The paragraph is from an earnings call for Linde's first quarter of 2025. The operator introduces the session, allowing participants to listen only. Juan Pelaez, Head of Investor Relations, opens the call, accompanied by CEO Sanjiv Lamba and CFO Matt White. Pelaez mentions that the presentation materials are accessible on Linde's website and notes the importance of the forward-looking statement disclosure. Sanjiv Lamba then remarks on Linde's performance amidst an anticipated challenging economic situation. Despite these challenges, Linde achieved strong results, such as an 8% increase in EPS, a 120 basis point expansion in operating margins to 30.1%, and a leading return on capital of 25.7%. Lamba highlights the resilience of Linde's operating model during uncertain times.

The paragraph discusses Linde's strategies for maintaining financial stability and growth in uncertain economic times, highlighting three categories of "defensive sales." These include resilient end markets like healthcare and electronics, fixed facility fees from on-site customers, and rental payments from owned assets. These strategies have proven effective in providing stable revenues and cash flow, accounting for nearly two-thirds of the company's global gas sales. The company expects this resilience to continue into 2025 and beyond.

The paragraph discusses the consistent performance of the business model across different regions despite a generally negative current environment. In APAC, China shows steady demand in battery and electronics, while rare gases and helium see lower prices. Industrial markets are soft, but stable due to Tier 1 customers, and India shows strong growth. In EMEA, industrial activity hasn't improved, but there's optimism around decarbonization talks which could boost growth. In the Americas, there's mixed performance with Canada and U.S. experiencing some weakness in manufacturing-related packaged gases. Overall, the company is well-positioned for economic recovery and infrastructure investment opportunities.

The paragraph discusses Linde's performance in the context of inflationary pressures, growth in US Bulk North Latin America volumes, and contractual strategies to combat these pressures. The company ended the quarter with a strong backlog of $10 billion, with $7 billion from secured gas projects, indicating future growth potential. Despite global trade uncertainties affecting industrial activity, Linde expects to continue winning new projects, contributing to EPS growth. The financial results, presented by Matt, show flat sales of $8.1 billion compared to the previous year, impacted by currency variations and increased natural gas costs. Net acquisitions contributed 1% to growth, while underlying sales grew by 1% due to higher pricing offsetting lower volumes.

The paragraph discusses the financial performance and capital management strategies of Linde. Despite a global trend of price increases due to inflation, the APAC region saw lower prices due to helium and rare gas prices. While volumes declined by 1% due to sluggish industrial activity, operating profit rose by 4% to $2.4 billion, driven by pricing and cost management actions that offset weaker base volumes. Earnings per share increased by 5% compared to the previous year, or 8% excluding currency translation effects. Capital expenditures amounted to $1.3 billion, with an equal split between base CapEx and project backlog investments. The company's project backlog, which is stringently defined, supports a record $7 billion sale of gas backlog, leading to elevated project CapEx for upcoming quarters. However, base CapEx is declining due to lower volumes and productivity measures.

The paragraph outlines the company's recent financial activities and future expectations. Operating cash flow increased by 11% over last year, despite seasonal weakness early in the year. For 2025, a similar trend is anticipated. The company emphasizes disciplined capital allocation, highlighted by an 8% dividend increase, marking 32 consecutive years of growth at an average rate of 13%. During the quarter, they repurchased $1.1 billion in stock and reinvested $1.3 billion into the business. Strong credit metrics and low-cost funding, evidenced by a 3% bond coupon, support their stability and growth opportunities. For the second quarter, EPS is projected to grow by 3% to 5%, or 5% to 7% excluding currency impacts. The guidance accounts for recessionary conditions and a potential 2% EPS reduction from lower volumes. The company remains adaptable to economic changes, ready to enhance performance or mitigate challenges as necessary.

The paragraph outlines Linde's adherence to its long-term EPS growth strategy amid economic challenges, maintaining its guidance range for the year while slightly narrowing the forecast. Despite currency improvements being negated by negative volume assumptions, Linde remains cautious but proactive, leveraging its strong balance sheet, engineering capabilities, and supply network to prepare for future opportunities. The company emphasizes its commitment to a no-excuses culture for long-term value creation. The paragraph concludes with a transition to the Q&A session, where Michael Leithead from Barclays asks about the impact of Dow's project delay in Alberta, in which Linde is involved, on Linde's associated project and contingencies.

