Q2 2024 Linde PLC Earnings Call

Operator: Good day, and thank you for standing by. Welcome to the Linde second quarter 2024 earnings teleconference and webcast. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded, and after the speaker's presentation, there will be a question and answer session. I'd now like to hand the conference over to Mr. Juan Pelaez, Head of Investor Relations. Please go ahead, si

Good day, and thank you for standing by and welcome to the Lindy second quarter 2024 earnings teleconference and webcast. At this time all participants are in a listen only mode. Please be advised that today's conference is being recorded and after the Speakers' presentation. There will be a question and answer session.

Speaker Change: Now I'd like to hand, the conference over to Mr. Juan Pelaez head of Investor Relations. Please go ahead Sir.

Juan Pelaez: Adam, thank you. Good morning, everyone.

Speaker Change: Adam. Thank you good morning, everyone and thanks for attending our 2024 second quarter earnings call and webcast.

Juan Pelaez: And thanks for attending our 2024 second quarter earnings column webcast. I'm Juan Pelaez, Head of Investor Relations, and I'm joined this morning by Sanjeev Lambas, Chief Executive Officer, and Matt White, Chief Financial Officer. Today's presentation materials are available on our website at linde.com in the investor section. Please read the forward-looking statement disclosure on page 2 of the slides and note that it applies to all statements made during this talk. The reconciliation of the adjusted numbers is in the appendix to this presentation.

Speaker Change: <unk> head of Investor Relations and I'm joined this morning by Sanjiv, <unk>, Chief Executive Officer, and Matt White, Chief Financial Officer.

Speaker Change: Today's presentation materials are available on our website at <unk> Dot com in the investors section. Please read the forward looking statement disclosure on page two of the slides.

Speaker Change: And note that it applies to all statements made during this teleconference.

Speaker Change: The reconciliations of the adjusted numbers are in the appendix to this presentation.

Juan Pelaez: Saji will provide some opening remarks, and then Matt will give an update on Linde's second quarter financial performance and outlook, after which we will wrap up with Q&A. I now turn the call over to Sanchez.

Speaker Change: So Archie will provide some opening remarks, and then Matt will give an update on <unk> second quarter financial performance and outlook after which we will wrap up with Q&A.

Speaker Change: Let me now turn the call over to Sanjay.

Sanjeev Lambas: Thanks, Juan, and a very good morning, everyone. Linde employees once again deliver high-quality growth despite the stagnant trends of global industrial activity. Second quarter EPS of $3.85, operating margins of 29.3%, and return on capital of 25.7% all reached new highs, driven by the unwavering efforts of our 66,000 employees who actively manage what we can control. Turning to Volume Threads, you'll notice we were flat year on year. Last quarter, we described potential challenges in the industrial macro. For the most part, it has played out as expected.

Sanjay: Thanks, a lot and a very good morning, everyone.

Linda: Linda employees once again delivered high quality growth, despite the stagnant trends of global industrial activity.

Matt White: Second quarter EPS of $3.85.

Matt White: Margins of 29, 3% and redundant capital of 25, 7% all reached new highs.

Speaker Change: Driven by the unwavering efforts about 66000 employees, who actively manage what we can control.

Speaker Change: Turning to volume trends, you'll notice to be about flat year on year.

Speaker Change: Last quarter, we described potential challenges in the industrial macro and.

Speaker Change: For the most part it is played out as expected.

Sanjeev Lambas: This is why we initiated the self-help actions, which enable us to create shareholder value in any environment. That being said, the current quarter experienced 3% sequential volume growth. And while some of this relates to seasonality, certain regions had organic volume improved. While this is a positive sign, we're still not assuming any meaningful economic recovery in the guidance, so I may view this as overly cautious.

Speaker Change: This is why we initiated the self help actions, which enable us to create shareholder value in any environment.

Speaker Change: That being said the current quarter experienced at 3% sequential volume growth.

And while some of this relates to seasonality certain regions had organic volume improvements.

Speaker Change: While this is a positive sign we're still not assuming any meaningful economic recovery in the guidance.

So it may view this as overly cautious.

Sanjeev Lambas: But given the uncertain environment, I believe it's prudent to take this approach. As you know, when industrial activity recovers, our network density will enable us to supply that additional volume to our existing and new customers. Until then, we will continue with disciplined pricing and proactive actions to ensure earnings growth in this environment. Slide 3 provides more color on end-market growth trends, starting with consumer-related end markets. Food and beverage continues a strong, resilient growth trend at 8% over prior years. Barth attributes this to Linde's total systems approach.

Speaker Change: But given the uncertain environment I believe it's prudent to take this approach.

Speaker Change: As you know when industrial activity recovers.

Speaker Change: Well density will enable us to supply that additional volume to our existing and new customers.

Speaker Change: Until then we will continue with disciplined pricing and proactive actions to ensure earnings growth in this environment.

Speaker Change: Slide three provides more color on end market growth trends.

Speaker Change: Starting with consumer related end markets food and beverage continues the strong resilient growth trend at 8% while the prior year.

Speaker Change: And Bob activated Lindy its total systems approach.

Sanjeev Lambas: This includes growing demand for higher quality and more innovative frozen foods, food packaging safety, and dry ice for meal delivery services as consumers opt for convenience. In addition, beverage carbonation and associated services continue to grow as consumers dine out. Our electronic sales represent 9% of our consolidated sales.

Speaker Change: Clothes growing demand for higher quality and more innovative frozen foods food packaging safety and dry ice for meal delivery services as consumers opt for convenience meals.

Speaker Change: In addition, beverage carbonation and associated services continued to grow as consumers dine out.

Speaker Change: Electronic sales represent 9% of our consolidated sales.

Sanjeev Lambas: But there is a substantial portion of our 50% non-consolidated JVs that supply this end market and are not included in this number, primarily in Taiwan. The 7% growth sequentially and year over year was driven by a combination of project backlog startup and base growth in the U.S. and Asia. In the U.S., we started up a Phase I supply system in Phoenix, Arizona, for TSMC.

Speaker Change: There is a substantial portion of our 50% non consolidated JV is that supply. This end market and are not included in this number primarily in Taiwan.

Speaker Change: The 7% growth sequentially and year over year was driven by a combination of project backlog startups and base growth in the U S and Asia.

Speaker Change: In the U S. We started up our phase one supply system in Phoenix, Arizona for TSMC.

Sanjeev Lambas: Due to this, more than half of this project CAPEX has now been removed from the backlog, driving the slight net decline versus the prior quarter. I've always said that a healthy project backlog is one that turns over frequently, with projects starting on time, contributing to earnings as per contract. In addition, base volumes improved moderately in the US, China, and Korea. As you know from the last quarter, we signaled that this was possible, so I'm encouraged to see volume levels starting to recover now. Healthcare is down 1% from the prior year and flat sequentially.

Speaker Change: Due to this more than half of this project Capex has now been removed from the backlog driving the slight net decline versus prior quarter.

Speaker Change: I've always said that a healthy project backlog is one that turns over frequently with projects starting on time contributing to earnings I spoke contract.

Speaker Change: In addition, based volumes improved moderately in the U S, China and Korea.

Speaker Change: As you know from the last quarter. We signaled this was possible. So I'm encouraged to see volumes volume levels starting to recover now.

Speaker Change: Healthcare is down 1% from prior year and flat sequentially.

Sanjeev Lambas: Consistent with last quarter, this is primarily due to our efforts and continued rationalization of home care products and service offerings that don't meet the business criteria, especially in the United States. We still anticipate the underlying demographic trend to drive mid-single-digit percent growth, but some of the ongoing portfolio pruning will partially offset. Turning now to the industrial end market, chemicals and energy grew 5% from North American activity primarily in the U.S. Gulf Coast, hydrogen, as well as Mexican energy services.

Speaker Change: Consistent with last quarter. This is primarily due to our efforts to continue rationalizing homecare products and service offerings that don't meet the business criteria, especially in the United States.

Speaker Change: We still anticipate the underlying demographic trend to drive mid single digit percent growth.

Speaker Change: But some of the ongoing portfolio pruning with partially offset that.

Speaker Change: Turning now to the industrial end markets.

Speaker Change: Chemicals and energy grew 5% from North American activity, primarily in the U S Gulf coast hydrogen as well as Mexican energy services.

Sanjeev Lambas: We supply some of the most competitive customers in the world, and their higher production rates reflect their share of the global market. Looking forward, this end market will likely be the largest beneficiary of the project backlog, especially around clean energy projects. While OCI represents just one example, there are several more that comprise the 8-10 billion of near-term pipeline opportunities which we are pursuing and making good progress on. Metals and Mining is slightly down year over year, mainly due to North American Steel volumes which have decreased. Primarily serving the automotive and construction market, this is a normal cycle we've seen over the years, not an unexpected one.

Speaker Change: We supply some of the most cost competitive customers in the world and their higher production rates reflect their share of the global market.

Speaker Change: Looking forward this end market will likely be the largest beneficiary of the project backlog, especially around clean energy projects.

Speaker Change: While OCI represents just one example, there are several more that comprise the eight to 10 billion of near term pipeline opportunities, which we're pursuing and making good progress.

Speaker Change: Metals and mining are slightly down year over year, mainly from North American steel volumes, which have decreased.

Speaker Change: Primarily serving the automotive and construction markets. This is a normal cycle, we've seen over the years not in not unexpected although there could be some future growth opportunities as more infrastructure and energy projects break ground.

Sanjeev Lambas: However, there could be some future growth opportunities as more infrastructure and energy projects break ground. Finally, the manufacturing and market is trending up 4% primarily on pricing actions as volumes are fairly steady across most jobs. Aside from some specific manufacturing sectors like aerospace or battery production, this end market mostly coincides with global industrial production, which remains flat. Overall, Linde employees continue to do what they do best, manage an industrial gas business with leading results that create value for our shareholders regardless of the economic conditions. Despite the challenging conditions, Linde delivered high-quality growth, executed on an 8 billion project backlog, and further positioned the company for future growth. I remain confident in Linde's ability to successfully navigate the near-term uncertainty while ensuring the longer-term leading performance that our owners expect. I'll now turn the call over to Matt to walk through our financial results.

Speaker Change: Finally, the manufacturing end market is trending up 4% primarily on pricing actions as volumes are fairly steady across most geographies.

Speaker Change: Aside from some specific manufacturing sectors like aerospace of battery production. This end market, mostly coincides with global industrial production, which remains flat.

Speaker Change: Overall linear appliances continue to do what they do best managing industrial gas business with leading results that create value for our shareholders regardless of the economic climate.

Speaker Change: Despite the challenging conditions Lindsay delivered high quality growth executed on 8 billion project backlog and further position the company for future growth.

Speaker Change: I remain confident in lenders ability to successfully navigate the near term uncertainty, while ensuring longer term leading performance that our owners expect.

Speaker Change: I'll now turn the call over to Matt to walk through our financial results.

Matt White: Thanks Sanjay.

