Q2 2025 Linde PLC Earnings Call
Ladies and gentlemen, good day. And thank you for standing by. Welcome to the Lindy second quarter, 2025 earnings call in webcast.
At this time, all participants are in a listen-only mode.
Please be advised that today's conference is being recorded.
After the speaker's presentation, there will be a question-and-answer session.
And I would now like to hand the conference over to Mr. Juan Pallas head of investor relations. Please go ahead sir.
Hey, I appreciate it. Abbey
Good morning everyone and thank you for attending our 2025 second quarter earnings call and webcast. I am head of investor relations.
And I'm joined this morning by Sanji lamba chief executive officer, Matt white Chief Financial Officer.
Today, presentation materials are available on our website at the lindy.com in the investor section.
Please read the forward, looking, uh, statement disclosure on page 2 of the slides and note that it applies to all statements made during this Telecom conference.
The reconciliation is the adjusted numbers are in the appendix to this presentation.
Sanji will provide some opening remarks in the call. He will give you an update on Linde's second quarter financial performance and outlook, after which we will wrap up with Q&A. So now, let me turn the call over to Sanji.
Thanks Juan and good morning everyone.
I'd like to thank our Lindy employees for once again, delivering solid results.
EPS of 4.9.
And operating margin of 30.1%. Both represent all-time quarterly highs against the backdrop of a challenging macro environment.
Operating cash flows. Grew 15%
And Roc of 25.1%, continuous to comfortably lead the industry.
And these results are underpinned by a healthy balance sheet that ensures access to local cost capital.
Overall, Q2 was a successful quarter.
Which Matt will provide some of the details.
But before that, I'd like to review 1 of my top priorities.
Which is to ensure future growth for Linde.
Slide 3 highlights the sale of the gas project backlog, which is one key element of that future growth.
I cannot discuss the project backlog without first aligning on the definition of what is included.
Disciplined criteria.
Inclusion and lendy's project. Backlog requires incremental growth.
Secured by contractual fixed fees. With high-quality customers.
Contractor renewals plans without customer commitments, or Louis are not included in our backlog.
It's important to make this distinction, because backlogs are simply not comparable within the industry.
and while many like to tell the overall size of the backlog,
it's the Turner of turnover of the backlog, which is 1 of the most important metrics, which actually can be seen in the center graphic.
Represented by winds and startups.
In a little over.
4 years, the sale of gas backlog has approximately doubled.
From 3.6 billion to 7.1 billion.
The same is true for the number of projects moving from 33 projects to 70 projects.
During this time, we added 9.2 billion of new projects and more importantly started up 5.7 billion of these widths.
This represents more than 150% backlog, turnover in 4 and a half years.
so, while I'm pleased to see the sale of gas current backlog at record levels, and equally encouraged by The Accelerated turnover, from timely execution and strong contracts,
Of this $7.1 billion backlog, almost three-quarters are in the Americas, mainly in the U.S.
For future plans. Serving the electronic End Market and clean energy.
To the right, you will see some of the high quality customers that make up the majority of this backlog.
1 recent ad is the blue point project which is a JV between CF Industries jera and mitsui. That'll produce low carbon ammonia in lusia.
We're proud to have been selected as their industrial gas partner, due to the capability and track record of our us Gulf Coast team.
The addition of this facility will help further build out supply density in a fast-growing region in the U.S.
furthermore, this wind represents a third, large clean energy contract signing
Bringing the total to approximately 5 billion.
Which validates that the right low carbon projects will continue to reach FID and execute contracts.
Also not included in the slide, is a sale of plant backlog which today stands at 3.2 billion.
And typically converts 1 to 1 Sales over a 3-year cycle.
Now, it's important to know that while we've made nice strides with a backlog, it does not represent all investments for future growth.
We actually spend over 1 billion in capex, annually for what we call Base volume growth.
Decisions for making these Investments. Follow the same process as the backlog and require a consistent risk versus return criteria.
It's just missing 1 or 2.
Key requirements to be classified as backlog.
most base, growth capex, supports packaged and Merchants Supply boxes and as critical to further developing Network density,
Now, small on-site.
And important Supply Bridge from Merchants to on-site. Can also be included as base. Capex, when individual plant capex is less than 5 million.
A recent base growth edition includes a Southeastern U.S. merchant investment in support of space launches, a sector that continues to offer attractive growth opportunities.
While these winds are contractual commitment by customers, the lack of guaranteed fixed fees precludes eligibility in the backlog.
Finally, I'd be remiss, not to mention the role of small tuck in Acquisitions, can play the quality growth.
While I don't expect this number to be an overly large driver. It can't consistently deliver. An annual percent of 2, bottom line, improvement from both a quiet profits and self-help synergies.
For the second quarter, you can see the 1% Top Line increase from us and APAC bolt on Acquisitions. Mostly in package gases.
