Linde Aktie

Ladies and gentlemen, good day, and thank you for standing by. Welcome to the Linde Second Quarter 2026 Earnings Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] And 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'm Juan Pelaez, Head of Investor Relations, and I'm joined this morning by Sanjiv Lamba, Chief Executive Officer; and Matt 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 Page 2 of the slides and note that it applies to all statements made during this teleconference. Reconciliations of the adjusted numbers are in the appendix of this presentation. Sanjiv will provide some opening remarks, and then Matt 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 electronic spin in the U.S. In addition, the backlog project pipeline remains healthy, but still 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 start-ups and based on the opportunities we see to date, 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 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 had good sales in our package business. which actually, I view as a good sign of U.S. manufacturing recovery, but the majority is driven by the U.S. home care 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. home care 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. Matt will speak more to the numbers, but I remain confident in our long-term margin expansion story.

Now I'd like to touch on some growth trends, which can be found on Slide 3. Consumer-related markets grew versus prior year and sequentially. Health care and food and beverage grew with demographic trends and consumption with stronger sequential growth related to beverage seasonality. As expected, Electronics is the fastest-growing end market with the combination of project startups and higher demand tied to hardware associated with AR.

As I mentioned earlier, we added $1 billion of new Electronics wins to the backlog and to support the expansion of advanced node fabs in West and U.S. Consistent with other backlog projects, we have already begun constructing the plants under reimbursable LOIs while the supply contracts were finalized. I'm pleased to see this addition to our existing network of plants in Arizona and look forward to winning a few more large opportunities that we're currently pursuing. Not included in the backlog are a couple of electronics wins by our Taiwan JV, which will invest approximately $800 million to build, own and operate ASUs and hydrogen production units to supply to 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 1/3 of the manufacturing growth during the quarter. Both Metals and Mining and Chemicals 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 remained flattish across other geographies. In summary, we've lapped the more difficult comps and are starting to see green shoots of growth across certain geographies and end markets. For the ball, 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'll now turn the call over to Matt to walk through our financial results.

Thanks, Sanjiv. Please turn to Slide 4 for the consolidated results. Sales of $9.3 billion rose 9% from prior year and 6% sequentially. Versus prior year, FX was a 2% tailwind while acquisitions and engineering each contributed 1%. Cost pass-through rose 1% 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%, split between higher volume and price.

Almost half volume increase relates to project start-ups in APAC and Americas. The remaining 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. The price increase of 2% was broad-based across all geographies and generally tracked with local inflation. Sequentially, underlying sales increased 4% from 3% volume and 1% 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. home care 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. And 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 electronic customers. Overall, we expect many of these margin headwinds to be temporary and thus recover in the coming quarters. Operating profit rolled down to an EPS of $4.50 or 10% 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 could be seen in the pie chart.

Year-to-date, we've 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'll wrap up with guidance on Slide 6. Third quarter guidance range is $4.45 to $4.55 or 6% to 8% growth. This assumes no currency impact from prior year but does assume a 1% FX headwind sequentially. Consistent with prior approach, the range assumes no economic improvement at the midpoint. The updated full year range is $17.70 to $17.90 or 8% to 9% growth, excluding a 1% 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'd like a few more quarters under our belt before incorporating this trend into future guidance.

Therefore, we're 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'll now turn the call over to Q&A.

[Operator Instructions] And our first question comes from the line of Laurent Favre with BNP Paribas.

Sanjiv, I think you said it all within the first 5 minutes. But can I dig a little bit deeper in that health care comments. 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 the margin drag it has been on the business, please?

Thanks, Laurent. So I think we -- in the slide itself, we've laid out the fact that the Americas business ex the U.S. home care or Lincare business would be up 20 basis points on margin, ex pass through as we normally do. So that is a reflection of the gases business is doing well. As we said in the remarks as well that there is a bit of a mix effect, which actually, to be honest, I see the gases business doing well. I will take the hardgoods -- double-digit hardgoods sales that we're seeing in the business. It's a good signal of manufacturing recovery in the U.S. Yes, it has a small dilutive impact on margin, which is temporary.

And then of course, we talked briefly about sale of equipment elsewhere, particularly APAC, where there was that impact as well. But from our perspective, not happy with where the margins are. Actions are aggressively underway to essentially attack the issues that we've identified in the Lincare business. And I expect that we will continue to see sequential improvement as we move forward.

And just as a follow-up on the Electronics side, I think the contract that you announced have been, I guess, in the pipeline for a while. I was wondering in terms of geographies 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, et cetera?

Absolutely, the Electronics pipeline, as I said in my remarks as well, is looking healthy at this point in time. And you certainly heard from me say that I expect that we'll end this year on the backlog with the 8 handle despite bringing on investments of up to $1.3 billion. So we will -- the backlog will go down from the current sale of gas backlog of 8.1%, by about 1.3%, and we will add back into that backlog. So it has to be supported by a robust pipeline.

Those projects stand a wall, to your point, I see bulk of those projects out of the U.S. but see strong pipelines in Taiwan and Korea as well and some in China.

And our next question comes from the line of Patrick Cunningham with Citi.

I guess just talking about some of the manufacturing growth assumptions, particularly in North America, it doesn't seem like you have some of this base volume assumption trend sort of baked into the outlook. But is the bulk of that inflection that you see in coming from commercial space. I was hoping maybe you could dig into the health of some of the other end markets and what you're sort of anticipating for the second half.

Sure. So why don't I start off with a quick view. I think I provided a broad overview in my prepared remarks, Patrick there. Let me just kind of give you a sense of what we think the outlook for the second half looks like. So traditionally, our resilient markets, health care and food and beverage have been consistent, and we continue to expect the same outlook for the rest of the year there. Nothing significant to change. Electronics, as you saw year-on-year had 18% growth in the second quarter, we expect Electronics momentum to carry on for the rest of the year as well.

So again, pretty positive in terms of that. And of course, adding to the backlog helps us get the future growth prospects locked in as well. A point on Electronics worth noting, and I think in APAC, in particular, sale of equipment that we provide to many of our electronics customers is very important for us because while from a margin point of view, not that exciting, the reality is the pull-through on gas sales that happened in the future, I think this kind of ensures that. So feel good about that as well as we look at the second half.

On the industrial markets, and I'd say to you, manufacturing, which you kind of specifically mentioned, looks robust. Signals from the U.S. market, in particular, where the recovery is most prominent looks good. The feedback from the customers suggest that they see that outlook for the rest of the year as things stand today. Now within that, the indicators that we look for, and I referenced this again in my remarks briefly, the sale in the U.S. package business is a good leading indicator. Here, the gases side has been growing mid- to high single digit with the hardgoods themselves growing double digit.

And I think that's where the confidence that the manufacturing recovery that we're expecting, not just recovery, I think the momentum that we're expecting in manufacturing in the U.S. is likely to continue. We see that -- also elsewhere, Asia Pacific saw manufacturing momentum pick up as well, despite the fact that there are some Middle East related challenges in Asia, in particular, but the manufacturing underlying seem to continue to perform well. So again, the outlook for that continues to be reasonably robust.

Aerospace did provide for more than 1/3 of that growth for manufacturing. So to your point, I expect that momentum to carry on into the second half as well. Chemicals Energy has been a little bit spot here. I think low single-digit growth. We obviously have the benefit of some good backlog contributions coming in, in Asia. So I think that's looked good. But I do not see a fundamental shift in the chemicals energy piece. Obviously, there's a lot of volatility in the market at the moment. There are lots of geopolitical events that could impact one way or the other. And in part, you would see from our guidance that we have taken a neutral stand in terms of what's going to happen to the economy, we are happy for our investors to take a view on that because at this point, it's a speculation.

Metals and Mining, again, pretty robust in the U.S. and in Brazil. I expect that trend to be about steady. Obviously, in the U.S. with all the build-out that's happening with data centers, et cetera, metals are getting a little bit of a fill-up. So that's good. Listening to some of our customers' calls over the last few weeks have seen slightly more -- slightly higher degree of optimism as well on steel. So it will be good to see that flow through into the next half as well. So I think that kind of broadly gives you a sense of where we are seeing momentum and what the outlook for second half looks like at this point.

And our next question comes from the line of Duffy Fisher with Goldman Sachs.

Question just around the impact that you've seen on your business and on your customers from what's happening with the Strait of Hormuz and kind of the greater Persian Gulf area obviously, particularly with helium, but then just with the general business. And then if that issue resolves itself this year, what do you think the impact will be a year out as that starts to normalize?

So that will be the Middle East impact, as you know, and I'll start with Helium, just to begin with because I think that's a good place to kind of give a sense of how we've managed and navigated that fairly complex set of issues. But -- and then talk a little bit about what happens elsewhere. So starting with helium. I think as far as helium is concerned, I'm really pleased with how our team has navigated this whole set of developments over the last many months, largely because we've done what we need to do in ensuring that reliable and safe supplies until our existing contracted customers, and we've had a lot of positive feedback coming from them because that's what they would expect from Linde.

But more importantly, our teams have also gone out and they've signed up new customers with long-term contracts as well, leveraging the fact that we have the confidence in our supply chain due to the diverse sources that we have supplying into the helium supply chain, the cabin that we maintain, and of course, quite importantly, the capability around supply chain logistics, in terms of tanks, et cetera, all of that's played well into positioning this for new business growth that we've seen. We have had the pricing move along as well, which has been a good thing.

Obviously, [indiscernible] costs related to helium, the overall recovery probably doesn't quite show through in the margins just yet, but I fully expect that as well over the next couple of quarters. I think equally important to just underscore on the helium is the fact that looking ahead, we continue to be confident in our ability to maintain that supply chain despite the more recent developments in the Strait of Hormuz. Any change in the Strait of Hormuz and the fact that we restart helium production back in Qatar and get the alignment of all the supply chain elements that each come together between tanks and shipping and so on and so forth, I think will have a lasting impact for the rest of the year. I don't think you will see normalization.

This year, it will -- once those issues are resolved, which, of course, itself remains a little bit of a question mark today, once the issues are resolved, we will see normalization progress at a slower pace than most of us would like and will kind of probably take us into the early part of next year. As things normalize, yes, next year, we should see a more normalized year market. But at this point in time, seeing the resolution of what happens in the Strait of Hormuz is probably more important than speculating what next year is going to look like.

Let me talk about some of the other markets. So where we have seen an impact on the Middle East crisis is the fact that in Asia country is highly dependent on hydrocarbons coming out of the Middle East have had to scale back industrial activity. And I think markets like India, [indiscernible], Australia and, to a lesser extent, China have seen that. And I think that's where the impact over this second quarter, as we've kind of mentioned to you, it's probably a little bit more visible. Everybody is hoping for resolution. Once that happens, you will see that normalization happen fairly quickly. But each of those countries has been looking at different strategies to manage these issues that they currently continue.

And our next question comes from the line of Vincent Andrews with Morgan Stanley.

Maybe just a 2-part one. First on Helium, just to clarify, did you all change anything in your guidance assumptions relative to what you had assumed back at the start of the year? And then secondly, in Americas, the kind of year-on-year price step down, I think it was flat sequentially. Was that the hardgoods mix issue? Or is underlying sequential price leveling off?

Vincent, it's Matt. I could probably answer those. So I think first on helium, yes, so we left the guidance intact. So by default, that kind of means no material change and helium would also be part of that. So to your first point, we didn't change it. and just kind of building off what Sanjiv said. When you think about the helium business right now, what we're seeing, we are seeing strong price improvement, but we're also seeing higher costs for dislocation, as Sanjiv mentioned. So the contribution on a dollar basis, it is positive. It's not as large as we'd like it, but it's positive. But on a margin basis, that grossing-up effect right now is a little bit dilutive. That should stay [indiscernible] as it normally does. But as you can imagine, right now, meeting our customers and getting new contracts signed is the priority.

And doing it a positive dollar contribution is happening. It's just the margin gross-up effect right now is a little bit dilutive on that front. On the Americas, just to make sure I understand, I mean, price is up 2% year-over-year. Sequentially, were flat. As you know, when we talk about sequential, I tend not to send a lot of time on sequential just given the different timings of some of the escalations that are done and the pricing actions. Year-over-year always is a more important metric for me. So when I think about that, it is, I'd say, for Americas delivering on our expectations, Obviously, you're going to have -- again, we talked about Lincare, there's not pricing in that business right now, a significant amount. It is probably not keeping up with what it needs to be.

So that will be a little bit of a drag. That's been the case, though, for many years now. So I would say pricing in Americas on the year-over-year is tracking where we'd expect and what we want to see. I hope that answers your question, but just to make sure -- I don't know if you have a follow-up on that.

And our next question comes from the line of David Begleiter with Deutsche Bank.

Sanjiv, I know it's early, but if you look at next year 2027, given project start-ups, helium maybe being [ Helen ] next year, Helium, growth in space, pricing productivity. Do you need much of any macro improvement to get to double-digit 10% EPS growth next year?

Thanks, David. As you know, our EPS algorithm lays out the fact that between manufactions and capital allocation combined, we should be delivering 8% to 12%. We're not looking for macro as long as macro is not taking away from that, you should expect us to look at that 8% to 12% range. And I think we will be consistent on that as we look out to next year as well. Obviously, any tailwind that we get will be factored straight in and you will see that improvement come through at the EPS line.

Now as you know, this is very early. We've talked about 2027. So later in the year, we'll have -- and early next year is when our guidance will be more clear on that. The late in the year, we'll obviously be doing a lot of work planning for next year to make sure that we have a good handle on how the business is going to play out.

And to be clear, Helium should be a tailwind next year. Is that fair?

Helium will be normalized next year. I think we'll have to wait and see what that means. The complexity of volume and price mix, I think, will play a role in what Helium does next year. .

And our next question comes from the line of Josh Spector with UBS.

I wanted to ask on the CapEx rate for this year. I think you addressed it in the prepared remarks briefly, but did you indicate that a lot of that increase was linked with commercial space? And I guess if you can give maybe any other breakdown of that $500 million increase, that would be helpful. And I'm just curious with that, if you are building more for that market through your merchant pipeline, what does that mean for space customers approach in your view to make versus buy in terms of oxygen, nitrogen and the gases for that market?

Josh, it's Matt. I can probably handle those. So starting on the CapEx. Yes, you are correct. The CapEx number on the estimate was bumped up. Clearly, with the backlog wins that will drive that. So by adding the new project that Sanjiv mentioned in the prepared remarks, that is contributing to that. And yes, there are going to be more commercial space activities and the base CapEx that also are contributing to that as well. So the combination of those 2, both the project backlog and some of the base CapEx will drive that.

As far as the make versus buy, that -- when you think about our traditional on-site customers, that always is something that has been something we manage for many, many decades, right? The traditional on-site customer would look to buy a plant versus outsourcing the sale of gas model. And that's something we had always managed through actually a hybrid approach because we have the capability to do both. I would say with commercial space, given the quantities of propellant they acquire. You're seeing a similar dynamic at least with certain players that have comfort and the access of capital to have a desire to vertically integrate.

Now this right now is primarily only with certain players and atmospheric. We are not seeing it in the hydrogen side, which is a very, very different dynamic for any Hydrolock-based engines. So it's a normal occurrence, I'd say, when you start seeing these kind of quantities. It's something that's very akin to how we have navigated the on-site business for many days, and we're very comfortable with it. So absolutely, I expect you'll see a blend of sale of gas and some sale of plant.

Generally, those sale of plants can come with what's called an operated maintain. So you tend to run it all as a system. You may run customer-owned plants with your own plants on sale of gas. And that gives the customer kind of the best of both and it also helps manage our both capital and management of products. So I would anticipate that for certain customers, not all customers, and it also would probably only be on certain atmospheric I don't anticipate it at this stage at hydrogen. So that's how I see that develop.

The only thing I'd reiterate there, Matt, would be the fact that we will play for both sale of gas as well sale of block. So we do participate in the opportunity, even if it is a sale of plant in case people want to vertically integrate them.

And our next question comes from the line of Matthew DeYoe with Bank of America.

Congratulations for getting the [indiscernible], the large electronics customers over the line. What -- and can you share maybe some revenue intensity of the CapEx or give some guidance? Your European competitors kind of flagged like a 25% CapEx to revenue conversion on some of these projects. Is that a reasonable ballpark for you?

Matt, this is Matt. So the revenue to CapEx is always going to be a function of whether it's atmospheric or whether it's process gas like hydrogen. So as you can imagine, if you have a more process hydrogen based that has energy pass-through that might be higher. But traditionally, for us, revenue has ranged anywhere from 20% to 50% depending upon energy pass-through or -- and I would just say, of the ones we've won, they're very, very similar to the structure and ones we've already had in place on the first few phases, there's no real difference from that perspective because those contracts follow a very similar construct on both the molecules and how energy is managed.

And if I could, the other business, typically a bit all over the place, but it was kind of maybe not immaterial this quarter. If I -- my memory is serving me right, that's where Linde AMT is in some of the sputtering targets and that stuff. So is that the semi cycle build here and this should be kind of like an indication of the direction of profits? Or am I -- or is this kind of a little bit of a one-off positive quarter?

Matt, I'd say that the Materials business overall has been doing well. Sitting within that our coating services, atomizers and some sputtering, et cetera. I think all in that portfolio is performing reasonably well under these conditions, driven by aerospace, a little bit of the commercial build out as well. And I think you would put that together. I think it's looking -- the outlook seems pretty robust for the second half as well.

And our next question comes from the line of Jeff Zekauskas with JPMorgan.

If I did the math correctly, the home care penalty was $30 million in the second quarter. So order of magnitude is at a $100 million NLT for this year? And is Lincare all of your 23% of health care revenues for the Americas?

