Executive Summary / Key Takeaways

• Resilient Performance Amidst Headwinds: Linde plc delivered record Q2 2025 EPS of $4.09 and an operating margin of 30.1%, demonstrating its robust, defensive business model and operational excellence despite a challenging global industrial backdrop.
• Disciplined Growth via Strategic Backlog: The company's sale of gas project backlog reached a record $7.1 billion, doubling in four years, underpinned by a stringent definition that ensures incremental growth, fixed fees, and protected returns, particularly in high-growth areas like electronics, clean energy, and the commercial space sector.
• Technological Leadership and Productivity: Linde leverages advanced technologies, including AI-driven operational optimization and proprietary solutions like OPTIMELT® TCR, to enhance efficiency, reduce emissions, and drive significant productivity gains, contributing substantially to margin expansion and competitive differentiation.
• Fortress Balance Sheet & Shareholder Returns: A strong balance sheet and disciplined capital allocation policy enable consistent shareholder returns through an 8% dividend increase and substantial share repurchases, while funding strategic investments for future growth.
• Cautious Outlook, Confident Execution: While management projects a cautious near-term economic outlook with potential volume contraction and currency headwinds, its proven "EPS growth algorithm" and proactive management actions are expected to deliver sustained value, positioning Linde for a strong rebound upon industrial recovery.

The Unseen Foundation of Industry

Linde plc, founded in 1879, stands as a global titan in the industrial gas and engineering sector. Its core business, the production and distribution of atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (hydrogen, helium, carbon dioxide, carbon monoxide, electronic gases, specialty gases, acetylene), forms an indispensable foundation for a vast array of industries. From healthcare and electronics to chemicals, manufacturing, metals, and food and beverage, Linde's products are critical inputs, often representing a small but vital component of its customers' cost structures. This strategic positioning, coupled with a history of disciplined growth and operational excellence, has shaped Linde into a market leader.

The company's business model is inherently defensive, a characteristic proven during periods of economic volatility like 2020, when it still managed 12% EPS growth. This resilience stems from three pillars: resilient end markets (healthcare, electronics, food & beverage) that are less susceptible to economic cycles; on-site customer contracts with fixed facility fees that recover capital investment regardless of volume; and contractual rental payments on owned assets. These categories collectively account for nearly two-thirds of global gas sales, providing significant earnings stability and cash flow. Linde's overarching strategy emphasizes disciplined capital allocation, continuous self-help initiatives, and leveraging its dense global network to drive high-quality, long-term growth.

Technological Edge: Powering Progress

Linde's competitive moat is significantly reinforced by its technological differentiation and continuous innovation. The company's core expertise lies in designing and operating complex industrial gas plants, such as Air Separation Units (ASUs) for atmospheric gases and reformers for hydrogen. These technologies are critical for delivering high-purity gases efficiently and reliably.

The tangible benefits of Linde's technological prowess are evident across its operations. For instance, its proprietary OPTIMELT® Thermochemical Regenerator (TCR) technology, recently installed at an O-I Glass (OI) plant in Germany, is expected to significantly reduce both fuel consumption and fuel-based Scope 1 carbon dioxide emissions for customers. In the realm of advanced materials, Linde's Advanced Material Technologies (LAMT) group manufactures precious metal targets used in semiconductor manufacturing, enabling precise material deposition for integrated circuitry through a process called sputtering. This specialized capability supports the high-growth electronics sector.

Linde is also at the forefront of digital and AI-driven innovation to enhance productivity. Its power optimizer model, utilizing AI, optimizes plant operations based on customer demand, tank levels, and predictive power pricing. Similarly, the deployment of telemetry in its distribution network, combined with sophisticated machine learning models, enables predictive scheduling for refilling customer tanks, improving asset utilization and efficiency. The company reports that approximately 30-32% of its productivity efforts stem from digital and AI solutions, with over 105 AI use cases currently being deployed. Looking ahead, nascent technologies like quantum computing, which requires cryogenic cooling, present exciting future growth opportunities, with Linde already providing cooling technologies for pilot projects. These technological advantages not only enhance operational efficiency and reduce costs but also strengthen customer relationships by offering superior, often mission-critical, solutions.

A Legacy of Resilience and Strategic Evolution

Linde's current market position is a culmination of decades of strategic evolution. The 2018 merger of equals with Linde AG was a pivotal moment, creating the global industrial gas leader it is today. This integration, while complex, solidified its global footprint and operational synergies. The company's ability to grow EPS by 12% in 2020, a year marked by unprecedented global uncertainty, underscored the inherent resilience of its defensive business model.

More recently, Linde has demonstrated its adaptability in navigating geopolitical challenges, such as the suspension of Engineering agreements in Russia due to sanctions. Despite complex legal disputes and local asset sales, management has proactively recorded $1.9 billion in liabilities and does not anticipate a material adverse impact on earnings, given the immaterial investment value of remaining deconsolidated Russian subsidiaries. This proactive risk management is a hallmark of its operational discipline. Concurrently, Linde has achieved significant growth milestones, including securing its largest sale of gas project in company history with Dow Chemical (DOW) in Canada and setting a new record for small on-site wins (59 long-term agreements for 64 plants in 2024), further enhancing its network density and annuity-like revenue streams.

