(Archived) Praxair Reports Second-Quarter 2017 Results

• Solid financial performance
  • Sales of $2.8 billion, 6% above prior-year quarter
  • Strong operating cash flow, 25% of sales
  • Free cash flow of $0.4 billion, 8% above prior-year quarter
  • EPS of $1.41, up 1% vs. prior-year quarter; adjusted EPS of $1.46, up 5% 
• Continued focus on execution of our core strategy
  • Volume growth +3%, price attainment +1% vs. prior-year quarter 
  • Project start-ups in China, Korea and Canada
  • Backlog $1.4 billion; includes new project win in U.S. Gulf Coast 
• Continued progress on merger with Linde AG
  • Signed definitive Business Combination Agreement on June 1, 2017

DANBURY, Conn., July 27, 2017 -- Praxair, Inc. (NYSE: PX) reported second-quarter net income and diluted earnings per share of $406 million and $1.41, respectively. These results include transaction costs of $15 million after-tax, or 5 cents of diluted earnings per share, related to the potential Linde AG merger. Excluding this charge, adjusted net income and diluted earnings per share were $421 million and $1.46, respectively.

Praxair’s sales in the second quarter were $2,834 million, 6% above the prior-year quarter. Excluding cost pass-through, sales grew 4%, driven by higher volumes in North America, Europe and Asia, including new project start-ups, and price attainment. Sales growth was primarily led by electronics, chemicals, metals, energy and food and beverage end-markets.

Reported operating profit in the second quarter was $604 million, 3% above the prior-year quarter. Excluding the current quarter impact of transaction costs, adjusted operating profit was $619 million, 5% above the prior-year quarter. Reported operating profit as a percentage of sales was 21.3%. Adjusted operating profit as a percentage of sales was 21.8%. EBITDA margin was 32.0% and adjusted EBITDA margin was 32.5%.

The company generated strong second-quarter cash flow from operations of $701 million, 25% of sales. After capital expenditures of $325 million, free cash flow was $376 million, up 8% over the prior-year quarter. The company paid $225 million of dividends.

Commenting on the financial results and business outlook, Chairman and Chief Executive Officer Steve Angel said, “Our second quarter results reflect Praxair employees’ ability to execute our core strategy and deliver high-quality results. Adjusted operating profit growth of 5% outpaced underlying sales growth of 4%, and generated strong operating cash flow of 25% of sales.

“The second quarter continued to reflect broad-based demand across all end-markets, but as anticipated, revealed further weakness in South America. In addition, we added to our project backlog another long-term on-site supply agreement with a petrochemical customer in the U.S. Gulf Coast which will further strengthen our network in the region. Including this new win, over 80% of our $1.4 billion project backlog now relates to the U.S. Gulf Coast and we remain confident in our ability to win additional projects.

“Furthermore, during the second quarter we announced the signing of a business combination agreement between Praxair and Linde AG. This was an important milestone toward creating significant value for our stakeholders. We are currently working closely with regulators and shareholders to obtain the appropriate approvals and will provide a more detailed progress update in the coming months.

“Looking ahead, we are taking a more measured view as we do not anticipate significant underlying economic improvement in the second half of the year. In the U.S., aggregate customer demand has yet to match recent economic expectations and South America, specifically Brazil, continues to face political challenges that undermine the economy. Conversely, we expect Europe to remain stable, Asia to moderately grow and new project start-ups to contribute towards the latter part of the year. However, regardless of the economy, Praxair’s relentless focus on operational excellence and financial discipline will continue to deliver strong cash flow and earnings per share for our shareholders.”

For the third quarter of 2017, Praxair expects diluted earnings per share in the range of $1.40 to $1.46, excluding transaction costs related to the potential merger.

For full-year 2017, Praxair expects adjusted diluted earnings per share to be in the range of $5.63 to $5.75. This full-year guidance excludes transaction costs related to the potential merger. GAAP diluted earnings per share are expected to be in the range of $5.56 to $5.68 which includes $0.07 per diluted share for the first and second quarter transaction costs and excludes future transaction costs related to the potential merger. Full-year capital expenditures are expected to be approximately $1.4 billion.

