Air Products and Chemicals, Inc.

Now, I'm pleased to turn the call over to Eduardo. Thank you, Ed. This is Eduardo Menezes. Thank you for joining us. Please turn to slide 3. We have brought a keen, deliberate, solid fiscal third quarter 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 LNG's business sales. We saw positive base business results, despite significant global season headwinds and continue to see positive cost savings across the organization from our productivity actions. Their product has a solid core industrial gas business with significant potential. The results this quarter show the strengths and the limits 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 solid duty commitments. 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. Our product has the lowest FGMA as a percentage of sales in the industry and we are continuing to improve on this measure. We are investing to bring additional AI and digital transformation tools to the majority of our employees for use in today's -to-day work. I expect the combination of the AgressLOOCH project and large ongoing AI corporate initiatives in areas like energy management will significantly change the way we work and open many new quality opportunities for our products. We are committed to project execution in several disciplines. We expect to finalize the current energy transition projects in line with our previous guidance and to continue investing 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 electronic and our two-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 one more time. This is AirProduct's five-year roadmap to unlock our own potential. We have a strong team growing the core business and I am confident all our leaders are personally committed to take AirProduct through this journey. Our objective for the next five years is starting in fiscal year 2026 is to consistently achieve high single-business 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 ROCE in the niche to high teams by 2030. Now I will turn it over to Melissa to discuss our quality results. Melissa?

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 $3.00. 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 edges, while a target 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-based business performance, including continued pricing strength in non-helium products across all regions, with margins offset by the sale of the LNG business and edited projects. Adjusted operating margin was flat, but improved about 300 basis points sequentially due to the favorable volume and productivity improvements. Now please turn to slide 7 for the details of our third quarter earnings per share. Third quarter adjusted earnings per share of $3.09 decreased $0.11 from prior years. 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 years. Volume added $0.06, better fitting from strong onsite volume. 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. Now please turn to slide number 8 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. We remain cautious in our outlook, recognizing the significant economic uncertainties around the world. Our guidance for capital appendages stays at approximately $5 billion for the year. We've included additional details on the 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 4-1 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. I don't expect 4-1 to ask a question.

We'll call for just a moment. Okay. We'll go first to John Roberts, fifth Mizzouho. Thank you.

Could you give us an update on the plan to use third parties at Darrow for both ammonia and the carbon capturing

and sequestration? Hi John, good morning. This is Eduardo.

Yeah, as we said last quarter, we are working to get these partnerships done by the end of the current year. So we're still working on that. So three months later, I would say that the reason we're optimistic will get there. I've seen some reports this quarter for other blue ammonia projects in the Gulf Coast. And if you look at this report, you look at the amount of the numbers that are published in terms of care packs for the size of the plant, they are publishing our numbers. I believe we are a little better in terms of units of care packs for capacity. And we expect to do that because we have a larger scale. So I think that validates the numbers that we presented in terms of the competitiveness of our project in terms of care packs. And 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 US will be very competitive. So the fundamentals of the project remains very strong. And now it's a question of finding the right partnership, finding the right agreements, and negotiating these agreements which will take some time. So that's where we are. We have a dedicated team working on that and participating personally in a lot of these meetings. And when we have more information that we can share with you, we'll do

that. Thank you. We'll go next to Jeff Zitkowskis with J.P. Morgan.

Thanks very much. A two-part question. Your average prices year over year were up 1 percent. If you took out the drag from helium, how much would your average prices have been up? And then secondly, in the past, air products used to say that it could dissociate hydrogen from ammonia with a 10 percent loss. Is that a claim that air products still wants to make or is the dissociation characteristics different? And do you have to build an infrastructure in Europe in order to fulfill the total contract in 2030?