Overall, despite the unfavorable economic backdrop, we are forging an independent path to growth. This comes not only from a high quality discipline project backlog but also incremental base Graphics Investments and roller pack positions.
Highly confident in the lender team's ability to not only win more than our fair share of high-quality opportunities, but also to execute them as promised to deliver value for both customers and shareholders.
Simply state it, I continue to be bullish on industrial gases as a critical foundation in making our world more productive. And I'm certain Lindy will remain the Undisputed leader in this effort.
I'll now turn the call over to Matt to walk through our financial results.
Thanks s.
Slide 4 provides a summary of second quarter results.
Sales of $8.5 billion increased 3% over the prior year and 5% sequentially.
Year-over-year, FX, headwinds abated. As we saw a 3%, sequential improvement from broad-based weakening of the US dollar.
Cost. Pastor Trends were driven by energy fluctuations but have no impact on profit.
And as Sanji mentioned, Acquisitions lifted sales, 1% over prior Year from synergistic deals in the US and APAC.
Excluding these items, underlying sales grew 1% over prior year and 3% sequentially.
Broad-based price increases continue to track with globally weighted inflation, except for helium and China.
Volumes are down 1% from last year as weaker base volumes primarily in a Mayhem more than offset contribution from the project backlog.
As mentioned in Prior calls, much of this decline stems from existing contractual customers using less gas in their operations. So any recovery would be immediately, beneficial
And while volumes did increase 2% sequentially from seasonal effects.
The core Trend remained somewhat stagnant.
Operating profit at 2.6 billion dollars increased 6% over prior year.
the operating margin of 30.1% increased 80 basis points or 100 basis points when excluding the effect of cost pass through
APS of 4 dollars, 9 cents, also increased 6% from prior year. As a lower share count was mostly offset by a higher effective tax rate.
Despite the bass volume, headwinds business quality continues to improve from self-help actions.
Further support of this quality can be seen in operating cash flow. Growth of 15% as well as a healthy Roc exceeding 25%.
More details and Capital Management can be found on slide 5.
The operating cash flow Trend shows sequential stability in the first half of this year consistent with our commentary from last quarter.
Recall that the first half of the year is seasonally weaker due to timing of certain cash impacts like taxes, interest and incentive compensation.
I expect a step up for the back half like what we experienced last year?
Base capex is stable which has enabled healthy levels of cash flow available for shareholder returns m&a and project Investments.
The pie chart represents a steady and disciplined Capital allocation policy which deployed almost 6 and a half billion dollars year to date.
Now this 2.8 billion dollars comprises Investments that met our risk reward criteria. An increase of 20% over last year.
Equally important is our ability to consistently assess lowcost capital.
This quarter, we issued bonds of a half a billion, Swiss Francs with an average yield less than 1%.
Ability to raise cost-effective, Capital will continue to be a key component of shareholder value creation.
the specially, as we see greater discrepancy across interest rate policies,
I'll wrap up with guidance on slide 6.
for the third quarter, we're providing a guidance range of $4.10 to $4.20
Here.
This includes an assumed 1% currency Tailwind, which would be the first quarterly FX benefit since late 2023.
while the ethics assumption improved from our prior guidance level, we mostly offset that with a more negative Assumption of the economy, as the top end now, assumes economic contraction
During the second quarter, we were able to capture the full FX upside on top of meeting the original expectation.
However, the currency volatility and general economic uncertainty. Don't give us enough confidence to raise the Outlook at this time.
rest assured, we'll strive to outperform this projection but time will tell if we're being too conservative or not,
For the full year, we simply approached it the same way as the third quarter updated, the improved FX but offset with an assumption of a Contracting economy at the top end of the range.
This resulted in a new range of 16.30 to $6.50 or 5% to 6% growth, including a 1% currency Tailwind.
The last time we saw a full year currency Tailwind was 2021. So I believe it's appropriate to remain guarded.
In summary, the EPS algorithm remains intact.
Many employees continue to manage what's within their control to deliver value.
But we know there's always room to improve.
The current negative volume. Headwinds are a function of contractual customers, taking less gas due to the economic uncertainty.
Between internal initiatives and Industrial recovery.
I expect this level to improve, like, it always has
and when that happens,
Coupled with the self-help growth initiatives. That Sanji laid out.
I'm confident Lindy will return to the double-digit EPS growth that our owners have become accustomed to
I'll turn the call over to Q&A.
Thank you.
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And our first question comes from the line of Duffy Fisher with Goldman Sachs, your line is open.
Yeah, good morning guys, and congrats on a really good quarter. Um, we're here in a lot of different things from the companies in this space, over the last week, about just where businesses globally, whether it's the proofs and stuff like that. So could you take some time and just go geographically in by in markets, kind of what you're seeing and what you expect to see in the back half of the year?
