Linde plc (LIN) Q2 2026 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day, and thank you for standing by. Welcome to the Linde Second Quarter 26 Earnings Call and Webcast. Please be advised that today's conference is being recorded. After the speakers' presentation, there will be a question and answer session. 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 26 second quarter earnings call and webcast. I am Juan Pelaez, Head of Investor Relations, and I am joined this morning by Sanjiv Lamba, chief executive officer, and Matthew J. White, chief financial officer. Today's presentation materials are available on our website at lindy.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. Sanjiv will provide some opening remarks, and then Matthew will give an update on Linde's second quarter financial performance and outlook, after which we will wrap up with Q and A. Let me turn the call over to Sanjeev.

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 electronics win in the US. In addition, the backlog project pipeline remained healthy. With several 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 startups, and based on the opportunities I see today, 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 our 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-point year over year. Primarily driven by the Americas segment. Some of this is due to higher equipment and hardgood sales in our package business. which actually I view as a good sign of US manufacturing recovery. The majority is driven by the U.S. homecare 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. homecare 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. Matthew will speak more to the numbers, but I remain confident in our long term margin expansion story. Now I would like to touch on some growth trends which can be found on Slide 3. Consumer related markets grew versus prior year and sequentially. Healthcare and food and beverage grew along with demographic trends and consumption. With stronger sequential growth related to beverage seasonality. As expected, electronics is the fastest growing end market. With a combination of project start ups, and higher demand tied to hardware associated with AI. As I mentioned earlier, we added $1 billion of new electronic wins to the backlog to support the expansion of advanced node fabs in the Western US. Consistent with other backlog projects, we have already begun constructing the plants under reimbursable LOIs while the supply contracts are finalized. I am 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 are 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 1 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 US is still the primary driver with both aerospace and construction activity, related to data centers. In fact, aerospace accounted for more than a third 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 US and Brazil, and most of the chemicals growth relates to project backlog contributions in APAC. Aside from these regions, both end markets remain flattish across other geographies. In summary, we have lapped the more difficult comps, and are starting to see green shoots of growth across certain geographies and end markets. Furthermore, 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 will now turn the call over to Matthew to walk through our financial results.

Thanks, Sanjiv. Please turn to Slide 4 for the consolidated results. Sales of $9.3 billion rose 9 percent from prior year and 6 percent sequentially. Versus prior year, FX was a 2 percent tailwind while acquisitions and engineering each contributed 1 percent. Cost pass through rose 1 percent on higher power in all segments but was partially offset by lower natural gas for US hydrogen. Excluding these items, underlying sales rose 4 percent split between higher volume and price. Almost half of the 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 US. Price increase of 2 percent was broad based across all geographies and generally tracked with local inflation. Sequentially, underlying sales increased 4 percent. From 3 percent volume and 1 percent 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-point from prior year, or 30-basis-point when excluding the impact of cost pass through. As Sanjiv mentioned, the U.S. homecare business negatively impacted the Americas. Excluding this, margins would have increased. But regardless, actions are underway to improve. Separately, US hardgoods sales are up double-digit percent from prior year. And while this mix is dilutive to margins, it could bode well for US 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 quarter. Operating profit rolled down to an EPS of $4.50 or 10 percent 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 can be seen in the pie chart. Year to date, we have 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 will wrap up with guidance on Slide 6. Third quarter guidance range is $4.45 to $4.55. Or 6 percent to 8 percent growth. This assumes no currency impact from prior year but does assume a 1 percent FX headwind sequentially. Consistent with prior approach, range assumes no economic improvement at the midpoint. The updated full year range is $17.70 to $17.90. Or 8% to 9 percent growth excluding a 1 percent 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 would like a few more quarters under our belt before incorporating this trend. Into future guides. Therefore, we are leaving the back half guidance assumption the same as before. The Q2 to Q3 sequential EPS trend is projected increase $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 will now turn the call over to Q&A. To ask a question, please press *1 on your telephone keypad to raise your hand and join the queue.

