Executive Summary / Key Takeaways

• Linde's robust and defensive business model, characterized by resilient end markets, fixed facility fees, and contractual rentals, consistently delivers strong EPS growth and industry-leading margins despite a prolonged industrial recession.
• A record $7.1 billion sale of gas backlog, predominantly in the Americas for electronics and clean energy, combined with strategic investments in commercial space and small on-site projects, contractually secures future growth and enhances network density.
• The company's commitment to technological and operational excellence, exemplified by AI-powered plant optimization and proprietary application technologies like OptiMelt, drives significant margin expansion and a distinct competitive advantage.
• Linde's disciplined capital allocation strategy, supported by a fortress balance sheet, generates substantial operating cash flow, enabling significant shareholder returns through dividends and share repurchases while funding high-quality growth initiatives.
• While 2025 guidance reflects a prudent outlook on economic contraction and currency headwinds, management's focus on controllable actions and a strong project pipeline positions Linde to capitalize on eventual industrial recovery and long-term secular trends.

Linde: Powering Global Industry with Resilient Growth and Technological Prowess

Linde plc, a global industrial gas and engineering powerhouse founded in 1879, stands as a critical enabler for diverse industries ranging from healthcare and electronics to chemicals and manufacturing. Its strategic foundation, forged over decades and solidified by the 2019 merger with Linde AG, is built on a highly resilient business model. This model emphasizes long-term contractual relationships, a diversified global footprint spanning 81 countries, and a relentless focus on operational efficiency. Linde's overarching strategy centers on delivering essential industrial gases and advanced engineering solutions, ensuring reliable supply and value creation for its customers. This approach has consistently allowed the company to generate stable revenue and cash flow, even amidst challenging macroeconomic conditions.

The industrial gas sector, characterized by high capital intensity and the need for extensive distribution networks, presents significant barriers to entry. Linde leverages its established global infrastructure and deep customer relationships to maintain a leading position. Broad industry trends, such as the increasing demand for high-purity gases in electronics, the global push for decarbonization, and the burgeoning commercial space sector, are key drivers for Linde's long-term growth. The company's ability to adapt and innovate within these trends is central to its continued success.

Technological Differentiation and Innovation: The Engine of Efficiency

Linde's competitive moat is significantly strengthened by its differentiated technology and continuous innovation, which are deeply integrated into its operational fabric. The company's core expertise lies in advanced gas separation and production technologies, particularly for atmospheric gases like oxygen, nitrogen, and argon, and process gases such as hydrogen and helium. These proprietary technologies enable highly efficient and reliable supply to customers.

A prime example of this technological edge is Linde's AI-powered power optimizer model for Air Separation Units (ASUs). As one of the largest global purchasers of power, optimizing ASU operations, even by a small percentage, yields substantial benefits. This AI model dynamically adjusts plant operations based on customer demand, liquid tank levels, and predictive power pricing, leading to real-time optimization and significant efficiency gains. Furthermore, Linde deploys telemetry systems to monitor customer tank levels, enabling predictive scheduling of gas deliveries. This sophisticated machine learning-driven approach optimizes asset utilization and ensures timely refills, enhancing both customer service and distribution efficiency. These digital and AI solutions contribute approximately 30-32% of all Linde's productivity efforts, underscoring their tangible impact on operational effectiveness.

In application technology, Linde's OptiMelt solution for the metals industry provides tangible benefits by enabling heat recovery in furnaces. This technology helps customers achieve significant efficiencies, reduced natural gas consumption, and increase furnace throughput. Such innovations not only enhance customer operations but also solidify Linde's position as a value-added partner.

Linde's R&D initiatives are strategically aligned with emerging market needs. While green hydrogen technology is still nascent, requiring a 60-70% reduction in capital intensity and improved scalability, Linde is actively pursuing opportunities in low-carbon (blue) hydrogen. This strategy leverages existing infrastructure and carbon capture technologies, supported by incentives like the U.S. 45Q tax credit, which predates the IRA and underpins 90% of Linde's U.S. clean energy projects. The company's focus on economically viable projects, rather than speculative ventures, ensures a disciplined approach to new energy investments. Additionally, Linde is exploring quantum computing, a nascent technology that requires cryogenic cooling, presenting an exciting long-term opportunity for its proprietary cryogenic technologies. These technological advancements are not just about innovation; they are about enhancing Linde's competitive moat, driving higher capital efficiency, and securing long-term growth.

