Air Products and Chemicals Inc Q2 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John Mcnulty - BMO Capital Markets - Analyst : Good morning and thanks for taking my question, and welcome to Air Products. So I had a question for you on the underperforming projects where where you highlighted that there's no operating income contribution, I guess maybe a couple things on that. First, how should we think about the EIA contribution, just because obviously early on there's going to be a lot of DNA just given the size and. All these projects and then I guess also tied to that, the Alberta project looks like it's ballooned up almost to almost 3 times what I think the original plan was. I guess, can you help us to understand what's going on there and what looks to be a reasonable delay in that project as well. Thanks very much.

Question: John Mcnulty - BMO Capital Markets - Analyst : Got it. Okay. Thanks for the color on that. And then maybe just a follow-up, in your introductory remarks you spoke about some of the past strategic decisions including the pivot to gasification, you've got it seems like $0.40 to $0.50 worth of kind of big gasification projects out there in terms of EPS contribution, I guess, can you speak to your comfort with those projects? Are they delivering kind of as you would expect if you were if you were starting from scratch and I guess can you speak to the resiliency that you would expect from those if we have some sort of a downturn, especially, given some of the issues going on between the U.S. and China?

Question: John Mcnulty - BMO Capital Markets - Analyst : Got it. Thanks very much for the color.

Question: Steve Byrne - BofA Global Research - Analyst : Thank you. In your remarks, Eduardo, about the scoping in Louisiana, I was just wondering if one potential scenario would be to just focus on hydrogen. You mentioned you have the largest pipeline network in the Gulf Coast. Why pursue ammonia at all? Drop the ammonia reactor, drop the deep water port, and just focus on hydrogen and reduce the CapEx. Is that a scenario that you would consider?

Question: Steve Byrne - BofA Global Research - Analyst : Okay. Thank you for that. And with a question about Neom, is $600 a tonne a reasonable estimate for the green ammonia that you will be taking possession from the joint venture and curious to hear your view on the value proposition to potential customers at $600 a tonne.

Question: Steve Byrne - BofA Global Research - Analyst : Very good. Thank you.

Question: David Begleiter - Deutsche Bank - Analyst : Thank you. Good morning. Eduardo. First, on the headcount reduction, what's the initial savings from the first tranche of, roughly 1800 people being let go and what's the cadence of those savings?

Question: David Begleiter - Deutsche Bank - Analyst : Thank you. And just in Alberta, again, in six months' time, the project has basically doubled in cost and been pushed out by two years. So when I'm still not clear when the company became aware of this and what's been the reaction of your customer to this delay?

Question: David Begleiter - Deutsche Bank - Analyst : Understood. Thank you.

Question: Jeffrey Zekauskas - JPMorgan - Analyst : Thanks very much. Can you talk about what the point of the remaining Louisiana project is for your products? That is how much hydrogen you need and why you need it and why you want to go forward with that part of the project?

Question: Jeffrey Zekauskas - JPMorgan - Analyst : Thank you for that. And for Melissa, if the cost savings from the employee reductions are something like $100 million going forward, does that mean that these employees or the cost of these employees were mainly capitalized? And so the income statement effects of getting to a more normal employee level are smaller.

Question: Jeffrey Zekauskas - JPMorgan - Analyst : Okay. Great. Thank you so much.

Question: Patrick Cunningham - Citi - Analyst : Good morning and welcome, Eduardo. For Neo, you're now delaying the downstream investment until you get regulatory clarity. What does that mean for the agreement with total and who are the logical customers for that green ammonia and just your general view on the relative premium you would get paid there?

Question: Patrick Cunningham - Citi - Analyst : Understood. Very helpful. And you know I'm curious as you go and meet with leaders in the different countries.what's your sense for the opportunity on productivity and price optimization for the core business? You know how meaningful will those levers be and, where do you see the biggest opportunities on price?

Question: Michael Leithead - Barclays - Analyst : Great. Thanks. Good morning. First question I was hoping you could provide a bit more color on on how the team works through deciding which projects should be canceled versus which projects were deemed underperforming yet to go forward, such as why the green hydrogen project in Arizona moves forward versus say the green hydrogen project in New York.

Question: Michael Leithead - Barclays - Analyst : Great, that's super helpful. And then second, I just was hoping you could talk more about the cash flow progression you expect over the next 1 to 2 years, I guess when you talk about net cash flow, is that after funding the dividend and how do you think about when is appropriate to begin share repurchases as you've alluded to in the slides?

Question: Michael Leithead - Barclays - Analyst : Great. Thank you.

Question: Duffy Fischer - Goldman Sachs - Analyst : Yeah, good morning. Helium for you guys has been a pretty volatile earnings contributor over the last 5 years, kind of ran up post the war and then rolled off hard, and it acts kind of like a commodity on supply demand to some degree. So can you help size the earnings contribution from helium today and basically how you see that contribution progressing kind of out through your 26 to 29 period?

Question: Duffy Fischer - Goldman Sachs - Analyst : Fair enough. And then I just wanted to go back if I could in the just to understand. So in the early years before you have the offtake agreement, let's say in 2030 and hopefully some other committed by then, when you're selling just the ammonia, your assumption is that your off-take price for, the product will be meaningfully lower than what you'll be able to sell it at, so you'll be able to generate significant free positive cash flow and EIA from the asset or from the off-take agreement.

Question: Duffy Fischer - Goldman Sachs - Analyst : Terrific. Thank you, guys.

Question: Joshua Spector - UBS Equities - Analyst : Yeah, hi, good morning. First, a quick follow up from Melissa, just an answer to Mike's comments around free cash flow. Can you just confirm your 26 comments? Is that positive free cash flow after the dividend or before the dividend?

