Q1 2024 Linde PLC Earnings Call
Ladies and gentlemen, good day and thank you for standing by.
Welcome to the Wendy's first quarter 2024 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 Speakers' remarks, there will be a question and answer session.
And I would now like to hand, the conference over to Mr. Juan Pliers head of Investor Relations. Please go ahead Sir.
Juan Pelaez: Abby Thank you and good morning, everyone. Thanks for attending our 2024 first quarter earnings call webcast I am lump it is head of Investor Relations.
Juan Pelaez: I'm joined this morning by Saatchi, Barber, Chief Executive Officer, and Matt White, Chief Financial Officer.
Juan Pelaez: Today's presentation materials are available on our website at <unk> dot com in the investors section.
Juan Pelaez: Please read the forward looking statement disclosure on page two of the slides and note that it applies to all statements made during this teleconference.
Juan Pelaez: The reconciliations of the adjusted numbers are in the appendix to this presentation.
Juan Pelaez: So as you can provide some opening remarks, and then Matt will give an update on <unk> first quarter financial performance and outlook after which we will wrap up with Q&A.
Juan Pelaez: Let me now turn the call over to Sanjiv.
Sanjiv: Thanks, a lot in a very good morning, everyone.
Sanjiv: So Lindsay team delivered another solid quarter, despite stagnant economic conditions across most regions.
Juan Pelaez: P S O $3.75 grew 10%.
Juan Pelaez: <unk> increased to 25, 6%.
Sanjiv: Operating margins reached 28, 9%.
Sanjiv: These all represent record levels, even though volumes declined 1%.
Juan Pelaez: Over the last few quarters, we have seen a rule negative base volumes, which are tracking the stagnant to declining manufacturing environment, especially in EMEA.
Juan Pelaez: While volumes continue to track local industrial production. We know there is more we must do to grow.
Juan Pelaez: So while pricing remains an important lever for us. We're also focused on other growth opportunities like small on sites obligations technology and investments, including acquisitions to grow our network density even as we trim certain areas of the portfolio like equipment hard goods, which typically summer and <unk>.
Juan Pelaez: Economic downturns.
Juan Pelaez: After that the contracted backlog and we have a solid growth pipeline for the next few years ahead.
Speaker Change: Let me provide you with some additional color on the trends and opportunities by key end markets, which you can find on slide three.
Juan Pelaez: I'll start with the consumer related markets, which have proven their resiliency time after time.
Juan Pelaez: Health care has been quite stable year on year, while we continue to see sleep respiratory and oxygen demand growing field.
Juan Pelaez: Sales have been partially offset by some rationalization of homecare equipment offerings in the Americas, and EMEA, which don't meet the investment criteria.
Juan Pelaez: Food and beverage grew nicely at 6%.
Juan Pelaez: This was mostly driven by food freezing beverage combination and agriculture.
Juan Pelaez: We continue to see opportunities associated with the high quality and more sustainable foods.
Speaker Change: Even though we don't talk much about our food and beverage business I'm excited to see good growth opportunities ahead.
Speaker Change: Electronics is up 1% with two key trends, which mostly offset each other.
Speaker Change: On the one hand, we continue to see good growth from project start ups, which have delivered fairly steady results mostly in APAC.
Speaker Change: On the other hand, this growth was offset impart by lower packaged and merchant volumes to fabs as production levels were softer.
Speaker Change: The current trends suggest that this has largely bottomed out with expectations of recovery growing.
Speaker Change: From where I stand I have some optimism that we'll see volumes pick up again in the second half of the year.
Speaker Change: Some of this will be driven by the growing demand for AI chips and new data centers.
Speaker Change: This is not baked into our guidance at this time.
Speaker Change: Turning to industrial end markets metals, and mining are flat as pricing increases offset by volume declines.
Speaker Change: Let me have steel mills account for the majority of volume reduction due to weaker industrial activity, but protected by strong contracts at.
Speaker Change: At the same time, we're seeing project backlog opportunities pick up for <unk>.
Speaker Change: New low carbon electric arc furnaces are E apps.
Speaker Change: As well as existing <unk> customers exploring ways to reduce their carbon footprint.
Speaker Change: Linda has recently signed a long term agreement with H, two green steel to supply industrial gases for the worlds first large scale green steel production plant in northern Sweden.
Speaker Change: In addition, tier one producers like ballroom in China have expanded their relationship with Lindy by D captivating their <unk> into our existing supply network further.
Speaker Change: The increasing supply reliability and efficiency.
Speaker Change: We continue to work closely with our CD customers on a range of projects from supporting expansions to decarbonization.
Speaker Change: Chemicals, and energy were up 4% driven mostly by higher onsite volumes in the Americas and APAC.
Speaker Change: U S Gulf Coast refining and petrochemical customers ran better this quarter when compared to the planned outages last year.
Speaker Change: Do they buy healthy spreads and access to low cost natural gas.
Speaker Change: Furthermore, we continue to see growing interest around decarbonization projects.
Speaker Change: The manufacturing end market was up 1% most of that is pricing.
Speaker Change: Manufacturing volumes are down year on year.
Speaker Change: The volume decline is split between EMEA and the U S.
Speaker Change: EMEA has experienced broad based declines in industrial production due to geopolitical and energy challenges.
Speaker Change: In the U S manufacturing sales are about flat when excluding the timing of gases supply to the aerospace sector.
Speaker Change: Elsewhere underlying manufacturing volumes have been stable to slightly up across a variety of key sectors, including battery manufacturing pulp and paper and merchant scale clean energy opportunities.
Speaker Change: A good example is our recent announcement to invest in an electrolyzed.
Speaker Change: To grow our margin hydrogen network density and Brazil and help customers Decarbonize.