Competitive Landscape: A Differentiated Approach in a Concentrated Market

Linde operates in a highly concentrated industrial gas market, primarily competing with global giants like Air Products and Chemicals and L'Air Liquide S.A. , as well as chemical conglomerates like BASF SE in certain segments. Linde's competitive positioning is defined by its comprehensive, integrated engineering and gas supply solutions, which often provide a more holistic approach compared to some rivals.

Against Air Products (APD), Linde's strength lies in its diversified geographic presence and extensive network density, which allows it to capture opportunities in a broader range of markets. APD reported Q3 2025 GAAP EPS of $3.24, up 4% year-over-year, and GAAP operating income of $791 million, up 7%. However, its adjusted EPS decreased by 3% to $3.09, with adjusted operating income remaining flat at $741 million. APD's sales increased 1% to $3 billion, driven by energy cost pass-through and favorable currency, despite a 4% decline in volumes due to project exits and lower helium demand. While APD has a strong focus on hydrogen and electronics, Linde's disciplined project selection, particularly in low-carbon hydrogen, ensures robust returns. Linde's engineering expertise for large-scale plant construction often provides a more integrated, end-to-end solution that can lead to lower operating costs for clients in heavy industries.

When compared to L'Air Liquide (AI), Linde's operational execution for industrial projects and its ability to deliver customized engineering solutions often result in greater efficiency for clients. Air Liquide reported Q3 2025 group revenue of €6.6 billion, a comparable growth of 1.9%, though reported revenue declined 2.4% due to a negative currency impact. Its operating cash flow increased 7% to €1.69 billion, supported by €163 million in cost efficiencies. AI's investment backlog is nearing €5 billion, signaling strong future revenue visibility. AI, with its strong R&D focus, may lead in agility for digital gas monitoring and advanced materials. Linde's established customer relationships in manufacturing and its ability to execute complex industrial projects provide a competitive edge in market share capture for engineering services.

Against BASF (BAS), a diversified chemical company, Linde's specialized gas solutions and integrated engineering services offer materially lower operating costs for clients in energy and manufacturing. BASF's Q3 2025 sales were €14.3 billion, down 3% from the prior year, impacted by negative currency effects and lower prices. Its EBITDA before special items was €1.5 billion, slightly below the prior year's €1.6 billion, and net income fell to €172 million. Linde's focus on industrial gases with integrated engineering provides superior reliability and efficiency compared to BASF's broader chemical offerings. Linde typically leads in cash flow generation and operational efficiency due to its streamlined gas operations, whereas BASF benefits from its wider chemical portfolio and higher return on equity (ROE) in diversified segments.

Linde's competitive advantages, including its global distribution network and proprietary technology, translate into stronger customer loyalty, recurring revenue from long-term contracts, and enhanced pricing power. Its cost leadership in engineering services further differentiates it. However, vulnerabilities exist in supply chain dependencies and potential technological gaps in highly specialized emerging areas, which could impact its innovation speed relative to some rivals. Linde's strategic response involves continuous productivity improvements and selective tuck-in acquisitions to bolster network density and market share.

Financial Performance: Resilience in a Challenging Macro

Linde's financial performance in 2025 demonstrates remarkable resilience amidst a challenging global macroeconomic environment. For the third quarter of 2025, reported sales reached $8,615 million, a 3% increase over the prior year. For the nine months ended September 30, 2025, sales were $25,222 million, up 2% from the same period in 2024. This growth was primarily driven by higher pricing, which contributed 2% to sales in both the quarter and year-to-date periods, aligning with globally weighted inflation. Acquisitions also added 1% to sales in both periods. Currency translation provided a 1% tailwind in Q3 2025, primarily from the strengthening Euro and British pound against the U.S. dollar.

