Linde (LIN) Q3 2026 earnings call transcript
https://earnings.opennash.com/companies/lin/2026-q3/ (machine-generated)


Operator [0:00:00]
Good day, and thank you for standing by. Welcome to the Linde third quarter 2026 earnings call and webcast. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation, there will be a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. I will now turn the conference over to Mr. Juan Pelayas, Head of Investor Relations.
Please go ahead, sir. Juan Pelayas, Head of Investor Relations.

Juan Pelayas (Investor Relations) [0:00:36]
Good morning, everyone, and thanks for attending our 2026 third quarter earnings call and webcast. I'm Juan Pelayas, Head of Investor Relations, and I'm joined this morning by Sanjiv Lamba, Chief Executive Officer, and Matt White, Chief Financial Officer. Today's presentation materials are available on our website at thelindy .com in the Investor section. Please read the forward-looking statement disclosures on page 2 of the slides and note that it applies to all statements made during the teleconference.
The reconsiderations of the adjusted numbers are in the appendix to this presentation. Sanjiv will provide some opening remarks, and then Matt will give an update on Linde's third quarter financial performance and outlook, after which we will wrap up with Q &A. Let me now turn the call over to Sanjiv.

Sanjiv Lamba (CEO) [0:01:27]
Thanks, Juan, and good morning, everyone. Three months ago, we delivered financial results that were not up to the expectation of our owners. That message was received loud and clear by the Linde organization, and so we have and will continue to take actions that increase shareholder value.
During the third quarter, we recorded a $425 million restructuring charge to better align our cost base and portfolio with market conditions. Roughly, half relates to severance, particularly in lower growth regions. The balance relates primarily to portfolio and asset actions, mostly in the U .S. home care business or link care. Effective this quarter, I've realigned this business to report directly to Matt, which, among other reasons, has prompted us to modify the segment reporting by moving it into the global other segment.
This will provide investors with greater insight into the underlying performance of our regional gases businesses while we continue to restructure LinkAid and evaluate strategic alternatives. Turning to the quarter, while performance has improved, there is still more work to be done. Sales of $9.4 billion, operating profit of $2.8 billion, and EPS of $4.59 were all quarterly records. However, operating margin, excluding cost pass-through, was essentially flat, reflecting continued headwinds from non-gas segments. Aside from the restructuring actions, we also have a series of price and productivity initiatives underway to stay ahead of the inflationary momentum building across the regions.
While the overall financial performance is heading in the right direction, sales trends remain varied by geography and end market, which can be found on slide three. Starting with consumer-related markets, electronics leads with 15 % growth, primarily driven by the organic growth across APAC and the U .S. These figures exclude our 50 % Taiwanese joint venture, which is growing at similar rates. We also have approximately 2 billion of electronics projects under construction in the U .S., Korea, and China, providing a strong foundation for continued double-digit growth.
Food and beverage grew 3%, led by the Americas and EMEA. Structural consumer trends, including greater consumption of carbonated beverages, higher quality prepared ready-to-eat meals, and food delivery services all continue to drive demand for our gases, equipment, and services. Healthcare grew 2%. However, excluding LinkCare, the growth is mid-single digit, which is aligned with demographic trends. As we continue to trim the LinkAir portfolio, I expect the sales trends to lag market average, but I fully expect to see improvements in both the quality and profitability of the remaining businesses.
Turning to industrial markets, chemicals and energy grew 12%, reflecting stronger volumes in the U .S. and China, as well as pricing actions to recover prior cost inflation, especially in the Americas. Customers along the U .S. Gulf Coast and in China are benefiting from the relative raw material advantages amid the Middle East conflict, supporting stronger demand. This has been particularly evident among more complex refiners requiring more hydrogen to process heavier and higher sulfur crude. Metals and mining was up 3%, driven primarily by the Americas, with stronger construction and industrial activity in North America.
This was partially offset by slight contractions in EMEA and APAC. Importantly, pricing improvements are broad-based across all major geographies as we continue to manage inflation. The manufacturing end market grew 7%, reflecting broad-based price increases and stronger volumes in the U .S., China, and India, including continued aerospace growth. U .S. package gas growth remains elevated at low teens from construction and data center activity. Rare gas sales for satellite propulsion have softened as customer payloads continue to await launch.
Merchant and on-site volumes remain strongest in the U .S., including higher activity in the U .S. Gulf Coast energy and chemicals, stronger metals production, and increased space propellant. China and India growth rates remain healthy with our portfolio of Tier 1 customers. In summary, volume growth remains concentrated in key geographies and specific end markets, while price increases are more broad-based and tracking with inflation. In addition, the $8 billion sale of gas project backlog will provide future growth and increase supply density across poor geographies.
That being said, we still have opportunities for improvement. The third quarter restructuring program and the ongoing productivity initiatives will expedite our efforts to better align each local cost structure with market conditions. Furthermore, we are accelerating pricing efforts to stay ahead of rising inflation. And at LinkAid, which has weighed on the overall results, we're taking decisive actions to improve performance while evaluating strategic options. Linde's operating model is built on discipline, accountability, and continuous improvement. When performance falls short, we act.
When conditions change, we adapt. When attractive opportunities emerge, we invest with discipline. I remain confident that the Linde organization will continue to deliver industry-leading results that our owners expect from us. I'll now turn the call over to Matt to walk through our financial results.