Matt White: Slide 4 provides consolidated results for the second course. Sales of $8.3 billion were up 1% from last year and 2% sequentially. Foreign currency and cost pass-through both continue to present headwinds at minus 3% year-over-year and minus 2% from the first quarter. As a reminder, contractual cost pass-through is simply the energy cost variance we bill to on-site customers and thus has no impact on operating profit dollars.

Matt White: Slide four provides consolidated results for the second quarter.

Matt White: Sales of $8 $3 billion were up 1% from last year and 2% sequentially.

Matt White: Foreign currency and cost pass through both continue to present headwinds at minus 3% year over year and minus 2% from the first quarter.

Matt White: As a reminder, contractual cost pass through is simply the energy cost variance, we bill to onsite customers.

Matt White: And that has no impact to operating profit dollars.

Matt White: Furthermore, FX translation likely will remain a headwind as the U.S. dollar continues to strengthen against the majority of foreign currencies. Excluding these items, organic sales are up 3% over last year and 4% sequentially. Pricing trends continue to follow globally-weighted inflation, with the strongest contribution from Americas and EMEA.

Matt White: Furthermore, FX translation likely will remain a headwind as the U S. Dollar continues to strengthen against the majority of foreign currencies.

Matt White: Excluding these items organic sales are up 3% over last year and 4% sequentially.

Matt White: Pricing trends continue to follow globally weighted inflation with the strongest contribution from Americas and EMEA.

Matt White: APAC levels are more stable, as lower helium prices mostly offset increases from the remaining countries, with no contribution from China due to deflationary conditions. Volume was flat from 2023 as growth from the project backlog was offset by weaker base volume. As Sanjeev mentioned, we did experience a sequential volume improvement of 3% from a combination of project startup, organic growth, and seasonality. Time will tell if the organic growth trend persists. But for now, we are excluding any further improvement in earnings guidance.

Matt White: APAC levels are more stable as lower helium prices, mostly offset increases from the remaining countries with no contribution from China due to deflationary conditions.

Matt White: Volume was flat from 2023 as growth from the project backlog was offset by weaker base volumes.

Matt White: As Sanjay mentioned, we did experience a sequential volume improvement of 3% from a combination of project startups organic growth and seasonality.

Sanjay: Time will tell if the organic growth trend persists, but for now we.

Sanjay: We are excluding any further improvement in the earnings guidance.

Matt White: Operating profit of $2.4 billion grew 6%, resulting in an operating margin of 29.3%. All gas segments expanded margins, year over year and sequentially, with EMEA leading at 33.7%. As we have stated many times, each segment has opportunities to improve margins, and there are no structural reasons why laggards cannot converge to the current leader over time.

Speaker Change: Operating profit of $2.4 billion grew 6%, resulting in an operating margin of 29, 3%.

Sanjay: All gas segments expanded margins year over year and sequentially with EMEA, leading at 33, 7%.

Sanjay: As we've stated many times each segment has opportunities to improve margins and there are no structural reasons why laggards cannot converge to the current leader over time.

Matt White: EPS of $3.85 increased 8% or 10% when excluding the 2% FX headwinds. Further details of cash flow and capital allocation can be found on slide 5. You can see the operating cash flow trend to the left, including this quarter's $1.9 billion, which is 10% below last year. The primary driver relates to the unfavorable timing of our engineering project prepayment. When you look at the face of the cash flow statement, you can see that contract assets and liabilities, which represent these project prepayments, are unfavorable for more than $300 million.

Sanjay: EPS of $3 85.

Sanjay: Increased 8% or 10% when excluding the 2% FX headwind.

Sanjay: Further details of cash flow and capital allocation can be found on slide five.

Sanjay: You can see the operating cash flow trends that are left including this quarter's $1 $9 billion, which is 10% below last year.

Sanjay: The primary driver relates to unfavorable timing of our engineering project prepayments.

Sanjay: When you look at the face of the cash flow statement.

Sanjay: You can see that contract assets and liabilities, which represents these project prepayments are unfavorable more than $300 million.

Matt White: This quarter-to-quarter volatility is a normal part of the engineering project site. Aside from the engineering projects, we are seeing more seasonal effects on interest and tax payments. We have significantly more Euro bond cash payments, which are once per year, as well as cash tax payments in the first half of the year.

Sanjay: This quarter to quarter volatility is a normal part of the engineering project cycle.

Sanjay: Yeah.

Sanjay: Aside from the engineering projects, we are seeing more seasonal effects on interest and tax payments.

Sanjay: We have significantly more euro bond cash payments, which are once per year as well as cash tax payments in the first half of the year.

Matt White: This will result in more back and loaded operating cash flow, similar to last year. Overall, I remain quite confident in the cash generation of the gas business. But I do expect continued volatility regarding the timing of customer prepayments for engineering projects. As far as capital allocation, year to date, we returned $3.8 billion to shareholders and invested $2.3 billion into the business. Regardless of the economic climate, we'll continue to adhere to our time-tested capital policy of, an underlying mandate to maintain a single A credit rating while raising the dividend every year, a priority to invest back into the business subject to our long-term investment criteria, and a commitment to sweep remaining funds towards stock repurchase. I'll wrap up with guidance on slide 16.

Sanjay: This will result in more back end loaded operating cash flow.

Sanjay: Similar to last year.

Sanjay: Overall, I remain quite confident on cash generation of the gas business, but.

Sanjay: But I do expect continued volatility regarding timing of customer prepayments for engineering projects.

Speaker Change: As far as capital allocation year to date, we returned $3 $8 billion to shareholders and invested $2 $3 billion into the business.

Sanjay: Regardless of the economic climate.

Sanjay: We'll continue to adhere to our time tested capital policy of.

Sanjay: And underlying mandate to maintain a single a credit rating, while raising the dividend every year.

Sanjay: Our priority to invest back into the business subject to our long term investment criteria.

Sanjay: And a commitment to sweep remaining funds towards stock repurchases.

Sanjay: I'll wrap up with guidance on slide six.

Matt White: For the third quarter, we're providing an EPS guidance range of $3.82 to $3.92, or 6% to 9% growth when excluding a 1% FX headwind. Consistent with prior quarters, this assumes no economic improvement at the moment. The updated full-year range is now $15.40 to $15.60, or 9% to 11% growth when excluding a 1% FX headwind. For the full year, we simply raised the prior guidance range by 10 cents on the bottom end while leaving the top end as is. Consistent with statements last quarter, we have not seen enough encouraging signs to be bullish on second half economic activity.

Sanjay: For the third quarter, we're providing an EPS guidance range of $3.82 to $3 92.

Sanjay: Or 6% to 9% growth when excluding a 1% FX headwind.

Sanjay: Consistent with prior quarters. This assumes no economic improvement at the midpoint.

Sanjay: The updated full year range is now $15 40 to $15 60.

Sanjay: Four 9% to 11% growth when excluding a 1% FX headwind.

Sanjay: For the full year, we simply raised the prior guidance range by 10 cents on the bottom end.

Sanjay: While leaving the top end as is.

Sanjay: Consistent with statements last quarter, we have not seen enough encouraging signs to be bullish on the second half economic activity.

Matt White: So we are essentially leaving the guide intact while raising the bottom end for our recent Q2 performance. Rest assured, if the economy does better, we'll capture that incremental benefit. And if it does worse, we will take actions to mitigate the impact to earnings. Here at Linde, we have a culture to plan for the worst but hope for the best. Employees around the world have been taking proactive measures to ensure we can deliver on our commitment, regardless of the economy. This disciplined operating rhythm, coupled with our relentless focus on creating shareholder value, gives us confidence to once again weather the uncertainty and maintain industry-leading results. I'll now turn the call over to Q&A.

Sanjay: So we are essentially leaving the guide intact, while raising the bottom end for our recent Q2 performance.

Sanjay: Rest assured if the economy does better we will capture that incremental benefit.

Sanjay: And if it does worse, we will take actions to mitigate the impact to earnings.

Lindy: Here at Lindy, we have a culture to plan for the worst but hope for the best.

Lindy: Employees around the world have been taking proactive measures to ensure we can deliver on our commitments regardless of the economy.

Lindy: This disciplined operating rhythm.

Lindy: Coupled with our relentless focus to create shareholder value.

Lindy: It gives us confidence to once again, whether the uncertainty and maintain industry leading results.

Speaker Change: I'll now turn the call over to Q&A.

Operator: Thank you. To ask a question, press star and then the number one on your telephone keypad. Our first question comes from the line of Michael Whitehead at Barclays. Your line is open.

Speaker Change: Thank you to ask a question press Star then the number one on your telephone keypad.

Speaker Change: Our first question comes from the line of Michael White head of Barclays. Your line is open.

Michael Whitehead: Great. Thanks. Good morning, guys.

Speaker Change: Great. Thanks, Good morning, guys, a big picture question, just when we look at your results and your peers. It doesn't seem like there's much industrial gas demand out there right now and Lindsay has done a great job in the past few years of continuing to grow earnings double digits. Despite that in large part.

Sanjeev Lambas: Um, big picture question, when we look at your results and your peers, it doesn't seem like there's much industrial gas demand out there right now. And Linde's done a great job the past, say, few years of continuing to grow earnings double digits. Despite that, in large part, some of the self-help actions you've taken. I guess if we're stuck in this no growth environment for a bit here near term, and we're already at a pretty efficient baseline, can you just talk through your confidence and how you expect to continue driving 10 plus percent earnings growth just under this macro backdrop?

Speaker Change: The self help actions you've taken I guess, if we're stuck in this no growth environment for a bit here near term and we're already at a pretty efficient baseline can you just talk through your confidence and how you expect to continue driving 10% earnings growth just in this macro backdrop.

Sanjeev Lambas: Thanks, Mike. You're right. I think...

Mike: Thanks, Mike.

Speaker Change: Youre right I think.

Sanjeev Lambas: The macro isn't really very supportive at this point in time. What I'd like to suggest is, you know, you go back maybe four or five quarters ago. We've seen the macro environment reflect that. In fact, over that period, we've seen what I call an industrial recession. While people debate around what the GDP does or doesn't do, we are very focused on what the industrial production index is doing, and we've seen industrial recession over that period.

Speaker Change: The macro isn't really very supportive at this point in time.

Speaker Change: What I'd like to suggest that you know you go back maybe four or five quarters now we've seen the macro environment reflect that in fact over that period, we have seen what I call industrial recession, while people debate around what the <unk> does or doesn't we are very focused on what the industrial production index as do it and we've seen industrial risk.

Speaker Change: I shouldn't over that period, and we've managed right through that to not only deliver that EPS growth that you just referenced but also consistently and sure that our organization is ready to take the actions ahead of the curve in most cases as we see these indices one of the good things we have is our ability to see across the <unk>.

Sanjeev Lambas: And we've managed right through that to not only deliver that EPS growth that you just referenced but also consistently ensure that our organization is ready to take the actions ahead of the curve, in most cases, as we see these indices. One of the good things we have is our ability to look across different end markets and geographies and to take action quickly. So I think that, in part, is the reason.