Jeff, it's Matt. So I think the number is a little higher than what you have. So close, but I'd say it's probably higher though. But you could probably say 30% higher than that number, give or take. But -- so that is the headwind we have. That's what we're facing. I think when you think about the Americas, it is clearly the largest piece. Now it does not glue the institutional portion which is actually run through our traditional gas business because of the nature of the contracts and the structure. But it is, by far, the lion's share of the Americas home care just given the size of the revenue of that business.

Okay. And when we look at your health care revenues, they look pretty flat year-over-year. So can you talk about the dynamic that's pressuring profitability? And if you're -- have you come to a decision as to whether you want to divest this business or is this going to be contemplated over the next quarter? Does it take longer? Can you help us with those issues?

Sure, Jeff. Look, the challenges at Lincare are not new, right? The business has served us well through the COVID period and the immediate kind of a couple of years after that. But over the last couple of years, in particular, you heard us reference it as well. It has faced persistent headwinds, right, from labor cost inflation and changes in reimbursement environments. And I think those have contributed to these penalties that you referenced earlier on. Now we put a new management team in place. Their focus is on improving the quality of that business. We've been pruning the portfolio. Again, you've heard us say that in a couple of the calls over the last couple of years as well. There are aggressive actions currently in place to look at operational improvements and productivity.

Those actions will create the impact that we're looking for, which is why I expect as we move forward, we will see improvements in that business. Now in parallel to those aggressive set of actions that we put in place, we're also evaluating what the strategic options for this business are, and I want to make sure that we do that exercise with diligence and determine one way or the other, this business is going to have a meaningful positive impact on our portfolio.

And our next question comes from the line of James Hooper with Bernstein.

Just in terms of the backlog projects, can you give a little bit 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?

Thanks, James. As you know, the backlog projects take typically between 2 to 3 years in terms of execution, by the time they come on, we then typically expect a ramp-up to happen across the board. Now the projects that we have in our backlog at the moment all met our investment criteria. We tend to look at them from a post-tax double-digit IRR -- unleveled IRR perspective. So they kind of hit the investment criteria and therefore, are an attractive part of the future business growth that we're likely to see. .

But they do have a ramp that they go through before they actually hit their final kind of margin contributions that they make. So you should expect that cycle of backlog projects coming up, starting up -- starting to deliver on margin contribution and then through the ramp process, ensuring that, that moves up. So I always expect backlog projects to continue to improve on their margin until they reach their full capacity utilization.

And our next question comes from the line of Kevin McCarthy with Brickell Research Partners.

Sanjiv, if I look at your volume trend in Asia, it was up 6% for a second consecutive quarter versus, call it, either side of flat throughout 2025. Can you unpack that a little bit for us? My sense is you've had project start-ups there and maybe some sale of equipment. Just trying to get a better sense of whether the baseline demand is improving in APAC.

Kevin, I think in part, you've already answered your question. There are 3 components to what is happening in the Asia volumes, right? There is obviously base volume, which is positive. There are sale of equipment, significant sale of equipment elements sitting within there for the Electronics customers that has had a somewhat disproportionate impact in this last quarter that we're talking about. And last but not least, there are some ramp-ups. I was just referencing to James earlier on how we expect projects to ramp up. We're seeing a ramp-up of our backlog projects that were started up and are ramping up in ASEAN, in particular, also contributing to that. You put those 3 together, I think you see that healthy 6% sitting over there.

Okay. And then I wanted to ask maybe a general question on your backlog. I mean it seems that the Electronics space, in particular, is quite vibrant and you're winning a fair amount of business there. Does that create a positive mix effect at all? In other words, if you look at your returns, let's say, over the last decade. Are they any better in the Electronics space relative to all of the other end-user markets combined? Or would you say that they're similar?

Kevin, it's Matt. I can take that. So as you probably know, as we said, we make our decisions on IRR, right? That's how we make our backlog and our capital decisions. So it's not really a revenue or a margin kind of view more of an IRR undiscounted -- or discounted unlevered view. So from that perspective, I would say all of our projects, whether it's in any end market, electronics, energy, they tend to all fall within a certain consistent range because it's based on the risk and the terms and the conditions and what we're undertaking. .

And of course, in Electronics, you're going to have more purity requirements and you're going to have probably more redundancy, which generally means more capital, but your return profiles tend to be consistent nonetheless. So we don't really see much disparity in on-site returns by end market. That tends not to happen. Where you can see different margin profiles is when you get the incremental process gases, rare gases, specialty gases that tend to come with large electronic clusters because those are more specialized, require a lot more effort on purity and manufacturing. And so that bolt-on on the after fact you can create some incremental margin opportunities but the on-sites themselves are very similar across all end markets. And again, IRR is what drives those decisions.

And our next question comes from the line of John McNulty with BMO Capital.

Sanjiv, maybe can you speak to what you're seeing, in particular, out of APAC on the industrial side in terms of longer-term investment? I know you spoke to -- right now, there's kind of a mix of things going on just given what's going on in the Strait and the Iran conflict. But is that having any slowdown effect or pausing effect on future projects, future growth in the industrial markets looking out over, say, the next 2 to 3 years? Or is it business as usual and things are going to keep kind of coming on over time and adding to your growth as well?

So John, I'd say the headline over there would be business as usual, reflected in a bit of a change in the mix. It's a clearly strong Electronics growth. We talked about the backlog development. We expect the project pipeline for electronics growth in Asia Pac to remain fairly robust. And I think that helps with some of that long-term investment profile that you're thinking about. Where we do see a little bit of a mix effect is where the traditional end markets, for instance, I do not expect to see significant steel investments happen in China as an example.

Now if you go back a decade, clearly, that was the case. But going forward, that's unlikely to be the area where you see. On the other hand, the flip side to that is in India, you're seeing traditional end market investments happen, which results in us seeing an investment cycle as well over there. And those are in the more traditional end spaces like steel and like refining and other elements of manufacturing as well. So I think I'd say to you, business as usual, broadly the mix is changing a little bit, getting more positively impacted by Electronics and then the rest being made up of the more traditional end markets.

And our next question comes from the line of Arun Viswanathan with RBC Capital Markets.

Apologies if this has already been asked, but maybe you could just elaborate a little bit more on some of the actions you're taking to drive a little bit of the margin recovery. I know that you did have some of that within the Americas, some compression. And then if you could look into maybe the back half or next year, do you expect that negative operating leverage to be resolved? And what would drive that? Is it increased management actions and in pricing or productivity? Or how do you see that?

Arun, this is Matt. So I think a couple of things. Yes, first, let's just talk about the comps in year-over-year. So if you may recall, 2025, we had strong front half margins, weaker back half margins. So when you think about the whole year in the context, I'm fully expecting us to see better year-over-year just given how last year played out. So that's just a bit of a comp scenario. But as mentioned in the prepared remarks, and as we've stated, we have a series of actions underway that we need to undertake to improve margins.

And Lincare is going to be the focus, given that's the biggest driver. I do think some of the other aspects, like higher hardgoods sales and some of the sale of equipment, as Sanjiv mentioned, we view that as actually positive. That's something we will continue to do that will get us greater wallet share and greater connection to future gas sales. So those are an integral part of our model, always have been and will continue to be. And you do tend to see those grow stronger in certain recoveries and as markets start to expand.

But we will likely look to take some cost actions this quarter, depending on the size, that's something we want to get ahead of. I mean it is clear you're seeing more inflation around the world, and that's something that we have to manage through our productivity and our actions. And in some regions, you're seeing growth, which supports it in other regions, you're seeing inflation without the growth. And that's an area we're going to focus on specifically for this quarter. Above and beyond our normal productivity initiatives we normally take as part of our everyday DNA. So more to come on that. It's something we'll probably give a little more color on and what we've done in the October call. But I can tell you right now, these actions are already underway, and we're accumulating all of them to get ahead of the next several quarters.

And we will now take our final question from the line of Abigail Eberts with Wells Fargo.

In the past, you called out space being a $1 billion opportunity. I'm just wondering if you have any update on that number.

A sector, Abigail, continues to grow well. We consider that the -- and we talked briefly about some of the options around space earlier on in the call, but we are on track for that $1 billion opportunity that we laid out over the next few years. I think 2030 was the time line billion plus is what our expectation around the space markets was. Once it reaches a certain size, you'll see us split that out in our end markets and have more visibility around this.

That concludes our question-and-answer session. I would now like to turn the call back to Juan Pelaez for additional or closing remarks.

Avi, thank you. Thanks, everyone, for participating in today's call. If you have any further questions, please feel free to reach out. Have a great day. .

And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

Ladies and gentlemen, good day, and thank you for standing by. Welcome to the Linde First Quarter 2026 Earnings Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Mr. Juan Pelaez, Head of Investor Relations. Please go ahead, sir.

Avi, thank you. Good morning, everyone, and thanks for attending our 2026 First quarter earnings call and webcast. I'm Juan Pelaez, Head of Investor Relations, and I'm joined this morning by Matt 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 Page 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. Matt will provide some opening remarks, I'll give an update on Linde's first quarter financial performance, and then Matt will finish the updated outlook, after which we will wrap up with Q&A.

Let me now turn the call over to Matt.

Thanks, Juan, and good morning, everyone. The Linde team delivered another solid quarter against a challenging economic backdrop. EPS of $4.33 grew 10%, operating margins reached 30% and return on capital remained at a healthy level of 24%. The high-quality compounding growth of our company, no matter what the environment, is a testament to the unwavering commitment of all 65,000 employees to create shareholder value.

And given the recent geopolitical volatility, it may be helpful to provide a brief update by end market, which you can find on Slide 3. As a reminder, the top half shows consumer-related end markets at approximately 1/3 of sales, while the bottom half represents industrial-related markets. for the remaining 2/3. The growth rates reflect price and volume, but exclude FX or M&A.

Starting at the top, health care at 16% of global sales grew 1% year-over-year. We provide gases, equipment and services to medical institutions, such as hospitals, and direct to the home. Normally, a resilient market like this should grow in line with demographic trends or low to mid-single-digit percent. And while we're experiencing those growth rates in most countries, the U.S. home care business has been relatively flat. In late 2025, a new U.S. health care policy resulted in less services for a specific piece of equipment, which is reflected in the current run rate and will continue for the next several quarters.

Aside from this particular issue, the rest of health care is performing as anticipated, while providing a resilient balance to the more cyclical markets. At 9% of sales, food and beverage grew 5% from broad-based strength. The largest contributor is the U.S. beverage business, where we continue to see increased customer need for new services and applications. In addition, traditional bottling and food freezing growth remained quite strong, especially in North and South America. Overall, food and beverage has grown mid- to high single digits over the last several years. and is expected to remain a steady contributor.

Electronics increased the most at 10%, primarily driven by continued investments in advanced chips to support AI. The growth is heavily weighted toward the U.S., China and Korea. Since our substantial electronic sales in Taiwan are excluded as a nonconsolidated 50% joint venture. As both the scale and industrial gas intensity continue to expand in this sector, Linde remains well positioned. We're currently investing more than $1 billion of the project backlog and for ultra-high purity plants, which will support the most advanced fabs in the world. And there's more to come as we have a high degree of confidence and adding substantial new projects to the backlog this year.

Moving to industrial end markets. you can see growth across the board, which supports the notion we're starting to lap more difficult comps after years of stagnant industrial activity. Chemicals and Energy, representing 22% of sales increased 3% as growth in Americas and APAC more than offset contractions in EMEA. Americas was driven by higher activity for hydrogen and nitrogen and U.S. Gulf Coast refining and Latin American upstream energy. While APAC increases primarily came from our recent investments in the Jurong Island integrated complex. EMEA continues to experience negative volumes, primarily from on-site customers shifting production to more competitive assets outside Continental Europe.

It remains to be seen what the longer-term effects could be for the Middle East conflict, but so far it appears activity is relocating to more feedstock advantaged assets in Americas and, to a lesser extent, APAC.

And while we're on this topic, I think it's worth providing a brief update on our helium business. Helium was an oversupply for a few years through 2025. But recent events have created acute global shortages. Linde sources from a very broad-based since supply chain constraints are a recurring charge. Therefore, we are currently well positioned despite some of the recent outages. Given our business is largely contracted, the priority is to meet existing customer commitments. After that, we still anticipate excess molecules allowing us to pursue new multiyear contracts with high-quality customers.

Therefore, I don't anticipate significant spot sales this year since we're focused on securing long-term agreements. Returning to the end market slide, Metals and Mining grew 3% and similar to chemicals and energy. The entire growth is coming from Americas, as both APAC and EMEA are relatively flat. A combination of better industrial activity and protectionist policies from U.S. to Latin America have supported local metals production over imports.

Furthermore, we're seeing renewed competitiveness from customers of more gas-intensive integrated blast furnaces when compared to EAFs, primarily from constraints associated with cost-effective scrap, and electrical infrastructure. The last industrial end market of manufacturing grew 5%. Half of the increase came from aerospace activity in the United States, primarily supporting space vehicle production, testing and launch as this end use continues to see strong double-digit percent growth.

We'll isolate aerospace as a separate end market when it consistently exceeds 5% or more of global sales, which will be a function of the frequencies, size and propellent type of future space launch. Excluding aerospace, Romanian end market grew low single-digit percent as strength across the Americas, especially in the U.S., was partially offset by continued weakness in EMEA while APAC slightly improved over last year.

Within the U.S., packaged gases grew mid-single digit and hard goods double-digit percent, which aligns with the recent favorable U.S. production statistics. In hardgoods, growth was bounced between consumables and equipment and driven by energy, construction and general metal fabrication. EMEA activity was softer from continued weak industrial activity including direct and indirect impacts from the Middle East conflict.

And in APAC, we experienced moderate volume growth driven by China and Southeast Asia. In summary, the portfolio is doing what one would expect. As geopolitical events shift production around the world, and secular growth trends drive concentrated investments, our business units continue to adapt and capture their fair share. And while no one can predict how the next few months will play out, let alone the next few years, I'm confident the lending team can navigate the volatility and continue to deliver high-quality compounding growth.

I'll now turn the call over to Juan to walk through the financial results.

Matt, thank you. Please turn to Slide 4 for our consolidated results. Sales of $8.8 billion were up 8% year-over-year and flat sequentially. Versus prior year, foreign currency was a 5% tailwind driven primarily by the strengthening of the euro. Net acquisitions contributed 1% from attractive roll-ups we've been executing globally.

This quarter alone, we signed 9 more bolt-on acquisitions, primarily in the Americas, which will continue adding to future EPS growth. Underlying sales increased 3% versus last year from 2% higher pricing and 1% higher volumes. Volume increase was driven by the project start-ups, primarily in APAC. Both Americas and APAC continue to see base volume growth but it was mostly offset by EMEA due to the weaker economic activity in the region.

Sequentially, underlying sales were flat as higher pricing was offset by lower volumes, mainly in APAC and EMEA. The lower volumes was driven by seasonal factors, especially in APAC, followed by EMEA where we continue experiencing weaker trends in the industrial end markets. Price continues to drive underlying sales growth, highly correlated to local inflation levels. Recall that actual price increases are higher for the combined packaged and merchant gases which represent roughly 2/3 of total sales.

Operating profit of $2.6 billion increased 8% year-over-year and resulted in a margin of 30%, similar to prior year. Sequentially, margins improved 50 basis points, driven by management actions in pricing and cost productivity that more than compensated for seasonal volume declines. We expect management actions to continue to support profit growth and margin expansion for 2026.

EPS of $4.33 was 10% over prior year or 5% when excluding the effects of currency translation. We finished the quarter slightly above the top end of the guidance range due to better effects as the business performed as anticipated, considering the many challenges globally. Operating cash flow was $2.2 billion, 4% higher than prior year. Capital expenditures were $1.3 billion, and as a result, our free cash flow was $900 million, which we used primarily to pay dividends and repurchase shares. The CapEx of $1.3 billion was roughly split between base CapEx and project backlog.

Have in mind that base CapEx is primarily maintenance and all other growth investments not meeting our stringent backlog definition. For example, current investments to serve commercial space. In this quarter, we started up 10 projects from the sale of Gas backlog, mostly in Americas and APAC, with investments of approximately $300 million. Furthermore, we signed 5 new projects that added $100 million to the sale of gas backlog, which ended the quarter at $7.1 billion.

Industry-leading return on capital ended the quarter at 23.8%, a reflection of capital discipline, consistent earnings growth and good backlog execution.

Slide 5 provides further details on quarterly capital management. The operating cash flow trend can be seen to the left with the most recent quarter of $2.2 billion. Note, the first half of the year is weaker due to the seasonality of cash payment timing for interest, taxes and incentives. For 2026, we anticipate a similar trend as last year. To the right of the slide, you'll find a pie chart that demonstrates the balance across investing into the business and returning capital to shareholders. Disciplined capital allocation is a hallmark at Linde and is something that differentiates us from others.

During the quarter, we raised the annual dividend by 7%, making it 33 consecutive years of dividend growth with an average growth rate of 13%. We also repurchased $800 million of stock during the quarter, while reinvesting almost $1.5 billion into the business. Our cap allocation model remains consistent across all environments. In periods of uncertainty and volatility like today, a fortress balance sheet is critical not only to maintain stability but also to capitalize on growth and share repurchase opportunities as they arise.

Thank you. I'll now turn the call over to Matt, who will wrap up with the guidance update.

Slide 6 provides the updated 2026 guidance. Starting with the second quarter. We anticipate EPS in the range of $4.40 to $4.50 or 8% to 10% growth. This includes a 1% currency benefit but consistent with prior quarters, assumes no economic improvement at the midpoint. For the full year, we're updating to a new range of $17.60 to $17.90 or 7% to 9% growth.

