Air Products and Chemicals - Q3 2024
August 1, 2024
Transcript
Operator (participant)
Good morning, and welcome to Air Products' Q3 Earnings Release Conference Call. Today's call is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Beginning today's call is Mr. Sidd Manjeshwar.
Sidd Manjeshwar (VP, Corporate Treasurer and Investor Relations)
Thank you, Samara. Good morning, everyone. Welcome to Air Products' Q3 2024 Earnings Results Teleconference. This is Sidd Manjeshwar, Vice President of Investor Relations. I am pleased to be joined today by Seifi Ghasemi, our Chairman, President, and CEO; Melissa Schaeffer, our Chief Financial Officer; Sean Major, our Executive Vice President, General Counsel, and Secretary; and Eric Guter, our incoming Head of Investor Relations. After our comments, we will be pleased to take your questions. Our earnings release and the slides for this call are available on our website at airproducts.com. Today's discussion contains forward-looking statements, including those about earnings and capital expenditure guidance, business outlook, and investment opportunities. Please refer to the cautionary note regarding forward-looking statements that is provided in our earnings release and on slide number 2.
Additionally, throughout today's discussion, we will refer to various financial measures, including earnings per share, operating income, operating margin, EBITDA, EBITDA margin, the effective tax rate, and ROCE, both on a total company and segment basis. Unless we specifically state otherwise, statements regarding these measures are referring to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our website in the Relevant Earnings Release section. Now, with that, I'm pleased to turn the call over to Seifi.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you, Sidd, and good day to everyone. Thank you for taking time from your busy schedules to join our call today. Before I discuss our results, I would like to introduce Eric Guter, who is with us today. Eric has been with the company for nearly 30 years, most recently serving as our Vice President of Hydrogen for Mobility. He will bring a wealth of knowledge and experience to investor relations. I'm happy that he has agreed to take on this new challenge. Eric, would you like to say a few words?
Eric Guter (VP, Investor Relations)
Thank you, Seifi. I appreciate your kind words, and I'm humbled and honored to be part of this tremendous team and to be taking on this new role within Air Products. Looking forward to meeting with our analysts and investors and continuing the great work Sidd and the team have done as we continue to execute our growth strategy.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you, Eric. As we have announced, Sidd will be leaving the company to pursue other career opportunities. Sidd has made great contribution to Air Products. I want to thank him for continuing to build strong relationship with investors and analysts, and for his work over the past few years at the company. Sidd and Eric are already working closely together to ensure a smooth transition. Now, please turn to slide number 3.
As always, I would like to begin with our record on safety, which is our top priority at Air Products. We have made significant progress on both our employee lost time, injury rate, and recordable injury rate since 2014. We are proud of this improvement, and we are very proud to have the best safety record in the industry. We always strive to achieve zero incidents and zero accidents.
That is our ultimate goal. Slide number 4 summarizes our management philosophy. We have shared this with you many times before. We are, as we have been for the past 10 years, committed to these principles and practice them every single day. Now, please turn to slide number 5. Our Q3 adjusted earnings per share of $3.20 exceeded the upper end of our prior guidance range of $3-$3.05 and improved 7% over last year. Our results reflect strong underlying performance in the Americas and Europe. Additionally, we saw improvements across our organization, driven by our price and productivity actions.... We continue to execute our two-pillar growth strategy, which includes driving operational excellence and growth in our industrial gas business, while executing our energy transition projects focused on clean hydrogen. Now please turn to slide number 6.
We are maintaining our full year adjusted earnings per share guidance of $12.20-$12.50, and we still expect our CapEx to be in the range of $5 billion-$5.5 billion in fiscal year 2024. Now, please turn to slide 7. During our fiscal Q3, in addition to achieving 7% earnings per share growth, we have also reached overall significant milestones. In June, we announced a very large scale, long-term green hydrogen supply agreement with TotalEnergies. Beginning in 2030, Air Products will supply TotalEnergies with 70,000 tons per year of green hydrogen for 15 years. This pioneering agreement, which has already generated significant interest from other customers, validates our long-term strategy and demonstrates a strong demand for green hydrogen.
We are seeing the development of significant demand for green hydrogen in Europe, and as a result, we are even more excited and committed to our strategy to be a pioneer in the production of clean hydrogen. In July, we announced the planned sale of our LNG process technology and equipment business to Honeywell, for an all-cash price of roughly $1.8 billion. The divestment of this business will allow us to focus on our core business while bolstering our balance sheet and our liquidity position. Also in July, we were pleased to announce our collaboration with Mercedes-Benz to help decarbonize the heavy transport sector. Air Products was among five other companies that took delivery of Mercedes-Benz hydrogen fuel cell trucks. This is a significant milestone toward the eventual mass production of hydrogen fuel cell heavy-duty trucks.
In a related development, we have also announced plans to build a network of permanent commercial hydrogen fueling stations along the Trans-European Transport Network. Now, please turn to slide number 8, which illustrates our greater than 10% average growth rate for our adjusted earnings per share in the past 10 years. Our goal is to extend this trend for another 10 years, while remaining the safest, most diverse, and most profitable industrial gas company in the world.