Thanks, Debbie, that's a good place to start. So why don't I do? Just start walk you around the world and share some insights. I'll start off here in the Americas um and I'm expecting volumes to be flat. Maybe very slightly up LED essentially by growth in the Brazilian Den Market, but being partly offset by Soft industrial sector.
I have to say, I remain positive on the US market in Q2 we saw volume move in line with slightly positive IP numbers that were published earlier this week.
Here in your volumes were up for medals and Mining chemicals, energy food, and beverage Electronics. While manufacturing showed a slight decline. Now, sitting in manufacturing is our commercial space Market, which continues to be a very attractive growth opportunity.
And lendi of course is well positioned in that space, the opportunity to supply fuels for rocket launchers propulsion systems for placing satellites into orbits. It's fueling double digit growth for Linde in that particular Market or in Market.
And not only do we Supply the leading and probably the most well-known company for space launches. But also, working with many others who are looking to scale up and we expect to see that growth continue.
Opportunities in Europe that I'll start to look attractive as well.
so that's really America's for you with a lot of, uh, confidence in in, in the US market, if you will
From that excitement of space. I have to bring you down to some ground realities when I talk about Europe. So you're a is expected to continue uh soften in C softening and demand let primarily by Western Europe.
Any growth in the resilient and markets will be more than offset by decline. In the industrial sector across Metals, manufacturing chemicals energy all with volumes of laws in last year.
so, in the short term, Europe has several challenges to get their economy, back on their feet,
And I currently don't see any Catalyst for economic Improvement this year.
Volumes. Therefore, likely to be any negative in the second half.
I think it's going to be driven almost entirely by the industrial sector.
Our team in Europe.
Is doing all they can to manage through this economic environment, working on levers, that they know and and are in control of such as price productivity, cost actions. And of course, you can see that reflected in the double digit ebit growth that they were able to provide in the quarter.
But looking ahead into the rest of the year. I'm not I'm not feeling any level of confidence that you're going to see Improvement. If anything you're going to see a likely decline continued their
If I move on to Asia, I'll start with China, maybe and and just tell you, China remains a mixed bag. You've heard me say this in previous calls. I expect China to remain flat for the year and that continues to be our expectation.
There is, you know, EVs and batteries, and electronics and markets that will continue to grow.
But that'll be more than offset by much weaker, metals and chemicals for the remainder of the year.
Industrial activity in Australia is seeing declines, which are similar to Europe. Almost across all industrial sectors. Really a reflection of the level of industrial activity in the country.
Again, the Lindy team is busy executing the self-help actions, which will show results at the back end of the year and beyond.
Now the bright spot in APAC, remains India with Merchant volumes growing in their teens and a healthy opportunity pipeline for new Investments.
This is unfortunately offset by the clients in the asean countries.
South Korea, the other main Market in uh, in in APAC, mainly driven by electronics and Market is also expected to see some growth. So all in, I'd say when you wrap it all up for APAC, probably going to be just balanced or flat volumes for the year.
That essentially is how we are seeing the market. I think the summary is resilient, and markets continued to have low to mid-single-digit growth, but more than offset by the industrial sector largely across the board, with particular negativity coming out of a major.
and our next,
from the line of David big lighter with Deutsche Bank, your line is open,
Thank you. Good morning.
Sanji, if your price, mix has been very stable over a number of years, do you?
See any risk to not getting?
Price increases given the, uh, the weak macro. We now in, we're now in. Thank you.
So David, I've often quoted that over the last 25 years. Um, praa Lindy is always achieved, positive pricing being, you know, being through economic Cycles, which are up or down. And I think I, I'd say to you, that remains the expectation going forward as well. A great proxy for our pricing is globally. Weighted CPI, you should see us track to that as we do at the moment. And I guess when I look at pricing today and you can see the numbers as we provided in the deck, you'll see that pricing across all countries is actually pursuing that. And in line with that globally weighted CPI, there is an exception China, which sits in a pack, which is got some challenges, particularly around helium pricing, but we are seeing High single digit kind of price.
Declines and some rare gases as well and and a little bit more pressure on China pricing generally, but beyond that every other country is tracking in line with our expectations. So I do not see any reason why we would not see positive pricing going forward. I've said this many times in the past David that's
the, the way we create value for the customer,
And the fact that we are a small sliver of their cost stack, I think that balance always works in our favor when we have a conversation on pricing.
Thank you.
And our next question comes from.
Stanley, your line is open.
You. Um I wanted to ask on on margins particularly in in in the Americas where where margins are flat year-over-year but you did have positive price and volume um but in in some of the other segments you had margin expansion year-over-year with maybe not as robust uh volume and price. So is that is that a function of the business mix uh in the quarter in the Americas? Or is there something else going on?
