Q2 2023 Air Products and Chemicals Inc Earnings Call
Today's call is being recorded at the request of air products.
Please note that this presentation and the comments made on behalf of air products are subject to copyright by air products and all rights are reserved beginning today's call is Mr. Sitting on Joshua. Please go ahead.
Thank you Tyler and good morning, everyone welcome to Air Products' second quarter 2023 earnings results teleconference. This is Sid manager issuer, Vice President of Investor Relations and corporate Treasurer, I am pleased to be joined to.
They buy so if he gets Sami our chairman president and CEO .
Doctor Samir, So Hahn, our chief operating officer.
Melissa Schaefer, our senior Vice President and Chief Financial Officer, and Sean Major our executive Vice President General Counsel and Secretary.
After our comments, we will be pleased to take your questions.
Our earnings release and the slides for this call are available on our website at air products Dotcom.
Today's discussion contains forward looking statements, including those about earnings.
Total expenditure guidance business outlook and investment opportunities.
Please refer to the cautionary note regarding forward looking statements that is provided in our earnings release and on slide number two.
Additionally throughout today's discussion, we will refer to various financial measures including earnings per share.
Operating income operating margin EBITDA EBITDA margin, the effective tax rate and our oce bolt on a total company and segment basis.
Unless we specifically state otherwise.
Regarding these measures are referring to our adjusted non-GAAP financial measures.
Conciliation of these measures to our most directly comparable GAAP financial measures can be found on our website in the relevant earnings release section now I am pleased to turn the call over to safety.
Thank you Chad.
And good day to everyone.
Thank you for taking time from your very busy schedule.
To be on our call today.
I am proud to say.
Our people delivered another set of outstanding results this quarter.
Continuing to grow our business in a challenging environment.
Our team also continued to make great progress in executing our growth strategy.
Which is focused on the production of low carbon and zero carbon hydrogen.
I would like to tank each one of our talented.
Dedicated and motivated employees at air products.
For their commitment and hard work.
Now please turn to slide number three.
Our safety performance, which is always our highest.
Priority.
As you can see we have made significant progress since 2014.
But we are always working hard to do better.
I want to make it clear that our goal is to achieve zero incidents.
Zero accidents.
Slide number four which we have shown you many many times before.
Xiaomi rises our management philosophy.
Which is critical to add product success and will continue to guide our actions as we move forward.
Now please turn to slide number five.
Our second quarter adjusted earnings.
$2.74 per share.
Proved 14 or 17% versus last year.
Despite the lingering economic headwinds in many parts of the award and exceeded the top line of our guidance for the quarter.
We have consistently.
Delivered earnings and top line growth.
The ribbon by both price and volume.
Which were collectively up.
14% for.
For the quarter versus quarter of last year.
We also brought new projects on stream.
That further enhance our earnings.
Our roughly $16 billion of backlog.
With more than 11 billion focused on energy transition.
We'll continue to drive long term earnings growth.
Now please turn to slide number six.
As mentioned last quarter.
We have again raised our quarterly dividend this year.
Up 8%.
$1.75 per share per quarter.
Extending our record of more than 40 consecutive years of dividend increase.
We expect to pay out more than $1 billion.
Shareholders in 'twenty two 'twenty three.
Demonstrating.
Commitment to return cash to shareholders.
Now please turn to slide number seven.
It shows our EBITDA margin trends.
This continues to be my favorite slide as it shows our business performance overtime.
Maybe they're happy to see our margins improved over the past two quarters after the decline which was caused largely.
Due to the diluted effect of higher energy cost pass through.
It increases our sales, but it doesn't increase our bottom line.
We expect our margins to move higher as energy costs, excluding decrease while you continue to improve productivity in our base business and add new projects.
Now please turn to slide number eight.
And I would like to share a few thoughts.
On our hydrogen strategy.
The new.
The anger finished smoother and retail megawatt projects.
Its challenges.
And that northern ideas and approaches are sometime met.
Skepticism initiative.
When we launched the new Green hydrogen project three years ago.
Neither the first hydrogen.
Reduce it to capitalize on the idea of renewable energy resources in the Middle East.
And the first to recognize ammonia has potential as an <unk>.
Hectic transport medium for hydrogen.
When we announced the Louisiana Blue hydrogen project in 2021.
We've added gain first mover to act on carbon capture and sequestration under U S Gulf Coast.
Now the promise of clean energy is a reality.
These projects have gained significant government support at all.
On the board.
Many companies have since.
Followed our lead.
And once you become a hydrogen company announcing large clean hydrogen projects.
And exploring.
Ammonia dissociation innovation.
