The paragraph is a transcript from Linde's Third Quarter 2024 Earnings Teleconference and Webcast. It introduces key speakers, including Juan Pelaez, the Head of Investor Relations; Sanjiv Lamba, the CEO; and Matt White, the CFO. Juan outlines the agenda, mentioning the availability of presentation materials and the importance of reading the forward-looking statement disclosure. Sanjiv Lamba then reflects on the company's strong third-quarter results, highlighting record highs in earnings per share, return on capital, and operating margin despite challenging economic conditions. He acknowledges anticipated sluggish industrial activity and expresses concerns over ongoing economic weakness, noting that the company has implemented targeted cost reductions in response.

The paragraph discusses the impact of a workforce reduction affecting 2% of employees globally. It notes a slight decline in industrial-related end markets, consistent with previous projections, though North America shows positive growth. Geopolitical tensions and economic uncertainty impact large purchases in EMEA and parts of APAC, particularly China, affecting industries like steel, glass, and chemicals. Consumer-related markets, however, exhibit slight growth, particularly in food, beverage, and healthcare. The electronics sector is slowly recovering with expected sequential growth. Overall, the economic outlook is stagnant or slightly declining.

The paragraph discusses Linde's strategic investment in a significant gas project with Dow Chemical, aimed at achieving net-zero carbon emissions at Dow's Alberta, Canada complex. The project, valued at over $2 billion, involves supplying low carbon hydrogen and other services. It's expected to start by late 2028 and aligns with Linde's strategy of engaging in traditional industrial gas contracts, reinforcing their market presence and creating opportunities for future collaborations. This initiative underlines Linde's commitment to clean energy transition and expanding their capabilities in industrial gas supply.

The paragraph highlights Linde's financial performance and strategic positioning amid economic uncertainty. Despite a challenging global industrial environment, Linde reports third-quarter sales of $8.4 billion, a 2% year-over-year increase. The engineering sector saw growth due to higher project activity and LNG infrastructure demand. Operating profit rose 7% to $2.5 billion, driven by project contributions, pricing, and cost productivity, leading to a higher operating margin. Earnings per share increased by 9%. A $150 million net restructuring charge was incurred for workforce reductions, expected to yield savings in the next year. Linde remains confident in delivering strong results despite the broader economic challenges.

The paragraph discusses the company's capital management for the quarter, highlighting an operating cash flow (OCF) of $2.7 billion, which is an improvement from both the previous year and quarter. The capital allocation strategy remains consistent, with significant investment in the business and returns to shareholders. Capital expenditure (CapEx) has increased primarily due to a specific project, while base CapEx has decreased due to efficiency initiatives. The company provides fourth-quarter earnings guidance with an expected 8% to 10% growth in EPS, factoring in an economic contraction assumption and no currency impact. The full-year guidance has been slightly lowered due to updated economic assumptions. Overall, the company notes weak global industrial activity and does not foresee immediate improvements.

The paragraph discusses the company's preparedness for uncertainty amid geopolitical tensions and regulatory challenges, highlighting their strong financial position, disciplined project backlog, and efficient operations. They are confident in sustaining high-quality growth and industry-leading performance despite potential economic contractions. During a Q&A session, Sanjiv Lamba notes the lack of global economic optimism, identifying Europe and China as regions facing significant macroeconomic pressures, with Europe's volume developments under strain and China's industrial growth prospects remaining bleak.

The paragraph discusses bright spots in the global economy, particularly focusing on North America, mainly the U.S., which has shown resilience and is at a peak, with hopes for stable growth. Additionally, India and Mexico are experiencing consistent growth due to near-shoring and reshoring strategies. Despite these positives, there's a broader industrial recession globally. The conversation shifts to a question from Vincent Andrews from Morgan Stanley about Linde's recent de-captivation of two ASUs in India, questioning if it's a result of economic weaknesses or a long-term strategy. Sanjiv Lamba explains that the de-captivation was driven by customer interest and involves plants initially sourced from a competitor.

The paragraph discusses a project in Kalinga Nagar, Orissa, which has been integrated into an existing network, providing innovative energy solutions and enhancing network density. This project aligns with investment criteria and offers a reliable supply to customers. The speaker connects this project to past de-captivation efforts in Fujian, China, noting that they annually assess 8-10 opportunities, selecting those that can enhance their network. The discussion then shifts to Duffy Fischer from Goldman Sachs asking about the healthcare business, specifically recent pruning activities, their duration, and future growth expectations. Sanjiv Lamba proceeds to address these inquiries about the healthcare segment.

The paragraph discusses the healthcare business's growth, particularly focusing on hospital care and home care segments. The company has mainly completed its restructuring and portfolio cleanup in the home care segment, especially in the U.S., with expected completion by the end of the year. They anticipate low to mid-single-digit growth rates in healthcare. Duffy Fischer acknowledges this, and David Begleiter from Deutsche Bank asks about potential economic contraction in Q4. Matt White explains that any contraction would be sequential and not related to seasonal slowdowns, though extended outages beyond typical holiday periods could indicate weakness.

