Linde's Q3 2025: Contradictions Emerge on Backlog Forecasts, Electronics Growth, and Pricing Strategy

Date of Call: October 31, 2025

Financials Results

• Revenue: $8.6B, up 3% YOY and 1% sequentially (1% FX tailwind; +1% tuck‑in acquisitions; -1% engineering/project timing); underlying sales +2% YOY; volumes flat
• EPS: $4.21 per share, up 7% YOY (increase aided by lower share count and tax timing); full‑year EPS guidance $16.35–$16.45 (5%–6% growth)

Guidance:

• Q4 EPS guidance $4.10–$4.20 (3%–6% growth), assumes ~2% FX tailwind and ~2% tax headwind (largely offset)
• Full‑year EPS guidance $16.35–$16.45 (5%–6% growth)
• Anticipated full‑year effective tax rate mid‑ to high‑23% range
• Underlying EPS growth expected mid‑single digits excluding FX/tax timing; company remains cautious and prepared to take mitigating actions

Business Commentary:

* Sales and Financial Performance: - Linde reported sales of $8.6 billion in Q3 2025, up 3% from the previous year and 1% sequentially. - Growth was driven by price increases aligned with globally weighted inflation, with broad-based price increases of 2%, and a currency tailwind of 1%.

• Industrial Activity and Market Trends:
• The company's backlog remains at $10 billion, securing long-term EPS growth, despite starting up $1 billion in projects during the year.

• Industrial end markets, particularly metals and chemicals, showed mixed trends, with metals benefiting from inflationary price increases and chemicals facing volume decline due to trade policies.

• Electronics and Capital Expenditure:

• Electronics was the fastest-growing end market, with 6% growth driven by high-end chip production in Korea, Taiwan, and the U.S., contributing to a significant portion of project backlog growth.

• The ongoing demand and increased fab activity in the semiconductor sector fueled robust growth in merchant and packaged gas demand.

• Challenges and Strategic Positioning:

• Despite a weak industrial recession, Linde's strategic positioning has enabled the company to maintain industry-leading results and navigate contractions across several industrial end markets.
• The company emphasizes productivity and efficiency to withstand economic uncertainties and capitalize on opportunities for growth when conditions improve.

Sentiment Analysis:

Overall Tone: Neutral

• Management highlighted resilience: "EPS of $4.21 grew 7%. Operating cash flow grew 8% and we generated $1.7 billion of free cash flow." Simultaneously they stated: "we remain cautious on the outlook" and will plan mitigations if conditions worsen.

Q&A:

• Question from Laurent Favre (BNP Paribas): My question is regarding the backlog — are you expecting significant new projects coming in in Q4 to defend the ~$7B target by year‑end?
  Response: Backlog remains at a record ~$7B for gas projects and management is on track to finish the year with the '7‑handle' despite ~$1B of project startups.

• Question from Laurent Favre (BNP Paribas): On the U.S. metals/steel opportunities — is this near‑term or spread over 12–18 months?
  Response: Tariffs are prompting U.S. steel/metals expansion opportunities now; multiple potential projects are in the pipeline that would increase gas demand via existing network or new assets.

• Question from Patrick Fischer (Goldman Sachs): Can you give any color on 2026 — project startups and how current pricing might anniversary into next year?
  Response: Full 2026 guidance will be provided in February after rigorous planning; backlog under execution supports continued EPS growth but macro is the primary variable.

• Question from Matthew DeYoe (BofA Securities): Pricing seemed flat sequentially — should we be concerned about pricing momentum?
  Response: Sequential timing differences are normal; year‑over‑year pricing was +2%, aligning with weighted inflation; helium/rare gases are a localized pricing drag.

• Question from David Begleiter (Deutsche Bank): Do you need base/organic volume growth to achieve your EPS algorithm in '26?
  Response: No—management actions and capital allocation each contribute mid‑single digits (~10% combined) without macro help; volumes/FX remain the macro variables to be addressed in February planning.