Matt White (CFO) [0:08:31]
Thanks, Satyf. Please turn to slide four for the consolidated results. Sales of $9.4 billion increased 9 % over prior year. Currency impact of 1 % continues to abate and is not expected to have a meaningful impact for the remainder of the year.
Conversely, 1 % of cost pass-through, which represents contractual billing of energy cost variances, has steadily increased from energy inflation. Acquisitions and engineering each contributed 1 % sales growth from tuck-in M &A and higher third-party plant sales, respectively. Excluding these items, underlying sales grew 5%. Volume of 2 % is roughly split between project backlog contribution and organic growth, although most of the organic growth relates to equipment sales in APAC and EMEA. As Sanjiv mentioned, organic growth is concentrated in a few key end markets and geographies, although prior year comps are becoming easier in certain regions, such as EMEA.
Prices increased 3 % in the quarter. While the majority came from ongoing price actions, a portion relates to prior and current period inflation cost recovery in the Americas. An acceleration of energy and distribution cost pressures in North America warranted incremental recovery. While we don't anticipate these costs to sustain into the fourth quarter, the team is prepared for additional measures if necessary. Operating profit grew 8 % to $2.8 billion. Operating margin of 29.4 % fell 30 basis points from prior year, but was flat, excluding cost faster, which is highlighted in the table to the right.
Margin increases of the combined gas segments were offset by declines in engineering and global leather. As stated earlier, actions are well underway to address the underperformance. EPS of $4.59 grew 9 % over prior year, or 8 % excluding the impact of currency. Year-to-date, we're losing about 2 % EPS growth from Lincare, so negating that headwind will support the return to double-digit EPS growth for the global organization. Slide 5 provides a summary of capital management.
Operating cash flow of $3.2 billion increased 8 % over prior year, in line with EBITDA growth. As mentioned in prior calls, the second half OCF is higher due to seasonal cash timing of taxes, interest, and incentives. Base CapEx, which includes growth investments as well as maintenance and repair, is flat versus prior year or down when excluding currency impact. The excess available operating cash flow affords Linde a steady capital allocation process, which can be seen in the pie chart.
We've deployed over $9 billion of capital year to date, with roughly half invested into the business and the remainder distributed back to shareholders. We've maintained this approach through good times and bad, and the rising interest rate environment reinforces something we've known for a long time. Balance sheets and cash flow matter. The health and stability of both provides us significant optionality, regardless of the future macro. I'll wrap up with guidance on slide six. For the fourth quarter, we're guiding an EPS range of $4.40 to $4.50, or 5 % to 7 % growth.
While no prior year currency impact is assumed, we do expect a 1 % headwind sequentially. Consistent with prior guides, no economic improvement is assumed. This also applies to LendCare. Despite the recent actions, we are not yet embedding any meaningful change to Q4 profit. While I fully expect future improvement, we're taking a more cautious view for the near term. The full year guide of $17.82 to $17.92 cents simply rolls the fourth quarter into the year to date actual.
However, one change you may notice is that the full year FX benefit increased from a strong 1% last quarter to a weak 2% this quarter. That's more rounding than anything else, so time will tell where the final number lands. Overall, the core gas business is healthy, but there are clear opportunities to improve, most notably around management actions in price and productivity against the backdrop of higher inflation. And while Lincare is a headwind to results today, we're taking significant actions to improve going forward while simultaneously increasing transparency and executive oversight as we evaluate strategic options.
I'll now turn the call over to Q &A.

Operator [0:14:31]
Thank you. We will now begin the question and answer session. Please limit yourself to one question. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. And if you are muted locally, please remember to unmute your device.
Please stand by while we compile the Q &A roster. Your first question comes from the line of David Biglieta from Deutsche Bank. Your line is now open. Please go ahead.

David Biglieta (Deutsche Bank) [0:15:12]
Thank you. Good morning. Good morning. Sanjiv and Matt, just on the backlog, you still expect to end the year on a sale of gas basis around the $8 billion level. And on sale of plant, how should that progress over the next few quarters? And what does that mean for engineering sales growth in 2027?

Sanjiv Lamba (CEO) [0:15:39]
David, the sale of backlog sits close to $8 billion today. Today my expectation remains we will continue to start up for the rest of this quarter a number of projects that might lead up to around a billion as we previously mentioned. And depending on customer timings, we expect still to be able to get pretty close to that 8 billion dollar number. So the target internally remains at eight handle. Sometimes that's dependent on customers' final decision, but feel pretty confident we're going to be in that vicinity.
As far as sale of plant backlog is concerned, that's just under $3 billion at the moment. It has sitting within that some space component today. We expect to see that to continue to grow as well. So I expect the trend line for sale of plant backlog will remain along the lines we have at this point in time growing over the course of next year. In February next year, we'll provide you with a more pronounced guidance on what we see for the business overall and within that we can address that question specifically.

Operator [0:16:51]
Your next question comes from the line of Duffy Fisher from Goldman Sachs. Your line is open, please go ahead.

