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    LIN
    Earnings call· Mar 2025(Q1 FY25)

    LINDE Q1 FY25 earnings call LIN

    May 1, 2025 Source

    Executive summary

    Linde Q1 FY25 — Resilient Performance Amidst Economic Headwinds

    Linde delivered resilient first-quarter results, leveraging its defensive business model and operational efficiency to expand margins and grow EPS ex-FX despite a challenging economic backdrop. The company maintains a cautious outlook for the near term, anticipating continued industrial sluggishness, but remains confident in its long-term growth algorithm driven by strategic capital allocation and a robust project backlog.

    Highlights

    5

    • EPS excluding FX grew 8% year-over-year.

    • Operating margins expanded 120 basis points to 30.1%.

    • Operating cash flow increased 11% to $2.2 billion.

    • Annual dividend raised 8%, marking 32 consecutive years of growth.

    • Strong backlog of $10 billion, with over $7 billion in sale of gas projects.

    Concerns

    4

    • Sales were flat year-over-year and down 2% sequentially.

    • Foreign currency translation resulted in a 3% headwind.

    • Volumes declined 1% year-over-year, driven by 2% lower base volumes.

    • Full-year guidance midpoint maintained, but assumes a 2% EPS headwind from lower volumes due to recessionary conditions.

    Guidance & targets

    12
    CategoryTargetConfidence
    Q2 FY25 Adjusted EPS
    $3.95 to $4.05
    high materiality
    High
    Full-year FY25 Adjusted EPS
    $16.20 to $16.50
    high materiality
    High
    Project Backlog Startup
    $1 billion
    medium materiality
    High
    Year-end Project Backlog
    slightly higher than $7 billion
    medium materiality
    High
    Capital Allocation Algorithm EPS Growth
    4% to 6%
    high materiality
    High
    Management Actions EPS Growth
    at least another 4% to 6%
    high materiality
    High
    Clean Energy Project Opportunity
    $8 billion to $10 billion
    high materiality
    High
    Green Hydrogen Development Scale
    5 to 7 years out
    medium materiality
    Medium
    Americas Volumes
    flattish
    medium materiality
    Medium
    Europe Volumes
    continued softening
    medium materiality
    Medium
    China Volumes
    no growth
    medium materiality
    Medium
    China Industrial Production Growth
    low to medium single-digit
    medium materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    APAC
    China trends remained consistent, with strength in battery and electronics, though rare gases and helium prices were lower. Industrial end markets showed softness. Korea secured a new project win. Australia saw weaker manufacturing, while India was a strong growth region.
    China trends: consistent (seasonally weaker Q1)China battery and electronics: strengthRare gases and helium prices: lower than prior yearIndustrial end markets: softness across mostKorea: mostly tied to electronic sector, new project winAustralia manufacturing trends: weaker, impacting packaged gas volumesIndia: one of the better growth regions globally
    		————
    EMEA
    No meaningful improvement in industrial activity, but encouraged by pragmatic discussions around decarbonization. Operating margin has improved from 19% in 2019 to over 35% today due to sustained management actions.
    Industrial activity: no meaningful improvementOperating margin (2019): 19%
    		———35%+
    Americas
    Experienced weakness in Canada and U.S. packaged gases, but U.S. bulk and North Latin America volumes grew low to mid-single-digit. The segment saw the highest price increase at 3% due to inflationary pressures.
    Canada and U.S. packaged gases: weakness from manufacturing uncertaintyU.S. bulk North Latin America volumes: low to mid-single-digit percent growthSegment price increase: 3%
    		————

    Operational metrics

    28
    Adjusted EPS growth (ex-FX)
    8%YoY
    Q1 FY25

    Despite headwinds, Linde employees delivered resilient results.

    Operating margin
    30.1%+120 bps YoY
    Q1 FY25

    Expanded operating margins 120 basis points to 30.1%.

    Return on Capital (ROC)
    25.7%
    Q1 FY25

    Maintaining industry-leading ROC at 25.7%.

    Sales
    $8.1 billionflat YoY, -2% sequentially
    Q1 FY25

    Sales of $8.1 billion were flat to prior year and down 2% sequentially.

    Foreign currency headwind
    3%
    Q1 FY25

    Versus prior year, the foreign currency headwind was volatile, starting at 4% but ending with 2% for an overall first quarter average of 3%.

    Cost pass-through increase
    1%
    Q1 FY25

    Cost pass-through increased 1% from higher natural gas pricing but had minimal effect on profit.

    Net acquisitions contribution
    1%
    Q1 FY25

    Net acquisitions contributed 1%, primarily from packaged gas tuck-ins in North America.

    Underlying sales growth
    1%YoY
    Q1 FY25

    Excluding these items, underlying sales increased 1% from last year as higher pricing was partially offset by lower volumes.

    Operating profit
    $2.4 billion+4% YoY
    Q1 FY25

    Operating profit of $2.4 billion increased 4% and resulted in a margin of 30.1%.

