Linde Targets More Prudent Capital Management in FY24
Strengthening record margins and record ROC to leverage the industrial growth recovery
Record margins, record ROC and double-digit EPS growth
For the first time in many quarters, Linde (LIN) didn’t raise the full-year guidance amidst broader industrial weakness, primarily in EMEA, despite exceeding its own Q1 guidance communicated at the beginning of February. During the call, CFO White reiterated: "We'll continue to manage the things within our control and tighten discretionary spending" (a phrase we heard in October of last year as well).
Despite record margins, record ROC and maintaining a double-digit EPS growth target at the mid-point, LIN’s management isn’t satisfied with the current performance and they’ll take nothing for granted. They continue to meticulously optimize the business through productivity efforts (with some help from AI), increased network density and prudent capital management, which means cutting CAPEX on more cyclical activities (equipment hard goods).
While we deem the current guidance as conservative, it’s far better to under-promise and over-deliver than to aggressively pursue volume growth through expansionary CAPEX at low returns.
The current environment reminds us of 2022. During the Q1 2022 conference call, CFO White pointed the following out:
Linde has demonstrated industry-leading performance year after year. We only need to look at the last three years to prove that. At the start of 2019, when some investors doubted the merits of the merger, we quickly came together as one and grew EPS 19%, finishing the year at an all-time high stock price. Moving into 2020, when the pandemic struck Linde stock was sold off from apparent concerns of too much cyclicality without enough resiliency only to ultimately achieve 12% EPS growth and finished the year at a new all-time high stock price. And when 2021 began, Linde stock was once again sold off. This time, from apparent concerns of too much resiliency without enough cyclicality. And yet, we grew EPS by 30%, and once again, finished the year at another new all-time high stock price. Now in 2022, Linde stock has been sold off again from concerns of economic uncertainty and high inflation. Time will tell how we ultimately finish this year, but personally, I like our odds.
Do the Q1 results change our investment thesis we’ve just outlined in last week’s deep dive?