Speaker Change: Looking ahead, our base volumes are expected to track local industrial production.
Speaker Change: Included in there are some encouraging secular growth trends, such as batteries aerospace and clean energy.
Speaker Change: Also resilient end markets, such as food and beverage and health care will continue to grow mid single digits, driven by demographics and consumer demands.
Speaker Change: Furthermore, we have a healthy backlog of approximately $5 billion, which will continue contributing to earnings for the next couple of years.
Speaker Change: However, I'm not expecting near term improvement in industrial production.
Speaker Change: Specially in certain parts of EMEA.
Speaker Change: Flat economic conditions are embedded in the guidance assumptions at the midpoint.
Speaker Change: Which Matt will discuss in more detail.
Speaker Change: Overall I remain confident that we will continue to be nimble and actively manage the balance between volume price and productivity to grow earnings even in the sluggish economic conditions.
Speaker Change: And when industrial production levels rebound as they always do Linda will be very well positioned to leverage this growth.
Speaker Change: I'll now turn the call over to Matt to walk through the financial results.
Matthew J. White: Thanks Sanjay.
Matthew J. White: Slide four provides a consolidated results for the first quarter.
Matthew J. White: Sales of $8 $1 billion declined 1% from prior year and 2% sequentially.
Matthew J. White: When excluding the impact of cost pass through and engineering project timing.
Matthew J. White: Underlying sales increased 1% over last year, but remained flat sequentially.
Matt White: Price continues to drive underlying sales growth with a positive contribution of 2% year over year.
Matt White: As discussed in prior calls pricing is localized for most products and thus is highly correlated to local inflation levels.
Matt White: And while we've seen some disinflation, including deflation in China levels have stabilized as evidenced by the small sequential price increase.
Matt White: Volumes are down 1% versus prior year and the fourth quarter.
Matt White: While we continue to see positive growth from the project backlog base volumes are down primarily from negative industrial production as mentioned by Sanjay.
Matt White: In addition, we've pruned some non core offerings and industrial and home care hard goods based on distribution economics, which is consistent with historical approach.
Matt White: Despite lower volumes operating profit of $2 $3 billion increased 6% from 2023, resulting in a margin of 28, 9% or 200 basis points higher.
Matt White: You can see margins by segment when excluding the effects of cost pass through with EMEA continuing to lead due to a combination of price and cost management.
Matt White: EPS of $3 75 inch.
Matt White: Increased 10% as a lower share count and favorable tax rate were partially offset by higher net interest.
Matt White: Capex is up 26% over prior year, driven by project backlog timing.
Matt White: Despite this we are taking actions to tighten overall capex levels.
Matt White: And thus have lowered the 2020 for a full year estimate to four to four $5 billion.
Matt White: Slide five includes more detail on capital management, including operating cash flow trends.
Matt White: Ocs of $2 billion was slightly above last year, but 28% below the fourth quarter.
Matt White: There are two important points to highlight regarding this trend.
Matt White: First Q1 is always our lowest seasonal quarter due to timing of working capital and incentive payments.
Matt White: Second 2024 had good Friday as the last week day of March resulting in unfavorable collection timing.
Matt White: This appears on the cash statement as more accounts receivable outflow.
Matt White: But we've seen a recovery in April which should get us back on track by the end of Q2.
Matt White: Despite this timing issue free cash flow remains healthy as we continue to execute our proven capital allocation policy, including $1 billion of share repurchases in the quarter.
Matt White: We also issued $2 3 billion euros of long term debt at attractive rates, enabling us to term out more expensive U S dollar commercial paper.
Matt White: These actions continue to reinforce that Lindsay is strong balance sheet and steady free cash flow are invaluable.
Matt White: Especially during times like today.
Matt White: I'll wrap up with guidance on slide six.
Matt White: For the second quarter, we are initiating an EPS guidance range of $3 70 to $3 80.
Matt White: Or 5% to 7% growth when excluding a 1% assumed FX headwind.
Matt White: Consistent with last quarter. This assumes no economic improvement at the midpoint.
Matt White: For the full year, we're updating our prior guidance to a range of $15 30.
Matt White: $215 60.
Matt White: Four 9% to 11% growth, excluding a 1% FX headwind.
Matt White: We slightly adjusted the prior range by narrowing both the top and bottom ends by five <unk>.
Matt White: Thus, maintaining the midpoint, which still assumes no economic improvement.
Matt White: When looking at the macro economic and geopolitical landscape, we have not seen any catalyst to warrant a meaningful change in the guidance range at this time.
Matt White: We believe it's appropriate to remain cautious on the remainder of the year until we see tangible evidence of an industrial recovery.
Matt White: Until then you can rest assured we'll manage the things within our control to continue driving compound shareholder value.
Speaker Change: I'll now turn the call over to Q&A.
Speaker Change: Thank you.
Speaker Change: We will now begin the question and answer session.
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Speaker Change: And your first question comes from Duffy Fischer with Goldman Sachs. Your line is open.
Patrick Duffy Fischer: Yes, good morning, guys.
Patrick Duffy Fischer: First question is just around electronics, a lot of incoming calls on electronics investors seem to be getting.
Patrick Duffy Fischer: More and more bullish how much leverage do you have to electronics and that we know what the revenue is but I believe it carries a higher margin than average so if electronics picks up.
Patrick Duffy Fischer: How much leverage could that give you the whole of Lindy and are you seeing signs that the electronics market is picking up for you guys going forward.
Speaker Change: So duffy.
Patrick Duffy Fischer: Youre right in suggesting that there is a general view on electronics that we are seeing an improvement as you know we you know it's about 10% just under 10% of our overall portfolio about 30% of our backlog today is investment in electronics all of that is playing out a view as to what the back.
