The operator introduces the Linde Second Quarter 2024 Earnings Teleconference and Webcast, with the CEO, CFO, and Head of Investor Relations present. They discuss the company's financial performance and outlook, highlighting strong growth despite stagnant global industrial activity. The company's high-quality growth is attributed to the efforts of their employees and self-help actions taken to create shareholder value in any environment. Volume trends remained flat year-on-year, in line with expectations.

The current quarter saw a 3% increase in volume, with certain regions experiencing organic growth. Despite this positive sign, the company is not assuming a significant economic recovery in their guidance and will continue with disciplined pricing and proactive measures to ensure earnings growth. Consumer-related end markets, particularly food and beverage, continue to show strong growth, while electronics sales also saw a 7% increase driven by project backlog start-ups and base growth. The company aims for a healthy project backlog that contributes to earnings as per contract.

The company saw moderate improvements in base volumes in the U.S., China, and Korea, and healthcare is down 1% due to portfolio pruning. The chemicals and energy end market grew 5%, with potential for growth in clean energy projects. Metals and mining is slightly down, but there may be future growth opportunities. The manufacturing end market is trending up 4% primarily due to pricing actions, and global industrial production remains flat.

In the second quarter, Linde's sales were up 1% from last year and 2% sequentially, with foreign currency and cost pass-through presenting headwinds. Excluding these factors, organic sales were up 3% and volume was flat from 2023. Despite the challenging conditions, Linde delivered high-quality growth and remains confident in their ability to navigate uncertainty and ensure long-term performance. Matt White will now discuss the financial results in more detail.

The company's operating profit and EPS increased, with all gas segments showing improved margins. The company expects continued volatility in cash flow due to engineering project prepayments and seasonal effects on interest and tax payments. The company remains committed to maintaining a single A credit rating, increasing dividends annually, and investing in the business while also utilizing remaining funds for stock repurchases.

The speaker provides guidance for the third quarter and updated full year range for EPS, mentioning a 1% FX headwind. They also discuss their cautious approach to the second half of the year and how they have not seen enough encouraging signs in the economy. However, they have a culture of planning for the worst but hoping for the best and are confident in their ability to weather uncertainty and maintain industry-leading results. The speaker then turns the call over to Q&A, where the first question is about the lack of industrial gas demand and how Linde has been able to continue growing earnings through self-help actions.

Sanjiv Lamba, the speaker, acknowledges that the current macroeconomic environment is not supportive. However, he points out that over the past 4-5 quarters, there has been an industrial recession, but the company has managed to deliver 10%-plus earnings growth. This is due to their ability to quickly take action and see across different markets and geographies. Lamba is confident that the company will continue to deliver 10%-plus EPS growth in the future, as they have a strong understanding of how to do so. The company's EPS algorithm, which includes factors such as backlog and start-ups, gives them confidence in their ability to achieve this growth.

The paragraph discusses the factors contributing to Linde's expected EPS growth, including start-ups, pricing and productivity, volume, and share buybacks. The company expects to see a 1-2% contribution from start-ups, more than half of the growth from pricing and productivity, and potentially a multiplier effect from volume. The company also generates a lot of cash and uses it for share buybacks. The questioner asks why the company wouldn't see volume growth in the third quarter, to which the company responds that the comparisons are getting easier in the back half of the year.

The speaker explains that while there may be neutral to positive year-over-year results due to easier comps, their focus is on a sequential basis and assumes no economic pick-up. They also mention that while front-end activity is busy, customers are taking longer to reach FID decisions. In terms of healthcare, the speaker mentions that there is still some pruning left in the portfolio and it is uncertain when it will be completed.

Sanjiv Lamba explains the current state of the healthcare business and the impact of pruning on the portfolio. He expects mid-single-digit growth in the long term due to demographics. Inflation and productivity must go hand in hand to maintain attractive margins. In response to a question about the ExxonMobil contract, Lamba discusses the potential impact of increased argon merchant availability and access to pipelines on the market.

Sanjiv Lamba discusses the U.S. market for argon and the potential for pipeline access for the right contracts. He notes that Air Liquide has a different strategy and it's not for him to comment on, but from their perspective, the market is stable and there is growth. He expects product to be placed in the market at a reasonable pace. He also mentions the importance of their pipeline network in the U.S. Gulf Coast and how it is critical for their business and future growth, especially with low carbon hydrogen developments. He remains optimistic about opportunities in the U.S. market.

During a recent conference call, Sanjiv Lamba and Peter Clark of Gulf Coast discussed their plans for developing infrastructure and building further caverns for future growth. They also addressed the topic of interest rates and how they may impact their business and their customers' behavior. Matt White, who is passionate about the subject, shared his opinion that the recent increase in interest rates may have affected large capital deployments and durable goods, potentially impacting the purchasing power of customers in industries that use materials such as plastics, metals, and cement.

The weak industrial production PMI numbers over the past 18 months can be attributed to a combination of factors, including interest rate sensitivity among affected customers and a lack of government infrastructure spending. However, the consumer sector has remained strong during this time. There is a possibility that GDP could contract, leading to a real recession, but a decline in interest rates could potentially help thaw out the durables market and lead to more stability and reasonable pricing. This could potentially encourage customers to move forward with projects that have been delayed due to high costs. Overall, the speaker views the potential decline in interest rates as a positive development that could help push projects over the final hurdle and lead to more contracts being signed.

