Q3 2025 Air Products and Chemicals Inc Earnings Call
Event Specialist: Please standby. Good morning and welcome to Air Products' third quarter earnings release conference 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. Eric Guter. Please go ahead.
Please stand by.
Good morning and welcome to Air Products, third quarter earnings release conference. Call today's call is being recorded as a request of Air Products.
Please note that this presentation and the comments made on Air Products are subject to copyright by Air Products, and all rights are reserved. Beginning today's call is Mr. Eric Guter. Please go ahead.
Eric Guter: Thank you. Welcome, everyone, to Air Products' third quarter 2025 earnings teleconference. This is Eric Guter, Vice President of Investor Relations. Joining me today are Eduardo Menezes, our Chief Executive Officer, and Melissa Schaeffer, our Chief Financial Officer. After our comments, we will be pleased to answer your questions. Our earnings release and slides for this call are available on our website at investors.airproducts.com. Today's discussion contains forward-looking statements, including those about earnings and capital expenditure guidance, business outlook, and investment opportunities. Please refer to the cautionary note regarding forward-looking statements 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, the effective tax rate, and ROCE, either on a total company or segment basis.
Thank you. Welcome everyone. To our products, third quarter, 2025 earnings teleconference
This is Eric gutter, vice president of investor relations.
Joining me today are Edwardo Menses. Our chief executive officer and Melissa. Schaefer, our Chief Financial Officer.
After our comments, we will be pleased to answer your questions.
Our earnings release in slides.
For this call are available on our website at investors.com.
Today's discussion contains forward-looking statements including those about earnings and capital expenditure guidance, business Outlook and investment opportunities.
Please refer to the cautionary. Note regarding forward-looking statements provided in our earnings release and on. Slide number 2.
Eric Guter: Unless we specifically state otherwise, statements regarding these measures refer to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our investor website in the relevant earnings release section. Now, I'm pleased to turn the call over to Eduardo.
Additionally, throughout today's discussion, we refer to various Financial measures including earnings per share, operating income operating margin IBA, the effective tax rate and roce, either on a total company or segment basis.
Unless we specifically State, otherwise statements regarding these measures referred to our adjusted non-gaap Financial measures
Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our investor website in the relevant earnings section.
Earnings release section.
Now, please turn the call over to Eduardo.
Eduardo Menezes: Thank you, Eric. This is Eduardo Menezes. Thank you for joining us. Please turn to slide three. The Air Products team delivered solid fiscal Q3 results. Our adjusted earnings per share of $3.09 exceeded our guidance and were higher than last year on a comparable basis, excluding the impact of the liquefied natural gas technologies business sale. We saw positive base business results despite significant global helium headwinds and continue to see positive cost savings across the organization from our productivity actions. Air Products has a solid core industrial gas business with significant potential. The results of this quarter show the strength and resilience of our base business. I am confident we can continue to improve margins and unlock value through systematic cost productivity, pricing, and operational excellence. Let me share some examples of how we are executing our productivity commitments. We continue to review and optimize our portfolio.
Thank you, Eric. This is thank you for joining us. Please turn to slide 3. We have products team delivered. Solid fiscal. Third quarter results. Our adjusted earnings per share of $3.99, exceeded our guidance and were higher than last year, on a comparable basis. Excluding the impact of the LG business sale.
We stock positive based, business results, despite significant Global Heating, headwinds and continue to see positive cost savings across the organization. From our productivity actions. Your products has a solid core industrial gas business with significant potential. The results of this quarter shows the strength and resilience of our base business. I'm confident we can continue to improve margins and unlock value through. Systematic cost, productivity pricing and operational excellence.
Let me share some examples of how we are executing our productivity commitments.
Eduardo Menezes: The previously announced global cost reduction plan remains on track and will generate significant savings. Once all actions under the plan are fully executed, we expect to realize annual savings of $185 to $195 million. Air Products has the lowest SG&A as a percentage of sales in the industry, and we are continuing to improve on this metric. We are investing to bring additional AI and digital transformation tools to the majority of our employees for use into their day-to-day work. I expect the combination of their grassroots projects and large ongoing AI corporate initiatives in areas like energy management will significantly change the way we work and open many new productivity opportunities for Air Products. We are committed to project execution and capital discipline.
We continue to review and optimize our portfolio. The previously announced global cost reduction plan remains on track and will generate significant savings.
Once all actions under the plan are fully executed, we expect to realize annual Savings of 185 to 195 million.
A product has the lowest SG&A as a percentage of sales in the industry, and we are continuing to improve on this metric.
We are investing to bring additional AI and digital transformation tools to the majority of our employees for use in their day-to-day work.
I expect the combination of their Grassroots projects and large ongoing AI corporate initiatives. In areas like energy management will significantly change the way we work and open many new productivity opportunities for our products.
Eduardo Menezes: We expect to finalize the current energy transition projects in line with our previous guidance and to continue investing in growth to build density in our core industrial gas business. We intend to take full advantage of our leading onsite positions in hydrogen and electronics, always through disciplined capital allocation. Now, please turn to slide four. We presented this slide for the first time last quarter, and I thought it would be helpful to talk about it one more time. This is Air Products' five-year roadmap to unlock our earnings potential. We have a strong team running the core business, and I am confident all our leaders are personally committed to take Air Products through this journey. Our objective for the next five years, starting in fiscal year 2026, is to consistently achieve high single-digit or better adjusted EPS growth rate while maintaining or reducing our financial leverage.
Discipline.
We expect to finalize the current energy transition projects in line with our previous guidance and continue investing in growth to build density in our core industrial gas business.
we intend to take full advantage of our leading, on-site positions in hydrogen and electronics, always through discipline Capital, allocation
Now, please turn to Slide 4.