We have done this before, and I'm confident we will do it again. Now, please turn to slide number 9. We take a balanced approach to determining our dividends. We are confident that our cash flows from operations and our ability to raise capital through financing and other strategic initiatives, will allow us to continue rewarding our shareholders through increased dividends while meeting the cash needs of our growth strategy.
Now turn to slide number 10, which, as I always say, is my favorite slide. It shows that our EBITDA margins have significantly grown, and now it stands at 42%, leading the industry by far and demonstrating our persistent focus on effectively running our base business. We are very much focused on profitability, and this slide is a living proof of that. I want to thank all of our employees for delivering these outstanding results in very challenging economic conditions. At this point, I would like to turn it over to Melissa Schaeffer, our Chief Financial Officer, to provide a summary of the Q3 financial and business segment results. Melissa?
Melissa Schaeffer (CFO)
Thank you, Seifi. Now please turn to slide 11. Compared to last year, underlying sales, volume, and price together were up 1% and positive across most reporting segments. The 2% reduction on the company's top line was primarily due to unfavorable currencies. On-site volume was again positive this quarter, driven by strong demand for hydrogen, as well as contributions from new assets. However, overall volume was flat due to lower demand for merchant products. Overall price improved modestly at 1%, with continued strong performance in the Americas, coupled with lower power costs, which improved contribution margin. Declining natural gas prices in Europe and North America resulted in 1% lower energy cost pass-through, which has no impact on profits. EBITDA of $1.3 billion increased 5%, primarily driven by positive contribution margin and favorable business mix.
Although cost was moderately unfavorable, this with heavy planned maintenance this quarter, we are starting to see positive momentum on our productivity actions across the organization. ROCE of 11% was down 70 basis points and relatively flat sequentially. Adjusted for cash, our ROCE is about 12%. Sequentially, volume improved across reporting segments. Now, please turn to slide 12 for a discussion of our earnings per share. Our Q3 adjusted earnings per share was $3.20, up $0.22 or 7% compared to last year, mainly due to better operating results. Overall, volume was up $0.05 on higher onsites, including new assets, partially offset by lower merchant demand. Price, net of variable costs, contributed $0.16 this quarter, driven by both pricing gains and lower power costs.
Costs were $0.04 unfavorable as productivity actions offset much of the costs related to planned maintenance and inflation. Again, we are making good progress implementing the productivity actions and exercising significant cost control throughout the organization. Currency was -$0.04, mainly due to weaker currencies in Asia and South America. Additional debt contributed to higher interest expense of $0.03, and one-time items helped lower the effective tax rate this quarter. Our full-year effective tax rate is expected to be about 18%. Now, please turn to slide 13 for our discussion of our business segment results. Instead of viewing each business segment in detail, I would like to provide a focused discussion summarizing our segment results and highlighting key items for the quarter. You will find individual slides covering each of the business segments in the appendix.
Looking at each business segment, Americas' underlying sales were positive, with price and volume together up 2%. Merchant pricing was 7% higher, which resulted in a 3% overall price gain for the region. Volume was relatively stable as weaker merchant demand was offset by strong demand for hydrogen. EBITDA increased 6%, and EBITDA margin increased about 400 basis points, primarily driven by strong price, despite increased costs due to higher planned maintenance.
Looking at Asia results, the region's underlying sales were relatively stable. Volume was down 1% as lower demand for merchant products and planned maintenance outages were offset by new assets. EBITDA and EBITDA margin were unfavorable, primarily driven by the planned maintenance outages. Switching to our Europe segment, merchant pricing was held firm and combined with our declining power costs in the region, drove improved contribution margin.
Volume was up 1%, largely due to our new assets in Uzbekistan. EBITDA improved 12%, and EBITDA margin increased nearly 500 basis points, mainly due to improved volume and contribution margin. Moving to our Middle East and India segment, sales and operating income declined due to unfavorable merchant price and volume. Equity affiliates income was 7% lower due to higher costs. For our corporate and other segment, sales and profit were up this quarter, primarily due to higher sale of equipment, including LNG. We're making good progress on our productivity actions across all segments of the company. Before I turn the call back to Seifi, let me take a moment to thank our teams around the world for delivering these outstanding results. Now I would like to turn the call back to Seifi to provide closing remarks.
Sean Major (EVP, General Counsel, and Secretary)
Thank you, Melissa. Now, please turn to slide number 14. Our industrial gases business is a great business, and we are committed to invest and grow it. Our recent announcements to expand our membrane production facility in St. Louis and to build two new air separation units in Georgia and North Carolina are just the latest examples.
Seifi Ghasemi (Chairman, President, and CEO)
... We are also leading the way to deliver low carbon hydrogen at scale to help decarbonize the industrial and heavy-duty transportation sectors of the economy. Our two-pillar growth strategy drives our company towards these two goals in parallel. The outstanding results and the significant project milestones that we were able to achieve this quarter demonstrates that we have the right strategy, and as I always say, we have the commitment and motivation of our employees to make it happen. Now, before I open it up for questions, I want to make some comments about our management board and succession planning. The formation of the management board was a strategic step to delegate more responsibility to our senior executives who are close to the business.
You have seen our public announcements and our 8-K filing on these organizational changes, and I don't really have any additional comments to make on them. On a personal basis, you all know that I am firmly committed to our two-pillar growth strategy, and I have, as I have articulated that many times, I fully intend to continue leading Air Products, ensuring that our growth strategy is fully implemented, our mega projects, projects are built, and we are serving our customers with low carbon and zero carbon hydrogen.