Following is additional detail on second-quarter 2017 results by segment.

In North America, second-quarter sales were $1,505 million, 4% above the prior-year quarter excluding cost-pass through and currency. Sales growth was driven primarily by stronger volumes to chemical, manufacturing and electronic end-markets and higher price. Operating profit was $378 million, 5% above the prior-year quarter.

In Europe, second-quarter sales were $383 million, 8% above the prior-year quarter. Excluding negative currency, sales grew 10% from the prior-year due to higher volumes including project start-ups, price and an acquisition primarily related to the carbon dioxide business largely serving the food and beverage end-market. Operating profit was $73 million.

In South America, second-quarter sales were $373 million, 4% above the prior-year quarter. Excluding positive currency translation and cost pass-through, sales were 3% below the prior-year quarter due to lower volumes driven by continued weak macro-economic conditions, largely in manufacturing. Operating profit was $63 million.

Sales in Asia were $422 million in the quarter, up 7% from the prior-year. Excluding a prior-year net divestiture, sales grew 11% driven by higher volumes in China, India and Korea, primarily in the electronics, metals and chemicals end-markets and price attainment. Operating profit was $80 million, 19% above the prior-year quarter.

Praxair Surface Technologies had second-quarter sales of $151 million as compared to $148 million in the prior-year quarter. Excluding negative currency translation, sales were 4% above the prior-year period driven by 2% volume growth, largely aerospace coatings, and 2% growth from acquisitions. Operating profit was $25 million.

Adjusted amounts, EBITDA, free cash flow and after-tax return on capital are non-GAAP measures. See the attachments for a summary of non-GAAP reconciliations and calculations of non-GAAP measures.

Attachments: Summary Non-GAAP Reconciliations, Statements of Income, Balance Sheets, Statements of Cash Flows, Segment Information, Quarterly Financial Summary and Appendix: Non-GAAP Measures.

A teleconference about Praxair’s second-quarter results is being held this morning, July 27, 2017 at 11:00 am Eastern Time. The number is (631) 485-4849 – Conference ID: 48847647. The call is also available as a webcast live and on-demand at www.praxair.com/investors. Materials to be used in the teleconference are also available on the website.

Additional Information and Where to Find It 

In connection with the proposed business combination between Praxair, Inc. (“Praxair”) and Linde AG (“Linde”), Linde plc (“New Holdco”) has filed a Registration Statement on Form S-4 (which Registration Statement has not yet been declared effective) with the U.S. Securities and Exchange Commission (“SEC”) that includes (1) a proxy statement of Praxair that also constitutes a prospectus for New Holdco and (2) an offering prospectus of New Holdco to be used in connection with New Holdco’s offer to acquire Linde shares held by U.S. holders. Once the Registration Statement is declared effective by the SEC, Praxair will mail the proxy statement/prospectus to its stockholders in connection with the vote to approve the merger of Praxair and an indirect wholly-owned subsidiary of New Holdco, and New Holdco will distribute the offering prospectus to Linde shareholders in the United States in connection with New Holdco’s offer to acquire all of the outstanding shares of Linde. New Holdco will also file an offer document with the German Federal Financial Supervisory Authority (Bundesanstalt fuer Finanzdienstleistungsaufsicht) (“BaFin”). The consummation of the proposed business combination is subject to regulatory approvals and other customary closing conditions.

INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS AND THE OFFER DOCUMENT REGARDING THE PROPOSED BUSINESS COMBINATION TRANSACTION AND PROPOSED OFFER BECAUSE THEY CONTAIN IMPORTANT INFORMATION. You may obtain a free copy of the proxy statement/prospectus and other related documents filed by Praxair, Linde and New Holdco with the SEC on the SEC’s Web site at www.sec.gov. The proxy statement/prospectus and other documents relating thereto may also be obtained for free by accessing Praxair’s Web site at www.praxair.com. Following approval of its publication by the BaFin, the offer document will be made available for free at New Holdco's website at www.lindepraxairmerger.com. Furthermore, the offer document is expected to be made available at BaFin's website for free at www.bafin.de.