Speaker Change: Current end markets and geographies and to take action quickly. So I think that as Bob is the reason it will be our where we are today.

Sanjeev Lambas: You know, we are where we are today, delivering on that EPS growth consistently over an extended period of time. My view is that is exactly the ROA that you would expect from us going forward as well. It's something that we understand well, it's a muscle that we know how to flex well, and I think you'll see that play out. I'll take you right to the EPS algorithm that we've spoken about a lot in the past, Mike, and I think that's what gives us confidence that we will be able to continue to provide that 10 plus percent EPS growth through most economic environments, if not all. So I'll recap that for you. There are four contributors to how we get to that 10 plus percent EPS. First, back to the law.

Bob: Delivering on that EPS growth consistently over an extended period of time. My view is that is exactly the AMOLED that you would expect from us going forward as well.

Speaker Change: Something that we have understood well, we have a good it's a muscle that we know how to flex as well and I think you will see that play out.

Speaker Change: I'll take you right to the EPS algorithm that we've spoken about a lot in the past, Mike and I think that's what gives us confidence that we will be able to continue to provide that 10 plus percent EPS growth trop, most economic environments, if not all.

Mike: So I'll recap that for you there are a whole contributors to how we get to that 10 plus percent EPS growth.

Speaker Change: First battle.

Sanjeev Lambas: That backlog and the startups that are happening, and you know, we've been consistent in starting up the backlog. Those startups contribute anywhere between one to two percent of IPA growth. Backlog is trending up, and I expect that one to two percent, contribution to trend up alongside it. The next factor is what we are, you know, what we practice every day. This is pricing and productivity. We've explained this in a lot of detail to you guys.

Speaker Change: That backlog in the start ups that are happening and you know we've been consistent in starting up the backlog at those startups contribute anywhere between 1% to 2% of Ibs growth backlog is trending up and I expect to see that 1% to 2%.

Speaker Change: Contribution to trend up alongside that.

Speaker Change: The next factor is what we are.

Mike: We practice every day this is pricing and productivity. We've explained this in a lot of detail to you guys I won't kind of recap all of it but let's say that we expect about more than half of that EPS growth to come from proactive management actions related to pricing and productivity.

Sanjeev Lambas: I won't kind of recap all of it, but to say that we expect about more than half of that EPS growth to come from proactive management actions related to pricing and productivity. So about 4% to 6% of that EPS growth comes and is contributed by pricing and production. Next volume.

Speaker Change: So about 4% to 6% of that EPS growth comes at contributed from pricing and productivity.

Speaker Change: Next walnuts and obviously at this point in time, you've heard us say that our guidance is zero volume assumed at the midpoint.

Sanjeev Lambas: Now, obviously, at this point in time, you've heard us say that our guidance has zero volume assumed at the midpoint. So, if there is a volume uptick, even a little bit of a tailwind on industrial activity, obviously, we will pick that up, and there's a multiplier effect that you've seen. We demonstrated that in 2021.

Speaker Change: So.

Speaker Change: If there is a volume uptick.

Speaker Change: Even though a little bit of a tailwind on industrial activity. Obviously, we will pick that up and there is a multiplier effect that you've seen we've demonstrated that in 2021, because it reminds people that even with a little bit of a rebound in the industrial side, we were able to deliver 30% EPS growth in that year, but in the absence of that.

Sanjeev Lambas: We constantly remind people that even with a little bit of a rebound on the industrial side, we were able to deliver 30% EPS growth in that year. But in the absence of that, our algorithms still suggest, with zero contribution, we will continue to deliver that 10% plus EPS growth. And last but not least, we have a lot of cash that we generate; surplus cash after investing in the business is swept into share buybacks, and they contribute about 2% of that EPS.

Speaker Change: Our algorithm still suggest with zero contribution we will continue to deliver that 10 plus percent EPS growth.

Speaker Change: And last but not least.

Speaker Change: We have a lot of cash that we generate surplus cash after investing in the business.

Speaker Change: Is swept into share buybacks and they contribute about 2% of that EPS growth.

Sanjeev Lambas: Put that together, and that 10 plus percent EPS growth, I can say with a high degree of confidence is where we stand in terms of our business for this year and going forward. Great, thank you. Our next question is from David Begleiter at Deutsche.

Speaker Change: That together that 10 plus percent EPS growth I can say with a high degree of confidence is where we stand in terms of our business for this year and going forward.

Speaker Change: Yeah.

Speaker Change: Great. Thank you.

David Begleiter: Our next question is from David Begleiter at Deutsche Bank. Your line is open. Thank you. Good morning, Sanjeev and Matt. The sequential volume growth of 3% in the quarter was positive.

Speaker Change: Our next question is from David Begleiter at Deutsche Bank. Your line is open.

David Begleiter: Thank you and good morning. Thank.

Matt White: Thank you Matt.

Speaker Change: The sequential volume growth of 3% in the quarter was positive.

Speaker Change: The volume comparison in Q3 is not hard maybe even easy at minus two so.

Speaker Change: Why wouldn't we see volume growth through windy in Q3 year over year.

Matt White: Hey David, it's Matt. I think to your exact point: we absolutely see the comps getting easier in the back half. So on a year over year basis, you might see, you know, neutral to positive just because the prior year comp's a little easier. But our view of no macro improvement that we're laying out is more on a sequential basis. So to your exact point, even if you see little to no macro improvement sequentially, it could still result in, you know, potentially neutral to positive year-on-year just because of the comps that you're up against.

Matt White: Hey, David its Matt.

Matt White: I think your exact point, we absolutely see the comps getting easier in the back half.

Speaker Change: So on a year over year basis, you might see.

Speaker Change: No.

Speaker Change: Neutral to positive just because the prior year comps a little easier.

Speaker Change: But our view of no macro improvement that we're laying out is more on a sequential basis.

Speaker Change: So to your exact point, even if you see little to no macro improvement sequentially. It still could result in you know potentially neutral or positive year on year, just because of the comps that you're up against so the comps do get easier in the back half that's absolutely correct on a year over year basis, but were taken our our standard approach, which is on a forward looking sequential.

Matt White: So the comps do get easier in the back half. That's absolutely correct on a year-over-year basis. But we're taking our standard approach, which is on a forward-looking sequential basis, assume no economic pickup, and then we'll just need to manage to the reality of whatever happens, good or bad.

Speaker Change: <unk> assumed no economic pick up and then we'll just need to manage to the reality of whatever happens good or bad.

Speaker Change: Okay.

Speaker Change: And just one more question. The order intake was the lowest I think since Q2 2000 $23 million I know, it's lumpy, but it's bidding activity lower or less than it was.

Speaker Change: Six or 12 months ago.

Sanjeev Lambas: David, our folks in engineering are very busy, and there is a lot of front-end work currently that is happening around studies, feeds, and so on and so forth. So we're seeing activity at the front end being very, very busy. What we aren't seeing at the moment, and the delay tends to be moving from that front-end activity, which is whether it's a feed or a study, to actually getting to FID. And we certainly see customers taking a little bit longer to get to that FID piece.

David Begleiter: David are false and engineering are very busy and there was a lot of front end work currently that is happening around studies feeds and so on and so forth. So we are seeing activity at the front end being very very busy while we are seeing at the moment and the delay it tends to be moving from that front end activity, which is whether it's a theme.

Speaker Change: Our a study to actually getting to <unk>.

Speaker Change: And we certainly see customers, taking a little bit longer to getting to that five <unk>. So a lot of activity is translating just yet.

Sanjeev Lambas: So a lot of activity isn't translating just yet to FIDs. We've said this before on the last call as well, we are seeing people taking a little more time before they get to an FID decision on some of these large projects. Thank you. Our next question is from Duffy Fisher with Goldman Sachs. Yeah, good morning, guys. Can we dig in a little bit on health care? You know, again, traditionally things.

David Begleiter: As we've said this before the last call as well as we are seeing people, taking a little more time before they get to anybody any decision on some of these large projects.

Speaker Change: Thank you.

Speaker Change: Yeah.

Duffy Fisher: Our next question is from Duffy Fisher with Goldman Sachs. Yeah, good morning, guys. Can we dig in a little bit on

Speaker Change: Our next question is from Duffy Fischer with Goldman Sachs. Your line is open.

Duffy Fischer: Yeah. Good morning, guys can we dig in a little bit on healthcare.

Speaker Change: Again, traditionally think about health care kind of growing year in and year out a little bit.

Duffy Fischer: How much pruning do you have left roughly how much of the portfolio needs to go away. When do you think thats done and then when you get to that mid single digits, what's the breakdown of that price versus volume and can you recoup inflation in that business like you can in your other businesses.

Sanjeev Lambas: All right, Duffy, so let me first explain what's happening with the pruning. Then we'll talk a little bit about how the growth around health care is going to happen. So as far as pruning is concerned, we have been looking at that portfolio. We've been acting on it. You've heard us speak about it in the last quarter.

Speaker Change: Alright, Duffy so let me first explain what's happening of the pruning that you talked a little bit about how the growth around health care happens so as far as clothing is concerned we have been looking at that portfolio. We've been acting on it you've heard us speak about it in the last quarter of those actions continue my expectation is by the end of the year you will see some of those actions.

Sanjeev Lambas: Those actions will continue. My expectation is that by the end of the year, you'll see some of those actions getting pushed out. So that's what you should be doing.

Speaker Change: Getting locked out so that's what you should be you should be thinking about long term mid to long term I'd say demographics will support that mid single digit expectation of <unk> growth, we see that currently on bar and that demographics, obviously drive both the hospital care, which is obviously a large part of our business as well.

Sanjeev Lambas: You should be thinking about the long term, mid to long term. I'd say demographics will support that mid single-digit expectation of health care growth. We see that currently on par, and that demographics obviously drive both hospital care, which is obviously a large part of our business, as well as the home care business, which is in some selected geographies where we operate. As far as inflation is concerned, you know, this is a business that relies enormously on productivity actions, and therefore, we always find that inflation and productivity will have to go hand in hand for us to get the pricing that we need and keep that business at an attractive margin level.

Speaker Change: The home care business, which is in some selected geographies, where we operate.

Speaker Change: As far as inflation is concerned this is a business that relies enormously on productivity actions and therefore, we always find that inflation and productivity will have to go hand in hand for us to get the pricing that we need and keep that business at an attractive margin level.

Speaker Change: Great. Thank you guys.

Peter Clark: Our next question is from Peter Clark with Bernstein. Your line is open.

Speaker Change: Our next question is from Peter Clark with Bernstein. Your line is open.

Sanjeev Lambas: Yes, good morning everyone. Two questions, but one related to the ExxonMobil contract that Air Liquide announced. Obviously, one of the things that they're getting to the return hurdle is the big ramp in Argonne Merchant, where they're claiming a 50% increase in their merchant availability. I know it doesn't have FID, I know it could be four years plus away, but what sort of impact could that have just in the market? I know Argonne's being tight, but it's quite a slug of capacity that would come pretty quickly.