Patrick Duffy Fischer: End of this year, we expect that recovery that everyone's talking about led by AI chips on data centers to actually gather momentum.
Patrick Duffy Fischer: We haven't baked anything into our guidance as Youre aware, but we do expect to see some momentum build up we've seen a decent electronics performance in China, and we are seeing equally in the rest of Asia, a reasonable level of bottoming out, which hopefully then points to a recovery in the second half.
Speaker Change: Great. Thank you and then maybe just jump to low carbon hydrogen blue hydrogen for you guys.
Speaker Change: You guys put out a couple of slides over the last year and a half or so sizing that market over the last decade, just kind of an update you know how are those conversations going what should investors expect as far as announcements.
Speaker Change: Primarily with the sizable projects and then the one you've announced with OCI, how is that progressing as far as finding partners for the Cotwo Quest ration and just general progress on that.
Speaker Change: Sure. So let me start off by just giving you a broader picture of what I see around clean energy projects and then I'll talk specifically about projects, we are developing and then OCI.
Speaker Change: So overall I'd say, it's UIC momentum on clean energy projects moderating a little bit.
Speaker Change: We are seeing that there is a lot more effort now in upfront feasibility studies and feed studies to ensure that there is greater diligence as projects are being taken to F. I D.
Speaker Change: In fact, Mckinsey has done a study that shows that off the announcements that get made in this space only six 8%. So let's say 7% of projects make it too, which I think is a reflection of the high dying down in some some high quality projects, then surfacing and moving forward. So the good news is we are seeing exactly that high quality.
Speaker Change: Projects that we are working with and we have a very solid pipeline continue to be developed and they're moving forward, albeit that they are taking a little bit longer and we are pleased to be working on those projects and that pipeline is what we have alluded to in the past when we've said that in.
Speaker Change: In the next few years, we expect to see us continue to grow and make investment decisions around 8% to $10 billion. The pipeline looks healthy enough at this point in time and I'm not going to forecast the time with precision, but I'll say to you that the next few years, we will still see that pipeline play out into investment decisions as.
Speaker Change: As far as OCI in the Cotwo sequestration partnership is concerned we have already contracted with Exxonmobil, who are a partner of a sequestration as you know we have some of the world's best carbon capture technologies. So we will deploy that we will capture in condition to cotwo and hand, it over at the OSB allowed the out.
Speaker Change: <unk> battery limit to Exxonmobil will that take that Fyodor molecule sequester it.
Speaker Change: Terrific. Thank you guys.
Speaker Change: And we will take our next question from Mike <unk> with Barclays. Your line is open.
Mike: Great. Thank you. Good morning, guys. Just one question from me on the full year guide and outlook and sort of where I'm at end of the prepared remarks.
Mike: Obviously, a nice start to the year, but you decided to narrow that range a bit instead of I think historically, you've raised by the better quarter can you just further frame out how you're thinking about the outlook and there's anything softened from your original expectations.
Speaker Change: So.
Speaker Change: I'm going to let Matt talk a little bit above the guidance itself, Mike what I might do is just maybe walk you guys around the wall because really I think it's important to just share with you what we're seeing around the world and I think it sets the tone for how we think about the guidance. So.
Matthew J. White: I'll start just very quickly and give you a brief in Americas.
Matthew J. White: Let's start with the U S market, obviously, the most important one here as you know I have said in the past has been remarkably resilient and we've seen many of those end markets at pretty high levels. Now in Q1, we saw base volumes in the U S largely flat to slightly negative manufacturing declined about mid single digit I'd say year on year chemicals and energy on the <unk>.
Matthew J. White: The hand was up mid single digit year on year, largely because they have planned outages outages in the in the last year. So the comps were a little bit easier U S. Packaged gases, we pay a lot of attention to this as you know if you heard us talk about package and hard goods as leading indicators U S. Packaged gas volumes were down year on year, largely due to softer demand from electronics, but also.
Matthew J. White: Timing of supply to aerospace industry hard goods on the other hand, we're down mid single digit year on year, mainly on <unk>.
Speaker Change: Lower equipment sales.
Speaker Change: Important to note, however that bulk gases and hard goods sequentially were flat Latin America slightly positive in Q1 as well.
Speaker Change: Looking ahead Americas, largely flat to slightly positive in the second quarter. The good news is the hydrogen demand continues to be extremely strong in the U S. Gulf Coast, we're really happy to see that pick up and refiners in pet.
Speaker Change: Customers are running largely at record levels. So feel good about where that stands as far as EMEA is concerned the trend over the last few quarters largely unchanged.
Speaker Change: Q1, we saw a little bit of a pickup in onsite and package volumes and margins continue to lag and was negative year on year.
Speaker Change: We expect industrial customer volumes to flatten as we see it.
Speaker Change: Developments there. So you know going forward comps might look a little bit easier if they hold volumes to these levels, we would actually see.
Speaker Change: <unk> no longer being negative year on year for email. However, no catalyst that would suggest a significant change in this trend just yet.
Speaker Change: I know, there's a lot of interest in APAC. So let me just give you China first and then we'll talk about rest of Asia, while as far as China is concerned in Q1, we were watching very carefully chemicals output was up just under 10% I'd say, our full year expectations moderated down to probably a range of 4% to 5% crude still negative not unexpected.
Speaker Change: And we've been talking about this for a while.
Speaker Change: Exports were still were up almost 30%, but obviously most of that if not all of that was offset by lower pricing. So really the overall industry didn't really impact get a get a major impact out of that the good news. However, there is a shakeout in the industry and tier one players we tend to so continue to benefit from that shakeout.