Okay. Okay, Jeff, the first question I asked Melissa to talk about that, we normally don't disclose helium numbers, but we can probably give you an idea of the total impact for the year in terms of helium. On the second question, yeah, the dissociation we are working with our R&D organization and engineering design this plan. At this point, if and when we go forward with any project in Europe to dissociate ammonia, the idea is to use products on technology for that. And at this point, I believe that we still have the same goal in terms of use that we mentioned on 10 percent loss. It's always a question of capital and efficiency, how much you want to invest to improve your efficiency, and that's exactly where we are, but we're testing a lot of different catalysts and different configurations and trying to be ready to execute this project when the problems will become more fun. As I mentioned before, all these products in Europe, they are a function of defined regulation. They knew here this own umbrella regulation is put to say that each EU member has to develop and adopt this or they call it transpose to law. This is a little late, it was supposed to be done a few months ago, but there are several efforts in several jurisdictions where they present what they are trying to do with the EU legislation and we and our potential customers and to file we are all following this regulation to decide where we should build this project. So that's where we are on the more association side and I'll turn to Melissa to talk about the heating

impact. Sure, thanks Eduardo. Thanks for the question Jeff. So volume and price do continue to fall across the reasons. 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 percent versus prior year. For the full year we are anticipating around a 55 to 60 cent headwind from EPS which again is about 4 to 5 percent. 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. Thank you.

We'll go next to John McNulty with Fumo Capital Markets.

Yeah, good morning. Thanks for taking my question. Maybe digging in a little bit more into the, I believe you said it was $175 to $185 million cost opportunities. I guess two questions around that. One is that in addition to the $100 million opportunity that you had a pair of products previously outlined and 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 and 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?

Yeah, so thanks. I will take that question. So let's

first talk about the productivity actions we talked about. So this is a total picture of the activity that we've been talking about for the last couple of years. So we continue to execute on productivity actions. This obviously includes 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're about 60% complete as of the end of this quarter. In order of magnitude, in FY25, we realized about a 40 cent EPS cost savings versus what was prior to the program initiation and around 25 cent EPS cost savings versus prior year in FY24. Now, associated to the digital energy 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 the vast majority of the cost savings we talked about was really associated to the headcount and productivity actions we had previously announced.

Yeah, this is on top of that, things that we're working for the future after this wave of this initial productivity project.

Got it. Thanks very much for the call. We'll go next to Issa Andrews with Morgan Stanley.

Hey, good morning. This is Steve Haynes on Provencin. I wanted to ask a question on the volume performance in America. Would it be possible to just give a bit more color on the 6% decline there? I guess how that compared to your original expectation, I guess, would you just break it out between, you know, base volumes versus any impact from, I guess, some of

the project exits? Thank you. Yes, thanks for the question. So from

the America's volume perspective, we actually had strong on-site volumes in our standalone exit and the Gulf Coast Tyco. The entire amount of the downturn was largely associated to two things. First, the exit project of World Energy and the prior year contributions. And second, really largely helium demand. We did see improvements in our overall merchant business outside of the helium demand. So again, underlying strong volumes across our on-site and merchant

outside

of World

Energy and the demand in helium. Thank you. Our next question comes from the line of Josh Spector with UVN. Hey, hi. Good morning. I actually wanted to follow

up on that same question. So I guess as World Energy is the main project exit, you know, I don't know what percent, but you assume that is a volume decline. I guess the two pieces there that you should expect kind of a 2-3 percent 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 pipeline change? Thanks. So,

yes, thanks for the question. So 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 a headwind to continue moving forward. That's clear enough. I'll leave it there. Thank you. Thank you. So the next in line is Susan with Wells Fargo. Hey, good morning. Nice quarter.