Peter Clark: Yes, good morning, everyone.

Peter Clark: Two questions, but with sort of one relationship that is all.

Speaker Change: On the Exxon mobile contract, that's a highly keyed announced.

Speaker Change: Announced obviously one of the things that are getting to the return hurdle is the big ramp up in June.

Speaker Change: Well, they're claiming 50% increasing the emotions availability I know he's sunoco fade doesn't always could be four years plus away, but what sorts of impact could that have you seen them. Okay, I know all guns being tight.

Speaker Change: It's quite a quite a slug of capacity that would come pretty quickly and related to that obviously part of that appeal, allowing access to the pipelines and they probably got capability to do that I think you probably sold out more than Mou Gulf coast pipelines, but is that is that something you would consider in some regions access to pipeline for the rights holders.

Sanjeev Lambas: And related to that, obviously, part of that deal, they're allowing access to the pipelines. They've probably got the capability to do that. I think you're probably sold out a bit more than them on your Gulf Coast pipelines, but is that something you would consider in some regions, access to the pipeline for the rights? Contract. Those are the two questions. Thank you.

Speaker Change: Contract those are the two questions. Thank you.

Speaker Change: Yeah.

Sanjeev Lambas: Thank you, Peter. As you know, the U.S. market is one of our largest merchant markets, and therefore, there is current growth in demand on the demand side. In fact, we are actually putting in some capacity as well, and we see the market remaining short on argon for an extended period of time. So, from my perspective, obviously, you know, what Ellicott has done with their economics is something you need to ask them.

Speaker Change: Thank you Peter.

Speaker Change: So as you know the U S market is one of our largest merchant markets.

Speaker Change: Therefore, there is current growth and demand on the demand side. In fact, we are actually putting in some capacity as well and we see the market remaining shorten log in for an extended period of time. So from my perspective, you know obviously you know.

Speaker Change: What I indicated is done but their economics is something you need to ask them, but from our perspective, it's a stable market. There is growth in the market the molecules get absorbed fairly quickly.

Sanjeev Lambas: But from our perspective, it's a stable market. There is growth in the market, and the molecules get absorbed fairly quickly.

Sanjeev Lambas: Our view of the market continues to be fairly bullish, and I expect, you know, product as it comes on will get placed in the market at a reasonable pace. As far as pipeline access is concerned, I'll just give you our view. I'm not going to try and comment on what the strategy or the view from Air Liquide might be.

Speaker Change: The market continues to be fairly bullish.

Speaker Change: And I expect you know product as it comes on we'll get we'll get placed in the market at a reasonable pace.

Speaker Change: As far as pipeline access is concerned you know I'll just give you all view I'm not going to try and comment on what the strategy of the view from allocate might be from our perspective, we have over a period of maybe three or four decades now developed a very significant pipeline network that underpins our significant.

Sanjeev Lambas: From our perspective, we have, over a period of maybe three or four decades now, developed a very significant pipeline network that significantly underpins the kind of business and growth that we've developed on the U.S. Gulf Coast. We see that pipeline network as being critical to continue to deliver growth through that very network in that very exciting part of the world where we see growth, particularly as it's driven in the future with low-carbon hydrogen developments as well.

Speaker Change: Really the kind of business and growth that we've developed in the U S. Gulf Coast, we see that pipeline network as being critical to continue to deliver growth through that very network in that very exciting part of the part of the world, but we see growth, particularly as it is driven in the future with low carbon hydrogen developments as well so.

Sanjeev Lambas: So, you know, for us, in many ways, our competitive advantage lies in the infrastructure that we've invested in and developed over three decades, and we want to fully leverage that infrastructure, as we did with the OCI project, to make sure that we continue to win and actually grow that business significantly. I remain very bullish on the opportunities I see in the U.S. Gulf Coast, and I see us developing and actually developing that infrastructure further, building further caverns, as an example, something that we are progressing with and using that for future growth.

Speaker Change: For us in many ways a competitive advantage lies in the infrastructure that we've invested in and developed over three decades, and we want to fully leverage that infrastructure as we did with the OCI project to make sure that we continue to win and actually grow that business significantly I remain very bullish on the opportunities I see in the U S Gulf Coast and I see it.

Speaker Change: Developing and actually developing that infrastructure for the building for the caverns as an example of something that we are progressing with and using that for future growth.

Peter Clark: Thank you. You didn't surprise me with your answer.

Speaker Change: Thank you you didn't you didn't surprise me with your answers.

Speaker Change: Yeah.

Sanjeev Lambas: That's good, Peter. Consistency is what we strive for.

Speaker Change: That's good consistency is what we strive for.

Speaker Change: Yeah.

Vincent Andrews: Our next question comes from Vincent Andrews with Morgan Stanley. Your line is open.

Speaker Change: Our next question comes from Vincent Andrews with Morgan Stanley. Your line is open.

Vincent Andrews: Thank you and good morning. You know, I don't ordinarily think of your business as being interest rate sensitive, but we have had an unprecedented increase in rates in a short period of time. And now it seems like we're pivoting to a decrease in rates. So wondering just what your thoughts are on, you know, if we assume rates come down over the balance this year and through next year, will that change your macro outlook at all? And do you think it will change your customer's behavior in terms of their ability or desire to move forward with FID projects that they would work with you on?

Vincent Andrews: Thank you and good morning.

Vincent Andrews: Ordinarily think of your business is being interest rate sensitive, but we have had.

Vincent Andrews: Unprecedented increase in rates in a short period of time and now it seems like we're pivoting.

Speaker Change: To a decrease in rates. So I was wondering just what your thoughts are on.

Speaker Change: If we assume rates come down over the balance of this year and through next year.

Speaker Change: Will that change your macro outlook at all and do you think it will change your customers' behavior in terms of.

Speaker Change: Their ability or desire to move forward on projects that they would work with you on.

Sanjeev Lambas: Vince, I'm going to let Matt talk to you about this. It's a topic he's very passionate about, and then I'll maybe add to that. Go ahead, Matt. Hey, Vince. Thanks, Ranjit.

Matt White: But it's I'm going to let I'm going to let Matt talk to you about this topic is very passionate about and then I would maybe add to that Glen Haven.

Matt White: You know, obviously, as you know, Vince, it's speculation at this point. Nobody knows for certain, but obviously, we have an opinion like everyone else.

Matt White: Thanks sensitive.

Speaker Change: You know obviously.

Matt White: As you know Vincent its speculation at this point nobody knows for certain but obviously, we have an opinion like everyone else and to your point I mean, my personal opinion on this is.

Matt White: And to your point, I mean, my personal opinion on this is, as interest rates rose rapidly, the area that was affected most were large durable goods and large capital deployments. So our customers that may enter that area, even when you think about something like consumer home loans, auto loans, those, in some cases, effectively doubled and changed the dynamic on that purchasing power of those more durable goods, which tend to have more plastics and then more metals, more glass, and cement, the kind of more industrial infrastructure you tend to see.

Speaker Change: As interest rates rose rapidly the area that was affected most where large durable goods large capital deployment. So our customers that may enter into that area. Even when you think about something like the consumer home loans auto loans.

Matt White: In some cases effectively doubled and change the dynamic on that purchasing power of those more durable goods, which tend to have more plastics and then more metals more glass cement the kind of more industrial.

Speaker Change: Infrastructure you tend to see.

Matt White: And therefore, I think this, in my opinion, was a driver of the very weak industrial production PMI numbers you've seen over the last 18 plus months, as Sanjeev mentioned. To some extent, in many countries in the world, we've been in an industrial recession. And I believe those customers that were affected by that were the ones with higher interest rates. I think on top of that, you add.

Matt White: And therefore I think this in my opinion was a driver of the very weak industrial production PMI numbers, you've seen over the last 18 plus months as Sanjiv mentioned to some extent in many countries in the world. We've been in an industrial recession and I believe those customers that were affected by that where the more interest rate sensitive.

Speaker Change: I think on top of that you add.

Matt White: I would argue probably a little bit less government infrastructure spending than you normally see because a lot of it was tied up more in various incentive packages that needed a lot of clarity. And so that clarity, or lack of it, stretched these out. Conversely, the consumer was stronger throughout that time in non-interest sensitive areas of consumption, services, but at least based on what I'm seeing now, it seems like that aspect of the consumer is starting to slow.

Speaker Change: I would argue probably a little bit less government infrastructure spend than what you normally see because a lot of it was tied up more in various incentive packages that needed a lot of clarity and so that clarity the lack of clarity a stretch these out.

Matt White: Conversely, the consumer was stronger throughout that time in noninterest sensitive areas of consumption.

Speaker Change: In our services.

Matt White: But at least based on what I'm seeing now it seems like that aspect of the consumer is starting to slow.

Matt White: So in theory, what's possible, maybe you start to see GDP contract, which then would actually define a real recession. And at that point, to your exact point, if interest rates decline, hopefully, what that could do is thaw out some of the durables, some of the larger capital-intensive purchases and start to help that environment. Because what we're seeing today on some of these projects, the customers are committed, they wanna do it, but the CapEx costs are high.

Speaker Change: So in theory.

Speaker Change: It's possible maybe you start to see GDP contract, which then would actually define a real recession and at that point to your exact point if interest rates decline hopefully what that could do is thought out some of the durables some of the larger capital intensive purchases and start to help that environment, because what we're seeing today on some of these projects the customers.

Speaker Change: Our committed they want to do it but the capex costs are high and I think that's a function of the inflation. That's a function of the rates working their way through if that were to reverse it could probably bring a little more stability.

Matt White: And I think that's a function of inflation; that's a function of rates working their way through. If that were to reverse, it could probably bring a little more stability and a little more reasonable pricing, which I think could cause some projects to finally clear the FID and sign the contract. So it's speculative, right? Nobody knows for certain, but that's how I would at least view it in this state. And I would view it as positive with the lower rates to try and move some of these projects over the final signature hurdle. Our next question comes from the line of Laurent Favre with BNP Paribas. Your line: Thank you.

Matt White: And a little more reasonable pricing, which I think could cause some projects to finally clear.

Speaker Change: And sign the contract so it's speculative right nobody knows for certain but that's how I would at least view it at this at the state and I would view it as positive with the lower rates to try and move some of these projects over the final signature hurdle.

Matt White: Okay.

Laurent Favre: Our next question comes from the line of Lauren Farb with BNP Paribas. Your line is open.

Matt White: Our next question comes from the line of Laurent Farm with BNP Paribas. Your line is open.

Laurent Farm: Thank you good morning on my question using around electronics, Sanjiv, you mentioned that Tsmc's content.

Laurent Farm: I was thinking that we haven't seen any announcements of new projects electronics in Hawaii, and so I was wondering if you could talk about the opportunity from here from your projects on so if there's anything you can say on the incremental opportunity from AI and better sometimes thank you.