Speaker Change: Factoring largely flat traditional manufacturing sectors were negative and what are some some select sectors within manufacturing that are up automotive shipments were up 5% EV output was up 30% you've heard the story you read about it batteries solar up about 20% so again.
Speaker Change: These sectors likely to sustain for the rest of the year traditional amount of factoring sectors expected to remain soft.
Speaker Change: Electronic I said earlier saw some decent growth in Q1, I see outflows were up about 40%, which is pretty good semi sales were up about 28, but we expect overall this market will be mid single well, let's say mid to high single digit.
Speaker Change: Growth and our expectation is the bush for self sufficiency in the third round of Big Fund, that's probably going to support electronics in China for the moment.
Speaker Change: As a reminder, China is about 7% of our sales.
Speaker Change: Said before about 75% of our business is what we call defensive ies locked in with tier one onsite customer contracts with.
Speaker Change: With fixed fees and of course resilient end markets supporting that as well. So that's the story of China rest of Asia volumes were up slightly backlogs contributing to growth over there, particularly around chemicals.
Speaker Change: As expected India's saw a little bit of slowdown in the quarter.
Speaker Change: Due to the ongoing elections, but I expect that we will see that get back in line with our expectations for the rest of the year.
Speaker Change: Okay.
Speaker Change: You want to talk a little bit about guidance and taking that what we're seeing in the marketplace.
Speaker Change: Sure. So I think Mike I'll start with how we approach. The guide is really no different than how we've been approaching it for the last four to five years.
Speaker Change: And to.
Speaker Change: To clarify when we when we say no improvement in the economy. It really means from from now from what we're seeing now.
Speaker Change: And so when you go back in the last couple of months I'd say as we mentioned in the prepared remarks, it's been stagnant to even declining in some regions. So we've updated for that and held that for the remainder of the year. So even though like bike Sanjeev just mentioned the year over year comps in the second half get easier so from the 2023 baseline.
Speaker Change: So even though that may demonstrate positive numbers just given the softer baseline that's not how we're thinking about we're thinking about it from the current status and how it moves forward more sequentially. So that's how we applied it in just based on what we were seeing now.
Speaker Change: We just embedded that in ran it out and then just solid no catalyst as we mentioned to change. It at this time now obviously if things improve then we will see that benefit but since we were seeing some erosion from our prior view a couple of months ago, we've taken actions to mitigate that and that's why we've been.
Speaker Change: Able to hold the midpoint and that's something we'll continue to do.
Speaker Change: His take actions if things do deteriorate. So time will ultimately tell obviously, we will give another update in July.
Speaker Change: When we see how things play out, but we feel in this environment, it's better to be cautious right now.
Speaker Change: Then then to be overly aggressive and we'll just have to see time will tell we got a lot of elections going on we've got a lot of geopolitical aspects happening so time will tell.
Speaker Change: Great. Thank you so much.
Speaker Change: Okay.
Speaker Change: And we will take our next question from Peter Clark with Bernstein. Your line is open.
Peter Anthony John Clark: Yes. Good morning, everyone I don't think I'll be surprised if my question. The EMEA margin comfortably ahead of the Americas now actually.
Peter Anthony John Clark: Got it had in Q3 last year, but there was some funds.
Peter Anthony John Clark: Because I think that with the passage.
Speaker Change: So just.
Speaker Change: Just your view on that going forward because I.
Speaker Change: I think structurally the EMA it could be the higher margin lesion anyway, and then following on that on the on the pricing in the EMEA sequentially. It was up 2%.
Speaker Change: Year on year, it was up 3% very strong performance I'm not sure. If you have much in terms of and.
Speaker Change: Energy surcharges coming off of the boat castings like some of your peers, but to.
Speaker Change: Just to just your view on the pricing situation, particularly in Europe. Thank you.
Speaker Change: And I know you've said in the past that they may have margins should be the highest so we've finally gotten there as you can see now as Matt stated in his prepared remarks, I mean, the margins are a combination of number of factors that we've taken into account price cost management, managing the spread right and I have to say credit to the team. They do a good job of managing that pricing to inflation.
Speaker Change: <unk> identifying opportunities to manage both fixed and variable costs on an ongoing basis, we do a lot of work, including using AI around our power management in particular, which is a big number as you know, but there is no one driver there's a silver bullet that kind of gets us where we have gotten to and it's a combination of many different factors that come together.
Speaker Change: And all of the effort that gets put them. So I see these margins sustainable I see that now we offer EMEA as the as the target for the other segments to strive to and Youll recall this speed of that when we obviously first marched we always there was lots of questions are on EMEA margins and whether they would ever reach Americas.
Speaker Change: They've obviously overtaken America's now know Americas is chasing EMEA. So I am pleased to see how the team has really come together to deliver on that result, and I can assure you.
Speaker Change: Been a lot of work that's gone in to get us to this point and obviously that momentum I expect to see continue.
Speaker Change: As far as pricing is concerned they've done a fantastic job on pricing.
Speaker Change: <unk> been consistent in laying that out for you guys and I don't see the whole concept of pricing at Lindsay being different to what you may hear from others in our view, it's all about product pricing and we don't believe necessarily and just having surcharges over time surcharges get translated into product pricing and Thats, where.
Speaker Change: Sustainable pricing actions really have an impact and for us that's what I expect to see and Thats, what I would expect going forward as well.
Speaker Change: Thank you.
Speaker Change: We will take our next question is from Jeffrey Zekauskas with J P. Morgan Your line is open.
Jeffrey John Zekauskas: Hi, Thanks very much.
Jeffrey John Zekauskas: Your volumes year on year or down, 1% and I think one of the things that <unk> says is that new projects add about 2% growth.
