We own Linde to deliver in tough times. It didn’t disappoint this quarter
Linde on Friday reported better-than-expected quarterly results Thursday, showcasing what the industrial gas giant does best when times get tough. Revenue for the first quarter ended June 30, increased roughly 3% versus the year-ago period, coming in at $8.5 billion, ahead of the the LSEG compiled analysts’ consensus estimate of $8.35 billion. Adjusted earnings per share rose just over 6% year over year to $4.09, also outpacing the $4.03 expected, according to LSEG. Bottom line Linde delivered in a difficult operating environment — which is exactly why you own the stock. The company is a critical supplier so high up in the supply chain of so many various industries that it has the kind of superior pricing power that allows it to keep growing earnings no matter the backdrop. Case in point: Management raised the low end of its full-year earnings guidance, despite noting that the high end of the range already assumes an economic contraction. “Linde has always achieved positive pricing mix being — you know, be it through economic cycles which are up or down,” CEO Sanjiv Lamba explained in the post-earnings call with investors. “And I think I’d say to you that remains the expectation going forward as well. A great proxy for our pricing is globally weighted CPI. You should see us track to that as we do at the moment. And I guess when I look at pricing today and you can see the numbers as we provided in the deck, you’ll see that pricing across all countries is actually pursuing that and in line with that globally weighted CPI.” One exception, said Lamba, is China, where sales are expected to remain flat for the year. Linde Why we own it: The industrial gas supplier and engineering firm has a stellar track record of consistent earnings growth. Its exposure to a wide range of industries, such as health care and electronics, and geographies — paired with excellent executive leadership and disciplined capital management — has been a recipe for steady success that should continue. Competitors: Air Liquid and Air Products Most recent buy : Dec. 18, 2024 Initiated : Feb. 18, 2021 Cash flow missed analyst estimates, but the first half of the year tends to be weaker due to the timing of tax payments, interest and employee incentive compensation. As a result, we should see improvement in the back half of the year. More importantly, the company’s sale of gas backlog ended the quarter at record $7.1 billion, nearly double the level at the end of 2020. The backlog is a key item for investors to be mindful of as it serves to ensure future growth for the company. However, that’s only true should the projects in the backlog actually come to fruition. In Linde’s case, the company has strict requirements for what it will include in the calculation of the backlog, which allows investors to forecast future growth as a result of the backlog with a relatively high degree of confidence. “Unlike others in the industry, Linde’s definition has been clear and consistent with the most disciplined criteria,” Lamba said. “Inclusion at Linde’s project backlog requires incremental growth, secured by contractual fixed fees with high quality customers. Contract renewals, plans without customer commitments or LOIs are not included in our backlog.” Lamba added that while the size of the backlog is important, the turnover in the backlog — how quickly the company can convert the back log to sales while at the same time replenishing it — matters even more. Here Linde shines: Over the last four years, the team added $9.2 billion to the backlog while starting $5.7 billion worth of projects, indicating a greater than 150% backlog turnover rate. During the quarter, Linde also returned $1.81 billion to shareholders through dividends and stock buybacks. Given the results and management’s confidence in being able to grow earnings through an economic slowdown, we reiterate our $500 price target. We are also maintaining our 2 rating until there is more clarity on global trade and growth. LIN YTD mountain Linde YTD return Commentary It was a decent quarter, with sales rising year over year as a higher prices more than made up for a slip in volume. Moreover, operating profit outpaced expectations thanks to healthy margin expansion. On a sequential basis, Linde sales benefited from both an increase in volume and price increases and a favorable product mix. Sales for Linde’s Americas segment rose 4% year over year to $3.8 billion, driven by 3% increase in pricing and 1% gain in volume, largely thanks to strength in the electronics, metals and mining, and chemical and energy businesses. Asia Pacific (APAC) and Europe, Middle East & Africa (EMEA) sales were relatively unchanged versus the year-ago period as volume declines in the manufacturing end market was partially offset by the electronics end market. Sales for engineering , which Linde reports as an operating segment alongside the regional results, fell and missed estimates. However, the company’s sale of plant backlog did increase slightly year over year. Guidance Linde raised its full-year outlook, but lowered its forecast for the current (third) quarter. For both projections, management said the higher end “now assumes economic contraction.” For its fiscal 2025 third quarter, Linde expects adjusted EPS between $4.10 and $4.20, up 4% to 7% over last year but below the $4.20 expected at the midpoint. Full-year 2025 adjusted EPS guidance is now $16.30 to $16.50, a raise on the low end versus the $16.20 to $16.50 previously forecast. This represents annual growth of 5% to 6% and compares to a consensus estimate of $16.41, according to LSEG. Linde reiterated full-year capital expenditure of $5 billion to $5.5 billion to support growth and maintenance. At the midpoint, the capex assumptions exceeded the $5.11 billion expected. (Jim Cramer’s Charitable Trust is long LIN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.