Air Products' Q4 2025 Earnings Call: Contradictions on Alberta Project Costs, Louisiana Scope, Cost-Savings, and CapEx Forecasts

Date of Call: None provided

Financials Results

• EPS: $12.03 per share, down $0.40 or 3% YOY (would be up ~3% excluding a 4% LNG divestiture and 2% project exits); reported as above the midpoint of full-year guidance
• Operating Margin: 23.7% (management also referred to ~24%), down ~70 basis points YOY

Guidance:

• FY2026 EPS guide $12.85–$13.15, implying ~7%–9% growth vs FY2025
• Q1 FY2026 EPS guide $2.95–$3.10 (seasonally lower sequentially)
• FY2026 CapEx ~ $4.0B; long‑term run rate after projects ~ $2.5B/year
• Expect high single‑digit annual EPS growth and modestly cash‑flow positive in FY2026; target cash‑flow neutral through 2028
• Anticipate a ~4% helium headwind for FY2026; growth driven by new assets, pricing and productivity

Business Commentary:

* Earnings and Profitability: - Air Products reported earnings per share of $12.03, which was above the midpoint of their full-year fiscal guidance range. - The operating income margin was 23.7%, and return on capital was 10.1%, in line with their commitments. - The results were supported by consistent progress in their core industrial gas business, productivity, pricing actions, and disciplined capital allocation.

• Capital Expenditure and Project Optimization:
• The company plans to reduce capital expenditures to roughly $2.5 billion per year following the completion of several large projects.
• They expect capital expenditures to be about $4 billion in fiscal 2026, with a focus on traditional industrial gas projects and ongoing maintenance.

• This strategy aims to support ongoing maintenance, invest in traditional industrial gas projects, and grow dividends and returns to shareholders through share buybacks.

• Headcount Reduction and Cost Savings:

• Air Products identified a total of 3,600 headcount reductions, representing 16% of their peak workforce.
• These reductions are expected to contribute approximately $0.90 per share in earnings once completed.

• The objective is to offset inflation and adapt to lower levels of CapEx spend, with plans to return to staffing levels similar to 2018.

• Future Growth and Strategy:

• The company expects high single-digit annual EPS growth for fiscal 2026, anticipating additional helium headwinds and a sluggish macroeconomic environment.
• They aim to improve their underperforming project portfolio and generate positive cash returns.
• Air Products is focused on optimizing its large projects portfolio and balancing capital allocation to enhance shareholder value and improve balance sheet health.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted delivering EPS of $12.03 above the midpoint, committing to high single‑digit EPS growth for 2026, saying "we expect to be modestly cash flow positive in fiscal year 2026" and detailing cost/headcount actions to deliver ~$250M in annual savings.

Q&A:

• Question from Jeffrey Zekauskas (JPMorgan): Could selling the carbon capture (porous space) be linked to providing hydrogen/ammonia to the buyer — i.e., sell sequestration and partner on offtake?
  Response: They are evaluating proposals to monetize porous space for CO2 sequestration and may sell/contract the service; such transactions could be linked to hydrogen/ammonia supply arrangements.

• Question from Jeffrey Zekauskas (JPMorgan): Given cost overruns on the Alberta project, why not stop it—won't depreciation make it EPS‑dilutive?
  Response: They must complete the project to meet contractual commitments (~50% volume) and will leverage existing regional infrastructure to place additional volume.

• Question from David Begleiter (Deutsche Bank): Is the ~20,000 headcount target a new ongoing base or could it go lower?
  Response: 20,000 is the expected year‑end headcount target; they may continue to rationalize workforce but view it as returning toward 2018 levels plus necessary additions.

• Question from David Begleiter (Deutsche Bank): If you move forward with Louisiana with partners, what CapEx would remain for Air Products?
  Response: They will disclose remaining CapEx when they provide the project update; no FID without firm offtake — update promised before year‑end.

• Question from Patrick Fischer (Goldman Sachs): At midpoint guide growth ~8% but helium is -4% headwind — can you break out sources (new projects, price, efficiencies) and timing?
  Response: Expect ~2%–3% from new assets (Asia & Americas) with the balance from pricing and productivity (roughly split half/half); new assets ramp later in the year.

• Question from Patrick Fischer (Goldman Sachs): Outlook on the helium market — stabilized or continued headwinds into 2027/28?
  Response: Market structure changed (BLM exit); they expect further decline into 2027 but at lower magnitude than FY2025 and then stabilization as private storage capacities help regulate supply.