Laurent Favre asks Sanjiv Lamba about the opportunity for new projects in electronics, particularly in relation to AI and data centers. Sanjiv responds by saying that there have been early signs of a recovery in electronics and that they have started Phase 1 of TSMC in Phoenix and are building other plants for companies like Samsung and Intel. He also mentions that there is growth in demand for electronics in Asia and expects to see more investments and announcements in the future, driven by data and AI needs. However, he notes that the hype around AI has decreased.

The speaker discusses the potential impact of AI on industries and markets, and expects continued investment in data centers and chip production. They also mention challenges in the helium market, particularly in Asia Pacific, but note that helium is a small portion of their overall sales and is subject to global pricing based on supply and demand.

The APAC region is experiencing pressure on helium prices due to an influx of Russian supply, which has primarily affected China. However, the company has diversified its supply and has a strong global business, which helps to stabilize the market. The helium component of the other segment represents intercompany transfer pricing and the majority of the profit is reflected in the gas segments. Changes in the cost of helium will affect the other segment, while pricing dynamics will impact the gas segments.

Sanjiv Lamba explains that the company has a defensive business portfolio, with contracted on-site business and resilient end markets such as food and beverage and healthcare. This provides resilience and robustness, even in the face of potential manufacturing and industrial downturns.

The company has a strong and resilient business due to its contracted rental streams and backlog of projects. This makes up about 3/4 of their business and provides stability even in uncertain times. The backlog is worth $7.9 billion and is expected to contribute to future growth. The company has already started working on projects worth $1.5 to $2 billion in the first half of the year. The backlog is date certain and will continue to bring in revenue regardless of the customers' project progress. The company is confident in the quality of its backlog and it has already started contributing to earnings. Pricing in the Americas has been a source of strength for the company and its competitors.

The speaker discusses the trend of positive pricing in the Americas, which has been consistent over the past 15-20 years, and is aligned with global CPI. This trend is expected to continue due to management action driving pricing efforts. In the APAC region, pricing is currently slightly shorter, but efforts are being made to improve it.

The speaker mentions that China's deflation doesn't help the company, but they are still making pricing efforts in that market. He also explains that their pricing is up in the Americas due to higher inflation rates in countries like Brazil, Central America, and South America. They track CPI on an annualized basis and it continues to track closely with their pricing efforts. The inflation levels in LatAm are elevated compared to regions like the US and Europe.

The speaker, Sanjiv Lamba, responds to a question about Linde's previous $3 billion investment plan to decarbonize their operations. He explains that they are currently focused on the first pillar of the plan, which is to decarbonize their own operations, and are conducting FEED studies for their steam methane reformers in the U.S. Gulf Coast. They are on track to meet their 2035 targets.

In the paragraph, the speaker discusses the current state of the market in the Americas and the impact it has had on their business. They mention that industrial activity has been sluggish, but hydrogen demand has remained strong. The speaker also notes that hard goods are a leading indicator of manufacturing and industrial activity. They expect to see business cases developed as they continue their FEED study, and estimate that the project will cost around $3 billion.

The company saw a decline in hard good sales during the quarter, indicating a softer manufacturing environment. However, hard goods were sequentially flat, suggesting that the situation is not worsening. The company serves Tier 1 customers in China, which has helped stabilize their business during the downturn. The company has been taking cost actions for the past 18 months to manage fixed costs and increase productivity in China. These actions have already been completed.

The speaker is satisfied with the company's cost base and is implementing productivity programs in China, such as using drones and robots for safety checks, to reduce costs. They are also working on increasing pricing in order to maintain a 2% growth rate. Positive pricing movement is being seen in the industrials, merchant, and packaged sectors.

The company is seeing lower pricing on helium and rare gases due to lower demand from the electronics segment and increased competition from Russia in the Chinese market. However, industrial pricing remains strong and the team is confident in their momentum. The company's capital allocation policy includes a focus on repurchases, which are expected to continue at a steady pace. The company also has room for potential bolt-on deals within their single A rating, and they anticipate an increase in operating cash flow in the second half of the year. The repurchase plan is determined based on the company's capital allocation policy and will look out for four quarters ahead.

During the last quarter, the company accelerated its stock repurchases and saw good pricing, and this will continue to be part of their capital allocation plan. They will also take advantage of any significant opportunities that arise in the market, as they have done in the past during times like the COVID pandemic and the financial crisis. They will also continue to evaluate potential tuck-in acquisitions, especially in North America and APAC. Their investment criteria for these acquisitions remains the same. Return on invested capital may plateau or even increase as long as earnings are driven by productivity in consumer-based markets.

The speaker discusses the company's margins and return on capital, which are currently industry leading. They plan to continue growing while maintaining or improving these metrics. The speaker also mentions that their capital allocation policy will not change and that their growth rate will determine the numerator in their return on capital equation. However, the company's investment decisions are primarily driven by cash IRR.

The company's growth will not be affected by a backward-looking accounting metric, as return on capital is viewed as a key investor metric and the company will continue to lead the industry in this area. The call has now concluded and participants are encouraged to reach out with any further questions.

This summary was generated with AI and may contain some inaccuracies.