Like the second quarter, this includes a 1% currency tailing and assumes no economic improvement at the midpoint. Also note, both ranges do not include any improvements in the helium business versus the February guidance. So any incremental volumes or price would be upside. And when compared to the prior guidance, we raised the bottom by $0.20 from increased confidence in the overall business resiliency. However, we left the top at $17.90 because it's still early to signal increased optimism.

There are a lot of things happening in the world right now, and I'd like a few more months before considering a top end raise. Overall, we had a devent start to the year but remain guarded until we see more clarity on current geopolitical events.

I'll now open the call to Q&A.

[Operator Instructions] And our first question comes from the line of Laurent Favre with BNP Paribas.

- My first question is on margins. You mentioned a strong improvement in the Americas. And I was wondering if you could talk about, I guess, the big moving parts of while Europe was flat. Asia down. Is it Hillion,Is it the rapid cost inflation in March which created the temporary squeeze in and there would be very helpful.

Sure, Laurent. I'll start with -- and we said this last time, and I just want to reiterate it again this time. On a full year basis, we feel pretty confident we're not only going to raise margins for the full year 2026, but probably at the upper end or even above our traditional range that we tend to talk about of 40 to 60 basis points. now stating that in the full year, you're always going to have some moving parts within the quarters.

I think when you think about Europe, clearly, the volume is a bit of a drag. I think within EMEA as a whole, -- we mentioned on the call between a combination of the overall weaker industrial environment, the weaker chemicals environment, add to it, both direct and indirect impacts from the current Middle East conflict we're just not seeing the volume recovery there. But I could tell you we're not happy with the performance. The business team is taking actions to improve that. They know that. So I expect to see some improvements there in Europe.

With APAC, we did mention on the backup slides, we had about half of the sales growth was a sale of equipment. But actually is equipment that is connected to long-term merchant contracts in electronics. So that does come with future contracted merchant sales. But that will tend to be a little bit lower margin on average. It's a kind of a one-off. But also, as you know, Q1 is traditionally weaker in APAC, just given some of the seasonality effects. So I expect APAC to kind of get back up to the 29 type percent margins we saw last year as the team there continues to work towards improving that.

So some of it is timing, some of it is just a little bit of some effects on the volume -- but on the full year, we fully expect to not only raise margins, but probably at the top end or above. And again, this is all ex passed up or down, as you know, which is just more optics on the margin and no real effect of profit dollars.

And as a follow-up, you mentioned that you disclosed commercial space sales when you get to 5% of the group, which is about $1.7 billion. And I think recently or on the prior call, you mentioned that you thought sales in commercial space would get to about $1 billion by the end of the decade. So I'm just wondering, I mean are you now thinking that we may get close to $1.7 billion by the end of the day and it's big change?

Yes. So Laurent, I mean I'll start with -- look, we feel very good about our positioning to support the space economy and as that develops. Clearly, in the U.S., you're seeing that much more rapidly with the private commercial space sector. But even across outside the U.S., we're definitely seeing acceleration in those efforts. With controlling the customer, that's going to be their determination on launch, but it's like I mentioned on the call, it's going to be a function of frequency size and propellentype.

And what that means, I think frequency is self-evident, how many launches occur. -- with size, it could be dramatically different, much larger rockets and much larger booster systems can use orders of magnitude higher of propellant as you can imagine, something, for example, the largest rockets out there versus the smaller ones, you could see 10x difference on fuel and per ton. And then the fuel or propellent type is important because while we supply oxygen for the oxidizer and nitrogen for densification, fuel-wise, there's really 3 types today. You'll see which is either Paratin, methane or hydrogen. Obviously, we supply hydrogen, we do not supply the other 2. We would do only sale of equipment for things like LNG. And so if you do see more hydrogen-based rockets, that could also accelerate the growth for us depending on the fuel type used.

So we feel pretty good about it. You look at the ambition on getting satellites and constellations in space today. You look at the existing population and what needs to be replaced in lower orbit roughly every 5 years, I think it continues to bode well for launch and not only the major players, but there's more room for maybe some new players that can be supporting the demand out there to get more constellations in space. So -- we'll see where it ends up. I think it will all be a function of the launch cadence, but we feel quite good about our positioning to supply that when it happens.

And our next question comes from the line of Patrick Cunningham with Citi.

I guess, first, as you think of maybe the longer-term implications of this crisis, it seems like there's probably a heightened focus on energy security, deglobalization -- so I'm curious as how you're thinking about the potential for -- how potential conventional energy and energy transition projects should trend as a result?

Thanks, Patrick. I mean the natural reaction is exactly like you stated, right? You'll energy independence will be more accelerated. One can argue we've already been deglobalizng as a global economy, and this may have accelerated some of that. But energy security continues to get a lot of highlight in spotlight when you see these supply-type shocks that occur.

But my opinion, ultimately, it still comes down to economics and ability. So while renewable energy will continue to be an area of high interest. It's still going to require government intervention. It will require some support sponsorship, potentially some kind of subsidies as we've seen in certain geographies and so I think without that, it's hard to see that happen on its own as we've seen, but time will tell. I think as far as other hydrocarbons, I absolutely believe you'll see more of that. Clearly, with other LNG and areas that are probably less of concern countries, you could see areas like oil sands of Canada become more interesting, again, just given that the exploration risk is almost nonexistent. They know the product is there. It's just more of a logistics challenge to get it seaborne or to get it pipe to where it's needed.

So I just think that some of the more traditional areas will get another hard look given the uncertainties in the hydrocarbon space. I do think you'll get renewed interest in renewables. But again, without the support of government to help that on everything from right of ways to land to permitting, to bridging some of the economics, it will be hard to see that accelerate at a clip that people wanted to.

Got it. And just on European sort of outlook, how should we think about on-site volumes and potential earnings upside for the balance of the year. I think despite some of the feedstock and energy challenges, we have heard some more advantaged or flexible refining and petchem assets running a bit harder sort of month to date. So -- how do you square that? What's sort of the outlook? What are sort of the -- the puts and takes in terms of mix there as well?

Sure. I think we do have some on-sites that are running well that you could argue are state champions or regional champions. But on the flip side, we've definitely seen some ships production, right? And they're shipping it to some of the assets we supply in other geographies, primarily in Americas. I do think part of it also in Europe right now, in my opinion, you have a bit of a challenge with some of the uncertainties, right, around energy policy around some of the environmental policy. Clearly, there's a lot of imports and not just on the base material side but on the finished goods side as well.

And so at this point, it's hard to see how all of those factors will create any significant change without some catalyst. And whether that catalyst is some type of restrictive import policy or more clarity on the environmental policy. Clearly, with the IAA that could help I think it just needs -- that money needs to find its right on the ground. If it does, that could help turn some of that around. So that's to me what we just need to see. If we see a catalyst there of some significant type that should help and it could be anywhere from maybe some import restrictions to the IAA hitting the ground. But aside from that, it's hard to see a major shift.

And our next question comes from the line of Vincent Andrews with Morgan Stanley.

Matt, certainly back on the space side of the equation and the idea of getting to that 5% of sales. Do you have the capacity you need to get there? Or should we be anticipating some type of capacity increase, maybe it's in different geographies? And would you do that in concert with customers? Or would you do that on your own and make it more of a merchant business? How should we be thinking about that?

Yes, sure. I think it's really in concert with customers. In my opinion, you have several launch providers that are doing a variety of different engine testing, they could do static testing, gimbal testing, whatever they're doing. And the locations they want to do that could very well be different than where their pad is with their launch. Once they start migrating to more frequent launches, which can migrate from [indiscernible] parcels all the way to full launch, you're going to want to make sure logistically, you're as close to the pad as you can be.

So from my perspective, we are working with the major launch providers and also a lot of the up-and-coming providers, to make sure that we have the capacity and the contractual relationships to support them and their ambition. And the way it kind of works is in the early stages, you're probably going to do longer logistics halls when it's more infrequent and intermittent. And then as they get on to a better cadence, then you start talking about new requirements contracts in supporting a more stable launch cycle. -- and that, you put closer. And so you eliminate the logistics cost, which obviously makes their costs lower on the PROPEL. So -- and it's a combination, it will be sale of gas, obviously, that also could be some sale of plant. We do both. We support.

It's very similar to what you would see in the large on-site where at times we've sold plants and sell a gas and we'd literally run the system of all the plants. So I think that's what you're seeing. And as you can imagine, there are some very specific areas where the launch sites are concentrated given FAA regs and what you need to do around that for the airspace. And so that's where we have a very strong capacity today, and we're working to secure more contracts with our customers for the future launch needs.

And our next question comes from the line of Duffy Fisher with Goldman Sachs.

By far, the most incoming questions I'm getting on you guys is around helium. And I know you guys talk about it being kind of a small part of your business. But in the last supply shock we had with Russia, you did see pricing start to roll into some of the contractual business. I guess, how do you see this supply shock playing out differently than what the Russian supply shock did and how long would the straight have to be closed before you'd start to see some of that pricing roll through some of your contractual business?

Sure, Duffy. Yes. Maybe I can level set it with what are we seeing in handling in the first quarter. So I'll start with our Helium business, depending on the time we're anywhere from 85% to 90% contracted on our customer base. So that's kind of a starting point. And when I look at Q1 year-over-year, our global helium sales, for the most part, were roughly flat. And what we saw was a couple percentage decline in pricing year-on-year and a couple of percentage increase on volumes year-on-year. Now as you know, with the Iranian conflict, it sort of happened 2/3 into the quarter. So 1 can roughly argue you had kind of 2 months before and 1 month after based on the date. .

And what we saw, we've been seeing the pricing rise on the average pricing. So even though we're a few percent below pre and post that, there is a difference. And likely that price will continue to go up and roll its way through. I fully would anticipate that to happen throughout the year. Separately, our volumes are up, and we've actually already secured some long-term agreements. I fully expect we'll secure more long-term agreements. That is our priority.

And that's how I would see that play out. Now when you think about the helium situation, you have 2 sort of distinct issues happening at once. You obviously have the Strait of Hormuz with Qatar and their inability to get product out and also the question of how much capacity is out for multiyears based on damage. Separate and distinct you have this Russian issue going on, which is probably a little more political in nature. Now we don't take Russian supply, as you can imagine, but that is having an effect primarily on the Chinese market that one could fix itself much quicker, as you could imagine. And so that one will see how long that lasts. But I think either way, the way we built the guidance, we just didn't want to take a view eitherway -- we just left it as we had it. But when opportunity presents itself both on pricing and volume, that will be incremental. and that's something we will get above how this is guided today.

And our next question comes from the line of David Begleiter with Deutsche Bank.

Matt, on electronics, I know you're expecting a couple of large contracts this year. Are they still in progress on the come for this -- for FY '26.

Yes, David. So consistent with the prepared remarks, we have a pretty high degree of confidence that we'll be announcing some here shortly. And when I think about the project backlog itself for sale of gas, we're sitting a little over $7 billion right now, and I'd look to these being added. And based on some timing of some other projects, I'd fully expect us to have a higher backlog by the end of the year based on this higher than the $7 billion and could potentially have an 8 handle on it. based on this. So we feel pretty good about that. And that's something I expect in a few months, we'll be able to lay out there. .

Very good. And just on the Wood side, there's been some confusion, some conflicting on new stores. Can you level set us as to where you stand on that project and what's embedded in 2026 guidance?

Sure. Yes. I think, David, you may recall in prior conversations, when we described this project and other very, very large projects like it, they tend to phase and how they start off, you'll start up pieces and phases. And originally, our expectations were that we'd be bringing nitrogen on mid this year and then the ATR and what's called the TNS for the sequestration back end of this year. And the reason was that they could make gray hydrogen as soon as possible and then convert it to blue by end of the year. .

And on the nitrogen, we still fully expect that. So that will be a pro rata, so to speak, start-up on the backlog this quarter. But on the ATR and the S, that has slipped a few months into essentially Q1 of next year. The construction and subcontractor environment in the U.S. Coast remains challenging. And we've had some delays there, but I rest assured the team is 100% focused on this to get this up as fast as safe and as reliably as possible. So that's our focus, but this slip has caused a little bit of that. So my expectation on that project is you'll have a small portion in contributing the start-up this year through the atmospheric side of it. And then the hydrogen and TNS side will kick into probably Q1 of next year.

And our next question comes from the line of Josh Spector with UBS.

I was wondering if you could talk about the overall volume landscape across kind of the major areas here between Asia and then Europe and the Americas. I mean understanding your guidance is there's kind of no economic improvement. But I mean, just the geographic location of your assets relative to where there's disruption, it would seem like there's probably some volume benefits on the Americas and Europe side versus Asia. I'd be curious, one, is that right? Or is there more disruption in Asia that makes it kind of even? And then also if you can comment just in your North America specifically, -- are you seeing any kind of benefits from what we've seen from positive PMIs in the last few months?

Yes, Josh. So let me start with the first part. Definitely, we are seeing improvements in Americas on the dislocation or shifting the product. We are seeing some contraction in EMEA both Continental Europe. Now we have a very, very small Middle East business. But as you can imagine, that's most impacted as a percentage basis. But Continental Europe itself, we also saw some drag there. .

And then APAC for us is relatively neutral to slightly positive. So when you kind of break those 3 down in Americas, as I mentioned on the prepared remarks, we're seeing not only benefits in the U.S. Gulf Coast refining. I mean you think about refining in the U.S. Gulf Coast, you tend to have very high Nelson complexity. You have ability to use a variety of slates of crude. And so given where the [indiscernible] spreads have gone, given their ability to manage some of the crude spreads, I think they're in a very, very strong position. And a lot of their product is supplied via the continent -- and so they can take advantage of that, and we've seen that.

We've also seen Latin American upstream improvements, given the price of seaborne Brent. It just makes it more attractive for them to produce. So we clearly seen that. In EMEA, you've seen, as we mentioned, some of the chemicals was 1 of our weaker performing chemicals and energy, as we've seen some reduced volumes on that front.

APAC, I think with APAC, there's probably -- it's a tale of 2 stories in the sense that certain countries are very negatively impacted, but we really don't supply that. When you think about Japan or certain industrial markets, maybe in Korea, they rely on seaborne delivery for some of their hydrocarbon chain, that is very negatively affected, right, whether it's NAFTA or LNG or oil. But we are really not supplying many of those. We have no presence in Japan.

On the flip side, coal to coal to chemicals or coal to something in China is actually performing better. And we're seeing that -- we have several customers that are CX customers within China and they do have an advantage in this scenario. So the simple way I think about it is, if your feedstock is coming in on a ship, it's probably a tough scenario for you. But if it's land-based, right, either a pipeline or maybe even a railcar, you're probably in a little bit better position, and that's kind of how I would say we're seeing it play out today.

As far as sort of the PMI, yes, that was kind of per the prepared remarks. Our hard goods business is up double-digit percent right now in the U.S. packaged business. Our packaged gases are up mid-single digit. And really, where we're seeing that strength is on some of the construction energy side, which you can imagine, plays a little bit to some of the hyperscaler constructions and things you're seeing on that front. And so I think that continues to be good. Metal fabrication continues to be strong. we've really seen that pick up across -- and on the hard goods, it's really split between consumables and equipment, which is a healthy split. So I think you're absolutely seeing that positive benefit from the U.S. PMI [indiscernible].

If I could just also quickly clarify a prior question is that when you've talked about commercial space getting to $1 billion, my understanding is that was more commercial space launch. You have another $600 million plus in commercial aero, that's more of the coatings business. So your prior comments were more that maybe you get to that 5% in 2030 time frame, maybe -- and then maybe your comments today about some of the disclosures is maybe you can get there sooner than expected. Is that the right interpretation? Or do I have it wrong?

No, I think you're right, Josh. I mean, look, I've used the red aviation within aerospace. And yes, aviation is a very different animal. That's for primarily Jet Engine and that business system quite well in addition. But one, there's always a say, never give a number in a year, right? But I think we put something out there to give us enough room to do it, but we feel quite good on not just our propellent launch infrastructure and capability, but even when you get to things like electric propulsion for positioning of space vehicles on things like Xenon, Crypton, Argon. And so -- when you add all the opportunities together, yes, I think we feel pretty good about our ability to grow this business quite well. And really, like I said, it will just be a function of the space launch. But you are right that any of those numbers fully exclude aviation, or anything to do with land-based pieces around jets or engines.

And our next question comes from the line of Matthew DeYoe with Bank of America.

Good morning. European energy price is clearly up from pre-conflict levels. And I know it gets passed through on Onsite. But how are you managing merchant and package pricing -- is this going to be something where you go out with structural price or your surcharge? Is it not enough inflation yet to be pushing price more in Europe than normal and if you are, what do you -- what should we think about as being kind of the year-over-year price traction for the EMEA market come like 4Q?

So Matt, the way to think about it is, is it a sustained increase in energy? Or is it a volatile up and down right now, so far, it's been volatile up and down. When it's volatile up and down, it is surcharging, that goes up, that goes down, and that's what we're seeing. When you see a sustained long range, it eventually -- then it becomes price, and it starts to work its way into the overall inflation of the market. 2021 was an example of 2022, I should say, in early 2022, as that evolved throughout the year, you saw a more sustained impact to inflation that worked its way through the entire economy. It started the surcharges, it eventually became price. Right now, it's just surcharges. .

But if it does stay sustained and you start to see it show up in a lot of the major basic inflation metrics, then it does find its way in a price. That's the way I would characterize it today, and time will tell how that plays out.

And our next question comes from the line of Michael Sison with Wells Fargo.

