Q4 2025 Earnings Call Transcript

Good day, and welcome to the Air Products Fourth Quarter Earnings Release Conference Call. Today's conference 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 Megan Britt. Please go ahead.

Hello, and welcome to the Fourth Quarter and Full Year Fiscal 2025 Earnings Conference Call for Air Products. Our prepared remarks today will be led by Eduardo Menezes, Chief Executive Officer; and Melissa Schaeffer, Executive Vice President and Chief Financial Officer. We have prepared presentation slides to supplement our remarks during the call, which are posted on the Investor Relations section of the Air Products website. During this call, we'll make forward-looking statements, which are our expectations about the future.

These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to these risks and uncertainties, including, but not limited to, those discussed on this call and in the forward-looking statements and Risk Factors sections of our reports filed with the SEC. We do not undertake any duty to update any forward-looking statements. Please note in today's presentation, we will refer to various financial measures including earnings per share, capital expenditures, operating income, operating income margin, the effective tax rate and ROCE, either on a total company or a segment basis.

Unless we specifically state otherwise, statements regarding these measures refer to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our investor website in the relevant earnings release section. It's now my pleasure to turn the call over to Eduardo.

Thank you, Megan. Hello, and thank you for joining our call today. Please turn to Slide 3. Earlier today, we reported our fourth quarter and full fiscal year 2025 results. Our numbers show consistent progress related to commitments we shared earlier this year.

We delivered earnings per share of $12.03, which is above the midpoint of our full year fiscal guidance range. Our operating income margin of 23.7% and return on capital of 10.1% were also in line with our commitments for these metrics. Also, this year marks the 43rd consecutive year of increasing our dividend. In total, we returned $1.6 billion to our shareholders in fiscal 2025. I'm encouraged we are setting challenging but achievable targets and delivering on those commitments.

We have taken several key actions starting in the second quarter to focus on the core industrial gas business and expect to unlock earnings growth through productivity, pricing, operational excellence and disciplined capital allocation. The last 3 quarters demonstrate that we are already making progress. Moving to Slide 4. We have 3 key priorities for 2026 that were part of the strategy we shared earlier this year. First, we expect to deliver high single-digit annual EPS growth.

To be clear, our 2026 guidance anticipates additional helium headwinds in a sluggish macroeconomic environment. On our second priority, we will continue to make strides to optimize our large projects portfolio. We are working diligently to finalize our NEOM project and expect to improve our underperforming project portfolio with a goal of generating positive cash returns. On our third priority, we continue to take actions to balance our capital allocation and improve our balance sheet.

We expect to reduce our capital expenditures to roughly $2.5 billion per year following the completion of several large projects. At this level of CapEx, we believe we can support our ongoing maintenance and invest in the traditional industrial gas projects while growing our dividend and longer term, returning additional cash to shareholders via share buybacks. In 2026, we expect our capital expenditures to be about $4 billion. In summary, we expect fiscal 2026 to demonstrate our commitment to continuously drive improvement in our core industrial gas business and growing alongside our customers.

Please turn to Slide 5. We highlighted earlier this year that a portion of our productivity improvement will come from returning to an organizational headcount similar to what we had before we started several large clean energy projects. This slide offers a progress report on our actions in the savings that are being created. Since 2022, we have identified a total of 3,600 headcount reductions, which translates to [ 16% ] of our peak workforce. We expect these reductions to contribute approximately $250 million in annual cost savings or $0.90 per share in earnings once the reductions are complete.

These cuts are not something we do lightly, but they are critical to offset inflation and adapt the organization to a lower level of CapEx spend. Our objective remains to return to staffing levels of 2018 adjusted for employee growth to support new assets, minus any other productivity we can find with new initiatives like AI. Moving to Slide 6. We have a summary of our expected CapEx expenditures after 2026. As we have previously said, we are also moving forward with several underperforming projects, giving our commercial obligations and project steps. We have roughly $2.5 billion remaining to be spent on these projects from 2026 to 2028. Though these products are not expected to contribute materially to operating income, we continue to work to improve their results through commercial negotiations, operational improvement and productivity.

