Matt White
Executive Vice President and Chief Financial Officer at Linde
Thanks, Sanjiv. Please turn to slide four for an overview of first quarter results. The sales of $8.2 billion were flat with last year, but up 4% sequentially, versus prior year, FX was a 3% headwind. Although we continue to see foreign currencies strengthen as evidenced by the sequential tailwind. Cost pass-through was also a headwind as energy prices have fallen in most parts of the world. As a reminder, we pass through power and natural gas costs contractually, which have no effect on profit dollars but will impact profit margins. Net divestitures resulted in a 2% decrease as the sale of GIST and deconsolidation of Russia more than offset the recent -- nexAir acquisition in the United States. Engineering is down 2% since we have not lapped the impact from sanctioned Russian projects, which ceased Q2 of last year. Excluding these items, underlying sales increased 8% from last year and 3% sequentially. The Inflation levels remain elevated in most countries and thus are driving higher pricing. As mentioned in prior calls, globally weighted inflation tends to be the best proxy for our price changes since most contracts have clauses that specifically address local inflation. Volumes were flat from prior year as contribution from project start-ups offset lower base volumes. When looking at segment-based volumes, Americas are growing due to the US APAC is mostly flat since volume recovery is offset by prior year equipment sales. And EMEA is lower, primarily from on-site customers adjusting to slower economic conditions.
From a supply mode perspective, we continue to see resilient or growing packaged and merchant volumes. Although, certain on-site customers are lower from a combination of weaker conditions than planned turnarounds. Sequential volumes are flat as US pipeline recovery from Q4 weather offset seasonal slowdown in APAC and Latin America. Despite flat volumes, operating profit of $2.2 billion increased 16% from prior year and 10% sequentially. This growth was driven by project start-ups and prudent inflation management through price increases and cost productivity efforts. These actions resulted in a record operating margin of 26.9%. And you can see to the right that every segment contributed to this improvement. In the appendix, you'll notice the engineering segment once again delivered an operating margin in excess of 25% above the low to mid-teens we view as a long-term run rate. Similar to last quarter, this is due to favorable timing from the wind down of sanctioned projects. While this led to favorable benefits on the income statement, it also resulted in unfavorable cash timing, which I'll discuss on the next slide. For the next few quarters, engineering results may continue to be lumpy as we wind down the remaining projects. However, we did not include any potential profit upside in the earnings guidance. EPS of $3.42 was 17% above last year or 20% higher when excluding the effects of currency.
This represents the 10th quarter in a row of growing EPS ex-FX, 20% or more. From a cash flow perspective, capex increased 28% from growth investments in both base and project capex. Furthermore, ROC reached another record at 24%. And as we continue to deliver double-digit percent profit growth on a stable capital base. Slide five provides more details on the first quarter capital management. While cash trends are relatively steady, the Q1 operating cash flow to EBITDA ratio was 64% or 11% lower than last year. The majority of this difference relates to timing of engineering working capital, both from a reduction in contract liabilities and an outflow from accruals and payables. So said differently, we met a contractual milestone this quarter and thus booked current income related to a customer cash deposit received over a year ago. In addition, we paid third-party vendors for work related to that project. Normally, you wouldn't experience a cash flow swing of this magnitude but the lumpy and accelerated wind-down of sanctioned projects are creating this effect. Excluding engineering timing, working capital levels remain quite healthy across the company. Overall, I expect our long-term operating cash flow to EBITDA ratio to remain in the low to mid-80% range. But the next few quarters could be more volatile as we continue to wind down remaining projects. And recall, this ratio in 2021 was 96% and driven by customer pre-payments related to these sanctioned projects.
So the multiyear average is a better indicator of performance. Available operating cash flow, which represents operating cash flow less base capex is stable at approximately $1.5 billion per quarter. We continue to deploy cash to growth initiatives, dividends and share repurchases as part of our stated capital allocation policy. I'll wrap up with guidance on slide six. For full year 2023, we're raising guidance $0.30 at the bottom and top end for a new range of $13.45 to $13.85. This represents a growth rate of 9% to 13% versus 2022. Note, we do not assume any FX impact since currencies have mostly recovered. The $0.30 raise comes from the outperformance of the first quarter. In other words, we left alone the remaining quarters for now. In addition and consistent with our prior approach, this assumes no economic improvement and hence, no base volume improvement. This does not represent our macro projection, but rather is just a placeholder. So you can insert your own view of the economy and adjust accordingly. If the economy improves, we'll be above this range. And if not, we'll take actions to mitigate.
The second quarter EPS guidance range is $3.40 to $3.50, representing 10% to 13% growth from 2022 or 11% to 14%, when excluding a 1% FX headwind. Similar to the full year, this assumes no economic improvement from current levels. Although on a sequential basis, it reflects some seasonal recovery, partially offset by lower engineering. Overall, we had a strong start, but one quarter doesn't make a year. We believe it's appropriate to remain cautious while continuing to manage the things within our control, including price, cost and capital discipline. But regardless of how the year unfolds, we're highly confident we can continue to deliver compound value for our shareholders by executing on the basics and securing high-quality customer contracts for long-term growth.
I'll now turn the call over to Q&A.