• Question from Mazahir Mammadli (Rothschild & Co Redburn): Which end markets will drive growth once the electronics CapEx cycle peaks?
  Response: Electronics expected to be multi‑year (5–7+ years) driver; additional growth pipeline includes U.S./India steel, chemicals/refining and embedded decarbonization projects.

• Question from Vincent Andrews (Morgan Stanley): Any sign of earlier seasonal shutdowns in Europe or a quicker slowdown?
  Response: Expect Q4 largely flat; European volumes remain negative with no near‑term catalyst—Germany/UK slow, Nordics show limited positive momentum.

• Question from Patrick Cunningham (Citigroup): How would you frame near‑term market risk in the U.S. given improving indicators and customer sentiment on CapEx?
  Response: U.S. packaged gas grew mid‑single digits; gas volumes slight down; automation/hard goods are up indicating customers prepping for demand — larger project decisions remain cautious but manufacturing volumes are resilient.

• Question from John Ezekiel Roberts (Mizuho): Will falling Chinese electrolyzer prices revive green hydrogen/ammonia projects?
  Response: Chinese cost declines help, but scalability, capital efficiency (need ~60%–70% capital cost reduction) and renewable electricity availability are material structural constraints delaying large‑scale green hydrogen economics.

• Question from Jeffrey Zekauskas (JPMorgan): Is the helium/rare gas hit ~ $30M–$50M this quarter and trimming EPS growth ~1.5%–2.5%?
  Response: CFO concurs broadly: helium/rare gases likely trimmed full‑year EPS on the order of ~1%–2% (lower end), with APAC most affected; rare gases stabilizing, helium supply remains uncertain.

• Question from Michael Sison (Wells Fargo): Why should the chemicals cycle recover given structural headwinds and capacity rationalization?
  Response: Chemicals are currently the weakest end market, but management expects rationalization (particularly in Europe) and China demand to drive a gradual recovery over time—not an immediate turnaround.

• Question from Michael Sison (Wells Fargo): SG&A was up 9% YoY and 3% sequentially — drivers and outlook?
  Response: On a YTD basis SG&A is up ~1%: roughly +1% M&A impact, +2% inflation, offset by ~-2% from restructuring actions, yielding modest net increase.

• Question from John McNulty (BMO Capital Markets): With European capacity closures, any one‑time payouts or speed bumps to expect?
  Response: Rationalization is progressing as expected; contractual fixed fees protect Linde and management does not foresee significant one‑off payouts or material loss of business from top‑tier customers.

• Question from Joshua Spector (UBS): Can you explain manufacturing strength vs PMI and regional mix?
  Response: U.S. manufacturing rebased after tariff concerns driving growth; pockets like EV/batteries in China and India contribute; commercial space is an incremental high‑growth driver distinct from PMI metrics.

• Question from Kevin McCarthy (Vertical Research): What industry growth and gas‑intensity premium do you expect for semiconductors over coming years?
  Response: Semiconductor industry projected to grow ~9%–11% to ~$1T over ~5 years; industrial gas intensity rises with advanced nodes, producing premium demand growth for gases.

• Question from James Hooper (Bernstein): EMEA margins are high (36%) — are you near terminal velocity and what levers remain?
  Response: EMEA margin strength results from positive price and lower volumes; margin expansion may moderate as on‑site volumes recover (possible minor dilution), while merchant/package volume recovery would be accretive.

• Question from Laurence Alexander (Jefferies): Update on packaged gases demand (welding) and regional consolidation—how much runway remains in the U.S.?
  Response: Packaged gas demand is healthy—U.S. hard goods mid‑single‑digit growth driven by automation; substantial tuck‑in consolidation opportunities persist, particularly in the U.S., and Linde has balance‑sheet appetite to pursue them.

• Question from Laurence Alexander (Jefferies): Any pushback on cylinder rental price increases given soft end markets?
  Response: No material pushback—rental pricing has tracked weighted CPI and customers recognize the rental value stream.