However, with our continued commitment to good governance and succession planning, it is prudent and good practice to have a fully qualified individual who can be my successor if something unexpected were to happen to me. I currently serve in three roles at Air Products: Chairman of the Board, Chief Executive Officer, and President.
With good governance in mind, I have decided to bring into the company a fully qualified potential successor as president and a member of our board of directors. This person should be well known to investors with a clear record of success, preferably, a current or former CEO of a public company with significant international experience and relationships. I have started this process, and we will take our time to find the right person for the job. At this point, I will be delighted, we all will be delighted to answer your questions.
Operator (participant)
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll take our first question from John McNulty with BMO Capital Markets. Please go ahead.
John McNulty (Managing Director - Chemicals Analyst)
Yeah, good morning, Seifi, and thanks for all the color and the commentary around the management committee. It's definitely helpful in terms of how to think about things going forward. So I guess one of the things I wanted to dig into, one of the newer events that came up during the quarter was on the green hydrogen announcement with Total. You know, admittedly, it came earlier than what we were thinking in terms of offtake arrangements.
So I guess, can you speak to, one, maybe what brought that forward or kind of brought the timing of it maybe a little bit earlier than expected? And then, two, you spoke to kind of how that's heightened incremental demand for green hydrogen. Can you speak to that and maybe the potential for further offtake arrangements as we look out over the next 12 months or so?
Seifi Ghasemi (Chairman, President, and CEO)
Good morning, John, and thanks for the very good question. John, we have been talking to potential customers for hydrogen since even before we announced our project in NEOM, so for the past five years. With these things, they have a life of their own. The customers need to decide when they want to make a public announcement about having made a commitment. It depends on their needs, it depends on the regulatory conditions, it depends conditions of the industry and all of that. I'm very happy to see that a visionary leader like Mr. Patrick Pouyanné of Total decided to be the first mover and announce early that he is committed to green hydrogen, and he is committed to convert at least his northern refineries to hydrogen.
Since we had been talking to him for a long time, it was not too difficult to kind of get our act together and put a contract together and make a commitment on both Sides. We are obviously delighted. We could not have found a better customer or a better application for significant amount of hydrogen. In terms of additional volumes for them, I want to leave it to TotalEnergies to make those statements. I do not want to preempt anything. But what has happened since we have made the announcement, it has proven that people go through an auction process, and then they find out that the best possible alternative is Air Products. So a lot of other customers are taking the cue from TotalEnergies.
Obviously, if they are going to convert their refinery to green, what are the other refineries going to do? They have to follow. So we are being contacted by other refineries. We are being contacted by steelmakers who and now it has become a little bit of a dynamic of, well, maybe we should get to Air Products before they run out of product, which is obviously puts us in a very good position. In terms of future contracts and so on, I have always been very acting very responsibly, not to lead anything or give a hint until we actually do something, and I'd like to keep it that way.
We are obviously working with other people. It is, our intention is obviously to sell everything that we make, but when if anything comes up, at the appropriate time, we will make an announcement. But there is no question that the agreement with Total is a significant new beginning for us.
John McNulty (Managing Director - Chemicals Analyst)
Got it. Thanks, thanks so much for the color. Maybe just as a follow-up: So can you give us an update on the progress that you're making with the Louisiana project? And I guess, somewhat tied to the Total arrangement, you know, it seems like if the market's opening up for green, I would imagine it's opening up even, even more quickly for what should be a more cost-effective solution, which would be blue. So can you speak to maybe that dynamic as well?
Seifi Ghasemi (Chairman, President, and CEO)
Sure. Again, another good question. Number one, our project in Louisiana, we call it the Darrow Project, is moving very well. We feel very confident about capital that we have announced. And I feel very good that we have done our homework, we have done the testing and all of that, and we filed last week our Class VI permit to the state of Louisiana. That is a major milestone, and the clock starts running in terms of getting approval for that, which is the most critical item for that project to be viable. We feel very good about the pore space that we have. We have proven that we have the pore space, which I think is a challenge for a lot of other people.
We are very confident that we should be able to bring that plant onstream sometime in 2028. In terms of the demand for the product, you're right. There is a lot of discussions about the demand. We have had discussions. The target for that product is two: Number one, the blue hydrogen, we are going to put it in our pipeline and serve our existing customers with blue hydrogen, and then a significant part of the hydrogen will be converted to ammonia for shipment to places like Japan and Korea to decarbonize their power plants. So we feel very good about that, and if we ever sign anything definitive, we will obviously be in a position to announce.
John McNulty (Managing Director - Chemicals Analyst)
Great. Thanks very much for the color, Seifi.
Operator (participant)
We'll take our next question from Jeff Zekauskas with J.P. Morgan. Please go ahead.
Jeffrey Zekauskas (Managing Director and Senior Equity Research Analyst)
Thanks very much. Is the NEOM project still to come on stream at the end of calendar 2026? And what's the state of your hydrogen dissociation technology?
Seifi Ghasemi (Chairman, President, and CEO)
Jeff, good morning.
Jeffrey Zekauskas (Managing Director and Senior Equity Research Analyst)
Good morning.