Jeffrey John Zekauskas: So should we think of the volume growth.
Jeffrey John Zekauskas: The base volume growth is really negative three four is the amount that you expect from new projects smaller.
Speaker Change: And then secondly, your average gross March your average EBITDA margin is around 37%.
Speaker Change: When you look at your helium business since your helium business meaningfully above that margin or below or or at that level.
Speaker Change: Thanks.
Speaker Change: Yeah. Thanks, Jeff Let me, let me start off by just addressing the base volume so.
Speaker Change: I'd say, the new projects added about a percentage point.
Speaker Change: On growth in base volumes are down about minus two I would say to you, which as I've said before reflect for us globally weighted industrial production.
Speaker Change: I've also said before that we are not happy with where that number is and that growth is also a key.
Speaker Change: Our priority and focus for us and we are pushing.
Speaker Change: On many of those growth levers across the world. So I feel I feel that we've got a number of actions in plan at the moment, which is there to support base volume as we move forward.
Speaker Change: As far as helium is concerned as you know and we've said this a number of times. It is a very small low single digit part of our our sales piece. So it doesn't really.
Speaker Change: In any way impact us and I know, there's been a lot of noise around helium recently.
Speaker Change: It's a it's an attractive business for us and given the size. The overall impact on the EBITDA margin is really not consequential.
Speaker Change: Thanks.
Speaker Change: And we will take our next question from David Begleiter with Deutsche Bank. Your line is open.
David L. Begleiter: Thank you good morning.
David L. Begleiter: On Capex, given the lack of volume growth the last few quarters.
David L. Begleiter: Why are we not increasing capex as opposed to now lowering it here.
David L. Begleiter: David.
Speaker Change: How we think about our business right for us.
David L. Begleiter: As we are seeing the industrial environment around us.
David: We are actually ensuring that we are taking productivity actions across the ball right and Capex is no different.
David: So the Capex reduction is really driven around capex optimization bolt in our backlog and the base capex as well.
David: The teams are on the walnut crop their capex numbers and they are kind of consistent with the weak industrial activity that we see now I said before that we are very open to pushing on a number of growth actions that we're taking and as a result of that we find is pick up on small onsite pick up on.
David: On capex, sometimes necessary far applications development, and clearly I think that will get factored into our base Capex as things stand now just because capex sits on the balance sheet doesn't mean, we ignore it we are giving it our full attention and we are looking at productivity in that Capex number itself, but we are not constrained and if we have high quality projects come through small.
David: Our big we will actually make sure that we are investing in them and then the capex spend will actually reflect that.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: And we will take our next question from Vincent Andrews with Morgan Stanley. Your line is open.
Speaker Change: Hi, This is Steve Haynes on for Vincent Thanks for taking my question.
Steven Kyle Haynes: Just wanted to maybe come back to the Americas performance in the quarter and.
Steven Kyle Haynes: Two of the bigger pieces of your pie, there manufacturing and health care were down.
Steven Kyle Haynes: It sounds like maybe you walked away from some volume and also had some maybe one time issues into aerospace so.
Steven Kyle Haynes: Interesting.
Steven Kyle Haynes: Quantify the collective impact of those two items.
Steven Kyle Haynes: What youre assuming for the balance of the year or just generally how we should be thinking about that thank you.
Speaker Change: Yes, so I mean as I said earlier on as I was talking about the Americas, we basically.
Speaker Change: We did see let's start with the hard goods part of the business.
Steven Kyle Haynes: As related to the manufacturing piece of hard goods were down mid single digit and yes, we have been taking a very close look at that that equipment portfolio and we've been rationalizing everything gets appropriate. So we are seeing a reflection of that in the numbers there.
Steven Kyle Haynes: In addition to that just talking about health care, Gavin I think health care I said on sleep on oxygen on respiratory we saw.
Steven Kyle Haynes: Continued.
Steven Kyle Haynes: Demand being there, but it was offset it is offset by again rationalization of some of the <unk> portfolio that we have which wasn't really meeting the business criteria that we expect.
Steven Kyle Haynes: From a portfolio more broadly so those was concerted in action.
Steven Kyle Haynes: Actions that we're very intentional about where we want the quality of that business to be.
Steven Kyle Haynes: And we have adjusted for both of those as you would expect that's reflected in the numbers that youre seeing manufacturing did more broadly decline.
Steven Kyle Haynes: Mid single digit as I said earlier on within the packaged gas business. There was a timing difference you referenced aerospace I wanted to explain that aerospace as you know is lumpy by its very nature of the number of launches that happened number of satellites in the amount of propulsion gas is needed for the satellite and we saw that reflected in the quarter.
Steven Kyle Haynes: And that I fully expect that aerospace volumes will be robust and we'll be back in the in the next three quarters, just given the amount of launches that have been announced by various customers we have.
Steven Kyle Haynes: Yeah.
Speaker Change: Okay. Thank you.
Speaker Change: And we will take our next question from John Roberts with Mizuho. Your line is open.
John Ezekiel E. Roberts: Thank you.
John Ezekiel E. Roberts: We're seeing project cost inflation across a lot of our industries, not just gases, but chemicals broadly does that drive any shift between sale of gas in sale of plant as you have new project discussions with customers or does that not affect that decision.
Speaker Change: All right.
Speaker Change: John.
John: Look at every project on it on Merit and we will make as you know we've said before we are unique in the fact that we have that optionality between pursuing sale of gas was a sale of plants. So we look at fundamental economics around the project and then look at the risk profile before we determine which may be go really the project cost movement.
Steven Kyle Haynes: Capital cost inflation, that's broadly there in the marketplace isn't really a factor of that.