Lauren Farb: Thanks, Lauren. So both of those questions are excellent and something that, you know, we kind of referenced in the last call, just saying that, look, we were seeing a buildup of some early signals around a recovery in electronics. I'd say to you that we have seen this in the course of the quarter, but these are early signals. There is still more to happen in the balance. Let's talk a little bit about projects now. So we started phase one of TSMC in Phoenix.

Lauren: Thanks, Lauren so.

Speaker Change: Well both of those questions are are excellent and something.

Speaker Change: Something that we kind of referenced in the last call just saying that look we were seeing.

Speaker Change: A buildup of some early signals or all of the recovery in electronics I'd say to you that we have seen that in the course of the quarter.

Speaker Change: But these are early signals there is still more to happen in the course of the balance of this year, let's talk a little bit about projects now. So we started a phase one off of TSMC.

Speaker Change: In Phoenix, we are very advanced in a build on the Samsung project in Tyler, Texas.

Sanjeev Lambas: We are very advanced in our build on the Samsung project in Taylor, Texas, and we are building a number of other plants, some for Intel around the world as well. We also see growth going back in terms of Asian demand. We're also seeing growth in Asian demand starting to pick up, and new projects getting announced there as well. So over time, as these projects get signed up and contracted, as you know, we have a very high level of discipline around what we will announce. But you will see announcements reflecting a number of these investments that we would make as those contracts get signed up. I expect so.

Matt White: And we are building a number of other plants. So some for Intel around the world.

Matt White: As well, we also see growth going back in.

Speaker Change: In terms of the Asian demand, we're also seeing growth in the Asian demand starting to pick up in new projects getting announced there as well so over time as as these projects get signed up and contracted as you know we have a very high level of discipline around what we will announce when you will see announcements, reflecting a number of these investments that we would make as a sponsor.

Matt White: <unk> get signed up.

Matt White: I expect.

Sanjeev Lambas: Electronics will continue to see momentum in terms of new investments and new fab capacity. And to your point, this will be driven in part by large data requirements, but also driven by AI requirements. I know, you know, AI has the hype, it shines a little bit at the moment, but the reality is AI will prove to be a tool that will be significantly and in some cases transformative for industries and markets, and you will see investment underpinning that coming through data centers, helped and supported then by chip production that happens out of the fabs.

Matt White: Electronic we'll continue to see momentum in terms of new investments, new fab capacity and to your point. This will be driven in part by large data requirements also driven by AI requirements I know I have the height shines off a little bit at the moment, but the reality is AI will prove.

Matt White: To be a jewel that'll be significantly and in some cases strong submitted for industries and markets and you will see investment underpinning that coming through data centers helped and supported them by chip production that happens out of the Fabs. So I still expect that that momentum will be there I still expect the large majors.

Sanjeev Lambas: So I still expect that that momentum will be there. I still expect the large majors, the large major semiconductor manufacturers, to continue to make that investment. Obviously, there are some that are kind of seeing some short-term challenges, including some news today that you would have seen. But the long-term outlook remains very robust, and we continue to be very well positioned to win more than a fair share in that.

Matt White: Large major semiconductor manufacturers to continue to make that investment. Obviously there are some that are that are kind of seeing some short term challenges, including some some news today that you would have seen but the long term outlook remains very robust and we continue to.

Matt White: Be very well positioned to win more than our fair share in that space.

Matt White: Yeah.

Speaker Change: Thank you.

Steve Burney: Our next question is from Steve Burney with Bank of America. Your line is open.

Matt White: Our next question is from Steve Bernie with Bank of America. Your line is open.

Matt White: Yes, thank you. Matt, you mentioned in your remarks about the challenges of helium in your Asia-Pac business. Just curious whether that is stabilizing or do you see further erosion in either pricing or volumes there, and perhaps it would do so more broadly. Can you talk about your helium fundamentals in the other regions, are they quite different from the impact of this Russian supply? What exactly is the portion that is in your corporate segment? I assume that's some kind of export volume; perhaps you can highlight what exactly is the driver there.

Steve Bernie: Yes. Thank you Matt you mentioned in your remarks about <unk>.

Speaker Change: <unk> in helium.

Steve Bernie: Please you pack business, just curious whether whether that is stabilizing or do you see further.

Speaker Change: And either pricing or volumes, there and perhaps.

Speaker Change: More broadly can you talk about your.

Speaker Change: Your helium fundamentals in the other regions are they are they are quite different from the impact from this Russian supply.

Speaker Change: And what exactly is the portion that is in your corporate segment I assume that's some kind of export volume, perhaps you can highlight what exactly is the driver there.

Matt White: Sure, Steve. I'm thinking on a couple of things just for some baseline data. So helium is a low single-digit percent of our global sales. Just to put in perspective the component that it makes up for us. Furthermore, to your point, helium is one of the very, very few molecules that is truly, you know, global pricing, supply, demand driven. As you know, the vast majority of our projects or products are priced to inflation contractually, but helium is a difference as it is more supply-demand driven, given the nature of that molecule.

Speaker Change: Sure Steve I think on a couple of things just for some baseline data. So helium is low single digit percent of our global sales just to put in perspective, the component that it makes up for us.

Speaker Change: Furthermore to your point helium is one of the very very few molecules that is truly global pricing and supply demand driven as you know the vast majority of our project our products price to inflation contractually, but helium is a difference as it is more supply demand driven gives.

Speaker Change: Given the nature of that molecule.

Matt White: So with that as the backdrop, I think, to your point, you are seeing different regional aspects of pricing, with APAC seeing the most pressure from this Russian supply. Now we have no participation in that Russian supply. We are not using it. We canceled that contract, per our allowance, a couple of years ago.

Speaker Change: So with that as the backdrop I think to your point.

Speaker Change: We're seeing different regional aspects of pricing with APAC has seen the most pressure from this Russian supply now we have no participation in that Russian supply, we are not using Russian supply.

Speaker Change: We canceled that contract per our allowance.

Matt White: So from that perspective, it is finding its way primarily into China. But as you can imagine, Asia Pacific is a larger consumer of helium, primarily because of the electronics sector. So given the electronics sector in certain parts, especially in Korea, maybe a little slower, coupled with this Russian supply, it definitely created some pricing pressure. I would say now that it is stabilizing, but it's something you still got to keep an eye on. But the way we always think about this, and it's been true in this business going back decades, is you have to have a significant diversity of supply. You have to have all supply modes to move the molecules.

Speaker Change: A couple of years ago. So.

Speaker Change: From that perspective, it is finding its way primarily into China.

Speaker Change: But as you can imagine APAC is a larger consumer of helium, primarily because of the electronics sector.

Speaker Change: So given the electronics sector in certain parts, especially like Korea, maybe a little slower coupled with this Russian supply it definitely created some pricing pressure I would say now it is stabilizing.

Speaker Change: But it is something that you still got to keep an eye on but the way we always think about this and it's been true in this business going back decades.

Speaker Change: Is you have to have a significant diversity of supply you have to have all supply modes to move the molecules.

Matt White: And you have to have a very robust global business across all end markets. And when you have all those things, it gives you much more stability and a healthy business. And that has always been the case for us, and I expect it will always continue to be the case.

Speaker Change: And you have to have a very robust global business across all end markets and when you have all those things. It gives you much more stability.

Speaker Change: And a healthy business.

Speaker Change: And that always has been the case for us and I expect that we'll always continue to be the case as far as the helium component of the other segment just to clarify what that is.

Matt White: As far as the helium component of the other segment, just to clarify what that is. So given helium is more of a global business, we sell it intercompany to all of the gas segments since we operate it as a single global business. So the intercompany transfer pricing aspect is what we show in the other segment. So that'll just be at a cost plus transfer price that's eliminated. And the actual majority of the Helium profits will be represented in each of the gas segments.

Speaker Change: So given helium is more of a global business, we sell it inter company to all of the gas segments.

Speaker Change: Since we operated as a as a single global business. So the intercompany transfer pricing aspect is what we show in the other segment. So that will just be at a cost plus transfer price that's eliminated.

Speaker Change: And the actual majority of the helium profit will be represented in each of the gas segments.

Matt White: So it tends to be somewhat stable with the one exception that as you see swings in the cost of helium, up or down, that will reflect more in the other segment, whereas pricing dynamics tend to reflect more in the gas segments, the geographic gas segments for end market pricing. So that's how we think about that, just as in terms of how we structured our segment.

Speaker Change: It tends to be somewhat stable with the one exception that is you see swings in the cost of helium up or down that will reflect more in the other segment.

Speaker Change: Whereas pricing dynamics tend to reflect more in the gas segments.

Speaker Change: The geographic gas segments for the end market pricing. So that's how to think about that just as a in terms of how we structured our segments.

Speaker Change: Very helpful. Thank you.

Mike Sison: Very helpful. Thank you. Our next question comes from Mike Sison with Wells Fargo. Your line is open. Hey, good morning, guys. Just curious, Sanjeev, if you think about, you know, the ISM and stuff, didn't it look...

Mike Sison: Our next question comes from Mike Sison with Wells Fargo. Your line is open.

Speaker Change: Our next question comes from Mike Sison with Wells Fargo. Your line is open.

Mike Sison: Hey, good morning, guys.

Mike Sison: Just curious Sanjay if you think about.

Mike Sison: The I S M and stuff it didn't look really great. The last couple of days, what if things get worse sequentially into the third and the fourth how how do you think your portfolio or our strategy will change and and and how does that.

Speaker Change: Sort of you know.

Speaker Change: Change the maybe either.

Speaker Change: Order backlogs and stuff.

Sanjeev Lambas: Mike, I'll break that up into a couple of different conversations. Let's start with the business itself. I think you'll recall, Mike, we had a conversation a few quarters ago when we described the profile of our business as being defensive. And I think in doing that, we explained that a combination of factors ensures that we have the robustness and the resilience that sits in the business portfolio that we have.

Mike Sison: Alright, Mike.

Mike: <unk>, maybe I'll break that up into a couple of different <unk>.

Mike: Conversations, let's talk about the business itself and I think you'll recall, Mike we had a conversation a few quarters ago. When we described the profile of our business as being defensive and I think in that and doing that we had explained that a combination of factors and shows that we have the robustness and the resilience that sits in the business portfolio that we have.

Sanjeev Lambas: Part of that, we said, was obviously a contracted on-site business. As we've seen through some difficult times, you know, the period of the energy crisis in Europe as an example, that it's held really well, contracts have been honored. And I think that defensiveness of that and the resilience, you know, have shown through in many ways.

Mike Sison: So part of that we said was obvious.

Mike Sison: Our contracted onsite business.

Mike Sison: As we've seen through some difficult at the Bureau of energy crisis in Europe. As an example that that's held really well contracts have been honored and I think that the defensiveness of that of the resilience.

Mike: As shown through in many way so that's one part of that.

