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    Air Products and Chemicals Inc (APD)

    Q1 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$227.00Open (Feb 5, 2024)
    Post-Earnings Price$227.00Open (Feb 5, 2024)
    Price Change
    $0.00(0.00%)

    What went wrong

    • • Air Products lowered its full-year guidance due to weaker-than-expected helium demand, especially in the electronics industry and in Asia, which may continue throughout the fiscal year.*
    • • The company is experiencing significant volume headwinds from weak economic growth in China and does not expect market conditions to improve, expressing concerns about potential worsening due to geopolitical developments.*
    • • There are uncertainties and potential delays in finalizing offtake agreements for major clean hydrogen and ammonia projects, with management acknowledging they are not in a hurry to commit, possibly impacting future returns.*

    Q&A Summary

    1. Reduced Guidance
      Q: Do markets need to improve to meet second-half expectations?
      A: Management does not expect any improvement in market conditions and hopes things don't get worse. They are not factoring in any significant improvement in the world economy for the second half.

    2. Helium Demand Weakness
      Q: Why is helium demand lower, and what's the impact on profits?
      A: Helium demand is down, especially in electronics across China and Asia. This weakness affected profits, and management lowered guidance to account for potential continued softness.

    3. CapEx Projects Timeline
      Q: Can you update us on major project start-up expectations?
      A: The Alberta blue hydrogen project is expected onstream in fiscal 2025. The NEOM green hydrogen project is anticipated by December 31, 2026. The Louisiana blue hydrogen project is expected in fiscal year 2027, and the sustainable aviation fuel (SAF) facility is anticipated around fiscal 2027, depending on permits.

    4. SAF Project Delay
      Q: Why is the SAF project start-up delayed to 2027?
      A: The delay is due to longer-than-expected permitting processes in California. The start-up date depends on the final ruling on construction permits.

    5. Cash Flow Concerns
      Q: Will operating cash flow grow with EPS this year?
      A: Operating cash flow is influenced by timing issues, including distributions from a large equity affiliate and building helium inventory. However, EBITDA is up, and cash conversion remains stable.

    6. Dividend Hike Size
      Q: Why was the dividend increase smaller than in the past?
      A: The dividend is set as a percentage of the stock price, aiming for about 2.5% yield. With the stock price higher, there's less need to increase the dividend to maintain this yield.

    7. European Margins
      Q: Are European margins sustainable given current pricing?
      A: Margins in Europe are up 1,000 basis points due to maintaining pricing while energy costs declined. Management is proud of the performance but cannot predict future pricing dynamics.

    8. Sale of Equipment Costs
      Q: Are higher sale-of-equipment costs a risk for future contracts?
      A: Cost overruns were due to inflation and execution delays. For LNG projects under execution, the risk is considered low.

    9. China Demand Slowdown
      Q: How is the economic situation in China affecting business?
      A: There is a weakness in demand, particularly in helium and merchant gases, linked to lower economic activity and electronics demand in China and Asia.

    10. Natural Hydrogen Stance
      Q: What's your view on natural hydrogen opportunities?
      A: Management is not involved in natural hydrogen projects and considers them unrealistic, describing them as "a little bit of a pie in the sky."

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