Linde stock slips despite an earnings beat — why we’re maintaining our rating
Linde’s earnings on Friday failed to overcome the cash flow disruption and softer guidance. Shares of the industrial gas giant fell 2 percent. Revenue for the third quarter ended Sept. 30 rose roughly 3% from the prior-year period to $8.62 billion, beating the $8.61 billion consensus estimate compiled by LSEG. Adjusted earnings per share rose nearly 7% year over year to $4.21, above expectations of $4.18, according to LSEG. Linde Why we have it: The industrial gas supplier and engineering firm has an excellent track record of consistent earnings growth. Its exposure to a wide range of industries and geographies such as healthcare and electronics, combined with excellent executive leadership and disciplined capital management, has been the recipe for consistent success to continue. Competitors: Air Liquid e and Air Products Last purchased: December 18, 2024 Started: February 18, 2021 Conclusion Cash flow and guidance deficiencies are weighing on shares. Linde’s third-quarter operating cash flow was $2.948 billion; This represents an 8% increase over the previous year’s performance. However, this figure fell below Wall Street’s consensus of $2.96 billion. Similarly, the company’s fourth-quarter forecast for adjusted earnings per share was cautious; Management was expecting $4.10 to $4.20, versus analysts’ estimates of $4.23. The full-year guidance was also conservative, consistent with management’s typical strategy. We worry less. We value Linde for its stability. As a supplier of industrial gases to many key economic sectors, including healthcare, food and beverage, electronics, manufacturing, chemicals and energy, and metals and mining, Linde has not only few competitors but a pricing power that allows it to grow earnings year after year, regardless of background. During the earnings call with investors, CFO Matthew White expressed caution about the company’s outlook and acknowledged that “it is difficult to identify short-term catalysts that could materially improve industrial activity through the remainder of 2025.” However, he added that this “does not justify”. [Linde’s] White noted that in the challenging global economic environment of the last two years, Linde has grown operating cash and EPS by mid-to-high single digits while delivering a record high-quality project backlog on a contractual basis. “Looking ahead, if conditions deteriorate, we are prepared to take appropriate mitigation measures,” White said. “And when things improve, we’re well positioned to capitalize.” Linde’s accumulated gas sales ended the quarter at $7.1. “Given Linde’s ability to consistently grow earnings even under challenging macroeconomic conditions, it is a strong input for continued EPS growth,” said CEO Sanjiv Lamba. “Total backlog has emerged as a key indicator of future financial performance.” Thanks to the contract-based business model, we reiterate our $500 price target. We do not currently have a short-term catalyst that would warrant adding shares. In terms of end-of-sector markets, Linde has noticed year-on-year sales declines on the consumer front, which tends to be more resilient. an increase in healthcare sales, a 3% increase in food and beverage sales, and a 6% increase in electronics sales. Looking at more cyclical, industrial-focused end markets, sales in the manufacturing sector were up 3% from last year, while both chemicals and energy and metals and mining end markets were all up 1% from the previous period. The decline in chemicals and energy continued. Sales in Linde’s Americas segment increased 6% year over year to $3.85 billion, driven by a 3% increase in price/mix and a 1% increase in volume. Management highlighted volume growth in the electronics, metals and mining and manufacturing end markets due to a 1% negative impact from price/mix and a 1% negative currency impact. Increased volumes in the electronics, chemicals and energy end markets were offset by lower industrial activity in the South Pacific. Europe, Middle East and Africa (EMEA) sales were offset by currency and price/mix headwinds partially offset by a 1% headwind from softness in the metals and mining, manufacturing and chemical and energy end markets that Linde reports as an operating segment. Regional results were down 15% year over year. However, operating profit fell only 6% compared to the previous period, thanks to strong margin performance. Guidance Linde tightened its full-year outlook around the previously provided midpoint, but Linde expects fourth-quarter earnings to be in the $4.10 to $4.20 range above the Street’s estimate for the fourth quarter of fiscal 2025, representing a 3% to 6% increase. (1% to 4% excluding currency fluctuations) However, this is below the full-year 2025 adjusted earnings estimate of $4.24; It is a tightening around the midpoint compared to the previous range of $16.30 to $16.50 per share. This represents annual growth of 5% to 6%. Linde reiterated that full-year capital expenditures are expected to be between $5 billion and $5.5 billion, supporting both growth and sustainability, according to LSEG. At the midpoint, capital spending assumptions exceeded the expected $5.08 billion (Jim Cramer’s Charitable Trust, see here for a full list of its holdings). Jim warns before taking a trade Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable foundation’s portfolio. After talking about a stock on CNBC TV, Jim waits 72 hours before executing the transaction. NO LIABILITY OR DUTY WILL EXIST OR BE CREATED IN CONNECTION WITH THE RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULT OR PROFIT CAN BE GUARANTEED.
