Prepared remarks
Ladies and gentlemen, good day, and thank you for standing by. Welcome to the Linde Second Quarter 2026 Earnings Call and Webcast. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to Mr. Juan Pelaez, Head of Investor Relations. Please go ahead, sir.
Abby, thank you. Good morning, everyone, and thanks for attending our 2026 second quarter earnings call and webcast. I am Juan Pelaez, Head of Investor Relations, and I am joined this morning by Sanjiv Lamba, Chief Executive Officer, and Matthew J. White, Chief Financial Officer. Today's presentation materials are available on our website at linde.com in the Investors section. Please read the forward-looking statement disclosure on Slide 2 of the slides and note that it applies to all statements made during this teleconference. The reconciliations of the adjusted numbers are in the appendix of this presentation. Sanjiv will provide some opening remarks, and then Matthew will give an update on Linde's second quarter financial performance and outlook, after which we will wrap up with Q&A. Let me turn the call over to Sanjiv.
Thanks, Juan, and good morning, everyone. During the second quarter, we achieved record sales and EPS levels, with both growing at near double-digit percent, while increasing the backlog by $1 billion to a record $8.1 billion after securing a new electronics win in the U.S. In addition, the project backlog pipeline remained healthy, with several new project opportunities under development. For the remainder of the year, we are expecting to start up more than 20 projects that add up to approximately $1.3 billion in investments. Even after accounting for these startups, and based on the opportunities I see today, I expect our sale-of-gas backlog to finish the year with an 8-handle, underscoring the continued strength of our long-term growth outlook. While these results demonstrate the strength of our core business and the future growth prospects, we are not satisfied with our margin performance for this quarter. Operating margins, excluding cost pass-through, declined approximately 30 basis points year over year, primarily driven by the Americas segment. Some of this is due to higher equipment and hardgoods sales in our package business, which I view as a good sign of U.S. manufacturing recovery. The majority is driven by the U.S. homecare business. Even though we have been actively pruning this portfolio, it simply has not been enough to overcome the continued headwinds led by higher cost inflation and policy changes. We have a series of actions underway, and I fully expect sequential improvement into the third quarter. At the same time, we continue to evaluate the strategic fit of this U.S. homecare business within Linde, both in part and as a whole, while remaining focused on improving its performance and ensuring it earns its place in the portfolio. Matthew will speak more to the numbers, but I remain confident in our long-term margin expansion story. Now I would like to touch on some growth trends which can be found on Slide 3. Consumer-related markets grew versus prior year and sequentially. Healthcare and food and beverage grew along with demographic trends and consumption, with stronger sequential growth related to beverage seasonality. As expected, electronics is the fastest growing end market, with a combination of project start-ups and higher demand tied to hardware associated with AI. As I mentioned earlier, we added $1 billion of new electronics wins to the backlog to support the expansion of advanced-node fabs in the Western U.S. Consistent with other backlog projects, we have already begun constructing the plants under reimbursable LOIs while the supply contracts are finalized. I am pleased to see this addition to our existing network of plants in Arizona, and I look forward to winning a few more large opportunities that we are currently pursuing. Not included in the backlog are a couple of electronics wins by our Taiwan joint venture, which will invest approximately $800 million to build, own, and operate ASUs and hydrogen production units to supply new semiconductor fab and advanced packaging facilities there. Overall, I expect electronics to remain our largest backlog contributor and one of the fastest growing markets for the foreseeable future. Moving to industrial-related markets, manufacturing remains the fastest growing market. We experienced volume growth across APAC and the Americas, although the U.S. is still the primary driver with both aerospace and construction activity related to data centers. In fact, aerospace accounted for more than a third of the manufacturing growth during the quarter. Both metals and mining and chemicals and energy markets grew low single digits. Metals and mining activity was solid in the U.S. and Brazil, and most of the chemicals growth relates to project backlog contributions in APAC. Aside from these regions, both end markets remain flattish across other geographies. In summary, we have lapped the more difficult comps and are starting to see green shoots of growth across certain geographies and end markets. Furthermore, the project backlog reached a new record from the large-scale electronics wins and we anticipate some further base CAPEX investments to support our commercial space customers. Regardless of the current challenges, you can be assured that the entire Linde team is focused on being the best performing industrial gas business globally. I will now turn the call over to Matthew to walk through our financial results.
