Air Products & Chemicals, Inc. Q2 FY2025 earnings call

Return to Core Business

• Will invest about $1.5 billion per year in core industrial gas projects with high return thresholds, high-quality customers, and take-or-pay offtake.
• Aim to expand margins through operational excellence, productivity, and rightsizing the organization.

Projects Update

• Saudi Arabia project to complete construction and sell clean ammonia FOB Saudi Arabia; Louisiana project to focus on hydrogen and nitrogen production, derisking carbon sequestration and ammonia; underperforming projects to be completed due to commercial obligations.

Headcount Reduction

• Total headcount increased from ~16,000 to 23,000 since 2018; 1,300 reductions identified, aiming to reduce 2,500-3,000 more by 2028 to reach headcount similar to 2018.

Financial Guidance

• 2025: Base business expected to deliver ~$12 per share EPS, double-digit ROCE, over 20% adjusted operating margin; full year adjusted EPS range $11.85-$12.15.
• 2026-2029: Expect high single-digit adjusted EPS growth, high 20s adjusted operating margin, low to mid-teens ROCE; aggregated net cash flow to improve to neutral.
• 2030+: Aim for ~30% adjusted operating margin, mid to high teens ROCE, double-digit adjusted EPS growth, >10% compounded EPS growth by 2031-2032.

The core industrial gas business has about $12 billion in sales with an operating margin of 24%. The Saudi Green project is progressing well, expected to have product availability in 2027. The Louisiana project is being derisked by focusing on the industrial gases portion, with earliest startup in 2028 or 2029 pending offtake agreements. The underperforming projects with CapEx totaling about $5 billion are first-of-a-kind energy transition projects with cost overruns and are not expected to materially contribute to operating cost but aim to recover capital on an undiscounted basis.

2025

• Base business growth expected 2%-5% despite helium headwind; full year adjusted EPS range $11.85-$12.15.

2026-2029

• Expected high single-digit adjusted EPS growth, high 20s adjusted operating margin, low to mid-teens ROCE; aggregated net cash flow to improve to neutral.

2030+

• Aim for ~30% adjusted operating margin, mid to high teens ROCE, double-digit adjusted EPS growth, >10% compounded EPS growth by 2031-2032.

• Project delays and cost overruns: Underperforming projects like Alberta and some energy transition projects have faced significant cost overruns and delays.
• Macro economic and tariff impacts: Uncertainty around global tariffs and macroeconomic conditions affecting customers and project costs.
• Regulatory uncertainty: For projects like NEOM in Europe, delays in regulatory frameworks and unclear offtake agreements.

Q: On underperforming projects and Alberta project delay A: Eduardo Menezes discussed that underperforming projects expect to recover capital on undiscounted basis; Alberta project had cost overruns and delays due to construction issues, contractor productivity, and resequencing, with details not fully disclosed publicly.

Q: Louisiana project business case A: Eduardo Menezes explained the goal is to reduce total CapEx to $5-6B with firm offtake agreements for hydrogen and nitrogen, optimistic about location and components.

Q: Headcount reduction savings A: Melissa Schaeffer stated ~$25M savings in 2025 from headcount reductions, with a run rate of ~$100M, remaining savings in 2026.

Q: NEOM regulatory clarity A: Eduardo Menezes mentioned working on engineering and permitting for NEOM, expecting regulatory clarity by 2027 to define hydrogen supply to European refineries.

Q: Macro and tariff impacts on guidance A: Eduardo Menezes noted uncertainty around tariffs and macroeconomic conditions affecting project costs and business development, difficult to forecast precisely.