Linde plc(US:LIN)2020-11-05 21:36Financial Data and Key Metrics Changes - Sales for Q3 2020 were $6.9 billion, which is 2% lower than the prior year but 7% higher sequentially [18] - Operating profit was $1.5 billion, representing 22.1% of sales, which rose 9% from 2019 and 15% sequentially [21] - Diluted EPS was $2.15, an increase of 11% year-over-year and 13% sequentially [22] - Operating cash flow for Q3 was $1.9 billion, confirming a high conversion of earnings to cash flow with an operating cash flow to EBITDA ratio of 84% [23] Business Line Data and Key Metrics Changes - Volumes were down 3% year-over-year, primarily due to lower base volumes in the manufacturing end-market, but there was a solid sequential improvement with gas volumes increasing 6% [18] - Engineering sales were flat year-over-year but down 3% from Q2 due to project timing [19] - Pricing trends were positive, with increases of 2% over the prior year and 1% over the second quarter [19] Market Data and Key Metrics Changes - All geographic segments showed volume improvement versus Q2 but remained below pre-COVID levels [8] - In Asia, volumes are expected to be positive both sequentially and year-over-year, while growth in the Americas and Europe is flattening due to rising COVID cases [9] Company Strategy and Development Direction - The company aims for 12% earnings per share growth for the full year, building on 23% growth from the previous year [8] - The focus remains on resilient markets such as healthcare, electronics, and food freezing, with fixed fee contracts providing protection from volume reductions [8] - The company is committed to achieving a 35% reduction in greenhouse gas intensity by 2028, with a 19% reduction achieved to date [11] Management's Comments on Operating Environment and Future Outlook - Management acknowledges COVID-19 as a wild card but expresses confidence in the resiliency of the integrated supply business model [10] - The company expects to deliver another year of double-digit earnings growth in 2021, assuming stable volumes [10] - Management noted that the integration of legacy companies has been successful, with positive employee survey results indicating strong morale [13] Other Important Information - The company has a disciplined capital deployment strategy, with a return on capital reaching a record 12.8% [24] - The backlog is expected to decline into 2021, similar to trends seen in previous capital cycle corrections, but a rebound in customer project spending is anticipated [25] Q&A Session Summary Question: Can you discuss the profit margin expansion and its contributors? - Management indicated that pricing, cost management, and merger synergies contributed to margin expansion, with a focus on executing high-level performance [36] Question: What is the outlook for the merchant and package gas segments? - Management noted that the package segment is more impacted by manufacturing, while the merchant segment benefits from resilient markets like healthcare and food freezing [40] Question: How does the company view the hydrogen market? - The company plans to approach hydrogen investments with focused, high-return projects, leveraging existing customer relationships [45] Question: What is the status of the backlog and potential delays? - Management expects some decline in backlog but does not anticipate significant delays in existing projects, particularly in electronics and clean energy [62] Question: How has the refining business performed in Q3? - Despite concerns, the refining business showed strong margin expansion due to good pricing and cost management, with recovery expected following hurricane impacts [74] Question: What is the impact of European shutdowns on Q4? - Management anticipates that European shutdowns will negatively affect volumes, but medical oxygen sales are expected to remain strong [79]