• Question from Patrick Cunningham (Citi): If you forgo NEOM downstream investment and sell ammonia exclusively, could NEOM still contribute positively to EPS in 2027?
  Response: Initial production will likely be sold as ammonia and could be commercialized early, but EPS impact for 2027 is uncertain; more guidance will follow as market clarity emerges.

• Question from Patrick Cunningham (Citi): What drove the Americas equity affiliate income pickup and expectations for next year?
  Response: Improvement was driven by the Mexican JV; they expect Mexican JV roughly flat into FY26 and Jazan contribution to pick up in FY26 as interest rates ease.

• Question from Joshua Spector (UBS): On Louisiana, are decisions go/no‑go by year‑end or could they be delayed?
  Response: Negotiations are advanced and management expects to provide an update by year‑end; key risks include construction market pricing and final capital estimates with permits through mid‑2026 and peak construction mid‑2027.

• Question from Joshua Spector (UBS): You said minimal volume growth — quantify near‑zero? Is macro downside a risk to the guide?
  Response: Guidance includes volume from new assets (ramping in back half); they are not forecasting meaningful market volume growth given macro headwinds — improvement in macro would benefit results.

• Question from Vincent Andrews (Morgan Stanley): CapEx for FY26 looks to have increased from ~$3.1B to ~$4B — is that correct and why?
  Response: Yes — they refined the prior estimate via a bottoms‑up regional review incorporating new wins and project execution; maintenance is a component and could lower the number if improved.

• Question from Vincent Andrews (Morgan Stanley): What does "lower changes to sale of equipment project estimates" in Corporate mean?
  Response: It refers to fewer cost increases on sale‑of‑equipment projects this year (accounted under %‑of‑completion), so less adverse P&L impact versus prior year.

• Question from Christopher Parkinson (Wolfe Research): How should investors think about intermediate/long‑term growth in electronics and competitive position vs peers?
  Response: Electronics (~17% of sales) is a high‑growth, high‑focus area with projects ramping (e.g., Taiwan) and they believe Air Products holds a strong position and expects new opportunities in 2026.

• Question from Christopher Parkinson (Wolfe Research): Update on Uzbekistan and GCA run‑rates and timing?
  Response: Uzbekistan is operating well after scheduled maintenance; GCA is still being completed and is expected to contribute in 2026.

• Question from John Ezekiel Roberts (Mizuho Securities): Are you still planning ammonia cracking in Europe (build a cracker)?
  Response: Decision depends on final EU regulations (transposition by ~March 2026) and offtake economics; they see potential market but will decide once regulation and markets are clearer.

• Question from Laurence Alexander (Jefferies): What NEOM assumptions were embedded in your 6%–9% target — any material upside from NEOM?
  Response: NEOM was not assumed to contribute materially; guidance assumes minimal contribution from NEOM.

• Question from Matthew DeYoe (Bank of America): Europe pricing/margin lag vs Linde — can you catch up? And could you monetize ~$2B of project cost to another buyer instead of completing?
  Response: They believe regional market nuances explain part of the gap and they are actively working to improve European pricing/margins; monetization of project components is possible if canceling (recoveries could be meaningful, management cited ~50% as a plausible estimate).

• Question from Arun Viswanathan (RBC Capital Markets): Clarify helium headwind actuals vs forecast and confidence that FY26 helium headwind eases through the year; and CapEx flexibility down to $3.5B?
  Response: FY25 helium headwind was about $0.49 (vs prior $0.50–$0.55 forecast); FY26 assumes a similar ~4% headwind with Q1 tougher due to a prior bulk sale; CapEx is driven by backlog execution and they view a $3.5B–$4B range as realistic but do not expect major deviations.

• Question from Kevin McCarthy (Vertical Research Partners): Why are you divesting two coal gasification projects in Asia, any firm deals and sales impact?
  Response: Two underperforming coal gasification assets (customer issues) have been set aside for sale; no firm deals disclosed, limited sales impact currently; process ongoing to maximize value.

• Question from Kevin McCarthy (Vertical Research Partners): Are rare gases (Kr, Xe, Ne) seeing increased competitive intensity in Asia?
  Response: Air Products is not a major player in those niche markets; they see some pricing pressure/increased competition but it is not material to the business.

• Question from Michael Sison (Wells Fargo): If sequestration partners demand similar returns, is there still an attractive hydrogen return for Air Products?
  Response: Project must meet both parties' return thresholds; management believes there is room to achieve acceptable returns but requires firm capital estimates and commercial agreements.