Thanks, Sanjiv. Please turn to Slide 4 for the consolidated results. Sales of $9.3 billion rose 9 percent from prior year and 6 percent sequentially. Versus prior year, FX was a 2 percent tailwind while acquisitions and engineering each contributed 1 percent. Cost pass-through rose 1 percent on higher power in all segments but was partially offset by lower natural gas for U.S. hydrogen. Excluding these items, underlying sales rose 4 percent split between higher volume and price. Almost half of the volume increase relates to project start-ups in APAC and the Americas. The remainder is driven by organic growth in the U.S., China, Korea, India, and the advanced materials business. While aerospace and electronics continue to lead, industrial end markets are improving in select geographies, especially the U.S. Price increases of 2 percent were broad-based across all geographies and generally tracked with local inflation. Sequentially, underlying sales increased 4 percent from 3 percent volume and 1 percent pricing. More than half of the volume increase relates to seasonal factors with the remainder being organic. Operating margins of 29.5% decreased 60 basis points from prior year, or 30 basis points when excluding the impact of cost pass-through. As Sanjiv mentioned, the U.S. homecare business negatively impacted the Americas. Excluding this, margins would have increased, but regardless, actions are underway to improve. Separately, U.S. hardgoods sales are up double-digit percent from prior year. While this mix is dilutive to margins, it could bode well for U.S. manufacturing recovery. Finally, the APAC erosion is mostly due to lower-margin equipment sales for electronics customers. Overall, we expect many of these margin headwinds to be temporary and thus recover in the coming quarter. Operating profit rolled down to an EPS of $4.50 or 10 percent over prior year, from a combination of net income and lower share count. Slide 5 provides an overview of capital management. The operating cash flow trend shows moderate year-over-year growth, as higher earnings are partially offset by unfavorable timing in the engineering business. Recall that the first half results are seasonally lower so we expect the second half to step up like prior years. Available cash flow, which we define as operating cash flow less base CAPEX, remains at healthy levels, enabling significant excess cash for secured growth and shareholder distributions, which can be seen in the pie chart. Year to date, we have deployed $6 billion of capital, split evenly between business investments and shareholder returns. $1.9 billion of secured growth represents capital deployed for acquisitions and the project backlog. When considering the record $8.1 billion sale-of-gas backlog, continued roll-up acquisition targets and project pipeline opportunities, we expect this number to remain a significant use of capital for the foreseeable future. I will wrap up with guidance on Slide 6. Third quarter guidance range is $4.45 to $4.55, or 6 percent to 8 percent growth. This assumes no currency impact from prior year but does assume a 1 percent FX headwind sequentially. Consistent with our prior approach, the range assumes no economic improvement at the midpoint. The updated full year range is $17.70 to $17.90, or 8 percent to 9 percent growth excluding a 1 percent FX tailwind assumption. This range raises the prior bottom end by $0.10 but leaves the top unchanged. While base volumes showed some recovery in the second quarter, we would like a few more quarters under our belt before incorporating this trend into future guides. Therefore, we are leaving the back half guidance assumption the same as before. The Q2 to Q3 sequential EPS trend is projected to increase $0.05 at the midpoint when excluding FX, which reflects some of the actions being undertaken. Of course, this is merely a guide. How we perform is what matters most. We know our owners expect more, and the organization is committed to delivering on those expectations. I will now turn the call over to Q&A. To ask a question, please press *1 on your telephone keypad to raise your hand and join the queue.
Questions and answers
If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to one question. Again, our first question comes from the line of Laurent Favre with BNP Paribas. Your line is open.
Yes. Good morning. Thank you. Sanjiv, I think you said it is all within the first five minutes. Can I dig a little deeper into that healthcare comment? Can you give us a sense of how much of a headwind it has been over the last year? Is the business in the U.S. currently profitable at all? Or how much of a margin drag has it been on the business? Please?
Thanks, Laurent. The slides themselves lay out the fact that the Americas business, excluding the U.S. homecare or Lincare business, would be up 20 basis points on margin excluding pass-through as we normally do. That is a reflection of the gases business doing well. I view the hardgoods, double-digit hardgoods sales we are seeing in the business as a good signal of manufacturing recovery in the U.S. Yes, it has a small dilutive impact on margin, and it is temporary. We also saw sale of equipment elsewhere, particularly in APAC, which had an impact as well. From our perspective, we are not happy with where the margins are. Actions are aggressively underway to address the issues we have identified in the Lincare business, and I expect to see sequential improvement as we move forward.
