Shares of Linde climbed 3% on Tuesday after the industrial gas giant once again showed its ability to grow in any economy — a consistency we have no reason to doubt in the coming quarters. Sales of $8.3 billion, an increase of 5.1% year over year in the three months ended December 31, exceeding analyst expectations of $8.1 billion, according to LSEG. Adjusted earnings per share (EPS) jumped 34.5% and topped expectations, coming in at $3.59 compared with estimates of $3.49, according to LSEG. Adjusted operating profit jumped 13.5% to $2.27 billion, exceeding the $2.16 billion estimate. Bottom line Linde closed out 2023 on a strong note, with double-digit earnings growth for the fourth quarter and a 2024 earnings forecast that exceeds the Street’s consensus. Expectations for the current quarter fell short of expectations, but investors shouldn’t be alarmed. Linde is a company that consistently outperforms its forecasts, delivering beats on the high end of their range for the past three years. The last time earnings came in below the high end was the first half of 2020, which was during the height of the Covid-19 pandemic when all bets were off. Linde’s after-tax return on capital — a measure of a company’s health — ended the third quarter at 25.4%, a slight decrease from the record high of 25.6% in the third quarter, but a strong result that shows an increase of 250 basis points over the same period last year. For 2023, Linde delivered records for operating margin, earnings, and return on capital. And demand for Linde’s products and services looks strong for the year ahead. The company boasts an $8.5 billion project backlog (orders that haven’t been booked as revenue yet) that is split between $3.6 billion in SOP (sale of plant or projects) and $4.9 billion in SOG (sale of gas). Roughly 62% of the backlog comes from the Americas and 37% is tied to clean energy projects. We expect another year of strong earnings growth from this best-of-breed industrial stock. However, we reiterate our 2 rating because we don’t chase stock moves like the one in LIN on Tuesday. We’ll wait for a pullback to scoop up more shares. We also reaffirm our $440 price target. Quarterly results As we can see in the chart below, this was an all-around strong quarter for Linde. Even the misses in operating profits for EMEA (Europe, the Middle East, and Africa) and APAC (Asia-Pacific) are marginal. Though cash flow results slightly missed expectations, free cash flow was still higher than total net income (a sign of earnings quality) and allowed the team to return a total of $1.641 billion to shareholders in the quarter via dividends and stock repurchases, net of issuances. With the fourth quarter’s cash returns, Linde returned a total of $6.4 billion to shareholders via dividends and share buybacks in 2023. Linde’s underlying sales — which remove the variable energy costs — rose 4% in the quarter, driven entirely by price as volumes were unchanged. Linde’s industrial gases, such as oxygen and nitrogen, are used in a range of industries and facilities, including hospitals and semiconductor factories. Being high up in the supply chain of so many end markets gives Linde the ability to raise prices without suffering much volume loss in business and is a key driver of the company’s incredible consistency. Growth in the Americas (30% of sales in the quarter) was led by the food and beverage, and chemicals and energy, end markets. Electronics was the only end market that contracted versus the year-ago period. In APAC (27.6% of sales), growth was led by end markets in chemicals, energy, and manufacturing. China (about 7% of total sales) is recovering at a slower pace than management initially anticipated and remains weak as 2024 gets underway. Updated expectations are for a mild recovery in a few end markets in China for the first half of 2024. EMEA (29.3% of sales) showed growth across all “resilient” end markets, which Linde defines as more consumer-related (healthcare, food and beverage, and electronics), while industrial end markets (manufacturing, chemicals and energy, and metals and mining) lagged. Guidance Management expects earnings per share for 2024 of $15.25 to $15.65, a 7% to 10% increase over 2023 results. The $15.45 midpoint of this forecast is a penny ahead of the Street’s consensus estimate. As always, Linde’s guidance includes no improvement in the global economy. Linde sees first-quarter EPS in a range of $3.58 to $3.68, below the $3.73 consensus estimate. On a constant currency basis, this range represents a 6% to 9% increase on a year-over-year basis. 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Tanks of hydrogen stand near a hydrogen electrolysis plant.
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Shares of Linde climbed 3% on Tuesday after the industrial gas giant once again showed its ability to grow in any economy — a consistency we have no reason to doubt in the coming quarters.