Question: Joshua Spector - UBS Equities - Analyst : Perfect, thanks. And then for Eduardo, I wanted to ask around your general approach to guidance here. So obviously our products versus peers has had a bit of a different approach in terms of what macro assumptions are baked in. So as you look at what's here for 2025, the next couple of quarters. What's your assumptions baked in on a macro perspective and then more medium term when you say high single digit EPS growth, how much of that again air products in your control, cost savings, etc. Projects versus macro assumptions, thanks.

Question: Joshua Spector - UBS Equities - Analyst : Okay, thank you.

Question: Michael Harrison - Seaport Global Securities LLC - Analyst : Hi, good morning. Eduardo, you talked about, growth growth CapEx of 1 billion.5 dollars a year on the core industrial gas business. I'm just curious, is that kind of just a placeholder and the actual spend is going to depend on the number of available projects that that you guys find meet return metrics? Maybe if you could talk, just a little bit more about about your approach to determining, what projects you're going to pursue and what you'll pass on.

Question: Michael Harrison - Seaport Global Securities LLC - Analyst : All right, thank you for that and and then just related to the uncertainty around tariffs, a lot of companies that we talked to, are saying that they're seeing some slowing in manufacturing activity and pauses in decision making. I'm just curious, your merchant locks inlar business probably gives you some pretty real time line of sight into what's going on with your manufacturing customers. Can you talk a little bit about what you've been seeing in the March and April time frame across your three key regions from a merchant demand perspective. Thank you.

Question: Chris Parkinson - Wolfe Research - Analyst : Thank you so much. I just want to turn back to your commentary about Alberta and Rotterdam understanding, some of the commentary and, the underperformance and the cost overruns. But is this, given you still have some decent customers associated with those projects, is this commentary about those specific projects and how they were managed, or is it more of a larger indictment on your view. Of you know blue hydrogen and how that fits into your intermediate to long term strategy. Thank you.

Question: Chris Parkinson - Wolfe Research - Analyst : Got it. And just a quick, to dive into a little bit more details on your comment about 2026 for cash flow post the dividends you both just mentioned this, but just to just really hit the nail on this, what further assumptions we need to make in terms of like cash flow conversion of what's specifically in your control to reach those levels, and I apologize, but I've just got like 10 questions on it so I just want to be absolutely certain that we have this. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 01, 2025 / 12:00PM, APD.N - Q2 2025 Air Products and Chemicals Inc Earnings Call

Question: Chris Parkinson - Wolfe Research - Analyst : Thank you very much.

Question: Kevin McCarthy - Vertical Research Partners - Analyst : Yes, thank you and good morning. Eduardo, coming back to your blue hydrogen project in Louisiana, I was wondering if you can provide an update on your business discussions for that project, for example, irrespective of the scope changes that you talked about, I think your products is pursuing partnerships for sequestration and also, as I understood it, financial partners with an eye toward project financing so. How are those discussions going and with regard to the new timeline of late 28 or possibly 2029, what is the rate limiting step? Is it no longer receipt of the Class 6 permit and it's shifted to the business side sorting out some of the scope and financial issues that you outlined?

Question: Kevin McCarthy - Vertical Research Partners - Analyst : I appreciate that and then secondly thank you for the updated comments on your infrastructure build out in in Europe just wanted to clarify the what what the status. Of that build out is in the UK, Netherlands, and Germany. At one point Air Products was talking about $2 billion for various REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 01, 2025 / 12:00PM, APD.N - Q2 2025 Air Products and Chemicals Inc Earnings Call import terminals in those countries. Can you comment on, how much capital has been sunk and how much you're avoiding and, what you would need to see to resume?

Question: Kevin McCarthy - Vertical Research Partners - Analyst : Understood. Thank you so much.

Question: Laurence Alexander - Jefferies - Analyst : So good morning. Just to come back to the merchants and so the the non on-site businesses, can you just characterize what return hurdles you're using and how they compare to what has been used by your products over the last, I don't know, 1,015 years. Have you significantly changed in any way the return hurdle metric? And secondly, within the footprints, how much of the Region by region, and I mean, within like, the local operations, how much of the footprint is actually in highly concentrated markets? And how much is in markets where you wish there was a, you need a significant increase in density, either by yourself or competitors to improve return on capital on a regional basis.

Question: Laurent Favre - BNP Paribas Exane - Analyst : Yes, good morning. You mentioned when you talked about the, mountain improvement, headcount reduction, I was wondering if you could talk a little bit more about what you're going to do with the organization, incentivization as well, management structure, etc. So for instance, are you keeping the, 12 person board, management board that was announced last summer? Thank you.

Question: Laurent Favre - BNP Paribas Exane - Analyst : Thank you. And on the capital location side, apart from the disco being which I assume you hope to get some proceeds for, are you considering any disposal for certain business lines or certain countries?

Question: Laurent Favre - BNP Paribas Exane - Analyst : All right. Thank you.

Question: Michael Sison - Wells Fargo Securities, LLC - Analyst : Hey, good morning, Eduardo. One quick question on the $5 billion of underperforming assets, their products used to talk about generating, roughly 15% on every dollar spent for EIA, about 10%, on every dollar for ebis, implying that depreciation is around 5%. Is that what you're, you think the $5 billion will generate around a 5% or mid single digit return? And then if if that formula is. Maybe different than what you think, what do you think? The return should be on every capital that air products spends on future projects. Thank you.

Question: Michael Sison - Wells Fargo Securities, LLC - Analyst : Thank you.

Question: John Roberts - Mizuho Securities USA - Analyst : Thank you. And welcome as well. Do you expect any material recovery on what's already been spent in Louisiana for CCS and ammonia, and would that recovery likely be rolled into a favorable contract for CCS or a hydrogen uptake agreement?

Question: John Roberts - Mizuho Securities USA - Analyst : Thank you.