For our NEOM project, this slide reflects the CapEx related to our equity contribution to the overall project, which will be completed in 2027. Any further investments for ammonia dissociation in Europe will need to be approved separately. After we bring these projects on stream, we expect capital expenditures of roughly $2.5 billion per year, which can sustain both our future growth and ongoing maintenance. For our blue hydrogen project in Louisiana, we have halted making new commitments until an offtake agreement is reached. In this slide, our capital investment for this project in '26 reflects only prior commitments on the project and we have excluded any spending beyond 2026. Like in the case of NEOM downstream investments, they would need to be justified and approved based on firm offtake commitments.

I'll talk more about the Louisiana and NEOM projects in our next slide. On traditional core growth, we expect to invest approximately $1.5 billion per year going forward. These are air separation hydrogen projects that we normally execute in 18 to 30 months, so there are always new products being added and completed products being removed from the list. The CapEx figures for fiscal year 2027 and beyond represents our expected average spend.

Our focus will be, as always, on opportunities that meet our return thresholds with quality customers and contractual uptake. Moving to Slide 7. I wanted to close with a brief update on NEOM and Louisiana. Start with NEOM, the project is progressing well and is about 90% complete. Solar and wind power generation will be completed by early 2026, and we will start commissioning the electrolyzers and ammonia production.

We expect to have ammonia production on stream with full product availability in 2027. We are, of course, following the regulatory developments in Europe. It is important to highlight that the scale of the energy transition is such that the volumes required to meet even the smaller mandates such as the Red III EU mandate to convert 1% of fuel sold to RFNBO fuels would create a green hydrogen demand equal to approximately 7x the total production of our NEOM project by 2030. Obviously, a significant part of the volume is expected to be supplied by local electrolyzers using renewable power, but it's important to highlight that our solution to bring green ammonia from Saudi Arabia for dissociation in Europe is competitive in terms of pricing and requires 0 public subsidies.

As mentioned before, the market for green ammonia is also being developed, and that will be our main target for -- from the time the NEOM project starts. Additional feedback on the market development will be provided during 2026. Regarding our blue hydrogen project in Louisiana, we are evaluating proposals to divest the carbon sequestration, and ammonia production assets. We will only go forward with this project if we can sign firm offtake agreements for hydrogen and nitrogen from the facilities that will be owned and operated by Air Products. And of course, these agreements will need to comply with our return expectations with one or more high-quality counterparts.

As previously committed, we expect to provide further updates related to this project prior to the end of 2025, so in less than 2 months from today. Let me finish by saying that I'm excited to launch my first full operating year with Air Products team. We have been working hard to right the ship and bring the company back to a position where we can deliver maximum value to our shareholders, customers and employees. Now I'll turn the call over to Melissa to discuss our financial results in greater depth and discuss our 2026 outlook.

Melissa?

Thank you, Eduardo, and welcome and hello to those joining us on the call today. Please move to Slide 8 for a high-level summary of our financial results. We ended the fiscal year with earnings per share of $12.03, delivering our commitment to our shareholders and above market consensus. With respect to sales, favorable volume for on-site and non-helium merchant were more than offset by a 2% headwind from the prior year LNG divestiture as well as project exits.

Volume was also lower due to the reduced global helium demand. Partially was favorable for non-helium merchant products across all regions. Operating income was down on volume and higher cost, partially offset by non-helium price. The higher costs were driven by depreciation, largely offset by productivity improvements, net of fixed cost inflation.

Operating income margin of approximately 24% declined 70 basis points compared to the prior year, largely driven by higher energy cost pass-through. Return on capital of 10.1% was lower versus prior year as we continue to exit on our project backlog. Moving now to Slide 9. Our fiscal year earnings per share of $12.03 decreased $0.40 or 3% from prior year, driven by a 4% headwind from LNG divestiture and a 2% headwind from project exits. Without these discrete items, EPS would be up 3%.

Additionally, we continue to see headwinds from helium, including unfavorable comparable volume and pricing across regions. Despite these headwinds, we continue to deliver on our base business with stronger non-helium pricing actions, ongoing productivity across our segments and favorable on-site and merchant contributions. Moving now to Slide 10. I will provide an overview of our results by segment for the full fiscal year. You can find additional details of the quarterly segment results in the appendix.