The paragraph is part of a financial discussion involving a company with on-site contracts that include protection for delays caused by customers. The company, Linde, anticipates handling such situations by having invoicing start after a grace period. They are collaborating with Dow to help them achieve their goals while maintaining Linde's interests. An unidentified analyst, Steve Haynes, asks about the EMEA region's strong margin performance despite declining volumes. Sanjiv Lamba responds by attributing the strong margins to diligent efforts in pricing and productivity, suggesting that as volumes increase, margins are expected to grow further.

Two years ago, the speaker outlined a $50 billion opportunity in clean energy over a decade, involving decarbonizing operations and supporting customer decarbonization. Currently, they believe their initial estimate remains attractive, especially in the short term, where they aim for $8 billion to $10 billion in projects over the next few years. They have made significant progress with two current projects and expect further expansion, particularly in the Middle East and Europe, remaining confident in reaching their short-term financial targets.

The paragraph discusses the two types of hydrogen projects: blue hydrogen, which is low carbon and involves capturing and sequestering carbon dioxide, and green hydrogen, which is renewable. The speaker emphasizes that green hydrogen is not yet cost-competitive or scalable and likely won't be for another five to seven years. As a result, their project focus is primarily on blue hydrogen, supported by the 45Q tax credit, which provides financial incentives for capturing carbon emissions. The organization Linde concentrates its project development on blue hydrogen, believing it to be resilient for future growth.

The paragraph details a conversation between Matthew White, Sanjiv Lamba, and others regarding their company's capital allocation strategy and recent financial performance. Matthew White explains their capital allocation algorithm, which aims for a 4% to 6% return and includes projects, buybacks, acquisitions, and capital structure. Despite some project delays, opportunities for acquisitions and buybacks still exist, reinforcing confidence in achieving their targets. Duffy Fischer thanks them, and the operator introduces David Begleiter from Deutsche Bank. Begleiter asks about the company's guidance, noting a $0.30 drop due to foreign exchange (FX) impacts and weak manufacturing in the Americas. Sanjiv Lamba and Matthew White respond, explaining FX impacts and guidance methods, specifying that forward rates are estimated at the beginning of each month, impacting guidance figures accordingly.

The paragraph discusses recent currency and manufacturing trends. The dollar has weakened unexpectedly in a risk-off environment, with the euro strengthening as a quality currency. In Latin America, currencies like the peso and real have shown mixed performance. Manufacturing in the U.S. was soft in Q1 due to weather disruptions, but saw growth in March and continued positive trends in April, albeit more moderately. Sectors like automotive and agriculture were weak, while general fabrication, energy, chemicals, and construction showed growth. Sentiment among larger customers has turned negative due to market uncertainty and potential high inflation.

In the paragraph, the speaker discusses the current state of manufacturing, highlighting that sentiment has shifted, but volumes have not yet reflected this change. Despite challenges, some customers are investing in capital expenditures like automation due to labor shortages, showing a resilient manufacturing sector. The expectation is that with policy certainty and stability, manufacturing might pick up in the year's second half. Peter Clark from Bernstein asks about developments in the electronics sector and high-margin EMEA business. Sanjiv Lamba responds, indicating that the EMEA's performance is due to the fundamental model, with nothing extraordinary driving the 35% plus margins.

The paragraph discusses the company's improved business performance, with margins increasing from 19% in 2019 to over 35% today, achieved despite challenges like the energy crisis and the war in Ukraine. The team is credited for their effective execution. The backlog of projects stands at over $10 billion, with $7 billion related to gas sales, and about $1 billion of the backlog is expected to start up by the second half of the year. The company anticipates ending the year with a maintained or slightly increased backlog. The capital allocation is projected to contribute 4% to 6% of EPS growth, driven by high-quality projects primarily from traditional markets and some from clean energy.

The paragraph discusses the company's confidence in its project backlog and win rate amid current circumstances. Laurent Favre from BNP Paribas asks about potential risks like project delays or slowdowns, but Sanjiv Lamba expresses confidence in their ability to secure projects. Lamba provides an outlook for the rest of the year, mentioning resilient growth in end markets like electronics and food and beverage, while more cyclical markets such as industrial sectors may see lower volumes, especially in metals and chemicals. Geographically, the company anticipates flat volumes in the Americas for the year, factoring in potential recessionary conditions.