• Question from Arun Viswanathan (RBC): Update on disinvestment in Europe and investment outlook for U.S./Europe?
  Response: Opportunity pipeline is concentrated in Americas and APAC; Europe pipeline is lighter but still contains projects (including decarbonization); U.S. pipeline remains robust.

• Question from Michael Harrison (Seaport Research): New AI use cases being implemented for efficiency/productivity?
  Response: Linde has 300+ AI use cases across sales, engineering and operations, governed by an AI council; use cases are tracked like productivity projects and benefits are expected to scale materially over 2–3 years.

Contradiction Point 1

Backlog Expectations

It involves the company's expectations regarding the backlog, which is crucial for understanding future growth and revenue potential.

Will the backlog reach $7 billion by year-end despite new projects? Are there new metal projects in the U.S.? - Laurent Favre (BNP Paribas, Research Division)

2025Q3: The backlog will end the year with a $7 billion handle. - Sanjiv Lamba(CEO)

Given the current macroeconomic environment and projects taking longer than expected, will the $10 billion backlog be affected? - Laurent Favre (BNP Paribas, Research Division)

2025Q1: The backlog is seen growing with $1 billion of new investments expected. - Sanjiv Lamba(CEO)

Contradiction Point 2

Electronics Market Growth

It involves the company's outlook for the electronics market, which is a significant driver of growth for Linde.

What end markets will drive growth after the electronic CapEx cycle peaks? - Mazahir Mammadli (Rothschild & Co Redburn, Research Division)

2025Q3: Electronics will continue for 5-7 years, driven by fab expansions. - Sanjiv Lamba(CEO)

Backlog decreased for the second consecutive quarter, unexpectedly. Can you explain the reasons and factors influencing it? - Jeff Edwards (Deutsche Bank)

2024Q4: The electronics backlog is strong with over $10 billion remaining in the backlog. - Sanjiv Lamba(CEO)

Contradiction Point 3

Pricing Strategy and Timing

It highlights differing views on the company's pricing strategy and its alignment with inflation, impacting investor expectations on revenue growth.

Why are you confident in the impact of your pricing strategy despite weaker macroeconomic conditions? - Matthew DeYoe(BofA Securities)

2025Q3: Year-over-year pricing aligns with weighted inflation globally. - Matthew White(CFO)

If general inflation rises, will pricing accelerate? - John Roberts(Mizuho)

2025Q1: Inflation has historically been an opportunity for us to move pricing forward. - Sanjiv Lamba(CEO)

Contradiction Point 4

Helium Impact on EPS

It involves the impact of helium on EPS, which affects financial performance and investor expectations.

Is helium reducing EPS growth by 1.5-2.5% annually? What is the correct calculation method? - Jeffrey Zekauskas (JPMorgan Chase & Co, Research Division)

2025Q3: The EPS impact of helium and rare gases was approximately 1%. Our full-year EPS guidance includes the current impact of helium. - Matthew White(CFO)

What are the factors driving the volume decline in Europe and the U.S., and what are the price-related factors? - Patrick Fischer (Goldman Sachs)

2024Q4: Helium pricing is down more than expected with flat volumes, impacting sales by approximately $100 million. - Matthew White(CFO)

Contradiction Point 5

EMEA Margins and Volume Recovery

It pertains to the outlook for EMEA margins and the expected volume recovery, which are crucial for assessing the company's regional performance.

Do you need base or organic growth to achieve your EPS growth next year? - David Begleiter(Deutsche Bank)

2025Q3: Strong EMEA margins due to price increases, with potential for margin dilution from recovering volumes. - Matthew White(CFO)

How should we assess the EMEA margin profile despite significant volume declines over the years? - Unidentified Analyst(Morgan Stanley)

2024Q4: EMEA margins have improved due to hard work on pricing, productivity, and handling the impact of volume declines. - Sanjiv Lamba(CEO)