I I love mad respond to that and then I'll add a couple of comments at the end. I'll start with, you know, at any time you look at quarters. Um, you can always have some noise. And some bumpiness, I mean, we've always tend to see that 1 in the quarters for me. The most important thing is how you're tracking full year and year to date. Um, that being said, yeah, you're going to have some mix in there. Um, primarily with some of the Home Care, I'd say. Um, you know, that might be a little bit of an impact, but we feel quite good at almost 32% margins. We're tracking, we clearly see more room to improve. We expect to improve that further. So I wouldn't look very far into a single quarter at this point. And I don't think there's anything really of concern on a go forward in my basis, but I'll end up 70. So thanks, but I think you've actually covered it, all. All I'd say is the expectation of margin expansion is something that we have laid out. You know, that 30 to 50 basis points of margin expansion is how we you should be thinking about the margins across all the segments.
And our next question comes from the line of Laurent favro with BMP. Your line is open.
Yes, good morning guys. I was wondering if you could talk about the appetite on your projects from customers, given the macro backdrop that you are indicating is the any risk of a this slowdown or slippage on intake so that your backlog May finish the year below 7 billion. Thank you.
So Laura I said this in the last call as I recall my expectation remains that we will end the year with a backlog with a 7 handle on it. Now this despite the fact that we will start up another billion of the Investments that are currently setting our backlog in the second half of this year and most of that will start ramping up towards the back end. So, you know, our our our, our view, my view remains and our, our business is currently, you know, supporting and and giving me confidence that there is enough opportunity Pipeline on projects that we're currently working on that. We will be able to bring home a billion uh to get that backlog to to 7 7 billion. Plus
Thank you.
And our next question comes from the line of Jeff bosquez with JP Morgan. Your line is open.
Uh, thanks very much.
Um, both both you and are products had very strong. Uh, ebit growth in Europe. I think for both of you, it was double digits which was a step up. Um, did did something happen in Europe to the industry uh, in general. Was it a function of currency? Was it function of other factors?
and secondly, um,
uh, your your competitors in Allentown also said that the
The helium penalty to them was 55 or 60%—60 cents a share—as they estimated for 2025.
Um, when you heard that number, did you say oh, that that makes sense. You know that that that's a comparable sort of comparable to what we're experiencing or or or do you have a different experience?
If you are quantifying it.
Jeff. I'll let uh, I'll let Matt talked about the the uh, ebit growth and then I'll I'll give you a comment on helium. Yeah Jeff. So I mean just using our um table in the back with a Mia, clearly FX is part of that, right? You got a 4% component of our 11%
Growth obviously, the Euro has strengthened, the Sterling is strengthened, so that's definitely helping. Um, but on top of that, you know, we continue to have pricing um opportunities we can continue to have productivity opportunities.
Um, we're just kind of expecting a continuation of the same.
And on on helium Jeff. Um, you know I'd say to you
As you're aware, of course, that our exposure on helium is very different and much smaller than, you know, our friends, uh, you referred to earlier. So, what I say to you the trends, I see in helium year to date are helium. Volumes are flat.
We have not seen a decline and yes pricing is down high single digits. Um, and that's really just a function of the oversupply in the market particularly around Asia and maybe a little bit of cooling off in demand on the electronic side of things. So you know, our expectation remains that helium Supply will be long. You would have seen uh, our recent announcement that. We are putting a 3 billion cubic feet helium Cavern in, and that really is around. Making sure that we are optimizing. The sourcing end of things. Giving ourselves more flexibility with the cavern to ensure that we have a plan in place that addresses the sourcing, uh, you know, cost issues associated with that and creates productivity out of out of that benefit, you know, a productivity benefit out of that. Um, sourcing. So, you know, I think Stan, I think we, we don't really see, uh, a concern. And again, as I've said before, not, you know, it is a, it is a, it isn't a significant exposure for us.
Thank you so much.
And our next question comes from the line of Matthew Deo with Bank of America. Your line is open.
Thank you. So, I just wanted to dig in on Europe a bit. So, I guess, first if we decelerate again next year, would you still feel, uh, the volumes hit your on-site, or our customers kind of largely at the low end of their commitments, and then just longer term, right?
We have this uh de-industrialization of Europe. We're probably in the early Innings of just chemical plant closures. I would suspect other industrial plant closures.
And I know you've got contracts here, right? But there's Merchant, there's package. So let's can we just hash out what this looks like across the top line for you, as you look out, you know, 2 years, 3 years is Europe, just going to be a minus 2. Minus 5% for you or, you know, how do you how do you manage what might be loss of loss of density, uh, on closures?
But, um, good question on Europe. And clearly, as you can see, we remain bearish on Europe and it's reflected in our guidance as well. Um, but that is a view for the short term. I'd say to you, we are both cautious and conservative around our expectations from Europe. I said before, in my...
and my commentary is that I do not see a catalyst for that fundamentally changing in the near term now.