Sanjeev Lambas: So that's one part of, you know, that defensive nature of our business. The other is the resilient end markets that we supply, which are not prone to, you know, manufacturing, PMIs, and so on and so forth, being food and beverage. Again, you saw that 8% year-on-year growth in food and beverage, and I expect to see continued growth in that segment as well. In addition to that, healthcare, which we are now, you know, kind of sorting out some of the portfolio issues, but underlying healthcare, mid-single-digit growth, expectations going forward, that resilience will continue to be there, again, secular in many ways, in relation to what happens to manufacturing and industrial activity

Mike: The defensive nature of our business. The other is the resilient end markets that we supply which are not prone to manufacturing PMI and so on and so forth being food and beverage again, you saw that 8% year on year growth in food and beverage and I expect to see continued growth in that in that segment as well in addition to that health care, which we are.

Mike: Now you know kind of sorting out some of the portfolio shows, but underlying health care mid single digit growth expectations going forward that resilience will continuing to be there again secular in many ways of what happens to manufacturing and industrial activity. So that that portion of supply. So the resilient business add to that we have contracted rent.

Sanjeev Lambas: So that portion of supplies to the resilient business. Add to that, we have contracted rental streams that come in, in respect, again, of activity levels. If all of that together, you've got a business where nearly three-fourths, you know, of our business is contracted in or locked in through these various mechanisms, giving that defensiveness. Irrespective of what happens to the industrial activity and manufacturing PMI that everyone's referencing at the moment, the reality is that defensive nature will continue to be very resilient as we move forward.

Mike: The streams that come in and respect again of activity levels.

Mike: All of that together, you've got a business, where nearly three fourths of our of our business is contracted in a locked in through these various mechanisms, giving that defensive nature.

Mike: Irrespective of what happens to the industrial activity and manufacturing PMI that everyone's referenced thing at the moment. The reality is that defensive nature will continue to be very resilient as we move forward.

Sanjeev Lambas: The other part of your question was what happens to backlog, right? And again, I just want to say backlog is $7.9 billion. You know, we're working our way through that. We're starting up this year between one and a half to two billion worth of projects. In the first half itself, more than half of that has already been done. So that backlog is contracted growth. Usually, it's date certain.

Speaker Change: The other part of your question was what happens to backlog right and again I just wanted to say backlog of $7 9 billion. You know, we're working our way through that we have.

Mike: Starting up.

Mike: This year between one and a half to 2 billion worth of projects in the first half itself more than about half of that has already been done so that backlog is contracted growth.

Mike: Usually it's.

Mike: It's a date certain so irrespective of what is happening with the customers.

Sanjeev Lambas: So, irrespective of what is happening with the customer's project, we get a stream of revenues through that project coming through. And, you know, we see that as a very robust part of our future growth plan, which is locked in and contracted and feel really good about the quality of that backlog that we're currently executing. And as I said before, backlog, you know, as an example, this quarter itself, we started up the TSMC phase one project, and that's going to start contributing to earnings based on the contracts that we have.

Mike: Project, we get a stream of revenues through that project coming through and we see that as a very robust part of our future growth plans, which are locked in and contracted and feel really good about the quality of that backlog that we're currently executing and as I said before backlog.

Mike: As an example, this quarter itself, we started up the TSMC phase one project and Thats going to start contributing to earnings based on the contracts that we have so again, a very resilient and a part of that so I think you look at that I think that kind of gives you a flavor of what we're looking what we're looking ahead to in terms of how we think about the resilience underpinning the busy.

Sanjeev Lambas: So again, a very resilient part of that. So I think you look at that. I think that kind of gives you a flavor of what we're looking at in terms of how we think about the resilience underpinning the business.

Mike: <unk>.

Mike: Thanks.

Speaker Change: Our next question comes from Josh Spector with UBS. Your line is open.

Josh: Yeah, hi, good morning. I was wondering if you could talk about pricing.

Josh Spector: Yes, hi, good morning, I was wondering if you could talk about pricing specifically in the Americas I think it's been a source of strength for you guys and some of your competitors that have reported.

Speaker Change: So just curious one if that's more of a U S phenomenon or if that's more south and Central America, where are you getting more pricing in Q I guess with energy prices semi stable demand kind of semi stable whats driving some of that sequential acceleration in pricing within the region.

Sanjeev Lambas: Thanks, Josh. So again, I think pricing is, and we've said this a number of times before, Josh. I'm just going to maybe go back and recap that very briefly. We've said if you go back and look at the long-term pricing trend, we track or are slightly ahead of globally weighted CPI for us. That trend's been consistent over an extended period. I go back 15, 20 years. We've demonstrated positive pricing across that period, aligned with what we think global CPI has done. And that is actually a great proxy to think about how we will continue to see pricing going forward. So, you know, I just want to say.

Mike: Thanks, Josh So again I think pricing is and we've said this a number of times before Josh I'm, just going to maybe go back and recap. That's very briefly we've said if you go back and look at the long term pricing trend, we track or are slightly ahead of globally weighted CPI for us.

Mike: That trend has been consistent over an extended period I go back 15, 20 years, we have demonstrated positive pricing across that period aligned with what we think global CPI has done.

Mike: And that is actually a great proxy to think about how we continue to see pricing going forward. So.

Mike: I want to just.

Sanjeev Lambas: As you're thinking about pricing and as you're looking ahead, I want you to just keep that in mind because, in truth, that is really where our pricing efforts will continue to yield results going forward. Now, pricing continues to be robust in the Americas. I think we are seeing positive pricing both in the U.S. as well as in our Latin American businesses. And this again, the trend itself is not inconsistent.

Mike: As youre thinking about pricing and as Youre looking ahead I wanted to just keep that in mind because that I think in truth is really where our pricing efforts will continue to yield results going forward.

Mike: Now pricing continues to be robust in the Americas I think we are seeing positive pricing both in the U S as well as in our Latin American businesses.

Mike: And this again the trend itself is not inconsistent that's a trend that we've been able to you know we have seen through the course of the last many quarters and in fact consistently proven over the last five years as well. So again, there's nothing happening over there. That's exceptional all we're doing is management action drives pricing is how we think about it and I think management action is driving the.

Sanjeev Lambas: That's a trend that we've been able to see through the course of the last many quarters and, in fact, consistently proven over the last five years as well. So again, there's nothing happening over there that's exceptional.

Sanjeev Lambas: All we're doing is management action drives pricing is how we think about it, and I think management action is driving the pricing efforts that we see in the Americas at the moment. Both Americas and EMEA are tracking globally rated or rated CPI for their respective regions. In AIPAC, I would say to you that I think we're finding pricing a little bit shorter at this point in time, and that's where the push is currently to make sure that we get that over the line. Obviously, China is in deflation, so that doesn't help, but again, we've got pricing efforts continuing in that space as well.

Mike: Pricing efforts that we see in the Americas at the moment.

Mike: Both Americas, and EMEA are tracking globally weighted or greater CPI for their respective regions in APAC I would say to you that I think we're finding pricing a little bit shorter at this point in time, and that's where current currently the bushes to make sure that we get that over and over over the line, obviously, China isn't deflation so that doesn't help but again we have.

Mike: Got pricing efforts continuing in that space as well.

Josh: Okay. I mean, that's helpful. I guess maybe one more follow-up around that is just, so when I think about CPI and that being something to look towards, again, I guess focusing on the Americas, I mean, with your mix, your pricing is up, call it mid-single-digit year-over-year in America, or maybe it's up, I don't know, 3 to 4% on a merchant level sequentially. I guess which CPI indicator is going up at that rate on a quarter-over-quarter basis?

Speaker Change: Okay. That's helpful. I guess, maybe one more follow up around that is just when I think about CPI and that being something to look towards again, I guess focusing on the Americas I mean with your mix your pricing is up call. It mid single digit year over year in America that maybe it's up I don't know, 3% to 4% on a merchant level.

Speaker Change: <unk> I guess, what CPI indicators going up at that rate on a quarter over quarter basis.

Matt White: Yeah, sure, Josh, Matt. I think you have to remember when you think about America. You have all of South America, to your point, where we have leading positions in just about every country there. So whether it's Brazil or Central America like Mexico, other countries in South America, Argentina, you've got Chile, Colombia, you are continuing to see inflation rates that are much higher than what you would see in the U.S., so that is all aligned and relative to that and something we do track consistently.

Mike: Yeah sure Josh It's Matt I think you have to remember when you think about Americas, you have all of South America to your point, which we have leading positions in just about every country there.

Mike: So, whether it's Brazil or Central America like Mexico other.

Speaker Change: Other countries in South America, Argentina, you've got Chile, Colombia, you are continuing to see inflation rates that are much higher than what you would see in the U S. A scenario.

Speaker Change: So that is all aligned and relative to that and something we do track consistently I mean as you well know just look at recently the devaluations you've seen across a wide basket of Latam currencies and that is being offset through higher inflation local in these countries. So it.

Matt White: I mean, as you well know, just look at the recent devaluations you've seen across a wide basket of LATAM currencies, and that is being offset through higher inflation in these countries. So it is driving that, it is part of that.

Speaker Change: It is driving that.

Jeff Sekowskis: Now at times, yeah, you may see some different quarter to quarter sequential variances just because of the timing of the pricing goes through inflation, which could create a little bit of noise. But when we look at the CPI tracking, we tend to look at it on an annualized basis because that's a little bit cleaner on timing. But, as Sanjeev said, it continues to track quite closely. It's something that we look at country by country. And when you look at the balance of inflation levels you're seeing, especially in LATAM, they continue to be elevated, especially vis-a-vis a country like the U.S. or a region like Europe.

Speaker Change: It is part of that now at times, Yeah, you may see some different quarter to quarter sequential variances just because on the timing the pricing goes through to inflation that could create a little bit of a noise, but when we look at the CPI tracking we tend to look at it on an annualized basis.

Sanjay: Because thats a little bit cleaner on timing, but Ah as Sanjay said it continues to track quite closely it's something that we look at country by country.

Sanjay: And when you look at the balance of inflation levels, Youre seeing especially in Latam. They continue to be elevated, especially visa V. A country like U S or or a region like Europe.

Speaker Change: Got it thank you both.

Jeff Sekowskis: Our next question comes from Jeff Sekowskis with J.P. Morgan. Your line is open.

Speaker Change: Our next question comes from Jeff Zekauskas with JP Morgan Your line is open.

Jeff Sekowskis: Thanks very much. I think a couple of years ago, you talked about a $3 billion investment opportunity to decarbonize Linde, and I think the direction was to produce more blue hydrogen to change over to, you know, ATRs or change your SMRs. How much have you invested? And does that $3 billion number still look good? Have things been stretched out in time? Are they according to plan?

Jeff Zekauskas: Thanks very much.

Speaker Change: I think a couple of years ago, you talked about a $3 billion investment opportunity to Decarbonize Lindsay.

Speaker Change: And I think the direction was to produce more blue hydrogen to changeover to <unk>.

Speaker Change: <unk> change for <unk>.

Jeff Zekauskas: Have you have you how much have you invested and does that 3 billion number still look good have things been stretched out in time are they according to plan.

Jeff: Thank you Jeff.