If you are called upon to ask your question and are listening via speaker phone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to 1 question. Again, And our first question comes from the line of Laurent Favre with BNP Paribas. Your line is open.

Yes. Good morning. Thank you. And, Sanjiv, I think you said it is all within the first 5 minutes. Can I dig a little bit deeper in that health care comment? Can you give us a sense of how much of a headwind it has been over the last year? Is the business in The US currently profitable at all? Or how much of the margin drag it has been on the business? Please?

Thanks, Laurent. So I think we--the slides itself, we have laid out the fact that The Americas business ex the US 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 doing well. As we said in the remarks as well that there is a bit of a mix effect. Actually, to be honest, I see the gases business doing well. I will take the hard goods, double-digit hard goods sales that we are seeing in the business. it is a good signal of manufacturing recovery in the US. Yes. It has a small dilutive impact on margin, is temporary. Then, of course, we talk 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 have identified in the Lincare business and I expect that we will continue to see sequential improvement as we move forward.

Thank you. And just as a follow-up on the electronic side, I think the contract that you announced have been I guess, in the pipeline for a while. I was wondering in terms of geography, or maybe some of the key customers, where do you see the biggest opportunities on the electronic side? Is it still in the US or elsewhere in Asia, maybe in Korea and Taiwan, etcetera?

No. 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 will end this year on the backlog with a 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 span the world. To your point. I see bulk of those projects out of the US, but see a strong pipeline in Taiwan and Korea as well and some in China. Thank you.

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

Thanks for taking my question. Just talking about some of the manufacturing growth assumptions, particularly in North America, it does not seem like you have some of the base volume assumption trend sort of baked into the outlook. But is the bulk of that inflection that you have seen coming from commercial space? I was hoping maybe you could dig into the health of some of the other end markets and what you are sort of in anticipating for the second half?

Sure. So why do not 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, you know, as you saw year on year had 18 percent growth in 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, the sale of equipment that we provide to many of our electronics customers is very important for us because while, you know, from a margin point of view, not that exciting, the reality is the pull through on gas sales that happen 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 would say to you, manufacturing, which you kind of specifically mentioned, looks robust. Signals from The US market in particular where the recovery is most prominent looks good. The feedback from the customer suggests 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 again in my remarks briefly, the sale in the US package business is a good leading indicator Here, the gases side has been growing mid- to high-single-digit with the hard goods themselves growing double-digit. And I think that is where the confidence that the manufacturing recovery that we are expecting--not just recovery, I think the momentum that we are expecting 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 seemed to continue to perform well. So again, the outlook for that continues to be reasonably robust. Aerospace did provide for more than a third of that growth for manufacturing. So to your point, I expect that momentum to carry on into the second half as well. Chemicals energy, you know, has been a little bit spottier. I think low single digit growth We have obviously had the benefit of some good backlog contributions coming in Asia. So I think that is looked good. But I do not see a fundamental shift in the chemicals energy piece Obviously, there is a lot of volatility in the market at the moment. There are lots of geopolitical events that could impact 1 way or the other. And in part, you would see from our guidance that we have taken a neutral stand in terms of what is going to happen to the economy. We are happy for our investors to take a view on that because at this point, it is all speculation. Metals and mining, again, pretty robust in the US. And in Brazil. I expect that trend to be about steady. Obviously, in The US, with all the build out that is happening with data centers, etcetera, you know, metals are getting a little bit of fill ups, so that is good. Listening to some of our customers' calls over the last few weeks, I have seen slightly more slightly higher degree of optimism as well on steel. So it would 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.

Great. Thank you so much.