The paragraph discusses the possibility of extending outages due to customer order intake or workload issues, excluding seasonality. The speaker expresses preparedness for such situations and acknowledges the uncertainty of outcomes, suggesting a potential upside if conditions improve. A question is raised by Peter Clark concerning the $8 billion to $10 billion investment target. He notes positive developments and partnerships in areas like U.S. blue ammonia and Europe, mentioning Equinor and feasibility studies with BSF. Sanjiv Lamba responds, sharing confidence in reaching the investment target and offering an overview of progress in hydrogen development.

The paragraph discusses the state of hydrogen development projects, noting that there's been significant initial excitement, particularly around renewable or green hydrogen. However, challenges such as unclear incentives, evolving regulations, rising capital costs, and lower-than-expected returns have resulted in the cancellation of many projects. This has led to a "sanity check," with only economically viable and high-quality projects continuing. Despite these challenges, the speaker remains confident in the industry's growth potential and the projections of $8 billion to $10 billion in developments over the coming years.

The paragraph discusses a company's selective focus on projects in the low carbon hydrogen or blue hydrogen sector, noting the mature, scalable technology and cost competitiveness of the end product. It highlights the importance of these factors in making decisions for decarbonization projects, which are economically challenging. The speaker, Peter Clark, expresses satisfaction with the current market trends towards hydrogen. The conversation then shifts to a question from Jeff Zekauskas of JPMorgan regarding pricing trends. Matt White clarifies that instead of deflation, the company is experiencing disinflation globally, with positive pricing across base gases, translating to about double the pricing in their merchant and packaged businesses.

The paragraph discusses the pricing trends of helium and other products, noting slight declines or stability in helium pricing due to global supply and demand factors. It highlights that some pricing fluctuations are due to contract anniversaries and timing impacts but expresses confidence about future performance, particularly in the fourth quarter. The discussion then shifts to a Q&A where Steve Byrne from Bank of America asks about Linde's technical capabilities and future strategies, specifically regarding building an ATR for Dow and potentially reforming natural gas for hydrogen needs. Sanjiv Lamba responds, highlighting Linde's ability to integrate different technologies and customize solutions for their customers.

The paragraph describes a project involving two major technological components: an ATR (autothermal reformer) and a PSA (pressure swing adsorption) unit. The ATR processes natural gas into hydrogen and produces high-purity CO2, which can be easily captured. This technology has been successfully operated for several years and is being further implemented at OCI. The PSA unit processes off-gas, cleans it, and provides clean hydrogen back to Dow, with any CO2 captured and also provided to Dow. The integration of these technologies has been proven effective on the Gulf Coast of Texas and is being used to develop a comprehensive solution for Dow.

In the paragraph, Stephen Richardson from Evercore ISI asks Sanjiv Lamba about the impact on their business from recent restructuring and potential exit announcements in the European chemical industry. Sanjiv Lamba responds by acknowledging the reports but states they have not yet received any indications from their major European customers about major closures. He emphasizes that they are monitoring the situation closely and that they have contracts in place to protect their investments if customers decide to shut down operations. He reassures that their model and contracting discipline safeguard their investors' interests.

The paragraph discusses future projections and planning for 2025, with Sanjiv Lamba indicating that while current expectations for the first half of 2025 might be similar to the less-than-ideal conditions of late 2024, more detailed guidance will be provided in February after internal planning meetings. John McNulty from BMO Capital Markets inquires about the significant increase in the sale of gas backlog, particularly its components and timing. Matt White responds, noting that typical projects take about three years from signing to realization.

The paragraph discusses the typical timeframe for project completion and startup, which is usually around three years. However, larger clean energy projects, like those involving Dow, can take four years or more due to their extensive scope. The speaker, Sanjiv Lamba, expresses that a shrinking backlog is positive and mentions that they've started numerous projects this year, expecting over $1 billion to be cleared from the backlog. He notes that new projects, including those with Dow, have also been added to the backlog. Following this, John McNulty thanks him for the information. Patrick Cunningham from Citi then asks about potential changes in capital allocation for 2025 and 2026, specifically regarding repurchases, in light of new, larger projects in the backlog. Matt White acknowledges the question.

The paragraph discusses the company's capital allocation strategy, emphasizing a long-term commitment to maintain a single A credit rating and increase dividends annually. After fulfilling these mandates, their priority is to invest in the business based on specific investment criteria, with any remaining funds directed towards buybacks. The company anticipates consistent buybacks next year due to excess free cash flow, despite an increase in CapEx driven by a $7 billion gas backlog. They view these investments as growth opportunities. The paragraph ends with Josh Spector from UBS asking about the electronics segment's performance and its impact on the company's guidance.

