Air Products & Chemicals Inc Earnings - Q4 2025 Analysis & Highlights
Air Products and Chemicals Inc. (APD) reported a strong start to fiscal year 2026 with a 12% improvement in adjusted operating income and a 10% increase in earnings per share, driven by pricing actions and productivity despite helium headwinds and a sluggish macroeconomic environment. The company affirmed its full-year earnings guidance and outlined key priorities including unlocking earnings growth, optimizing large projects, and maintaining capital discipline.
Key Financial Results
Adjusted operating income improved by 12% and was broad-based across reporting segments.
Earnings per share (EPS) were $3.16, up 10% relative to the prior year.
Operating margin was 24.4%, which was up from the prior year.
Return on capital was 11%, slightly lower than last year but stable sequentially.
Sales volume was flat, with favorable onsite volume offset by lower helium sales, including a significant non-recurring helium sale in the Americas in the prior year.
Price improved on non-helium merchant products, particularly in the Americas and Europe.
Operating income increased by 12%, and margin was up 140 basis points due to business mix and non-helium price, offsetting tough year-on-year comparisons.
Margin also improved despite a 50 basis point headwind from higher energy costs pass-through driven by the Americas.
Lower costs improved results, primarily driven by productivity net of fixed cost inflation and lower maintenance.
Business Segment Results
Americas sales were up 4% due to higher energy pass-through.
Americas operating income improved on price, onsite volume, and lower maintenance, partially offset by prior year non-recurring items and fixed cost inflation.
Asia segment sales were up 2%, while operating income was up 7%.
Asia's improvement was driven by productivity and reduced depreciation from certain gasification assets held for sale, partially offset by lower helium.
Europe sales and operating income both increased due to volume and price, as well as favorable currency.
Higher volumes in Europe were driven by on-site, including a prior year turnaround, and non-helium merchant.
Europe's operating income was impacted by higher costs associated with depreciation and fixed cost inflation despite productivity improvements.
In the Middle East and India segment, operating income improved on lower cost, while equity affiliate income remained flat.
The Corporate & Other segment results improved from lower costs, including productivity actions.
Capital Allocation
The company expects to reduce capital expenditures by approximately $1 billion in fiscal 2026.
Fiscal 2026 and the first part of 2027 are heavy CapEx periods for clean energy projects in Canada and the Netherlands, with CapEx expected to decline significantly after these projects go onstream.
The board authorized an increase in the dividend, marking the 44th consecutive year of dividend increases.
The company returned nearly $400 million in cash to shareholders.
The net debt-to-EBITDA ratio is 2.2 times.
The company is currently consolidating the joint ventures investment in the NEOM Green Hydrogen project on its balance sheet during the construction phase.
The company plans to de-consolidate the NEOM project once it is onstream and being operated by the joint venture.
Industry Trends and Dynamics
The aerospace segment in the Americas showed very strong volume for helium in the last quarter.
The company is working to increase sales with new customers and deals, especially on the electronics side.
The space market is a very hot segment, with Air Products participating since the 1960s by supplying liquid hydrogen for NASA.
The company estimates it has about 40% to 50% of the total space market share in the US.
Projected sales in the space market are expected to grow 6% to 7% per year.
Electronics is currently the star segment of the market, with significant RFPs and inquiries.
The electronics market is seeing an acceleration of investment decisions by large chip manufacturers.
The company has strong positions in Asia and is executing projects that can reach close to $1 billion in CapEx in one site.
New projects in the same CapEx range are expected to be decided in the next 12 months.
The steel industry and chemical industry in Europe are being affected by current conditions.
Data centers are creating demand and distortions in the power market.
Competitive Landscape
The company is in advanced negotiations with Yara International on the low emission ammonia project in Saudi Arabia and the US.
The potential collaboration with Yara provides a strong strategic fit, connecting Air Products' global industrial gas expertise with Yara's global ammonia supply network and expertise.
In Saudi Arabia, Yara will distribute and commercialize all renewable ammonia not used by Air Products to produce green hydrogen in Europe.
For the US project in Louisiana, Yara is negotiating to acquire the ammonia production distribution assets and execute a 25-year hydrogen and nitrogen supply agreement with Air Products.
The company requires a partner for the carbon capture and sequestration scope prior to taking a final investment decision for the Louisiana project.
