so on a year-over-year basis, you might see neutral to positive growth. However, our guidance assumes no economic improvement on a sequential basis. We are prepared to manage to the reality of whatever happens, good or bad.
Q: Can we dig in a little bit on healthcare? How much pruning do you have left, and when do you think that's done?
A: (Matthew J. White, Executive VP & CFO) We expect to complete the pruning by the end of the year. Long-term, demographic trends will drive mid-single-digit growth. Inflation and productivity will go hand in hand to maintain attractive margins.
Q: On the ExxonMobil contract, what sort of impact could that have on the market? And would you consider granting access to your pipeline for rights holders?
A: (Matthew J. White, Executive VP & CFO) The U.S. market remains strong with growth in demand. Our pipeline network, developed over decades, is critical for future growth, especially around low-carbon hydrogen developments. We aim to fully leverage this infrastructure for continued growth.
Q: What are your thoughts on the impact of potential interest rate decreases on your macro outlook and customer behavior?
A: (Matthew J. White, Executive VP & CFO) Lower interest rates could spur durable goods and large capital-intensive purchases, potentially improving industrial production. This could help move some projects to final investment decisions (FID) and sign contracts, positively impacting our business.
Q: Can you talk about the opportunity in electronics, particularly with AI and better semiconductors?
A: (Matthew J. White, Executive VP & CFO) We are seeing early signals of recovery in electronics. We have ongoing projects with major semiconductor manufacturers and expect continued momentum driven by AI and data center investments. We are well-positioned to capture growth in this sector.
Q: Can you discuss the challenges in helium in your APAC business and the broader helium fundamentals?
A: (Matthew J. White, Executive VP & CFO) Helium pricing in APAC is pressured by Russian supply and lower electronics demand. However, our diverse supply and robust global business provide stability. We expect pricing to stabilize and continue to manage costs effectively.
Q: How do you think your portfolio will fare if industrial activity worsens sequentially into the third and fourth quarters?
A: (Matthew J. White, Executive VP & CFO) Our business is defensive with a significant portion contracted or in resilient end markets like food and beverage and healthcare. Our backlog of $7.9 billion is robust and will continue to contribute to earnings. We are well-positioned to navigate any downturn.
Q: Can you talk about pricing trends in the Americas and the impact of inflation?
A: (Matthew J. White, Executive VP & CFO) Pricing in the Americas remains robust, driven by both the U.S. and Latin American markets. We track or slightly ahead of globally weighted CPI. Inflation in Latin America is higher, contributing to stronger pricing trends in the region.
Q: Can you update us on your decarbonization investments and the $3 billion target?
A: (Matthew J. White, Executive VP & CFO) We are progressing with FEED studies for our SMRs in the U.S. Gulf Coast. These studies will determine the best decarbonization methods. The $3 billion estimate remains a good ballpark, and we are on track with our 2035 targets.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