The paragraph discusses the projected economic outlook across different regions. Resilient end markets are expected to grow, but their growth will be offset by declines in the industrial sector, particularly in metals, manufacturing, chemicals, and energy. The Americas are expected to remain flat, while Europe continues to face a decline in demand with no catalyst for change. In Asia, China shows no expected growth this year, with weaknesses in metals and chemicals, and manufacturing facing challenges due to tariffs and uncertainty. However, there is some growth in batteries and electronics. India is highlighted as a bright spot with ongoing investment and volume growth. South Korea is experiencing some growth, supported by new project activity. Overall, America's outlook is flat, APAC is balanced despite challenges in China, and EMEA is expected to see weakening volumes.

The paragraph discusses the company's capital expenditure (CapEx) growth driven by secular growth opportunities, particularly in electronics, with geographical wins in Asia in metals and chemicals. It anticipates a variety of projects, including clean energy, metals, refining, and chemicals, contributing to a balanced portfolio backlog. Following this, there is an interaction between Laurent Favre and an operator passing the line to Jeff Zekauskas from JPMorgan, who questions about the income statement. He inquires about the significant change in other income in 2024 and the decrease in SG&A expenses. Sanjiv Lamba mentions that Matt will respond to these inquiries, briefly noting the SG&A aspect.

The paragraph discusses the impact of previous restructuring and management actions on a company's financials, specifically in the SG&A line, due to lower incentive compensation which will normalize over time. Matthew White explains the "other income" category, noting it includes large, extraordinary items related to operations, like a significant insurance claim that caused fluctuations between quarters. He highlights a timing mismatch due to the insurance claim and expects future figures like for 2025 to be lower than in previous years, noting a $40 million decrease already observed in the first quarter.

The paragraph discusses financial expectations for 2025, noting that it may resemble 2023 more than 2024 due to the absence of specific financial events such as a significant insurance benefit. It highlights the impact of foreign exchange on SG&A costs, citing restructuring charges taken in Q4 that are expected to result in lower headcount and reduced SG&A spending. This reduction is attributed to increased productivity and a decrease in incentive compensation due to underperformance. The overall expectation is lower compensation payouts for the year, which will be reflected in accruals, acknowledging shareholders' experiences. The conversation shifts to Stephen Byrne from Bank of America, who queries about the exact contribution of productivity and pricing to a 120 basis point improvement in operating margin, which more than offset lower volumes and cost increases.

The paragraph discusses strategies for driving productivity, specifically focusing on management actions as a key factor. Historically, headcount reduction was significant, but moving forward, the emphasis is on achieving productivity gains through management actions, which include optimizing the price-cost spread. This spread is crucial for margin contribution, and management actions have consistently been a major contributor to EPS growth over the past decades. During tougher times, management actions increase in importance, leading to greater margin expansion, while in recovery periods, macro factors play a larger role, and margin expansion may be less pronounced.

The paragraph discusses the continuous pursuit of productivity initiatives within a business, emphasizing the role of technology advancements, such as AI, in creating new opportunities. It highlights the importance of adapting to changes in the market by adjusting fixed and variable costs to optimize operations. The business integrates these efforts into its culture, indicating they are ongoing and not reliant on a single solution. Matthew White adds that the company is committed to engaging every part of the organization in productivity efforts daily, exemplified by the completion of thousands of projects to improve operations. This approach ensures that lessons learned are shared across the organization.

The paragraph discusses the use of AI to optimize operations at a company's plants. They have developed a power optimizer model that uses AI to manage plant operations based on variables like customer demand, tank levels, and power pricing predictions. Additionally, they are implementing telemetry to monitor and optimize distribution by tracking customer tank levels and usage, enabling predictive scheduling. The company is utilizing over 105 AI models, with about 31-32% of productivity efforts stemming from digital and AI solutions. An analyst then asks about the company's 2025 outlook and how expected economic contractions might impact volumes, noting that volumes were already down 1% in Q1.

In the paragraph, Sanjiv Lamba and Matthew White discuss their company's 2025 outlook and how they approach economic projections. Lamba defers to White to explain their guidance, based on historical methods, that every 1% change in base volume assumption impacts EPS by about 2%. They have accounted for a 2% negative EPS contraction, expecting a 1%-1.5% decline in top-line base volume. This is a placeholder assumption, not a firm economic forecast, and the company plans to take mitigating actions. Despite challenges, they remain confident in their backlog contributions. Lamba notes that predicting long-term industrial growth is challenging but suggests focusing on several drivers, including secular growth in end markets like electronics.