We believe these developments are actually good for the industry.
Because of successful energy transition.
It required a work of many different companies organizations and governments around the world.
Ali there.
As the global leading hydrogen produce it.
We are confident that our experience.
Know, how and proprietary assets.
Continue to capture first mover advantage.
Support air products success.
Leading clean energy clean hydrogen development for the decades to come.
Now it is my pleasure to turn the call over to Melissa Schaefer.
Our Chief Financial Officer Melissa.
Thank you Stacey.
You mentioned earlier, our business performed very well this quarter despite significant macroeconomic headwinds.
And volume gained 14%.
All profit metrics.
It'll digits versus last year.
You would like to thank the air products team for their continued outstanding efforts.
In March we were proud.
<unk> announced the successful issuance of a first of its kind green bonds with principal amount of 600 million U S dollars.
700 million euros.
<unk> publishing our Green finance payments.
With these offerings aircrafts became the first investment grade U S issuer to execute multi currency green bonds on the same day.
Additionally, we are very pad to be the first U S. Chemical company, the qualified green and Blue hydrogen project.
As an eligible expenditure category.
Which further demonstrates our position as a leader in advancing the worlds energy transition.
Now please turn to slide nine I'll review of our second quarter results.
In comparison to last year.
Volumes increased 6%.
And then primarily by better onsite activities.
Volume has been positive.
Decorative partners.
Price is 18% higher compared to last year.
The sixth consecutive quarter of double digit increases.
This equates to an 8% gain for the total company.
We saw positive price gains across all regions.
This partially was offset by 1% lower energy pass through.
Currency translation.
Strong U S dollar, which reduced the sales and EBIT by about 4%.
This headwind EBITDA improved 13% and EBIT margin was 140 basis points higher as strong Friday.
Volume and the contribution from the second phase of the <unk> project.
Then offset higher costs.
Our CE climb steadily reaching 11, 7%, which is 140 basis points higher than <unk>.
Last year.
We expect our LTE to further improve as we bring new projects on stream and continue to put the cash on our balance sheet to work.
Adjusting for cash or our oce, what had been 13, 5% this quarter.
Sequentially volume was up 3%.
Even by improvement in merchant and our onsite business.
EBIT was up 6% driven by better volume and equity necessarily yet results.
Now please turn to slide 10 for a discussion of our earnings per share results.
Our second quarter GAAP earnings at $1 97 per share included two non-GAAP items.
I had a combined impact of 77 cents per share.
We recorded a 69% charge for business and asset actions, primarily related to our previously announced decision to withdraw from Indonesia coal gasification.
And permanently and the construction of a plant in Ukraine.
Ongoing uncertainty regarding Russia's invasion of the country.
Secondly, the nonstop service the prominence of our defined benefit plan resulted in 8% cost this year versus a gain last year.
Excluding the non-GAAP items, our second quarter adjusted earnings was $2.74 per share up $40 or 17% compared to last year, driven by strong pricing and higher equity affiliate income.
Price volume and cost together added 40 cents.
Our price actions more than offset variable cost increases.
Alright.
Variable costs.
<unk> over 70.
This quarter.
And volume improvements contributed an additional 12.
<unk> was a headwind of 44 cents.
But this increase does not represent our new run rate.
In addition to inflation and costs related to the execution of our growth strategy. This quarter, we saw increased planned maintenance activities.
Anqing project costs and other one time items, we do not expect to repeat.
Meanwhile, the completion of the second phase of the Japan project.
Good results from our other consolidated joint ventures in the Americas, and Europe kind of equity affiliate income 16% higher.
Our consolidated joint ventures also to five this quarter.
We shared the improved results with our partners as shown in the non controlling interest line.
The effective tax rate was 120 basis points unfavorable due to a lower tax benefits this year.
We'll expect an effective tax rate of 19% to 20% for FY2023.
Now please turn to slide 11.
Our distributable cash flow continued to improve.
Driven by growing EBITDA and stable cash expenses, including interest cash tax.
And maintenance Capex.
Over the last 12 months, we generated about $3 2 billion of distributable cash flow for over $14 per share.
Our distributable cash flow, we paid over 45% or $1 $4 billion as dividends to our shareholders, while maintaining more than $1 $7 billion to.
Sure Jeff invest for growth.
Our ability to grow cash flow, especially in challenging conditions demonstrates the strength and stability of our business, which enables us to continue creating shareholder value.
Creasing dividend and deploying capital for high return projects.
Slide 12 provides an update of our capital deployment.
Our capital deployment potential through fiscal 'twenty 'twenty seven remained stable at roughly 35 billion, which includes over $7 billion of cash and additional debt capacity available today.