I guess, it's going to be what the third or fourth year of no economic improvement for industrial demand. I can't imagine the Iran conflict is going to help that moving in the right direction. So just curious, what do you think this sort of needs to happen. It just seems like overall, there's been some impairment for industrials. And what do you think needs to happen to get that overall globally to improve over time.

Well, Mike, I think some level of stability always helps, right? When you think about industrial demand, at least in my opinion, it tends to be large items, nondurable -- durable goods, non-resi infrastructure. and to embark on those kind of projects, they usually require financing. They usually require a long-range view on a return profile. They usually require some form of government engagement support. And so right now, it's been a little volatile. It's been volatile in the macro.

One can argue in certain micro politics and microeconomics. It's been volatile in certain countries. And so I think that's been part of the challenge. Additionally, the service economy, the consumer has been pretty resilient over the last few years, which has held GDP up -- if that changes, I think that could actually ironically bode well for industrials because then there could be more call it action to support injections into economies -- and you can argue that IAA to some extent, is that, right?

You've seen continued lagging in Europe, and they've made the determination they need to inject capital into the economy. And that capital tends to be more industrial intensive. Now it has to reach the ground -- it has to have clarity around its use and its ability to be deployed, but that's kind of the type of catalyst. And look, I think the Americas and the U.S. especially has been a little bit of an indicator that, to some extent, certain placed protectionist policies can work. I mean, we've seen it in the metals. We've seen it in some other areas. Yes, it brings some confusion initially, but the U.S. has seemed to bounce back. And so we all know there is excess capacity in certain markets in the world, and we kind of know where it's coming from. And so I think it's really a function of how -- who is making the capacity for what -- so we'll see. I think right now, though, the Americas, we continue to feel pretty bullish on and the trajectory it's on. And as I mentioned, I think with EMEA, it really is going to come down in some catalysts to try and change that trajectory. And APAC is fine right now. I think APAC is -- we're seeing certain geographies do better than others, clearly. But our Chinese business is very stable. India is growing, and we'll just have to see how the rest play out.

Great. And then a quick follow-up for Chemicals and Energy, sales were up 3% in the first quarter on Slide 3. What do you think the run rate of that is heading into the 2Q? I would imagine March was much stronger than the other 2 months given the conflict. Just curious where that segment is sort of moving into this quarter.

Sure. It's led by the Americas, as mentioned, and we really haven't seen any reason that, that should decline or abate. I think the strength is still there and is still anticipated. So in the comps, as I mentioned, definitely get a little easier here and now as we start to lap as we mentioned, a couple of years of some industrial stagnant conditions. So -- we'll see, but I feel pretty good. I remain positive throughout the year, and we'll happen to -- we'll see how much it remains positive.

And our next question comes from the line of Jeff Zekauskas with JPMorgan.

In your commentary on the Americas or the first quarter, you talked about weakness in chemicals and energy end markets. And I assume that, that will strengthen. So as a base case, should volume of 2% year-over-year move up to, I don't know, 3 or more in the second quarter and are there also pricing opportunities because energy and chemicals are better?

So Jeff, I think with chemicals and energy, yes, we're better in Americas, but weaker in EMEA, as mentioned. I think -- this is -- yes, mostly on site. So the pricing will just be a function of the annual escalation, which the contract would stay. That being said, we are seeing some more merchant activity for upstream oil, primarily Latin America, which is an opportunity for further volume expansion. So I feel pretty good about the Americas position, competitiveness and capability in chemicals and energy.

As mentioned before, it's been on a good trend and I'd expect that to continue. And recall, there were a little bit of some normal weather aspects that happened in Q1, which could always dampen it a little bit, and you get through that by Q2. So we feel pretty good about what we could see in Q2 on those trends. And again, it always comes down to my mind, the same basic situation, which is the lowest cost suppliers in this environment tend to win in these times of supply shock stress. And when you think about a lot of the assets in Americas with their advantaged feedstock, their infrastructure, their capabilities, the complexity they can handle, they tend to be some of the lowest cost and best producers in these environments. And so I feel pretty good about how they'll perform looking forward and especially in the near term.

Okay. And then secondly, your other income in the quarter was $63 million versus $26 million a year ago. What happened there? And was the currency benefit in the quarter about 3% on EPS or maybe $80 million pretax? Or do you have a different number?

Okay. So let's just take the second question first. On FX, the simple way to think about it is just take whatever we put in the sales variance. So in this case, we had the 5% globally, and that pretty much drops all the way down. That's that sale, that's SG&A, that's operating income, that's EPS because of the way our business is structured, it's very localized. And so our exposure to sales on translation is quite similar to our exposure to costs. So 5% would be that impact. .

As far as other income, yes, in the last few years, other income has been anywhere from $100 million to $200 million. I would expect this year for the full year, we'll be on the lower end of that range. And to sort of characterize what is there, right? It is operating income. It is part of operations. But we tend to put things there that usually are settlements, could be time lags, could be gains, losses on sales of things. So we put it there generally to isolate it -- so it doesn't get embedded into the sales and cost of goods sold from a trending perspective.

So in this particular quarter, we had a gain on a sale. It was a cash gain, it was a real gain. But that basically created that. I don't expect very much in the next couple of quarters, hence why I think the full year will probably be in the lower end of the range from the last couple of years.

And our next question comes from the line of John Roberts with Mizuho.

Could I ask if Sanjeev is not available today? Or is this the new format for the earnings call?

So John, yes, if you may recall in the past, we've always kind of alternated. -- and sometimes, Sanjiv would be on -- or Steve would be on or not, and Sanjiv would kind of evolve to that. So no, he's not on today, but he will definitely be on in a future call. .

Wanted to make sure he didn't -- he knew he was missed. I'm a little confused about EMEA. I thought the shortages from the Persian Gulf conflict were so severe that Europe was actually going to have to run at higher rates. -- even though it's higher cost, we're going to need most of the latent capacity in the world to run higher. And so it sounds like you're still expecting it to be soft in the June quarter in EMEA.

Well, let's start with, as you know, the guidance of what we said is no economic improvement at the midpoint. So that's just the baseline based on the guidance. So if you take that and extend it out, what it's implying is what we're seeing in Q1 just continues going forward. Whether or not it improves, we'll see. But from what we experienced in our EMEA in Q1 on the Onsite and chemicals and energy on a year-over-year basis, we saw a decline based on the effects from those operating assets to the customers.

And our next question comes from the line of Kevin McCarthy with Vertical Research Partners.

Matt, just to follow up on the volume discussion. If I look at your Americas number of plus 2%, I think that's the best that you've posted since the third quarter of 2022, which is coincidentally when we tend to think of the onset of the industrial recession, certainly in the chemicals industry anyway. So I'm listening to you today, talk about hard goods up double digits, Energy and Chemicals trending for the better. Do you have enough confidence to say we're now on the cyclical upswing? Or do you think there's too much war-related uncertainty and potential for an oil shock to start playing offense, if you will, in the Americas.

So Kevin, I always remain a little guarded, right? I think I need to. But I sort of think about it as we have an engine here with a few cylinders, right? And 1 cylinder is Americas, 1 is APAC and 1 is EMEA. And we're not running on all 3 cylinders. So while the Americas both results and trends, I think, are positive. We're just not seeing that in EMEA, for example, today. So I think to see a true what I view as global recovery, I'd like to see all 3 running in the same direction. .

But time will tell how that ends up. But I feel in the Americas, and like you mentioned, the packaged gas is what we're seeing on some of the competitiveness in the U.S. Gulf Coast. That does include commercial space, as you know, -- we expect that to continue to post some pretty good numbers. As far as are there offsets to that or not elsewhere in the world, that's the thing -- the challenge that we need to see to kind of break out of this and start to see global positive volumes.

So I will say at a global basis, while we showed 1% global volume, which is mostly our project backlog contribution. We did turn positive on base volumes. It's just not positive enough to round to 1%, but it has started to turn positive. So we'll see if that trend continues and actually breaks out and rounds to a positive base volume. But right now, you're seeing puts and takes around the world, and we'll see if the comps lap to where that could be positive.

And then I wanted to follow up on helium as well. I guess my simple question would be how much incremental volume opportunity do you think may be available again, through long-term contracts that you're pursuing. Maybe you could speak to your flexibility on sourcing and how much of an inventory cushion you may be able to take advantage of here.

Well, I mean, we feel good about our sourcing and we feel good about our capability to not only meet our current customer contractual commitments. But that we would have some excess molecules and assets to be able to deliver to future new customers. As far as how much, it's really just going to be a function of the extension of this situation and where it goes, but we will be selective. We want to make sure we get the right kind of contracts that make sense with the right kind of customers that we know will make that commitment to supply. So time will tell. I mean we've already been able to sign a few new long-term commitments and we'll just have to see how it plays out over the next several quarters.

And our next question comes from the line of Laurence Alexander with Jefferies.

So 2 quick ones. Just first, are you seeing in any regions or significant delays in projects where you're seeing kind of the CapEx decisions at least get delayed, if not even if the underlying -- if the production rates are fairly stable. And secondly, if customers are -- have to shut down capacity because of outages -- because of feedstock supply issues, whether a government mandated or just they can't get the molecules. Your contracts don't give them any adjustment for that. I mean they still need to pay you the same rate or pay the full exit penalty. Is that correct?

Okay. So first on the delays. Just to segregate. No, in our backlog, no, no concern, right? What's in our project backlog right now is moving forward as expected. No concerns on that front. As far as potential new projects to be signed with customers' willingness to go to FID essentially sign a contract, it depends on the end market. I would say, as you imagine, electronics, commercial space, you're seeing a continued very strong push to move forward with projects and investments. .

I think when you get to the more traditional industrial markets, it's really geographic specific right now. I think in the U.S., there are a lot of interest for future investments. I think places like India, you're seeing some good positive views, but in other parts of the world, not so much. So that's more of a geographic specific. As far as contracts, I mean, what it gets to is force majeure language. This has been something you focus on heavily in any contractual business.

We've worked and tested our [indiscernible] language over many, many decades. Economic is not a force majeure as you can imagine. And so this is something that we always will work with our customers in these scenarios. But when we build these assets, we don't benefit when things go great, and in the same token, we don't take the downside when they don't. So from that perspective, we are well protected against any type of economic force for sure or other aspects of that. But it's really something that's going to be a contract-by-contract review.

And our final question comes from the line of Arun Viswanathan with RBC Capital Markets.

Congrats on the results. Just a quick question on the earnings algorithm. So if I heard you correctly, it sounded like FX was maybe 5% contribution Q1 of that 10% that you saw, you're guiding to 7% to 9% for the year. So do you expect FX would continue to play that contribution for the year EPS? And if you do fall short of your 10% goal, is there other actions you would consider getting up there, maybe increased buybacks or management actions or anything else that we should consider?

So Arun, I think with the Algo, as you well know, we have the management actions, we have the capital allocation, we have the macro. If you just take the macro in isolation, yes, we put a 1% FX tailwind in the assumption. I will say, and as you probably well know, we base this number on sort of the first of month forward, which is about a month old. Right now, spots are better. The foreign currency strengthened since that time. So that would provide FX upside at these spots remained, but we can set that aside. .

As far as the management actions and the capital allocation, look, we know we need to get back to that 8% to 12% range, excluding macro. I think we had a little bit of a drag, as you know, with helium for a period of time. We have about 1% or so drag just on the engineering business from its timing of projects, which is really more just a function of what is done as internal projects that's capitalized versus external projects for a profit. And so we've got to get through those 2, and I think that can get us back into that 8% to 12% range. p

So we'll see -- right now, it's 7% to 9% kind of range we have out there, and we've got to work through to get higher than that, right? And we know that. And so -- that's how I would think about it. But the algo is still intact, and we will take incremental actions if we need to bridge this further to help get us back to that double-digit EPS growth.

And that concludes our question-and-answer session. I would now like to turn the call back over to Mr. Juan Pelaez for any additional or closing remarks.

Abby, once again, nice job. Thank you, everyone, for participating in today's call. If you have any further questions, please feel free to reach out to me directly. Have a great day. .

And ladies and gentlemen, that concludes today's call, and we thank you for your participation. You may now disconnect.

Ladies and gentlemen, good day, and thank you for standing by. Welcome to the Linde Fourth Quarter 2025 Earnings Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to Mr. Juan Pelaez, Head of Investor Relations. Please go ahead, sir.

Thank you, Abby. Good morning, everyone, and thank you for attending our 2025 fourth quarter earnings call and webcast. I'm Juan Pedes, Head of Investor Relations, and I'm joined this morning by Sanjiv Lamba, Chief Executive Officer; and Matt White, Chief Financial Officer. Today's presentation materials are available on our website at the linde.com in the Investors section.

Please read the forward-looking statement disclosure on Page 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. Sanjay will provide some opening remarks, and then Matt will give an update on Linde's fourth quarter financial performance and outlook, After which, we'll wrap up with Q&A. Let me turn the call over to Sanjiv.

Thanks, Juan, and good morning, everyone. The economic environment in 2025 was a study in contrast. On 1 hand, exuberant investment in AI and digital infrastructure drove unprecedented activity. On the other hand, traditional industrial markets like manufacturing, metals, chemicals and energy faced continued retrenchment. This divergence was exemplified in both concentration of returns from the S&P 500 and in persistently weak manufacturing indicators.

This created a challenging backdrop for many of our customers operating in these sectors. Despite these headwinds, Linde employees once again rose to the challenge, delivering industry-leading results in areas that matter most to our owners. I've highlighted a few of these accomplishments on Slide 3. Running a global enterprise requires balancing the needs of many stakeholders while delivering against both near- and long-term expectations.

The 4 areas you see on this slide people and communities, environmental stewardship, financial performance and future growth represent that balanced approach and remain the foundation for Linde's long-term value creation for our owners. Let me start with people and communities. Our employees are the backbone for Linde's success. In 2025, we once again delivered best-in-class safety performance because nothing is more important than ensuring our employees and contractors return home safely every day.

We also continue to build an inclusive culture across the footprint of more than 80 countries. Female representation reached nearly 30%, and we progressed multiple employee initiatives that earn third-party accolades as well. As a local business, we also strive to be a good neighbor. This year, our teams completed almost 900 projects across the world, supporting health, education and community wellbeing, mainly driven by committed Linde volunteers who pitch in to lead and support these projects.

In addition to supporting local communities, Linde is also a good citizen to the planet, through actions to improve our environmental footprint. In 2025, we made substantial progress on this front by increasing active low-carbon power sourcing by 23%, we enabled 50% of Linde's annual power consumption to be low carbon. This in turn supported almost 2 million metric ton reduction of absolute CO2 emissions. Moving us forward on the ambitious 35% reduction target by 2025.

And we've kept a close eye on the future as well as 2/3 of our backlog supports contracted clean energy projects. In addition to which, we also signed more than 90 new gas application wins, many to help customers further decarbonize their operations. These are just a few of the highlights. And many more can be found in our annual sustainability report, which will be released in the second quarter.

Of course, we must deliver on financial performance. since management's primary role is a steward of shareholder capital. Despite weak industrial environment, Linde achieved annual record levels for EPS and operating cash flow and operating margins. The 24.2% return on capital, not only leads the industry, but also validates the long-term disciplined capital allocation policy. which enabled a return of more than $7 billion to shareholders.

In good times and bad, you can count on Linde to remain laser-focused to deliver shareholder value. Finally, we must position Linde for future growth to remain the long-term compound. From my perspective, this is the strongest strategic position Linde has held during my tenure. Our project backlog stands at a record $10 billion. And this number does not include over $0.5 billion of investment for rocket propellant to contracted space launch customers.

In fact, we fully expect continued investment in the sector as we expand our network to support this rapidly growing opportunity. Linde remains the anchor industrial gas supplier for some of the largest and most successful clean energy and advanced electronics fabs in the world. In fact, I'm highly confident that we will announce new signature fab wins in the coming months.

We also continue to see a robust M&A pipeline for accretive tuck-in acquisitions that further enhance our supply density. In summary, Linde delivered a resilient performance in a challenging 2025 environment. But looking ahead, I know we can do better. Certain regions of the world are still not showing signs of near-term recovery. and we are taking actions to align our resources accordingly. In other words, growth remains geographically uneven, and we need to adjust our organization to reflect that.

Considering this, in the fourth quarter, we initiated additional restructuring actions to better position the company for 2026. These actions will have cash payback levels and timing like prior programs. So I expect the bulk of the benefits to be in the second half of the year. When combining these incremental actions with our existing productivity initiatives and a record backlog of secured growth I'm confident we will deliver a stronger EPS growth that our owners expect and have enjoyed for many years. I'll now turn the call over to Matt to walk through our financial results.

Thanks, Sanjiv. Fourth quarter results can be found on Slide 4. Sales of $8.8 billion increased 6% over prior year and 2% sequentially versus prior year foreign currency translation provided a 3% tailwind as the U.S. dollar weakened against most currencies, especially the euro. I expect this trend to continue into 2026, which we'll discuss later with guidance.

Excluding FX, underlying sales increased 3% from 2% pricing and 1% volumes. The 2% price increase aligned with globally weighted inflation after considering APAC challenges associated with helium and China deflationary conditions. Volume growth was driven by project startups in Americas and APAC, as base volume growth in Americas was more than offset by continued industrial softness in EMEA.

Sequentially, volumes were flat as normal seasonal declines were offset by project start-ups. Operating profit of $2.6 billion was up 4% from prior year and resulted in a 29.5% margin. The quarter margin dilution was attributed to timing of other income, which was down over $30 million. Note full year operating margin is up 30 basis points which is within the range of our long-term margin expansion expectation of about 30 to 50 basis points per year. EPS of $4.20 increased 6% and as a lower share count more than offset the impact of a higher ETR.