We presented this slide for the first time last quarter and I thought it would be helpful to talk about it 1 more time.
This is Air Products, 5-year road map to unlock our earnings potential. We have a strong team running in the core business and I'm confident all our leaders are personally committed to take our products through this journey.
Eduardo Menezes: By doing that and maintaining the capital discipline I mentioned a few times during this presentation, we should achieve operating margins of 30% and ROCE in the mid to high teens by 2030. Now, I will turn it over to Melissa to discuss our quarter results. Melissa?
our objective for the next 5 years is starting in fiscal year, 2026 is to consistently achieve High, single digit or better adjusted EPS growth rate while maintaining or reducing our financial leverage
by doing that and maintaining the capital discipline. I mentioned a few times. During this presentation, we should achieve operating margins of 30% and Roc in the mid to high teens by 2030.
Melissa Schaeffer: Thank you, Eduardo, and good morning, everyone. Please turn to slide six to review our results. Our third-quarter adjusted earnings per share of $3.09 exceeded the upper end of our guidance of $2.90 to $3.00. Compared to last year, sales volume was down 4%, mainly due to the sale of the LNG business last year, lower helium demand, and project exits, while partially offset by favorable onsite across the region. The sale of the LNG business drove volume lower 2%. Total company price was up 1%, which equates to a 2% improvement for the merchant business. Adjusted operating income was unchanged as strong base business performance, including continued pricing strength in non-helium products across all regions, was largely offset by the sale of the LNG business and exited projects. Adjusted operating margin was flat but improved about 300 basis points sequentially due to favorable volume and productivity improvements.
Now, I will turn it over to Melissa to discuss our core results and listen.
Thank you, Eduardo, and good morning, everyone. Please turn to slide 6 to review our results.
Our third quarter adjusted earnings per share of $3.09 exceeded the upper end of our guidance of $2.90 to $3.
Compared to last year, sales volume was down 4%, mainly due to the sale of the LNG business last year, lower helium demand, and project exits, while being partially offset by favorable on-site performance across the regions.
The sale of the LG business, drove volume lower 2%.
Total company price was up 1%, which equates to a 2% improvement for the merchant business.
Adjusted operating income was unchanged as strong based business performance, including continued pricing strength in non-healing products across all regions with largely offset by the sale of the LG business and exited projects.
Melissa Schaeffer: Now, please turn to slide seven for the details of our third quarter earnings per share. Third quarter adjusted earnings per share of $3.09 decreased $0.11 from prior year. This was negatively impacted by $0.14 from the sale of the LNG business and $0.12 impact from project exits. Without these headwinds, EPS would have improved $0.15 versus prior year. Volume added $0.06, better fitting from strong onsite volumes. This volume growth was partially offset by lower helium demand and project exits in the Americas. Price was positive $0.05, driven by strong non-helium pricing actions across all regions. Costs were $0.03 favorable due to productivity and lower maintenance, partially offset by higher depreciation and inflation. The tax rate this quarter was $0.05 unfavorable compared to last year, which benefited from several one-time items. Interest expense was $0.02 higher as project exits reduced the interest eligible for capitalization.
Adjusted operating margin was flat but improved about 300 basis points, sequentially due to favorable volume and productivity improvements.
Now pleased to turn to slide 7 for the details of our third quarter earnings per share.
Third quarter adjusted earnings per share of $3.09 decreased by 11 cents from the prior year.
This was negatively impacted by 14 cents from the sale of the LG business and 12 cents impact from Project exits.
Without these headwinds, EPS would have improved $0.15 versus the prior year.
volume added 6 cents, vetted fitting from strong, on-site volumes,
This volume growth was partially offset by lower helium demand.
And project exits in the Americas.
Price was positive five cents driven by strong non helium pricing actions across all regions.
Costs were three since favorable due to productivity and lower maintenance, partially offset by higher depreciation and inflation.
The tax rate this quarter was 5% unfavorable compared to last year, which benefited from several one time items.
Interest expense was two cents higher as project exits to reduce the interest eligible for capitalization.
Melissa Schaeffer: Now, please turn to slide number eight for an update of our fiscal 2025 guidance. Our fiscal full year adjusted earnings per share guidance is now in the range of $11.90 to $12.10, keeping the midpoint unchanged at $12.00. We remain cautious in our outlook, recognizing the significant economic uncertainties around the world. Our guidance for capital expenditures stays at approximately $5 billion for the year. We have included additional details on the segment results in the appendix section. Now, we will turn the call over for questions. Operator?
Now please turn to slide number eight for an update of our fiscal 2025 guidance.
Our fiscal full year adjusted earnings per share guidance is now in the range of $11.90 to $12 and Tencent.
The midpoint unchanged at $12.
We remain cautious in our outlook recognizing the significant economic uncertainties around the world.
Our guidance for capital expenditures stays at approximately 5 billion for the year.
We've included additional details on our segment results in the appendix section.
Now, we will turn the call over for questions operator.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again. Please press star one to ask a question, we'll pause for just a moment.
Operator: 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 speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will pause for just a moment. We will go first to John Roberts with Mizuho.
Well go first to John Roberts with Mizuho.
Thank you could you give us an update on the plan to use third parties of Darrow for both ammonia and the carbon capture.
Various Sell-Side Analysts: Thank you. Could you give us an update on the plan to use third parties at Darrow for both ammonia and the carbon capture and sequestration?
Sequestration.
Hi, John Good morning, this is eduardo.
