Air Products and Chemicals, Inc. Q1 FY2026 earnings call

Earnings performance: Adjusted operating income improved 12%, earnings per share $3.16 up 10%, operating margin 24.4%, return on capital 11% (slightly lower than prior year but stable sequentially). Priorities for 2026: Unlock earnings growth (affirm full year earnings guidance with 7%-9% improvement at midpoint, driven by pricing actions, productivity, and new assets), optimize large projects (advanced negotiations with Yara on low-emission ammonia projects in Saudi Arabia and US, focusing on descoping and derisking clean energy projects), maintain capital discipline (expect to reduce capital expenditures by ~$1B in fiscal 2026, with heavy CapEx in Canada and Netherlands in 2026-2027, then decline; returned nearly $400M to shareholders and increased dividend for 44th consecutive year). Louisiana Project: In advanced negotiations with Yara, seeking a partner for ammonia production and carbon capture and sequestration, monitoring CBAM regulations in Europe.

Americas sales were up 4%, with operating income improved by price, on-site volume, and lower maintenance, partially offset by prior year nonrecurring items and fixed cost inflation. Asia sales were up 2%, operating income up 7% due to productivity and reduced depreciation from certain gasification assets held for sale, partially offset by lower [indiscernible], with new assets ramping up. Europe sales and operating income both increased due to volume and price as well as favorable currency, but operating income impacted by higher costs associated with depreciation and fixed cost inflation despite productivity improvements. Middle East and India operating income improved on lower cost, while equity affiliate income remained flat. Corporate and Other results improved from lower costs, including productivity actions.

Fiscal Full Year: Maintaining guidance of $12.85 to $13.15 EPS. Second Quarter 2026: Expect EPS in range of $2.95 to $3.10, 10%-15% improvement from prior year, driven by pricing actions and productivity, partially offset by lower Helium. Capital Expenditures: Maintaining guidance at approximately $4B in fiscal 2026.

Regulatory Risks: Impact of CBAM regulations in Europe on potential Louisiana project, as changes could indirectly affect the project. Macroeconomic Risks: Sluggish macroeconomic environment limiting volume growth, with headwinds in some regions but resilience in sectors like refining, electronics, and aerospace.

Q: Targeting double-digit return on go-forward CapEx, how to think about returns on $2B already invested and inclusion of 45Q credit?

A: The 45Q credit is included in the return, and it's an overall return for the project on a go-forward basis, with details to be disclosed later.

Q: Helium business, continuing down and headwind in Q2 and rest of year?

A: Helium volume trends continue, with better-than-expected quarter in Americas aerospace, but overall best forecast is ~4% EPS effect headwind for the year.

Q: Gasification plants in China, benefit from moving to for sale and timing/proceeds?

A: About 1% benefit to overall results, still working on selling assets, received offers, negotiations ongoing, expect to complete this fiscal year.

Q: Income from Gulf Coast ammonia, investment, and assets owned?

A: Plant is starting up, running at up to 90% capacity, Air Products owns SMR and assertion plan, customer owns ammonia production and [indiscernible].

Q: Sale of equipment cost overrun in corporate line?

A: About $30M impact this quarter, comparable to last year, related to percent of completion accounting.

Q: Margin improvement in Americas, unpacking 150 basis points?

A: Strong on-site volumes in Americas HEICO and non-Helium merchants, positive price, but costs slightly negative, continuing focus on productivity.

Q: Alberta project offtakes, construction timing, and costs?

A: Construction cost ~$3.3B, start-up in first part of 2018, negotiations with offtakers ongoing, no definitive timeline to disclose yet.

Q: Daro project, recovery of spent capital, and go/no-go decision timing with CBAM uncertainty?

A: Recovery value uncertain, goal is mid-year for go/no-go decision, main issue is capital cost certainty, CBAM impact indirect to Yara's economics.

Q: Space opportunity, market share, and growth outlook?

A: Air Products ~40%-50% US space market share, projected 6%-7% growth per year, important segment with commercial launches increasing.

Q: Europe volumes, recovery, and cautiousness?

A: Cautious due to economic complexity, lapping turnarounds last year provided tailwind, business integrated with packaged gases, profitable but complicated environment.

Q: Tech world, growth in electronics customers and results?

A: Electronics is a star segment, acceleration in investment decisions by chip manufacturers, strong positions in Asia, new assets ramping up with contributions towards back half of year.

Q: Deconsolidation of Neom joint venture, timing, financial impact?

A: Deconsolidation in mid-2027, debt to come off balance sheet, operating costs to increase as ramp up, then only 33% through equity affiliate line.

Q: Sequential price change for helium, Asia flat or positive without Helium?

A: Helium is a headwind, Asia impacted by macroeconomic headwinds, Americas and Europe price up more significantly but helium headwind reduced them.

Q: Europe operating margin sequential decline, cause and trajectory?

A: Affected by cost, productivity in region, but sizable depreciation, wage inflation shrinking margin, seasonality also a factor, margin trajectory to be watched.

Q: Customers below take-or-pay minimums, region by region?

A: Not a large percentage of business, utilization across regions mid- to high 70s, similar to fiscal '25, case-by-case in Europe.

Q: CBAM for ammonia, Section 27, and US electric power contracting for ASU business?

A: CBAM proposal needs EU approval, probability of change low; in US, seeing increases in power costs for new contracts, work to pass costs to customers.

Q: Neon JV dependency on Yara, go/no-go decisions, and run rate contribution?

A: No dependency, Neon product is green with no CBAM effect, run rate contribution from equity affiliate not disclosed as loss, but not expected to be a loss.

Q: Yara decision on CBAM uncertainty, time value and plan B?

A: Project has positive attributes, looking for credible partner, current base case is not going forward, only two possibilities: go forward with good project or not, focusing on capital cost certainty.

Q: Uniper Amgen green ammonia project in India, bidding and EPC strategy?

A: Not commenting on specific bids, green ammonia economics in India uncertain due to power export, EPC strategy involves evaluating options for large block plant, working with Yara on execution.