Profitability metrics underscore Linde's operational effectiveness. Reported operating profit for Q3 2025 was $2,367 million, representing a robust 27.50% of sales and a 13% increase year-over-year. For the nine months ended September 30, 2025, operating profit grew 8% to $6,905 million. On an adjusted basis, operating profit for Q3 2025 was $2,558 million, or 29.70% of sales, up 3% from the prior year. This adjusted operating profit growth was driven by higher pricing and productivity initiatives, which more than offset cost inflation. Diluted earnings per share (EPS) for Q3 2025 was $4.09, a significant 27% increase over Q3 2024. Adjusted diluted EPS for Q3 2025 reached $4.21, up 7% year-over-year.

Segment-wise, the Americas saw sales increase 6% in Q3 2025 to $3,846 million, with operating profit rising 4% to $1,199 million, maintaining a 31.20% operating margin. EMEA delivered an impressive performance, with operating profit growing 11% to $781 million in Q3 2025, achieving a 35.90% operating margin, despite a 3% volume decrease. This margin expansion reflects the team's diligent focus on pricing, productivity, and cost management. APAC sales increased 1% to $1,741 million in Q3 2025, though operating profit decreased 1% to $490 million, primarily due to lower helium pricing and currency translation, partially offset by acquisitions. The "Other" segment experienced a decrease in operating profit due to helium and cost inflation, and an insurance recovery in 2024.

Liquidity and Capital Allocation: A Fortress Balance Sheet for Strategic Growth

Linde's disciplined capital allocation strategy is a cornerstone of its investment thesis, underpinned by a "fortress balance sheet" that provides significant financial flexibility. For the nine months ended September 30, 2025, cash provided by operations surged 11% to $7,320 million, driven by higher net income adjusted for non-cash charges and lower net working capital requirements. This robust operating cash flow enables substantial shareholder returns and strategic investments.

The company maintains a balanced approach to capital deployment. In the nine months ended September 30, 2025, net cash used for investing activities increased 30% to $4,260 million, primarily due to higher capital expenditures and acquisition spend. Capital expenditures totaled $3,803 million, a $556 million increase, largely directed towards new plant and production equipment to support backlog growth. Linde's sale of gas backlog for large projects under construction stood at approximately $7.10 billion as of September 30, 2025, contractually securing future revenue streams. Acquisitions, net of cash acquired, amounted to $393 million, focusing on tuck-in opportunities across its segments.

Shareholder returns remain a priority. Linde's Board of Directors declared a quarterly dividend of $1.50 per share in Q3 2025, representing an 8% increase in annual dividends. Cash dividends paid to shareholders totaled $2,113 million for the nine months ended September 30, 2025. Additionally, the company actively engages in share repurchases, with net purchases of ordinary shares totaling $3,191 million in 2025, and $8.70 billion remaining authorized under its 2023 program as of September 30, 2025.

Linde's liquidity is further bolstered by its access to low-cost capital. The company maintains $5 billion and $1.50 billion in unsecured and undrawn revolving credit agreements, with no outstanding borrowings as of September 30, 2025. This financial strength allows Linde to capitalize on growth and share repurchase opportunities as they arise, even in volatile markets.

Outlook and Guidance: Prudence Amidst Secular Opportunities

Linde's 2025 outlook reflects a prudent yet confident stance, grounded in its proven EPS growth algorithm. Management's guidance for the fourth quarter of 2025 projects adjusted diluted EPS in the range of $4.10 to $4.20, representing 3% to 6% growth over the prior year. This assumes a 2% FX tailwind, largely offset by an approximate 2% tax rate headwind. The full-year 2025 adjusted diluted EPS guidance is set at $16.35 to $16.45, indicating 5% to 6% growth over the prior year. This guidance incorporates an assumption of base volume contraction at the top end, reflecting ongoing industrial recessionary conditions.

Management explicitly states that it is "difficult to identify near-term catalysts, which could materially improve industrial activity for the remainder of 2025." However, the company's long-term EPS growth algorithm, driven by controllable capital allocation and management actions, is expected to deliver 10-plus percent EPS growth annually, with margin expansion. This internal strength is designed to mitigate macroeconomic headwinds, such as the assumed base volume contraction and currency volatility.