Eduardo Menezes: Hi, John. Good morning. This is Eduardo Menezes. As we said last quarter, we are working to get these partnerships done by the end of the current year. We are still working on that. Three months later, I would say that we are reasonably optimistic we will get there. I have seen some reports this quarter for other blue ammonia projects in the Gulf Coast. If you look at these reports, you look at the amount of the numbers that they publish in terms of CapEx for the size of the plants they are publishing. Our numbers, I believe we are a little better in terms of unit of CapEx for capacity. We expect to do that because we have a larger scale. I think that validates the numbers that we presented in terms of the competitiveness of our project in terms of CapEx.
Yeah, we we as we said last quarter, we are working to yet is <unk>.
These partnerships are done by the end of the current year. So we're still working on that.
So three months later I would say that we are reasonably optimistic we'll get there seems some.
Boards this quarter for all the blue ammonia projects in the Gulf Coast.
If you look at these reports you look at the amount of the numbers that they published in terms of Capex for.
For the size of the plants they they are publishing.
Our numbers I believe we are a little better in terms of a unit of Capex for four four capacity and we expect to do that because we have a larger scale. So I think that validates the the numbers that we presented in terms of the competitiveness of our projects in terms of cap.
Next.
Eduardo Menezes: I also saw a report about comparing the cost of blue ammonia in the Gulf Coast with gray ammonia in Europe, also ratifying the point that we are making that the U.S. will be very competitive. The fundamentals of the project remain very strong. Now it is a question of finding the right partnership, finding the right agreements, and negotiating these agreements, which will take a little time. That is where we are. I have a dedicated team working on that. I am participating personally in a lot of these meetings. When we have more information that we can share with you, we will do that.
I also saw a report about comparing the cost of blue ammonia or the Gulf coast with Graham on in Europe. Also you know verifying the point that we're making that are there.
The U S will be very competitive so the fundamentals of the project remains very strong and and now it's a question of finding the right partnership finding the right agreements and negotiating these agreements will which we'll know it takes it takes a little time. So that's where we are have a dedicated team working on that I.
<unk> personally in the you know a lot of these meetings and.
When we have more information that we can share with you we will do that.
Okay. Thank you.
Various Sell-Side Analysts: Thank you.
Well go next to Jeff Zekauskas with J P. Morgan.
Operator: will go next to Jeff Zekauskas with JPMorgan.
Thanks very much.
Jeff Zekauskas: Thanks very much. A two-part question. Your average prices year over year were up 1%. If you took out the drag from helium, how much would your average prices have been up? Secondly, in the past, Air Products used to say that it could dissociate hydrogen from ammonia with a 10% loss. Is that a claim that Air Products still wants to make, or is the dissociation characteristics different? Do you have to build an infrastructure in Europe in order to fulfill the Total contract in 2030?
Two part question.
Your average prices year over year or.
We're up 1%.
If you took out the drag from helium.
How much would your average prices have been up.
And then <unk>.
Lee.
Okay.
In the past air products used to say that it could associate hightower trend from ammonia with 10% off.
Okay.
Is that a claim that air products still wants to make core is association characteristics different and do you have to build an infrastructure in Europe in order to.
Fulfilled.
<unk> contract in 2030.
Okay.
Eduardo Menezes: Okay. Jeff, the first question I will ask Melissa Schaeffer to talk about that. We normally do not disclose helium numbers, but we can probably give you an idea of the total impact for the year for us in terms of helium. On the second question, the dissociation, we are working in our R&D organization and engineering designing these plants. At this point, if and when we go forward with any project in Europe to dissociate ammonia, then the idea is to use Air Products and Chemicals' own technology for that. At this point, I believe that we still have the same goal in terms of yield that you mentioned on 10% losses. I know it is always a question of capital inefficiency on how much you want to invest to improve your efficiency. That is exactly where we are.
Okay.
Okay, Jeff the first question Oh S Melisa to talk.
Talk about that we normally don't disclose numbers, but we can probably give you an idea of the total impact for the year for.
For us in terms of heat Wanda.
On the on the second question.
Yeah. The association. We are we are working you know in our R&D organization and engineering designing these plants.
This point.
You know.
If and when we go forward with any project in Europe to the associate ammonia being the idea is to use our products on technology for that and at this point I believe that we still are.
<unk> have the same goal in terms of yield that you mentioned, 10% losses I know, it's a it's always a question of capital inefficiency at all on how much you want to invest to improve your efficiency and that's exactly.
Where we are but we are testing a lot of different catalysts and different configurations in the I'm trying to be ready.
Eduardo Menezes: We are testing a lot of different catalysts and different configurations and trying to be ready to execute these projects when the volumes become more firm. As I mentioned before, all these projects in Europe, they are a function of the final regulation. The EU has its own umbrella regulation, let us put it this way, that each EU member has to develop and adopt this, or they call it transposed to law. This is a little late. It was supposed to be done a few months ago, but there are several drafted in several jurisdictions where they present what they are trying to do with the EU legislation. We and our potential customers and Total, we are all following these regulations to decide where we should build this project. That is where we are on the ammonia dissociation side.
To execute these projects when the volumes will become more firm as I mentioned before.
All this projects in Europe, they are a function of the final regulation.
<unk> has its own umbrella regulation, let's put this way that each member has two to develop and adopt.
These or they call it transpose two law.
This is a little late or supposed to be done a few months ago, but there are several drafts in several jurisdictions where they are.
They present, what we are trying to do with the EU legislation and we are and we and our potential customers and in total we're all following this these regulations to decide.
Yeah, we should build this project so that's where we are on the one.
The ammonia association side, and I'll turn to Melissa to talk about the hidden impact sure. Thanks Eduardo.
Eduardo Menezes: I will turn to Melissa Schaeffer to talk about the helium impact.