Sanjeev Lambas: Thank you, Jeff. So yes, we have laid out our decarbonization strategy and roadmap, if you will. And as part of that, we said there were three levers. The first lever was, and this was out of, you know, a 50 billion investment over 10 years, as we've said in the past. The first lever was decarbonizing our own operations with that 3 billion estimate at that point in time. We said the bulk of our deployment would be in enabling our customers to decarbonize, which is the second pillar.

Speaker Change: So, yes, we had laid out our decarbonization strategy.

Speaker Change: Strategy and roadmap if there if you will and as part of that we said there were three levers. The first lever was and this was out.

Sanjeev Lambas: And the third pillar was just some new opportunities for hydrogen to act as an energy vector and for export purposes, et cetera. The first pillar, which you're referring to at the moment, is where a lot of our work at the moment is happening. As you know, we have a large fleet of steam methane reformers, or SMRs, in the US Gulf Coast. They are part of that network that connects that 500 miles of pipeline that we have and serves between 80 very large customers for the hydrogen requirement. And we are currently in various stages of feed studies for those SMRs to understand the best opportunity for us, decarbonization. For SMRs, technically speaking, there are different ways to do that.

Jeff: 15 billion investment over 10 years, we had said in the past.

Jeff: Firstly, what was decarbonizing our own operations without 3 billion estimate at that point in time, we said a bulk of our.

Jeff: Of our deployment would be in enabling our customers to decarbonize, which is the second pillar and the third pillar was just some new opportunities for them.

Jeff: Hydrogen to act as a as an energy vector and for export purposes et cetera.

Speaker Change: The first pillar, which is what you are referring to at the moment is where a lot of our work at the moment is happening as you know we have a large fleet of steam methane reformers are <unk> in the U S. Gulf Coast. They are part of that network that connects that 500 miles of pipeline that we have and subs between 60 to 80 very.

Jeff: Large customers for the hydrogen requirements.

Jeff: And we are currently in various stages of feed studies for those.

Jeff: S Tomorrow to understand the best opportunity for us to do decarbonization on <unk> technically speaking there are different ways to do that we can do both combustion capture we can do Sim gas capture the feed studies are ongoing at this point in time. My view is that we will actually progressed with those probably over the next few years.

Sanjeev Lambas: We can do post-combustion capture. We can do syngas capture. The feed studies are ongoing at this point in time, and my view is that we will actually progress with those, probably over the next few years. They are in line and on track with our 2035 targets that we have set for ourselves. And I expect to see those business cases developed as we get to a more technical conclusion as far as the feed study is concerned.

Jeff: As they are in line and on track without 2035 targets that we set for ourselves and I expect to see those business cases be developed as we get to a more technical.

Jeff: Inclusion as far as the feed study is concerned.

Sanjeev Lambas: Whether that's three billion or more, I think, you know, the feed will tell us that. So I think we'll wait for the feeds to come through. But by order of magnitude, I'd say to you that's about the right ball.

Jeff: Whether that's 3 billion or more I think you know the feed will tell us that so I think we'll wait for the feeds to come through but order of magnitude I'd say to you that in about the right ballpark.

Jeff Sekowskis: Okay, and then quickly, I realize that your volumes in the United States were flat year over year, but if you had to, I'm sorry in the Americas, but if you had to break it up into packaged, merchant, and on-site and compare the volume changes, what would they look like?

Speaker Change: Okay, and then quickly I realize that your volumes in the United States year over year or flat.

Speaker Change: If you had I'm sorry in the Americas.

Speaker Change: You had to break it up into packaged merchant and on site and compare the volume changes.

Speaker Change: What would they look like.

Speaker Change: For the second quarter, So Jeff why don't I, just talk a little bit about what we're seeing in Americas I think that this is a good lead in to that because I think it will give you a flavor of where the volumes are having hopefully answer your question as well. So I'll start off by just saying that the U S market has been incredibly resilient right I mean, its surprise most people, but we are now seeing industrial Act.

Sanjeev Lambas: Jeff, why don't I just talk a little bit about what we're seeing in America? I think this is a good lead into that because I think it'll give you a flavor of where the volumes are. I think I can hopefully answer your question as well.

Sanjeev Lambas: So I'll start off by just saying that the U.S. market has been incredibly resilient, right? It surprised most people, but we are now seeing industrial activity being more sluggish. It is reflecting the softer demand growth that is there in the marketplace, and obviously, everyone's quoting the PMI, et cetera. In the last quarter itself, we'd referenced that we were starting to see that sluggishness in the market. So an exception to that, a notable exception to that, is hydrogen demand. Hydrogen volumes are at very high levels, and I expect them to remain high for the rest of the year. So again, that is a reflection of what's happening in the chemicals and energy space.

Speaker Change: <unk> being more sluggish it is reflecting the softer demand growth that that that is there in the marketplace and obviously everyone's quoting the PMI et cetera, you know in the last quarter itself made reference that we were starting to see that sluggishness in the market.

Speaker Change: So an exception to that a notable exception to that is hydrogen demand.

Speaker Change: Hydrogen volumes are in a.

Speaker Change: Very high levels, and I expect them to remain strong for the rest of the year. So again that is a reflection of what's happening in the chemicals and energy space.

Sanjeev Lambas: And again, the on-site piece, which I think you were querying, is one of the key elements that comes out of those high-core volumes that we have. The other indicator that I watch carefully is the hard goods out of the US package. You heard me say before, I consider hard goods a leading indicator of what is happening in manufacturing and industrial activity. Again, during this quarter, we saw hardwood sales decline year over year in the low single digits, a clear indicator that you're seeing a softer manufacturing environment.

Speaker Change: And again, the onsite piece, which I think you were carrying.

Speaker Change: Is.

Speaker Change: One of the key elements of that comes out of those HEICO volumes that we've seen the other indicators that I that I watch carefully the hard goods out of the U S package business.

Speaker Change: Let me say before I consider hard goods, a leading indicator of what is happening in manufacturing and industrial activity again. During this quarter, we saw hardwood sales decline year over year in the low single digits.

Speaker Change: Clear indicators that you are seeing softer manufacturing environment I expect that to continue over the next couple of quarters at least.

Sanjeev Lambas: I expect that to continue for the next couple of quarters at least. Now, hard goods were sequentially flat, though, so I think it wasn't that you were seeing sequential worsening, but you were seeing softer year-on-year movements as far as hard goods were concerned. Again, that gives you an indication of what's happening around our packaged business. I'd say that between those two, that's a fair view of where we are seeing that volume played out in terms of what we see between on-site merchants and back. Thank you very much. Our next question comes from Patrick Cunningham with Citigroup. Your line is open.

Speaker Change: Now hard goods was sequentially flat, though so I think it wasn't that you were seeing sequential worsening, but you are seeing softer year on year movements as far as hard goods are a concern again that gives you an indication what's happening around our package business.

Speaker Change: I would say that between those two I mean, that's a fair view of where we are seeing that volumes plays out in terms of what we see between onside merchant and package.

Speaker Change: Okay, great. Thank you very much.

Speaker Change: Our next question comes from Patrick Cunningham with Citigroup. Your line is open.

Patrick Cunningham: Hi, good morning. This is Eric.

Speaker Change: Hi, Good morning, this is Eric on for Patrick.

Eric: Appreciate conditions in China continued to be an issue can you talk about the cost actions you are taking in the region and how has pricing trended.

Speaker Change: Sure.

Speaker Change: So.

Eric: I'll begin by just kind of reminding you that, you know, in China, we serve some of the tier one customers who tend to have the best cost position in their fields and have been quite stable through this downturn. So, as a starting point, having a high quality customer in China is actually very, very important for the stability and performance of that business. If I talk specifically about cost actions, I'll say to you, you could probably go back, I'd say about 18 months now, when we first talked about concerns around growth in China and the fact that we were treating Chinese business as a mature business and ramping up activities, both on cost management around the fixed cost base and enhancing productivity actions as well. And that's been ongoing for about 18 months. It isn't new; we're not acting on it now.

Speaker Change: Ill begin by just kind of reminding you that you know in China, we saw some of the tier one customers.

Speaker Change: Who tend to have the best cost position in their fields and have been quite stable through this downturn. So I think it's just as a starting point, having a high quality customer in China actually is very very important for the stability and performance of that business.

Speaker Change: If I talk specifically about cost actions I'll say to you you can probably go back I'd say about 18 months now when we first talked about.

Speaker Change: Concerns around around growth in China, and the fact that we were treating China business as a mature business and ramping up activities. Both on cost management around the fixed cost base and enhancing productivity actions as well and that's been ongoing for about 18 months. It is a new we're not acting on it now.

Sanjeev Lambas: We have been undertaking this and using this as an opportunity to reset the cost base in China. Much of that action has already been completed. I feel pretty good about where we stand with the cost base. There is obviously more we can do, and the productivity programs we are running in China, leveraging AI and so on and so forth, are good examples of how we are managing. I'll give you one very simple example.

Speaker Change: We have been undertaking this and using this as an opportunity to reset the cost base in China much of that action has already been completed I feel pretty good about where we stand with the cost base. There is obviously more we can do in the productivity programs. We are running in China, leveraging AI and so on and so forth are good.

Speaker Change: <unk> of how we are managing that I'll give you one very simple example, so both most companies in China most operations in China for instance, falling recent regulatory requirements.

Sanjeev Lambas: Most companies in China, most operations in China, for instance, have had to recruit between one to five safety officers to go and walk around the plant and take readings and record them so that the authorities can come and audit. Now, most of the companies have done that. As you would expect, Linde has thought long and hard about how best to accomplish that.

Speaker Change: <unk> had to recruit.

Speaker Change: Want to fire safety officers to God walk around the plant and take readings and record them. So that the authorities can come in and audit them.

Speaker Change: Now most of the companies have done that.

Speaker Change: As you would expect to India.

Speaker Change: Long and hard about how best to accomplish that and at the moment. We are rolling out a program called smart loans, where we're using a combination of drones and robots to do much of these breathing of gauges and pressure points within the within the plant to make sure that they are then automatically.

Sanjeev Lambas: And at the moment, we're rolling out a program called Smart Plants, where we're using a combination of drones and robots to do much of the reading of gauges and pressure points within the plant to make sure that they are then automatically recorded. Now, that's a productivity project where we've used technology, created a digital solution, and applied that broadly across our fleet of plants in China, with clear productivity benefits. You obviously don't increase your FTEs or your employee costs as a result of doing that.

Speaker Change: We record it and that's the productivity projects that have been used technology create a digital solution and applied that broadly across our fleet of plants in China clear productivity benefits you, obviously don't increase.

Speaker Change: Ftes all are already our employee costs as a result of doing that that's just one example of many that are giving you in terms of the actions that are being taken which are both spot, but also addressing the cost base itself quite a quite significantly.