For the quarter as you saw, the impact did come through. So the general macro environment that affects the merchant and packet side of the business from various end markets, but in particular manufacturing and a little bit of chemicals and metals, you know, led to that. That uh, negative volume decline that we showed, uh, exacerbated of course, by the onsite volume decline that you just mentioned. So you know, that that's what kind of came through as, you know, well, on the on-site, the contracts do protect us. Well, and, and really, the question I asked every month is for customers who are below in top on, on those contracts for on-site, are they paying up? And that is a, you know, a critical assessment that we make, and you know what every customer is paying up. So those signals look good.
but the longer term is the question that you're also referring to, and
I have been bearish on the long term but I'm going to give you a couple of
Perspectives, which are, which are, you know, kind of suggesting that you would see some some potential change happen.
I'm going to start off by a conversation on Germany.
As you're aware, uh, Matt, Germany has made, uh, this, uh, extraordinary commitment to investing a trillion Euros over the next 10 years, in defense and build out of infrastructure.
Of these challenges reflect in, you know, the chemical, uh, industry in particular, but the longer term view, uh, which I think is expected to start showing some initial, uh, signal sensor initial signals over the next couple of years. Both from, you know, an increased level of infrastructure, spend, and defense, spend I think will will be an important part in how we look at the long-term view on Europe.
There's 1 other thing, which I, I want to just cover off briefly, which is on Eastern Europe, and this relates to conversations around Ukraine rebuild. Now, I recognize we need to take that with a pinch of salt, just given everything that we're reading in, in, in the, in the newspapers, at the moment, but the reality is at some stage.
There will be a resolution of source and that will result in potentially moving the Ukraine rebuild forward, large numbers being thrown around. I take them with again, a fairly large pinch of salt, but we have operated in Ukraine. Over the last 3 years, we continued to supply steel mills medical facilities Etc with with product even today and we are pretty strongly positioned for any recovery that happens in Ukraine, not just for the Ukrainian business, which might all standard this is on the smaller end. Um, but by the, by the infrastructure and footprint, we hold in Eastern Europe, broadly, which is a very strong footprint, supporting whatever happens in Ukraine. So those 2
Um, those 2 developments I would say Matt are going to dictate how the longer term development in Europe is going to look like. Um, and and again, we'll have to wait and watch how that plays out. I obviously can can say with higher degree of confidence that Germany will go through that recovery in in the foreseeable future. Ukraine will have to just see when that happens.
Thank you.
And our next question comes from the line of Mike Susan with Wells. Fargo, your line is open.
Hey, good morning, nice quarter. Um
Just wanted to uh, dig into a little space, a little bit, um, the the the recent agreements and Merchants contract as I recall. So, when do you think the, the, when do you think the these will convert into an on-site? Um, and and maybe maybe frame up the the growth potential since since we're sort of in in an early phase of of the development for that industry?
So my great question. So, you know, I I said in my commentary earlier on describing my walk around the world that I do, see spaces are very attractive opportunity for growth. And the fact that Lindy has been so well, positioned, particularly in the US with a history of more than 5 Decades of supporting, um, you know, space development and and more recently, significant rocket launches art to new Investments.
Are going to, you know, significantly spell that growth momentum. Now, having said that, let me give you a couple of uh, data points just to help you kind of frame the, the growth potential that you were asking about. So over the last 3 years or so we've seen our supplies into space and our revenue generated from that commercial space segment, almost quadruple.
Um, we today's Supply, I would say more than 4 out of 5 launches that happened in the US. Um, and the Investments, we are making in the infrastructure through the air separation plans. The distribution equipment because much of this liquid is carried in and out using using tankers hydrogen production. Um, related infrastructure, you know all of those you know, by the end of the next couple of couple 3 years we would have invested just under a billion in in building this ecos infrastructure to support the space ecosystem. Going forward. I also mentioned that I see, not just 1 probably the most prominent launch company, I may not name them, but I know you and I know, you'll know who they are, uh, who have a, a, you know, prolific number of launches, but actually, we're seeing that spread and many other, um, companies in that space now scaling up and looking at Future programs as well. So again, I see that opportunity pipeline for growth being very, very
Attractive.
Great. We have strong customer commitments, Mike. So just to make the point on on-site versus Merchant, the critical factor here is that you have a strong customer commitment, and we have strong long-term customer commitments. It's just a commercial structure that doesn't allow us to classify that. And as you know, we have a very disciplined and rigorous definition of backlog that I spoke to earlier. So we just don't put them in the backlog for that reason, but the customer commitments are there, and they are over a long term.
Got it. Thank you.
Our next question comes from the line of John McNulty with BMO Capital markets. Your line is open.
Yeah, good morning. Thanks for taking my question and uh nice results in a in a tough environment. Um, just wanted to dig a little bit more into the sale of gas project backlog. And in particular, um, just get some color as to whether you see the return profile of those projects having improved over the last few years as that backlog has built up. It it seems like, you know, with 1 of your competitors, maybe focused in other areas. Um, the opportunity set might be, you know, might be higher for for you to just given, there's maybe less competition for that. But I guess, is that a fair way to think about it? Or maybe you can add some color to it?