About $15 billion, we expect to be available by 2027.
And $13 billion already spent.
We still believe that capacity is conservative given the potential for additional EBITDA growth, which would generate additional cash flow and additional borrowing capacity.
As always we continue to focus on managing our debt balance to maintain our current targeted <unk> rating.
We have adjusted our backlog to reflect our recent developments, including the successful completion of our second phase of.
Does an project.
The lower equity contribution for knee.
<unk> from the Finalization of the project financing and our withdraw from coal gasification in Indonesia.
Our current backlog.
That $16 billion will provide a substantial amount of growth in the future.
We're looking to add additional projects.
We have already spent 37% and committed 70%.
Updated capacity with show on this slide.
Made great progress and still has substantial investment capacity remains to invest in high return projects.
We believe that investing in these high return projects is the best way to create shareholder value for the long run.
We continue to evaluate our capital deployment options and determine the best way to use the available cash entrusted to us by our shareholders.
Now to begin the review of our business segment results.
Turn the call over to Dr. Shaheen.
Thank you Melissa.
During the second quarter, we saw broad based improvements across our businesses.
Results improved in each of our regional segments versus last year.
Even by strong price and volume.
Our commercial teams around the world worked hard to make sure that we have realized the value of our offerings.
And we successfully brought to new projects on stream.
It drives our results.
We saw elevated maintenance activity due to customer turnarounds in multiple regions.
Our volumes again improved this quarter.
In addition to energy transition related investment.
We see significant investment opportunities of various of project sizes in our base business.
We continue to win our fair share of a traditional projects across the regions.
And in various industries.
Our small to mid size of project activities in Asia, what particularly robust.
We continue to see strength in our small to mid sized onsite business globally.
Now please turn to slide 13 for a review of our Americas segment results.
Compared to last year, Americas' EBITDA was up 14%.
Posted by higher price and volume.
Merchant price improved to 21%.
The third quarter in a row that we exceeded the 20% increase.
Onsite volumes were up on a strong hydrogen demand.
EBITDA margin of 37% was roughly flat.
As positive price offset higher costs.
Largely driven by higher plant.
This activity inflation and other onetime items.
Sequentially.
EBIT was flat.
Rob on the price and equity affiliate income offset higher costs.
Additionally, we also enjoyed success is in larger traditional projects.
Yesterday, we announced two new world scale carbon monoxide to projects in Texas.
Which secured long term offtake contracts from Eastman of Lyondellbasell.
This project will expand outward largest carbon monoxide pipeline network in the U S Gulf Coast.
And then had supply of our liability to our customers.
We are committed to our base business, while pursuing our growth strategy and low and zero carbon hydrogen.
Please turn to slide 14 for a review of our Asia segment results.
Our results in Asia improved despite the lingering effect of COVID-19 in certain parts of China and higher energy costs.
Compared to last year EBITDA was up almost 10%.
Despite a 7% negative currency impact.
Motion to price improved to 12%, which more than offset higher variable costs.
Volume improved 7% driven by Badar onsite.
Including the addition of all the theft in U S. Its in the best year.
Mostly in electronics.
And chemical applications.
Sequentially.
Volume was flat as the new Australia, new assets offset the seasonal lunar new year slowdown.
Now please turn to slide 15, but at a few of our Europe segment results.
Well Europe compared to last year. The story is the price.
On the 20% gain in Russia to pricing drove the region's in profits and margins significantly higher.
This is the sixth consecutive quarter of double digit motion enterprise gained Florida region.
Additionally.
Onsite activities picked up as we saw a recovery in our hydrogen volumes.
EBITDA increased more than 30%.
While EBITDA margin was more than 750 basis points higher.
As energy costs continue to come down.
Sequentially.
EBITDA was higher driven by favorable volume and equity affiliate income.
EBITDA margin also improved.
Driven by the higher volumes in equity affiliate income.
As well as the lower energy cost pass through.
Now please turn to slide 16 for a review of our Middle East and India segment results.
Stronger base volume increase sales, but higher maintenance activity negatively impacted operating income.
The second phase of <unk> project, which closed in mid January .
Add that to our equity affiliate income and it drove EBITDA higher.
Both the first and second phases of design project contributed as we expected.
Consistent with our commitment.
Okay.
Please turn to slide 17 for our corporate and other segment results.
This segment includes our sale of equipment businesses as well as our centrally managed functions and corporate costs.
The sales and profit for our corporate and other segment were lower this quarter.
Driven by a lower contribution from our sale of equipment business.