Steven Kyle Haynes: Gets considered all over there I think what we consider is the risk return profile. If it meets our investment criteria. We are happy to have that as a sale of gas backlog and you'll see that we're currently executing just under $5 billion. So far.
Steven Kyle Haynes: Beyond that we have that Optionality is a really strong competitive advantage when we go to market for such projects.
Speaker Change: Thank you.
Steven Kyle Haynes: Right.
Steven Kyle Haynes: And we will take our next question from Josh Spector with UBS. Your line is open.
Joshua David Spector: Yes, hi, good morning, I had a question on Q a year kind of a recent announcements here. So when you talked about de captivating. Some some assets from metal customer in Asia is that hitting the books now or is that something that's a benefit more quarter acute for now and then also with your Electrolyze our investments in Latin America.
Joshua David Spector: Just curious if you could frame around the environment down there I think we're talking more about investments in North America, and Europe, and particularly around support our subsidy schemes. So how does that differ from those regions versus Latin America, and why invest there.
Joshua David Spector: Okay.
Joshua David Spector: So let's start off with the gap division, So you're right. We've D. Captivated our plan from one of the large deal customers as I said earlier on in my prepared remarks.
Joshua David Spector: Let's see the benefit of bringing those assets into our network, obviously enhances reliability enhances efficiency and clearly Linda is the preferred option when it comes to operating plans like this so.
Joshua David Spector: When we think about deke activation for us the gap division opportunities have to meet the same investment criteria that we've set for our own investments.
Joshua David Spector: We are happy to purchase these assets, where those conditions are met where the quality of the of the asset and the quality of the customer are good.
Joshua David Spector: Typically in a year, we would see I don't know, maybe a dozen or so <unk> observation opportunities. We would probably go ahead on two or three of those so the one that you're referencing with <unk> is one that we decided to go forward with and feel really good about how that fits well with our network, providing that optimization, but more importantly, improving our network.
Joshua David Spector: <unk> in that in that area as well.
Joshua David Spector: So again I think we are we are seeing movement around that and we are happy to be able to be selective around decapped dig up projects as they happen.
Joshua David Spector: As far as Brazil is concerned this was.
Joshua David Spector: A really good opportunity for us.
Joshua David Spector: And I was happy that we were able to put clean energy assets on the ground in Brazil improve hydrogen network density and actually help decarbonize the customers around there who are actually looking for that there are a couple of factors that are different right youll remember that Brazil.
Joshua David Spector: As a.
Joshua David Spector: Brazil has a high renewable energy mix available and its grid and it's very competitively priced so renewable energy. Obviously is one of the constraints in the development of what I called renewable hydrogen or electrolysis hydrogen and in Brazil, It's really competitive price. So therefore, it actually makes the economics.
Joshua David Spector: Well the other piece that works well also is that the comps to natural gas pricing, which is quite high actually makes the green hydrogen that comes out of electrolysis reasonably competitive and therefore attractive for customers to want to use that to decarbonize. So those factors came together to really provide a great opportunity for.
Joshua David Spector: One is to increase our network density, but didn't electrolyze there on the ground and we're really happy with that.
Joshua David Spector: Just briefly on <unk> I know you had asked a question and I probably didn't respond to it in terms of timing and typically decapped timing starts now and yes. There are some cases, where you've got a new plant coming on there is a little bit of a ramp but typically the timing is here and now.
Speaker Change: Thank you very much.
Speaker Change: We will take our next question from Patrick Cunningham with Citi. Your line is open.
Joshua David Spector: Hi, Good morning. This is Eric Zhang on for Patrick can you elaborate on the productivity initiatives in Americas, and EMEA have those initiatives changed.
Eric Zhang: When adjusted to account for any changes in your macro outlook. Thank you.
Joshua David Spector: So.
Joshua David Spector: We.
Speaker Change: We've said this in the past I'm going to now just reiterate the point that the original silver bullet around productivity, we run about 13 to 14000 projects a year.
Speaker Change: A significant portion of those projects happen Bolton in Americas and in EMEA. So there is a track record of taking those productivity projects and driving them hard to make sure that those benefits come through the EMEA margins are reflecting that there has been a lot of action bolt around managing total cash.
Joshua David Spector: Fixed cost without with.
Joshua David Spector: A lot of rigor around that and ensuring that productivity actions are happening and projects are being developed.
Joshua David Spector: Across the board from U S, Canada, Latin America has got a grip.
Joshua David Spector: Organizational a rigor around productivity projects and we are seeing them ramp up given the economic conditions I think Mike made the point earlier on when we see economic conditions. As we are at the moment. We are obviously very focused on managing costs and taking mitigation actions to ensure that we're able to hold that.
Joshua David Spector: Items, maybe we have at the midpoint as you know and we have a track record of being able to successfully do that I feel pretty good about where those productivity actions to they are both in the Americas as well as EMEA and obviously, we are constantly pushing to make sure we get a bit more done beyond just what the target zone.
Speaker Change: Great. Thank you.
Joshua David Spector: And we will take our next question from John Mcnulty with BMO capital markets. Your line is open.
John Patrick McNulty: Yeah. Thanks for taking my question.
John Patrick McNulty: So wanted to address the price versus cost kind of environment in APAC I think we've seen the pricing moderate a little bit or at least.
John Patrick McNulty: Decelerate, but I think Matt in your in your comments you spoke to.
John Patrick McNulty: <unk> environment from a cost perspective, so I guess can you help us to think about that balance and how to think about maybe pricing in the region as we push forward.
John Patrick McNulty: Yes, John sure. If this is Matt so you're absolutely right. We always think about it in terms of the spread because theres different inflationary environments everywhere in the world and our model is very very local so managing the spread is very important and when you think about APAC clearly China does make up.