It says for the core business, Eduardo, you mentioned, I think in the last call, that you still want to invest, you know, kind of one and a half billion in Logos projects, you know, for the core business. Have any updates there? You know, I haven't seen any announcements or the house bidding activity going with that. Do you think as you head into 26, that's something that you can

sort of hit as a goal? 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 project. I will probably for the next quarter try to summarize what we get for the year and what we expect in following years so we can have a better idea of how much of this one to one and a half billion dollars goes to two small 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 South Korea, so that's an area that is moving forward. We always have some projects in the West, you know, considering our large space here to replace or to increase our capacity in both hydrogen and air separation, so that continues to do okay. And again, this is the core of our business. This is the business that our policy started as a company. And we expect that to pick up and to increase in the next years. I, you know, as you know, this is my, I'm finishing my first six months in the company and traveling around and looking to go to different locations and different countries. And I would say that when you go to Asia and see the capabilities that we have in terms of for our genetic 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 our policy is in a very strong position. It's probably one of the best facilities I've ever seen in my career. And I think it's a cool advantage of that.

Great, thank you. We'll go next to Patrick Kenningham with Citi. Hi, good morning. Thanks for giving me a question. So, Edward, you alluded to some

of the larger project announcements in the Gulf Coast for Blue Ammonia. Does this change the dynamic of all four air products? I know you mentioned Barrow's cost competitive, but are there now fewer logical active partners for

you and the market is well served or do you see a dissipation? Well, we'll see.

I think the Blue Ammonia market is a large market, so we have other people being interested in that. You know, there is some push, stronger push now for Blue Ammonia, especially in the Far East. You know, some big coming out from the power producers in Japan and Korea looking for Blue Ammonia. So I think the demand will be there and on top of that, as I mentioned, I strongly believe that Blue Ammonia from the United Coast Coast will be very competitive in Europe and I think there is room for more projects and probably

few more projects.

Thank you. We'll

go next to

Matthew Ditto with Think of America.

Thank you. On slide four, just look. Within the improve the core, slackly focus and then kind of achieve potential. You have Neom as kind of a key driver in 2030 for offsetting underperforming projects and I assume a few things on that is the Toe's Hall agreement starting in 2030. But Neom 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 number comes more from Zero than the Neom, so Neom, we also expect the configuration to come online in 2030. As I said before, Neom continues to progress well. We expect to start up in 2027 and we are working as well on placing the project, you know, initially as Green Ammonia and the Green Hydrogen will be two ways for the regulation to fall. So that's where we are. We're also, in the same way, we're working to commercialize and finding partners for GEL. We're working also in commercializing the Green Ammonia from Eon starting 2027.

We'll go next to Chris Parkinson with Wolf Research.

Great, thank you so much for taking my question. Eduardo, you went 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, you know, 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, you know, hitting those targets, you know, things like the BiPAC meeting, you know, focusing on getting that back, you know, somewhere down to the mid-3s? Is there any thought process there as well as, you know, uses for cash in terms of, you know, balance sheet and eventually buyback? Any change of thought process in the last, you know, couple weeks or months? Thank you so much.

Thank you, Chris. No, no major updates on that. We continue to follow our, you know, what we said before that our intent is to be around cash neutral for the next three years. We also make sure that, you know, we of course will maintain our dividends, but we need to balance our, you know, cash sources of cash users and we expect to be able to do that in the next three years. How well we'll do that, we'll better mind, you know, other uses that we can do with the cash like buyback shares, but at this point we'll first define to walk before you run, so the priority is to make sure that our cash backs for 26, 27 and 28 matches, you know, the cash

donation that we have. Thank you. We'll go next to the Deputy Sisher with Goldman Sachs.

Yes, good morning guys. And thanks for the details on helium for this year, but just on that subject of water, you've cracked helium for a lot of years. How do you see the cycle for helium playing out over the next couple of years? You know, how much, you know, just at the current levels, when do we anniversary the level we're at today, like how much is ahead next year and do you think this is still kind of a multi-year down cycle or can we stabilize as we get into 2026?