Melissa Schaeffer: Sure. Thanks, Eduardo. Thanks for the question, Jeff. Volume and price do continue to fall across the region. Let me talk about helium as a whole instead of pricing for obvious reasons. As an order of magnitude for the quarter, helium EPS contributions are down about 4% versus prior year. For the full year, we are anticipating around a $0.55 to $0.60 headwind from EPS, which again is about 4% to 5%. Obviously, the teams are actively working to balance pricing and volumes to maximize profitability during this down cycle, but it does continue to be a headwind.
Thanks for the question Geoff So volume and price do continue to fall across the regions. Let me talk about helium as a whole instead of pricing for obvious reasons. So as an order of magnitude for the quarter helium EPS contributions are down about 4% versus prior year for the full year.
Year, we're anticipating around a 55 to 60 that headwind from EPS, which again is about 445%. So obviously the teams are actively working to balance pricing and volumes to maximize profitability. During this down cycle, but it does continue to be a headwind.
Yeah.
Jeff Zekauskas: Thank you.
Thank you.
We'll go next to John Mcnulty with BMO capital markets.
Operator: We'll go next to John McNulty with BMO Capital Markets.
Yeah. Good morning, Thanks for taking my question.
Eric Guter: Yeah, good morning. Thanks for taking my question. Maybe digging in a little bit more into the, I believe you said it was $175 million to $185 million cost opportunities. I guess two questions around that. One, is that in addition to the $100 million opportunity that Air Products and Chemicals had previously outlined and expected to come in a bit this year and a bit next year? Then can you speak to the heavy lifting of it? It sounds like a lot of it is going to be around digital and energy management. How long or how much effort is this going to take? Is it just kind of a simple drop-in, or is there some real heavy lifting here?
Maybe digging a little bit more into the I believe you said it was $175 million to $185 million cost opportunities.
I guess two questions around that one is that in addition to the $100 million opportunity that you had that air products had previously outlined an expected to come in a bit this year and a bit next year and then can you speak to the heavy lifting of it it sounds like a lot of it's going to be around digital and energy management.
How long or how.
How much effort is going to take to is it just kind of a simple drop in ore, whereas theres some real heavy lifting here.
Yes.
Melissa Schaeffer: Yes, thanks. I will take that question. Let us first talk about the productivity actions we talked about. This is a total picture of the activities that we have been talking about for the last couple of years. We continue to execute on productivity actions. This obviously included the right sizing of the organization. This journey will continue as we execute the major projects and reduce our headcount as those projects start to be reduced. Through our right sizing actions over the last couple of years, we have committed to take about 10% of our headcount out. We are about 60% complete as of the end of this quarter. In some order of magnitude, in FY25, we realized about a $0.40 EPS cost savings versus what was prior to the program initiation and around $0.25 EPS cost savings versus prior year in FY24.
I will take that question so.
Let's first talk about the productivity actions, we talked about.
So this is a a total picture of the activities that we've been talking about for the last couple of years. So we continue to execute on productivity actions and that's obviously, including the right sizing of the organization. This journey will continue as we execute the major projects and reduced our head count.
As those projects start to be reduced through our right sizing actions over the last couple of years, we have committed to take about 10% of our head count out.
We're about 60% complete as of the end of this quarter.
In order of magnitude and FY 'twenty five we realized about a 40 cent EPS cost savings versus what was prior to the program initiation and around 25 cents EPS cost savings versus prior year in FY 'twenty four now associated to the digital.
Melissa Schaeffer: Now, associated to the digital energy that Eduardo Menezes talked about, this is a program that we are working on. There will be many programs from an AI perspective that we will be rolling out. As we continue to progress on those, we obviously will be able to update you. The vast majority of the cost savings we talked about was really associated to the headcount and productivity actions we had previously announced.
<unk> energy our that Eduardo talked about this is a program that we are working on and there will be many programs from an AI perspective that we will be rolling out as we continue to progress on those we obviously will be able to update you.
But but the vast majority of the cost savings we talked about was really associated to the head count and productivity actions. We had previously and this is on top of that things that were working for the future. After this wave of his initial productivity projects.
Eduardo Menezes: Yeah, this is on top of that, things that we are working for the future after this wave of these initial productivity projects.
Got it thanks very much for the color.
Eric Guter: Got it. Thanks very much for the color.
We'll go next to Vincent Andrews with Morgan Stanley.
Operator: We'll go next to Vincent Andrews with Morgan Stanley.
Hey, Good morning. This is Steve Haynes on for Vincent I wanted to ask a question on the volume performance in Americas would it be possible to just get a bit more color on the.
Various Sell-Side Analysts: Hey, good morning. This is Steve Haynes on for Vincent. I wanted to ask a question on the volume performance in Americas. Would it be possible to just get a bit more color on the 6% decline there? I guess how that compared to your original expectation? And if you could just break it out between base volumes versus any impact from some of the project exits. Thank you.
The 6% decline there I guess, how that compared to your original expectation I guess, if you could just break it out between.
Baselines versus.
Any any impact from I guess some of the project exits. Thank you.
Yes, thanks for the question so.
Melissa Schaeffer: Yes, thanks for the question. From the Americas volume perspective, we actually had strong onsite volumes in our standalone assets and the Gulf Coast. The entire amount of the downturn was largely associated to two things. First, the exited project of World Energy and the prior year contributions. Second, really largely helium demand. We did see improvements in our overall merchant business outside of the helium demand. Again, underlying strong volumes across our onsite and merchant outside of World Energy and the demand in helium.
The Americas volume perspective, we actually had strong onsite volumes in our standalone assets and the golf Coast Tycho.
The entire amount of the downturn was largely associated three things first.
Exited project a world energy in the prior year contribution and second really largely helium demand we did see improvements in our overall marching business merchant business outside of the helium demand. So again underlying strong volumes across our onsite and merchant outside of World energy and.
The demand in helium.
Okay. Thank you.