And higher cost as we continue to add resources to support our growth strategy.
Customers are very interested in our LNG technology and equipment.
And we are pleased to see that our work resulted in Florida project wins recently.
We announced two significant LNG sale of equipment project, and we look forward to make an additional announcements in the future.
Thanks, Ken Melissa have already mentioned the outstanding results of this quarter are a testament of the resilience to our business.
And the hard work and commitment of our people around the world.
I would like now to turn the call back over to safety to provide his closing remarks.
Thank you.
Now please turn to slide number 18.
Our second quarter results exceeded.
Our previous guidance.
The outlook for the global economy as a whole.
Sure Tim.
Therefore, we have modestly raised our fiscal year 2023 guidance.
11, 30 to $11 50.
Sure.
11, 22, 11, 50 announced last quarter.
For the third quarter of fiscal year 2023, our earnings per share guidance is $2 85.
To $2 95.
Ill turn to 14% over last year.
Do you still see our capex at around five to five and a half.
For this view, including the approximately $1 billion.
For the second phase of the <unk> project.
Now please turn to slide number 19.
Air products was 80 years ago.
The pioneer of the onsite business model.
And these are also the first to develop the onsite hydrogen business.
We are again spearheading the development of large low carbon intensity hydrogen projects.
To address.
Ms opportunities provided by the energy transition.
This drive to lead is part of our culture.
Sure Doug our people.
We will have the courage to lead the charge.
As I have mentioned many times.
Long term competitive advantage.
Okay, and then Great prize is rooted.
And the commitment and motivation of its people.
This principle has been clearly demonstrated.
By our past and the leaders.
In the future it is our people and their commitment their motivation.
Now we are very pleased to answer your questions. Operator, we are ready for questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment.
Again press Star one to ask a question will.
We will pause for just a moment to allow everyone an opportunity to signal.
We will take our first question from David Begleiter with Deutsche Bank. Please go ahead.
Hi, This is David Huang here for Dave as first can you talk about the merchant volume trends Youre seeing.
April may maybe by region.
Well, we usually don't comment about the <unk>.
Quarter and in the middle of the quarter, but in general.
I would like to say.
Yeah.
We are pleased with the.
The improvement in the economy.
See in China.
Yes, after the lunar new year the Chinese.
Economy gained strength and we are seeing the benefit of that.
You have seen in the.
Last quarter, and we should continue to see that in the next quarter.
In Europe volumes remain flat or maybe a little bit down, but there'll be a severe compensating that with the pricing actions related to energy cost.
And in the U S. You know very well David it's just there.
We are not.
Gaining significant amount of volumes.
He is not growing that much but at the same time, you are not going into a recession at least we don't see that yet.
That's good enough.
Yes, and I guess second on projects.
Going back to the Indonesia project cancellation.
Give us the background.
Related to that decision is that related to the higher coke prices, where was that even a factor in your decision and then I guess the <unk> project is being delayed for another two quarters can you discuss what's driving that delay.
Sure did you expect to India, Indonesia, and project I mean coal prices have nothing to do with these things coal prices going up and you increase the price of the final product.
The main reason that lead through from Indonesia or is that we have just started the project about.
Almost five years ago.
The project had condition precedents that had to be met.
And B, just theyre not getting those conditions approved.
At the different levels.
Therefore at some point in time.
You kind of just can't continue waiting for approvals.
And we decided that we have opportunities to deploy our cash.
Other places.
And that is that was the basis of the decision to withdraw.
Hope the investors give us there.
Benefit of the fact that we are flexible they are not.
Ladies react to the circumstances.
And they can't keep millions and billions of dollars of air Products' money Sydney.
<unk>.
For a long time without getting an in country and therefore, we decided to deploy the capital in other places around the world and you've been here about where.
Third we are deploying it in the future.
The second.
Comment with respect to jewelry time jewelry taught me I've completed the facility on time.
Like any onsite business that you are very familiar with it.
The question that has to give us utilities and provides us raw material for us to get you started your.
The question is having some issues with doing that and that is why have you delay.
Yes.
Okay.
Yeah. Thank you.
We will move to our next question from Steve Byrne with Bank of America. Please go ahead.
Yes regarding the higher hydrogen volumes in the U S.
Presumably driven by renewable diesel and just wondering whether.
Those customers would be willing to pay a premium for blue hydrogen.
To get a lower Ci score and if so are you reconsidering.
We're going to add carbon capture run your existing steam methane reformers.
Hey, Good morning, you see yes, you're absolutely right about the fact that if he can provide the customers that are making renewable diesel.
Hydrogen with the lower carbon intensity increases.