Sure, the sale of guys backlog and every individual project that sits in there, you know, all 70 of them John have gone through the rigorous process of being assessed at our investment committees against that investment criteria that we set out. And and not only do we do, we go through that process with some rigor, and if they've met the investment criteria, they obviously get approved and go into the backlog. So they the return profile hasn't moved significantly because the risk return, you know, equation has to has to play out based on the investment criteria that we have. So I feel pretty good about the return profile that we have. But an equally important portion of that return profile is how well do you execute the point I made earlier on, in my prepared remarks,
Dogs around the turnover of the backlog is absolutely critical for an industrial gas company. It is very important to be able to execute them in a timely manner to have a strong contractual position to ensure that you're monetizing that project and creating the returns that were promised. You know, when they were when they were presented the investment committee and I feel really good about the capabilities that we have within Lindy, both on the engineering side, you know, our team does a phenomenal job over there and on the gas side where we do some great Contracting and work closely with customers. That's really what's reflected in that return profile, which you then see, as we start, these projects up, come back and reflect in the EPS growth that we that we commit out of these uh these decisions that we make. So I feel good about that. I'll give you 1 of the data points since you asked about, you know, how how that that competitive kind of environment. Look uh Juan actually did a really nice study a couple of years ago, which looked back and said. If you think about the comp
Competitive.
Dynamics. When you're bidding out these projects,
About half the time. The decision is a make or buy decision as you know, our customers are sophisticated, they will make a make or buy decision. And of course if there are projects where, you know, we have an interest, we are usually able to get that converted into a sale of gas project because we can show the benefits. And, you know, the benefits of the reliability safe delivery of product coming with the benefit of network density. I think that's a very compelling.
Case of the customers but about half those projects are made go back.
About a third of the projects are where you see 1 of the competitor in in the frame.
Uh, and and the rest, you know, you see multiple competitors. We tend to be very selective about projects in in what's left over. So, you know, from our perspective that hasn't changed that analysis is still relevant and I think we, you know, obviously have to be, um, have to have a compelling proposition for our customers, uh, when when they look at it for them to move over.
Got it. Thanks very much for the call.
And our next question comes from the line of Patrick Cunningham with Citigroup, your line is open.
Hi, good morning. Thanks for taking my question. Now, I'm curious on the electronics Outlook from here. You know it seems you're on year and sequential growth is down slightly how much of this is you know, helium pricing or maybe there was some modest pull forward in positioning in 1 q and how would you characterize the shape of volume and and new projects starts for the balance of the year?
Thanks Patrick. So, um, let me just start off by by making sure that this is understood. Well, the industrial gases sales to the electronics End Market grew both year on year and sequentially.
The drop that you see in the End Market slide that we have in the tech is all driven by our Advanced Materials business that sits in the global other segments, which provides electronics targets to some of these electronic customers. The instance over here was the stocking happening with one of the larger customers, and that's going to correct itself in the second half. So really, no concerns there.
Just to clarify what the Advanced Materials group is doing over here. So, essentially, we the Advanced Materials group, uh,
Targets which are used in the chip, making process to deposit, a thin thin film of materials onto the semiconductor wafer. So the process called sputtering. What what happens is, we provide high energy, particles bombarding. The target that's been set up and what it does is it checks these atoms to then provide a coating, a very thin level of coating on the wafer forming layers for components like transistors interconnects, Etc. All of this is about putting very precise material deposition on the integrated circuitry
And that's what sits in that Advanced Materials business which is the reason why you see that slightly negative. Now, as far as Electronics Outlook is concerned of my expectation remains that we have a very healthy, not expectation, the fact remains that, we have a healthy pipeline of projects that are going to come up uh, in in the in the next 12 months or so. And we will obviously be participating and and as you would expect, from Lindy, be winning more than a fair share of those projects, the outlook for both new projects, as well as startups remains on track with the backlog that we've just shown you.
Thank you.
Um, thank you. Uh, The Economist magazine this week has a story about what's called "green crushing." So, um, your backlog, you said, is going to grow. The point of the story was that...
Companies are still going forward with their energy transition investments. They just don't talk about it as much. It's not making the headlines. So,
Two or three years from now, do you think energy transition will still be as big a percentage of your backlog based on what you're currently discussing with customers? Are they actually pulling away? Because we don't hear a lot of companies talking about their energy transition programs anymore.
John I, you know, we recognize that customers will continue to need to decarbonize their operations. I expect the demand for low carbon products to continue to grow over time. It's just a hype and the Euphoria has gone away and reality is sunk in. And that reality is a more stable economically. Viable set of projects, which will go to FID and get contracted. Those are the kinds of projects and look.