Various Sell-Side Analysts: Thank you.
Our next question comes from the line of Josh Spector with UBS.
Operator: Our next question comes from the line of Josh Spector with UBS.
Yes, hi, good morning, actually I wanted to follow up on that same question. So I guess, that's the world energy as the main project exit.
Various Sell-Side Analysts: Yeah, hi, good morning. I actually wanted to follow up on that same question. So, I guess if World Energy is the main project exit, I do not know what percent we should assume that is of volume declines. I guess the two pieces there that, should we expect kind of a 2% to 3% volume headwind over the next two to three quarters as a result of that? And is there any income associated with that, or is this just a top-line change? Thanks.
What percent, we should assume that is a volume declines I guess the two pieces there that should we expect kind of a 2% to 3% volume headwind over the next two to three quarters. As a result of that and is there any income associated with that or is this just a topline change. Thanks.
So yes. Thanks, thanks for the question so.
Melissa Schaeffer: Yes, thanks for the question. Last year, during this quarter, we had contributions from World Energy of about $24 million. That was a one-time item, and we do not expect this headwind to continue moving forward.
Last year during this quarter, we had contributions from world energy.
About $24 million that was a one time item and we do not expect this headwind to continue moving forward.
That's clear enough I'll leave it there thank you.
Various Sell-Side Analysts: is clear enough. I will leave it there. Thank you.
Thank you.
Melissa Schaeffer: Thank you.
We'll go next to Mike Sison with Wells Fargo.
Operator: We'll go next to Mike Sison with Wells Fargo.
Hey, good morning nice quarter.
Various Sell-Side Analysts: Hey, good morning. Nice quarter. In terms of the core business, Eduardo Menezes, you mentioned, I think in the last call, that you still want to invest $1.5 billion in low-risk projects for the core business. Any update there? I haven't seen any announcements. How's bidding activity going with that? Do you think as we head into 2026, that's something that you can sort of hit as a goal?
In terms of the core business Eduardo you mentioned I think in the last call that you still want to invest now kind of $1 5 billion in low risk projects.
For the core business have any update there I haven't seen any announcements of bidding activity.
I'm going with that and do you think as we head into 'twenty six that's something that you can you can sort of hit that goal.
Yeah, we continue to see a lot of projective cheese on small plants. Those are normally not announcements that we make because you know the the size of the projects.
Eduardo Menezes: Yeah, we continue to see a lot of project activities on small plants. Those are normally not announcements that we make because, you know, the size of the projects. I will probably for the next quarter try to summarize what we did for the year and what we expect in the following year so you guys can have a better idea of how much of this $1 to $1.5 billion goes to smaller plants. In terms of larger size plants, we continue to see a lot of activity for electronics in Asia. We are building a lot of plants currently in Taiwan. We see some activities still in China and in South Korea. That's an area that it's moving forward. We always have some projects in the U.S., you know, considering our large base here to replace or to increase our capacity in both hydrogen and air separation.
I will probably for the next quarter try to summarize what we did for the year and what we expect in following years. So you guys can have a better idea of Uh huh.
How much of.
Of this one.
Once we want a half billion dollars goes to two small plants in terms of our largest size plants. We continue to see a lot of activity for the Tronox in Asia. We are building a lot of plants are currently in Taiwan.
We see some.
Some activities.
China and South Korea, So that's an area that.
It's moving forward.
We always have some projects in.
U S. Considering our our large base year true to replace or to increase.
Our our capacity in both hydrogen and air separation so that continues to.
Eduardo Menezes: That continues to do okay. Again, this is the core of our business. This is the business that Air Products started as a company. We expect that to pick up and to increase in the next years. As you know, this is my I'm finishing my first six months in the company and traveling around and looking to go into different locations and different countries. I would say that, you know, when you go to Asia and see the capabilities that we have in terms of cryogenic equipment manufacturing and how efficient we are in these areas and how can we bring this equipment all over the globe and be competitive, I think Air Products is in a very strong position. It's probably one of the best facilities that I've ever seen in my career. I intend to take full advantage of that.
Okay.
And again this is the core of our business. This is the business that our products has started.
As a company and a weak one.
We expect that to pick up and to increase in the in the next Hughes.
I as you know this is my finishing my for six months in the company and traveling around and looking to go into different locations in different countries in the I.
I would say that when you go to Asia and see the capabilities that we have in terms of cryogenic equipment manufacturing and how efficient we are in these areas and how can we bring this equipment all over the globe and be competitive I think air products is in a in a very strong position.
One of the or the best.
Pursuing that I haven't seen in my career in the and I intend to take full advantage of that.
Great. Thank you.
Various Sell-Side Analysts: Great. Thank you.
We will go next to Patrick Cunningham with Citi.
Operator: We'll go next to Patrick Cunningham with Citi.
Hi, Good morning, Thanks for taking my question. So Eduardo you alluded to some of the larger project announcements in the Gulf coast or.
Eric Guter: Hi, good morning. Thanks for taking my question. Eduardo, you alluded to some of the larger project announcements on the Gulf Coast for blue ammonia. Does this change the dynamic at all for Air Products and Chemicals? I know you mentioned Darrow is cost competitive, but are there now fewer logical equity partners for you and the market is well served, or do you see it differently?
Does this change the dynamic at all for Air products. I know you mentioned Dara is cost competitive but are there are now fewer logical equity partners for you and the market is well served or do you see it differently.
Well we'll.
Eduardo Menezes: We'll see. I think the ammonia market is a large market. We have other people being interested in that. There is some push, a stronger push now for clean ammonia, especially in the Far East. Some bids coming out for the power producers in Japan and Korea looking for clean ammonia. I think the demand will be there. On top of that, as I mentioned, I strongly believe that blue ammonia from the U.S. Gulf Coast will be very competitive in Europe. I think there is room for our project and probably a few more projects.