Key growth drivers for Linde include:

• Electronics: Expected to provide "robust growth for some time," fueled by high-end chip production and increased fab activity, particularly for cutting-edge advanced nodes. The semiconductor industry is projected to grow 9-11% over the next five years, with increasing gas intensity for advanced nodes.
• Clean Energy: The $7.1 billion sale of gas backlog includes significant clean energy projects, with the Blue Point low-carbon ammonia facility being a notable recent addition. The U.S. 45Q tax credit remains a strong incentive for blue hydrogen projects.
• Commercial Space: This segment is experiencing "very healthy double-digit growth," with revenue quadrupling over the last three years. Linde is investing nearly $1 billion in infrastructure to support rocket launches and satellite propulsion systems, particularly in the U.S.
• Small On-site Projects: A record 59 long-term agreements for 64 plants were signed in 2024, offering highly accretive returns and shorter execution timelines (9-15 months). These projects, primarily for oxygen and nitrogen, enhance network density and provide annuity-like income.
• Geographic Focus: While Europe is expected to see continued softening demand, the Americas are projected to be flattish in the first half of 2025 with increased momentum in the second half. China is anticipated to remain flat, with growth in electronics and EVs offsetting weakness in metals and chemicals. India, however, remains a "bright spark" with strong merchant volume growth and a healthy project pipeline.

Risks and Challenges: Vigilance in a Dynamic Global Environment

Linde operates in a complex global environment, facing several risks and challenges that warrant investor attention. Geopolitical tensions, particularly in Russia, continue to pose significant operational and legal hurdles. Following the suspension of engineering agreements due to sanctions, Linde has been embroiled in legal proceedings with RusChemAlliance (RCA), including injunctions, asset seizures, and the local sale of two Russian joint ventures in Q4 2024. Despite favorable international arbitration awards, RCA continues to pursue claims in Russia, leading to a contingent liability of $1.20 billion for terminated engineering projects. Additionally, Gazprom's claim for damages related to fire incidents at the Amur GPP facility in Russia presents a $0.70 billion contingent liability. While Linde intends to vigorously defend its interests, the timing and outcomes of these legal matters remain uncertain.

Macroeconomic headwinds, including a prolonged "industrial recession" and currency volatility, continue to impact base volumes, particularly in Europe. Pricing pressures in helium and rare gases, especially in the APAC region, have also affected profitability. Global trade policy changes and tariffs introduce further uncertainty, potentially dampening industrial activity and impacting manufacturing sectors, as observed in China's export-driven markets. While Linde's contracts offer protection against customer-driven delays and volume fluctuations, sustained economic weakness could still affect overall demand.

The company is also subject to various lawsuits and government investigations, including environmental, tax, antitrust, and personal injury claims. While management believes these will not have a material adverse effect on its financial position or liquidity, significant impacts on reported results in any given period remain possible.

Conclusion

Linde plc stands as a compelling investment in the industrial gas sector, distinguished by its unyielding profitability and strategic expansion initiatives. The company's deeply ingrained culture of operational excellence, coupled with its robust and defensive business model, has enabled it to deliver consistent EPS growth and industry-leading margins even through a prolonged industrial recession. Linde's strategic focus on high-quality, long-term contractual projects, particularly within resilient end markets like electronics and clean energy, ensures a predictable revenue stream and future growth.

The company's technological leadership, exemplified by AI-driven operational optimization and proprietary application technologies, provides a significant competitive advantage, driving efficiency and margin expansion. With a record $7.1 billion sale of gas backlog, a fortress balance sheet, and a disciplined capital allocation strategy, Linde is well-positioned to continue generating substantial free cash flow, funding both strategic growth investments and significant shareholder returns. While the near-term outlook remains cautious due to macroeconomic uncertainties and geopolitical risks, Linde's proactive management actions and strong project pipeline provide a clear path to capitalize on eventual industrial recovery and long-term secular growth opportunities. The company's ability to consistently execute its strategy, leverage its technological edge, and maintain financial discipline makes it a resilient and attractive proposition for discerning investors.