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

Yes. Good morning, fellows. Question just around the impact that you have seen on your business and on your customers from what is 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 you know, if that issue reside or 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, on, uh, what is happening with helium, just to begin with because I think that is a good place to kind of give a sense of how we have 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, you know, I am really pleased with how team has navigated this whole set of developments over the last many months. Largely because you know, we have done what we need to do in ensuring that reliable and safe supply has happened to our existing contracted customers, and we have had a lot of positive feedback coming from them because that is what they would expect from Linde. But more importantly, our teams have also gone out and they have 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, you know, sources that we have supplying into the helium supply chain, the CASM that we maintain, and of course, quite importantly, the capability around supply chain logistics in terms of tanks, etcetera, all of that played well into positioning this for new business growth that we have seen. We have had you know, the pricing move along as well, which has been a good thing. Obviously, you know, with dislocation costs related to helium, the overall recovery probably does not 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 under underscore on the helium piece 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 we will have a lasting impact for the rest of the year. I do not think you will see normalization. This year, it will, you know, once those issues are resolved, of course, still 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 it will kinda probably take us into the early part of next year. As things normalize, yes, next year, we should see a more normalized helium market. But at this point in time, you know, 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 of the Middle East crisis is the fact that in Asia, countries highly dependent on hydrocarbons coming out of the Middle East have had to scale back industrial activity. And I think, you know, markets like India, some parts of our ASEAN, Australia, and a lesser extent, China have seen that. And I think that is where the impact, over this second quarter as we have kind of mentioned to you, is probably a little bit more visible. Everybody's hoping for a resolution. Once that happens, you will see that normalization fairly quickly. But each of those countries has been looking at different strategies to manage these issues that they are currently contending with. Terrific. Thank you.

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

Hi. Maybe just a 2 part 1. 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 hard goods mix issue, or is underlying sequential price leveling off? Thank you.

Hey, Vincent. it is Matthew. I could probably answer those. So I think first on helium, Yeah. 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 did not change it And just kinda building off what Sanjiv said. You know, when you think about the helium business right now, what we are seeing, we are seeing strong price improvement. But we are also seeing higher costs for dislocation, as Sanjiv mentioned. So the contribution on dollar basis, it is positive, but it is not as large as we would like it, but it is positive. But on a margin basis, that grossing up effect right now is a little bit dilutive. That should stabilize. It normally does. But as you can imagine right now, meeting our customers and getting new, contracts signed is the priority. And doing it at positive, dollar contribution is happening. it is just the margin gross up effect right now is a little bit dilutive on that front. You know, on The Americas, just to make sure I understand, I mean, price is up 2 percent year over year. Sequentially, we are flat. As you know, when we talk about sequential, I tend not to spend a lot of time on sequential just given the different timings of some of the escalation that are done and the pricing actions. Year over year always is a more important metric for me. So when I think about that, you know, it is, say, for Americas delivering our expectations, You know, obviously, you are gonna have again, we talked about LinkCare. There is not pricing in that business right now, 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 is been the case, though, for many years now. I would say pricing in Americas on the year over year is tracking where we would expect and what we wanna see. Hopefully, that answers your question, but just to make sure you know, I do not know if you have a follow-up on that.

All good. Thank you. Yep. Yep.

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

Thank you. Good morning. Sanjiv, I know it is early, but if you look at next year, 2027, given project start ups, helium maybe being a tailwind next year, helium, growth in space, pricing, productivity. Do you need much of any macro improvement to get to double digit 10 percent E.P.S. growth next year? Thank you.

Thanks, David. As you know, our EPS algorithm lays out the fact that between management actions and capital allocation combined, we should be delivering 8% to 12%. We are 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, you know, consistent on that as we as we look at next year as well. Obviously, any tailwinds that we get will be you know, factored straight in, and you will see that improvement come through at the EPS line. Now as you know, you know, this is very early to talk about 2027. So later in the year, we will have and early next year is when, you know, our guidance will be more clear on that. But later in the year, we will 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 will have to wait and see what that means. The complexity of volume and price mix, I think, will play a role what helium does next year. Thank you.

And our next question comes from the line of Joshua Spector with UBS. Your line is open.

Yes. Hi, good morning. I wanted to ask on the CapEx 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 to commercial space? And I guess if you can give maybe any other breakdown of that $500 million increase, that would be helpful. And I am 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?