<unk> credits that they get for selling designee and yogurt these out in California.
Therefore, our customers are asking for hydrogen and we are considering converting some of our existing.
Steam methane reformers with carbon capture on them and.
Provide the blue hydrogen to our customers. In addition to that as you know.
And our Big project in Louisiana is all about reducing blue hydrogen.
You are absolutely right those things will drive demand, we're very excited about that.
Create a significant opportunity.
For anybody who can come up with blue hydrogen first.
That would be our products.
Thank you for that and can you provide more granularity on what drove the 44% drag in other costs. It seems as if this was primarily in the Americas.
Looks to be more than $100 million year over year.
What is in that and what is your outlook for it.
First of all it is really twice what it usually should be.
And the main reason employees that you had some one time items in the quarter.
Throw that it has to do with incentive compensation obviously.
The businesses are doing better than incentive comp that people received will go higher we have to accrue for that.
And there are some other onetime items that are.
<unk> drove that cost.
We expect that to come down to something like more like 2022 sense that it has been in the past and that is driven by the fact that we are investing in the future projects and a lot of cost at those development costs, we cannot get capitalized and therefore.
That number will be to us we have to compensate the productivity and other measures.
Thank you.
Thank you.
We will move to our next question from John Mcnulty with BMO capital markets. Please go ahead.
Yes. Good morning, Thanks for taking my question so.
So you you guys had put out some really cheap green bonds. It looks like it was like four to four 8%. So almost in line with treasuries I guess, when we think about the cost to borrow for green and Blue hydrogen projects is this kind of a reasonable baseline to be thinking about and does it mean.
You think about potentially putting some of these projects into more of a project finance mode in North America, how should we be thinking about that.
Well first of all good morning, John Hope all is well.
<unk>.
John you are absolutely, making it a.
Very very appropriate and correct. This statements.
We're very pleased with the interest rate that the gods for the green bonds. It took us only one day to raise the $1 1 billion, which means that there is a lot of demand for that and it does encourage us to look for a project finance on a lot of our projects.
And that will increase the firing power that are part of that size in terms of doing more and more of these big projects.
We are very happy about that and obviously at the end of the day the interest rate that we pay.
It would depend on what the.
Federal Reserve does but right now as you said you'd be borrowed almost that's closest to treasuries, which is very good news for us and we're very happy about that.
Yeah, you're right it will help us significantly in financing of projects in the future.
I'm doing more of.
Got it okay. Thanks, thanks for the color on that and then.
The first kind of big Blue hydrogen project, you are coming up or at least net zero hydrogen project as the Alberta project I guess can you give us an update on that as to how its progressing and and also I know you've got one customer that's taking more than half of the product or projects that product can you speak to the demand.
<unk> for the rest of the of that blue or net zero hydrogen demand or production and if.
And if you've largely allocated the bulk of that.
John That's a very good question first of all that project is moving well.
We are seeing a significant amount of demand there.
We clearly see that we will be sold out of that facility and we.
We are actually looking at the possibility of expanding that.
Operation to include more when we announced it we.
We did say that this is the first phase of the <unk> operation.
And do you expect to do more there.
Considering all of the oil industry in that part of the world and the demand for.
Obviously in Canada, it's a little bit different than in the United States, Canada is moving towards the actual carbon tax a lot of these refineries actually has to do something.
Hydrogen is blue hydrogen is the solution we are in a very good position.
Our pipeline depth with Atlanta behalf did show we are very optimistic about that John very optimistic.
Great. Thanks, very much for the color. Thank you.
Thank you.
We'll move to our next question from Christopher Parkinson with Mizuho. Please go ahead great.
Thank you Savi, so obviously a risk.
Focusing on some of the aspects of the Indonesia project, but how much of your considerations for the next few years has to do with your increasing your ability to bid on.
Blue hydrogen projects in everything that's kind of.
Bring being brought to the forefront from the U S IRA.
From a relative basis, how are you thinking about that capital being used elsewhere for your backlog growth on a go forward basis once again, specifically geared towards the U S.
Thank you.
But Chris. Thank you for your question because it gives me an opportunity to address.
When we look at projects I have always said, we look at the specific project the viability of the project and the profitability of the project.
Yeah.
There is a very very profitable projects that make sense for us to do.
Other parts of the World. If you look at it and then they didn't do some of those things, but there is no question that the IRT has created a significant opportunity.
For hydrogen in the United States.
Especially be blue and Green hydrogen air products is the leader on that and therefore, I expect a significant part of <unk>.
Mythical part of our investments in the future.
B in the U S.
Because at the.