Thank you. And just as a follow-up on the electronic side, I think the contract that you announced has been in the pipeline for a while. In terms of geography, or maybe some of the key customers, where do you see the biggest opportunities on the electronic side? Is it still in the U.S. or elsewhere in Asia, maybe in Korea and Taiwan, etc.?
Absolutely. The electronics pipeline is looking healthy at this point. I expect that we will end this year on the backlog with an 8-handle despite bringing on investments of up to $1.3 billion. So the backlog will be reduced by about $1.3 billion for those investments and replenished by new wins. Those projects span the world. I see the bulk of those projects in the U.S., but there is a strong pipeline in Taiwan and Korea as well, and some in China.
And our next question comes from the line of Patrick Cunningham with Citi.
Thanks for taking my question. Just talking about some of the manufacturing growth assumptions, particularly in North America, it does not seem like you have some of the base volume assumption trend baked into the outlook. Is the bulk of that inflection that you have seen coming from commercial space? I was hoping you could dig into the health of some of the other end markets and what you are anticipating for the second half.
Sure. Let me give you a sense of our outlook for the second half. Our resilient markets, healthcare and food and beverage, have been consistent and we continue to expect the same outlook for the rest of the year. Electronics grew 18 percent year on year in the second quarter; we expect that momentum to continue for the remainder of the year, and adding to the backlog helps lock in future growth prospects. In APAC in particular, sale of equipment to electronics customers is important: from a margin point of view it's less attractive, but it pulls through future gas sales. Regarding industrial markets, manufacturing looks robust, with the U.S. showing the strongest recovery. Indicators we watch include sales in the U.S. package business, which is a good leading indicator. The gases side has been growing mid- to high-single-digit, with hardgoods growing double digits. Asia Pacific saw manufacturing momentum pick up as well, despite some Middle East-related challenges. Aerospace contributed more than a third of manufacturing growth, and I expect that momentum to carry into the second half. Chemicals and energy have been a bit spottier, with low single-digit growth, helped by backlog contributions in Asia, but I don't see a fundamental shift there. Metals and mining were robust in the U.S. and Brazil; the trend should be steady. Overall, that broadly gives you a sense of where we are seeing momentum and the outlook for the second half as of now.
Great. Thank you so much.
Our next question comes from the line of Duffy Fischer with Goldman Sachs. Your line is open.
Yes. Good morning. Question around the impact you have seen on your business and on your customers from what is happening in the Strait of Hormuz and the greater Persian Gulf area. Obviously particularly with helium, but then just with the general business. If that issue resolves itself this year, what do you think the impact will be a year out as that starts to normalize?
Starting with helium: I am pleased with how the team has navigated the developments over the last many months. We have ensured reliable and safe supply to our existing contracted customers, and we have had positive feedback because that is what customers expect from Linde. Our teams have also signed up new customers with long-term contracts, leveraging our diversified supply chain, the CASM we maintain, and our logistics capabilities such as tanks and shipping. Pricing has moved higher, which is positive, but dislocation costs mean the overall recovery has not yet fully shown through in margins. I fully expect improvement over the next couple of quarters. Looking ahead, we remain confident in our ability to maintain the supply chain despite recent developments in the Strait of Hormuz. Restarting helium production in Qatar and aligning all supply-chain elements, such as tanks and shipping, will have a lasting impact for the rest of the year. I do not expect full normalization this year; normalization will likely progress more slowly and could take us into the early part of next year. Regarding other markets, Asia countries dependent on Middle East hydrocarbons have scaled back industrial activity; markets like India, parts of ASEAN and Australia, and to a lesser extent China, have seen impact. Once there is a resolution, you should see fairly quick normalization, although each country is managing the situation differently.
Our next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is open.
Hi. Two-part question. First on helium, did you change anything in your guidance assumptions relative to what you had assumed at the start of the year? Second, in the Americas the year-on-year price step-down was flat sequentially; was that the hardgoods mix issue, or is underlying sequential price leveling off?
Hey, Vincent. On helium, we left the guidance intact, which implies no material change to our assumptions for helium. We are seeing strong price improvement in helium, but also higher dislocation costs. The dollar contribution is positive but the grossing-up effect is a bit dilutive to margins for now. Stabilization should occur over time, and signing new contracts with customers at positive dollar contribution is a priority. On the Americas pricing, price is up 2 percent year over year and flat sequentially. I focus more on year-over-year metrics given timing of escalation and pricing actions. Lincare does not have significant pricing currently and is a drag. Pricing in the Americas year over year is tracking where we expect it to be.
