APD
Earnings call · Dec 2024 (Q1 FY25)

Air Products & Chemicals Q1 FY25 earnings call APD

Feb 6, 2025 Source

Executive summary

Air Products Q1 FY25 — Strong EPS Exceeds Guidance Despite Headwinds

Air Products delivered strong Q1 FY25 results, surpassing EPS guidance, largely driven by pricing power and productivity initiatives, particularly in the Americas. The company is navigating a challenging global helium market and macroeconomic headwinds, including tariffs and a strengthening U.S. dollar, while focusing on cost management and strategic project execution. A new CEO, Eduardo Menezes, was introduced, signaling a leadership transition with a focus on continuity and shareholder value.

Highlights

5

  • Adjusted EPS of $2.86 exceeded the upper end of guidance, increasing $0.04 year-over-year despite a $0.08 headwind from the LNG business divestment.

  • Adjusted EBITDA margin increased by 140 basis points, and adjusted operating margin rose by 80 basis points.

  • Total company price was up 1%, with merchant business pricing up 2%, driven by strength in the Americas and Europe.

  • Americas segment saw a 3% volume improvement, including a significant nonrecurring helium sale contributing $0.10 to EPS, and 4% merchant pricing gain.

  • Asia segment adjusted EBITDA increased 7% due to 2% volume growth from new assets and favorable costs.

Concerns

5

  • Overall volume was down 2% primarily due to the LNG business divestment and weakness in Europe.

  • Europe segment volume was down 5% due to lower on-site demand and continued weakness in merchant helium.

  • Adjusted EBITDA was negatively impacted by higher costs and lower equity affiliate income, with unfavorable other costs impacting EPS by $0.07.

  • The global helium market is currently long, with Russian assets entering Asia, creating a challenging environment.

  • The Alberta blue hydrogen project remains on hold awaiting permits, and the Uzbekistan project is undergoing planned upgrades in H1 FY25, temporarily impacting contribution.

Guidance & targets

CategoryTargetConfidence
Adjusted EPS
maintained
high materiality
High
Adjusted EPS
$2.75 to $2.85
medium materiality
High
Capital expenditure
$4.5 billion to $5 billion
high materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Americas
Pricing was strong across most product lines outside of helium. Hydrogen volumes remained strong in HyCO business, and merchant volumes improved.
Pricing: 2% higherMerchant pricing: 4% gainVolume: 3% improvement (driven by significant nonrecurring helium sale)Adjusted EBITDA margin: up 150 basis points
———adjusted EBITDA 6% higher
Asia
Volume improvement driven by contributions from new assets. China market remains challenging with no material improvement, but supported by new assets and productivity actions.
Volume: 2% improvement (driven by new assets)Adjusted EBITDA margin: up 160 basis points
———Adjusted EBITDA increased 7%
Europe
Volume decline driven by lower on-site and continued weakness in merchant demand, primarily helium. Weaker volume partially offset by higher price and favorable costs.
Pricing: 1% improvedVolume: down 5%
———Adjusted EBITDA 3% lower
Middle East and India
Lower merchant volume was a headwind. Adjusted EBITDA also negatively impacted by unfavorable equity affiliate income and cost, specifically from the Jazan joint venture fluctuations, though Jazan is contributing as expected for the full year.
Merchant volume: lower
———Adjusted EBITDA negatively impacted
Corporate and Other
Sales and profits were lower primarily due to the sale of the LNG business.
lower——profits were lower

Operational metrics

Adjusted EBITDA margin
140 up
Q1 FY25

Adjusted EBITDA margin increased due to favorable business mix and price.

Adjusted operating margin
80 increased
Q1 FY25

Adjusted operating margin increased versus prior year.

Overall volume
down 2% vs prior year
Q1 FY25

Primarily due to the LNG business divestment.

Total company price
up 1%
Q1 FY25

Reflects continued pricing strength in the Americas and Europe.

Merchant business price
up 2%
Q1 FY25

Reflects continued pricing strength in the Americas and Europe.

Price, net of variable cost
$0.10 favorable
Q1 FY25

Demonstrates continued strength in the Americas and Europe, more than offsetting unfavorable other costs.

Other costs
$0.07 unfavorable
Q1 FY25

Driven by inflation and lower prior year incentive compensation, partially offset by productivity improvement.

LNG business divestment
$0.08
Q1 FY24

The LNG business contributed this amount to Q1 FY24 EPS; its absence impacted Q1 FY25 results.

Nonrecurring helium sale
$0.10
Q1 FY25

A significant nonrecurring sale of helium to an existing merchant customer in the Americas.

Cost productivity actions
$75M
FY25

In aggregate, the company has reduced its workforce by about 5% across two tranches, with benefits expected to ramp up in the back half of FY25.

Capitalized interest
—
Q1 FY25

Associated with NEOM and other significant projects, contributing to lower reported interest expense.

Implied H2 FY25 EPS improvement
~$1.50 per share vs H1 FY25
FY25

Analyst estimate of required second-half EPS improvement for full-year guidance, which management stated was consistent with past seasonality and expected improvements from pricing, Uzbekistan return, and productivity.

Implied Q2 FY25 sequential EPS improvement
~$0.05 per share vs Q1 FY25
Q2 FY25

Analyst estimate of sequential EPS improvement for Q2, factoring out nonrecurring helium sale, with management discussing various sequential headwinds and tailwinds.

Uzbekistan project EPS contribution
~$0.35-$0.36 annualized
FY25

Analyst estimate of annualized EPS contribution from Uzbekistan project, with management confirming full ramp-up in Q3 and Q4.