For the fiscal year, America's results were down 3%. As a reminder, we reported a onetime asset sale associated with an early contract termination at the request of a customer in the prior year fourth quarter, which alone resulted in a 3% headwind in the Americas. Additional drivers include headwinds from project exits and helium and higher maintenance-related costs. These were partially offset by strong non-helium pricing actions, productivity improvement and favorable on-site contributions from our HyCO business.

Asia fiscal year results were relatively flat, as lower helium was offset by favorable on-site, non-helium price and productivity. During the quarter, we made the decision to sell 2 coal gasification projects within Asia, which are now within assets held for sale. Europe's FY '25 results improved 4% as non-helium merchant pricing, productivity and favorable on-site contribution was partially offset by lower helium and higher costs associated with 2 depreciation and fixed cost inflation. The full year, Middle East and India equity affiliates income decreased 2% from prior year, primarily due to lower contributions from our Jazan joint venture.

The full year results for the Corporate and Other segment were primarily impacted by the headwind from the prior year sale of LNG, partially offset by lower changes to the sale of equipment project estimates and lower costs with our continued focus on productivity improvements. Moving now to Slide 11. We continue to generate strong cash flows from our base business, supporting investments in both energy transition and traditional industrial gas projects. Additionally, we returned $1.6 billion in cash to our shareholders. We remain committed to disciplined cost control, a reduction in capital expenditures and strategic asset actions aimed at unlocking value and generating cash.

Moving now to Slide 12. We will review our outlook for fiscal 2026. For the full year, we expect to deliver earnings per share in the range of $12.85 to $13.15, an improvement of 7% to 9% from the prior year. Despite a helium headwind comparable to FY '25, this growth is expected to be achieved through new asset contribution and continued focus on pricing actions and productivity. We also expect a 1% benefit from the rationalization of projects in large part due to the 2 Asia gasification assets we wrote down in fiscal 2025. We are focused on delivering these results in line with the 5-year road map we introduced earlier this year.

For the first quarter of 2026, we expect to deliver earnings per share in the range of $2.95 to $3.10, representing a 3% to 8% improvement from the prior year. Our outlook assumes growth from continued pricing actions and productivity as well as a benefit from the rationalization of projects and lower planned maintenance, partially offset by lower helium. As a reminder, we expect our first quarter to be lower sequentially due to normal seasonality. With respect to capital, we expect to spend approximately $4 billion as we execute on our project backlog, including approximately $1 billion on traditional industrial gas projects and invest in ongoing maintenance.

As we look to derisk our Louisiana projects and optimize our portfolio, we expect to be modestly cash flow positive in fiscal year 2026 and are committed to staying cash flow neutral through 2028 as we close out on several projects. Now we'll open the call up for questions. Operator?

[Operator Instructions] We'll go first to Jeff Zekauskas with JPMorgan.

In your opening remarks, I think you said that you were evaluating proposals to divest the carbon capture piece of the Louisiana project, but you're still evaluating whether you would proceed with the project. So could it be that those 2 events would be linked, that is you would sell the carbon capture piece to a party, and then work with them to provide them hydrogen or hydrogen and ammonia?

Jeff. Yes, let me try to explain that. The idea of this project is basically to transform into a regular hydrogen and air separation project where we supply hydrogen and nitrogen to someone that will produce the ammonia. The CO2 that is being produced by the facility has to be sequestered in order to -- for you to capture the 45Q credit, right?

So what we're basically saying is that Air Products was developing by itself its own pore space to do that. And what we are trying to do at this point, we're evaluating proposals for someone to buy the pore spaces from us and provide the service of the CO2 sequestration or to just buy the pore space from us and provide the service from another location that this company may have. So that's the picture in terms of the CO2 sequestration. And yes, this is connected to the overall project, although if we decided not to go forward, of course, we still have this asset that is the pore space that we can try to monetize in the market.