John Patrick McNulty: Large portion of that segment and as I mentioned in China, you are seeing some deflationary conditions and this is the primary reason why we talked about taking cost actions out several quarters ago, which we've been undertaking so the dynamic we're seeing in China. While volumes are flattish like sounds you said pricing is also.
John Patrick McNulty: Flattish and so costs are actually coming down and that spread is still positive in that regard.
John Patrick McNulty: I think when you think about places like India, Australia. They are following the model pretty closely in a place like.
John Patrick McNulty: South Korea, you tend to have a little bit more electronics exposure. So there will be a little bit of an effect there of helium more probably than other locations for us given that in helium is more of a globalized product, but it sounds you mentioned.
John Patrick McNulty: That's really the key is what our margin is doing because you can see inflation you could see hyper inflation you can see disinflation and you could see deflation. The question is how as we have management how are we managing that and to me. The margin is what really is representative of how that's being managed and in APAC right now it's being Manny.
John Patrick McNulty: And the margin still expanded.
Speaker Change: Perfect. Thanks, very much for the color.
Speaker Change: Okay.
Speaker Change: We will take our next question from Steve Byrne with Bank of America. Your line is open.
Stephen V. Byrne: Yes. Thank you I was just curious about your thoughts.
Stephen V. Byrne: Your pipeline of targeted acquisitions potentially.
Stephen V. Byrne: Potentially increase your density even greater for your merchant and packaged gases businesses you have.
Stephen V. Byrne: More opportunities and can you comment on geographically where that might exist.
Stephen V. Byrne: Yes.
Stephen V. Byrne: Regulatory pushback.
Stephen V. Byrne: To say we are we are very committed to tuck in acquisitions anywhere in the wall and to your point network density is what guides that decision for us to be able to bring up tuck in acquisition enhanced our network density and actually move that business forward is.
Stephen V. Byrne: Is how we see a good growth opportunity as you know in the U S. We have a track record of doing many of these are the last one that we did which was which is large enough I would argue is next there.
Stephen V. Byrne: It's proven to be tremendously successful looking really good is as we integrate that business into southeast U S and that's a very attractive market in which to do that so again, a good example, where I think that acquisitions worked really well for us we look at that across the board. So we are obviously continuing to pursue such opportunities in the U S.
Stephen V. Byrne: They are tuck in acquisitions, we recognize that a very large acquisition is not doable for regulatory reasons et cetera that you've mentioned, but we're also looking for a similar model elsewhere in the world and we will explore that in Asia, and Australia, China and.
Stephen V. Byrne: Large parts of eastern Europe, Middle East and even invest in Europe, where we can get a tuck in acquisition opportunity.
Speaker Change: Thank you.
Stephen V. Byrne: And we will take our next question from Michael Sison with Wells Fargo. Your line is open.
Michael Joseph Sison: Hi, there this is <unk> on for Mike.
Michael Joseph Sison: Just in terms of your project intake, that's obviously down a bit year over year and quarter over quarter.
Michael Joseph Sison: I was just wondering if youre when do you attribute that to your focus on only.
Speaker Change: Taking on higher quality projects are there other factors at play.
Speaker Change: So.
Speaker Change: Just go back and tell you that when we think about our backlog today and we look at our order intake.
Speaker Change: The backlog we've got is about $8 3 billion that is currently under execution. We have a healthy order intake pipeline I think engineering does just under half a billion dollars of order intake quarter that looks pretty much on track at the moment, Yes, we do take high quality projects. There is no question on that but we have a unique position.
Speaker Change: And the fact that Linda is engineering businesses, one of the leading.
Speaker Change: Engineering entities in gas processing and in our space we are.
Speaker Change: The leader and therefore, well sought after today by customers who'd like to continue to build on on relationship that we've maintained with them over the past so feel good about where we stand with the project intake as things stand and if you look at the sale of gas backlog.
Speaker Change: I'll just do the math for you again, because I was kind of underpin that for you as well in terms of order intake.
Speaker Change: Sale of gas backlog at the moment is about just under $5 million in.
Speaker Change: In the course of this year, we will start up anywhere between one and a half to $2 billion of projects. So we will reduce that backlog between one and a half to $2 billion and my expectation is over the course of the next many months, we will add back into that backlog to make sure we end the year.
Speaker Change: Around that 5 billion Mark so again that shows that there will be order intake coming in which youll be solved by the engineering team over here in the sale of gas backlog as well so overall feel pretty good about where we stand with that.
Speaker Change: Okay, So you're anticipating a higher order intake later on in the year. So I'm hearing purchased earlier in the year.
Speaker Change: So on the CMO guys backlog as I said, we are we develop projects over a period of time and we will start up about 1.1, and a half to $2 billion of off.
Speaker Change: Sure.
Speaker Change: Projects that are already being executed and we expect to add back into the.
Speaker Change: The sale of gas backlog and therefore, the order intake for engineering.
Speaker Change: Round, the same level to try and get very close to the 5 billion Mark by the end of the year.
Speaker Change: Does that clarify.
Speaker Change: Yeah. That's helpful. Thank you.
Speaker Change: Okay.
Speaker Change: We will take our next question from Laurent <unk> with BNP. Your line is open.
Laurent: Hi, Yes. Good morning, guys I just have one question left on the H, two greenfield site and OTC towards just a few contract.
Laurent: I'm wondering if there was any reason why you haven't been built on the 100 and supply in the first place you who by choice. So I guess my accidents and when we think about says greenstein announcements in particular in Europe.
Laurent: Should we be assuming that you may be getting exposure to those means then $150 million a unit.
Speaker Change: Thank you.
Speaker Change: Right. So on ACO Green steel the agreed scope that we wanted to do was the air separation.