Sanjiv Lamba discusses electronics sales, noting a 9% year-on-year increase despite a slower-than-expected recovery. He mentions the continued investment by large OEMs and anticipates electronics growth to improve in Q4, especially due to gas sales and normalization of inventory in the advanced material business (LAMT) which serves aerospace and electronics. Kevin McCarthy then asks about potential company-specific volume growth and project contributions over the next few quarters, seeking insights on future project startups amidst discussions of possible macroeconomic contraction.

In the paragraph, Sanjiv Lamba discusses the growth potential of their project backlog, emphasizing secular trends like electronics and high-growth geographies, such as India, as key areas contributing to earnings per share (EPS) growth. He mentions that the backlog, currently valued at $7 billion plus, is expected to drive 1% to 3% EPS growth as projects start up and convert into revenues and earnings. Lamba points out that this trend is evident this quarter, with over $1 billion of backlog converting to revenues. Matt White adds that their strategy for EPS growth remains intact and involves management actions to support these initiatives.

The paragraph discusses the company's approach to capital allocation, highlighting its stability and resilience in both strong and weak macroeconomic conditions. This includes project backlog, M&A, buybacks, and capital structure synergies. The company finds that weaker macro conditions often create opportunities for buybacks due to increased free cash. Additionally, management actions focusing on productivity and cost management contribute positively to the company's financial outcomes. The paragraph also notes a correlation between currency fluctuations and macroeconomic performance, with a strengthening dollar often coinciding with weaker industrial production.

The paragraph discusses the company's cautious approach to macroeconomic conditions while expressing confidence in capital allocation and management actions. John Roberts from Mizuho asks about the mix of customers and sales of excess gases in new projects involving Air Separation Units (ASU) and Advanced Technology Reactors (ATR). Sanjiv Lamba explains that anchor customers typically consume about 70% of on-site production, allowing optimization of the separation plant. The surplus is used to create network density through merchant and packaged business. He also mentions a project with Dow where most oxygen is consumed internally, with some nitrogen and atmospheric gases supplied back to Dow.

The paragraph discusses a project where Dow is an anchor customer for a hydrogen network being developed in Alberta. The company has sold a significant portion of its product to Dow but also has surplus hydrogen to foster the expansion of a hydrogen network in the region. The goal is to build this network, potentially increasing capacity in a second phase beyond the initial project with Dow, albeit at a slightly lower investment than the first phase. The speaker envisions developing a substantial hydrogen network in Alberta, similar to the one in the U.S. Gulf Coast. Dan Rizzo, filling in for Laurence Alexander, inquires about the scale of the potential second phase, to which the response indicates ongoing planning with expected investment details.

The paragraph involves a discussion between Dan Rizzo and Sanjiv Lamba about their company's investment and divestment strategies. Sanjiv Lamba mentions that they are consistently evaluating their portfolio, making tuck-in acquisitions annually, and have a healthy pipeline of opportunities in that area. They focus on integrating these acquisitions well to create value. Alongside acquisitions, they also consider divesting from certain sectors of their portfolio and have done so in the past, with plans to continue this approach broadly. Tony Jones from Redburn Atlantic then asks if new cost reductions would lead to a 1% to 2% increase in EPS by 2025, questioning whether this is incremental or part of the standard 4% to 5% EPS growth. Matt White seems to be responding to this query.

The paragraph discusses a company's expectations regarding the financial benefits of a management action plan, which is expected to take full effect in the second half of the following year, with the majority of benefits anticipated in 2025. The plan was devised in response to a weaker macroeconomic outlook, and each market has been adjusting its costs based on regional conditions. After this explanation, Tony Jones thanks Matt, and the operator introduces Mike Harrison from Seaport Research Partners, who asks about the sluggish demand for hard goods and equipment due to economic uncertainty, particularly in North America. Sanjiv Lamba responds, stating that the U.S. is the company’s largest hard goods market and they closely monitor it as a leading indicator.

The paragraph discusses ongoing industrial weakness, particularly in the manufacturing sector, as reflected by mid-single-digit declines in hard goods sales. It notes fluctuations due to large automation purchases and highlights global economic caution, with particular consumer spending reluctance on big-ticket items in China and some parts of Europe. Despite recent strong consumer sentiment in the U.S. benefiting the economy, there are concerns, such as rising auto loan delinquencies, and no significant increase in optimism is expected in response to Federal Reserve actions.

In the paragraph, there is a discussion about consumer behavior possibly tightening, with the speaker open to seeing how the quarter unfolds. The operator hands the call back to Juan Pelaez for closing remarks. Juan Pelaez thanks Abby and the participants, inviting further questions and wishing everyone a productive day. The call concludes with thanks and an invitation to disconnect.

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