And as for the Alberta project, because the cost overruns have been so high, why don't you simply stop the project? Or what impedes you from stopping it? And would that project have to be money losing on an EPS basis because the depreciation charges will just be so high from the cost overruns when it comes -- if it comes on?

Yes, Jeff. This project, as I explained before, we have a long-term commitment for almost 50% of the volume with a major customer that depends on us. So we have a contractual commitment that we take very seriously. So we need to finish the project and supply the hydrogen to this customer.

And we have some additional volume that we are working hard to find other ways to place in the market. As you probably know, we already have infrastructure in place in Edmonton. We have 2 other sites that are connected to a pipeline. And this third site will also be connected there.

So we can move the product from these 3 sites to basically all the refineries that are located in that area. So that's the work we're doing with the additional volume, but our commitment to go forward is basically what we need to have in order to fulfill our contractual obligations.

We will go next to David Begleiter with Deutsche Bank.

Eduardo, on the cost savings and the employee headcount, is the 20,000 headcount you're targeting a new base? Or could it go lower from there?

Yes. This is what we are expecting to have at the end of this year. We continue to find ways to rationalize our workforce to make sure that we use all the technologies available. I think we demonstrate that we are reducing our SG&A year-by-year.

And if I'm -- my recollection is correct, I think we said that our original number when we were in 2018 was close to 18,500 people. And our objective is to go back to that number plus the people that we absolutely need to operate some assets that we added since that date. So I would say that we still have some room to go, but it's an ongoing process to always optimize and make sure that you are as competitive as possible.

Very good. And just back on Louisiana. If you do move forward with that project with these offtaker partners you suggested, what would be the CapEx remaining to Air Products?

Yes. We will provide that data, Dave, when we update the project. I think it's -- I hope everybody understands that what we are saying is trying to summarize that no offtake deals, no FID. So Air Products started this project without having an offtake deal.

We paused the project. We're working hard to find solutions for that. The economics of the project, when you look at the natural gas price, the infrastructure that we have in place and the 45Q it is the right place to install green -- blue hydrogen and blue ammonia projects. I think both other ammonia producers and even our competitors that are doing similar projects in Texas and Louisiana saying exactly the same thing that you can be competitive even against gray ammonia in Europe.

So we're working on that, trying to find a solution. I understand we are basically 45 days away from the end of the year. And if I really didn't think that we have a chance to have something, it would be much easier for me to say that today. But we still believe that we can find an interesting solution for this project, and we'll provide a full update before the end of this year.

We'll go next to Duffy Fischer with Goldman Sachs.

Just want to get some insights into the growth into next year. So at the midpoint of your guide, you're up 8%, but there's a negative 4% from helium. So that's really 12%. Melissa called out one from the shutdown of the sale of the Chinese assets, which gets you to 11%.

So of that 11% growth underlying, can you break that out kind of new projects, price, efficiencies, how you deliver that? And is that smooth throughout the year? Or are the oncoming projects back-end loaded?

Yes. We expect contribution from new assets in -- both in Asia and the Americas. That can give us around 2%, 3% growth. And then the balance will come from price and productivity.

I would say, half and half there. We are working very hard on the productivity side, as we mentioned on our headcount slide and on the pricing is a continuous work for us. The helium headwind that we have is very similar to what we had this year. I would say that when we say that this is the headwind for 2026 is basically agreements that we are reviewing and we're signing this year in 2025 or the previous year, now the fiscal year.

Air Products, most of our volume comes from large liquid customers. As you know, our packaged gas business is basically limited to Europe. So we pretty much know where these agreements are going to be next year, and that's where they are at the fourth quarter of this year. So we're pretty comfortable that we understand well the headwind that we have in helium and in the base business, as I said, 3% of new assets and the balance coming from productivity and price.

Great. And I'm sure it's not your favorite subject, but helium was mentioned 29 times in your slide deck this quarter. What is your view on the helium industry going forward? Do you think we've stabilized at this point? So '26 will be the last year of headwind? Or do you think we continue to see headwinds in the '27 and '28 for that product?

