Air Products and Chemicals Q1 Earnings Call Highlights

Air Products and Chemicals (NYSE:APD) reported first-quarter fiscal 2026 results that management described as a “solid start” to the year, driven by productivity and pricing actions across the company’s core industrial gases business. On the earnings call, CEO Eduardo Menezes said the company delivered a 12% year-over-year improvement in adjusted operating income, with adjusted earnings per share of $3.16 rising 10% versus the prior year. Adjusted operating margin increased to 24.4%.

Menezes said he has now been in the CEO role for a full year and highlighted actions taken to “refocus on the core industrial gas business,” including project cancellations, headcount optimization, and asset rationalization. While he noted “weak economic conditions” and a sluggish macro environment, he said the company is seeing “pockets of resilience” in refining, electronics, and aerospace. Menezes pointed to newly announced NASA supply contracts for liquid hydrogen as one example.

Quarterly performance driven by productivity and non-helium pricing

CFO Melissa Schaeffer said first-quarter sales volume was flat as favorable on-site volumes were offset by lower helium, including the absence of a sizable, non-recurring helium sale in the Americas in the prior-year quarter. She said pricing improved on non-helium merchant products, particularly in the Americas and Europe.

Adjusted operating income rose 12% and margin expanded by 140 basis points, which Schaeffer attributed to business mix and non-helium price, offsetting a difficult year-over-year comparison. She added that margin improved despite a 50-basis-point headwind from higher energy costs pass-through, driven by the Americas, while lower costs also helped results due to productivity (net of fixed cost inflation) and lower maintenance.

Return on capital was 11%, which Schaeffer said was lower than the prior year but stable sequentially as the company executes on its project backlog. She noted that EPS exceeded the top end of the company’s guidance range for the quarter.

Segment results: Americas strength and Europe growth, with helium a headwind

By segment, management emphasized broad-based improvement:

• Americas: Sales increased 4% driven by higher energy pass-through. Operating income improved on price, on-site volume, and lower maintenance, partly offset by prior-year non-recurring items and fixed cost inflation. Menezes and Schaeffer said the year-over-year volume comparison was affected by last year’s one-time helium sale.
• Asia: Sales rose 2% and operating income increased 7%, helped by productivity and reduced depreciation from certain gasification assets held for sale, partially offset by lower helium. Schaeffer said new assets are contributing modestly as they ramp and should contribute more in the second half.
• Europe: Sales and operating income increased on volume and price, with favorable currency also contributing. Higher volumes were driven by on-site (including a prior-year turnaround comparison) and non-helium merchant volumes. Management also cited higher depreciation and fixed cost inflation as offsets despite productivity improvements. In response to a question about sequential margin pressure, Schaeffer attributed margin impacts to cost pressures including depreciation and wage inflation, with seasonality also cited.
• Middle East and India: Operating income improved on lower cost, while equity affiliate income was flat.
• Corporate and other: Results improved from lower costs, including productivity actions.

On helium, Menezes said the company saw better-than-expected helium volume from the aerospace segment in the Americas during the quarter, but otherwise trends remained similar to prior periods. He reiterated the company’s prior expectation that helium would be an EPS headwind of roughly 4% for the year. Schaeffer added that helium was a headwind to both volume and price, and said globally helium drove a 1% price decrease in the quarter. She said Asia was the largest impacted region.

Strategy priorities: earnings growth, project optimization, and capital discipline

Menezes reiterated three priorities for fiscal 2026: unlocking earnings growth, optimizing large projects, and maintaining capital discipline. On earnings growth, Air Products affirmed full-year EPS guidance and said it expects to achieve growth primarily through pricing actions, productivity, and contributions from new assets, even as helium and the macro environment limit volume growth.

On capital allocation, Menezes said the company expects to reduce capital expenditures by approximately $1 billion in fiscal 2026 and remains on track. Schaeffer maintained the company’s fiscal 2026 capital expenditures outlook at approximately $4 billion. Menezes said fiscal 2026 and early fiscal 2027 are heavy spending periods for clean energy projects in Canada and the Netherlands, with CapEx expected to decline significantly after those projects go on stream.