Duffy Fisher (Goldman Sachs) [0:16:58]
Yeah, good morning guys. Just a question on cost. If you look at your COGS line in Q3, year over year, you're up 13%, and your acquisitions and volume are up three. So if you just subtract that, kind of a cheap metric would say that your per unit COGS is up about 10 % per unit. Can you just walk through what that is?
That seems like a fairly high number. Maybe I'm missing something around currency, but just if you kind of got to a per unit, how much is your hogs really up year over year?

Matt White (CFO) [0:17:32]
Hey, Duffy, it's Matt. So yeah, I think there's a couple moving parts there. So for the quarter, you got to start with FX, right? So that's up 1%. You could take that out. That'll apply across all the lines. Cost pass-through is another 1%, as you imagine.
That's also in there, given some of the energy that just grosses up, as you know, both sales and variable costs. In addition, as you saw, the energy market did quite strong, and a lot of that on the back of hyco our hydrogen business which tends to have as you know a higher variable cost just given the inputs for that business that also is driving part of it to your point the acquisitions will come in in that regard and so a lot of that plays into that but i would add that when we talked about some of this uh recovery we had to do that partly plays into that as well and maybe i can kind of take this point to
talk a little bit about the pricing recovery um so this is something we mentioned last quarter that we were seeing these costs and we needed to go out and recover. That is a normal part of the business. That's something we do all the time. I would say it's a little more prominent this quarter for two primary reasons. The first is just we saw a more accelerated cost both with distribution and power in the last few quarters.
As you read about some of the power situations, the weather and what we saw especially in North America that we needed to get out and recover. I would say secondly, which is just more optics, is as we moved LinkCare out of the Americas segment, while this recovery had always happened, it's going to look a little more pronounced now because you're taking LinkCare out of the denominator of that calculation. So by default, you will see more elevated pricing and more prominent recovery in Americas, just given that function of the change.
So I would say all of those played into that. We do expect that to kind of come back down here into the fourth quarter, But that's the reason we also needed to go out and recover some of that.

Operator [0:19:32]
Your next question comes from the line of John McNulty from BMO Capital Markets. Your line is open. Please go ahead.

John McNulty (BMO Capital Markets) [0:19:41]
Yeah, thanks for taking my question. Regarding the charge that you took in terms of the severance side, so the non-Lindcare portion of the restructuring and efficiency work that you're doing.
I guess, can you help us to think about how that will play out going into 2027 in terms of the savings and the improved efficiency versus your kind of normal cadence that you call out most of the time in terms of efficiency improvements that we kind of know as a steady state?

Matt White (CFO) [0:20:12]
Hey, John, it's Matt. I can handle So I would start with the severance portion is very, very consistent with all of our prior actions we've taken.
So as you may recall, the paybacks on a cash basis, undiscounted, tend to be in the one to two year range. And that range is really a function of where in the world more of the severance occurred just based on certain contracts or sort of what the required severance would be. So I would say for this particular charge, it's closer to the higher two-year end, but that will start taking effect here in the fourth quarter.
But really, we'd expect to see the full benefits in the second half of next year on a full run rate basis. So that's pretty consistent with our other charges that we've had, one-and-a -half to two-year payback, and you start to see full benefits within three to four quarters of the action itself.

Operator [0:21:15]
Your next question comes from the line of Vincent Andrews from Morgan Stanley. Your line is open. Please go ahead. Thank you very much.
Matt, I wanted to ask you versus where we were at 2Q, when you look into the fourth quarter where natural gas and electricity costs have gone in Europe, how much of an incremental headwind is that to you? and how much of it do you think you'll be able to price for in the fourth quarter versus having to wait to recover in the first quarter?

Matt White (CFO) [0:21:47]
Yeah, so Vincent, I'll break it down between on-site and then the merchant and package.
So on-site, it's recovered in the current month, and that's cost pastoral. So that would essentially be cost pastoral. When you think about merchant and package, which this North American impact is more related to, it generally can be anywhere from a three to six month sort of lag on recovery is what we tended to see. And I would say in Europe, what we've seen in the past, and it really depends how it plays out this year, is either it's a very cyclical up and down power, which means it's just a constant three, four, five month recovery lag that we continue to do until it stabilizes, or you can have a continued power spike to the point it works into the
entire inflation of the economy, which then it becomes essentially permanent price. We'll see how this one plays out. I would say when we saw this inflation spike in 2021-2022, it was more sustained and became priced, if you remember from our results then. This particular one has vacillated a little more, but we'll see how it plays out as we get into the winter months going ahead.

Operator [0:23:01]
Your next question comes from the line of Josh Spector from UBS.
Your line is open. Please go ahead.

Josh Spector (UBS) [0:23:09]
Yeah. Hi. Good morning. I wanted to ask kind of simply here, you know, just in terms of your EPS guidance versus what you just delivered, you know, 9 % growth versus 7 % growth. What are the factors that drive the deceleration in fourth quarter versus 3Q? And what should we be inferring from fourth quarter as we look forward into 2027? Thanks.