We'll see I think I think the.
The market is a large market. So we have a lot of people being interested in that.
There is some push.
Stronger push now for clean ammonia, especially in the far East you know some some bids coming now.
For the power producers in Japan, and Korea, and looking for for clean ammonia. So I think the demand will be there and on top of that as I mentioned.
A.
Strongly believes that.
Ooh ammonia from the U S Gulf Coast will be very competitive in Europe, and and I think there is room for for our project and probably a few more projects.
Thank you.
Operator: We'll go next to Matthew Dio with Bank of America.
We'll go next to Matthew Deyoe with Bank of America.
Thank you.
Various Sell-Side Analysts: Thank you. On slide four, just look within the improve the core slash refocus and kind of achieve potential. You have NEOM as kind of a key driver in 2030 for offsetting underperforming projects. I assume a decent amount of that is the Total agreement starting in 2030. NEOM is expected to start up in 2027. I am just wondering why that is more of a consideration for the 2030 profile.
On slide four just.
Okay.
Within the improve the core slash refocus and then kind of.
Achieve potential right. So you have Neil is kind of a key driver in 2030 for offsetting underperforming projects and I assume that.
Decent amount of that is the total agreement starting in 2030.
But <unk> is expected to start up in 2027, so I'm just wondering.
Why that is more of a consideration for the 2030 profile.
Yeah. The 2030, a number comes more from their old then the neon.
Eduardo Menezes: The 2030 number comes more from Darrow than NEOM. NEOM, we also expect the contract that you mentioned to come online in 2030. As I said before, NEOM continues to progress well. We expect to start up in 2027. We are working as well on placing the product for, initially as green ammonia. The green hydrogen will need to wait for the regulation in Europe to follow. That is where we are. We are also, in the same way, working to commercialize and find partners for Darrow. We are working also in the commercializing the green ammonia from NEOM starting 2027.
So you know.
We also expect that the countries that you mentioned to come online in 2030.
As I said before.
Neon continues to progress well, we expect to start up in 2027, and we are working as well on placing the product initially as green ammonia and the green hydrogen will need to wait for the regulation in Europe too to fall so.
That's where we are we are also in the same way we are working to to commercialize in finding partners for Daryl. We're working also in commercializing the green ammonia from neon starting 2027.
Okay.
We'll go next to Chris Parkinson with Wolfe Research.
Operator: We'll go next to Chris Parkinson with Wolfe Research.
Great. Thank you so much for taking my question.
Eric Guter: Great. Thank you so much for taking my question. Eduardo, you laid out a helpful breakdown of CapEx a few months ago and just your initial thoughts in terms of all the bars and the projects and how you are thinking about things in the future. I realize it has only been a few months, but is there any update on how we should be thinking about the progress of hitting those targets? It seems like the buy-side community is focusing on getting CapEx somewhere down into the mid-threes. Just if there is any thought process there as well as uses for cash in terms of balance sheet and eventually buyback, just any change of thought process over the last couple of weeks and months? Thank you so much.
Eduardo you laid out a helpful breakdown.
Breakdown of Capex.
Two months ago, and just your initial thoughts in terms of all the bars in the projects and.
How are you thinking about things in the future I realize it's only been a few months, but is there any update on how we should be thinking about the progress of hitting those targets. It seems like the buy side community is focusing on getting capex.
Somewhere down to the mid threes, just if there's any thought process there as well as uses for cash in terms of balance sheet and eventually buy back just any change in thought process is robust.
Yeah, a couple of weeks and months. Thank you so much.
Thank you Chris No no no major updates on that we continue to.
Eduardo Menezes: Thank you, Chris. No major updates on that. We continue to follow what we said before that our intent is to be around cash neutral for the next three years. We, of course, will maintain our dividends, but we need to balance our cash sources with cash users. We expect to be able to do that in the next three years. How well we will do that will determine other uses that we can do with the cash, like buyback shares. At this point, first we are trying to walk before you run. The priority is to make sure that our CapEx for 2026, 2027, and 2028 matches the cash generation that we have.
Follow our.
What we said before that our intent is to be around cash neutral for the last the next three years, so make sure that.
We of course, we will maintain our dividends but.
We need to balance.
Our cash sources of our cash uses in the end.
We expect to be able to do that in the next three years.
How well, we'll do that we'll get a mine or the youth.
Uses that we can do.
The cash like like buyback shares but at this point.
We are.
First we're trying to walk before we run so.
The the.
Priority is too.
Make sure that our Capex for 'twenty, six 'twenty seven and 28.
Matt as you know the.
Cash generation that we have.
Thank you.
Eric Guter: Thank you.
We'll go next to Duffy Fischer with Goldman Sachs.
Operator: We'll go next to Duffy Fischer with Goldman Sachs.
Yes, good morning, guys.
Eric Guter: Yes, good morning, guys. Thanks for the details on helium for this year. Just on that subject, Eduardo, you have tracked helium for a lot of years. How do you see the cycle for helium playing out over the next couple of years? How much, just at the current levels, when do we anniversary the level we are at today? How much is the headwind next year? Do you think this is still kind of a multi-year down cycle, or can we stabilize as we get into 2026?
And thanks for the details on helium for this year, but just on that subject and water you've you've tracked helium for a lot of years.
How do you see the cycle for helium playing out over the next couple of years.
How much is just at the current levels when do we anniversary the level. We're at today like how much is the headwind next year and do you think this is still kind of a multiyear down cycle or can we stabilize as we get into 2026.
Yeah, we we have been debating that a lot internally enough as you can imagine.
