Air Products and Chemicals(APD) - 2026 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a 12% improvement in adjusted operating income and a 10% increase in earnings per share (EPS) to $3.16 compared to the prior year, driven by stronger productivity despite weak economic conditions [5][15] - The operating margin increased to 24.4%, while return on capital (ROC) was 11%, slightly lower than last year but stable sequentially [5][15] Business Line Data and Key Metrics Changes - Sales in the Americas increased by 4%, driven by higher energy pass-through, while operating income improved due to price, on-site volume, and lower maintenance costs [17] - Asia segment sales rose by 2%, with operating income up 7%, attributed to productivity improvements and reduced depreciation from certain gasification assets [17] - Europe saw increases in both sales and operating income due to volume and price improvements, although higher costs from depreciation and fixed cost inflation impacted margins [17] - The Middle East and India segment experienced improved operating income due to lower costs, while the corporate segment also saw improvements from lower costs [18] Market Data and Key Metrics Changes - The company noted resilience in key sectors such as refining, electronics, and aerospace, with new supply contracts announced with NASA for liquid hydrogen [7][8] - The company expects continued headwinds from helium, projecting a 4% decline in EPS effect for the year [25] Company Strategy and Development Direction - The company is focused on three key priorities for 2026: unlocking earnings growth, optimizing large projects, and maintaining capital discipline [7] - Capital expenditures are expected to be reduced by approximately $1 billion in fiscal 2026, with a commitment to disciplined capital allocation and returning cash to shareholders [9][18] - The company is in advanced negotiations with Yara International for low-emission ammonia projects in Saudi Arabia and the U.S., which aligns with its clean energy strategy [10][11] Management Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the macroeconomic environment, affirming full-year earnings guidance with an expected improvement of 7%-9% at the midpoint [7][19] - The company anticipates challenges from helium headwinds but remains focused on pricing actions and productivity improvements to drive results [20][64] Other Important Information - The company returned nearly $400 million to shareholders and increased its dividend for the 44th consecutive year [18] - The net debt to EBITDA ratio stands at 2.2 times, reflecting a strong balance sheet position [18] Q&A Session Summary Question: How should we think about the returns on the $2 billion of capital already invested in the project? - The 45Q credit is included in the return, and the overall return for the project will be disclosed later [22][23] Question: How much of the continuing business is still down regarding helium? - The company expects a 4% decline in EPS effect for the year, with strong volume from the aerospace segment in the Americas [25] Question: What was the benefit from moving gasification plants in China to for sale? - The impact was about 1% on overall results for the quarter, with ongoing negotiations for asset sales [26] Question: Is Air Products receiving full income from Gulf Coast Ammonia? - The plant is running at 80-90% capacity, and the company owns the hydrogen production and air separation assets [30][31] Question: What is the expected timing for the deconsolidation of NEOM? - The deconsolidation is expected to occur in mid-2027 when the joint venture becomes operational [73][74] Question: How is the company addressing the impact of CBAM on ammonia? - The company believes the impact of CBAM is indirect and is closely monitoring the situation [14][99] Question: What portion of customers are running below take-or-pay minimums? - Utilization across regions is in the mid- to high 70s, with some cases in Europe but not significantly impacting overall business [84][89]