Industry KPIs

MetricValueDetails
Safety—
CAPEX capital program$4.5 billion to $5 billion USD
Volume production growthdown 2% %
End market demand driversnot a lot of significant improvement
Adjusted underlying EBITDAup 1% %
Helium supply demand pricingmarket is long

Deals & partnerships

null Divestment of LNG process technology and equipment business

The divestment closed at the end of fiscal 2024, impacting Q1 FY25 results by removing its prior-year EPS contribution.

Capital programs

Uzbekistan facility upgrades underway
Funding: negotiated into the acquisition price
Start: H1 FY25

Benefit:return to normal operation and contribute near its full run rate

Planned maintenance and upgrades to bring the plant up to Air Products' standards, built into the original acquisition, no additional capital outlay.

Louisiana blue hydrogen project underway
Funding: seeking equity partners

Project is being executed on the normal course. Actively seeking equity partners, particularly in Asia (Japan, Korea), and exploring other industry partnerships.

Risks & headwinds

Strengthening U.S. dollar remainder of the year

monitoring

Mitigation:evaluating actions to reduce costs and improve services

Tariffs remainder of the year

monitoring for potential impact

Mitigation:global diversified supply chain to reduce exposure; staying very close to customers and updating forecasts

Global helium market

market is long; helium come from the Russian assets into Asia

Mitigation:continuing to manage and optimize our helium business; unique position to reliably supply customers

Weakness in Europe Q1 FY25

volume was down 5%

Mitigation:focusing on pricing actions, especially with higher power costs

Higher costs (inflation, incentive compensation) Q1 FY25

unfavorable other costs of $0.07 EPS impact

Mitigation:productivity improvement; cost productivity to really support us in the back half of this fiscal year

Uzbekistan project planned upgrades first half of fiscal 2025

undergoing planned facility upgrades

Mitigation:expected to return to normal operation and contribute near its full run rate at the start of third quarter

China market challenges Q1 FY25 and ongoing

no material improvement; market still remains challenging

Mitigation:focusing on productivity and delivering to customers; watching tariffs as well as the China in-country stimulus impact

Alberta project permitting ongoing

project still is on hold, awaiting permits

Mitigation:will provide updates when available

What to watch in Q2 FY25

Uzbekistan project operational status

start of third quarter
Current undergoing planned facility upgrades during the first half of fiscal 2025
Target return to normal operation and contribute near its full run rate

Why it matters

This project is a significant contributor to earnings, and its full ramp-up is key to second-half performance.

The Uzbekistan project is undergoing planned facility upgrades during the first half of fiscal 2025. We expect the facility to return to normal operation and contribute near its full run rate at the start of third quarter.

Q&A highlights

How should the Street think about past helium headwinds, electronics recovery, and general macroeconomic conditions in China for the forward outlook?

China's market remains challenging with no material improvement, despite support from new assets and productivity. The company is monitoring tariffs and in-country stimulus, focusing on productivity and customer delivery.

“China is still a wait and see. So right now, we see no material improvement. The market still remains challenging.”

asked by Christopher Parkinson · answered by Melissa Schaeffer

2 min read 7 chapters

Detailed narrative

Leadership Transition

Eduardo Menezes was introduced as the new CEO, effective February 7, 2025, bringing 3.5 decades of international industrial gas experience. Wayne Smith was elected Chairman of the Board, and Dennis Reilley as Vice Chairman. The new CEO will share priorities on the next call, and the company emphasized continuity and shareholder value during this transition.

LNG Business Divestment Impact

The divestment of the LNG process technology and equipment business, which closed at the end of fiscal 2024, impacted Q1 FY25 results. This business had contributed approximately $0.08 to Q1 FY24 earnings per share, and its absence was a primary factor in the 2% overall volume decline for the quarter.

Uzbekistan Project Update

The Uzbekistan facility is undergoing planned facility upgrades during the first half of fiscal 2025 to bring it up to Air Products' standards. This was a pre-planned activity built into the original acquisition, meaning no additional capital outlay is required. The facility is expected to return to normal operation and contribute near its full run rate at the start of Q3 FY25.

Global Helium Market Dynamics

The global helium market is currently characterized as 'long,' primarily due to the entry of Russian assets into Asia, creating a cyclical challenge. Management highlighted their extensive experience in navigating these market cycles and their unique position to reliably supply customers, while actively optimizing their helium business operations.

Tariffs and Macroeconomic Monitoring

Air Products is actively monitoring the strengthening U.S. dollar, tariffs, and the global helium market for potential impacts on its business. While the localized nature of industrial gas production limits direct supply chain exposure, the company is assessing the broader macroeconomic impact on its customers and adjusting forecasts to meet their evolving production needs.

Louisiana Blue Hydrogen Project

The blue hydrogen project in Louisiana is progressing according to its normal execution schedule. The company is actively seeking equity partners for the project, with a focus on potential collaborations in Asia, specifically Japan and Korea, and is also exploring other industry partnerships. Updates on these discussions will be provided as they advance.

Cost Productivity Initiatives

Air Products has implemented significant cost productivity actions, including a cumulative ~5% reduction in its workforce across two tranches. These initiatives are projected to generate approximately $75 million in annual benefits, with the full ramp-up of these savings expected to materialize in the second half of fiscal year 2025, partially offsetting inflationary pressures and wage increases.

AI-generated summary of the company's earnings call. Not investment advice.