How did Linde perform in 2023 on a GAAP versus adjusted basis?

GAAP diluted EPS was $12.59 and operating profit was $8.0 billion. Adjusted diluted EPS was $14.20 and adjusted operating profit was $9.1 billion, up 15%. The gap is mainly non-cash purchase accounting from the 2018 Linde AG merger (about $1.0 billion of operating profit impact in 2023) plus other charges, such as severance and delisting costs partly offset by a tax settlement.

What is driving Linde's margin improvement?

Adjusted operating margin rose 390 basis points to 27.6%, with price attainment and productivity initiatives across all segments as the main drivers. Management noted that cost pass-through contributed part of the improvement; excluding it, the underlying margin gain was 310 basis points.

What does the 2024 outlook imply for investors?

Management guided full-year 2024 adjusted EPS to $15.25 to $15.65, a 7% to 10% increase (8% to 11% excluding an estimated 1% currency headwind). Q1 2024 adjusted EPS is guided to $3.58 to $3.68, and capex is expected at $4.5 to $5.0 billion. Management said the geopolitical and macro environment remains uncertain.

Why did reported sales decline while underlying sales grew?

Reported sales fell 2% to $32.9 billion, while underlying sales (excluding currency and other effects) increased 5%. The difference reflects unfavorable currency movements and the decline in Linde Engineering and other non-core revenue, despite price gains of 6% and volumes down 1%.

Is the company generating enough cash to fund its shareholder returns and growth?

Yes, based on the reported figures. Operating cash flow of $9.3 billion covered $3.8 billion of capex and $6.4 billion of shareholder returns through dividends and buybacks, with the balance funded by cash on hand and debt. Net debt rose to about $14.7 billion at year-end 2023, so leverage increased modestly and investors should monitor it alongside the buyback pace.

LIN 8-K: Earnings & Results

01—Abstract

Summary

Summary of the 8-K filed February 6, 2024. Cited figures are marked; the original filing is the authoritative source.

Linde plc (LIN) reported fourth-quarter and full-year 2023 results on February 6, 2024.

Full-year reported sales were $32.9 billion^a, down 2% year over year, but underlying sales rose 5% on 6% price gains partly offset by 1% lower volumes; the reported decline reflects currency and the drag from prior-year items. Reported operating profit was $8.0 billion, while adjusted operating profit rose 15% to $9.1 billion, with the adjusted operating margin expanding 390 basis points to 27.6%. Adjusted diluted EPS grew 16% to $14.20 versus $12.29, and reported diluted EPS was $12.59.

Management highlighted a 25.4% adjusted after-tax return on capital, $9.3 billion^b of operating cash flow, $3.8 billion of capex, and $6.4 billion returned to shareholders via dividends and buybacks. Fourth-quarter results were similarly strong: sales of $8.3 billion rose 5%, adjusted operating profit grew 14% to $2.3 billion, and adjusted EPS of $3.59 rose 14%. Free cash flow in the quarter was $1.6 billion, and the company ended the year with a $8.5 billion project backlog that management believes will support future earnings growth.

Segment performance was broadly positive, with Americas and EMEA margins expanding meaningfully on pricing and cost pass-through, while Linde Engineering sales rose 17% but its margin was lower. Looking ahead, Linde guided 2024 adjusted EPS to $15.25 to $15.65^c (up 7% to 10%, or 8% to 11% excluding currency headwinds) and first-quarter adjusted EPS to $3.58 to $3.68.

Full-year 2024 capex is expected at $4.5 billion to $5.0 billion^d. Investors should note that the company's adjusted metrics exclude Linde AG merger purchase accounting effects (about $1.0 billion of operating profit impact in 2023) and other charges, so the GAAP figures are materially lower than the adjusted headline numbers.

02—Key points

Key Highlights

Adjusted diluted EPS rose 16% to $14.20 for FY2023 (reported diluted EPS $12.59), and Q4 adjusted EPS rose 14% to $3.59.
Adjusted operating margin expanded 390 basis points to 27.6% for FY2023, with 310 basis points coming from underlying improvement excluding cost pass-through effects.
Full-year underlying sales grew 5% driven by 6% price attainment, offsetting a 1% volume decline; reported sales fell 2% to $32.9 billion.
Operating cash flow reached $9.3 billion in 2023, and free cash flow for Q4 was $1.6 billion, with $6.4 billion returned to shareholders.
Adjusted after-tax return on capital was 25.4% for 2023, up from 22.9% in the prior-year period on a trailing basis.
2024 adjusted EPS guidance of $15.25 to $15.65 implies 7% to 10% growth (8% to 11% ex-currency), with Q1 guidance of $3.58 to $3.68.
Ending 2023 with an $8.5 billion total project backlog and $4.7 billion of cash, supporting expected future earnings growth; 2024 capex is guided to $4.5 to $5.0 billion.

03—Questions

Frequently Asked Questions

How did Linde perform in 2023 on a GAAP versus adjusted basis?
GAAP diluted EPS was $12.59 and operating profit was $8.0 billion. Adjusted diluted EPS was $14.20 and adjusted operating profit was $9.1 billion, up 15%. The gap is mainly non-cash purchase accounting from the 2018 Linde AG merger (about $1.0 billion of operating profit impact in 2023) plus other charges, such as severance and delisting costs partly offset by a tax settlement.
What is driving Linde's margin improvement?
Adjusted operating margin rose 390 basis points to 27.6%, with price attainment and productivity initiatives across all segments as the main drivers. Management noted that cost pass-through contributed part of the improvement; excluding it, the underlying margin gain was 310 basis points.
What does the 2024 outlook imply for investors?
Management guided full-year 2024 adjusted EPS to $15.25 to $15.65, a 7% to 10% increase (8% to 11% excluding an estimated 1% currency headwind). Q1 2024 adjusted EPS is guided to $3.58 to $3.68, and capex is expected at $4.5 to $5.0 billion. Management said the geopolitical and macro environment remains uncertain.
Why did reported sales decline while underlying sales grew?
Reported sales fell 2% to $32.9 billion, while underlying sales (excluding currency and other effects) increased 5%. The difference reflects unfavorable currency movements and the decline in Linde Engineering and other non-core revenue, despite price gains of 6% and volumes down 1%.
Is the company generating enough cash to fund its shareholder returns and growth?
Yes, based on the reported figures. Operating cash flow of $9.3 billion covered $3.8 billion of capex and $6.4 billion of shareholder returns through dividends and buybacks, with the balance funded by cash on hand and debt. Net debt rose to about $14.7 billion at year-end 2023, so leverage increased modestly and investors should monitor it alongside the buyback pace.

04—Continue

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