    Adjusted EPS
    $3.95+5% YoY
    Q1 FY25

    EPS of $3.95 in was 5% over prior year or 8% when excluding the effects of currency translation.

    Capital expenditure
    $1.3 billion
    Q1 FY25

    CapEx of $1.3 billion was equally split between base CapEx and project backlog.

    Project CapEx increase
    58%
    Q1 FY25

    The 58% increase in project CapEx supports the record $7 billion sale of gas backlog.

    Annual dividend increase
    8%
    Annual

    During the quarter, we raised the annual dividend by 8%, representing 32 straight years of dividend growth.

    Dividend growth streak
    32
    Consecutive

    32 straight years of dividend growth.

    Average dividend growth rate
    13%
    Long-term

    average rate of 13%.

    Stock repurchased
    $1.1 billion
    Q1 FY25

    We also repurchased $1.1 billion of stock.

    Reinvested into business
    $1.3 billion
    Q1 FY25

    reinvesting almost $1.3 billion back into the business.

    Average bond coupon
    3%
    Current

    evidenced by our most recent 3% average bond coupon.

    Guidance FX change impact
    $0.30lowered
    FY25

    On your guidance, you lowered by roughly $0.30 FX.

    Other income
    $200 million
    FY24

    In 2024, your other income was $200 million, sort of a positive change of about $234 million.

    Other income (Q1 YoY drop)
    $40 milliondrop
    Q1 FY25

    when you look at the Q1 year-over-year, you see a fairly large drop in other income going from almost around $60 million to $20 million.

    SG&A expense reduction
    9%YoY
    Q1 FY25

    in your SG&A expense, I think it was down 9% from $860 million to $786 million.

    Base volume EPS impact
    1.5% to 2%
    Per 1% base volume

    every 1% of base volume assumption, roughly a 2% EPS impact, give or take, maybe 1.5%.

    Productivity projects (last year)
    15,515
    FY24

    Last year, we did 15,515 projects.

    Productivity projects (Q1)
    4,000+
    Q1 FY25

    This year in the first quarter, we've done more than 4,000 projects.

    Digital/AI contribution to productivity
    30-32%
    Current

    about 30%, 31%, 32% of our -- all our productivity efforts come out of digital and AI solutions.

    China EV penetration
    40%
    Current

    About 40% of all EVs in China -- 40% of all cars in China are today EVs.

    Pricing proxy
    globally weighted CPI
    Long-term

    a good proxy of our pricing is globally weighted CPI.

    Industry KPIs

    3
    MetricValueDetails
    Volume vs price splitPricing up, volumes down
    Helium supply demand pricinglower than prior year
    Productivity cost savings program15,515 projects (FY24); >4,000 projects (Q1 FY25)projects

    Orderbook & backlog

    2
    Total Project Backlog$10 billionQ1 FY25 end
    Sale of Gas Project Backlog$7 billionQ1 FY25 end

    Underpinned by long-term contracts with secured returns driving future growth.

    Deals & partnerships

    2
    DowPartner on Alberta project

    Dow recently announced the delay of its Alberta project, Linde is a partner on that. Linde has contractual protection for customer-driven delays.

    EquinorProject development agreement for low carbon hydrogen projects in Europe

    We have signed a project development agreement with Equinor for the development of low carbon hydrogen projects in Europe.

    Capital programs

    5
    Dow Alberta Projectdelayed

    Dow recently announced the delay of its Alberta project, Linde is a partner on that. Linde has contractual protection for customer-driven delays.

    Two Largest Projects in Historyunderway

    We're actively constructing the 2 largest projects in our history. So I anticipate elevated levels for a few more quarters.

    Phoenix Fab Supply (TSMC)underway

    we won and build the Phoenix supply to the Phoenix fab for TSMC.

    Taylor, Texas Fab Supply (Samsung)underway

    We are building at Taylor, Texas, for Samsung.

    Low Carbon Hydrogen Projects (Europe)project development agreement signed

    we have signed a project development agreement with Equinor for the development of low carbon hydrogen projects in Europe

    Risks & headwinds

    10
    Volatile and uncertain economic conditionsCurrent

    More negative than positive developments

    Mitigation: Linde operating model's defensive nature, leveraging operating rhythm to adapt, high-quality growth.

    Sluggish industrial activityQ1 FY25, expected to continue

    Volumes declined 1% (2% lower base volumes)

    Mitigation: Management actions, pricing, cost productivity.

    Foreign currency headwindQ1 FY25, expected to continue into Q2

    3% average headwind in Q1 FY25

    Mitigation: Offset by other factors in guidance, e.g., volume assumption.

    Lower rare gases and helium pricesQ1 FY25, expected to continue

    Lower than prior year

    Manufacturing uncertaintyQ1 FY25, expected to continue

    Weakness in Canada and U.S. packaged gases

    Mitigation: Productivity programs, contractual pricing clauses.

    Recessionary conditionsQ2 FY25 and FY25

    2% EPS headwind from lower volumes assumed at midpoint of Q2 and FY25 guidance

    Mitigation: Proactive actions, long-term proven capital allocation strategy, secure balance sheet.

