Linde plc — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise stated. Linde supplies industrial gases and engineering services. On March 1, 2023, a shareholder-approved reorganization exchanged each old Linde share for one share of the new Linde plc, listed on the NYSE.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Sales | $8.193 billion | $8.211 billion | Flat |
| GAAP operating profit / margin | $1.933 billion / 23.6% | $1.480 billion / 18.0% | +31% |
| Adjusted operating profit / margin | $2.206 billion / 26.9% | $1.905 billion / 23.2% | +16% |
| Net income attributable to Linde | $1.516 billion | $1.174 billion | +29% |
| Diluted EPS | $3.06 | $2.30 | +33% |
| Adjusted diluted EPS | $3.42 | $2.93 | +17% |
| Operating cash flow | $1.908 billion | $2.000 billion | −5% |
| Capital expenditures | $829 million | $649 million | +$180 million |
Sales were supported by 8% price/mix, while volumes were flat. Currency reduced sales by 3%; net divestitures, acquisitions, and Engineering each also weighed on reported sales. Cost of sales fell 8% to $4.431 billion, reflecting pricing, productivity, currency, and lower pass-through costs, partly offset by inflation. Adjusted EBITDA was $2.963 billion, or 36.2% of sales, versus $2.663 billion, or 32.4%.
Reported profit growth exceeded adjusted growth partly because purchase-accounting amortization from the Linde AG merger declined: the adjustment to operating profit was $255 million in Q1 2023 versus $429 million in Q1 2022. Adjusted measures are non-GAAP and should be considered alongside GAAP results.
Segments: Americas sales rose 10% and segment operating profit rose 13%; EMEA sales rose 1% and profit rose 21%; APAC sales were flat and profit rose 6%. Engineering sales declined 26% while profit rose 4%, with project timing and currency affecting sales and Russia project wind-down margins supporting profit. Other sales declined 34%, largely after the GIST divestiture.
Cash, debt, and liquidity
At March 31, 2023, cash was $4.962 billion, total debt $18.777 billion, and net debt $13.815 billion, up from $12.478 billion at year-end 2022. Short-term debt was $5.337 billion and long-term debt, including current maturities, was $13.440 billion. Cash declined $474 million during the quarter. Operating cash flow was below the prior year, primarily due to higher working-capital needs, including lower Engineering advance-payment inflows; investing outflows increased to $1.634 billion, including $808 million for acquisitions net of cash acquired.
Linde reported $5 billion of cash and undrawn unsecured revolving facilities of $5 billion and $1.5 billion, with no borrowings under either facility. The company stated it expects sufficient operating flexibility, cash, and funding sources to meet business needs. It repaid $500 million of notes due in February, repurchased $859 million of shares in cash-flow reporting, and paid $623 million in dividends. Q1 dividends were $1.275 per share; $4.479 billion remained authorized under the share repurchase program at quarter-end.
Outlook, risks, and unusual items
The filing provides no specific numerical earnings or sales guidance; management directs investors to quarterly earnings releases and investor calls for updates. Management cited pricing and productivity as drivers of adjusted profit growth, with inflation and currency as offsets. The large-project sale-of-gas construction backlog was approximately $4.2 billion; estimated remaining performance obligations were approximately $48 billion, excluding Russia-impacted projects.
- Russia: Sanctions-related suspended Engineering projects generated approximately $1.8 billion of contract liabilities; a separate disclosure cites approximately $1.2 billion of advance payments related to projects with RusChemAlliance. Linde says residual obligations are not expected to adversely affect earnings, but could cause cash outflows. Litigation and arbitration are ongoing, and resolution timing is uncertain.
- Brazil tax matters: Estimated exposure for certain state VAT claims was approximately $110 million; no liability was recorded. Following a Brazilian Supreme Court decision on another federal tax matter, Linde recorded a reserve based on its best estimate. Q1 other-charge disclosures include an $85 million accrual for a potential international tax settlement and a $124 million benefit related to resolution of a U.S. tax audit.
- Other contingencies: Brazilian antitrust fines were overturned at lower court levels, with appeals pending; Linde recorded no reserve and considers cash outflow extremely unlikely. German former-shareholder appraisal proceedings also remain unresolved, with no reserve recorded. Management does not expect aggregate legal losses to materially affect consolidated financial position or liquidity, but outcomes could significantly affect results in a period.
- Other items: Pre-tax other charges were $18 million, primarily related to the reorganization. The share reorganization canceled historical treasury shares and reduced reported treasury shares and retained earnings by approximately $15 billion; this was an equity presentation change. Risk factors were reported as unchanged from the 2022 Form 10-K.
Important facts for investors to verify
- Reconcile the $1.8 billion Russia-related Engineering contract-liability disclosure with the separate $1.2 billion RusChemAlliance advance-payment disclosure, and assess potential cash exposure and timing.
- Track resolution of the international tax matter, the U.S. audit benefit, and Brazilian tax and antitrust proceedings, including any reserve changes.
- Assess whether pricing and productivity can continue to offset inflation, currency effects, and changes in volume, particularly as reported sales were flat.
- Monitor working capital, capital spending, acquisition returns, and the increase in net debt; confirm continued access to revolving facilities and debt markets.
- Compare future GAAP performance with adjusted measures, including the ongoing effect of Linde AG purchase-accounting adjustments.