The company also highlighted shareholder returns. Menezes said the board authorized another dividend increase, marking the 44th consecutive year of dividend increases. Schaeffer said Air Products returned nearly $400 million in cash to shareholders during the quarter.

Louisiana low-emission ammonia negotiations with Yara and project decision criteria

A key topic on the call was Air Products’ clean energy project portfolio and ongoing talks with Yara International. Menezes said Air Products and Yara are in advanced negotiations related to low-emission ammonia projects in Saudi Arabia and the U.S.

In Saudi Arabia, he said the parties are negotiating a marketing and distribution agreement under which Yara would distribute and commercialize renewable ammonia that Air Products plans to use to produce green hydrogen in Europe. Menezes said Air Products expects to finalize that agreement in the first half of 2026.

For the U.S. project in Louisiana, Menezes said Air Products’ goal is to pursue a traditional industrial gas scope and return. He described negotiations for Yara to acquire the ammonia production and distribution assets and to enter into a 25-year hydrogen and nitrogen supply agreement for an industrial gas facility that Air Products would build, own, and operate.

Menezes said Air Products has set a “high bar” before moving forward. Requirements include a partner for the carbon capture and sequestration scope prior to a final investment decision, as well as a “highly reliable capital cost estimate” supported by agreements with reputable EPC contractors and a return on go-forward capital “significantly higher” than traditional hurdle rates. He said the company expects clarity on project costs in the next few months.

Menezes also discussed the potential role of U.S. 45Q tax credits, saying the credits would be included in project returns for Air Products. He said the project’s location and ability to receive 45Q credits could drive higher returns per share during the first 12 years of operation.

Management also addressed questions about Europe’s Carbon Border Adjustment Mechanism (CBAM) and possible implications for the Louisiana project. Menezes said any CBAM changes would have an indirect effect and that, if the project proceeds, Yara would bear regulatory risk related to CBAM changes. He said Air Products is monitoring the situation and emphasized that the company will take the time needed to conduct diligence on capital costs before reaching a final investment decision.

Cash flow, leverage, NEOM deconsolidation, and 2026 outlook

Schaeffer said the company continues to generate strong cash flows from its base business and reported net debt to EBITDA of 2.2 times. She reminded investors that Air Products is consolidating the NEOM green hydrogen joint venture during construction because it controls key decisions as the EPC provider, but plans to deconsolidate once the project is operational, when decisions are shared among the three shareholders. Schaeffer said the company expects NEOM to be operational in mid-2027, at which time debt would come off Air Products’ balance sheet and shift to the equity affiliate line. She also noted there will be additional operating costs as the venture adds resources ahead of start-up, and after deconsolidation Air Products would reflect one-third of those costs through equity affiliate accounting.

For fiscal 2026, Air Products maintained full-year EPS guidance of $12.85 to $13.15, citing uncertainty in the macro environment. For the second quarter of fiscal 2026, the company guided to EPS of $2.95 to $3.10, representing expected year-over-year growth of 10% to 15%, with management noting normal seasonality tied to the Lunar New Year and higher planned maintenance.

About Air Products and Chemicals (NYSE:APD)

Air Products and Chemicals, Inc is a global supplier of industrial gases and related equipment and services, headquartered in Allentown, Pennsylvania. The company produces and delivers atmospheric gases such as oxygen, nitrogen and argon, as well as specialty and process gases used across a wide range of industrial applications. Air Products designs, builds and operates gas production facilities, merchant distribution networks and on-site gas systems for customers that require reliable, high-purity gases and integrated supply solutions.

The company’s product and service portfolio includes packaged and bulk gas supply, pipeline distribution, on-site generation, gas handling and storage equipment, and engineered systems for gas liquefaction and purification.