All good. Thank you.
Our next question comes from the line of David Begleiter with Deutsche Bank. Your line is open.
Thank you. Good morning. Sanjiv, I know it's early, but looking at next year, 2027, given project start-ups, helium maybe being a tailwind, growth in space, pricing, and productivity, do you need much of any macro improvement to get to double-digit, 10 percent EPS growth next year?
Thanks, David. Our EPS algorithm targets an 8 to 12 percent range between management actions and capital allocation combined. We are not looking for macro improvement as long as macro does not detract from that. You should expect us to look at that 8 to 12 percent range and remain consistent next year. Any tailwinds will be factored in and will show up in EPS. It is early to talk about 2027, and we will do more detailed planning later in the year and early next year when our guidance becomes clearer, but you can expect us to target that range.
And to be clear, helium should be a tailwind next year. Is that fair?
Helium should normalize next year. How that impacts us depends on the complexity of volume, price, and mix, which will determine helium's exact effect next year.
Our next question comes from the line of Joshua Spector with UBS. Your line is open.
Hi, good morning. I wanted to ask about CapEx for this year. You addressed it in the prepared remarks briefly; did you indicate that a lot of that increase was linked to commercial space? Any breakdown of that $500 million increase would be helpful. Also, if you are building more for that market through your merchant pipeline, what does that mean for space customers' approach to make versus buy for oxygen, nitrogen, and the gases for that market?
Hey, Joshua. Yes, the CAPEX estimate was bumped up. The backlog wins are driving that, including the new projects Sanjiv mentioned. There are also more commercial space activities in base CAPEX contributing to the increase. Regarding make versus buy, on-site customers historically have chosen between buying a plant or outsourcing under a sale-of-gas model; we typically manage this with hybrid approaches. With commercial space, some players with the capital and comfort level may vertically integrate for atmospherics, but this is primarily with certain players and atmospherics, not hydrogen. We are comfortable with both sale-of-gas and sale-of-plant approaches. Sale-of-plant arrangements often include operate-and-maintain agreements; customers may run customer-owned plants alongside our plants under sale-of-gas, providing a hybrid solution that balances capital and operations. I expect a blend, not a single approach.
I would reiterate that we will participate in both sale-of-gas and sale-of-plant opportunities. Even if a customer vertically integrates, we often have the capability to support or operate within those structures.
Okay. Thank you both.
Our next question comes from the line of Matthew DeYoe with Bank of America. Your line is open.
Good morning. Congratulations on getting the large electronics customers over the line. Can you share any revenue intensity of the CapEx or give some guidance? European competitors have flagged a 25 percent CapEx-to-revenue conversion on some projects; is that a reasonable ballpark for you?
Hey, Matthew. Revenue to CapEx depends on whether the work is atmospheric or processed gases like hydrogen and whether energy pass-through or tolling is involved. Historically, revenue-to-CAPEX has ranged from roughly 20 to 50 percent depending on energy pass-through. The projects we have won are similar in structure to the first few phases and follow a similar construct across molecules and energy management, so they fall within that historical range.
And the materials business typically is a bit all over the place, but it was notable this quarter. That includes Linde AMT and some sputtering targets. Is this the semi cycle build, and should this be an indication of direction for profits, or is this a one-off positive quarter?
The materials business overall has been doing well. That portfolio—coatings, atomizers, and some sputtering—has been performing reasonably well, driven in part by commercial space build-out. The outlook seems robust for the second half as well.
Our next question comes from the line of Jeffrey Zekauskas with JPMorgan. Your line is open.
Thanks. If I did the math correctly, the homecare penalty was $30 million in the second quarter. Order of magnitude, is it a $100 million penalty for this year? And is Lincare all of your 23 percent of healthcare revenues for the Americas?
Jeffrey, the Q2 number is higher than $30 million; you're close but it is roughly 30 percent higher than that figure, give or take. That is the headwind we are facing. The Americas is clearly the largest piece of healthcare, and that does not include the institutional portion, which is run through our traditional gas business because of contract structure. Lincare is by far the lion's share of Americas healthcare given the size of revenue in that business.
When we look at your healthcare revenues, they look pretty flat year over year. Can you discuss the dynamics pressuring profitability, and have you come to a decision on whether to divest this business or is that still under evaluation? How long might that take?