Matt White (CFO) [0:23:33]
Hey, Josh, it's Matt. So for 2027, we'll give that in February.
So we'll stick with Q4 right now. And I think the best way to probably talk about it is sequentially to hopefully address your question. So if you take the midpoint, and obviously time will tell where we deliver, but I'll just use the midpoint for simplicity's sake of the guidance range. It's about a 3 % decline. 1 % is FX, as we mentioned. Obviously, we're seeing the dollar strengthened across most currencies right now. So that's part of that, and time will tell.
It'll be what it'll be when it ends up. Another percent, if you noticed, we had a little bit of elevated equity income this quarter and third quarter, and a lot of that was a customer true up on a contract we were paid for that was resolved. And so that caused a bit of a spike in the equity income this quarter. That will go back to run rates Q4. So that's roughly a percent. And the last percent, we'll see.
I mean, we do have a little bit of seasonality in Q4. As I mentioned, we're taking a pretty guarded view on the impact of some of the actions we're taking with both the non-gas business as well as our view in the economy right now. We're not going to take any view on continued sustained growth. But our goal is to do better than this range, and our goal is to work to get above it. But that's where we are right now, and we'll have to see.
Obviously, for most intensive purposes, we left the full year guide somewhat intact, and that was part of the thought process as well, is laying out this Q4 guide, to just leave that intact at this point because we didn't see a reason to take any bullish signals yet until we can kind of see how the rest of the economy plays out.

Operator [0:25:18]
Your next question comes from the line of James Hooper from Bernstein. Your line is open. Please go ahead.

James Hooper (Bernstein) [0:25:27]
Hi, morning everyone. Can I get an update please on the Woodside project and when the component parts might start up and how the customer placing it on the strategic review might affect your business. Thank you.

Sanjiv Lamba (CEO) [0:25:43]
Thanks, James. So the Woodside project continues to make progress. When we last spoke to you, we were about to start up the air separation unit and start the nitrogen supplies. That is now underway already in Q3, and it will continue to progress for the rest of the year into next year.
We are also supplying the customer currently temporarily with hydrogen from our pipeline network, ensuring that they have an opportunity to continue to manufacture ammonia as they would want to. Now, the ATRs, which is our on-site supply for hydrogen, will get started up. There are two trains for the ATR, so there is always a staggered startup. I expect that to be completed in the first half. And at the end of that six-month period, we would then be at a point where all the facilities would be ready.
And the only component left to be completed then would be the carbon capture and sequestration element, which is being worked on by ExxonMobil. So our timeline that we have communicated in the last call, I think hold for now and the teams are working to see what we can do and maybe even slightly improve that. So you can only see that impact start come through in the second half of next year. A quick reminder on those of you who looked at large projects like this, there is a ramp profile that always exists with projects like this on the ammonia side as well.
So once we start up, then we would start going into that ramp process, which would mean there'd be a staggered capacity utilization of our plans till we get to that 100%, which I expect probably to be sometime in 2028. The conversations around the strategic review that the customer is doing, I think, is something that they will have to complete. We are actively engaged with them. The only point I'd make to you is we always, in projects like this, assess the quality of the asset into which we supply.
And we recognize that we have a really high-quality asset that's being supplied over here, which originally was owned by OCI, transferred to Woodside. And irrespective of who the ultimate owner is, we believe this money complex will have a very attractive opportunity for them to continue to make some money from the complex. So feel good about our positioning with that asset as well.

Operator [0:28:23]
Your next question comes from the line of Matthew Dio from Bank of America.
Your line is open. Please go ahead.

Matthew Dio (Bank of America) [0:28:32]
Morning, everyone. I wanted to ask a little bit on volumes, both kind of structurally and then maybe in the quarter. Starting with Europe, Sanjiv, I have a feeling what your answer will be, but are you getting any more optimistic that the Europeans are taking a bit more defensive view on industry there now with like, you know, steel anti-dumping and the auto import cap? towards the quarter it looks like volumes maybe got a little bit better in Europe in 3q but I don't know if that's just noise and comps on kind of like what's still pretty much a tough market and if I could tack on Europe saw a bit better performance than
I would have expected on volumes I feel like last time we caught up there was some expectation of a deceleration in China but maybe that doesn't feel as visible here in the print so I want to give you an opportunity to kind of sound off on that stuff

Sanjiv Lamba (CEO) [0:29:36]
thanks Matt you know you kind of almost predicted what my answer was going to be so I'm not going to disappoint you sadly Europe unfortunately continues to be in in that in that range that we talked about the last time we spoke there is at this point in time no catalyst.
Now, I'm sure you've seen the 1 % positive volume on Europe rounded up to 1, but the reality is that unfortunately comes, well, I shouldn't say unfortunately, but that comes largely on the back of sale of equipment, which has embellished that number, if you will, stripped that out, and the underlying number is flat. Now, look, the comps have gotten better, to your point, and that helps. But a flat number today for Europe actually is looking better than the minus two, minus three that we've seen if you go back 12, 18 months ago.
So there seems to be a degree of stability, but there is absolutely no catalyst, and I have absolutely no reason for any confidence that the European market will pick up and give us any growth in the near term. There is zero catalyst, and I do not see the pragmatism that is needed across that whole European Union and the European community to take decisions that could get back industrial activity to a level where actually we start seeing some positive movement.
So sadly, that disappointment will remain for some time until such decisions are taken. And I read the press as much as you do. And as I said before, nothing there suggests that that trend is likely to change anytime soon. On China, you were right. In the last call I said, my expectation was a moderation in the second half. That played out for steel as an example. So steel production was down 2.5%. There is a production curtailment order from the government that's playing into steel.
So steel is down, chemicals flat. The star of the show really has been electronics in China. And really, electronics industrial production has grown about 17 % in the quarter, if I'm not wrong, and essentially driving a lot of the growth within that space. Beyond that, manufacturing also has been, other than the green shoots that we previously referred to on EV and batteries, everything else has been rather down. Now, the other point I want to make on China is the expectation was that exports would moderate, but it has been a fantastic export market in Q3.
So that obviously has helped the economy a little bit. Domestic demand continues to not manifest itself at all. That remains my concern, to be honest. Sustained improvements in China require the domestic consumption to pick up alongside some level of export growth. We are just not seeing the domestic consumption pick up. I'll give you one number that surprised me. Domestic EV consumption or purchasing is down about 11-12 % despite the fact that you're still seeing significant exports outside.
At some stage, that export machine will face resistance at the other end, mostly Europe. And I think we'll see that moderate as well. So you know what? I'm not seeing any structural changes in China that are giving me confidence that we will see a significant rebound other than whatever forecast you might have on exports outside China into the rest of the world.