Hey, Joshua. it is Matthew. I could 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 in 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. You know, as far as the make versus buy, you know, 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? A traditional on-site customer would look to buy a plant versus, outsource in a sale of gas model. And that is something we had always managed through, usually a hybrid approach because we have the capability to do both. I would say with commercial space, that given the quantities of propellant they require, you are 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 for atmospherics. We are not seeing it on the hydrogen side, which is a very, very different dynamic. For any Hydrolox based engines. So it is a normal occurrence, I would say, when you start seeing these kind of quantities. it is something that is very akin to how we navigate the on-site for many decades. And we are very comfortable with it. So, absolutely, I expect, you will see a blend of sale of gas and some sale of plant. Generally, those sale of plants can come with what is called an operate and 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 do not anticipate it at this stage at hydrogen. So that is that is how I see that develop.

The only thing I would reiterate there, Matthew, would be the fact that you know, we will play for both sale of gas as well as sale of plant. So you know, we do participate in the opportunity even if it is a sale of plant, in case people wanna vertically do that, integrate them.

Okay. Thank you both.

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

Good morning, everyone. Congratulations for getting the TSM, 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 is that a reasonable ballpark for you?

Hey, Matthew, this is Matthew. So the revenue to CapEx is always gonna be a function of whether it is atmospheric or whether it is processed gases like hydrogen. So as you can imagine, if you have a more processed hydrogen base that has energy passed through, that might be higher. But, traditionally, for us, you know, revenue has ranged anywhere from you know, 20% to 50% depending upon energy pass through or tolling. And I would just say, of the ones we have won, they are very, very similar to the structure and ones we have already, had in place on the first few phases. there is no real difference from that perspective because those contracts follow a very similar construct on both the molecules and how energy is managed. Thanks.

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 my memory serves me right. that is where Linde AMT is and some of the sputtering targets, that is stuff. So is that the semi cycle build here, and this should be kind of like a an indication of the direction of profits, or am I--or is this kind of a little bit of a 1 off? Positive quarter?

Hey, Matthew, I would say that the materials business overall has been doing well. Sitting within that are coding services, atomizers, and some sputtering, etcetera. I think all in that portfolio is performing reasonably well under these conditions driven by a little bit of the commercial space build out as well. And I think you would put that together. I think it is looking the outlook seems pretty robust for the second half as well.

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

Thanks very much. If I did the math correctly, the home care penalty was 30 million in the second quarter. So order of magnitude, is it a $100 million penalty for this year? And is Lincare all of your 23% of healthcare revenues for The Americas? Jeffrey.

it is Matthew. So I think the numbers a little higher than what you have. So you are close, but I would say it is probably, you know, higher, though. But you could probably say 30% higher than that number, give or take. Okay. So that is the headwind we have. that is what we are facing. I think when you think about The Americas, it is clearly the largest piece. Now it does not include 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 health 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 is pressuring profitability, And if you--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, Jeffrey. Look. The challenges at Lincare are not new. Right? The business has served us well through the COVID period and the immediate kind of couple of years after that. But over the last couple of years and in particular, you heard us reference it as well. It has faced persistent headwinds, right, from labor cost inflation and changes in reimbursement environment. 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 have been pruning the portfolio. Again, you have heard us say that in a couple of the calls the last couple of years as well. There are aggressive actions currently in place to look at operational improvements and productivity. Those actions, you know, will create the impact that we are 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 are also evaluating what the strategic options for this business are. And I wanna make sure that we do that exercise with diligence, and determine 1 way or the other, this business is gonna have a meaningful positive impact on our portfolio. Great. Thank you.

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

Hi. Thank you very much. So 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 in future years? Thank you.

Thanks, James. As you know, the backlog projects take, typically, between 2 to 3 years in terms of execution. The time they come on, 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. You know, we tend to look at them from a post tax, double-digit IRR unlevered IRR perspective. So they kind of hit the investment and therefore, are an attractive part of the future business growth that they are 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 moves up. So I always expect backlog projects to continue to improve on their margin. Till they reach their full capacity utilization. Thanks.

And our next question comes from the line of Kevin McCarthyCarthy with Vertical Research Partners. Your line is open.