The challenges at Lincare are not new. The business served us well through COVID and the following years, but over the last couple of years it has faced persistent headwinds from labor cost inflation and changes in reimbursement. These contributed to the penalties you referenced. We put a new management team in place focused on improving quality. We have been pruning the portfolio and have aggressive actions underway to drive operational improvements and productivity. Those actions should create the impact we are seeking and I expect to see improvement. In parallel, we are evaluating the strategic options for the business. We will do this exercise diligently and decide whether the business will have a meaningful positive impact on our portfolio going forward.
Our next question comes from the line of James Hooper with Bernstein.
Hi. Thank you very much. In terms of the backlog projects, can you give a little more indication of the margins of these projects? Are these going to be some of the drivers of an uplift from this point in future years?
Backlog projects typically take two to three years to execute and then ramp. The projects in our backlog meet our investment criteria; we look for post-tax, double-digit unlevered IRRs. They are therefore attractive for future growth. You should expect that these projects will ramp and improve margins as they reach full capacity utilization. So backlog projects are expected to contribute to margin improvement over time.
Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Your line is open.
Yes. Thank you and good morning. In APAC, volumes were up 6 percent for a second consecutive quarter versus roughly flat throughout 2025. Can you unpack that a little? I assume some of that is project start-ups and sale of equipment. Is baseline demand improving in APAC?
Kevin, I think in part you have already answered your question.
There are three components to Asia volumes. First, base volume which is positive. Second, sale-of-equipment to electronics customers was significant this quarter and had a disproportionate impact. Third, ramp-ups from project start-ups, especially in ASEAN. Together, these three factors explain the healthy 6 percent growth.
And a general question on your backlog: electronics seems vibrant and you are winning significant business. Does that create a positive mix effect? Over the last decade, are returns in the electronics space better relative to other end markets, or are they similar?
Kevin, we make investment decisions based on IRR, not on revenue or margin alone. Projects across end markets tend to fall within a consistent range because they are evaluated on risk and contract terms. Electronics projects can require more purity and redundancy, generally demanding more capital, but the return profiles for on-site projects are consistent across end markets. Where you see different margin profiles is in incremental specialty gases and rare gases associated with electronics clusters, which can provide aftermarket margin opportunities. On-site returns themselves are similar and driven by IRR.
Our next question comes from the line of John McNulty with BMO Capital. Your line is open.
Good morning. Can you speak to what you are seeing out of APAC on the industrial side in terms of longer-term investment? Is the Strait of Hormuz and Iran conflict causing any slowdown or pause on future projects over the next two to three years, or is it business as usual?
Broadly, it is business as usual with some mix changes. Electronics backlog and project pipeline in APAC remain robust and support long-term investment. We do see less traditional steel investment in China compared to a decade ago, but India is seeing traditional end-market investments such as steel and refining. So overall, business continues, but the mix is shifting more toward electronics and other growth areas.
Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Your line is open.
Thanks. Can you elaborate on the actions you are taking to drive margin recovery, particularly in the Americas? Do you expect the negative operating leverage to be resolved by the back half or next year? What will drive that—management actions, pricing, productivity?
Arun, some context on comps: 2025 had strong front-half margins and weaker back-half margins, so year-over-year comparisons should improve. We have a series of actions underway to improve margins, with Lincare as a primary focus since it is the biggest driver of the drag. Higher hardgoods sales and sale-of-equipment are viewed positively for future gas pull-through even if they dilute margins temporarily. We will likely take some cost actions this quarter to get ahead of inflation and we will continue our normal productivity initiatives. In some regions you are seeing growth that supports margins; in others you see inflation without growth and we'll focus on those. We will provide more color on actions, likely in the October call. Many actions are already underway and we are accumulating them to improve results over the next several quarters.
We will now take our final question from the line of Abigail Evertz with Wells Fargo. Your line is open.
Hi, there. Thanks for taking my question. In the past, you called out space being a billion-dollar opportunity. Do you have any update on that number?
Space, to your question, continues to grow well.
We remain on track for the billion-dollar opportunity we outlined over the next few years. Our expectation was for that to be achieved by 2030. Once the market reaches a certain size, we will provide more visibility and may split it out in our end-market reporting.
That concludes our question-and-answer session. I would now like to turn the call back to Juan Pelaez for additional closing remarks.
Abby, thank you. Everyone, thank you for participating in today's call. If you have any further questions, please feel free to reach out. Have a great day.
Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.