Linde reported one other impressive quarter on Friday, with the commercial gases supplier continuing to prove its reliability and value in a diversified stock portfolio. Second-quarter revenue was $8.27 billion, barely below the $8.32 analysts were expecting, in accordance with LSEG estimates. On an annualized basis, total revenue rose 0.8%. Adjusted earnings per share (EPS) rose nearly 8% year-on-year to $3.85, beating expectations by 7 cents, in accordance with data from LSEG. Adjusted operating profit within the three months ended June 30 was $2.42 billion, up 5.9% year-on-year and beating the $2.36 billion estimate, in accordance with FactSet. Why We Own Linde: The industrial gases supplier and engineering firm has a superb track record of consistent earnings growth. Its presence in a wide selection of industries – similar to automotive, construction, energy, healthcare – underscores Linde’s strong position within the industry. B. healthcare and electronics — and regions — coupled with excellent corporate governance and disciplined capital management — is a recipe for regular success that ought to proceed. Competitors: Air Liquid and Air Products Last Purchase: May 2, 2024 Start: Feb 18, 2021 Bottom Line Linde’s typical consistency was on display in Friday’s earnings report, which was led by one other quarter of higher-than-expected earnings per share. Over the past five years, Linde has beaten earnings estimates in every quarter, in accordance with FactSet. Shares fell 1.4% on Friday — hardly a cause for concern given the crisis within the broader market. The S&P 500 lost greater than 2%, as did the materials sector wherein Linde operates. Linde is among the many group’s best-performing stocks, reflecting not only its results but its defensive nature usually. We’re not the one investors who value the corporate’s ability to deliver regular earnings growth whatever the economic climate. Among the highlights: A greater-than-expected adjusted operating margin, which rose sharply year-over-year and from the primary quarter at 29.3%. Linde’s largest geographic segment — the Americas, which incorporates operations in North America, Latin America and South America — also beat estimates on revenue and earnings. On the conference call, the oxygen and hydrogen supplier’s executives told a compelling story, reminding investors that while their forecast doesn’t assume a recovery in economic activity, parts of their business are exposed to robust end markets similar to food and beverage that aren’t heavily depending on industrial production. In fact, Linde’s food and beverage revenue rose 8% year-over-year within the quarter, and CEO Sanjiv Lamba said he expects further growth within the segment. It accounted for 10% of gas sales within the April-June period. LIN YTD shows Linde’s stock performance year-to-date. Of course, a few of Linde’s end markets, similar to manufacturing, are more cyclical, and analysts questioned management on whether the corporate would have the ability to deliver double-digit earnings growth if economic conditions within the U.S. and abroad worsen in the approaching quarters. It’s a good query, because as we saw available in the market on Thursday and Friday, the health of the economy is a significant concern for investors. In his response, Lamba reiterated Linde’s confidence in its EPS growth targets, arguing that the corporate was in a position to achieve them despite battling through what was effectively an “industrial recession” over the past 4 or five quarters. It relies on a combination of starting backlogged projects, pricing and productivity improvements, volume growth and share buybacks to spice up earnings. But if economic conditions worsen, Linde will move quickly to guard earnings, in accordance with Lamba. Lamba was upbeat about Linde’s electronics business, whose revenue rose 7% year-on-year and quarter-on-quarter and accounted for 9% of gas sales within the quarter. Linde is seeing early signs of a recovery within the electronics business, Lamba said. The first phase of Linde’s Arizona project to produce gases to Taiwan Semiconductor Manufacturing Company’s sprawling factory under construction has begun, Lamba said. And broadly speaking, Linde will proceed to learn from a rise in chip production capability driven by growth in data centers and artificial intelligence. The long-term outlook stays “very robust” and Linde is well positioned to win “more than our fair share” of business in that industry, he said. Perhaps the most important blemish within the quarter was operating money flow, which fell 10% year-on-year to $1.93 billion, missing Wall Street estimates. However, CFO Matthew White said the metric was impacted by the timing of project prepayments within the engineering unit through the quarter. More broadly, White said Linde is seeing more seasonal effects in operating money flow, causing full-year performance to be shifted to the second half of the yr. “This was just a very solid quarter,” Jim Cramer said Friday. We’re maintaining our 2 rating and $500 price goal on the stock. Quarterly Results As seen within the chart above, it wasn’t an ideal quarter. But the beaten earnings and companywide margin are notable. Linde’s underlying revenue – which strips out variable energy costs – rose 3% yr over yr within the quarter, driven by higher prices. Volumes were flat yr over yr. Given the importance of Linde’s industrial gases to its customers, the corporate is in a position to pass on its higher costs through price increases. Over the long run, Linde’s prices are likely to trend barely higher than a globally weighted inflation index, Lamba said Friday. Geographically, the strength of the Americas business stands out, particularly in operating profits, which rose 8.3% year-on-year. The business’s revenues were flat year-on-year but rose 2% in comparison with the primary quarter. The Europe, Middle East and Africa business unit was less impressive by way of revenues, but operating profit of $704 million and adjusted operating margin of 33.7% exceeded expectations. On a sequential basis, the segment reported volume growth of two%, boosted by an upturn in food and beverages and manufacturing. In Linde’s Asia-Pacific segment, revenues and operating margins fell wanting expectations. The company is scuffling with some price pressure on helium, which is utilized in electronics manufacturing on this region, and deflation in China usually. Revenues increased 4% in comparison with the primary quarter. Forecast For the third quarter, Linde expects adjusted earnings per share within the range of $3.82 to $3.92, representing growth of 5% to eight% in comparison with the identical period last yr. The midpoint of this range is somewhat low in comparison with FactSet’s estimate. As usual, Linde’s midpoint forecast assumes no economic improvement. The company narrowed its full-year earnings range to $15.40 to $15.60, representing a rise of 10 cents on the low end. Adjusted for currency, this forecast still implies growth of between 9% and 11%. The capital expenditure forecast of $4 billion to $4.5 billion stays unchanged. “We have not seen enough encouraging signs to be optimistic about economic activity in the second half of the year, so we are leaving the forecast essentially unchanged,” CFO Matthew White said on the conference call, while adjusting the low end to reflect second-quarter performance. “Rest assured, if the economy improves, we will capture that additional benefit, and if it worsens, we will take action to mitigate the impact on earnings.” (Jim Cramer’s Charitable Trust is long Lin. A full list of stocks might be found here.) As a subscriber to CNBC Investing Club with Jim Cramer, you’ll receive a trade alert before Jim makes a trade. After sending a trade alert, Jim will wait 45 minutes before buying or selling a stock from his Charitable Trust’s portfolio. If Jim has discussed a stock on television, he’ll wait 72 hours after the trade alert before executing the trade. 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The Linde AG logo on a liquid hydrogen tanker picking up a fuel delivery on the Linde hydrogen plant in Leuna on Tuesday, July 14, 2020.
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Linden reported one other impressive quarter on Friday as the commercial gases supplier continues to display its reliability and value in a diversified stock portfolio.