I didn't count the number of times, Duffy, but thank you for pointing that. Yes, it's -- we have a lot of debates on that. If we have a structural change in the market or just part of the cyclicality that you always had in helium, right? I would say that there were some significant changes in the way the market operates because of the disappearance of the BLM as a major source of helium globally and in the United States.

And that took away a little bit of the inventory that you had that were able to regulate the market a little bit. I think most of the major players now, they are now installing their own storage. So we have our own cavern, our 2 competitors, they have their own caverns as well. So I hope that this will help regulate the market a little bit.

And from what I see today, I see still some decline in '27, but not at the same level that we had this year. And the best guess that we have is that, that will be the lowest point and the market will stabilize. But we need to see how the sources develop and how the effect of this storage of helium will have in the overall marketplace.

We'll go next to Patrick Cunningham with Citi.

If you decide to forgo downstream investment in NEOM maybe based on unfavorable regulatory environment, whatever it may be, what do the commercial options look like? And would you expect to see any positive EPS contribution in 2027 under a scenario where you have to sell ammonia exclusively?

Yes. We are still talking about the guidance for 2026, right? So we're going to work -- we are working on this issue. We're going to work during the year.

And by the end of 2026, we'll be able to give you more guidance on that. Now, there is no question that in the beginning of this project, we'll need to commercialize the product as ammonia. The market for green and blue ammonia or low-carbon ammonia, whatever you want to call, it's developing. So I expect that we're going to have the ability to sell some of our production in the beginning of the operation as green, and that percentage will grow with time.

What is exactly the numbers? As you know, ammonia, it's own market. It has different pricing dynamics. So we're going to need to wait a little bit more to give you a forecast for 2027.

Understood. And then maybe just a quick one on equity affiliate income. We saw meaningful growth in the Americas this quarter. Can you provide some color on what was driving that and what we should sort of expect for step up or step down across all of the regions and equity income next year?

Yes, I can ask Melissa to answer, but it's basically Mexico for us and they have been -- had a very strong second half of the year.

Yes. Thanks, Eduardo. So -- absolutely, so our Mexican joint venture did see improvements year-over-year. We do expect about a flat going into FY '26. However, we did see a slight decline in our Jazan joint venture in '25, and we actually look for that to be a pickup in '26. And obviously, interest rates do impact that.

So as interest rates do decline, we will see improvement on the equity affiliate contributions from our Jazan joint venture.

We'll go next to Josh Spector with UBS.

Eduardo, I wanted to just ask you about the decision on Louisiana. I mean I think based on investor expectations, you might have had some license to maybe push out a decision there a little bit beyond year-end, but you're having the tax commitment to communicate something here in the next couple of months. So I'm just curious if you could talk about the range of scenarios there. Is that a go or no-go, meaning cancel decision?

Or do you see a scenario where kind of some decision gets pushed out beyond the year-end time frame?

Yes. I understand the curiosity, Josh. And I -- we would like to be able to communicate more at this point, but we really need to wait until the end of the year. Again, this -- I would say that if we are telling you that we believe that we have a reasonable chance to communicate something by the end of this year, it means that we have very advanced negotiations with counterparts on that, right?

It is the largest project or would be the largest projects ever built or probably any other industrial gas company. So it's a very complex negotiation, and we have been working on that for several months now. I would say that from that perspective, it's going well. My main concern on this project really is on the capital estimate for the project.

When you look at the slide, you can see a picture of coal box that we manufacture for this project. So we have all the major equipment done. We have all the engineering done, but we still need to do the construction. And the construction market in the United States is very hot at this point.

A lot of competition from data centers and other people trying to build other structures and coming from different industries and able to pay different prices. I think this is affecting projects for the entire chemical industry. So we are looking at that very carefully, trying to understand what is real, what is not and what is a bubble with the point that if you look at our slides, you can see that we made a point about applying for a major air permit source -- air source permit there in Louisiana. And we did that because our potential counterparts asked us to have the flexibility of running the plant on a gray mold if something happens with the CO2 sequestration that we didn't expect to do or we still don't expect to do because the CO2 is a big contributor for the project.