An RFP process has been launched for the CO2 transport and storage scope, with active discussions ongoing with several key sequestration service providers.
Macroeconomic Environment
The company is operating in a sluggish macroeconomic environment that will limit volume growth for the fiscal year.
Despite headwinds, there are pockets of resilience from key sectors, including refining, electronics, and aerospace.
Helium headwinds continue, including the prior year non-recurring helium sale in the Americas, which created tough comparisons.
CBAM (Carbon Border Adjustment Mechanism) tariffs in Europe came into effect on January 1, 2026.
Any change in CBAM rules would have an indirect effect on the potential Louisiana Project, as only gray ammonia imports are subject to significant CBAM tariffs.
Yara bears the regulatory risk related to CBAM changes if the project goes forward.
The company is monitoring reports related to fertilizer CBAM tariffs in Europe.
The macroeconomic headwinds in Asia are impacting the market.
Growth Opportunities and Strategies
The company is focused on three key priorities for 2026: unlock earnings growth, optimize large projects, and maintain capital discipline.
EPS growth is expected through continued focus on pricing actions, productivity, and new assets contribution.
The company announced its latest supply contracts with NASA to provide liquid hydrogen to multiple US facilities.
The company is making strides to optimize its large project portfolio, prioritizing de-scoping and de-risking clean energy projects.
For the Louisiana Project, the company has set a high bar for moving forward, aligning with its disciplined capital allocation strategy.
A key FID (Final Investment Decision) requirement for Air Products is having a project return on the go-forward capital significantly higher than traditional hurdle rates.
The Louisiana project has positive economic aspects, including location and the ability to receive 45Q tax credits, which drives significantly higher returns per share during the first 12 years of operation.
The company is working to increase its market share in the changing space market, which includes more commercial launches.
The company is using AI to lower power costs and reduce power consumption, as well as to improve administration, SG&A activities, and engineering activities.
Financial Guidance and Outlook
The company is affirming its full-year earnings guidance, which implies an improvement of 7% to 9% at the midpoint for the full fiscal year.
The company is maintaining its fiscal full-year guidance of $12.85 to $13.15 given uncertainty around the macroeconomic environment.
For the second quarter of 2026, the company expects to deliver earnings per share in the range of $2.95 to $3.10, representing a 10% to 15% improvement from the prior year.
The outlook assumes growth from pricing actions and productivity, partially offset by lower helium.
Second quarter EPS is expected to be lower sequentially due to normal seasonality, particularly related to the Lunar New Year and higher planned maintenance.
The company is maintaining its guidance for capital expenditures at approximately $4 billion in fiscal 2026.
The company expects increased contributions from new assets in the second half of the fiscal year.
The company expects to have full clarity on the Louisiana project cost in the next few months.
The company expects the sale of gasification plants in China to be completed in this fiscal year.
The NEOM joint venture is expected to be operational in mid-2027, at which point it will be deconsolidated.
There will be a slight increase in operating costs as the NEOM operating company adds resources leading up to the onstream in 2027.
After deconsolidation, the company will only see the impact of one-third of the operating cost through the equity affiliate line.
The company's best forecast for the helium EPS effect for the year is still around 4% down.
The construction timing and cost for the Alberta project remain the same, around $3.3 billion, with startup in the first part of 2018.
The company expects the results from pricing and productivity to be similar to the first quarter for the balance of the fiscal year.
Gulf Coast Ammonia Project
The Gulf Coast Ammonia plant is in the process of starting up and is making product.
The plant was running at up to 80% to 90% capacity for the last few months.
A turnaround is being conducted to finalize the last components, with the goal of being up and running at 100% in the next few weeks.
Air Products owns the SMRs (hydrogen production) and the air separation plant.
The customer owns the ammonia production and the ammonia tank.
The plant is connected to the company's hydrogen pipeline system and imports some hydrogen.
The reformer at the plant is around 175 million cubic feet a day, which is probably 70% of the total volume required by the ammonia loop when running at 100%.
The balance of the hydrogen is imported through the pipeline.
The company incurred about $30 million in sale of equipment cost overrun this quarter, comparable to last year.
This cost is recognized as a percent of completion accounting and represents the best estimate of future costs.
The company expects to stop seeing this headwind in its results as the project comes onstream.
