Linde plc — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. Amounts are U.S. dollars; financial figures are in millions except per-share data. The filing is unaudited.
Business context and results
Linde supplies industrial gases and related engineering services across the Americas, EMEA and APAC, serving industries including healthcare, chemicals and energy, manufacturing, metals and mining, food and beverage, and electronics.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Sales | $8,797 | $7,668 | $25,465 | $22,495 |
| Reported operating profit | $1,613 | $1,292 | $3,682 | $3,647 |
| Reported operating margin | 18.3% | 16.8% | 14.5% | 16.2% |
| Net income attributable to Linde | $1,273 | $979 | $2,819 | $2,800 |
| Diluted EPS from continuing operations | $2.54 | $1.88 | $5.57 | $5.34 |
| Adjusted operating profit (non-GAAP) | $2,010 | $1,810 | $5,903 | $5,335 |
| Adjusted operating margin (non-GAAP) | 22.8% | 23.6% | 23.2% | 23.7% |
| Adjusted diluted EPS (non-GAAP) | $3.10 | $2.73 | $9.13 | $7.92 |
Q3 sales rose 15% year over year, reflecting 8% price/mix, 3% volume growth, 8% energy-cost pass-through and 4% higher Engineering sales, partly offset by a 7% currency impact. Pass-through increased revenue with minimal operating-profit effect. Adjusted operating profit increased 11% in both Q3 and the nine-month period; management cited pricing, volumes and productivity gains, partly offset by inflation and currency effects. Adjusted figures exclude specified items and are non-GAAP measures, not substitutes for GAAP results.
Cash flow, balance sheet and capital allocation
- Operating cash flow: $6,769 for the first nine months, up 4% from $6,492 a year earlier. Capital expenditures were $2,237; investing cash outflow was $2,207.
- Cash and debt: Cash was $3,756 at September 30, 2022. Total debt was $15,338, up from $14,207 at December 31, 2021; reported net debt was $11,582. Short-term debt increased to $3,179 from $1,163, including $2,954 of commercial paper.
- Liquidity: Linde reported an undrawn $5 billion revolving credit facility, expiring March 2024, with no financial maintenance covenants. Management said it believed cash, operating flexibility and funding sources were sufficient for business needs.
- Shareholder returns: Nine-month share repurchases were $4,478 and dividends were $1,758. The board authorized a $10 billion repurchase program in February 2022; $6 billion remained authorized at quarter-end. The quarterly dividend per share increased to $1.17 from $1.06.
- Other: Total assets were $74,323 versus $81,605 at year-end 2021; total liabilities were $35,384 versus $36,164. The company reported a $3.7 billion sale-of-gas backlog of large projects under construction.
Material changes and unusual items
- Russia-Ukraine conflict: Nine-month charges were $1,004, including $901 of Russia-related charges. Linde determined it no longer controlled its Russian gas and engineering entities and deconsolidated them effective June 30, recording a $787 loss, including a $407 fair-value loss. It received no consideration and wrote off approximately $380 of receivables, primarily loans. The remaining investment is subject to future impairment monitoring; Linde said it was evaluating divestiture options while complying with sanctions.
- GIST divestiture: Completed September 30. Consideration was $292, comprising $184 cash and $108 payable in future periods; the sale resulted in a $21 loss. Nine-month divestiture cash proceeds included $109 net of cash divested.
- Foreign currency: Currency translation reduced sales by 7% in Q3 and 5% year to date. Other comprehensive loss was $3,115 for the nine months, primarily from $3,394 of translation adjustments, largely reflecting a stronger U.S. dollar.
- Reported versus adjusted results: Nine-month reported operating profit was nearly flat year over year, while adjusted operating profit grew 11%. Reported results included Russia-related and other charges and Linde AG purchase-accounting impacts. The reported nine-month effective tax rate rose to 27.3% from 24.7%, primarily due to tax effects related to Russia.
- Segments: Q3 sales increased across Americas (+20%), EMEA (+11%), APAC (+6%) and Engineering (+38%). EMEA operating profit declined 2% in Q3, while Americas, APAC and Engineering operating profit rose 13%, 12% and 42%, respectively.
Outlook, risks and contingencies
The 10-Q does not provide a specific numerical earnings or sales forecast. It says quarterly operating updates and financial guidance are provided through earnings releases and investor teleconferences. Management cited pricing, productivity, volume growth and project activity as support for performance, with inflation, energy and raw-material costs, currency movements and regional demand as offsets or uncertainties.
- Approximately $1.8 billion of contract liabilities relate to Russian engineering projects subject to sanctions; satisfying related obligations could adversely affect cash flows. The filing estimates total cash requirements from 2022 Russia-Ukraine and other charges will be immaterial, with accrued liabilities expected to be paid through 2023.
- Management disclosed lawsuits and investigations, including Brazilian tax claims with estimated exposure of approximately $215 million for which no liability was recorded, and antitrust proceedings in Brazil for which management said cash outflows were extremely unlikely. Former Linde AG shareholders also seek additional merger-squeeze-out consideration; no reserve was established.
- The filing says there were no material changes to the 2021 Form 10-K risk factors. Listed risks include energy and raw-material availability and costs, ability to pass through price increases, foreign exchange and interest rates, geopolitical events and sanctions, litigation and regulation, competition, customer and industry performance, cybersecurity, and acquisition integration.
- Disclosure controls were assessed as effective, with no reported material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Reconcile GAAP and adjusted earnings, including the treatment of Russia-related charges and Linde AG purchase-accounting impacts.
- Track Russian operations, sanctioned engineering projects and the $1.8 billion contract-liability exposure, including any cash obligations or impairment of the retained investment.
- Assess debt and refinancing needs given higher short-term borrowings, total debt of $15.3 billion and the revolving facility’s March 2024 expiration.
- Monitor whether pricing and productivity continue to offset inflation, currency weakness and changes in customer volumes, particularly in EMEA.
- Follow the unreserved Brazilian tax exposure and other significant litigation, as outcomes and timing remain uncertain.
- Check subsequent earnings releases for formal guidance and updates to the repurchase program, cash generation and project backlog.