Seifi Ghasemi (Chairman, President, and CEO)
Number one, our plant in NEOM is on schedule. We expect that plant to be mechanically complete and hopefully commissioned by, as you said, December 2026, and we should have product for sale in early 2027. In terms of the cracking technology, which I think is what you're referring to with the ammonia dissociator. We have proven that technology, and we obviously will deploy it, like in Total and in other places.
Jeffrey Zekauskas (Managing Director and Senior Equity Research Analyst)
Okay, great. When I look at Air Products results, which I think are not dissimilar from what's happening with Air Liquide or Linde, there's been a slowdown in volume over time, and there's also been a slowdown in price, price change. Now, it's hard to know whether raw materials have moved down, and so probably on-site prices have moved down, which in the end, doesn't really matter very much. But can you talk about the sequential change in merchant prices and the overall volume slowdown in the industrial gas industry?
Seifi Ghasemi (Chairman, President, and CEO)
Jeff, I wouldn't say that we have an overall reduction in industrial gases. Our merchant volumes in the U.S. is okay.
Jeffrey Zekauskas (Managing Director and Senior Equity Research Analyst)
Mm-hmm.
Seifi Ghasemi (Chairman, President, and CEO)
The place that when you look at overall at Air Products, where we are seeing a slowdown is obviously in China, and that affects our numbers. In terms of pricing, I can only comment on the past. I will not comment on the future.
Jeffrey Zekauskas (Managing Director and Senior Equity Research Analyst)
Sure.
Seifi Ghasemi (Chairman, President, and CEO)
But obviously, when you increase prices, there comes a time where year to year, you don't show a huge amount of improvement because there is a limit to what you can increase the price to, because you know, people find alternatives and you know, there is a certain price at which you start being demand destructive. So I feel very good about what our people have done with pricing, and our overall volumes in the U.S. is good. In Europe, it's steady, but it is weak in China. No question about that. We have talked about that. That was one of the principal reasons that we missed our estimate in the Q1, and but it has stabilized, but we are not seeing much growth in that part of the world.
Jeffrey Zekauskas (Managing Director and Senior Equity Research Analyst)
Great. Thank you so much.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you very much.
Operator (participant)
Our next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.
Vincent Andrews (Managing Director)
Thank you, and good morning, Seifi. Wondering if you can give us an update on the sustainable aviation fuel project out in Los Angeles, both in terms of, you know, how the relationship with World Energy is going and the JV itself, as well as the permitting process, and sort of what your expectations are, if there's any update in terms of timeline or customers or just anything we should know incrementally there.
Seifi Ghasemi (Chairman, President, and CEO)
Good morning, Vincent. In terms of our relationship with World Energy, we have a very good relationship with them. Obviously, we have been working with them for a few years. In terms of the status of the project, we have put that project on hold until we get our permits. We always said that that process would probably take a year, and we still expect that. In terms of the demand for the product and all of that, you know, SAF seems to be very much in demand.
And as you have seen, Vincent, I mean, you're very, very informed, a lot of people are trying to make SAF all over the world. So, we just got a contract to supply hydrogen to a unit in Europe. We feel pretty good about that project, but it is on hold until we get our permits. Considering that we are operating in the state of California, we just have to wait and see how that works out.
Vincent Andrews (Managing Director)
Okay, and as a follow-up, the tax rate in the quarter came in a little bit lower than we had expected. Should we assume that same tax rate in the Q4?
Seifi Ghasemi (Chairman, President, and CEO)
I would like to turn that question to Melissa to give you a color on that.
Melissa Schaeffer (CFO)
Thank you, Seifi. I appreciate that. As we mentioned in the comments, we did see a lower tax rate this quarter, but for the full year, we do expect it to be at 18%. We had a number of one-time items that occurred this quarter. For example, there was a significant stock option exercise and some foreign restructuring, which did support the lower tax rate. But again, 18% is what you should forecast for the year.
Vincent Andrews (Managing Director)
Thank you very much.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
Operator (participant)
And we'll take our next question from David Begleiter with Deutsche Bank. Please go ahead.
David Begleiter (Managing Director and Senior Equity Research Analyst)
Thank you. Good morning, Seifi-
Seifi Ghasemi (Chairman, President, and CEO)
Good morning, David.
David Begleiter (Managing Director and Senior Equity Research Analyst)
Good morning. Do you have an update on the Alberta project as to when it will start up, and will contribute to 2025 earnings?
Seifi Ghasemi (Chairman, President, and CEO)
Our Alberta project will come on stream some time in 2025, and whether it will contribute to our fiscal year results, we have to wait and see exactly when that project comes on stream. We are building a plant in the middle of Alberta. You know what the winters are like, so it's anybody's guess how much construction and how fast construction we can do during this winter. So I don't want to commit to any specific date. We are going to give you. When we issue our guidance for the year, we are going to be conservative and assume no contribution from that project in 2025.
David Begleiter (Managing Director and Senior Equity Research Analyst)
Understood. And just on the Q4 guidance, it is a bit wide. Why is it so wide? And is, what would cause you to come in at the higher end or lower end of the guidance range? Thank you.