Noble stepped up share repurchases in the fourth quarter to $1.4 billion, as we saw an attractive buying opportunity from the stock decline. You can see the 17% growth in CapEx led by spending for the record project backlog. This trend coupled with the increased acquisitions has led to more capital-intensive growth, which negatively affected ROC. This was anticipated as I expect this metric to remain in the low to mid-20% range for the next few years. Slide 5 provides more details on capital management.

Operating cash flow exceeded $3 billion in the fourth quarter from stronger collections and inventory management. As mentioned in prior calls, operating cash flow is seasonally stronger in the second half of the year, due to timing of tax incentive and interest cash payments. The pie chart to the right summarizes full year allocation of capital.

About $6 billion was invested for growth, including half towards secured growth of acquisitions and project backlog contracts. Another $7.4 billion was returned to owners as dividends or share repurchases. This level of distribution requires a focused and disciplined management of both operating and investing cash flows. In fact, sustainable stock repurchase programs are anchored by consistent excess free cash flow after dividend payments, something Linde has demonstrated for several decades.

I'll wrap up with guidance on Slide 6. For the full year, EPS is projected in the range of $17.40 to $17.90 or 6% to 9% above 2025. This range assumes a 1% FX tailwind and 0% base volume change at the midpoint. Consistent with prior guidance, we're not going to make predictions on macroeconomic climate, rather, we'll anchor the midpoint at 0% and let investors insert their own views.

The 1% currency tailwind is based on early January forward rates. Note that there could be FX upside if current spot rates hold since the U.S. dollar has weakened over the last month. For the first quarter, we took the same baseline volume assumption, but set the FX tailwind to 3%. Since Q1 of 2025 had the strongest U.S. dollar baseline. Note the 3% quarter assumption still aligns with the 1% full year assumption so we don't anticipate as much FX benefit in the second half of the year.

As Sanjiv mentioned, we have a strong backlog of projects, productivity, and self-help actions to support 2026 EPS growth. However, we also believe it's still early in the year and thus wise to remain prudent on the outlook. I've said before that heroes aren't made in the first quarter. So we want to remain vigilant and guarded as the 2026 landscape starts to take shape. I've provided annual guidance now for over a decade. And through that time, I've determined there are 2 things in February that I can be highly confident on.

Number one, no one knows what will happen in the economy. And number two, regardless of what happens in the economy, Linde employees will rise to the occasion and leverage our unique supply network, culture and operating rhythm to create shareholder value in any environment. I'll now turn the call over to Q&A.

[Operator Instructions] And our first question comes from the line of David Begleiter with Deutsche Bank.

Sanjiv, just on Europe, are there -- are you seeing any signs of progress in that region and I did see that pricing did slow to plus 1% in Q4. Do you think you can still get pricing roughly plus 2% in the region during 2026?

David, EMEA tends to be an area that we put a lot of attention to, as you would expect, And unfortunately, based on what we see at the moment, I have to say that the market continues to see broad-based weakness. That's been the theme for a number of quarters over the last couple of 3 years now. There are some bright spots in EMEA as well. I'd say Europe, North with the Scandinavian countries continues to grow even in these conditions. So that's good news.

But beyond that, there's a little bit of optimism coming out of Germany. I tend to be very cautious on that. the recently announced manufacturing numbers moved up a little bit in Germany. I would watch that to see if there is any momentum underpinning that. Beyond that, there doesn't seem to be catalyst to really get to a recovery in Europe that would be substantive. On pricing, Europe's had a fantastic track record in pricing in Linde.

The EMEA business does a really good job around that, have done so. I expect them to fully find pricing in line with their weighted CPI, which is what my expectation of that business remains and you should see that in the coming year as well in 2026. Beyond that, I'd say, I think there's a lot to watch out for the complexity of Europe and the European Union, unfortunately, makes execution of any changes there or indeed any capitalist there somewhat provides a bit of a skeptical view from our perspective until we actually see it happen on the ground.

And our next question comes from the line of Duffy Fisher with Goldman Sachs.

Maybe if you could just go around the rest of the world, you talked a little bit about Europe and maybe about your end markets. You're not putting any growth in your estimates but what are you seeing? Obviously, you've got pretty good connectivity with the market. So what's your gut say your different end markets and your different geographies end up growing this year?

Thanks, Duffy. Let's do that. But before I kind of give you a walk around the wall, why don't I say this because it kind of prefaces a little bit and the market slide in some ways, validate this. So you will see the end markets lives showing all green, right? And essentially suggesting year-on-year growth across all end markets. And yes, recently, ISM, PMI, et cetera, have shown a slightly more positive trend.

As I stand here today, I'd say to you if I was reflecting back on the last 12 months, I am today slightly more positive on the industrial activity that I foresee for this year and the potential for growth as well. Now I'll add to that a caution as you would expect. We live in a hyper dynamic world. Things change every day. So you would expect us to bring you a far more informed and insightful view in April when we have this conversation. But fair to say we -- and I'll say this about particularly, we've been very conservative in how we are looking at the markets, and you'll see that reflect in the guidance as well.

Now let's walk around and just tell you what I've seen in the last quarter and first part of this month as well or last month now. Let's out Americas. The U.S., and I've said this over and over again, proven to be a really resilient market. Sales are up across almost every end market obviously, electronics, commercial space kind of stand out in that in terms of growth that we've seen there. Manufacturing has been stable.

There is still some caution when we speak to our customers. I look at a leading indicator, you hear we talk about the hard goods business, often or our package business often is a good leading indicator. Now hardgood sales, particularly in automation saw a pickup in the last quarter. But beyond that, on consumables, we haven't seen anything reflect the pickup. So the expectation at this stage is people are investing in the automation equipment to be prepared for any recovery that might happen or indeed to look for more productivity. So a little bit difficult to gauge, which is why I say when we come back in April, you'll have a far more informed -- we will have a far more informed view and you'll get a far more informed view of what we think is likely to happen for the rest of the year.

If I think about Lat Am, Across the ball, LatAm sales have been stable and growing. Brazil stands out as having had a really good year last year, and we saw that play out in Q4 as well. Canada, on the other hand, remains flat, and I don't see any catalyst for that changing anytime soon. If I move from the Americas to talk about APAC, I think the best way to talk about APAC is to start with China. In my assessment, the China markets that we supply and work with closely are largely bottoming out.

In fact, in the recent e-mail I got from Will Lee, who is the President of our China business, he wrote, I have to say with some pride he wrote that after quite a few quarters, our China business, our merchant business to our end customers, not distributors and channels, but to our end customers, grew at a rate higher than the published IP number, which, as you all know, was 5% for the last quarter, and we tend to take that with a pinch of salt as well.

So the rate of growth in China has certainly in the last quarter, shown an improvement. The China team has done some excellent work to get that growth. So I'm happy to see that. But I remain watchful to see whether we see that momentum carry on into Q1, which obviously will be disrupted by the Chinese New Year. So we'll have to kind of look through and sift through the data to see if that trend is holding. India also had a continued strong growth. I think we were happy to see that almost all end markets in India were improving and moving forward.

And in fact, by distribution modes as well, we saw growth across all of those distribution modes. Again, the India team does a really good job of making sure we win more than our fair share. So happy to see that momentum. But again, I also expect further growth and momentum in the Indian market, given that 2 of the recent events will support that growth story there. First is the EU prepaid agreement that will help kind of build some momentum around industrial activity and exports from India. And of course, the U.S. India tariffs getting sorted out is also an element that will provide some catalysts for further growth.

The rest of APAC, to be honest, largely stable, nothing exciting. Australia, which has had a tough year in 2025. We saw some -- I mean, they were still declining in Q4, but we saw some signs of that stabilizing and my expectation is Australia should see -- the comps will also get better as you can expect, but you should see some kind of a recovery this year as we move forward. So that's kind of a walk around the world. And I think if I was to just talk about end markets, I'd say to you, electronics stands out.

We are seeing good, strong growth there. My expectation remains that we'll see a lot more investment in that space. And you hear me talk about it when I talk about backlog. I'm sure there'll be a question on backlog, and I'll talk a bit more about how I see that playing out. And of course, the other markets also appearing to be stable to slightly up as we spoke.

And our next question comes from the line of Laurent Farber with BNP Paribas. .

Sanjiv, I don't want to disappoint. So it's a question on the trajectory of the sale of gas backlog. So with Bamon start-up and -- I guess we would be coming down towards $5.5 billion. I heard your conviction on electronics. I'm just wondering, I guess, what sales we should be focusing on if $5.5 billion new norm? Or would you hope to get back closer to $7 billion in the next year or so?

Laura, you know the answer to that. We will be heading towards that $7 billion mark. You know I was going to say that anyway, right? So let's just break out what happens with backlog every year. And I say this often, and I think it's worth reiterating that. the best backlog is 1 that shrinks before it goes back up again. So my expectation is this year, as you know, in 2025, we started about $1 billion of projects. This year in 2026, is a big year for us. .

You all know that OCI Wood site startup is going to be phased through the course of the year. So I would expect fully that the backlog will see projects between $2.5 billion to $3 billion to come off and get started up and start contributing to revenue and earnings. So that's exactly what we would like to see happen. The pressure on the businesses and the teams are aware of my expectations that we will grow back the backlog and I feel good about the pipeline of projects that we're currently working on and some fairly advanced as well, which I expect we will fully make, as I mentioned in my prepared remarks a little bit earlier.

Some really large wins around fabs that I'm hopeful that we will be able to get to a point of being able to get to announcing -- having signed them up and put them in the backlog soon. So yes, the target is to get back to that $7 billion. We will be close to that mine view. We'll see whether we get there across it or how close we can get that business to get.

Yes. So maybe we get in the second half if it rolls forward. Is that reasonable? And then just to think about net margin expansion, how do you see OpEx inflation tracking of the year?

Thanks, Tony. So the easy way to answer that is, typically, you heard us say this previously as well. So I'll just reiterate that. Our restructuring paybacks on a cash basis tend to be on average about 2 years -- 2026, my expectation remains that we will be above the long-term margin range that we normally offer you. We always say 30 to 50 basis points is what you should expect. My view is in 2026, we will beat that number.

And our next question comes from the line of Josh Spector with UBS.

I had a couple of questions I put together around the space opportunity for you guys. I mean, first, I want to ask if any of that is contributing to the CapEx increase you're projecting for 2026. And then secondly, if you could provide your view of the size your share and the growth that you expect, your competitor made some comments the other day. wondering if you could set the view on what you're seeing? And how do you factor this in to guidance. Is it material to 2026. It's not macro growth, it's not backlog. So is it in there? Is it upside? How should we think about that?

Josh, I briefly glanced through the report that he set out. It was a nice report. Well done. I'll say this to you, the CapEx in the backlog section does not include about $0.5 billion of projects that we have invested in, and we continue to make investments in 2026 as well to be able to support this growth opportunity. So spot on, this is a secular growth opportunity. We are excited about it. .

We are really well positioned to be able to serve this. The 2 major investment hubs that we see around this [indiscernible] that question around this. Look, the easy answer to this is we only measure by the number of launches where Linde is directly involved. In some cases, others are also involved in launches, so they may be double counting. I think about 6 months ago, one, I think it was in the second quarter. We talked about more than 3/4 of all launches are supplied by Linde.

At that point in time, that was absolutely the right number. I think the number ranges between 65% to 75% on average, and I think that's a really robust number, and we do that by launch. Last year, there were 189 launches. You can do the math. I mean, Johan can help you with some of the details if you need [indiscernible] solid growth, extremely well positioned. Florida and Texas is where bulk of the launches are expected and you know what, we are expecting to get more than a fair share of that, just given the unique position we built up there. In fact, we started up a plant and Brownsville earlier this year in early January, in fact.

So we just can't get enough -- enough product availability in our network to be able to make sure we meet all of that demand. It is factored into the guidance. It's a secular trend for sure, but remember -- and I'm looking forward to having a $1 billion business here that I can split it up in the end markets and show to you guys separately. I expect to see that happen in the next few years. But it isn't big enough to move the needle for Linde as a company overall.

So it's in the guidance. We are excited about a double-digit growth [indiscernible] expect to see that [indiscernible] continue over the next few years. And at some stage, we'll spit out, and you'll actually see the numbers and feel good about -- [indiscernible].

[indiscernible] And the new customer wins in oxyfuel combustion. Can you just help us understand the specific customer user base, whether it's concentrated in any particular region what sort of contribution this has to the backlog and overall growth algorithm.

Patrick, I always love a question on gas application wins, and I think this is reduced natural gas consumption and increased -- what a real win-win story that was. And I think that's what we're seeing play on this. So we're seeing this across the world, to be honest. There is a little bit of a concentration in terms of China wins being disproportionately high but we see the wins both across the Americas and EMEA as well. It's great technology. Customers are loving it. And I think we've seen that momentum that we've built up on business development and this playing out and actually those wins being signed up and actually under execution as we speak.

And our next question comes from the line of Vincent Andrews with Morgan Stanley.

You mentioned $400 million of bolt-ons were completed in 2025. Just curious how much of an impact that's happening to the top line in '26 and also if you could talk about that lever in general of capital allocation and how much -- particularly as we remain sort of at the bottom of the cycle, is there increasing opportunity to do more bolt-ons or decaps at this point in the cycle? And should we be thinking about this as more of a growth lever than perhaps expand over the past 5, 10 years?

Vince, it's Matt. I can handle that one. So as you see from our sales variance, we're getting a 1% right now. It is a weaker percent, but it rounds to 1% on the acquisitions from the 2025 contribution. Right now, we expect we should be able to maintain that into '26. Time will tell. But as you can see, the sort of $400 million to $500 million number, at least on this current baseline is able to get us around at 1%. As far as how we think about them, we -- number one, we buy into density. We want to buy into our core strength, and we're buying based on synergies. We justify these on the synergies we can bring with our existing network and our existing density.

We don't really tend to speculate on the growth around them. So any growth we can achieve is usually upside to the model. And as far as the sentiment, yes, I would say a lot of these are regional players. They're generally smaller independents. The concentration of that right now is more in North America. There is some in parts of Asia, we're seeing in China and in South Pacific area. That's where you tend to see a little bit more of the independent opportunities. So this is something that we've been doing for a long time. We have a very strong capability on not just identifying and acquiring but more importantly, integrating and achieving the synergies that we set forth.

So it's absolutely integral to our growth, but we also are not going to lose our discipline and we're not going to get out of our swim lane, so to speak. So expect to continue to see these kind of numbers and where opportunities present themselves for larger ones, we will absolutely be in the mix. and we'll make sure we continue to apply our investment criteria for each incremental opportunity.

And our next question comes from the line of John Roberts with Mizuho.

Sanjeev, late last year, it sounded like you were working on a new 6-point blueprint to extend the growth for Linde. Have you formalized that? And is there anything you can tease us with? .

John, I'd love to tease you, but I'm probably going to resist that temptation. We have a growth 6 out there. You've seen that. You were here with us in Danbury in December, I recall, and I showed you a page out of my notebook. So those growth 6 have been formalized. They have been rolled out. We are measuring progress against that. And at Linde, we are an execution machine. So once we set the goals, I think that's when the execution delivers. So I'm feeling good about how momentum is picking up on that. But those elements. And I think I'd say to you, there is no rocket science over there. These are things that we know how to do well, and we just focus the organization to go out and get the wins in particularly in an economic environment where there is a natural momentum coming for growth.

So it's good to see that we are getting traction across the organization in there. And while today, I haven't spoken about small on-site. Small onsite sit within that piece, acquisitions Matt just talked briefly about the expectation that we want to see that 1% top line and a little bit more coming through on the bottom line once we integrate them effectively.

So those would be all elements that you should see within that, as would be application sales, et cetera. So the growth 6 we rolled out, the organization knows it well. They live and breathe it every morning. And when they don't, I remind them very quickly. So feeling good about where that stands.

And our next question comes from the line of Matthew Deo with Bank of America.

I hear you on the China IP commentary and the growth that's encouraging. I wanted to dig in a little bit more on APAC, if I could. Manufacturing as an end market looks to be pretty weak on a 1-year and 2-year stack. So I'm just trying to get a sense for what exactly is it issue there? Which specific end markets are maybe causing the trouble? And if that was a particular area where you saw some strength because it seemed like data a softer 4Q as well? And then conversely, this bucket of other it's actually doing seemingly pretty well. I don't want to get lost rounding on some of these breakouts, but what is that in relation to? And if I could, just 1 more attack on it, Vincent. How -- it seems like these acquisitions aren't immediately accretive. And if you do a steady cadence, maybe that's irrelevant. But how long does it take for a year like an acquisition to show up on the bottom line?

All right. Let me talk about -- Matt, let me talk about APAC and then I'll ask my math to give you a quick view on the other piece, which you always ensures is doing what it needs to do to make sure it's accretive to the business overall for the PLC overall. Look, in APAC, you have to split that by different regions, and I'm going to give you a little bit of a deeper dive there just to kind of give you a sense. So let's start China. We talked about China earlier on. China manufacturing, as you know, a lot of that underwritten by in large-scale exports to markets, which may or may not be welcoming those exports in but has provided a little bit of momentum.

And within that, there are clear green shoots in manufacturing the EV piece when I was with BYD, 1 of our customers in China, the Chairman was complaining that he wasn't seeing as much growth as he was expecting and he was unhappy that he was only growing 28%. Okay, 28% of this environment is a good place to be, right? So things like that, battery developments continue to be positive within that piece. So also in manufacturing is commercial space today. We haven't split it out and we've been talking about space quite a lot, so I won't repeat all of that, but there is clearly momentum over there as well.