You know, I the the risk of saying I told you, so we've said this for the last, I don't know, 3 years. None of this should come as a surprise to you or anyone else who's been on these earnings calls. Because we've said, look, you know, it's unrealistic to expect this green. Hydrogen to get up to a point where it's at scale, its cost competitive and it actually adds and creates value. We've always said that that's probably a 5 to 7 year window for the technology to mature and then you'll see the commercials play out. So I'm not surprised by this article. Um, the reality is, you know, low carbon Alternatives, which is low carb.
Carbon hydrogen, otherwise known as blue hydrogen or low carbon ammonia or you know products in of that ilk will still have a demand in the marketplace and we see solid projects with good economic cases, supported further by incentives, such as a 45, Q remain around, and we are developing a number of those even today. Uh, while we execute, you know, a number of those around the world as well. So my view is, I think you know this trend is is not going to stop. There is, you know, an increasingly an economic case for it. Um, so good projects, which create that economic value will still see. Um, you know, see progress and move to FID and get contract.
Thank you.
Line of Josh Spectre with UBS, your line is open.
Yes. Hi, good morning. Um, I wanted to ask, just coming back to the guidance, um, assumptions around things. You know, Lindsay's approach has been, we're seeing the market like X and we're forecasting X. It seems like, in this case, we're seeing the volumes down 1%, and now your forecast is maybe at the midpoint down 2%, something like that.
So I'd just be curious. I obviously it's a weak market. No one's expecting anything. Incredibly exciting here. But are you seeing anything either in June or July trends that would say to you that there is weakening, and that's more of a correct way to think about it? Or is this just out of conservatism for everything we don't know about FX included? Thanks.
Hey Josh, it's Matt. So I think we'll start with, you know, the volumes.
Macro view. So, starting with the minus 2%, on the base volumes that occurred this quarter,
To your point, the current guide on the top end is assuming that 2% year-over-year continues out for the back half.
Now, while the year-on-year Assumption in the top half is being held consistent last year. The comps got a little easier so it does imply a little worsening on a sequential basis, we'll see if that happens. When I think about it in combination, you know, clearly FX rates improved meaning, the dollar weakened, uh, given the uncertainty given some of the flight to different currencies. So it is in a related and so I think from this perspective, you know, maybe you see currents, you know, maybe see the dollar strength in a bit things stabilize, maybe you see the opposite. But at this point I think about them in combination and we'll have to see how it plays out. But the top end pretty much has about a 2% base volume, um, negative assumption which is probably double the effect on EPS for the remainder of the year and we're going to do what we can to do better than that. But that's what we laid out. This is what we set down and we'll have to see how it
Plays out.
And our next question comes from the line of Kevin McCarthy, with vertical research Partners your line is open.
Thank you and good morning. Um Matt what impact if any does the passage of the 1? Big beautiful bill act?
have, uh, maybe internally for for Linda or appreciate any thoughts, you may have on
Any early feedback from your customer base, uh, as to potential stimulus in the Americas? And just wondering if it has any meaningful impact at all on your 25 guide or how you're thinking conceptually about the 26 outlook.
Sure.
so, I think when we start thinking about the bill,
And I'll stick mostly to to the taxes right now.
What it mainly did was make permanent a lot of the existing tax policy that we were operating under since the 2017 Act.
And that in and of itself, I think, is positive in that it gives more confidence. Looking ahead, when you think about U.S. tax policy, it had a lot of temporary items. Those temporary items can be difficult for long-term planning and long-term investments in the country because of the uncertainty regarding whether those temporary items will continue or not.
And with the passage of this bill, it made, many of these things permanent and I think that in and of itself is good. Now, when you look at kind of breaking it down for us, on an ETR basis, I'm not expecting much impact. Again, our current run rate had in it primarily the 2017 effect and this just extends and makes that permanent. So if anything, if this didn't pass, I would have expected a worse, ETR, but given it is not, I expect no change.
On the cash tax front, this will be net, beneficial, and the primary driver is the reinstatement of the bonus depreciation. You may recall that this was part of the 2017 act. However, it phased out and has essentially been gone for probably a little over a year. With both the reinstatement of that and the retroactive nature back to January this year, it will give cash tax benefits to companies that make large capital investments into the country, of which we will benefit. This is especially relevant given that the vast majority of our backlog right now has us exposed. What that also will do is make IRRs on projects better. We saw the same effect in 2017.
Um, how much the irr improves? It's a function of a couple different things, but I'd say on average, you probably see, you could see almost 100 basis, point Improvement.
So, anyone making long-term investments in the country now will get a Tailwind from the accelerated depreciation. So get more confidence from making permanent, a lot of the tax policy and I think all in all that'll be a positive development. Now, aside from income taxes, you know, clearly 45 Q is enhanced a bit. We view that as positive. That's something that as Sanji mentioned is the, I'd say, the primary, uh, incentive, that was being looked at for a lot of the blue projects, and by making that even more attractive, I think that will further help, um, any views to use that. So, for us, we view it as net. Net, net positive. Um, I would say for anyone constructing in the country would view it as positive for Capital intensity, and any type of low-carbon products especially with a hydrocarbon based would view it as positive. Um, so that's kind of how I would summarize it.