Seifi Ghasemi (Chairman, President, and CEO)
David, you make a very good point. Number one, we didn't want to change the guidance for the year, quite honestly. So by default, you end up with the numbers that you have. Because I thought if you start changing the guidance for the year, it might get misinterpreted, because we either had to move the bottom up or the top down and... But there is good reason for the wide range, David. You see the news. The geopolitical situation in the world is very unstable. We are going through an election cycle. The Federal Reserve hasn't made up their mind about exactly what they want to do.
There is a lot of unknowns, and therefore, to try to kind of, thread the needle and come up with a 5-cent range and so on, we did that last quarter because it was, I was not as worried about the overall geopolitical situation as I am now. But overall, I think, you should focus. I would appreciate if you focus on the year guidance rather than just the quarter guidance. Yeah. We are going to be somewhere between $12.20 and $12.50, right?
David Begleiter (Managing Director and Senior Equity Research Analyst)
Understood. Thank you.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
Operator (participant)
We'll take our next question from Chris Parkinson with Wolfe Research. Please go ahead.
Christopher Parkinson (Senior Research Analyst - Chemicals, Agriculture and Packaging)
Great. So if you've put together, you know, a couple of decent quarters, I should say good, between, you know, the U.S. and Europe, and yet, you know, the macro, I think across all geographies has been, you know, fairly choppy, and you've been navigating a lot of, a lot of difficulties across the board, and yet you're kind of moving in the right direction now.
So can you just kind of, you know, give us a quick update on, you know, some of the, some of the key things that, you know, you're seeing on a regional basis, specifically, you know, what the, what's the latest in manufacturing and electronics? You know, perhaps a little update on helium in Asia. Just, you know, putting everything together, now that we are on a more capable trajectory, I'd love to just hear your thoughts on, you know, entering 2025. Thank you so much.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you, Chris. That's an excellent question. Chris, on a macro basis, you know, I'm always an optimist, and I'm generally optimistic. I think the U.S. economy has proven everybody wrong. It is moving strong, stronger than, quite honestly, we expected. Our on-site volumes, especially hydrogen, is very strong in the U.S., and the merchant business is doing fine. So for the U.S., I feel very comfortable going into 2025, unless something significantly unexpected happens with the interest rates and with the election, we all know what to expect. It's either one or the other, so I don't think that will change things that much. Then, with respect to Europe, Europe is holding up relatively well. We have been successful in holding on to the price increases.
That is, making sure that we have good margins there. And then my only concern going into 2025 is how would Asia develop? But considering where China is right now, I don't expect it to get any worse. Some people are predicting that things will improve, especially in the electronic sector, as you mentioned, but we will wait and see. So overall, overall, going into 2025, I'm very optimistic for sure about Air Products and in terms of our ability to deliver the growth that we, in general, want, which is 10% growth every year on our EPS.
Christopher Parkinson (Senior Research Analyst - Chemicals, Agriculture and Packaging)
Thank you for the color.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
Operator (participant)
We'll take our next question from Duffy Fischer with Goldman Sachs. Please go ahead.
Duffy Fischer (U.S. Equity Research - Chemicals)
Yes, good morning, guys.
Seifi Ghasemi (Chairman, President, and CEO)
Morning, Duffy, how are you?
Duffy Fischer (U.S. Equity Research - Chemicals)
Good, thanks. If you could, maybe talk us through what the economics look like for the two hydrogen stations that you called out, the one that you were gonna do in Europe and then the one in California. Roughly how much capital is that? And then what's the business model there? Will you own the stations and then push your hydrogen through it, or will other people own it and just source from you? I mean, just can you give us some rough scope of what that project looks like?
Seifi Ghasemi (Chairman, President, and CEO)
Sure. Duffy, our intention is that we kind of go own the whole supply chain. We produce the green hydrogen, we move it, whether it's in form of liquid or in form of ammonia, that we then crack. Then we build the station. We will own the station. We might own the station jointly with some other people, but we will have control over the station, and we will sell it to the end customer, to the truck company or the train company or anybody else. So we want to own the whole supply chain. And that is why, in terms of economics, obviously, it depends the capital deployed, it depends on the number of stations we are going to build.
That will be a gradual development, depending on how much products we have and all of that. I mean, right now, we fully intend to build these stations in Europe and in California. But in Europe, if we sell out NEOM, all for application of decarbonizing refineries, then obviously we will build a NEOM two, and therefore building the stations will be a little bit delayed. And same thing in California.
So it very much depends on how the market develops, but the idea is exactly what you said, that we will either own the stations 100%, or we share the ownership with Air Products in control, so that we make sure that our molecules are the molecules that are going through it. And if other people build stations, we might or might not sell them the molecules. It depends.
Duffy Fischer (U.S. Equity Research - Chemicals)
Great. Then, for the second one, if I could, when we look at the sequential walk from Q3 to Q4, at the midpoint of the guide, it's up $0.28. But Melissa just talked about having a tax headwind sequentially that might be $0.05 or $0.10. Can you bridge us to getting, you know, let's say that $0.30 better in EPS going from Q3 to Q4? What drives that?
Seifi Ghasemi (Chairman, President, and CEO)
What drives that is, Duffy, that's obviously a very good question. What drives that is that number one is, when you look at our results in the last 10 years or 15 years or 20 years, Q4 of our fiscal year is one of our strongest quarters. It is not only one of. It is our strongest quarter. So we expect that we would have better results than the Q3 2020 just because of the cyclicality. The second reason is that we have taken serious productivity actions. You are seeing some of the results in this quarter, but you'll see a lot more of that in the next quarter. Then the third thing is that we do have some new, smaller projects coming on stream that will contribute.