Speaker Change: And we are very happy with having that opportunity to supply them. They are going to be probably one of the larger greenfield projects starting up in Europe, probably earlier than most others. There are other projects that we are also pursuing the scope depends on the agreement we have with the customer and obviously you know that we are very much.
Speaker Change: <unk> full about how we see electrolysis development, obviously renewable energy availability guides a lot of that as does reliability in the.
Speaker Change: The capital intensity around those projects. So we tend to choose pick and choose based on that but there are projects that we're currently developing in Europe.
Speaker Change: <unk> steel that include a supply of hydrogen and in others, we stick to the industrial gas portion, which is air separation.
Speaker Change: Thank you Sanjay.
Speaker Change: Lewisville net.
Speaker Change: On the chattel, Gatesville Q1 cash flow and working capital.
Speaker Change: Can you maybe size in tax for US most of the asset deal announced so you added in Q1.
Speaker Change: Yeah.
Speaker Change: Yes, Im sorry could you repeat that it was the outflow in Q1 related to what yes.
Speaker Change: On the kitchen date on good Friday.
Speaker Change: Wondering if we should assume that most of the working capital outflow year on year is related to that timing and then we should see that come back in the second quarter.
Speaker Change: Yes, so to your exact point when you look at the face of the cash flow the year.
Speaker Change: Iran year as unfavorable about $250 million.
Speaker Change: And the majority of that was associated with some of this timing impact as you could imagine you. Good Friday was a bank holiday in most jurisdictions, even Holy Thursday, arguably in some in Latin America, and so that created a bit of a timing dynamic on the receivables, but when we monitor the <unk>.
Speaker Change: Few weeks of April we've definitely seen a rebound on that timing and so I would expect to get that back in Q2, as we mentioned and should get back on track. So really the AAR was the only thing that stuck out and it really was a function of this timing component because as you know these are all contractual customers. These are contractual.
Speaker Change: Terms.
Speaker Change: And they obviously need to pay to continue to get supply.
Speaker Change: Okay. Thank you.
Speaker Change: And we will take our final question from Laurence Alexander with Jefferies. Your line is open.
Laurence Alexander: Good morning could you unpack two comments, so one with respect to kind of the difference in pricing philosophy.
Laurence Alexander: Particularly kind of been merchant or are you seeing that translate into share gains relative to competitors or just kind of what's the practical impact of the difference in philosophy.
Laurence Alexander: And then the second is with respect to the comment about the number of elections this year.
Laurence Alexander: Do you get a sense for your customers that there is a pent up projects list, where once there is political clarity, we should see project flow through to your backlog fairly quickly.
Speaker Change: Or is there more of a kind of the disruptions of longer reaching because of.
Speaker Change: You know people aren't even in planning mode, given the kind of uncertainty around what longer term policy directions will be.
Speaker Change: Because what it exactly where you see the nervousness translating into how project flow through to your backlog over the next say six to eight quarters.
Speaker Change: Let's start let's start with the project pipeline and its reflection on the backlog Laurence so.
Laurence Alexander: We are distinguished us between traditional projects and clean energy projects on the traditional projects, we see a lot of project activity continue.
Laurence Alexander: I'd say that elections aren't having a dramatic impact on timing I think people are just being.
Speaker Change: Very intentional about the projects that they wish to pursue I have said that in India, we saw a little bit of a slowdown in the business.
Speaker Change: Just given the ongoing elections, but that's just around logistics and day to day business as opposed to decisions being made from from a long term perspective. So we don't really see any any significant impact on the traditional side of our business related to elections or otherwise I think the natural trend over there is continuing the pipeline is healthy we're looking at <unk>.
Speaker Change: <unk> I mentioned earlier on in a in a response that I expect that we will get the backlog back up to very close to 5 billion by the end of the year, which means that between now and then you know there's there's between one $5 billion to $2 billion of new projects to be won and that only happens when there is a strong pipeline that <unk> been developing over a period of time so.
Speaker Change: Phil it's pretty much that clean energy I also said I see momentum moderating I see some of the hype going away again less to do with the elections. Obviously, some clarity is being sought on clean energy projects, particularly with Iran, 45 V and so on and so forth as.
Speaker Change: As you know there is a very complex incentives and penalties structure in Europe. So people are making sure that they are trying to understand.
Speaker Change: And get a get a good handle on those before they make large investment decisions. That's the factor that's more at play then elections.
Speaker Change: As far as your question on pricing was concerned I am not sure I fully got it but here is how I think about pricing.
Speaker Change: So he said.
Speaker Change: Many times, although the pricing great proxy for it is globally weighted inflation, we track to that as a correlation with both over a couple of decades, a high correlation and we're seeing that play out Matt made a number of comments around what happens in disinflation versus deflation environments.
Speaker Change: Each of those awful lots of fee is around making sure that not only are we tracking that globally weighted inflation, but we have actions in place that are constantly looking at converting the price increases that we manage right into our product pricing and that gives us an advantage in that.
Speaker Change: Arms of sustaining that price rise and pushing it through into the into the future you can see that through the consistent pricing actions and reflecting the performance that we've given you as well.
Speaker Change: And that holds good for merchant at holders for package.
Speaker Change: And I think thats, what kind of plays out in the market that we operate.
Speaker Change: Thank you.
Speaker Change: And I would now like to turn the conference back over to Mr. <unk> for any additional or closing remarks.
Speaker Change: Okay.
Speaker Change: Thank you and thank you everyone else for participating in today's call.
Speaker Change: Hope you have a product today they say.
Speaker Change: Ladies and gentlemen, this concludes today's conference call. We thank you for your participation you may now disconnect.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].