Yeah, we have been debating that a lot in some of the stuff as you can imagine. This, you know, the helium market, you know, the main question is, is there another cycle or is there a structural change and what happens in the market in the next few, in the last few years and what will happen 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 largest source and had the capability of, you know, managing volume because they have storage for helium. The BLM is becoming less and less of a factor in the market. In fact, it's very minor now and most of the helium sources now are connected to, you know, a natural gas process in the LNG plants. And you saw an increase in the supply side. And in the man side, we've seen some, you know, de-lossification with new players in the industrial gas space and that is, you know, changing the, you know, the way the market operates for the last few years. For the next years, you know, I 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 plant, a mechanical failure. And you're going to see, you know, the pendulum going the other way in the market. And I think products, I said before, products try to be a very responsible player in this market. We made an investment on a cabin a few years ago, understanding that we need to have a little more legal room to manage our balance of helium. I think that, you know, others are investing now. I think that's the positive sign for the market. And we'll see, you know, some changes in this. So, one point that I think you need to take in consideration is that, you know, the price increases and decreases in this market takes a little time to correlate all the way in the chain to get to the suppliers. But I think that you'll start to see that in this year, and you'll probably continue to see that in the next year. So, I expect that going forward, you know, the impact for, in terms of margin, is going to be a little less dramatic for all the industrial gas companies because, you know, you're going to get also a reduction on the cost of the helium that we purchase from the manufacturer. So, it's not an easy situation. I think we are managing that well. The product is still making a higher margin than we were making before COVID with, you know, a much lower volume. And I think the team has been playing this well, managing the volumes in the cabin. But at some point, you know, we need to make sure we stabilize that and we use these volumes. And we'll pull the trigger when we see the right moment for that.

Terrific. Thank you for that.

We're going to next to Kevin McCarthy with Vertical Research Partners.

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, there's 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 to get those returns higher over the next several years?

Thank you Kevin. I'll ask Melissa to take this question. I'll take a moment again. Go ahead.

Sure. Absolutely. Thank you, Eduardo. And thanks, Kevin, for the question. So 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. So ex-neum obviously that would improve greatly. So we did see a four-quarter trailing after-tacter turn that went down a little bit due to headwind from helium and our pencil project. That was coupled obviously with higher debt and lower deferred income tax driven by our pencil project. So that provided some of the headwind. Without CIP and cash, our ROC would actually be up about 500 basis points. So as we see the CIP reduce and our cash balance is obviously increased, as we become more disciplined on our capital allocation, our ROC will improve. We've given you the forecast over the next five years. I fully anticipate that you should be able to meet and do that. And as I said, the reduction

in the capital outlay will help that greatly.

Yeah, so a lot of influence and consulting problems and numbers. A little complicated accounting here because we're consolidating on 100% at this point. That will be the consolidating startup. But Melissa and the team have calculations in the background. We are pushing hard to get to this. I'll see you by, you know, two meetings by

2050. Hi, this is Aaron with the Warrant for Lawrence.

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? We continue to see inflation all

over. As we all know, the situation in Paris is not very clear to say the least. We're 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 to stay ahead in the race between price and inflation. And that's a battle that we fight every day. But inflation has been a concern. The tariffs will impact us at some point, you know, more than what we expect. Our business is, you know, directly not affected that much. But our customers are and sometimes our suppliers are. And that's the source of inflation we see.

Bye. We'll go next to James Hooper with Bernstein.

Good morning and thank you very much for taking my question. I think we touched on Liam and Barry, but can we have an update on the other underperforming projects there, Edmonton, Roche, Down, Arizona? And these are meant to come online in the next couple of years. Is there any way that these can be delayed? Would you think those, you know, should you not be able to get the demand to offtake? Or are these just data set? Thank you.

Yeah, these are all projects that have schedules, you know, for two years or more. So not a lot of things change in three months. So, you know, our forecast in terms of capital and schedule, I feel 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 capital and schedule.

And one incremental comment, 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. Thank you. 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.

Well, thank you. I would like to again thank everyone for joining our call today. We appreciate your interest in our product, and we look forward to discussing our results with you again next month. All the best and have a great day. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.