We feel pretty confident that we should be able to, as you said, bridge that $0.30 and deliver the midpoint of what we have delivered, you know, the $3.48, that we need to get to the midpoint of our guidance.
Duffy Fischer (U.S. Equity Research - Chemicals)
Terrific. Thank you, guys.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
Operator (participant)
We'll take our next question from Steve Byrne with Bank of America. Please go ahead.
Salvator Tiano (Equity Research Analyst)
Thank you very much. This is Salvator Tiano filling in for Steve. So firstly, I want to go back a little bit to the Louisiana project, where you mentioned you're still on track for a 2028 startup, and you made the comment that blue ammonia would be sold to the export market for energy. However, it seems like companies such as some of the major Japanese utilities will probably not need that much ammonia, if any, at all, at that time. Perhaps they—you have to wait two or three years. So is it safe to assume that you will not focus on ammonia till perhaps 2030, or are there any other outlets for that when you start up?
Seifi Ghasemi (Chairman, President, and CEO)
Thank you for your question. Obviously, we are hearing a different story from them. I don't know what they tell you, but they tell us there is a lot of demand. But there is also another sector that is developing pretty rapidly, and that is ammonia for as a marine fuel for shipping. So we feel pretty confident that by 2028, we will be able to start loading that facility. We also have the capacity and capability of balancing between hydrogen and ammonia, and we do have the pipeline, and I think by 2028, a lot of our existing customers might want blue hydrogen instead of gray hydrogen.
Salvator Tiano (Equity Research Analyst)
Perfect. And I wanted to go back a little bit to the World Energy Project. You mentioned that it's roughly a one-year timeline to get the permits. I think the project itself was announced over two years ago. So is it safe to assume you didn't actually apply for permits till over a year after that? And when is kind of the one-year deadline that you kind of alluded to? And does this mean at that point, you're going to proceed with a final FID, and we're gonna, we'll know if it's a go or no-go?
Seifi Ghasemi (Chairman, President, and CEO)
Well, we hope that we get our permit, and we hope to finish the plan, but we have to wait for the permits, because we don't want to commit and then find out there is an issue with the permit or we have to wait some more. So I'm not sure if there is anything more for me to add. We are just waiting for the permit. We don't want to hurry up like we did last time and start getting ahead of ourselves and then finding that the permit gets challenged and all of that. We want to make sure that it is bulletproof before we have final FID decision.
Salvator Tiano (Equity Research Analyst)
Very much.
Seifi Ghasemi (Chairman, President, and CEO)
Okay? Thank you.
Operator (participant)
We'll take our next question from Michael Leithead with Barclays. Please go ahead.
Michael Leithead (Director in Equity Research)
Great, thank you. Good morning, guys. Seifi, I wanted to ask on the Total green hydrogen agreement. I appreciate you likely won't talk about pricing. If you wanna give us the agreed-upon price, I'd happily take it. But can you speak to the return hurdle of this agreement? You've obviously taken a lot of risk by being a first mover. So in this validation, are you getting a return profile that is, say, materially above your traditional project hurdle?
Seifi Ghasemi (Chairman, President, and CEO)
Well, you know, you're asking a very good question. Obviously, the answer to that is yes. But, I hope you have some sympathy with me that we are negotiating with people to sell them something, and you don't expect me to be sitting here on a public call saying, "Hey, we are going to make a lot of money," right? So we have to be cautious in terms of our comments. But, you can be sure that, as I have always said, we have taken the risk, and therefore the reward should be higher than what we do when we do things that are no risk, not risky.
Michael Leithead (Director in Equity Research)
Makes a lot of sense. And then I think you've talked before about being excited about building, like you just said, NEOM too or other large clean energy projects, but at the same time, you didn't wanna commit to announcing much until you've signed tangible offtake agreements for what you already have out there. So now that we have the Total contract, it sounds like you're, you're far along in some other negotiations. Should we expect further clean energy project announcements in, say, the next 12 months or so?
Seifi Ghasemi (Chairman, President, and CEO)
I will only commit to that if we have announced enough projects so that the investors see that we are sold out. You know, I, I don't want to take that, "Okay, we have sold 35% of NEOM, therefore we should rush and go and build NEOM number two." I'd like to wait until we have sold 80% of NEOM and then commit to that. So we are going to be conservative and cautious, not to get ahead of ourselves, but the fact that we have demonstrated that there is significant volume demand is a good sign, because until a few months ago, you have seen the slides from some of our competitors, where they put it in writing that there is no demand for green hydrogen. So I think...
Now it's obviously a little bit of a different story. There is demand for green hydrogen. But I would like to give some confidence to the investors that we are truly have signed enough things, that it is sold out before we commit to additional projects. Depending on how fast those things come, you're right, it might be that in a year we will announce a new NEOM project, but it will depend on how fast we progress with signing contracts for the current production.
Michael Leithead (Director in Equity Research)
Great. Thank you so much.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
Operator (participant)
We'll take our next question from Mike Sisson with Wells Fargo. Please go ahead.
