Matthew White
EVP & CFO at Linde
Thanks, Sanjiv. Please turn to Slide 4 for an overview of the fourth quarter results. Sales of $8.3 billion were up 14% versus prior year and 8% sequentially. You can see the effects of cost pass-through at 6% and 3% versus last year and the third quarter. While this is the highest quarterly number we've seen in over a decade, it demonstrates the strength of our contracts by protecting returns from higher energy costs. And remember, this has no impact to operating profit dollars, but will negatively affect operating margins since we gross up both sales and costs.
As anticipated, engineering contributed a solid 3% growth on the strength of their record project backlog. This trend should continue in the foreseeable future as they work through their multiyear $10 billion sale of plant backlog.
Excluding these items, organic sales increased 9% over last year and 2% sequentially from a combination of higher volume and price. The volume increase over 2020 was broad-based with 1/3 coming from project start-ups and the remainder from base volume improvement across all end markets.
Sequentially, volumes were flat as growth in food and beverage and energy and chemicals were offset by lower metals and seasonal reductions in our southern hemisphere LPG business. Price increased 3% over prior year and 2% sequentially across all geographic segments, with the largest increase coming from EMEA due to greater inflationary pressures.
We continue to experience some pricing lag for the merchant and packaged business. So we fully expect strong pricing in Q1 and throughout 2022 to recover inflation. Note, actual merchant and packaged price increases are mid-single to low double-digit percent across all segments.
Operating profit of $1.8 billion is up 14% from last year and 2% sequentially. Operating margins of 22.2% are flat with prior year, but down 140 basis points sequentially. There are three drivers currently having a negative effect on operating margins, of which two have a neutral to positive effect on operating profit dollars and the third is a temporary lag that will correct over the next few quarters.
The first factor is, of course, cost pass-through. And as mentioned earlier, a 6% increase is the highest we've seen. This is a standard part of our contracts that has no effect on profit dollars, but had an unfavorable impact to operating margins of 120 and 70 basis points versus prior year and third quarter, respectively.
The second factor relates to the engineering segment becoming a larger part of the growth. This will improve profit dollars and cash growth, but has a negative effect on mix since this business has a different margin profile due to the lack of capital intensity. Finally, the last factor is because energy prices have increased faster than price actions in the merchant and packaged business.
This pricing normally lags 1 to 2 quarters and the higher inflation in Q4 caused this to push out another quarter. You can see in the table what the gas segment margin trends look like, excluding cost pass-through impact, up quite nicely year-over-year and down slightly on a sequential basis from this lag effect. I fully expect we'll recover this inflation with underlying margins expanding in 2022.
EPS of $2.77 was 20% above last year and 1% above the third quarter. We also included a full year summary on appendix Slide 8, showing sales and EPS growth of 13% and 30%. To Sanjiv's point, this growth rate comes off a 2020 base, which also performed quite well. Full year and Q4 2021 EPS increased from 2019 by 46% and 47%, respectively, which emphasizes the continued growth of our business through any scenario. In fact, the business is well positioned to outperform in all economic cycles.
Our portfolio has ample resilient market exposure for recessions like 2020. High-quality cyclical customers across all supply modes for expansion periods like 2021. Significant sale of plant capabilities to immediately benefit from capital cycles like we're seeing today. And sale of gas expertise, which has delayed capital cycle benefits 2 to 3 years down the road. Simply stated, the Linde model can deliver leading performance regardless of the macroeconomic climate.
The last point I'd like to make on this slide relates to capital management. You can see that ROC, which we view as the single most important metric for this industry, reached a new record of 17.7%. This doesn't just happen overnight. It takes considerable effort from thousands of our employees to continuously deliver industry-leading profit and cash growth underpinned by a disciplined and consistent capital allocation process. And a big part of that effort went toward delivering the record operating cash flow of $3.2 billion, which is covered in more detail on Slide 5.
The left side shows our quarterly operating cash flow trend. You can see that cash has increased each quarter for 3 straight years, and that 2021 was a record by growing 31% over prior year. The operating cash flow to EBITDA ratio reached 96% for full year 2021, well above historical levels. Part of this is driven by project prepayments in the $1.3 billion inflow of contract assets and liabilities, which is the accounting term to describe working capital for the engineering business.
As stated before, engineering is a strong cash-generating business that delivers returns well within our investment criteria. These prepayments are from the record project backlog, which will benefit the income statement over the next 3 to 4 years. Due to timing effects, I expect 2022 contract assets and liabilities to be substantially lower than the 2021 level, but we still anticipate strong cash performance across the rest of the business units. Overall, I expect ongoing operating cash flow to EBITDA ratios in the low to mid-80% range.
The right side shows how we deploy the $10 billion of full year cash flow. 1/3 was invested back into the business in the form of contractually secured growth projects and base CapEx, which represents both growth and maintenance investments. Recall that a substantial portion of our business including packaged gases, health care services and engineering don't require much CapEx to grow, so this only represents a portion of the future growth potential.
In addition, we returned 2/3 or $7 billion back to shareholders in the form of dividends and share repurchases. Our January 2021 share repurchase program of $5 billion is substantially complete, and we will review the future capital allocation in our upcoming Board meeting in 2 weeks. Overall, strong cash contribution from all business units enabled Linde to invest for future growth, while rewarding shareholders.
I'll wrap up with guidance on Slide 6. First quarter guidance is in the range of $2.70 to $2.80, up 8% to 12% from prior year or 11% to 15% when adjusting for the assumed 3% currency headwind. Sequentially versus Q4, this range assumes flat economic conditions with seasonally lower volumes, offset by higher inflation recovery. Q1 is traditionally the weakest quarter of the year, including for cash flow due to payment timing.
Full year 2022 guidance is $11.55 to $11.85, representing an 8% to 11% increase versus 2021 or 10% to 13% when adjusting for the 2% FX headwind. The midpoint of this range assumes flat economic conditions and thus, no base volume improvement. Consistent with our prior approach, this is not our economic forecast, rather, it merely represents the underlying assumption in the guidance range. You can insert your own view of the 2022 economy. And if it does better, I'd expect it to be at the top end or above this range. And if we experience a recession, we'll take actions to meet this commitment as we did in 2020.
There remains a lot of uncertainty heading into 2022. And despite all the expert forecasts, nobody knows what will happen. However, we have an industry-leading business portfolio and contractually secured project backlog. So regardless of the economic challenges, we remain quite confident in our ability to continue delivering shareholder value. I'd now like to turn the call over to Q&A.