Eduardo Menezes: Yeah, we have been debating that a lot internally, though, as you can imagine. The helium market, the main question is, is it really another cycle, or there is a structural change in what happened in the market in the last few years and what will happen in the future, right? We had a few significant changes in the market. One of them was that the BLM that used to be the largest source and had the capability of managing volume because they have storage for helium. The BLM is becoming less and less of a factor in the market. In fact, it is very minor now. Most of the helium sources now are connected to natural gas processing and liquefied natural gas technologies plants. You saw an increase in the supply side. In the main side, we have seen some diversification with new players in the industrial gases space.
The heating market. The main question is billion Otto cycle Award is a structural change in what happened in the market and relax in the next few the last few years and what we will.
And in the future right. So we had a few.
Significant changes in the market one of them was that the BLM that used to be the the largest source and have the capability of <unk>.
You know managing volume because they have storage for for heating.
The BLM is becoming less and less.
The factor in the market and in fact, it's very minor now.
And most of the heating sources now connected to.
Natural gas processing unit LNG plants, and you saw an increase in the <unk>.
On the supply side and demand side, we've seen some.
Diversification with new players.
In the industrial gas space.
Eduardo Menezes: That is changing the way the market operates for the last few years. For the next years, I still believe that the nature of the helium market is not going to change. At some point, you are going to have a crisis. You are going to have a change in liquefied natural gas technologies demand. You are going to have a war closing a plant, a mechanical failure. You are going to see the pendulum going the other way in the market. I think Air Products and Chemicals, I said before, Air Products and Chemicals tried to be a very responsible player in this market. We made an investment on a cavern a few years ago, understanding that we need to have a little more of wiggle room to manage our balance of helium. I have seen that others are investing now.
And in that is.
No change in the.
The way the market operates.
For the last.
The last few views for the next years.
Still believe that.
The nature of the helium market will not going to change at some point, you're going to have a crisis you're going to have.
You know a change in LNG demand, you're going to have a war closing a plant a mechanical failure in the end and.
You're going to see.
Depends on coal, India Ottaway in the in the in the market.
I think our products as I said before our products are.
Try to be a very responsible player in this market, we made an investment when that Kevin a few years ago understanding that.
We need to have a little more of a wiggle room to manage our balance of heating.
I've seen that others are investing now I think that's.
Eduardo Menezes: I think that is a positive sign for the market. We will see some changes in the future, right? One point that I think you need to take in consideration is that the price increases and decreases in this market takes a little time to percolate all the way in the chain to get to the suppliers. I think that you will start to see that in this year, and you will probably continue to see that in the next year. I expect that going forward, the impacts in terms of margin are going to be a little less dramatic for all the industrial gases companies because you are going to get also a reduction on the cost of the helium that you purchase from the manufacturer. It is not an easy situation. I think we are managing that well.
It is a positive sign for the market and and we will see.
The some changes in.
In the future.
One point that I I think you need to take in consideration is that.
The price increases and decreases as this market takes a little time to.
Pork relate all the way into changed to get you to the suppliers, but I think that you start to see that.
In the D C area, and you'll probably continue to see that in the next year or so.
I expect that going forward.
Impact for in terms of margin are going to be a little.
As dramatic for us for all the industrial gas companies because.
You're going to get also a reduction on the cost of the hidden value purchase from from the manufacturers. So it's it's a it's not an easy situation.
Aye.
I think we are managing that well air products is still making.
Eduardo Menezes: Air Products is still making, you know, a higher margin than we were making before COVID with, you know, a much lower volume. I think the team has been playing this well, managing the volumes in the cavern. At some point, you know, we need to make sure we stabilize that and we use these volumes. We will pull the trigger when we think it is the right moment for that.
Our higher margin.
Dan we were making before COVID-19 with a much lower volume and <unk> and I think the team has been playing this well managing the volumes in the cabin.
But at some point you know, we we need to make sure we stabilize that and we use these volumes and and.
We will pull the trigger when we when we think is the right moment for that.
Terrific. Thank you for that.
Eric Guter: Terrific. Thank you for that.
We'll go next to Kevin Mccarthy with vertical research partners.
Operator: We'll go next to Kevin McCarthy with Vertical Research Partners.
Various Sell-Side Analysts: Yes, thank you and good morning. Eduardo, you have set forth a long-term return on capital employed goal in the mid to high teens. I was wondering if you could speak to the trajectory from today's level of 10% to that goal. Obviously, there is some short-term friction or volatility as you reshape the portfolio. When do you think we might turn the corner and how might you rank order the most important drivers to get those returns higher over the next several years?
Yes, Thank you and good morning, Eduardo you've set forth a long term return on capital employed goal in the mid to high teens and I was wondering if you could speak to the trajectory from today's level of 10%.
To that goal, obviously theres some some short term.
Friction or volatility as you reshape the portfolio, but when do you think we might turn the corner and how might you rank order. The most important drivers are to get those returns.
Higher over the next several years.
Thank you Kevin Oh estimated to take this question and I'll make a comment and then go ahead absolutely no. Thank you Eduardo.
Eduardo Menezes: Thank you, Kevin. I will ask Melissa to take this question and I will make a comment at the end. Go ahead, ma'am.
Melissa Schaeffer: Sure, absolutely. No, thank you, Eduardo. Thanks, Kevin, for the question. As you saw this quarter, our ROC is around 11.1%, which is down versus prior quarter. This is largely the significant construction process that we have. Ex-NEOM, obviously, that would improve greatly. We did see a four-quarter trailing after-tax return that went down a little bit due to the headwinds from helium and our canceled projects. That was coupled, obviously, with higher debt and lower deferred income tax driven by our canceled projects. That is providing some of the headwind. Without CIP in cash, our ROC would actually be up about 500 bps. As we see the CIP reduce and our cash balances obviously increase, as we become more disciplined on our capital allocations, our ROC will improve. We have given you the forecast over the next five years.