Michael Sison (Managing Director)
Hey, good morning. Nice quarter and outlook. Seifi, when you think about 2025, and I know it's a little bit early to give any specific outlooks, how much earnings growth do you think will be anchored by your projects next year? And maybe any sort of color you can have in terms of, you know, how much that could help, or kind of sort of support some earnings growth, support earnings growth next year? Thank you.
Seifi Ghasemi (Chairman, President, and CEO)
Well, good morning, and thanks for your comment. You know, it would be very difficult right now to give you details. We are going to give you all those details when we announce our Q4 results. But in general, I would like to say that Air Products, 10 years ago, we committed to delivering an average of 10% growth in earnings, and today we are committing that for the next 10 years, we will do the same. So our target, our goal, our challenge, is to deliver at least a 10% growth for next quarter—for next year. But we will obviously, we are going through the budgeting process. We'll have all of the details, and then we'll give you a number when we announce our results in late October or early November.
Michael Sison (Managing Director)
Great. Thank you.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
Michael Sison (Managing Director)
Thank you.
Operator (participant)
We'll take our next question from John Roberts with Mizuho. Please go ahead.
John Roberts (Managing Director and Senior Equity Research Analyst)
Thank you, and best wishes, Sidd. Welcome, Eric, and Mel, thanks for being the rock. Seifi, in your price discussions on clean hydrogen between Alberta, Louisiana, NEOM, I know you don't want to give any details, but is there a really wide range that you're seeing in terms of discussions with customers? And have they all been, I assume, above gray hydrogen plus a carbon credit?
Seifi Ghasemi (Chairman, President, and CEO)
... first of all, good morning, John. You know, the overall guidance that we have been telling people is if the gray price is something, the blue price is at least twice that, and the green price is twice that. So it's double for blue and then double blue for green. And that is the kind of overall guidance for pricing. So I think you all have a pretty good idea of the kind of pricing that we are looking for, and we are getting that. And I think that the pricing thing will improve as we go forward, when the demand exceeds the supply.
John Roberts (Managing Director and Senior Equity Research Analyst)
That's price at the customer receipt level, and your net back pricing will be significantly different across the various customers, because obviously some in Alberta are right next door, and for NEOM, it's gonna be pretty far away.
Seifi Ghasemi (Chairman, President, and CEO)
Well, the thing is that, you know, there is some element of that, but, we take-- we do take that into consideration when we give the pricing. I mean, if it is very difficult to serve a customer, then obviously the price will be significantly higher than if, as you said, if somebody is next door.
John Roberts (Managing Director and Senior Equity Research Analyst)
Okay, thank you.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you.
Operator (participant)
We'll take our next question from Josh Spector with UBS. Please go ahead.
Joshua Spector (Executive Director - Chemicals Equity Research)
Yeah, hi, good morning. So I wanted to follow up on the question earlier around your commitment to announce additional projects. I think during the quarter, you've been more explicit that you won't FID, I believe, any projects until you get more offtakes. And I wanted to see, you know, how precise we should be taking that language. So you talked about NEOM earlier, but as we think about Louisiana, should we think about both of those need to reach 80% offtakes before you announce anything else? Or is your expectation to be looser than that?
Seifi Ghasemi (Chairman, President, and CEO)
I think you should expect that we would, kind of, see our way of loading those three facilities that you talked about, NEOM, Louisiana, and Edmonton, fully loaded before we make an FID for another project. There is one other project that we are working on, which is the project that we did announce, green hydrogen, hydrogen project in Northern Texas. But that project, we have not taken FID. We do not plan to take any FID until we have total clarity on what the IRA rules are for interpretation of what is green hydrogen. So other than that, I don't expect us to make any announcements until we see our way very clearly. And this is, quite frankly, a fundamental issue of being respectful to the investors. I think we announced many, many projects, and the investors got very concerned, and that is why...
I mean, our stock should be $400 now, and it is at, I don't know, $285, $290, $300. But, the reason for that is that I think we got the investors a little bit concerned that we are getting ahead of ourselves. We didn't think so, but, certainly the impression was for the investors that we are building plants without having a clue about where to sell it. That was never the case, but that was the impression. So I don't want to get into that mood again. We want to fully demonstrate that there is demand before we make any FID, say, announce any major projects.
Joshua Spector (Executive Director - Chemicals Equity Research)
Thanks, so I appreciate that. And just a quick follow-up then on Texas, I guess, specifically, do you consider that a new project? So if we get IRA clarity in the next, I don't know, six, nine months, but Japan takes longer to say what their credits are gonna be for blue hydrogen into utility coal energy production, is that something you would FID, that Texas project, without that Louisiana project sold out? Or is the Louisiana project, or whatever project, sold out the limiting factor in your view?
Seifi Ghasemi (Chairman, President, and CEO)
The project in Northern Texas, we can demonstrate to you that it is fully sold out in a few years, because that project is directed at making liquid green hydrogen. Liquid green hydrogen, and that is targeted for the market in California. We can easily transport that without any significant cost to California. And when you look at the demand in California for green hydrogen and the number of stations and so on, you can easily come up with the demand to fill that project up. The main reason that we are holding on that project is because we want to understand what is the definition of green, and we know that we qualify to get $3. We want to see if other people qualify to get the $3 or not. But I am very, very confident about the...