The paragraph discusses the correlation between AI data center growth and semiconductor growth, predicting continued expansion, especially following recent wins like with Samsung. It highlights the impact of secular growth drivers on industrial recovery and underscores the advantage of having a presence in 81 countries to capitalize on high-growth markets. Specific regions like India, Mexico, and Indonesia are noted for their promising growth trajectories. Additionally, the paragraph mentions new growth areas like aerospace and quantum computing, which are expected to contribute to long-term growth despite needing further maturation.

The paragraph discusses Linde's perspective on quantum computing and healthcare sectors as growth opportunities. Linde is optimistic about the role of its cryogenic cooling technology in the budding quantum computing field, which it sees as a growth market linked to industrial recovery and stable trade rules. In healthcare, Linde has a strong hospital care business with steady global growth and increased focus on infrastructure post-COVID. Meanwhile, Linde is streamlining its U.S. home care segment by leveraging technology to enhance efficiency and reduce paperwork.

In the paragraph, the speaker emphasizes that Linde is focused on improving service levels and productivity continuously, with an ongoing review of their portfolio, including the home care business. John McNulty from BMO Capital Markets asks about the impact of U.S. on-shoring and tariffs on Linde's business. Sanjiv Lamba responds by acknowledging that while tariffs often highlight risks, they also present opportunities for reshoring, particularly in the electronics sector. However, he notes that aside from electronics, there are currently no significant developments, but they are in discussions with potential new capacities in the U.S.

The paragraph discusses the potential for growth in the U.S. due to on-shoring and reshoring in various sectors like electronics, aluminum, steel, and batteries, as tariffs stabilize. The speaker highlights specific projects, such as building supplies for TSMC in Phoenix and for Samsung in Taylor, Texas, indicating their readiness to capitalize on this industrial resurgence. John McNulty inquires about the impact of inflation on pricing, to which Sanjiv Lamba responds that inflation benefits them since it allows for price adjustments aligned with the globally weighted CPI, a successful strategy they've adhered to for 25 years.

In the paragraph, Kevin McCarthy from Vertical Research Partners asks Sanjiv Lamba for his insights on Linde's perspective on China's market in both the near and medium terms. Sanjiv responds by stating that he anticipates China's medium-term growth to be in low to medium single digits, a significant moderation from the 7-10% growth seen in previous years. He explains that Linde has been treating its Chinese operations as a mature business in recent years, focusing on strategies such as pricing, productivity, automation, and offshoring to drive growth and counterbalance macroeconomic risks. Sanjiv notes that there are still opportunities for productivity improvements within the Chinese market.

The paragraph discusses the implementation of AI-driven technologies in China's industrial operations, particularly in smart plant operations using drones and robots for tasks such as monitoring air separation units. This technological advancement has led to increased productivity and a reduced need for onsite personnel, with approvals granted in some Chinese provinces. The company anticipates ongoing productivity gains from its Chinese operations. The author, who frequently visits China and interacts with local business leaders, notes that while the metals sector, particularly steel, was weak in the first quarter of the year, a mild recovery is expected, though overall steel production is likely to remain lower than the previous year.

The paragraph discusses current trends in the metals and chemicals markets, which are experiencing softness due to declining industrial activity. This trend is expected to persist throughout the year and beyond. However, growth opportunities exist in the electric vehicle (EV) and battery sectors, particularly in China where EV adoption is increasing. The electronics sector is also expanding, driven by government incentives aimed at self-reliance, despite not reaching advanced technology levels. In contrast, the merchant and packaged goods sectors face challenges due to manufacturing disruptions from tariffs, leading to weak demand and potential industrial deflation, especially impacting the second quarter.

In the paragraph, Sanjiv Lamba discusses the shift towards a more pragmatic approach to decarbonization in Europe, highlighting the growing recognition of low carbon hydrogen's role in achieving cost-effective decarbonization for large industries with significant greenhouse gas emissions. He mentions that Europe has struggled with regulatory frameworks driven by ideology and notes potential regulatory changes that might support carbon capture and sequestration as a viable solution. Lamba cites the project development agreement between Linde and Equinor for low carbon hydrogen projects in Europe as an example of the opportunities arising from these regulatory shifts.

The paragraph discusses the increasing openness and pragmatism towards understanding the benefits and science of low carbon or blue hydrogen, especially in the U.S. This potential is bolstered by government support through initiatives like 45Q and favorable natural gas pricing and availability. The call concludes with a thank you from Juan Pelaez and is then officially closed by the operator.

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