Contradiction Point 1

Alberta Project Costs and Contractual Obligations

It involves the company's stance on the Alberta project, which affects its financial outlook and commitment to contractual obligations.

Will the Alberta project result in an EPS loss despite high cost overruns, or why not halt it? - Jeffrey Zekauskas (JPMorgan Chase & Co, Research Division)

20251106-2025 Q4: The Alberta project has a contractual commitment to supply hydrogen to a major customer. Costs are high, but the project must be finished to fulfill contractual obligations. - Eduardo Menezes(CEO)

Do you need to build infrastructure in Europe to fulfill the Total contract by 2030? - Jeffrey John Zekauskas (JPMorgan Chase & Co, Research Division)

2025Q3: We scare away from capital projects that don't have an on-site anchor when we look at the underpinnings that are certainly a different consideration for the Alberta project. - Eduardo Menezes(CEO)

Contradiction Point 2

Productivity and Cost Savings Initiatives

It involves the company's strategy for productivity and cost savings, which are crucial for maintaining profitability and operational efficiency.

Is the 20,000 headcount target a new base or could it go lower? - David Begleiter (Deutsche Bank)

20251106-2025 Q4: Air Products aims to return to staffing levels similar to 2018, adjusted for new assets, with continuous optimization to ensure competitiveness. - Eduardo Menezes(CEO)

Is the $175 million to $185 million in cost opportunities in addition to the previously mentioned $100 million opportunity expected to be partially realized this year and next year? - John Patrick McNulty (BMO Capital Markets Equity Research)

2025Q3: The real cost savings opportunities that are there, this is not -- $0.40 is not that material. So you got to have your longer view of your opportunities. - Melissa N. Schaeffer(CFO)

Contradiction Point 3

Louisiana Project Scope and Ammonia Production

It involves changes in the project's scope and objectives, which could impact capital investment, operational focus, and strategic direction.

Is the evaluation of divesting the Louisiana project's carbon capture portion tied to proceeding with the project? - Jeffrey Zekauskas(JPMorgan)

20251106-2025 Q4: The idea is to convert the project to a regular hydrogen and air separation project supplying hydrogen and nitrogen to someone who will produce ammonia. - Eduardo Menezes(CEO)

What is the scale and purpose of the blue hydrogen facility in Louisiana? - Jeff Zekauskas(JPMorgan)

2025Q2: The project aims to produce 750 million cubic feet of hydrogen per day. Our focus is on the hydrogen production, not ammonia, which takes up about 80% of the hydrogen. - Eduardo Menezes(CEO)

Contradiction Point 4

Capital Expenditure (CapEx) Forecast

It involves changes in financial forecasts, specifically regarding capital expenditure, which are critical for understanding company investment strategies and cash flow management.

What was the fiscal '26 CapEx forecast update to $3.1–4.0 billion and what changes were made to the slide? - Vincent Andrews(Morgan Stanley)

20251106-2025 Q4: The CapEx forecast has been refined based on new wins in different regions, resulting in an estimate of around $4 billion. - Melissa Schaeffer(CFO)

Update on the Louisiana project discussions and comments on European infrastructure expansion? - Kevin McCarthy(Vertical Research Partners)

2025Q2: We are forecasting CapEx to be between $4 billion and $5 billion as we bring forward some of the investments. - Melissa Schaeffer(CFO)

Contradiction Point 5

Alberta Project Cost Overruns and Decision to Proceed

The response from the latest quarter suggests that the company is committed to completing the Alberta project despite high cost overruns, primarily due to contractual obligations. In contrast, the previous quarter's response did not provide a definitive statement on whether the company would proceed with the project despite cost overruns.

Regarding the Alberta project, why not halt it due to cost overruns, or will it result in a loss on an EPS basis? - Jeffrey Zekauskas (JPMorgan)

20251106-2025 Q4: The Alberta project has a contractual commitment to supply hydrogen to a major customer. Costs are high, but the project must be finished to fulfill contractual obligations. Infrastructure is in place, and efforts are being made to place additional volume in the market. The decision to finish the project is driven by contractual obligations. - Eduardo Menezes(CEO)

What factors contributed to the $1.50 per share difference between first and second halves of the year? - Duffy Fischer (Goldman Sachs)

2025Q1: There are no new updates on the Alberta project, and any updates will be provided when available. - Melissa Schaeffer(CFO)