But -- it's something that the other projects are doing, and we decided to apply for that major permit. And that will take several months. It will probably take up to mid-2026. And from there, you need to do civil construction. So really, the peak of the mechanical and electrical construction would be like mid-2027. And the judgment that we need to make is how hot or not hot the U.S. construction market will be at that point.

So that's where we have been working a lot of details behind that decision, and we will communicate clearly where we are in the project before the end of this year.

Okay. And just a quick follow-up just with the guide for '26. Your comments are minimal volume growth to something to that extent. Just wonder if you could quantify minimal. Are we talking about near 0 growth. And basically, if we end up having a macro environment that looks like where we've been at the last couple of quarters, is that a risk to your guidance? Or is that largely baked in?

Yes, sure. Thanks for the question. So let's be clear. So again, as we stated, we do see several new assets coming on stream, both in the Americas and in Asia.

Those will be ramping towards the back half of this fiscal year. So there is growth in volume associated to new assets. From a market volume perspective, we're not forecasting significant market growth at this time given the macroeconomic headwinds. However, if we see that improve, obviously, our results will improve.

So definitely volume from new assets, but at this time, not forecasting significant market volume due to those headwinds.

We will move next to Vincent Andrews with Morgan Stanley.

Just trying to reconcile the CapEx slide in this deck versus the one in the last one. It looks to us like your CapEx forecast for fiscal '26 has gone from about $3.1 billion to $4 billion. So first of all, is that correct? And secondarily, if it is, what's changed in that slide that's causing that?

Yes. Thanks, Vincent, for the question, and I'll take this one. So the CapEx guide that we gave in the second quarter, obviously was an estimate, right? So as we go through the year, we sit with all the regional presidents and really do a bottom-up forecast on the capital that we're going to spend over the next couple of years.

So we've refined that -- we've adjusted based on new wins in all the different regions and are estimating around a $4 billion CapEx. Obviously, maintenance is a component of that CapEx. We're looking to improve on maintenance and take that down. So this could improve that CapEx number.

But again, that's really a bottoms-up review that we do as part of our plan. So there was a small variance between the Q2 time frame CapEx forecast and what we're projecting right now.

Okay. And then just as a follow-up, separately in the corporate segment, which came in certainly better than what we had and I believe better than where consensus was. The slide -- and I apologize if you already spoke to this. The slide speaks to lower changes of sale of equipment project estimates. What does that mean?

Yes. Thank you. So we do have certain sales. It's a very small part of our business, but what we would call a sale of equipment.

When we sell a project to a company that's not going to be a long-term sale of gas project. We have had some cost increases associated to certain projects that are sale of equipment that are again accounted on a percentage of completion accounting perspective. So as cost increases there, we show that in the P&L. We did have some smaller cost increases this year compared to last year, and that's really what you're seeing flow through there.

We'll move next to Chris Parkinson with Wolfe Research.

So let's talk about your base business a little bit, particularly electronics. Can you just go over kind of how we should be thinking about the intermediate to long-term growth algorithm that you have in your portfolio and how that exposure evolves with [ M.2 HBM ] growth and everything else. I'd love to hear your thoughts on that as well as where you think Air Products just broadly stands relative to peers in terms of what's embedded in, let's say, your non-large project outlook as it relates to your backlog?

Thank you, Chris. Yes, electronics represents roughly 17% of our total sales in Air Products. It's a very important segment for us. We were really the pioneers in the area, initially with Intel, now with the other players.

It's a market that is expanding very quickly. We have plants that we are commissioning right now. We have investments on other plants in Asia that we're doing, and we are in the process of participating bids for several others, right? As you know, the investment in this area has been very, very strong.

So it's probably the brightest area we have for our traditional business, and it's an area that we have been focused a lot. I really -- on your point on the other products, I really would like to get a little more clarification exactly what you're asking other than the portfolio of new projects.

Are you happy with where your existing electronics backlog exists relative to peers, given everybody has been wrong over the last few years? Or is that something you'd like to focus on as CEO?

Yes. No, no. I will never be happy with that because I always want to have more than that. We're working very hard to get some new opportunities.