    Rapid changes in global trade policyCurrent, ongoing

    Dampening effect on overall industrial activity

    Mitigation: Leveraging operating rhythm to adapt, potential for onshoring/reshoring opportunities.

    Continued softening demand in Western EuropeFY25

    Lower volumes in industrial sector (metals, manufacturing, chemicals, energy)

    Mitigation: EMEA team's focus on pricing and productivity to maintain margins.

    No growth in ChinaFY25

    Steel and chemicals weak, merchant and packaged business stress due to tariffs

    Mitigation: Strong productivity benefits from China business, focus on green shoots (EV, electronics).

    Regulatory frameworks in EuropeOngoing

    Struggled with ideology rather than pragmatism regarding decarbonization

    Mitigation: Engaging in discussions for regulatory change to accept carbon capture and sequestration for low carbon hydrogen.

    What to watch in Q2 FY25

    5

    Dow Alberta Project Status

    Next quarter
    CurrentDelayed
    TargetClarity on revised timeline and financial impact

    Why it matters

    This project is part of Linde's significant backlog, and its timing affects future revenue and capital deployment.

    Dow recently announced the delay of its Alberta project, Linde is a partner on that. Can you speak to what impact you expect that to have on your associated project timing and start up? Or what contingencies Linde has to protect itself there?

    Q&A highlights

    5

    What is the expected impact of Dow's Alberta project delay on Linde's project timing and startup, and what contingencies does Linde have?

    Linde has contractual protections for customer-driven delays, including invoicing after a grace period. The company will work with Dow on alternatives while maintaining its interests.

    “most on-site contracts that we've had and continue to have build and contracted protection for events such as delays driven by customers. So this is not new. It typically happens. There is a typical grace period beyond which we have our invoicing that starts and the customer starts paying.”

    asked by Michael Leithead · answered by Sanjiv Lamba

    2 min read7 chapters

    Detailed Narrative

    01

    Defensive Business Model & Resilience

    Linde highlighted its defensive business model, with nearly two-thirds of global gas sales coming from resilient end markets (healthcare, electronics, food & beverage), fixed facility fees from on-site customers, and contractual rental fees on owned assets. This model has historically provided earning stability during economic stress, contributing to a 12% EPS CAGR over the last three decades, and is expected to continue supporting performance in 2025.

    02

    Regional Performance & End-Market Trends

    APAC saw consistent trends in China (battery, electronics strength, lower rare gases/helium prices) and strong growth in India, while Australia experienced weaker manufacturing. EMEA showed no meaningful industrial improvement, though decarbonization discussions are becoming more pragmatic. The Americas presented a mixed picture, with weakness in Canada/U.S. packaged gases offset by low-to-mid single-digit growth in U.S. bulk/North Latin America, and the highest segment price increase at 3%.

    03

    Capital Management & Allocation

    The company generated $2.2 billion in operating cash flow, up 11% year-over-year. Linde maintains a disciplined capital allocation strategy, balancing reinvestment into the business ($1.3 billion in Q1) with shareholder returns, including an 8% annual dividend increase (32nd consecutive year) and $1.1 billion in share repurchases. This approach, supported by a strong balance sheet, aims to deliver 4-6% EPS growth from capital allocation.

    04

    Clean Energy & Project Backlog

    Linde's project backlog stands at $10 billion, with over $7 billion in sale of gas projects, underpinning future growth. The company is actively constructing its two largest projects, contributing to elevated project CapEx. Management expects to start up $1 billion from the backlog in H2 FY25 and anticipates the year-end backlog to be slightly higher than current levels. The clean energy opportunity is sized at $8-10 billion over the next few years, with Linde halfway to this target, primarily focused on low-carbon (blue) hydrogen projects.

    05

    Productivity & Digital Transformation

    Productivity initiatives are a core driver of margin expansion, contributing significantly to EPS growth. Linde executed over 4,000 productivity projects in Q1, with 30-32% driven by digital and AI solutions. Examples include AI-powered power optimization for ASU operations and telemetry-driven predictive scheduling for gas distribution, demonstrating continuous efforts to enhance efficiency and reduce costs.

    06

    Outlook & Economic Assumptions

    For Q2 and full-year FY25, Linde's guidance assumes recessionary conditions at the midpoint, translating to a 2% EPS headwind from lower volumes. While FX headwinds🌐 improved by 2%, this benefit was offset by an equivalent negative volume assumption. The company expects Americas volumes to be flattish, Europe to see continued softening, and China to experience no growth for the year, with particular weakness in metals and chemicals.

    07

    Tariff Impact & Onshoring Opportunities

    Management acknowledged that rapid changes in global trade policy and tariff headwinds🌐 are dampening industrial activity, particularly impacting China's export-driven manufacturing. However, they also noted increasing conversations around potential reshoring and onshoring of capacities in the U.S., beyond electronics, which could present attractive growth opportunities for Linde given its dense domestic footprint.

    AI-generated summary of the company’s earnings call. Not investment advice.