Operator [0:33:24]
Your next question comes from the line of Eric Boies from Evercore ISI. Your line is open.
please go ahead.

Eric Boies (Evercore ISI) [0:33:32]
Good morning and thanks. Does the Lincare restructuring savings take away from the usual productivity gain that's typically embedded in your normal earnings algorithm for 2027 or will that typical productivity benefit come on top of Lincare for next year? Thanks.

Matt White (CFO) [0:33:50]
Eric, it's Matt. It'll be on top, right? The way we always view it is the productivity is an ongoing embedded in the culture. That is an expectation and that is every day. These restructurings are more episodic one time and they're more top-down approaches that are incremental.
So it's consistent with how we do the gas view as well that it will be incremental.

Operator [0:34:20]
Your next question comes from the line of Jeff Zoukowskis from JPMorgan. Your line is open. Please go ahead.

Jeff Zoukowskis (JPMorgan) [0:34:30]
Thanks very much. It looked like helium prices moved up in Asia sequentially. Did they move up in the other geographic jurisdictions? And then for Matt, at least by my calculation, the decrease in Lincare EBIT in the first half was $66 million. And I know you said that it would, the Lincare would lower EPS growth by 2%, which would be about $200 million pre-tax.
So are you rounding up? Is the number a little less than that?

Sanjiv Lamba (CEO) [0:35:13]
Hey, Jeff. On Helium, I'll let Matt answer the LinkAid question. On Helium, generally, we have seen prices up. You might recall we had said in the last round as well that one of the things, one of the actions we've taken as we've signed up some new contracts, as well as we continue to serve all our contracted customers, is that we have built in the pricing, some recoveries on the dislocation cost associated with the Middle East conflict and the sourcing and logistics challenges that we have.
So we are seeing that rounded up in pricing, but of course that is also rounded up in the cost structure. Therefore, the margin improvements don't quite show through on the helium and affect us more broadly, but clearly we are seeing that pricing move up and it is across the world, across all the markets in each of the segments we have. Matt, do you want to take the link? Matt Kuhnick -

Matt White (CFO) [0:36:10]
Yeah, sure. Yeah. So obviously, you'll have the first half, you won't have the back half in Q3 and Q4 from that perspective spiked out.
But it is about one and a half to two on the year to date. And especially when we kind of look out on holding flat what the Q4 would be. And part of that also is a function of how last year the performance was, when you think about the baseline. So it is in that range and that's the effect it's having. So whether you say it's 1.5, 1.6 rounding, how you want to look at that, but I would say it's a very strong one to a weak two is what we've seen on when we project out of the year just based on the numbers.

Jeff Zoukowskis (JPMorgan) [0:36:51]
Okay, great. Thank you.

Operator [0:36:53]
Your next question comes from the line of Kevin McCarthy from Vertical Research Partners. Your line is open. Please go ahead.

Kevin McCarthy (Vertical Research Partners) [0:37:02]
Yeah, thank you and good morning. I was wondering if you could compare and contrast your price experience in the Americas versus your other major regions. I'm looking at plus six in the Americas and maybe half that in Asia and a third of that in Europe. So maybe we can discuss why why that's the case and whether we should continue to expect America's to outpace ROW moving forward.
Thank you.

Sanjiv Lamba (CEO) [0:37:33]
Kevin, I'll let Matt cover that just to tell, you know, get into the details of the America's pricing, which has some recovery elements which are beyond the quarter. Matt, why don't you just explain that?