Financial Fortitude Amidst Macro Headwinds

Linde's financial performance in Q2 2025 and year-to-date reflects its ability to generate strong results despite a challenging macroeconomic environment. Sales for Q2 2025 reached $8.495 billion, a 3% increase year-over-year. This growth was primarily driven by a 2% increase from higher price attainment and a 1% contribution from acquisitions, with cost pass-through adding another 1% with minimal impact on profit. Volumes, however, saw a 1% decrease due to base volume declines, partially offset by new project start-ups.

The company's profitability metrics remain industry-leading. Q2 2025 reported operating profit increased 8% year-over-year to $2.354 billion, resulting in an operating margin of 27.7%. On an adjusted basis, operating profit rose 6% to $2.556 billion, with an impressive adjusted operating margin of 30.1%. This margin expansion was primarily driven by higher pricing and productivity initiatives, which successfully offset cost inflation and lower volumes. Cost of sales as a percentage of sales decreased, reflecting these efficiency gains. Selling, general and administrative (SGA) expenses, while up in Q2, saw a decrease for the six months ended June 30, 2025, due to cost reduction programs and productivity initiatives, including a 2% global workforce reduction.

Linde's cash flow generation remains robust. Operating cash flow for the first six months of 2025 increased 13% to $4.372 billion, driven by higher net income and lower net working capital requirements. Capital expenditures for the period were $2.527 billion, a 22% increase, primarily funding new plant and production equipment for backlog growth. The company's balance sheet remains a "fortress," with $4.786 billion in cash and cash equivalents as of June 30, 2025. It maintains $6.5 billion in unsecured and undrawn revolving credit agreements, underscoring its ample liquidity and access to low-cost capital, as evidenced by recent bond issuances with average yields below 1%.

Disciplined Capital Allocation: Fueling Future Growth

Linde's capital allocation strategy is a cornerstone of its investment thesis, consistently contributing 4% to 6% to EPS growth. This strategy prioritizes maintaining a single A credit rating and consistently raising dividends (an 8% increase in quarterly dividends per share to $1.50 in Q2 2025), followed by strategic investments in the business that meet rigorous criteria, and finally, share repurchases. The company repurchased $2.207 billion in ordinary shares in the first half of 2025, with $9.7 billion remaining authorized under its 2023 program.

A key driver of future growth is Linde's project backlog, which reached a record $7.1 billion in sale of gas projects as of June 30, 2025. This backlog has approximately doubled in over four years, reflecting significant project wins and a high turnover rate (over 150% in 4.5 years). Linde's definition of backlog is notably stringent, including only incremental growth from contractually committed customers with fixed payment elements and termination provisions, ensuring minimum returns.

Geographically, almost three-quarters of this backlog is concentrated in the Americas, primarily the U.S., serving the electronics and clean energy sectors. A prime example is the Blue Point project in Louisiana, a joint venture with CF Industries (CF), JERA, and Mitsui (MITSY), to produce low-carbon ammonia. This marks Linde's third large clean energy contract, totaling approximately $5 billion, validating the economic viability of such projects. Linde also announced major U.S. investments to support the rapidly expanding commercial space sector, including new long-term agreements for bulk industrial gases for rocket launches and facility expansions in Florida. This sector has seen Linde's supplies and revenue quadruple over the last three years, with an expected investment of nearly $1 billion in infrastructure over the next 2-3 years. In APAC, a new agreement with Samsung (SSNLF) in South Korea will expand Linde's supply of ultra-high-purity gases to Samsung's semiconductor complex, involving an eighth on-site air separation unit. These strategic investments, alongside over $1 billion annually in base volume growth CapEx for packaged and merchant supply modes, underscore Linde's commitment to high-quality, annuity-like growth.

Global Footprint, Segmented Realities

Linde's global footprint provides diversification, but performance varies across its segments:

• Americas: Sales grew 4% in Q2 2025 to $3.812 billion, with operating profit also up 4% to $1.209 billion, maintaining a 31.7% operating margin. Growth was driven by higher pricing and productivity, offsetting cost inflation and currency headwinds (weakening Brazilian real and Mexican peso). The U.S. market remains a bright spot, particularly in chemicals/energy and the commercial space sector.
• EMEA: Sales increased 3% to $2.162 billion in Q2 2025, while operating profit surged 11% to $780 million, expanding the operating margin to 36.1%. This strong profit growth was fueled by higher pricing, favorable currency translation (strengthening Euro and British pound), and productivity initiatives, despite a 4% volume decline in the quarter, primarily in metals/mining and manufacturing. Management anticipates continued softening demand in Western Europe, with no clear near-term catalyst for improvement, but notes long-term potential from Germany's €1 trillion defense and infrastructure commitment.
• APAC: Sales were flat in Q2 2025 at $1.655 billion, with operating profit up 3% to $490 million, yielding a 29.6% operating margin. Volumes decreased 1% due to base volume declines, partially offset by new project start-ups. China remains a "mixed bag," with growth in EVs, batteries, and electronics offset by weaker metals and chemicals, leading to an expectation of flat volumes for the year. India, however, is a "bright spot" with double-digit merchant volume growth and a healthy project pipeline.
• Engineering: Sales increased 1% to $551 million in Q2 2025, though operating profit declined 6% to $90 million, primarily due to project timing. This segment is crucial for executing Linde's large-scale projects, including the two largest in its history, supporting the $7.1 billion sale of gas backlog.
• Other: Sales decreased 2% to $315 million in Q2 2025, primarily due to lower volumes in Linde Advanced Material Technologies (LAMT) from destocking in electronics. Operating profit increased 18% to $13 million in Q2, but was down significantly year-to-date due to higher helium costs and a 2024 insurance recovery. The helium market faces oversupply, leading to high single-digit price declines, but Linde's new 3 billion cubic feet helium storage cavern in Texas aims to optimize sourcing and reliability.