And thanks, Kevin for the question. So as you saw this quarter. Our Iot is around 11, 1%, which is down versus prior quarter and this is largely the significant construction and process that we have so ex Neely N X neon and obviously that would improve greatly so.
We did see a four quarter trailing after tax return that went down a little bit due to the headwinds from helium and or canceled projects that was coupled obviously with higher debt and lower deferred income tax driven by our canceled projects.
That's providing some of the headwind.
Without CIP and cash our IFC actually are our Oc would actually be up about 500 basis points. So as we see the CIP reduced and our cash balances, obviously increase as we become more disciplined on our capital.
Allocation, our RSP will improve we are giving you the forecast over the next five years I fully anticipate that we should be able to meet and beat that and as I said the reduction in the capital outlay will help that greatly.
Melissa Schaeffer: I fully anticipate that we should be able to meet and beat that. As I said, the reduction in the capital outlay will help that greatly.
Yes, so so a lot of influence from construction in progress on the numbers.
Eduardo Menezes: Yeah, so a lot of influence from construction in progress on the numbers. A little complicated accounting here because we consolidate NEOM 100% at this point. That will be the consolidated startup. But Melissa Schaeffer and the team have a lot of calculations in the background. We are pushing hard to get to this ROC to meet teams by 2030.
A little complicated accounting year, because we consolidated 100% at this point that will be the consolidator startup but.
Melissa and the team has all the calculations in the background and you.
We are.
Pushing hard to get to these oh C by flow through to mid teens by 2030.
We'll go next to Laurence Alexander with Jefferies.
Operator: We'll go next to Laurence Alexander with Jefferies.
Hi, This is Dan Rizzo on for Laurence.
Various Sell-Side Analysts: Hi, this is Dan Rizawan for Laurence Alexander. In your opening remarks, you mentioned inflation being somewhat of a headwind. I was wondering what exactly that is and what you expect going forward in terms of costs.
Opening remarks, you mentioned inflation being somewhat of a headwind I was just wondering what exactly that is and what you expect going forward in terms of costs.
We continue to see inflation all over.
Eduardo Menezes: We continue to see inflation all over. As we all know, the situation of tariffs is not very clear, to say the least. We are trying to manage that the best way we can. It is always a function of how well we also manage our pricing. So, you have just to stay ahead in the race between price and inflation. That is a battle that we fight every day. Inflation has been a concern. The tariffs will impact at some point, more than one would expect. Our business is directly not affected that much, but our customers are, and sometimes our suppliers are. That is the source of inflation we see.
As we all know the situation with tariffs is not very clear to say the lease. We you know we are trying to manage that the best we can best way we can.
It is.
Always a function of how well we also manage our pricing so.
You have just to stay ahead in the race between price and inflation and the and that's a battle that we we we fight everyday but.
Inflation has.
As being a concern.
Tariffs.
Will impact that at some point you know more than.
One we expect.
Our businesses.
Directly affected that much but our our customers are and sometimes how suppliers are and that's.
That's the source of inflation, we see.
Okay.
Various Sell-Side Analysts: Thank you.
Yeah.
We'll go next to James <unk> with Bernstein.
Operator: We'll go next to James Hooper with Bernstein.
Good morning, and thank you very much taking my question I think we've touched on NIM and tenor, but can we have an update on the other underperforming projects and headwinds in Rotterdam, Arizona.
Various Sell-Side Analysts: Morning, and thank you very much for taking my question. I think we touched on NEOM and Darrow, but can we have an update on the other underperforming projects? You know, Edmonton, Rotterdam, Arizona. These are meant to come online in the next couple of years. Is there any way that these can be delayed, or do you think those, should you not be able to get the demand or offtake? Or are these dates set? Thank you.
These are meant to come online in the next couple of years is there any way that these can be delayed or do you think there is should you not be able to get to get the demand or uptake.
Or are these just dataset. Thank you.
Yes, it does.
Eduardo Menezes: Yeah, these are all projects that have schedules, you know, for three years or more. Not a lot of things change in three months. Our forecast in terms of capital and schedule are still the same that we provided you last quarter. If there are changes, we will come back to you. But at this point, what we presented before is exactly where we are in terms of CapEx and schedule.
All projects that have schedules.
Three years I'm more so not a lot of things change in three months. So you know.
Our our forecast in terms of capital and in schedule still the same that we provided you last quarter. So if there are changes we'll come back to you but at this point you know what we presented before is exactly where we are in terms of capex and schedule.
And one incremental comment and the projects that you talked about the I mentioned project and our assets in Rotterdam those are under.
Melissa Schaeffer: The projects that you talked about, the Edmonton project and our assets in Rotterdam, those are underpinned by customers. So those are a little bit of a different flavor than our NEOM and Louisiana projects.
Pinned by by customers.
So that that those are a little bit of a different flavor than R&D.
And Louisiana projects.
This concludes the question and answer portion of today's call at this time I would like to turn the call back over to Eduardo for any additional or closing remarks.
Operator: This concludes the question and answer portion of today's call. At this time, I would like to turn the call back over to Eduardo for any additional or closing remarks.
No. Thank you I would like to again, thank everyone for joining our call today. We appreciate your interest in air products and we look forward to discussing our results with you again next quarter are the best and have a great day. Thank you.
Eduardo Menezes: No, thank you. I would like to again thank everyone for joining our call today. We appreciate your interest in Air Products and Chemicals, and we look forward to discussing our results with you again next quarter. All the best and have a great day. Thank you.
This concludes today's call. Thank you for your participation you may now disconnect.
Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Okay.
[music].
Okay.
Yes.
[music].