Sanjeev Lambas: That's just one example of many that I'd give you in terms of the actions that are being taken, which are both smart but also address the cost space itself quite effectively. On Pricing, China is Indefinite. So, pricing, you know, if we say we want to kind of be, [inaudible] On the industrials, merchant, and package, in particular, we are seeing positive pricing movement there. It is, however, being offset by lower pricing on helium and rare gases, partly driven by lower demand from the electronic segment and partly because we are obviously seeing pressure on helium coming in from Russia into China, which has made China long on helium and has had an impact on pricing there. But beyond that, industrial pricing, action continues to be strong, and I feel good about the momentum that the team has got over there, and we'll continue to see that move forward.

Speaker Change: On pricing, China isn't deflation so pricing.

Speaker Change: We say, we want to kind of be keep.

Speaker Change: Keep ourselves at that 2% BOP that we'd like to see happen, that's where the team is currently pushing to try and get pricing to continue to move up there are two elements of the pricing on the industrial.

Speaker Change: <unk> merchant and package in particular, we are seeing positive pricing movement. There. It is however, being offset by lower pricing on helium and rare gases, partly driven by lower demand from the electronics segment and partly because we are obviously seeing pressure of helium coming in from from <unk>.

Speaker Change: <unk> into China, which has made China long on helium and has had an impact on pricing there, but beyond that industrial pricing.

Speaker Change: <unk> continues to be strong and I feel good about the momentum that the team has got over there and we will continue to see that move forward.

Speaker Change: Great. Thank you.

Kevin Mccarthy: Our next question comes from Kevin McCarthy with Vertical Research Partners. Your line is open.

Speaker Change: Our next question comes from Kevin Mccarthy with vertical research partners. Your line is open.

Matt White: Thank you and good morning. I have a few questions on capital deployment for Matt. Your pace of repurchases accelerated a bit in the quarter, and in the prepared remarks, I think you talked about the potential harvest of some project prepays in the back half of the year. So could you comment on the likely glide path of repurchases that you would foresee in the coming quarters? And maybe contrast that with the potential for bolt-on deal activity within the guardrails of your single A rating.

Kevin Mccarthy: Yes, Thank you and good morning.

Speaker Change: Questions on capital deployment for Matt.

Kevin Mccarthy: Your pace of repurchases accelerated a bit in the quarter and in the prepared remarks, I think you talked about.

Matt White: Potential harvest of some project Prepays in the back half of the year. So could you comment on that.

Speaker Change: Likely glide path of repurchases that you would foresee.

Speaker Change: Coming quarters, and maybe contrast that with potential for bolt on deal activity within the guard rails of your single a rating.

Matt White: Sure, Kevin, obviously, I stated our cap allocation policy, which you know, well, in the prepared remarks, and that's been consistent going back many, many years, and we expect it to remain consistent. And within that, repurchases are absolutely an integral part of that. And it's something that we expect to see every day in the market. To your point, we have a significant amount of room on the single A rating.

Speaker Change: Sure Kevin I think you know, obviously I stated our capital allocation policy, which you know well in the prepared remarks, and that's been consistent going back many many years and we expect it to remain consistent.

Speaker Change: And within that repurchases are absolutely an integral part of that.

Speaker Change: And it's something that we expect to be everyday in the market.

Speaker Change: We have a significant amount of room on the single a rating that's obvious given our metrics where they stand right now.

Matt White: That's obvious, given our metrics where they stand right now. And I do expect, as I mentioned, a fairly nice pickup in operating cash flow in the back half of this year, just given some of the timing of things that are going to be better in the back half than they were in the first half. But that all being said, our repurchase plan, we'll look out generally for four quarters forward. We will determine a number that we want to deploy in cash based on the capital allocation policy.

Speaker Change: And I do expect as I mentioned to see a fairly nice pick up in operating cash flow in the back half of this year just given some of the timing of things that are going to be better in the back half than they were in the first half, but that all being said.

Speaker Change: Our repurchase plan will look out generally for four quarters forward.

Speaker Change: We will determine.

Speaker Change: A number that we want to deploy on cash based on the capital allocation policy and then we'll execute inside the quarter and sometimes will accelerate when we see opportunities in the stock and we definitely saw that.

Matt White: And then we'll execute inside the quarter, and sometimes we'll accelerate when we see opportunities in the stock. And we definitely saw that this last quarter.

Speaker Change: This last quarter.

Matt White: So we did accelerate, and we repurchased $1.4 billion recently. And we got good execution, and we felt it was good pricing. So the overall plan will continue to be part of the equation in our cash and our capital allocation. But day to day, we will accelerate or change our patterns based on what we see in the market. And as you know, we did that back during COVID times. We did that back during the great financial crisis, where we saw some significant opportunities to come in. And if we see anything like that again, we will absolutely take advantage of it going forward.

Speaker Change: So we did accelerate and we repurchased $1 $4 billion recently, and we got good execution and we felt good pricing.

Speaker Change: The overall plan will be continue to be part of the equation and our cash and our capital allocation, but day to day, we will accelerate or change our patterns based on what we see in the market and as you know we did that back during the Covid times, we did that back during the great financial crisis.

Speaker Change: Where we saw some significant opportunities to come in and if we see anything like that again, we absolutely will take advantage of it going forward.

Speaker Change: Okay.

Pat: Pat, any thoughts on bolt-on fuel potential?

Speaker Change: And any any thought on bolt on deal potential.

Matt White: For M&A, I mean, that's something we're always going to be evaluating for tuck-ins. You can see in our recent cash flow statement that we had out here that we did continue to do more M&A activity. It'll probably be mostly North America, maybe some in our APAC packaged gas business. These are great tuck-ins.

Speaker Change: Oh for M&A I mean, that's something we're always going to be evaluated for tuck ins.

Speaker Change: You can see here on our recent you know cash flow statement that we had out here that we did do.

Speaker Change: Continued more M&A activity it will mostly be a probably north America, maybe some in our APAC packaged gas business. These are great tuck ins they are justified on synergies.

Matt White: They are justified on synergies, so they have a very low risk threshold. And I think that's something between that and D-caps. We are seeing more D-cap opportunities, but our investment criteria for them remains the same. So we'll see if opportunities present themselves with our tier one customers, but that's a consistent aspect of our cap allocation policy to invest back in the business according to our investment criteria, and M&A is absolutely part of that.

Speaker Change: They have a very low risk threshold.

Speaker Change: And I think that's something between that and D. Caps, we are seeing more decamp opportunities, but our investment criteria for them remains the same so we will see if opportunities present themselves with our tier one customers, but that's a consistent aspect of our cap allocation policy to invest back in the business with our investment criteria and M&A is absolutely part of that.

Speaker Change: <unk>.

Speaker Change: Great. Thank you very much.

John Roberts: We will now take your final question from John Roberts with Mizuho. Your line is open.

Kevin Mccarthy: Great. Thank you very much. We will now take your final question from John Roberts with Mizuho. Your line is open. Matt, I think you've talked before about return on invested capital plateauing here. Does it stay high, or not?

Speaker Change: We will now take your final question from John Roberts with Mizuho. Your line is open.

John Roberts: Thanks, Matt I think you've talked before about return on invested capital plateauing.

John Roberts: Here It does it stay high or maybe even drift a little higher as long as earnings are driven by productivity and the consumer based markets and then when the cyclical market start to recover in the energy transition investments come in it starts to come down or do you think it stay it plateaus high here, even when cyclicals do start to come back.

Speaker Change: And the energy transition investments coming.

John Roberts: Yeah, sure, John, I think your point is, look, when you look at both our margins and our return on capital, we are industry leading. In the case of return on capital, probably 2x or more to the next competitor.

Speaker Change: Yeah sure John I think to your point when you look at both our margins and our return on capital we have industry, leading in the case of return on capital probably to ask or more to the next to the next.

John Roberts: Competitor.

Matt White: So, the way we view that is we want to continue to grow and grow quality, which means maintaining or potentially improving some of the margins in ROC while growing and growing in high quality. Obviously, margins, as I mentioned, we have more room. We have room in each segment.

Speaker Change: So the way we view that is we want to continue to grow and grow quality, which means maintain or potentially improve some of the margins in <unk>.

Speaker Change: While growing and growing and high quality, obviously margins as I mentioned, we have more room, we have room in each segment, we view them.

Matt White: We view them eventually converging, and so that opportunity will continue to be taken advantage of. On the ROC, you're absolutely right, it's just a metric of a numerator with NOPAT and, For my earlier comments, you know, with Kevin, I mean, our cap allocation policy is very consistent.

Speaker Change: Eventually converging and so that that opportunity will continue to take advantage of on the RFC Youre absolutely right. Its just a metric of a numerator with no Pat and a denominator of the capital base.

Matt White: That won't change. And so I feel quite good about the denominator, which is the long range of that equation on the numerator. It's just going to be a function of our growth rate. Obviously, the higher we grow, you're going to see accelerations in that number. And if your growth is a little lower, then it may be a little more stagnant.

Speaker Change: For my earlier comments.

Kevin: With Kevin I mean, our capital allocation policy is very consistent that won't change and so I feel quite good about the denominator, which is the long range of that.

Speaker Change: Equation on the numerator, it's just going to be a function of our growth rate, obviously, the higher we grow youre going to see acceleration in that number.

Kevin: And if your growth is a little lower than it may be a little more stagnant. So we feel good to maintain these levels time will tell if we increase them. We did increase it here another 10 or 20 bps, just given our growth rate. So we'll see but I am happy at these levels.

Matt White: So we feel good about maintaining these levels. Time will tell if we increase them. You know, we did increase it here another 10 or 20 bits just given our growth rate. So we'll see. But I am happy at these levels.

Matt White: But to be clear, by no means does ROC drive our investment criteria. We look at cash IRR unlevered after. That's how we make decisions on incremental investments, whether it's M&A, whether it's projects. And that is more driven by a function of getting a premium on our WAC and risk adjusting accordingly. So this will not affect our growth in any capacity, but it is a backward looking accounting metric. And it's important for us because we view returns on capital as a key investor metric for our owners. And it's something that we're gonna continue to lead the industry in.

Speaker Change: But to be clear by no means does aro see drive our investment criteria, we look at cash IRR Unlevered. After tax that's how we make decisions on incremental investments, whether it's M&A, whether it's projects.

Speaker Change: And that is more driven a function is getting a premium to our rack and risk adjusting accordingly. So this will not affect our growth in any capacity, but it is a backward looking accounting metric and it's important for us because we view returns return on capital is a key investor metrics for our owners and it's something that we're going to continue to lead the industry on.

Speaker Change: Alright, thank you.

Juan Pelaez: I would now like to turn the call back over to Juan Pelaez for any additional closing remarks.

Speaker Change: I would now like to turn the call back over to Juan Pelaez for any additional closing remarks.

Juan Pelaez: Thanks, Adam. Thanks. Nice job.

Juan Pelaez: Thanks Nice job. Thank you everyone for participating in today's call. If you have any further questions feel free to reach out.

Operator: Thank you, everyone, for participating in today's call. If you have any further questions, feel free to reach out. Ladies and gentlemen, that concludes today's call. You may now disconnect. Thank you.

Speaker Change: Ladies and gentlemen that concludes today's call you may now disconnect. Thank you.

Speaker Change: [music].