Linde delivers a good quarter and puts in a fix for an overhang on the stock

Linde on Thursday delivered a top- and bottom-line beat, with sales, operating profit, and earnings all representing quarterly records for the industrial gas giant. The company continues to benefit from the AI buildout and the commercialization of space. Revenue in the third quarter ended Sept. 30 rose 9.2% to $9.4 billion, surpassing the $2.2 billion consensus, according to LSEG. Adjusted earnings per share (EPS) totaled $4.59, up 9% year over year and ahead of the LSEG consensus of $4.54 per share. LIN YTD mountain Linde YTD Shares of Linde fell more than 1% in Thursday's tough market. Guidance was a tad light for the current quarter. That could be a reason for some selling. Profit-taking could be another, as the Club stock has mounted a bit of a recovery rally since its summer swoon from all-time highs in July into its most recent low in mid-September. Bottom line It was an overall solid quarter from Linde. While the current (fourth) quarter guide may have been light, the outlook for the full year was on par with expectations. Importantly, the revenue growth of more than 9% came on the back of a 2% increase in volume and a 3% tailwind from price increases and having the right products available (referred to as price/mix in industry-speak). When it comes to Linde, topline growth on volume increases speaks to more demand. We also value Linde for its position high up in the supply chain of so many end markets, including healthcare, electronics manufacturing, and energy. The critical nature of the company's gases and engineering know-how gives it immense pricing power. CEO Sanjiv Lamba wasted no time on the call and directly addressed what ailed the company's prior quarterly report and how Linde was working to fix it. Last time, it was costs impacting Linde's home health business, Lincare, which weighed on profit margins. The business provides home oxygen, sleep apnea and nebulizer therapies, among other services such as blood-clot testing. Lamba said the company took a $425 million restructuring charge in the third quarter; about half was tied to severance payments, while the remainder was largely tied to addressing Lincare. The two key Lincare changes are putting the segment under the leadership of CFO Matt White and shifting its results to the company's Other line item and out of the Americas. Lamba said, "This will provide investors with greater insight into the underlying performance of our regional gases businesses while we continue to restructure Lincare and evaluate strategic alternatives." As for the Americas, that segment revenue came up short. However, considering the size of the miss in the Americas was $515 million and the size of the beat in Other was $565 million, it looks like most of the Americas miss was Lincare rather than any other operational or execution issues. Sales in the Americas increased 11%, aided by a 3% increase in volume and a 6% price/mix benefit. Europe, the Middle East, and Africa (EMEA) sales were the other miss, though up 7% thanks to a 1% increase in volume and a 2% price/mix tailwind. In the Asia-Pacific (APAC) region, sales beat and were up 12% on a 5% increase in volume and 3% price/mix benefit. While not a region, Linde reports Engineering as a separate segment. It beat estimates and gained 12%. We already talked about the Other segment. Slicing and dicing by end market for Linde's gases also looked solid. On the more resilient side, electronics was the bright spot, with sales increasing 15%. This end market includes specialty gases for semiconductor manufacturing, which remains strong due to demand for artificial intelligence infrastructure components needed to create more and more computing power. Food and beverage sales increased 3% year-over-year, with healthcare increasing 2%. Electronics accounts for 10% of total sales. Food and beverage comes in at 9%, with healthcare at 15%. On the call, Lamba said, "Excluding Lincare, the growth is mid-single-digits [for healthcare], which is aligned with demographic trends. As we continue to trim the Lincare portfolio, I expect the sales trends to lag market average, but I fully expect to see improvements in both the quality and profitability of the remaining businesses." On the more cyclical side, growth was led by chemicals and energy, which realized a 12% increase in sales, followed by increases in manufacturing, as well as metals and mining. Chemicals and energy account for 22% of total sales. Manufacturing accounts for 21%, with Metal and Mining at 12%. These percentages exclude engineering sales. Many of Linde's plants are adjacent to or near its customers' operations. On the call, management said, "Merchant and onsite volumes remain strongest in the U.S., including higher activity in the U.S. Gulf Coast energy and chemicals, stronger metals production, and increased space propellant." The callout of space propellant refers to the gases Linde supplies to rocket companies like SpaceX and others. About a month before Elon Musk's SpaceX went public in June, we wrote about how the IPO and the broader commercialization of space can benefit Linde, which has been in the space game for more than six decades, from NASA's Apollo program to the modern-day Artemis II moon mission and missions spearheaded by SpaceX and Jeff Bezos' Blue Origin. We just added SpaceX to our Bullpen stocks-to-watch list on Wednesday. Linde's companywide operating profit was also up, even as margin contracted. Remember, Linde's operating margin can be misleading due to cost pass-through dynamics, which see Linde pass the cost of higher fuel along to its customers, resulting in an incremental increase on the top line but no impact on profit margin. The result is that Linde can protect the dollar value of its profits in the face of cost inflation, but the margin contracts because there are no profits associated with the increase in sales. Excluding the pass-through, Linde's operating profit margin would have been about flat year over year. Linde's gas supply backlog ended Q3 at $7.9 billion. Linde also has $2.9 billion worth of backlog for its engineering business, which designs and builds process plants for third-party customers. The combined high-quality backlog exited he quarter at $10.8 billion. We're reiterating our buy-equivalent 1 rating and price target of $550. That PT is a few dollars more than Linde's record-high close of nearly $547 per share on July 2. Guidance For the ongoing fourth quarter, Linde expects adjusted EPS in the range of $4.40 to $4.50, implying 5% to 7% growth. That, however, was a bit light versus the $4.51 consensus. We never like to see a miss — but keep in mind, this is a management team with a track record of conservatism. As always, the team assumes no economic improvement in their outlook. The low end of Linde's full-year EPS outlook was revised up to $17.82, while the high end was bumped up to $17.92. At the midpoint of $17.87, the forecast is 7 cents per share higher than the previous guide on July 31, and in line with Wall Street consensus coming into the print. Linde also said it still expects to spend between $5.5 billion and $6 billion on capital expenditures this year. (Jim Cramer's Charitable Trust is long LIN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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