Matt White (CFO) [0:37:44]
Sure, Kevin. So I think a couple things. First, if you look at the 6%, I would say probably close to 2 % associated with some of this recovery we talked about. So underlying run rate, you're in the four range. Globally, even excluding the recovery, we're still three because the three we have is a very strong three, I'll say, in terms of the global rollout.
So the run rate there has probably been more in the four range, and that's kind of the year to date if you look at it too, through that period, excluding the two. And part of it is just you've seen both inflation and costs, but also general inflation. You have remember you have South America as well in that set of numbers where you tend to see a little higher inflation. You definitely have seen some power and distribution inflation in North America with the U .S.
specifically. I think when you go over to EMEA, we are starting to see that pick up more. As I said earlier, it vacillated a bit. I think what we saw in EMEA, we would see some some energy rise and then fall and rise and fall. So we would cover that through some surcharging, but it wasn't necessarily translating to significant incremental permanent pricing. But it feels like that may start to accelerate. Time will tell, but that's what we're starting to see in EMEA.
And when you move to APAC right now, probably half of that pricing is helium, which relates more, and Jeff kind of alluded to, seeing the helium price increases. The other half, we are seeing some good traction in South Pacific and places like India, but obviously China, it's still not a high inflation region, as you can imagine. So that's continuing to put a little bit of a drag on the base business, just given some of the conditions there.
So I would say right now, even when you exclude this recovery we had, America continues to see the highest rate of inflation just given the activity in North America and the traditional inflation you tend to see in South America.

Sanjiv Lamba (CEO) [0:39:42]
Kevin, I'll only add that as we see this inflationary momentum continue to build our pricing actions across the world, America's great example is to how just Matt described it, but across the world, you know, continue to be focused of attention for the management team at Linden.
So, So including China, which is a lower inflation economy, I think for the first time after a number of quarters, we've seen positive inflation in China. Also export PPI is up, both indicators that the market is tuning into higher inflationary levels and therefore our pricing effort over there will continue to provide some further impact as well.

Operator [0:40:24]
Your next question comes from the line of Patrick Cunningham from Citi. Your line is open. Please go ahead. Hi, good morning.

Patrick Cunningham (Citi) [0:40:34]
I was hoping you could elaborate a little bit more on any other reasons for logic of moving LinkCare to the other segment, whether you're considering selling that business and just any sort of update on the mitigation actions you plan to take. you know when can we expect a meaningful change in profit levels there

Matt White (CFO) [0:40:53]
hey patrick it's matt so i'll start with the move is driven by accounting right which is it's called codm the chief operating decision maker and and a combination of a series of of accounting events and and i think it culminated with the trigger and the change of the executive leadership oversight and how we evaluate that business um through uh management and the board prompted that change
to the other segment. So I think that was an accounting thing, which we'll set to the side. But that being said, we absolutely, and we've said we will continue to evaluate strategic options, but we can't assure there will be a strategic option to be had. And so we have to improve this business. We have to run it better while running it safely and compliantly. And so that is the focus and that is the goal. Hopefully the healthcare sector improves.
Right now it's not doing as well, I'll say, as a sector. But if it improves in the coming years and that market thaws a bit, maybe there can be more opportunities for strategic options. But our goal is to improve it. It is to basically make it a better business. And then hopefully that will not only get rid of some of the headwinds we're seeing, but it'll also open up other options with that business. And again, if you may recall, this is not too dissimilar if you go years back with the GIST business that traditionally was part of the EMEA segment.
We had a very similar construct. We changed the oversight of it. We changed how we managed and reviewed that internally. It moved to the other segment. That business ended up at a sale. We'll see what happens in this case.

Operator [0:42:36]
Your next question comes from the line of Abigail Eberts from Wells Fargo. Your line is open. Please go ahead.

Abigail Eberts (Wells Fargo) [0:42:43]
Thanks for taking my question. Just another one on Woodside. Just wondering if there's anything else you can give us to help us size that revenue drag given those project updates?

Matt White (CFO) [0:42:59]
So, hey, Abigail, it's Matt. I think as far as a revenue drag, yeah, the way I would probably characterize it is, you know, we are supplying them from our existing network. And as Sanjiv mentioned, without having the full assets up and running, those are molecules that we would have been able to route into our network system for other customers. As you can imagine today in the U .S. Gulf Coast, hydrogen is a pretty valuable molecule because it helps desulfurize heavy crudes and it helps refiners make more middle distillates and products in high demand like ultra low sulfur diesel and other products like that.
So we would definitely have been able to resell those molecules. And it's the same with some of the atmospherics as well. So I think it is something that we fully expect to be incremental when it starts up and that we will get that benefit. But right now, we are pulling those molecules from our existing supply network to support them until these assets are up and running.

Operator [0:44:12]
Your next question comes from the line of Alexey Yefremov from Barclays.
Your line is open. Please go ahead.

Alexey Yefremov (Barclays) [0:44:21]
Good morning, everyone. In electronics, you've been growing mid to high teens this year versus what I think MSI grows at 8 to 10%. Is this a sustainable level of outgrowth for the next few quarters? And separately, how do you feel about prospects of new additions to backlog in electronics?