This document is neither an offer to purchase nor a solicitation of an offer to sell shares of New Holdco, Praxair or Linde. The final terms and further provisions regarding the public offer will be disclosed in the offer document after the publication has been approved by the BaFin and in documents that will be filed with the SEC. No money, securities or other consideration is being solicited, and, if sent in response to the information contained herein, will not be accepted. The information contained herein should not be considered as a recommendation that any person should subscribe for or purchase any securities.

No offering of securities shall be made except by means of a prospectus meeting the requirements of the U.S. Securities Act of 1933, as amended, and applicable European and German regulations. The distribution of this document may be restricted by law in certain jurisdictions and persons into whose possession any document or other information referred to herein come should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. No offering of securities will be made directly or indirectly, in or into any jurisdiction where to do so would be inconsistent with the laws of such jurisdiction.

Participants in Solicitation

Praxair, Linde, New Holdco and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from Praxair’s stockholders in respect of the proposed business combination. Information regarding the persons who are, under the rules of the SEC, participants in the solicitation of the stockholders of Praxair in connection with the proposed transaction, including a description of their direct or indirect interests, by security holdings or otherwise, are set forth in the proxy statement/prospectus filed with the SEC. Information regarding the directors and executive officers of Praxair is contained in Praxair’s Annual Report on Form 10-K for the year ended December 31, 2016 and its Proxy Statement on Schedule 14A, dated March 15, 2017, which are filed with the SEC and can be obtained free of charge from the sources indicated above.

Forward-looking Statements

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s reasonable expectations and assumptions as of the date the statements are made but involve risks and uncertainties. These risks and uncertainties include, without limitation: the expected timing and likelihood of the completion of the contemplated business combination with Linde AG, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals that could reduce anticipated benefits or cause the parties to abandon the transaction; the occurrence of any event, change or other circumstances that could give rise to the termination of the business combination agreement; the ability to successfully complete the proposed business combination and the exchange offer, including satisfying closing conditions; the success of the business following the proposed business combination; the ability to successfully integrate the Praxair and Linde businesses; the possibility that Praxair stockholders may not approve the business combination agreement or that the requisite number of Linde shares may not be tendered in the public offer; the risk that the combined company may be unable to achieve expected synergies or that it may take longer or be more costly than expected to achieve those synergies; the performance of stock markets generally; developments in worldwide and national economies and other international events and circumstances; changes in foreign currencies and in interest rates; the cost and availability of electric power, natural gas and other raw materials; the ability to achieve price increases to offset cost increases; catastrophic events including natural disasters, epidemics and acts of war and terrorism; the ability to attract, hire, and retain qualified personnel; the impact of changes in financial accounting standards; the impact of changes in pension plan liabilities; the impact of tax, environmental, healthcare and other legislation and government regulation in jurisdictions in which the company operates; the cost and outcomes of investigations, litigation and regulatory proceedings; the impact of potential unusual or non-recurring items; continued timely development and market acceptance of new products and applications; the impact of competitive products and pricing; future financial and operating performance of major customers and industries served; the impact of information technology system failures, network disruptions and breaches in data security; and the effectiveness and speed of integrating new acquisitions into the business. These risks and uncertainties may cause actual future results or circumstances to differ materially from the GAAP or adjusted projections or estimates contained in the forward-looking statements. The company assumes no obligation to update or provide revisions to any forward-looking statement in response to changing circumstances. The above listed risks and uncertainties are further described in Item 1A (Risk Factors) in the company’s latest Annual Report on Form 10-K filed with the SEC and in the proxy statement/prospectus and the offering prospectus included in the Registration Statement on Form S-4 (which Registration Statement has not yet been declared effective) filed by New Holdco with the SEC which should be reviewed carefully. Please consider the company’s forward-looking statements in light of those risks.