Linde Earnings: Price and Productivity Drive Consistent Margin Expansion

Narrow-moat-rated Linde LIN posted solid second-quarter results, featuring a 15% year-over-year increase in adjusted EPS, from $3.10 to $3.57, and raised its full-year outlook for the second time this year. We’ve increased our fair value estimate to $379 from $365, which reflects our slightly more optimistic operating margin assumptions and time value of money.

Linde’s second-quarter underlying sales were up 6% from the prior-year period, as 7% price attainment was partially offset by a 1% volume decline. While volumes were up 3% in Asia-Pacific, they decreased 1% in the Americas and 4% in Europe and the Middle East.

Linde has consistently delivered impressive margin expansion, with second-quarter adjusted operating margins excluding cost pass-through (which increases revenue but not operating income) up 350 basis points year over year thanks to price capture and productivity initiatives. We are impressed with Linde’s continued margin expansion, as operating margins have now improved by around 900 basis points in APAC and over 1,000 basis points in Europe, Middle East, and Africa compared with 2018 levels. The company aims to continue expanding its margins by around 50 basis points annually.

Management raised its guidance for full-year 2023 and now expects adjusted EPS of $13.80-$14.00 (up from $13.45-$13.85 previously). As previously, the outlook assumes no economic improvement in the second half of the year. We believe that Linde is well positioned to navigate macroeconomic uncertainty thanks to its resilient industrial gas business model as well as potential upside from hydrogen. Linde ended the quarter with a $7.8 billion backlog. Furthermore, management said on the call that it sees a total clean energy investment opportunity of over $50 billion over the next 10 years, including around $30 billion in the United States.