Competitive Moat: Density, Discipline, and Differentiated Tech

Linde operates in a highly competitive industrial gas market, but its strategic positioning and operational execution create a formidable moat. While precise, directly comparable market share figures for all niche competitors are not publicly detailed, Linde's financial performance and management commentary offer strong insights into its competitive standing.

Linde's TTM Operating Profit Margin of 26.92% significantly outpaces major competitors like Quanta Services (PWR) (6%), MasTec (MTZ) (4%), EMCOR Group (EME) (9%), and Primoris Services (PRIM) (5%), underscoring its superior operational efficiency and pricing power. Similarly, its TTM Net Profit Margin of 20.20% dwarfs those of Quanta (4%), MasTec (1%), EMCOR (7%), and Primoris (3%). This financial outperformance is a direct result of its "network density" – a critical competitive advantage in the merchant and packaged gas businesses. By having the densest supply networks, Linde achieves superior cost efficiencies and reliability, strengthening customer relationships and enabling pricing discipline.

In the large project space, where roughly half of decisions are "make-or-buy" for customers, Linde's ability to offer reliability, safe delivery, and the benefits of its network density often converts opportunities into "sale of gas" projects. In competitive bids involving other industrial gas players, Linde is highly selective, focusing on projects that meet its stringent investment criteria and contribute to its high-quality backlog. This disciplined approach, coupled with its technological leadership in areas like advanced air separation, hydrogen production, and CO2 capture, allows Linde to differentiate itself. As management states, Linde's model is "often imitated but never duplicated," a testament to its deeply embedded culture of performance and continuous improvement.

Outlook and Risks: A Prudent Path Forward

Linde's management maintains a prudent outlook for the near term, reflecting ongoing global economic uncertainties. For Q3 2025, the company guides for diluted EPS in the range of $4.10 to $4.20, representing 4% to 7% growth over prior year. This includes an assumed 1% currency tailwind, which would be the first quarterly FX benefit since late 2023. However, the top end of this guidance range assumes economic contraction, offsetting the FX benefit.

For the full year 2025, Linde projects diluted EPS between $16.30 and $16.50, implying 5% to 6% growth. This full-year guidance also incorporates a 1% currency tailwind but assumes a contracting economy at the top end of the range. Management acknowledges the inherent currency volatility and economic uncertainty, stating they will "strive to outperform this projection" but remain guarded. The "negative volume headwinds" are attributed to contractual customers taking less gas due to economic uncertainty, a trend management expects to improve with internal initiatives and eventual industrial recovery.

Key risks include ongoing legal proceedings in Russia, where despite favorable arbitration rulings, RusChemAlliance (RCA) continues to pursue claims in Russian courts, leading to local asset sales. Linde has a contingent liability of $1.2 billion related to terminated engineering projects with RCA and is pursuing damages in international arbitration and other jurisdictions. Another contingent liability of $0.7 billion exists for the Amur GPP project in Russia, where Gazprom (OGZPY) claims damages from fire incidents. While these legal matters are complex and their timing uncertain, Linde does not expect a material adverse impact on earnings, given existing liabilities and immaterial investment values. The company's strong balance sheet and commitment to its "EPS growth algorithm" are designed to mitigate these and other macroeconomic risks, including potential cost inflation and supply chain disruptions.

Conclusion

Linde plc's Q2 2025 results underscore its exceptional resilience and strategic prowess in a challenging global environment. The company's ability to achieve record EPS and operating margins, driven by disciplined pricing, relentless productivity, and strategic acquisitions, highlights the strength of its defensive business model. Its record $7.1 billion sale of gas backlog, focused on high-quality projects in secular growth areas like electronics, clean energy, and the commercial space sector, provides a clear roadmap for future growth.

Linde's technological leadership, from AI-driven operational optimization to proprietary emissions-reducing solutions, reinforces its competitive moat and ensures continued efficiency gains. Despite a cautious near-term economic outlook and geopolitical risks, Linde's fortress balance sheet and proven capital allocation strategy position it to consistently deliver shareholder value. The company's unique network density and disciplined approach to project selection differentiate it from competitors, ensuring that it remains the undisputed leader in making the world more productive. Investors can look to Linde's unwavering commitment to its long-term EPS growth algorithm, underpinned by operational excellence and strategic foresight, as a compelling investment thesis.