Sanjiv Lamba (CEO) [0:44:45]
Thanks, Alexei. That's a great question on electronics and some of you, and I know Alexia, you were there, were at our event in Phoenix and actually physically saw the conversations we have about electronics growth.
So the growth that we saw in the quarter, you know, is really largely driven around organic growth in electronics. And I feel pretty good about the trend that we see, at least for the next few quarters, looking out in terms of how that end market's going to perform for us. So feel good about that. Feel that this is something that we will sustain. The reason the confidence in the midterm also exists is because sitting within our backlog, as I mentioned briefly earlier on, we have about 2 billion of backlog projects under execution, which will have staggered startups over the course of the next two or three years.
and that will then feed into the double-digit growth that I expect from the electronics end market going forward. The other point I'd make around electronics also is that there is, in addition to the atmospherics, which is where most of our conversation has been and which is where the Phoenix assets, as an example, we had shown you were feeding into, we also have continuing growth around the electronic special gases. These tend to be the cylinder gases, high value, small volumes, but nonetheless quite important.
I think we continue to see growth over there as well. So between those two elements, I fully expect to see electronics growth in the double digit rate going forward. Talking about prospects, so the point I'd make on prospects is twofold. Let me start off by just the conversations again that we have in Phoenix to illustrate that we have a robust pipeline of projects, including with TSMC here in the U .S., with some of the other players in the U .S., but also, you know, as we think about the top 10 electronics players, we have existing relationships with each of them across the world, whether it's Taiwan, South Korea, the U .S., and of course, there is a growing market I
referenced earlier on in China that provides prospects as well. I expect Linde to win more than its fair share across that whole range, particularly when it comes to these larger atmospheric projects like the ones we showed you in Phoenix. So feel good about that whole prospect. I will say though that we are, as you know, very disciplined around capital allocation. And one of the things that we are playing into that has been our focus on logic.
Obviously, we will do memory with some of our key customers that we have been working with for decades, but we tend to be a bit more selective around some of the memory projects. And just recognizing the short cycle that memory tends to have might look different at the moment, but historically has been on a shorter cycle, and which tends to be a little bit of variance to the long-term contracts that we prefer when we go out and do this level of business and project development.

Operator [0:48:08]
Your next question comes from the line of Salvatore Tiano from KeyBank Capital Markets. Your line is open. Please go ahead.

Salvatore Tiano (RBC Capital Markets) [0:48:16]
Thank you very much. I just want to go back to the pricing, especially in the Americas, the 2 % component you mentioned. So essentially, firstly, can you help us a little bit understand how much was the, I guess, excess margin from the price increase that was going to offset costs from prior quarters? So essentially, what was a little bit perhaps a little bit more one-off in the quarter?
And secondly, it looks like some of the cyclical end markets in the U .S. and the Americas have been doing pretty well in terms of profitability. So going back to Kevin's question, what do you think would have been your price power to recover these costs? Should conditions for these end markets have been more similar to the past few years where chemicals, say, earnings were poorer? Would you be able to recover them to that extent? and how should we think about future recoveries if earnings for chemicals and energy assets do not stay at the current levels?

Matt White (CFO) [0:49:23]
Yeah, Sal, it's Matt. So I think we'll just start with the basics. I think the recovery of costs is an integral part of our contracts. It's something we've always done. We mentioned last quarter we needed to get out and get more recovery, especially in North America. So that aspect of it is very consistent and this primarily relates to merchant and package just to make sure because on-site it's primarily cost pass through as you know that that is very much in the month and it's very programmatic as part of the contract billing itself within the merchant and package there are aspects of each contract to go and recover it and we've always had this lag and the lag can be
one it could be two quarters I would say this particular period we saw an acceleration of cost that came a little faster. And of the margin itself, you got to spread it over probably five, six months, if not more. So it's really hard to give a margin in any particular period because people want to break it down to quarters. But I will say on year to date, while it is still net on terms of the positive impact on OP, it will clearly be dilutive, right?
Because you're basically going out there and trying to get back a lot of these excess inefficiencies, and you're going to do it in a way that's going to be diluted to the average American margins. So I would just say it's been spread over a couple quarters. For the most part, within the quarter itself, it would have still been net dilutive to the 35 % margins that we printed, just given the recovery portion. And it's something we will continue to do.
And again, the fact that we've taken an annualized equivalent of Link Care sales of almost 2.3 billion annualized out of that segment kind of makes this a little more magnified simply because you have a smaller denominator to divide by, right? So I think that will be something going forward. And that's, again, part of the clarity and transparency. I think that'll be a little easier with the way the segments are aligned today. But we will absolutely act again.
And then some of this does turn into permanent pricing over time as it becomes an integral part of inflation within the economy itself. Time will tell if that happens. But right now, I feel very good about the 4 % run rate on the underlying organic. And if inflation persists, then I expect in Americas, we will rise above that.

Operator [0:51:51]
Your next question comes from the line of Lawrence Alexander from Jefferies. Your line is open. Please go ahead.

Lawrence Alexander (Jefferies) [0:51:59]
So good morning. Two quick ones, or hopefully quick. One is, what's the rough free cash flow that Linkair is contributing? And secondly, on the comments around kind of the European industrial policy, what's the feedback you're getting from customers as to how long this combination of malaise and cost pressures can continue before end markets need to shift to a more rapid de-industrial I know Europe has a lot of stakeholders to coordinate before decisions get made, but is it a couple of years?
Is it a decade? I mean, do you have any sense? Are people talking yet about where the real breaking point might be?