So you put that piece together. And obviously, commercial space applies more to the U.S. market than APAC, but we have had some small contributions in APAC as well. So that's kind of the broader piece around China. RSP has been down and RSP -- manufacturing numbers continue to reflect that broad-based weakness. We are seeing that things are a little bit better in the fourth quarter versus what they were in the first and second quarter. So expectation remains that you might see a continued improvement or a gradient towards a recovery in the RSP or the South Pacific market, Australia being the large market there.

And then India, I kind of briefly talked about providing a bit of tailwind on the manufacturing side, particularly, again, the expectation with the free date agreement and the tariff issues getting resolved you will see further improvements there. So I'm not sure that's entirely factored into the 1- to 2-year outlook that you're looking at, where I think there is probably a degree of disappointment is ASEAN. If you recall, ASEAN used to have a reasonably strong growth, but not as strong as China and India, but nonetheless, in the middle part, and we haven't seen that. they largely -- they have been stable but flattish at best. And I think, unfortunately, the ASEAN futures are inextricably linked to what happens in China and the weakness in China has permeated there as well. So again, a recovery on that will take a little longer. So your view on a slightly softer outlook there would be absolutely right. But that's kind of where manufacturing [indiscernible] Matt, do you want to comment on the other...

Yes, sure. And Matt, I think 2 questions, right? One on M&A timing and 1 on other segments. So we started an M&A timing, I would say that for an average M&A deal, generally, we tend to see full run rate synergies within 12 to 24 months. [indiscernible] between 0 and 6 months. You're also going to have supply of merchant, those are more a function of attract expirations of the target that we acquire. And obviously, as those either leases or those supply agreements lap, then we substitute with either our sites, our supply. But all in, I'd say, usually somewhere between 12 and 24 months, you have full run rate and you get a pretty significant chunk that you can get within the first 0 to 12 months.

So that's how I think about the synergy timing. As far as other segments, just to kind of remind what's in there, there's really 3 pieces that are in the Global other. You have what we call sort of our global helium supply group. And what they do is they sell all the helium intercompany to the geographic regions. And they also sell some wholesale direct out of this segment. So clearly, you saw some retrenchment and pricing impact in the helium business, of which is reflected in this other segment.

Now going forward, I do expect some relief on the supply side and that should start to manifest itself in the other segment in time. But it obviously had to take the brunt of these changes in the intercompany transfer pricing and some of that over the last 2 years. The second business in here is our global materials business. They continue to perform quite well, actually. This is mostly in the aerospace and in primarily 3D printing powders. As you can imagine, that is a pretty hot field right now when you think about aerospace and commercial space.

So they've been growing quite nicely. You may recall, first quarter of last year, we had a large insurance claim that also is in this business to the tune of around $40 million or so. That is part of the other income online that you may have seen a change year-on-year for full year. And then the third piece is our corporate overhead costs. We put all of the overhead costs in this bucket. We do not allocate it. So as you can imagine, the goal is that our wholesale helium business and that our materials business, can basically pay for all the corporate overhead to run a publicly listed company. So every time this is positive OP, we're achieving that. And from our perspective, that's our goal is to continue to have positive OP in this business to be able to basically subsidize the cost to run this company.

Our next question comes from the line of Jeff Sokoskus with JPMorgan.

A 2-part question. Manufacturing PMIs in the U.S. in January went from negative to positive. Is that something that your business can perceive. And do you feel that there's an acceleration in U.S. manufacturing growth relative to the fourth quarter? And then secondly, can you discuss how much helium was a drag on your either EBIT or prices or EBITDA in 2025? And how you expect helium to perform in 2026 and why? .

Thanks, Jeff. So I start with the U.S. manufacturing, the BMI, et cetera, have shown a positive trend. You're right. I'd just say it's too early to tell. As I said before, when I kind of talked about my walk around the wall, I do see -- I am a little bit more positive, but still, we would say started in how we think about the manufacturing developments playing out in the U.S. particularly.

Yes, we have more conversations with customers, the reshoring, near-shoring kind of efforts that we've been talking about for some time, continue to progress. Semiconductors are well ahead, as you know, but other sectors end markets moving forward as well. So I'd just say it's a bit early to call. I think the next couple of months will give us a much better view but there is some potential for a very resilient U.S. market to see some good growth probably towards the end of this year or the back end of this year anyway.

And anything before that, we'd be thrilled. As you know, we would be able to get the tailwind and make a really strong impact on our earnings should that happen. On helium impact, just on 2026, I see nothing different, Helium, is going to be long in the medium term at least. But I'd say to you, again, as a reminder, Jeff, and you know this well, Helium is a low single-digit business for us. When we look at the overall portfolio, I think you're aware that pricing has been high single-digit negative on helium for a few quarters now.

I'm not seeing anything change dramatically in the helium space. There are differences across the world, regional differences, that is. China, clearly very long seeing the impact of the Russian helium coming into that market and in some ways, leaking out a little bit to other markets from there as well. whereas the other markets in Europe and the U.S. or Americas probably a little bit more balanced from that perspective.

You might also be aware that we made an investment, a couple of investments, including 1 in the cabin, which actually provides us with a really good opportunity to balance supply/demand in a way that works for us and gives us an opportunity for us to continue to optimize that piece. Anything else?

Yes, Jeff, this is Matt. I think just to answer your other question on impact in '25. I tend to combine helium and rare gas. And when you combine those 2, the kind of range we laid out is about a 1% to 2% headwind on EPS, I would say towards the upper end of that range is how I would think about both of those. To Sanjay's point, helium at this point, hard to see any real change in the supply demand dynamics.

Rare gas does feel a little bit better right now, especially with some of the electronics recovery. And so that's the way to think about the '25 impact. And then as far as '26, we'll see how that plays out in that range.

And our next question comes from the line of Kevin McCarthy with Vertical Research Partners.

Sanjeev, would you comment on your U.S. packaged gas business sales trends with regard to both gas and rent and hard goods. Just curious as to whether you're seeing any improvement on the leading hard goods side and then more broadly, besides hard goods, are there any other businesses that you would tend to look to across Linde's portfolio that you would consider leading maybe certain markets or even individual customers that have been useful leading indicators in the past? .

Thanks, Kevin. So I think I've briefly alluded to this before, let me kind of maybe provide a slightly more detailed view on this. So the U.S. packaged gas business, as you've rightly pointed out, Kevin, is a leading indicator that we watch closely. And within that, there are 3 separate elements that you can look at, the gas consumption, the consumption of consumable hard goods and the consumption or purchase of hard goods automation equipment, right?

I mean each 1 of them give us a different perspective in terms of how we see U.S. manufacturing more broadly playing out. And what I'd say is the U.S. hot goods automation equipment sales in the fourth quarter were up again, I think we said that in prior quarters as well. So we were seeing investment in hard goods automation. It usually has 2 potential outcomes. One, that there is an expectation of a pickup in the order intake and therefore, growth as a consequence of that.

And along with that, there is a shortage of skilled labor and therefore, automation becomes more attractive for the small to medium enterprises or even in some cases, large customers which we'll talk about in a minute. So that is a good trend as things stand. I think we want to watch the next couple of months to see how that plays out. But an initial investment in automation equipment is a good sign.

Having said that, on the consumable end, we do not see that optimism or that growth come through. Consumers are flat at best, maybe a little bit down. and gas is following a very similar pattern. So I'd say to you, people are preparing for what is likely to come and have some maybe what I would call cautious optimism around growth in manufacturing and some level of recovery beyond where we are today.

But we aren't seeing that natural consumption just yet. So you have to hold your breath for a while. Now talking about customers, 1 of the areas we look at quite carefully is automotive and large ag equipment. There are usually good indicators as to how we see manufacturing trends pay out. And I think the feedback from those customers broadly tends to continue to be cautious with an expectation that hopefully, things will improve in the second half, but caution for now.

And as I said before, a bit early in the year for us to give a more insightful or informed view on how we are expecting the markets to play out.

And our next question comes from the line of Laurence Alexander with Jefferies.

This is Dan Rizzo on for Laurence. You mentioned during the commentary about doing some restructuring cost cutting. I was just wondering if that's like addressing like cyclical issues that can be kind of added back when things do ultimately turn? Or if this is more of a structural permanent changes that you're making in different regions based upon what you see over the long term?

Dan, this is Matt. I can handle that one. Yes, when we put it into restructuring, we viewed as structural, right? We view this as changing our organization or changing how we're addressing our market in a structural way. The kind of cyclical that you referred to tends to be more just a function of our normal ongoing attrition, ebbing and flowing of our headcount. .

These restructuring charges we took are predominantly related to head count options around the world. So this is more a function of that. The majority of it right now is in the Engineering segment, given how we're navigating that business and organizing that business. given how we're looking at some of the third-party opportunities. So that's really how I would describe that, that this is not expected to come back. It is more a function of how we run our company.

So I guess does that mean that there will be significant leverage when things do turn though or I mean -- or do you have to -- I guess I was just wondering if you have to higher back what...

Yes. I mean that is the expectation. I mean, look at 2025 as an example, and I'll just use SG&A as a proxy line kind of understand that. Our SG&A during calendar year 2025 is up 3% year-over-year, right? And when you take the M&A portion, obviously, we acquired SG&A. And there is about, I'd say, probably 0.5% or so of FX. It's just footing to 0 on the table.

But you're looking at probably 1.5-plus percent of that growth was just FX and acquired SG&A. So our underlying SG&A is only 1% and change. Why? Well, you've had about a 3% or so merit inflation cycle, and that was mitigated against the actions we took back last year from October coupled with some of the productivity initiatives. So this is kind of how we need to think about it that you have to get ahead of this. You have to get ahead of the inflation, you have to structure your organizations around the regions you operate in. And that's 1 of the I'll say, attributes of this very local model is that we can quickly act in each individual region around what is occurring in that region without having any ramifications or impacts in other parts of the company. because we do not have integrated supply chains in our company.

They are stand-alone markets that are fully self-sufficient in each small geography they operate and allows them to adjust quickly to the conditions they're seeing, and you see that benefit in our cost stack.

Matt, the only thing I'd add is, what does happen is when there is a bit of volume tailwind, you get a pickup in volumes because of industrial activity, that leverage then flows through very quickly to the EPS, and I think that's what we were able to show in 2021, we always give that as a good example where volumes went up 7%, 8% and we saw EPS grow up 30%. So that -- maintaining that tight control on the cost structure and ensuring that we are well positioned for any recovery as and when it happens, I think, has always held in good stead for us. .

And our next question comes from the line of Eric Boys with Evercore ISI. And hearing no response, we will move to our next question. It comes from the line of Arun Viswanathan with RBC Capital Markets.

I just wanted to, I guess, understand the EPS guidance just a little bit. Back in December, you guys had discussed the possibility of getting to 10% plus, the guidance here is maybe slightly below that and maybe that would be mostly attributed to the base business as maybe you discussed. But if you were to see a pathway back to that level, what would you think would really need to improve maybe Europe? Is there anything in the backlog that space or electronics that we could point to?

Run, it's Matt. Yes. So we'll start with its guidance, and it's early in the year, as you know. So when you kind of think about the 6% to 9%, I mean, I agree with you, the upper end of that range maybe catches below 8% to 12% that we've laid out there ex economic impact. So we know we've got room to improve. We know we've got opportunities that we need to pursue this year. .

But at this stage, I think it's appropriate for us to just remain guarded. I do feel better the comps we have this year are definitely better than what we were facing this time last year on a year-over-year basis. And time will tell where we ultimately finish. But I can say that between the project backlog between the acquisitions we've done, so the capital contribution of our algorithm, we feel quite good. When you look at the management actions of price and productivity, and we took actions this quarter to better position us.

Sanjay mentioned, we continue to expect to price with inflation. And so from the elements of both management actions and capital contribution, we still feel quite strong about that algorithm, and we expect to deliver on the expected range. Time will tell where we finish and time will tell what will happen on the macro piece. So but our -- we know our goal is to get that double-digit percent growth in long term, and we will get back to them.

Arun, we talked a lot about how we should describe this guidance and the words we used internally when we were discussing it are guarded, prudent, and I would say conservative, Time will tell. .

And our next question comes from the line of Eric Boys with Evercore ISI.

Could you please provide a time line update on when you anticipate your unit to start up at TSMC's Arizona Fab 2? And then could you remind on how gas intensity increases from Fab 1 to Fab 2 and what that means from a profitability standpoint for Linde?

So as you know, our plans for Fab 1 and 2 have -- are in operation already. Fab 2, as you're aware, probably from TSMC is ramping up at their end, and obviously, where they're fully supporting them on that. So those assets are on the ground. They have been commissioned. They are in different stages of utilization, Fab1 fully utilized, fab 2 kind of ramping up exactly as planned. The next round of fabs is now under discussion and being worked through.

And as you know, the yields that came out of the first couple of fabs surprised -- positively surprised everybody. So the commitment to major investments in advanced nodes at Phoenix is strong. And with that comes higher gas intensity. I think, one, you've done a paper where you've done a lot of work around gas intensity. You should reach out, Eric, to woan and have a chat with them. He'll show you some of the analysis we've done around gas intensity. 2 things happened, right? Because we're going to advance nodes, the intensity of usage of gas goes up per node.

But more importantly, we also see new gases being introduced and used in much bigger quantities. And I think that -- all of that contributes then the overall increase in gas intensity for these green fabs.

And our final question comes from the line of Abigail Evertz with Wells Fargo.

I wanted to follow up on your walk around the world, and if I missed this, I apologize. But could you clarify your pricing expectations for Americas and APAC for the year?

The pricing expectations, Abigail, remain consistent with the view that we've always given, which is globally weighted CPI, we should be at or around that. And I think consistently we have, including the last quarter, if you take out the impact of helium and China deflation weakness, we are seeing our businesses perform to that. That's a long-term trend. As you know, we've had positive pricing for 25 years. and we see that continuing for this year as well.

And that concludes our question-and-answer session. I would now like to turn the call back over to Mr. Juan Pelaez for any additional or closing remarks.

Avi, thank you very much for hosting this call. Everyone in line, we appreciate your participation, and have a great day. .

And ladies and gentlemen, that concludes today's call.

Ladies and gentlemen, good day, and thank you for standing by. Welcome to the Linde Third Quarter 2025 Earnings Call and Webcast. [Operator Instructions].

Please be advised that today's conference is being recorded. And 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.

Abi, thank you. Hello, everyone, and thanks for attending our 2025 third quarter earnings call and webcast. I'm Juan Pelaez, Head of Investor Relations, and I'm joined this morning by Sanjiv Lamba, Chief Executive Officer; and Matt 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 Page 2 of the slides and note that it applies to all statements made during the teleconference. The reconciliations of the adjusted numbers are in the appendix to this presentation. Sanjiv will provide some opening remarks, and then Matt will give an update on Wendy's third quarter financial performance and outlook, after which, we will wrap up the Q&A.

Let me now turn the call over to Sanjiv.

Thanks, Juan, and good morning, everyone. Once again, the third quarter has proven the strength and resilience of our model. EPS of $4.21 grew 7%. Operating cash flow grew 8% and and we generated $1.7 billion of free cash flow. The backlog remains at $10 billion, contractually securing long-term EPS growth while increasing our network density.

Despite the challenging macroeconomic environment, Linde employees continue to generate shareholder value while maintaining industry-leading results across key metrics that matter most to our investors. This culture of ownership, deeply ingrained throughout our organization is a foundation of our performance culture. And it serves us well in both good times and bad.

Given the current economic uncertainty, I thought it would be helpful to provide you an overview of what we are seeing around the world. Slide 3 provides the end market trends for organic sales which include both price and volume. Starting with consumer-related end markets, which make up about 1/3 of global sales. Healthcare encompasses both institutional and home care sales, primarily for respiratory ailments.

You may recall last year, we proactively pruned certain parts of the U.S. home care portfolio. which laps by the end of this year. Going forward, I expect health care to remain a stable and steadily growing segment. Food and Beverage continues to grow low to mid-single digits, driven by a combination of consumption trends and innovative application technologies that enhance food quality and preservation.

This is a work horse of the portfolio that may not get a lot of the spotlight but it provides consistent growth and is remarkably resilient. Electronics at 9% of sales was the fastest-growing end market this quarter. Note, this 9% does not include an additional 2% of electronic sales in Taiwan through our nonconsolidated joint venture, which is also growing well.

The 6% growth we achieved is evenly split between on-site project start-ups and demand for processed gases and advanced materials. Growth was fueled primarily by higher chip production in Korea, Taiwan and the U.S. and some lower rent ships in China and Southeast Asia.

We observed increased fab activity in Q3, spurring merchant and packaged gas demand as well as new all side bidding opportunities, particularly for cutting-edge advanced nodes. I expect this end market to provide robust growth for some time and serve as an important part of our project backlog growth.

Turning to industrial end markets, which account for about 2/3 of our sales. As many of you know, this is an area we've been cautious on for several quarters in a row. So recent macro trends have not been a surprise. Starting with metals and mining, which were slightly up, largely due to inflationary price increase, while base volumes were mostly negative. Metals trends were region-specific and also impacted by tariffs.

China is up well line benefits from supplying Tier 1 customers, but I believe the trends for Tier 2 and Tier 3 steel mills are considerably more stressed, but we do not supply that. U.S. been as bright spot for metals, not just production levels, but also new capacity opportunities as they've been supported by the new tariffs. Europe by contrast is the weakest as demand continues to drop led by weak industrial activity.

We've been supplying steel mills for many decades, and we have seen the cycles. We have confidence in the competitiveness of our customers, but also the opportunity to deploy our applications that enable our customers to either reduce energy consumption, debottleneck and enhance efficiency.

