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    Air Products and Chemicals Inc (APD)

    Q3 2024 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$263.85Last close (Jul 31, 2024)
    Post-Earnings Price$288.61Open (Aug 1, 2024)
    Price Change
    $24.76(+9.38%)

    What went well

    • Air Products is committed to delivering at least 10% growth in earnings per share next year and for the next ten years, driven by strong performance in the U.S. and new projects coming online.
    • The CEO is very optimistic about the U.S. market, stating that the economy is stronger than expected with strong on-site volumes, especially hydrogen, and the merchant business performing well.
    • The company has secured a significant green hydrogen supply agreement with Total Energies, expected to yield higher returns due to the risks taken, validating their long-term strategy in clean hydrogen.

    What went wrong

    • Key projects are facing delays and uncertainties, such as the green hydrogen project in Upstate New York, which is expected to come online in 2027 or 2028, indicating a long timeline before contributing to earnings.
    • Weakness in China is impacting volumes negatively, with lower demand in the region and limited ability to increase prices further without causing demand destruction. The CEO stated that "we are not seeing much growth in that part of the world".
    • Geopolitical instability and economic uncertainties are causing a wider guidance range for Q4, with concerns about interest rates and global instability affecting the company's outlook. The CEO mentioned "good reason for the wide range... There is a lot of unknowns".

    Q&A Summary

    1. Total Green Hydrogen Agreement
      Q: What's the return hurdle on the Total green hydrogen agreement?
      A: Management confirmed they are achieving higher returns on the Total Energies green hydrogen agreement due to being a first mover. They expect returns materially above traditional project hurdles.

    2. Major Project Updates
      Q: Can you provide updates on major projects and their earnings impact?
      A: The Neom project is on schedule to be mechanically complete by December 2026, with product for sale in early 2027. The Louisiana blue hydrogen project is moving forward, targeting an onstream date in 2028, with Class 6 permits filed. The Alberta project is expected to come onstream sometime in 2025, but contributions to fiscal year earnings are uncertain due to potential winter construction delays. The Texas green hydrogen project is on hold pending clarity on IRA rules.

    3. Future Clean Energy Projects
      Q: Should we expect further clean energy project announcements in the next 12 months?
      A: Management will only commit to announcing new projects like Neom 2 after selling 80% of current production capacity. They are cautious not to get ahead of themselves and want to fully demonstrate demand before making further investments.

    4. Pricing of Green and Blue Hydrogen
      Q: Are there wide ranges in price discussions on clean hydrogen across projects?
      A: Prices for blue hydrogen are generally twice that of gray hydrogen, and green hydrogen prices are double that of blue. This pricing applies at the customer receipt level, with variations based on delivery distance and customer proximity.

    5. Impact of IRA Rules and Election
      Q: What impact might the election have on IRA rules and your business pillars?
      A: The uncertainty around IRA guidance, particularly the $3 subsidy for green hydrogen under 45V, is causing delays in project decisions. Management is waiting for finalized rules, which may not come until after the election, to commit to billion-dollar facilities. A change in administration could influence these rules.

    6. Q4 Guidance Range
      Q: Why is the Q4 guidance range so wide?
      A: The wide guidance range reflects geopolitical uncertainties, including an unstable global situation, upcoming elections, and undecided Federal Reserve actions. Management aims to maintain annual guidance without misinterpretation.

    7. Economics of Hydrogen Fueling Stations
      Q: What are the economics of the hydrogen fueling stations in Europe and California?
      A: Air Products intends to own the entire supply chain, including production, transportation, and fueling stations—possibly in joint ventures but with control. Capital deployment depends on the number of stations, which will develop gradually based on market demand and product availability.

    8. Regional Performance and 2025 Outlook
      Q: What are the key regional trends and outlook for 2025?
      A: Management is optimistic about the U.S. economy, with strong on-site volumes and a stable merchant business. Europe is holding up with successful price increases. China remains weak but has stabilized. Overall, they aim for at least 10% EPS growth in 2025.

    9. Sustainable Aviation Fuel Project
      Q: Can you update us on the sustainable aviation fuel project in Los Angeles?
      A: The project is currently on hold until permits are obtained, which may take about a year. Air Products maintains a good relationship with World Energy and sees strong demand but will wait for secure permits before making a final investment decision.

    10. Tax Rate Outlook
      Q: Should we assume the same lower tax rate in Q4?
      A: Despite a lower tax rate this quarter due to one-time items like significant stock option exercises and foreign restructuring, the full-year tax rate is expected to be 18%.

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