Thanks very much.
And our next question comes from the line of James Hooper with Bernstein. Your line is open.
All right. Thank you very much for taking my question. I wanted to go back to Europe in a little bit about the energy transition there. Clearly, your backlog is a very small percentage of the European.
Um, and and we've seen some of your competitors winning low. Carbon hydrogen projects we've seen. Since your last reported, we've seen the, the EU action plan and the, the start of a plan to make a plan, if you will. Um, do you see this being more of an opportunity for your for your backlog, uh, going forward and this made you any more positive on on energy, transition in the region.
Thanks.
James, I will say that there is a measured level of fragment in Europe today, around the energy transition and the goals. Remember however, you know, the people that we are speaking to and primarily in this instance, the German uh government, the new government that's come in and and giving them a sense of you know how we think about this regulatory framework that's in place. Um there there is of course all of Brussels to still contend with but there is a higher degree of pragmatism. There is clearly a move towards getting a bit more practical around some of these Target setting, Etc. Um, so yes, I do see that as potentially having a beneficial impact on energy transition projects, which would have an economic
Bases and which would support a cost-effective decarbonization program for Europe. But there is all in Europe, most things will take time and this will be no exception to that. So um, you know, while I appreciate the pragmatism, I'm seeing, I still expect that. It's going to take as long as it takes to for them to actually enact, whatever bills are needed to get to a point where you get cost competitive hydrogen in, in those countries to support the decarbonization effort.
Thanks.
And our final question comes from the line of Chris Parkinson with wolf research, your line is open.
All right, thank you so much for taking my question Sanji. You actually just hit on this a little bit, but you know, behind, you know, everything else that's going on in Europe on, you know, kind of the clean energy side. There's also been a lot of debate amongst the uh, eu27 States regarding just improving efficiencies. Um, you know, protecting the chemical industry obviously. A lot of your core customers have been actively involved in discussions. Could you potentially and there's been a lot of new. So even in the last, you know, 3 weeks or so, could you just give us a little insight on how integral you are to those conversations? How you know, Lindy could that Lindy platform could perhaps? You know, helped along in terms of basically, you know, setting some guard rails and then also in terms of just the, you know, potential for um greater infrastructure growth spend towards the end of the decade. I mean, is it wrong to think about Europe, slightly differently these days or is it still essentially the status quo
Over the longer term. Thank you.
So Chris I I kind of tried to describe this earlier, I, I'll say to you. Let me deal with the infrastructure project first, because that really is, is, is somewhat fundamental to any industrial recovery that's going to happen in Europe. And I think, when I talk about infrastructure, I'm including defense is, is part of that, um, Germany's commitment to a trillion Euros, I think is clearly, you know, and, uh, a, a very significant milestone for Germany as a country, with a balance sheet, and the ability to, to, you know, kind of finance, that kind of spend. So,
In many ways that spending is is certainly going to change our perspective and has changed our perspective on how we think about the recovery industrial recovery in in Europe longer term and that's a 10 year program. I I manage people's Expectations by telling them that look for any uh, procurement process to come in place to handle that kind of spend and for infrastructure projects. There's the need for permitting Etc, which across Europe generally and uh, and and Germany specifically all take time. So don't expect any any exciting uh, announcements in the next couple of years. Maybe,
The back end of next year, you'll start seeing some of those early projects announced but really most of that allocation you should expect in the following year beyond that. So it's going to take some time but the longer term view around the European economy. And Industrial activity is benefiting from these commitments that have been made obviously Germany's made that very significant and specific commitment. Other countries have now signed up to this 5% spend for NATO. Um you know some of that is infrastructure 1 and a half and 3 and a half is defense. All of that's going to drive some level of industrial activity.
so,
Questions, when I look at that and and you know, we have to see this play out and get enacted and then transacted before I will tell you with confidence, you know, in the next year I would I would see this kind of growth, but but for now I think the the directionally it's headed in the right direction and your earlier comment, you know, Linda's position in most of the serious conversations that happened in Europe. Particularly given us our our, you know, position in in Germany we are both consulted and part of many um, you know groups that are
Working to to ensure that the real um challenges that industry in Europe, broadly faces because most of them being customers of ours. You know, is is being adequately communicated to those who are making these decisions.
Thank you for the caller.
And that concludes our question and answer session. I would now like to turn the call back to Juan, Pallas for any additional or closing remarks.
Thank you, Abby. And thank you, everyone, for participating. In today's call, have a safe day.
And ladies and gentlemen, once again, this concludes today's call. We thank you for your participation. You may now disconnect.