Very confident about the fact that, we can sell that product for very good prices. Right now, we are selling green hydrogen into that market at close to $30 a kilogram. $30 a kilogram. If you do the math, that makes everything, you know. So the project in Northern Texas is very much. We are waiting for the definition of the IRA. And as you said, I don't think we will have clarity on that until probably beginning of next year. So we are not going to do anything until then. Okay?
Daniel Rizzo (SVP, Equity Analyst)
Understood. Thank you. Yep, thanks, Seifi.
Seifi Ghasemi (Chairman, President, and CEO)
Operator, we have time for two other questions, please.
Operator (participant)
Thank you. The next question comes from Patrick Cunningham with Citi. Please go ahead.
Patrick Cunningham (Senior Analyst, North America Chemicals)
Hi, good morning, everyone. Maybe just wanted to follow up. You know, you mentioned the election multiple times, so I just want to understand your latest and greatest thoughts on what, you know, either outcome might mean for the two pillars of your business, and then maybe more specifically, you know, what you think each outcome might mean for the interpretation of the IRA rules.
Seifi Ghasemi (Chairman, President, and CEO)
I'm not sure I've fully understood. Can you just hold on? Let me have... Sidd, can you?
Sidd Manjeshwar (VP, Corporate Treasurer and Investor Relations)
Yeah, I think the question was related to the IRA guidance and with the incumbents or a new administration coming in, what does that mean?
Seifi Ghasemi (Chairman, President, and CEO)
Well, the IRA is, as the part that is related to us, it has two dimensions. One dimension is the so-called 45Q, which is that you get $85 per ton of CO2 that you sequester. I think there is not much controversy around that rule. No matter which administration you have, I think that will get support, and that is why we are building the project in Louisiana. We feel very confident about that. The challenge is on the other part, which is called 45V, which is the $3 subsidy for green hydrogen. And the controversy is very simple: What is the definition of green hydrogen?
Is it enough to say, "Oh, I connected to the grid, I'm getting electricity, I'm breaking down water, and therefore I'm making green hydrogen, and therefore give me the $3," irrespective of the fact that I might be using the electricity that is made by burning coal? That is the controversy. Obviously, Air Products has position, has been crystal clear from day one, that we believe that green hydrogen means that you are using green electricity. If you are not using green electricity, then it is not green hydrogen. And green electricity should also be available 24 hours a day. That means you need to prove that every hour you have green electricity.
You can't make a lot of green electricity during the day that the sun shines and then say, "Okay, now in the night I'm going to connect to the grid." So we have been very clear with our three pillars, and that is what we think is the definition of green. The administration, the current administration, has agreed with us. That is the way they have issued the rules that are public right now. The issue is they have not finalized the rules, and from what I hear, they are saying they are not going to finalize the rules until after the election. So the issue is, if we have a change of administration, would the new administration see those rules as good or bad, or do they want to modify?
We are not going to go and commit billions of dollars building a facility, not knowing what the exact interpretation is. So we are going to wait until we have rules that have been approved, passed, and the Treasury Department, that we can certainly count on, and then we will proceed. Sorry for the long answer, but I just wanted to address the whole issue.
Patrick Cunningham (Senior Analyst, North America Chemicals)
No, thank you so much, Seifi. We'll, I'll leave it there.
Seifi Ghasemi (Chairman, President, and CEO)
Thank you. Okay, operator, last question, please.
Operator (participant)
Thank you. We'll take the last question from Lawrence Alexander with Jefferies. Please go ahead.
Daniel Rizzo (SVP, Equity Analyst)
Hi, this is Dan Rizzo for Lawrence. Thank you for fitting me in. I'm sorry if I missed this, but have you provided an update on the status for the green hydrogen project in upstate New York? I don't remember that being mentioned recently.
Seifi Ghasemi (Chairman, President, and CEO)
Yes, we are building a green hydrogen project in upstate New York. We are using hydropower to produce it. Hydropower is green power, and the capacity of that plant is not huge. It's a small plant, 35 tons a day. The reason we have put it in that part of the world is because we obviously could get the power from Niagara Falls, where it is coming from, and we see significant demand for mobility. We are going to produce liquefied green hydrogen, and we see significant demand for that in that part of the world, because by being in Massena, we can serve all the way to Pennsylvania, New York, and all of that, and therefore we are very optimistic about that project. That project is moving forward, and it is on time.
Daniel Rizzo (SVP, Equity Analyst)
I'm sorry, just remind me when that's coming online?
Seifi Ghasemi (Chairman, President, and CEO)
In terms of the timing?
Daniel Rizzo (SVP, Equity Analyst)
Yes.
Seifi Ghasemi (Chairman, President, and CEO)
I think we have said sometime in 2027 or 2028.
Daniel Rizzo (SVP, Equity Analyst)
Thank you.
Seifi Ghasemi (Chairman, President, and CEO)
Twenty-seven.
Daniel Rizzo (SVP, Equity Analyst)
Thank you very much.
Seifi Ghasemi (Chairman, President, and CEO)
Yeah. Well, thank you very much, and thank you, operator. I'd like to thank everybody for joining our call. We do appreciate your interest in Air Products, and we do appreciate your very good and insightful questions. Please be safe, stay healthy, and we look forward to talking to you when we announce our Q4 results. Thanks again, everybody.
Operator (participant)
This concludes today's call. Thank you for your participation. You may now disconnect.