Definitely we are building a green hydrogen facility in northern it takes us to have Dave announced we definitely need to be another gigawatt green hydrogen project in the United States because of the demands there are significant opportunities for blue hydrogen in the United States that can be realized because today it is possible.
If you have sequestration of the golf course of the United States and natural gas prices are cheap because for blue hydrogen production that you can easily make it.
And then export it therefore, we are very bullish about that.
We are very excited about that.
And he.
He is designed to promote <unk>.
Investment in the United States that is going to happen and it will be a big participant in that.
I mean, I can't give you exactly got booked in the next five years, 80% of our.
Yeah.
Investments are being in the U S, but it will be a substantial part of it but at the same time, if there are other interesting projects.
As I was sending John Mcnulty a few minutes ago with the increased ability to project finance. Some of these we will do projects in other parts of the world. They are interesting and lead us to further growth in other parts of the world.
That's very helpful and just as a quick follow up just on Asia in particular, it seems like things were a little bit more flattish on volume on I'd say a lot of us were suspecting that things would improve on a sequential basis can you just give your latest and greatest you update on how youre thinking about the macro specifically in Asia.
Versus the rest of the world. Thank you.
Sure Chris we have we have seen significant growth in Asia because of that.
A smaller projects.
Did you say you have executed about 30.
Smaller projects.
Yes.
Used to be big projects by the August standards, but now they call them smaller projects and it's going to 300 million dollar projects in semi conductors Yep Signet.
Additions in glass.
They have significant additions and other traditional nitrogen.
Nitrogen generators and all of that so if you are doing very well, we are gaining more than our fair market share in that part of the world and we continue to be.
Optimistic about that part of the world in terms of economic growth.
Thank you.
Thank you.
Well move to our next question from Vincent Andrews with Morgan Stanley . Please go ahead.
Thank you and good morning Stacy.
Wanted to follow up on your intentions to allocate more capital in the U S going forward <unk>, just curious if youll have a thought or a preference towards the structure of those investments whether there'll be.
Akin to the big Louisiana Mega projects or if they will be more sort of on site at customer projects or perhaps a mix of both or if you have any thoughts or preference between those two.
Hey, good morning, Vincent So let's call it good to talk to you.
It will be a mixture of those things as you have seen from other announcements.
Dan announcement that we put out last night.
Those are.
Onsite projects at customer sites.
The Eastern <unk> project is on the side of Eastman and the other one is on the size of Lyondellbasell.
So.
Did you do a mixture of both standalone bars, that'd be can't feed our pipeline.
Or dedicated loans or a combination of the two okay.
So that's been our model and we will continue doing that and the interesting thing is that.
This increase in demand for Green and Blue hydrogen is across the board. It is not that one customer has decided they want to do that everybody has to do with you.
Finally in the United States has to be cleared with nice every Steve Brown has to meet carbonized at this event Glenn has to Decarbonize every glass plant has to decarbonize.
Therefore every trial.
Heavy transportation has to Decarbonize and the only way to do that is using hydrogen.
So.
That demand will be there.
And it could be a mixture of arn sides standard loans and all of that so they'd be doing all of their golf as they say.
Okay, and just a follow up with with all of this activity post the eye array.
There is obviously more competition for capital to invest in gas projects.
Of all types, so in sort of the more traditional gas projects sort of non non higher rate driven.
Are you seeing.
Project returns available because of the competition for capital or has that not happened yet.
I think it will happen in time.
Your.
Your assessment on that is very correct. It didn't happen in time.
Yes. Thanks.
You very much.
Thank you.
Well move to our next question from Mike Whitehead with Barclays. Please go ahead.
Great. Thank you good morning.
First morning, Mike.
Good morning Safety first question on Europe can you just speak to the improvement in earnings sequentially. It looks like versus last quarter volume was up 3% price was down one and EBITDA was up 21. So can you just talk to the big margin improvement there.
Yes, the big margin improvement is driven by the fact that.
When energy prices were going up significantly.
At the beginning the lag did as you recall a year and a half ago, we had a lot of issues with the investors about erosion of our margin because they couldn't keep up.
Increased prices fast enough to keep up with energy prices. So now they have caught up with that.
So not all of the other end of the cycle energy prices are decreasing and therefore, it gives us the opportunity to increase our margins and to make more profit to the bottom line is kind of making up for what the loss before.
Great. That's helpful. And then second John asked earlier about your next upcoming net zero hydrogen project if I could.
Maybe take that one step further than that.
Following project could you just update us on the current status of the World Energy SaaS facility for 2025.
We are working on that project.
We have got an.