Yes. Thank you, and good morning. Sanjiv, if I look at your volume trend in Asia, it was up 6 percent for a second consecutive quarter. You know, versus, call it, either side of flat, throughout 2025. Can you unpack that a little bit for us? My sense is you have had project startups 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 have 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 elements sitting within there for the electronics customers. That has had a somewhat disproportionate impact in this last quarter that we that we are talking about. And last but not least, there are some, you know, ramp ups. I was just referencing to James earlier on how we expect projects to ramp up. We are 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 percent sitting over there. Okay.

And then I want to ask maybe a general question on your backlog. I mean, it seems that the electronics space in particular is quite vibrant, and you are 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 electronic space relative to all of the other end use market markets combined, or would you say that they are similar?

Hey, Kevin. it is Matthew. I can handle that. So as you probably know, you know, and as we said, we make our decisions on IRR. that is how we make our backlog and our capital decisions. So it is not really a revenue or a margin kind of view, more of an IRR, you know, undiscounted or discounted unlevered view. So from that perspective, I would say all of our projects, whether it is in any end market, electronics, energy, they tend to all fall within a certain consistent range. Because it is based on the risk and the terms and the conditions of what we are undertaking. Of course, in electronics, you are gonna have more purity requirements. And you are gonna have probably more redundancy, which generally means more capital. Your return profiles tend to be consistent nonetheless. So we do not 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 the aftermarket can create, some incremental margin opportunities. But the Onsites themselves are very, similar across all end markets. And, again, IRR is what drives those decisions. Very helpful. Thank you both.

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

Yes. Good morning. Thanks for taking my question. Sanjiv, maybe can you speak to what you are seeing, in particular, out of APAC on the industrial side in terms of longer term investment. I know you spoke to right now, there is kind of a mix of things going on just given what is 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 the, 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 would say the headline over there would be business as usual, reflected in a bit of a change in the mix. So 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 are thinking about. Where we do see a little bit of a mix effect is where the traditional end markets, you know, for instance, you know, I do not expect to see significant steel investments happen in China, as an example. Now if you go back a decade, clearly, was the case. But you know, going forward, that is unlikely to be the area where you see. On the other hand, you know, the flip side to that is in India, you are 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 would 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. Got it. Thanks very much for the color.

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

Thanks for taking my question. Apologies if this has already been asked. But you could just elaborate a little bit more on some of the actions you are taking to drive a little bit of the margin recovery. I know that you did have some of that within The Americas, some compression. Then and 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 pricing or productivity? Or do you see that? Thanks.

Hey, Arun. This is Matthew. So I think a couple of things. Yeah. 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 am fully expecting us to see better year over year just given how last year played out. So that is just a bit of a comp scenario. But, as mentioned in the prepared remarks, and as we have 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 is the biggest driver. I do think some of the other aspects, higher hardgood sales and some of the sale-of-equipment, as Sanjiv mentioned, you know, we view that as actually positive. that is 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 is something we wanna get ahead of. I mean, it is clear you are seeing more inflation around the world, and that is something that we have to manage through our productivity and our actions. And in some regions, you are seeing growth, which supports it. In other regions, you are seeing inflation without the growth. And that is an area we are gonna 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 is something we will probably give a little more color on and what we have done, in the October call. I can tell you right now, these actions are already underway. And we are accumulating all of them to get ahead of the next several quarters. Thanks.

And we will now take our final question from the line of Abigail Evertz with Wells Fargo. Your line is open.

Hi, there. Thanks for taking my question. In the past, you called out space being a billion-dollar opportunity. I am just wondering if you have any update on that number. Thanks.

Space, to your question, continues to grow well.

You know, we consider that the and we talked briefly about some of the options around space earlier on in the call. But you know, we are on track for that billion-dollar opportunity that we laid out over the next few years. I think 2030 was the timeline billion plus is what our expectation around the space markets was. Once it reaches a certain size, you will see us split that out in our end markets to have more visibility around it. Got it. Thank you very much.

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

Abby, thank you. 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.