Adjusted Earnings Per Share (EPS): $2.69, below previous guidance of $2.75 to $2.85. Sales Volume: Down 3%, with 2% driven by LNG business divestment. Total Company Price Increase: Up 1%, equating to a 3% improvement for the merchant business. Adjusted Operating Income: Decreased 9%, mainly due to LNG divestiture and unfavorable helium impact. Operating Margin: Down 210 basis points, with approximately 100 basis points driven by higher energy pass-through. Second Quarter Adjusted EPS Decrease: $0.16 decrease from prior year. FY25 Full-Year Adjusted EPS Guidance: Range of $11.85 to $12.15. Third Quarter Adjusted EPS Guidance: Range of $2.90 to $3.00. Full-Year Capital Expenditures: Approximately $5 billion.

Warning! GuruFocus has detected 7 Warning Signs with APD.

Release Date: May 01, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Air Products & Chemicals Inc (NYSE:APD) has a strong core industrial gas business with $12 billion in sales and a 24% operating margin. The company is the leading supplier of hydrogen, with extensive pipeline networks, including the world's largest at the U.S. Gulf Coast. APD is progressing well with its green hydrogen project in Saudi Arabia, expecting product availability by 2027. The company plans to focus on its core business, aiming for a $1.5 billion annual investment in industrial gas projects with high return thresholds. APD anticipates achieving high single-digit adjusted EPS growth and improved operating margins from 2026 to 2029, with significant potential unlocked by 2030.

Negative Points

APD has faced significant project delays and cost overruns, particularly in its underperforming projects totaling about $5 billion in CapEx. The company has increased its financial leverage and headcount significantly, with plans to reduce headcount by 2,500 to 3,000 positions by 2028. APD's second quarter adjusted earnings per share of $2.69 fell below previous guidance, impacted by lower helium contributions and higher costs. The Alberta project has experienced substantial cost increases and delays, with costs ballooning to almost three times the original plan. APD's gasification projects in China have contributed close to zero EPS, with performance issues in two out of three projects.

Q & A Highlights

Q: Can you provide insights on the underperforming projects and their financial impact? A: Eduardo Menezes, CEO, explained that the underperforming projects are expected to recover capital on an undiscounted basis, meaning they will cover depreciation costs. The Alberta project faced self-inflicted issues, leading to cost overruns and delays. The company has taken corrective actions, including replacing project management teams and contractors, to address these challenges.

Story Continues

Q: What is the strategy for the Louisiana project, and why focus on hydrogen? A: Eduardo Menezes stated that the strategy is to focus on hydrogen production and divest the ammonia and carbon sequestration components. The goal is to reduce total CapEx to $5-6 billion with firm offtake agreements for hydrogen and nitrogen. The company aims to finalize these plans by the end of the year.

Q: How are the headcount reductions expected to impact savings? A: Melissa Schaeffer, CFO, mentioned that actions on around 2,400 individuals have been taken since FY23, with expected savings of $25 million this fiscal year and a run rate of $100 million for FY25 actions. The reductions are part of a broader strategy to right-size the organization.

Q: Can you elaborate on the financial outlook and assumptions for 2025 and beyond? A: Eduardo Menezes highlighted that the company expects base business growth of 2-5% for FY25, with adjusted EPS in the range of $11.85 to $12.15. The focus is on maximizing profitability from the base business, with high single-digit EPS growth anticipated from 2026 to 2029, driven by operational improvements and addressing project challenges.

Q: What are the expectations for the Neom project and its market impact? A: Eduardo Menezes noted that the Neom project is expected to start contributing positively in 2027, with a favorable long-term outlook. The company owns the power generation, ensuring a fixed price for ammonia production. The market contribution is expected to increase as European regulations develop.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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