Most of the payments that they need and we are waiting for one or two of them to start actual construction engineering has grown and gone. So that project is moving forward.
France as of right now.
Now I'll be happy to look at other.
Other opportunities and how we can enhance that project, but that.
The project is moving forward as the demand for.
Sustainable airline fuel seems to be improving.
And other people seem to be very interested in the.
And the product.
So they can decarbonize yeah sure.
Okay.
We'll move to next question from Josh Spector with UBS. Please go ahead.
Hi, Good morning, it's Chris Perrella on for Josh I, just wanted to follow up on the volume impact from all the customer maintenance in the quarter.
And potentially how that boost volumes sequentially as those those customers begin to operate again.
Good morning, Chris.
Isn't it.
We are hoping to see that.
And that is why then you look at sequentially.
In terms of the earnings per share.
Sure guidance that you have given you.
Notice that if you do the math they need to have a pretty decent and robust fourth quarter to meet our guidance of <unk>.
11, 30 to 11 50 show.
We do expect that exactly what you said.
Alright, and then just.
To follow up with the European volume might not I know that the on site had picked up in Europe , just could you give us some more color on what you're seeing both on the merchant and the onsite business in Europe .
Our onsite business compared to last it is doing better.
And our merchant volumes are kind of flat.
Significant to report.
Before.
Alright, Thank you very much.
Thank you.
Our next question comes from John Roberts with Credit Suisse. Please go ahead.
Thank you good morning.
I'll ask just one question here.
Alright.
Where is their products on its just association technology.
When do you think we will see the first one of those major projects.
Good morning, John excellent question.
We have developed the technology in terms of how to crack the ammonia back to hydrogen.
<unk>.
We are going to be.
Are in the process of.
Designing and building one of these and I expect that in about two years or two and a half years, you'll be you'll have one of these things at commercial scale operating even before they actually have blue or green ammonia to put into it you're going to build it in test or the entity ammonia.
I'm very optimistic about that we have the technology works.
<unk>.
That's a competitive advantage that they have all got people. John is you have talked about before.
Okay very good thank you.
Thank you.
Our next question comes from Mike Harrison with Seaport Research Partners. Please go ahead.
Hi, good morning.
Maybe a follow up on the question that John just asked about the dissociation technology.
Is that something that you could potentially sell like the sale of equipment.
For others, who are interested in in cracking ammonia to get to the.
The hydrogen.
Good morning.
That's what I think about what is it probably do is that if anybody is interested in tracking ammonia all people suggested in that.
Build the plant for them and crack the ammonia back to hydrogen and sell it to the msas of gas.
Even if they have the molecules their original.
Nitrogen.
Ammonia comes from somebody else.
I don't take it could be licensing that.
This is safe but.
And I don't want to predict the future and if there is a specific customer who wants huge quantities.
You take a look at it but it is a propriety technologies the same day that.
We don't license of LNG technology, I don't see us doing that.
Yes.
Alright, and then in terms of energy and power costs in Europe , obviously, they've come down quite a bit from where they were over the winter.
What are your expectations as you start to look at the fall and winter for this year are you expecting that we could see another increase or spike in energy and power costs there.
If I make any comment on that.
It would not be that credible because nobody knows how that will move right.
I I don't know.
Do they.
I cannot answer that question because.
It will be a very difficult thing to pretend bodies.
Reject bodies.
Going to happened to energy prices in the future in Europe I it depends on the water it depends on.
What else should happen so.
Just a bunch of pretend as if I know something that they are doing.
I have no idea of the.
Mike.
Alright, thanks very much.
Sure. Thank you.
We will take our next question from Kevin Mccarthy with vertical Research partners. Please go ahead.
Yes, good morning, Cfe would you comment on the recent and future trajectory of your backlog if I look at Slide 12, you show 11 3 billion.
As the amount remaining to be spent on the backlog I think thats down about 4 billion sequentially, presumably some of Thats Indonesia.
But as you redeploy that capital can you comment on how you would expect that number to trend maybe over the next year or so.
Got it.
We'll continue to go up.
Because.
We are working on a lot of projects that Kevin and I fully expect that backlog to grow.
Okay.
One of the things that is one.
One of the things that she is not in that backlog is that we have put zero amount for the green hydrogen projects that youre doing in northern Texas.
And obviously, we will not put it in our backlog until we get created.
They get the permits central them, but that by itself is a significant amount.
I see thank you for that and then <unk>.
Secondly, if I may with regard to your car.
Carbon monoxide.
Jackson and new contracts that you announced yesterday I normally think of as a co product of hydrogen and so will you get additional hydrogen from the new plant in Texas City and if so maybe you can speak to what what process and what color hydrogen.
