Q4 2024 Earnings Summary
- Air Products is a first mover in the clean hydrogen market, positioning itself to become the world's largest clean hydrogen supplier, benefiting from significant demand and favorable supply-demand dynamics.
- The company expects to deliver at least 10% EPS growth over the next 10 years, driven by their clean hydrogen projects which are anticipated to achieve higher returns than the core industrial gas business.
- Air Products maintains a disciplined financial approach, evaluating projects on an unlevered IRR basis, and expects to return to positive net cash flow starting in 2027 without assuming project financing or equity partnerships.
- Delays and uncertainties in major projects, particularly the World Energy project, which has been put on hold due to permit challenges and potential sale of Air Products' interest.
- Negative net cash flow expected until 2027, indicating potential cash flow constraints over the next few years without reliance on project financing or equity partnerships.
- Loss of LNG business contributing a 4% headwind to FY2025 earnings (about $0.49 per share), leading to near-term earnings pressure.
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Clean hydrogen and ammonia initiatives | Consistent emphasis in Q3 (large-scale partnerships), Q2 (strategic readiness), and Q1 (leadership stance). | Remains a core focus with emphasis on first-mover advantage and substantial future growth potential. | Consistent topic that remains central to growth outlook. |
EPS growth targets (8–10% / >10%) | Reaffirmed each quarter (Q3, Q2, Q1) with growing caution in later periods. | Long-term goal of ≥10% annually, near-term guidance of 6–9% for FY2025 due to economic uncertainties. | Consistent focus with increased caution over time. |
Weak China demand | Repeatedly cited in Q3, Q2, and Q1 as a main headwind. | Conservative approach for FY2025, overshadowed by broader Asia pricing considerations. | Shift from explicit China concerns to overall Asia impacts. |
Sale of LNG business | Referenced as a planned divestment in Q3, no mention of the 4% headwind in earlier calls. | Creates a 4% earnings headwind for FY2025 (~$0.49 impact), newly highlighted in Q4. | New topic in Q4, now a significant concern. |
Large-scale clean energy projects | More optimistic stance in Q3, limited caution in Q1. | Cautious sentiment due to heightened costs, project cancellations (North Texas), and permitting delays (World Energy). | Shift from optimism to caution amid execution challenges. |
Long-term regulatory drivers | Consistently highlighted in Q3 (IRA, 45Q, 45V), Q2, and Q1 as major growth catalysts. | No specific Q4 mention of IRA, but European/Asian mandates remain pivotal for hydrogen/ammonia. | Ongoing driver of future expansion, though details vary each quarter. |
-
Earnings Growth Outlook
Q: What is the expected earnings growth in coming years?
A: Seifollah Ghasemi expects Air Products to deliver about 9% to 10% earnings growth in fiscal years 2025 and 2026, with growth in 2027 and 2028 potentially significantly higher due to new projects coming on stream. He is confident that over the next 10 years, Air Products will deliver at least 10% growth in EPS as they go forward. -
NEOM Project Status and Financing
Q: Can you provide an update on the NEOM project and its offtake agreements?
A: Air Products expects to fully load NEOM by 2027 and is working towards that goal. There are other customers beyond Total, but they cannot announce them yet. The capital investment in downstream infrastructure may be less than the initial $2 billion estimate, depending on actual customers. The initial $1.7 billion investment in production is now $800 million due to successful project financing. -
Louisiana Project Financing and Development
Q: What is the plan for financing the Louisiana blue hydrogen project?
A: The major risk of CO₂ sequestration has been secured with extensive studies and permits underway. Air Products plans to bring in equity partners and is evaluating optimal financing strategies. The project is expected to come on stream around 2028, with a capital investment of about $7 billion. They are executing prudently and not rushing investments. -
Project Strategy and Anchor Customers
Q: Will you announce new clean hydrogen projects without anchor customers?
A: Moving forward, Air Products will not take a final investment decision on any clean hydrogen project until they have an anchor customer and have loaded 75% of existing facilities. They won't announce projects without a clear view of long-term offtake agreements for 50–60% of the product. -
World Energy Project Delay
Q: What is the status of the World Energy project?
A: The project is on hold due to permitting challenges from environmental objections. Air Products wants to secure all permits before proceeding to avoid risks. The relationship with World Energy is excellent, and they are exploring other opportunities, including potential buyout offers for their stake in the project. -
Management Succession Planning
Q: When do you expect to name a new President?
A: Air Products does not expect to name a President until March, April, or May. They have identified highly qualified candidates who are being interviewed by the Board. The criteria are individuals who have been CEOs of public companies. The process is underway, and no announcement is expected before early to mid-2025. -
Headcount Increase and Cost Impact
Q: How has the headcount increase affected costs, and are there plans to reduce it?
A: The headcount increase was primarily to engineer NEOM and other projects, with costs capitalized and not affecting EPS. As engineering completes, headcount will decrease. SG&A expenses are lower than the previous year. Over the last two years, they've reduced headcount by almost 1,000 through productivity actions. -
LNG Business Exit Impact
Q: What is the impact of exiting the LNG business on 2025 earnings?
A: LNG was about a 4% contributor, or about $0.49 per share. There is a 4% headwind going into fiscal year 2025 due to the exit. Air Products plans to offset this through productivity actions and growth from smaller projects. -
Activist Investors and Company Strategy
Q: How are you responding to activist investors' suggestions?
A: Air Products listens to all investors and values their input equally. Investors consistently suggest focusing on the base industrial gases business and responsibly investing in clean hydrogen, which Air Products is doing. They are also diligent about succession planning. -
Asia Business Performance
Q: What is affecting prices in the Asia business?
A: The price decline is due to both supply-demand imbalance and the impact of lower helium prices, partly because of helium coming from Russia. -
Return to Positive Net Cash Flow
Q: What are the assumptions behind returning to positive net cash flow by 2027?
A: The assumption does not include project financing or equity partnerships. It's based purely on the timing of projects coming onstream and their ramp-up. -
Project Returns and Leverage
Q: How do you approach project returns when using leverage?
A: Air Products evaluates projects based on unlevered IRR. If they are able to project finance a project, the return on equity will be higher than the IRR. They do not approve projects based on leverage. -
First Mover Advantage in Green Hydrogen
Q: How does being a first mover benefit Air Products in green hydrogen?
A: Being the first mover with actual projects like NEOM allows Air Products to engage with real customers and negotiate better contracts. They have better visibility on demand and can meet regulatory timelines ahead of competitors, providing a significant advantage. -
Middle East and India Performance
Q: Why was the Middle East and India performance below expectations?
A: The decline is due to lower merchant demand and slightly reduced pricing, largely in the United Arab Emirates. The Jazan joint venture is performing as expected, flat year-over-year, with very good results. -
NEOM Offtake Contract Details
Q: Are there any conditions affecting the NEOM offtake agreement?
A: Air Products is comfortable with the NEOM offtake contract, which is consistent with similar agreements. They are fully confident it will be operational as per terms. Some details are still being negotiated, but no significant qualifying events are expected.