Chemicals and Energy are up 1%, driven by inflationary price increases. Overall, base volumes are down as chemicals is one of the most challenged end markets today. The U.S. and China saw flat volumes. India continues to see moderate growth. While the rest of the world is seeing volume decline as they adapt to trade policies and lower demand. Europe remains the weakest with continued broad-based demand challenges. Fixed payments are being made. So the profit impact for us is therefore limited.

Despite the current challenges, I expect this cycle to rebound as all prior ones have, especially given our confidence in the cost position of our top-tier customer base. Manufacturing, which grew at 3% year-on-year was the fastest-growing industrial end market. I start with the Americas.

We are seeing solid volume growth, especially in the United States. We seem to have lapped some of the tariff concerns, and this has translated into a healthy uptick in manufacturing activity. In addition, I'm pleased with the momentum in our commercial space business. Growth has been strong as we remain the trusted supplier of fuel for rocket launches and satellite propulsion systems. This sector continues to present exciting opportunities for Linde as we invest in additional capacity.

Turning to APAC. Manufacturing volumes are holding steady. China's numbers appear to be leveling off, while India remains on a strong growth trajectory. Europe, again, continues to face challenges with widespread softness in manufacturing activity.

Summarizing these trends. Consumer markets are performing as one would expect. Pricing continues to track inflation. And despite some of the volume challenges from the ongoing industrial recession Linde is well positioned to supply as industrial activity and volumes recover. In other words, it's business as usual.

Finally, more recently, I've heard some talk of a potential recession and the possibility of an economic contraction. As far as I'm concerned, we've been in an industrial recession for more than 2 years. And here at Linde, we've taken proactive steps while navigating contractions across several industrial end markets. We've been making our model recession resistant for many years now, stressing on productivity and efficiency within our business, focusing on targeted high-quality growth while maintaining disciplined capital management.

Our operating model is designed to plan for the worst and be ready to capitalize on opportunities as they come. When things get tough, there is no group in the world that rather have in my corner, the [ Destiny ] team.

I'll now turn the call over to Matt to walk through our financial results.

Thanks, Sanjiv. Third quarter results can be found on Slide 4. Sales of $8.6 billion were up 3% from last year and 1% sequentially. The Recent weakness in the U.S. dollar led to a currency tailwind of 1%. Tuck-in acquisitions in Americas and APAC added another 1% and An engineering impact decreased 1% from project timing.

Excluding these items, year-over-year underlying sales increased 2%. Price increases of 2% were broad-based and aligned with globally weighted inflation except for helium, which continues to experience price pressure from excess supply. Overall volumes were flat as contribution from the project backlog was offset by weaker base volumes driven primarily by European industrial customers.

As Sanjiv mentioned, the weaker industrial activity was not a surprise as trends mostly followed our guidance expectations. Underlying sales were flat sequentially and as seasonal increases in APAC were offset by seasonal decreases in EMEA. Note, we had a supplier settlement in the U.S. home care business broken into 2 separate payments to Linde. The majority was paid Q3 2024, as disclosed in the 10-Q.

While a final smaller payment was received in the second quarter 2025. The payments were covered prior excessive costs and resulted in a current quarter operating profit headwind of approximately 2% or 40 basis points versus last year, and 1% or 20 basis points sequentially. Aside from this, profit growth was primarily driven by price increases.

EPS of $4.21 increased 7% or 4% more than operating profit primarily from a lower share count and tax rate. While the share count is part of our ongoing repurchase program, the tax rate relates to favorable timing versus the upcoming fourth quarter.

We anticipate full year ETR to be in the mid- to high 23% range, which is similar to 2024.

Slide 5 provides an update on capital management. Operating cash flow increased sequentially to $2.9 billion, or 8% over prior year. Second half operating cash flow is seasonally higher. So I expect a similar level for the fourth quarter. Overall, despite economic headwinds, the bar chart validates our resiliency through significant free cash flow generation.

To the right, you can see how we deployed year-to-date capital with $4.2 billion invested into the business using our disciplined investment criteria and $5.3 billion return to shareholders. We have an underleveraged balance sheet with significant access to low-cost capital. So we're well positioned to capitalize on future opportunities.

I'll wrap up with a guidance update on Slide 6. Fourth quarter EPS guidance is $4.10 to $4.20. And or 3% to 6% growth. While this assumes a 2% FX tailwind, it also assumes an approximate 2% tax rate headwind, so these 2 mostly offset. As mentioned earlier, third quarter tax rate was slightly lower than the run rate, but we anticipate fourth quarter to be higher.

There aren't any structural reasons rather just timing effects. It's possible there could be upside to this tax rate estimate, but time will tell. Excluding these 2 items, underlying EPS growth is holding in the mid-single-digit range as we maintain the assumption of base volume contraction at the top end of guidance, similar to last quarter. The quarter guidance rolls up to a full year range of $16.35 to $16.45 or 5% to 6% growth against the challenging macro backdrop.

In summary, we remain cautious on the outlook. It's difficult to identify near-term catalysts, which could materially improve industrial activity. for the remainder of 2025. And while we may take this prudent view, it does not negate our ability to generate shareholder value. Over the last 2 years, the global economy experienced recessionary industrial conditions with restrained capital activity. Linde has grown operating cash and EPS, mid- to high single digits while contractually securing a record high-quality project backlog.

Looking ahead, if conditions worsen, we're prepared to take appropriate mitigating actions. And when things recover, we're well positioned to capitalize. Either way, we won't spend time predicting the future, but rather focusing on the actions to shape it.

I'll now turn the call over to Q&A.

[Operator Instructions]. And our first question comes from the line of Laurent Favre with BNP Paribas.

My question is regarding the backlog. And I remember that 3 months ago, you were talking about defending the EUR 7 billion by year-end despite startups. I was wondering if you think -- I mean, I'm not aware of any significance new intake in Q3. Are you expecting significant new projects coming in, in Q4?

Thanks for that question. Obviously, the backlog at $7 billion. This is the sale of gas backlog is at a record level. I had said 3 months ago, my expectation is we will end the year with a 7 handle on the backlog despite starting up $1 billion in projects during the course of the year. We're on track for that. And I believe at this stage, we are on track to getting that 7 handle by the end of the year as well.

And you talked about new projects in -- on the steel side, in metals in the U.S. Can you talk about that opportunity? Is it something for [ Denise? ] Or do you see multiple opportunities over the next 12 to 18 months?

So I just want to make sure I understood that correctly. You're asking about opportunity pipeline broadly and then in the U.S.

No, it was more about Metro,I would say, traditional projects away from electronics, away from decarbonization.

Good question there, Laurent. So yes, I think we are seeing that as a result of the tariffs that steel and metals broadly are likely to see some continued expansion in the U.S. We find ourselves well positioned with the right players who are contemplating that expansion. So the answer is, yes, we are looking at steel and metals opportunities and potential for new expansion projects, which will lead to greater gas demand, which we will either feed from our existing network or with additional assets that we are proposing to put.

Our next question comes from the line of Duffy Fischer with Goldman Sachs.

Yes. If you would, could you take a peek into next year? You've got, obviously, the Q4 guide out. that is a baseline to springboard into '26. How comfortable do you feel? What does the project startup look like next year?

And then if you just kind of anniversary the price you have now, how much benefit does that look like it will bring in '26. So just anything that you can kind of see forward into 26 would be helpful.

So Duffy, in 2 weeks' time, we will have the entire team here going through a rigorous plan process. The planned presentations will happen there. And we will come back to you and give you good visibility on next year and provide the guide for next year as well in February, as we normally do, which you're aware of. So I want to go through that process.

Our planning process is fairly rigorous. And I think that's what gives us the confidence to come out and give visibility on next year. I'll say a couple of things to kind of vet your appetite a little bit while you wait for us to come in February. The backlog that we have under execution, obviously, is a strong input into continued EPS growth that we are likely to see into next year and beyond. So expect that for sure.

And of course, there is a variable in all of this, as you know. And our EPS algorithm, which holds well today and shows that management actions and capital allocation does what needs to do at the end of the day, the variable that we'll be looking at for next year will all be around the macro. And I think that's going to be one of the factors that we will spend a lot of time talking about and planning for to ensure that we have a solid guide when we come in February.

And our next question comes from the line of Matthew Deo Matthew DeYoe with Bank of America.

I could be wrong, but I think this is like the first quarter in some time where pricing didn't really move up sequentially and I don't know maybe it's just coincidence or rounding, but I think just a question on like the backdrop for pricing and whether you remain confident that you can continue to to move the needle just given some of the slower macro that we're talking about here.

Matt, this is Matt. I think when you think pricing sequentially, you're always going to have timing differences of when the anniversaries are for certain contracts for the escalations on certain contracts. So that's a normal part of our process. I always like to look at year-over-year as the key way to understand our pricing and then compare that to how the globally weighted inflation is.

And when we look at the 2% we have year-over-year, that's pretty much aligned with what we're seeing in our geographies on a weighted inflation basis. So I probably wouldn't look too much into the sequential timing just because of some of the different timings of when increases occur.

Matt, I might just add one comment, which is helium and rare gases, which is a drag on pricing, has been something we've mentioned in the past as well now. Remember, helium and rare gases for us is a small portion of our revenue. So the overall impact for us at the enterprise level isn't that great. But nonetheless, that's been a drag for us, particularly in APAC, which you've probably seen.

And our next question comes from the line of David Begleiter with Deutsche Bank.

Matt, one more try on 26. Do you need base or organic volume growth to achieve your EPS growth algorithm next year?

David, so when you think about the algorithm, there's the 3 parts, as we've described in the past. -- and the capital allocation part and the management action parts don't need any economic co. And as we've said time and time again, those 2 parts, we view kind of mid-single digit individually. And so the combination of those 2 should get us to about 10% or hopefully a little more without any help from macro.

And then the third piece is the macro, which really we view has 2 parts. The FX translation, given we're dollar functional and the base volumes that we see. Even though they're under contract to customers, how many molecules they take will drive that base volume. So that's the part that's been the drag, the headwind for a few years now. But the rest of the model continues to deliver on the algorithm, hence, why we've been able to achieve the growth we have with even the face of negative base volumes. And up until recently, unfavorable FX translation.

So we feel quite good about management actions, and we feel quite good about our capital allocation portion of the backlog and we've talked about the strength of our backlog projects coming on stream. We've talked about the free cash flow that we can deploy on everything from stock repurchases to M&A activity. So we feel good that, that will deliver, and we feel good the management actions will continue to deliver. So the macro, as Sanjiv mentioned, we'll give more of an update on that on February and how we view that and how we will put that together in the guide in February.

Our next question comes from the line of Tony Jones with Rothschild.

This is Mato speaking on behalf of Tony. So I'd just like to ask 1 question about the project backlog and what major end markets do you expect to drive growth once the electronic CapEx cycle peaks over the next year or so.

Thanks. So our view remains that the electronic cycle doesn't peak next year. The electronic cycle in our mind is here for the next 5 to 7 years and potentially a little bit beyond that as well with all the build-out that's contemplated. Now having said that, the visibility we have on the electronic cycle comes through the engagement with various of the leading semiconductor companies and who are currently contemplating fab expansion.

So that's what gives me the confidence to give you that sense that I expect that electronics in the capital cycle or CapEx investments to continue for some time to come. Beyond that, today, we have a fairly strong pipeline of projects that we're working on. And that happens to be across a number of end markets. And I still feel pretty confident that we will continue to see growth certainly in electronics, as I mentioned, but also in a number of other areas, including steel in parts of the world where we continue to see some possible opportunities.

We mentioned the U.S. is one. India is potentially another we expect chemicals and refining in other parts of the world to also continue to see some level of activity. And last but not least, while we don't explicitly look at decarbonization projects separately, they sit embedded within our end market Companies are still looking at their programs for decarbonization and that will continue to provide an opportunity pipeline that looks pretty good, certainly for projects that have strong economic basis on which to progress.

And our next question comes from the line of Vincent Andrews with Morgan Stanley.

Just wondering, as we're far enough along in the fourth quarter, are you getting any sense particularly maybe in Europe, that we'll see earlier than normal seasonal shutdowns? Or is the sense you're getting that -- I think there was a comment to this, that maybe there's a little bit less pessimism now that some of the trade deals have gotten pushed along. So just any thoughts on that would be helpful.

So generally, Vince in Europe, Q3 tends to have a seasonal impact, and my expectation remains that Q4 will largely be flat. When I look at the broader European context today, unfortunately, as you know, we are seeing negative volumes there sequentially. That industrial market remains soft. I don't see a catalyst for change in the near term to kind of change that fundamentally.

I'll talk about a couple of geographies that are looking like we might see movement. So I'll start with Germany to begin with. The economy is slow. You probably just saw data that came out yesterday and this morning, suggesting that maybe a slight uptick there is an expectation, and again, we don't base our plans and strategy on hold. But generally, there is an expectation and hope in Germany that the spend on infrastructure the $500 billion that's been planned, will provide an [ infinitive ] or momentum for industrial activity to pick up I don't see that happening before middle or maybe even Q3 of next year. But nonetheless, that is something that people are looking forward to. U.K. economy, on the other hand, also large in the European context remains stagnant, and we aren't seeing much movement there.

And I can't see really a catalyst there either for a fundamental change. there is a bright spot in Europe. I have to mention that, which is the Nordics. The Scandinavian businesses seem to be seeing growth. They seem to be seeing some momentum, and that's good news, but they aren't large enough to move the overall European context. So -- for the rest of the year, I expect that declining trend that we have in volumes to remain consistent.

Sequentially, you should expect that to be flattish. Nothing beyond that at this stage.

And our next question comes from the line of Patrick Cunningham with Citi.

One of the desired outcomes from the trade and tax policy is clearly an increase in U.S. manufacturing. And it seems like we've lapped some of the tariff concerns. You started to see some uptick here -- how would you frame the market risk near term, which seems to be getting a bit better versus what maybe your customers are saying in terms of doing new projects, CapEx plans and level of certainty on sort of forward growth expectations?

Patrick, that's a good question. Let me kind of give you a 2-part answer to that. I'll talk to you about our U.S. package business that reflects the near-term realities of what we're seeing and what we saw in Q3. We expect that to be consistent into Q4, and I'll give you a little bit of a sentiment view from what I'm hearing from customers as well. Let's start with the package business.

So the package business, the U.S. package business grew mid-single digits organically. That's volume and price together. Gas volumes were down low single digit. They were impacted by Helium as well within that. So the industrial demand underlying there was quite stable. Hard goods sales were up mid-single digits. Volumes are particularly up due to growth in automation and equipment sales.

Now that's usually a good sign because it shows that customers are preparing for order book pickup to happen and therefore, getting ready for that. So that's a good signal that we obviously track quite closely. So I'd say that growth in automation equipment suggesting that they're willing to make some of that upfront investment to be prepared for the orders as they come through.

Larger projects, and I think answer your question around customer sentiment now, I'd say that there remains a degree of caution. There is no question we've lapped the tariff concerns, but there still remains a degree of caution. And I think we see people progressing on looking at their major expansion projects or CapEx investment into the ground, but we still see a degree of caution around that.

Probably I say when I look at broader manufacturing the volumes are resilient, but suggest that, that trend is likely to continue into Q4 with hopefully the pickup happening in the first half maybe middle of next year in terms of actual projects on the ground, ensuring that volumes have a pickup.

And our next question comes from the line of John Roberts with Mizuho Securities.

I think China is lowering the prices quickly on electrolyzers, the same way they did on equipment for solar and wind. Do you think that might cause any recovery in green hydrogen ammonia? It's been very quiet in the last couple of years here.

John, I think the Chinese cost curve on electrolyzers alkaline in particular, has been declining for some time. This isn't necessarily new -- they've had a couple of hiccups around the scale-up technology being reliable and working through. But notwithstanding that, I fully expect Chinese electrolyzers to provide a very -- a good option in the market as people evaluate the economics of green hydrogen or renewable hydrogen.

What I would say to you, though, is that the issues with renewable hydrogen are slightly more fundamental, and they come with 3 parts, and I know you know this, John, but I'm going to repeat this anyway. The first issue is around scalability of that technology because we are still talking in terms of 5-megawatt stacks, 20-megawatt stacks that isn't scale at which we can really operate.

So you have hundreds of modules to come together in case you want to build a 200 or 500-megawatt facility, which again, in the larger scheme of things, when you compare that to a large steam retail reformer is a fraction of what the steam methane reformers deliver. So I think from that scalability point of view, there is a challenge for electrolyzers as is the challenge around reliability in terms of being able to operate clearly not 24/7 because of the availability of renewable energy. But even from the grid, I think the ability to give that 247 consistently over the course of the year is still fairly challenged around electrolyzer technology. So that's the first piece.

The second piece is what you referred to, which is capital efficiency or the lack thereof. And I think that's being addressed in part certainly by the Chinese more rapidly than anyone else. I've said this before, so at the risk of repeating myself, that's probably the cost curve on the capital side needs to probably get a reduction of between 60% to 70% before you start seeing an inflection point which makes renewable or green hydrogen more competitive.

And last but not least, in all of this we shouldn't forget the fact that we need availability of electrons generally, but renewable energy, in particular, because that's what the preferred option for green or renewable hydrogen is. And as you know well, today, any electron gets taken out very quickly. And all of this build out on data centers and AI-led data center development means that renewable energy is going to get scarcer, if you will, from a renewable hydrogen perspective. So that's something also that is structural for now that needs to get addressed before we get to a point where you see that scale-up happen.

And our next question comes from the line of Jeff Zekauskas with JPMorgan.

In your commentary on the APAC segment, you said your prices would have been up or they were up in all areas, except for helium and rare gases. So if half of the penalty is Helium, maybe that's $15 million. And in your other segment, you're losing about $15 million in that segment used to earn about $15 million.