Sanjiv Lamba (CEO) [0:52:46]
So, Lawrence, I'll cover that and then I'll ask Matt to cover the pre-cash flows on LinkAir. You have probably on numerous calls heard me, for lack of a better word, vent on the lack of consistent policy framework that allows industries in Europe to move forward and be competitive. And that is obviously compounded in the current climate with energy costs being both volatile as well as extremely high.
When in parts of Europe, you have energy selling at 150 euros per megawatt, that's for electricity. And when you have natural gas a couple of weeks ago selling at 30 euros per MMBTU, you know you have a structural cost disadvantage that the government needs to kind of understand how it can either offset, which, you know, some countries are trying, or find a way to ease the ability to not have to comply with thousands of regulations and make the business a little bit more competitive to try and offset some of this inherent disadvantage that's there.
There isn't Europe per se. So if you see Scandinavia, we continue to see good industrial activity in Scandinavia. The Nordics have got the advantage of lower cost of power. it is hydroelectric power for most part priced well competing well and we still see the prospect of growth and projects in the Nordics as a good example where it's offset by you know significant disadvantage that sits in continental Europe for most part and Eastern Europe suffering because they are the back end of the supply chain that feeds into continental Europe.
Customers much you know, much of my frustration that I'm reflecting over here is coming from conversations that I have with, you know, my peer CEOs of various companies. And I think I'll give you the example of chemicals where that has become quite visible. Now, the Middle East, you know, conflict has helped in part to try and shore up some of the chemical industry across Europe. But, you know, clearly, you know, a level of restructuring in that industry, which includes a number of shutdowns of facilities and specific sites, as you're aware, is all playing into this narrative.
I don't think anyone has a timeline, Lawrence. You can take a guess. Any guess that you and I take will be wrong. It will take longer, whatever we might estimate. So I guess my frustration here just reflects that lack of activity that is allowing broader industries to both survive and do well. And I think that is certainly I would not hold my breath for the medium term. Matt, you want to cover the free cash flow? Sure.

Matt White (CFO) [0:55:40]
Yeah, I'll start with Lawrence. It's positive. It's been positive throughout the whole time. A kind of rough and simple way to think about it is the depreciation add back and the capex mostly offset. So your operating profit slash EBIT essentially falls to the cash flow, free cash flow line. And so from that perspective, it's just a function of how you manage working capital. There is a seasonal element to working capital in this business based on how the deductibles and plan, healthcare plan systems roll over.
So that will create some noise within the quarters. But aside from that, you know, the EBIT tends to be a rough proxy, and then you just, the better you can manage collections, the better you can manage that number.

Operator [0:56:30]
We will now take our final question from Tony Jones from Rothschild & Co. Your line is open. Please go ahead.

Tony Jones (Rothschild & Co) [0:56:38]
Thanks, everybody. Thanks, Tony. Thanks for taking my question. Just a quick one on Helium. Do you expect any change to the Qatar supply situation in 27?
Related to it, do you still think pricing will be positive for Linde next year? And what does that do to margin, if anything? Thank you.

Sanjiv Lamba (CEO) [0:57:01]
Thanks, Tony. You found a way to put in three questions in there, but I'm happy to respond all of them. Helium's done, look, as I said before, we've done a really good job. The team's done a really good job around managing the Helium through this crisis period. And, you know, in doing that, not only have we served our existing customers extremely well, but we have added customers with long-term contract commitments that they've made to come on board, just recognizing the resilience of Linde's helium sourcing and supply chain that allows us to go out
and ensure that we are able to solve their needs even at times like this. That has been good from a pricing perspective, so to address that issue, but our pricing actions have been very focused around ensuring that the dislocation costs that come with this increased supply chain and sourcing challenges are adequately factored into the pricing and recovered appropriately. We have not tried to use this opportunity to do, you know, excessive pricing. We've been very mindful that these are long-term contracts, and I certainly want to make sure I tie in these molecules because longer-term helium will be long, and we have gone through that cycle, and we know exactly where that's going to end up.
So it has been important to get that done. Coming to Qatar specifically, our view is that Qatar is likely to get to about 75 % of the production levels. The challenge is not on the production side, as you know, Tony. The challenge is the ability to get anything out unless you do a very convoluted supply chain using land routes and then get to ports which are far off, which obviously add to both the complexity of having enough tanks that allow that helium to be carried across that very significant terrain that it needs to cross, and then obviously getting ships that would then be able to take it to the rest of the world.
All of that add both cost complexity, but most importantly, there aren't enough tanks in the system to be able to allow that rerouting to be effective longer term for a sustained period of time. So I do expect, and again, 2027 is your guess today is as good as mine, to be honest. If you could give me a date by when the Strait of Homo's issues would get resolved, I would tell you exactly what the healing would look like.
But neither of us are in a position to do that today. All I can say to you is having the ability to source globally from various sources. I mean, we moved about 340 containers in the last quarter. That is pretty significant. And we moved it from all over the world between our sources in the U .S. to our sources in North Africa, to our sources in Europe, and some sources in Asia. And I think managing that whole supply chain has been really the strength of Linde's ability to meet customer requirements and has played into that resilience that we often talk about.
I'm looking forward to seeing normalization happen out of Qatar, and that will, of course, provide a fill-up to our efforts to place even more molecules into the marketplace, having now signed these long-term contracts.

Operator [1:00:36]
Thank you very much. I would now like to turn the call back to Juan Pelayas for any additional or closing remarks.

Juan Pelayas (Investor Relations) [1:00:46]
Thank you everyone for participating. Have a great day. This concludes today's call. Thank you for attending. You may now disconnect.