And the fate of those molecules.
Well that is a very good question you know we did put out an announcement.
Because we are obviously transparent and we want you to know what you're doing but we are under a lot of constraint from the customers about the price and the volumes and all of that.
You don't want us to disclose that but here is actually a very good example of the competitive advantage that air products has.
Yes, you're absolutely right. It makes you Oh, and then byproducts is hydrogen.
You do have a pipeline.
Your line is sold out.
The additional hydrogen and therefore.
They put the hydrogen in our pipeline and sell it.
And the demand is there so that that was one of the main reasons.
We've been able to.
Get that those projects and basically on one of them be displaced an incumbent who has been there for a long time, because they didn't have the competitive advantage should be at.
Perfect. Thank you Stacey.
Thank you.
Our next question comes from Marc Bianchi with Cowen. Please go ahead.
Hi, Thank you.
Could you comment on the status of the Neon Neons project Finance I believe there was supposed to be a dry clothes.
Shortly after the the earnings last earnings call.
The dry close has happened.
And now they are baked in and gone, but its called the vet close to dry clothes is kind of that the banks make their commitments and then the vet close there'd be actually received the money and the commitment.
Happens, it's usually two or three months after that after all of the condition precedent.
That's happened and the lawyers have spent enough time to make a lot of money.
So that is that process is underway.
And there may still be I've had to drive close and that process is underway in order to.
Get that closed on it's going to take some time.
Until we get there and then we get that will obviously put out the press release immediately and let you know.
Okay, but still on track versus what your prior expectations were.
That is.
Correct.
Thank you.
The other question I had.
First a specific question, but also more broad around IRR.
With the specific part relates to how the IRS is looking to handle.
Tracking the carbon intensity of Av.
Electricity, that's going into making making electrolysis hydrogen I think there is some uncertainty as to how thats going to be going to happen and I'm wondering how that might apply to any of the projects you've got either in backlog or under consideration I think perhaps new York might might have some exposure to that issue.
And then more broadly I think there is some question as to.
Other areas of IRA, where there's uncertainty with how IRS will handle things and then Republicans seem to be trying to dismiss.
Dismantle IRA and I'm wondering if that gives any pause too.
So the project opportunity set you are looking at.
So first of all did I already you're absolutely right. It's a law knowledge has to be translated into rules in terms of how you apply it.
Yeah, I would just like to make comments from but I see it.
Do you think that Iot is a good legislation for the word because it promotes a de carbonization and it just is global warming and his focus on hydrogen which is obviously our business and that's the right thing for them to do now in terms of what will happen to it and all of that I cannot comment.
On the political situation.
But specifically I would like to say that air products position us very clear first of all with our project in New York, Yeah. They are getting power from the.
I got a false it is continuous power 24 hours a day green.
We don't see any issue with that but we have been very public.
That we believe that the.
You can only make green.
Hydrogen.
I would call it green and not faking it.
Is when you can prove that you are doing that every hour.
Not average over a year and so on because that doesn't make sense.
That is the rules that are.
Europe has adopted.
And beside that anything that you make in the United States has to be a product which is tradable.
So we need to follow their lead that Europe has had in terms of the out of production and measure it and get on a hourly basis.
Ooh that youre, making green, either then saying that the Sun is shining on making green, but during the night.
I'm using the dirty power grid to make hydrogen, but the quality green because I've made mode.
I sold some power during the base would be great sure.
We have.
That'd be have expressed that position to the government to the department of energy and all of that so that the other day he public about that'd be a stand on that.
But youre right all of these things do need to get translated into law, but I would like to.
Stress.
That the projects that we announce.
Yeah, Hey, there.
Our project in Louisiana, and Sean David RP, All you are.
Hey, so I are a big help.
But that person is the primary reason, we did that the private energies that they did that is because we think there will be demand at these put these projects if.
If it doesn't exist then the price of hydrogen there'd be highest.
As I already exists the price of hydrogen would be lower because you had the incentive and the customer will benefit from Shaw.
Thank you Safi very helpful.
Thank you very much.
That concludes today's question and answer session. Mr gifts, Amy I'd like to turn the floor back over to you for any additional or closing remarks.
Thank you very much I really do appreciate that I would like to thank everyone for joining our call today I know how busy everybody is we appreciate your interest in air products and we look forward to discussing God results with you again next quarter sometime in early August please.
Stay safe and healthy.
And all the best to everyone. Thank you.
This concludes today's call. Thank you again for your participation you may now disconnect and have a great day.
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Yeah.
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