Linde (LIN) Tops Q3 Estimates as Higher Prices Lift Sales 9%

Linde (LIN) reported third-quarter sales of $9.40 billion, up 9% year on year and about 2.5% above the Zacks consensus estimate. Adjusted earnings of $4.59 a share, up 9%, beat the $4.52 analysts expected, according to Zacks and to LSEG data cited by Reuters. The shares slipped 1.0% on Thursday to close at $503.15, after the results came out before the open.

What stood out

Price did more of the work than volume. Underlying sales, which strip out currency and acquisitions, rose 5%: 3 points from higher prices and 2 from higher volumes, mainly in electronics, chemicals and energy, and manufacturing, the release showed.

The Americas led. Sales there rose 11% to $3.60 billion on 6% higher pricing, and the region’s operating margin widened 0.5 point to 35.1%. Asia Pacific grew 12%, helped by electronics and new plants starting up, while Europe, the Middle East and Africa grew 7%.

On a GAAP basis, operating profit was $2.15 billion, after charges for a cost-reduction program. Adjusted operating profit, which excludes those charges and accounting for the old Linde AG merger, rose 8% to $2.76 billion. The adjusted margin of 29.4% was 0.3 point lower than a year earlier, but flat once costs passed straight through to customers are excluded, the company said.

“Customer proposal activity remains robust, particularly across electronics, supporting our confidence in continued backlog growth,” Chief Executive Sanjiv Lamba said in the release. The $11 billion project backlog is the pipeline of plants Linde is building; most of it is $7.9 billion of gas-supply projects backed by long-term contracts.

The outlook

Linde expects fourth-quarter adjusted earnings of $4.40 to $4.50 a share, up 5% to 7% on a year earlier, with no expected effect from currency. That is below the $4.59 it just earned.

For the full year, it now expects adjusted earnings of $17.82 to $17.92 a share, up 8% to 9%. That narrows the $17.70 to $17.90 range it gave in July, lifting the low end by 12 cents and the top by 2 cents. Capital spending is set at $5.5 billion to $6.0 billion this year.

Our take

This was a steady quarter: a small earnings beat, 9% sales growth, and a full-year range moved up at the bottom. The market shrugged, with the stock edging lower on the day, and the fourth-quarter forecast points to slower growth than the third quarter delivered. Next quarter we’d watch whether the backlog keeps growing on electronics orders, and whether the adjusted margin holds near 29%.