So the helium hit there is at least $15 million, maybe it's $30 million, so it looks like maybe the helium penalty this quarter was $50 million year-over-year. It had to be a minimum of $30 million and so if you annualize that, that's trimming your EPS growth by about 2%, maybe it's 1.5% to 2.5%. Is that the correct math?

So I'm sure you've done the math. I'll let Matt kind of respond back to that. I'll just give you my flavor on what is happening to APAC pricing to just reconfirm that APAC pricing excluded helium and rare gases. So I would urge you to not forget that. So APAC pricing, excluding helium and rare gases, is positive.

Now you have to remember in APAC also that China is going through deflation. So we do see that reflected the Chinese pricing more broadly. But Matt, what do you say to the math that Jeff just put.

Yes. I think on a high level, Jeff, would agree with the basics of your math. When you think about full year, we'll stick with full year basis rather than quarter. But on a full year basis, between helium are gas, if you take both the volume impact because you did see some curtailment of volume, whether it's for balloon or whether it's for MRI, coupled with some of the pricing impact you could argue on a year-on-year basis, that's probably a 1% to 2% impact, probably in the lower end of that range, but on the EPS year-on-year.

That -- at APAC, unfortunately, is impacted the most. Given that's where the larger percentage of demand for those products are. But that is how I would summarize. I mean when you think about helium and rare gas, it is low single-digit percent of our global sales. And just given some of the volume and pricing impacts, you have seen an impact year-on-year related to that. So I would say pretty much flows close to those numbers, but we hopefully have seen some stabilization definitely on the pricing of rare gases, and helium, I think it still remains to be seen on some of the Russian supply.

And our next question comes from the line of Mike Sison with Wells Fargo.

Sanjiv, I wanted to dig in a little bit on your comments on the chemical industry. Unfortunately, I see a red today for our sector in terms of stock prices. But you had commented that you saw the cycle will turn positive. We've seen a lot of companies this quarter have asset write-downs. There's more announcements of asset reductions or rationalization, particularly in Europe and other parts of the world. So what do you think -- why do you think there could be a recovery in the sector over time.

And I just worry that maybe the structural issues that could prevent a recovery anytime soon. So just curious on what you think needs to happen for that industry to turn the corner.

So Mike, that's a good observation. I think the chemical industry, as I said in my remarks, is probably the most impacted at this point in time. And therefore, every view on the industry are all perspectives and the industry tend to be quite negative.

The reality is, and you know this well, Mike, we've seen the chemical industry go through these cycles before. There are some elements that are structural. There is nothing that we have to accept that, particularly Europe, right? And we have seen the rationalization of capacity in Europe, supporting capacities elsewhere in the world. The one market where chemicals is still doing reasonably including in the last quarter was China.

Now obviously, a lot of capacity put in China on chemicals, which doesn't help the global supply-demand situation. But nonetheless, we have seen chemicals continue to have reasonable growth in China in the quarter and the expectation remains that, that will be the case. I do expect that with the rationalization in Europe, you will see the broader chemical asset base, start looking at the recovery or rebound over time.

I'm not suggesting it's happening tomorrow anytime soon. but I do expect that cycle to turn. And based on the feedback we have from many of our customers now, the expectation remains that once the rationalization actions have been taken into account, there will be a fundamental shift back to a point where you will see that chemical industry come back a little.

Got it. And then just one quick follow-up. SG&A was up 9% year-over-year, sequential 3. Any particularly, any reason for that trend? And how do you see that going forward?

Yes. The answer for that is fairly simple, Mike. I always look at SG&A because quarterly trends have things in and out. You've got merit, you've got inflation, you've got stuff like that. I always look at year-to-date. Year-to-date, SG&A is up 1%. And really, I think when you dig a little bit deeper under that, we've got M&A impacting that by about a percent, we've got inflation impacting that by about 2%. And then we have, as you know, a whole restructuring set of actions happening, which take down our SG&A by 2%. So net-net, year-to-date, we're up about 1%.

And our next question comes from the line of John McNulty with BMO Capital Markets.

Maybe a follow-up around some of the European capacity closures. So it looks like there have been a lot announced at this point. And so far, you all seem like you've avoided being tied to too many of them likely a lot of good partnerships that you've kind of picked over the years. I guess can you help us to think about at least given the announcements that have come out in the last quarter or so if there's any speed bumps that we should be aware of as we look out over the next year or 2 where assets are getting shut down, maybe you get a big onetime payout and then the business disappears. I guess how should we be thinking about that?

John, I'd say to you that the rationalization has been something that we have looked at. And to some extent, we internally had kind of mapped out what we thought the pace of that would be. All of that's playing to exactly how we thought it would be.

So I'm not seeing any surprises in there. I would also say to you that there are a few customers that are below MTOP at the moment in Europe, largely around steel and chemicals. And I think we still are being paid. The thing that I look at when I look at these large customers is whether we're getting paid the fixed fee, and that's what contractually protects us from any exposure. So we see that happen. I do not expect any significant rationalization impact of the order and kind of the way you defined it where things stand down with large one-off payments.

We are just seeing -- again, it's the pedigree of the customers we have, the cost positions that they have, which ensure that these Tier 1 customers in the chemical sector that we serve will remain. They will be much, much the last man standing, if you will. And I feel good about that portfolio.

And our next question comes from the line of Josh Spector with UBS.

I had a follow-up just on the manufacturing comments. I mean, I think if you look at the declines you're calling out in Europe and then the growth in the U.S. side or Americas broadly, I mean you're doing much better than the PMI metrics than what we're looking at.

So just curious if you could comment maybe in a little bit more detail by market or wins and how that is driving itself the quarter maybe some of that's redundant with your answer, Patrick, but I wasn't sure if there's anything else to add.

Yes. So I think as I explained there, Josh, the manufacturing piece more broadly is seeing, 2 things are happening, right? We're lapping the tariff concerns or the trade concerns that were there, and I think that's resulted in manufacturing coming back and rebasing. So the uptick in manufacturing that I referenced earlier on is driven by that.

And then obviously, we are seeing some of the clarity that is now coming into the market, allowing people to plan and progress with their activity and potentially expansion in that space as well. I won't point out any specific elements. I'll give you a couple of examples. So the U.S. manufacturing, clearly, I've given you the example of the U.S. packaged gas business, that is a great proxy for U.S. manufacturing has done well, mid-single-digit organic growth.

That is, of course, both price and volume. But I'll also give you examples in China, as an example, which we've been struggling with manufacturing being in steady decline. We have seen particularly around selective subparts of the manufacturing end market. We've seen EVs and batteries show some growth, so we are seeing a bit of mix back around the world.

The U.S. leaves that in terms of the manufacturing activity and the growth we see in there. We're seeing, obviously, India, I gave you the example of China, where we see manufacturing broadly remain struggling is Europe. And I think it should come as a surprise to you. We've been kind of looking at that, and it is exactly as we had expected, unfortunately.

Now the expectation there is that the $500 billion spend in Germany is going to spur some of that manufacturing activity I'd love to tell you that it's going to happen on the first of January 2026, but you and I both know that by the time the German system puts its whole process around that, it's going to be a few quarters before we get the benefit of that. And you will see that play out. I think there's a certainty around that. But again, we'd love to watch for that to happen before we can really kind of comment on that.

And Josh, this is Matt. The only other one thing I'd add to Sanjiv's points are, we do put commercial space in the manufacturing, that is growing and clearly driving some of the growth in that end market. That obviously will not correlate with PMI, given it's a very different type of growth trajectory, but that is also having a positive impact on the manufacturing end market.

Matt, I don't know how I forgot that because I think the space is an end market by itself. I think -- it's about time we grew that enough to be able to show that as an end market. But yes, very healthy double-digit growth, feeling really good about aerospace broadly and commercial space specifically, Josh. And I'll just give a bit more color there just to say, look, the reason we're excited is not only have we seen as a reliable partner by almost all the space large companies.

But as the companies are ramping up their activity and accelerating their manufacturing process around both the production of engines, testing of engines and obviously launch, we see this significant opportunity for growth, and we are putting a lot of capacity on the ground today, particularly in the U.S., to serve that additional oxygen, nitrogen, hydrogen demand and, of course, rare gases for propulsion systems for satellites as well. So yes, that certainly sits in manufacturing, and Matt was absolutely right in just pointing that out.

And our next question comes from the line of Kevin McCarthy with Vertical Research Partners.

Sanjeev, you commented in the prepared remarks with regard to electronics, that you expect robust growth for some time. So I was wondering if you could unpack that for us a little bit. For example, what sort of industry level growth do you see over the next few years, however you think about that, square inches of silicon or otherwise? And in the past, I think that you've asserted that industrial gas demand into electronics actually grows at a premium rate due to shrinking nodes and maybe changes to chip architecture, et cetera. Is that still the case? And what is that premium? And how do you see it evolving with AI, data centers, et cetera?

Sure, Kevin. That's a great question. So as I said in the prepared remarks and also in the response to a question earlier, we still see a very robust pipeline for growth over the years to come over there. I think when you think about semiconductors broadly, the expectation remains that over the next 5 years or so, you should see semiconductor industry grow to $1 trillion. I think the expectation of growth between 9% to 11%, I think depends on which study you pick up.

Within that, clearly, as you're aware, logic is the steady growth element in there. And of course, memory more recently driven by BAM really is seeing a significant pickup as well, and that's where a lot of the capacities today, both in terms of logic for the GPUs as well as HBM and memory are really finding the investments play out.

I would say to you that I expect that the 9% to 11% growth range is a good number to begin with. You will see, as it always happens once fabs come on the ground, in terms of actual consumption from an industrial gas perspective, we tend to start the plants up and obviously, you see a bit of a momentum there and then evens out and gives you that 9% to 11% longer term. So I feel good about how we will see that reflected both coming from logic as well as HBM, particularly, but memory more broadly as well.

The second part of your question was around the intensity of gases. And the answer is absolutely yes. The more advanced nodes we see the intensity of gases goes up and has continued to go up. The tools that we now see with the OEMs who are putting the tools together or even looking at the next generation of tools and our R&D engagement with them suggest that, that gas intensity increased continues to be the case. And that's what gets us excited, right, that there is significant growth happening, but not just that you're actually seeing a higher intensity of gas application in that process as well.

I know for a fact that one has done some really good work around that gas intensity analysis. If you want we can reach out to him, he can share some more information with you.

And our next question comes from the line of James Hooper with Bernstein.

My question is more on the margins in EMEA. I mean 36% is very, very impressive, and you've done over kind of 200 basis points year-on-year, excluding pass-through. But are we starting to reach terminal velocity on margins here? -- without kind of volumes coming back, how much further can we go? And what levers you're looking to pull to keep growing here?

James, this is Matt. I think starting with -- yes, as you look at EMEA right now, clearly, you have negative volumes and positive price. And that combination is creating a very strong margin contribution result year-on-year. And as we mentioned on the volume side, the industrial on-site customers are primarily driving a portion of that, so we are still getting paid, but they are, in some cases, noticeably below the [indiscernible] loans.

So you will get a little bit of a boost on that. When you see some recovery in those on-site customers, I don't expect any margin expansion, if anything, you might have a minor margin dilution simply as you start to bring up some of the power costs, which essentially flows through. So that component would have an impact on the recovery.

As far as base merchant and package recovery, that would be margin accretive, right? That would be, as you would expect, as that volume flows back through. So we've always tend to found in our history that in more difficult times, our margin expansion tends to be greater and that's simply because of the earnings algorithm that we talked about earlier, that you tend to have more contribution from management actions, which can be highly margin accretive.

When we get recovery periods, we still get margin expansion but not at the same clip, simply because then you shift more of your growth towards volume. And you just get a little bit of a mix change effect there. So that's how I think of EMEA, but they are doing what you would expect this model should do in the environment they're in, which is they're getting price to inflation, their fixed contracts are maintaining, as you would expect, and they're managing their cost back given the environment they're in.

And our next question comes from the line of Laurence Alexander with Jefferies.

Would you mind updating specifically on packaged gases 2 issues. One is what you're seeing in terms of demand trends there, particularly in sort of the welding applications. But also -- where we are on the regional consolidation in Europe versus the U.S. And how much further you think you can go in terms of consolidating the U.S. market? Like where do you think your market share might top out.

Thanks, Laurence. So I described the U.S. package business earlier on. And I think within that, the comment I made was we're seeing certainly on the hard goods side, in the last quarter, in fact, we saw mid-single-digit growth from an organic sales perspective.

Volumes were up, particularly driven around growth in automation and equipment. And that's a good sign because that shows that the building end of the manufacturing cycle is looking stronger. Obviously, some of that is going into large construction projects, including data center, something we don't normally talk about. But -- and obviously, LNG projects in the U.S., et cetera, which are driving some of that growth. And I think the growth still looks pretty robust.

And as manufacturing laps all these concerns around tariffs, et cetera, we have an opportunity to see a good growth pattern there as we look ahead into the future.

On consolidation, I'll give you a global view and then I'll focus a bit on the U.S. because that's where the action is. So there was consolidation and there are opportunities for consolidation on tuck-in acquisitions in the packaged gas space. And we've seen that now taking the model that we've got in the U.S., and we've applied that in elsewhere in the world, including in Asia and increasingly now looking at opportunities in Europe as well.

So there are opportunities for consolidation globally. The biggest opportunity lies in the U.S. There is no question around that. And while I do not comment on the market share piece, I can only say this to you, I still believe we have a number of opportunities for tuck-in acquisitions in the U.S., and we have the balance sheet strength and the appetite to go about doing that.

From memory, I'm just trying to think back. I think we closed 18 deals last year globally. This year, we're saying about 1% of our sales are going to come from acquisitions. Much of that is going to be tuck-in acquisitions coming out of the packaged gas space. So we feel really good about that space. We expect significant opportunities still in that space for us to continue to do that.

And just if I may, on the cylinder rental price increases over the last 5, 7 years, given how soft the end markets have been, have you seen any material pushback or pricing fatigue where you may need to -- where you feel you need to walk back the cylinder rentals to help the market? Or just describe what's going on there?

The easy answer is no. We have a robust rental process and of course, our customers see the value that comes out of that and the rental stream and the growth we've seen within that has matched CPI globally weighted CPI that we see as a proxy for price increases that we would normally expect. So we've seen exactly that trend come through on rentals as well.

And our next question comes from the line of Arun Viswanathan with RBC Capital Markets.

Last quarter, you mentioned maybe some thoughts around this investment in Europe and your thoughts that maybe that would not continue. Maybe you can just provide an update and updated thoughts there as well as here in the U.S., you just mentioned strong opportunities. However, we're also seeing some rollbacks here. So maybe you can just kind of elaborate on how you think the path forward could look in both those regions from an industrial and investment standpoint.

Sure, Arun. So let me give you a quick -- I give a walk around the world, so you've got a sense of what the different end markets are doing. I'll now maybe channel that is the opportunity pipeline that we're looking at. So it's fair to say that most of our opportunity pipeline today comes from the Americas and Asia. That's where the opportunity pipeline today is providing projects that we're currently working on. And if those projects meet our investment criteria, then obviously, these are projects that then go into the backlog and get developed.

Now, the U.S. opportunity remains robust. We see opportunities across a spectrum of end markets. I gave examples of electronics earlier on. We talked a little bit about steel. Clearly, even in other end markets, we are seeing opportunities for growth in the U.S. market. So it's a robust pipeline of projects that we see in that space.

On Europe, I'm not sure I quite got your comment on this investment. What I would say to you is that the number -- the opportunity pipeline for Europe or EMEA, in our case, looks a little bit lighter when compared to either Americas or APAC, not surprising, as you would expect, just given the industrial weakness that is currently there in Europe, but we still do have a number of projects in Europe that are progressing, some of them are latest decarbonization, whereas others are related to growth in other different end markets.

So we still see opportunity pipeline in Europe that over time as we develop that, we'll convert into projects that we will take into the backlog or into base growth.

And our final question comes from the line of Mike Harrison with Seaport Research Partners.

You have highlighted in the past some opportunities for AI to help you improve operational efficiency and productivity. I was wondering if you could speak about any new use cases that you've found for AI that you may be implementing as we get into next year?

So Mike, I don't know how much time you have, but I could carry on the use cases for AI. Obviously, it's very topical. No discussion today is complete unless we've talked about AI. In our case, of course, we've been doing a lot of work with data, which we've been capturing for about 30 years plus and a lot of machine learning work that's been done over the last 4 or 5 years. So much of that is in deployment today.

Off the top of my head, I'd say to you, we have about 300 use cases or above that. And they range across the entire spectrum of operations, some of the front end of the sales process and some in our engineering and design process as well. So a healthy number of use cases, very robust deployment process. We have an AI council that ensures that, that deployment works well with the overall strategy that the company has laid out for ourselves. And we're excited about that.

And the one change I would say to you is rather than just look at stand-alone use cases for AI, we are now looking at different domains and trying to understand how we can introduce AI tools across the domain, so that we can harvest some value. We track AI projects just like we track all our productivity projects. It's on our internal platform in which they get reviewed and validated. And the AI team, I can tell you has very stretching goal in terms of what it needs to deliver as a benefit. So we will use that -- look at every use case and look at the business case underpinning that.

And those benefits are looking interesting and exciting as we speak. But again, all of that scales up over the next 2 to 3 years to have some major impact on the business.

And I would now like to turn the call back to Juan Pelaez for any additional or closing remarks.

By, thank you, and thanks, everyone, for participating in today's call. Have a great day.

Ladies and gentlemen, that will conclude today's conference call, and we thank you for your participation. You may now disconnect.