We believe that there are some new projects that we will be able to announce in 2026. And I -- but I still believe that we have a very, very strong position in this market. And I have no other way to make comparisons with our competitors. I think our position on that market is stronger than it is in most markets.

And if I could add one point. So one of the assets that we spoke about is coming on stream this year is in the electronic space in Taiwan. So that's the starting of the ramp of that project. So that's one good example. But in the near term, where we're going to see improvements in the electronics space for Air Products.

Yes. And the reality is in these places, it's like a continuous project because they have so many expansions and we are always building new plants in Asia, and hopefully, we will be able to move that to other regions as well as these customers, they start to invest outside of Asia.

Got it. And just as a quick follow-up. To the extent that you can, can you talk about just kind of how we should be thinking about the run rates from Uzbekistan as well as like GCA and some of these other projects which have had some maintenance or kind of been more start and go. Could you just perhaps just give us a little framework on how we should be thinking about those as well.

Yes. Uzbekistan is a very large syngas facility. It's operating well. We had a maintenance this year, but it was scheduled maintenance, this kind of plants you have to do that every few years.

So no real issues there and the plant is running at very high rates at this point. And GCA is a project that we are still working on to basically bring to completion, and it's one of the projects that we expect to contribute this year in 2026.

We'll go next to John Roberts with Mizuho Securities.

Are you still anticipating doing ammonia cracking in Europe and building an ammonia cracker there?

We are still waiting to see what the final regulation will be in Europe. As you know, they have this regulation to convert 1% of the fuels to RFNBO. This is for 2030 now. This has to be transposed by each country.

There is other regulations that are probably not going to move. But this one, everything indicates that what you see in most countries, they are even proposing higher percentage than that. So I think Spain is 4%, Germany 1.5%. But all this has to be ratified and the expectation now is that we'll see this transposition of the regulations by March of 2026. So when the regulation comes out, then we're going to understand the size of the market with the best information we have today, it's not a huge percentage of the fuels.

But when you think about green hydrogen volumes that are really, really small, that will generate a market. I think in our slides, we said that if the number is 1% is like 7x the volume of NEOM. At the current regulation levels that we see, that number is more like 20x. Again, these volumes, they can be supplied by local production using electrolyzers with renewable power or they can be supplied by cracking ammonia coming from a place like Saudi Arabia.

So it's really a way to do some arbitrage on power prices and so forth. So we need to see how these ends. We need to see how the market develops and what opportunities we have. If the project makes sense, again, and if we have an offtake agreement, then we can do an FID and move forward with these projects.

If not, will need to go in a different direction. But at this point, indications are that there will be a market, not a huge market, but very significant compared to the existing volumes in terms of green hydrogen and green ammonia.

We'll go next to Laurence Alexander with Jefferies.

Earlier this year, when you put out the target of 6% to 9% growth through '29, what was your assumption around NEOM? Was it your predecessors' framework of realized prices will be roughly double the market price? Was it just a placeholder, 10% IRR? Was it -- can you give us some sense of what was embedded in that framework from the NEOM asset.

No, we didn't add any kind of very large contribution from NEOM. At this point, we have the contribution from the JV point of view. The contribution from the product that we'll need to sell from there is something that, as I said before, we need to continue to work on to get a better understanding of what the numbers will be. But on our guidance for that high single digits between now and the '29, we count with a minimum contribution from that project.

We'll go next to Matthew DeYoe with Bank of America.

Two questions for you. I apologize, the first one is going to be a little long. So if I look at your performance versus Linde, Europe really shows the biggest opportunity for improvement. And notably, I think price there has kind of underperformed materially if you go back or look even to COVID or pre-COVID.

I know helium is probably in there, but I think fundamentally, when electricity prices rolled over in '22 and '23, it looks like Air Products just like handed price back to customers and Linde didn't. And so net, you have a pretty wide margin differential between the two. I mean when -- do you kind of agree with that view, but is there an opportunity to catch up on the price differential? Or is raising price unilaterally like too difficult?

And then, as my second, is there a world where you can just like monetize the $2 billion so cost in Darrow to another company that's looking to do a project along the Gulf Coast that might have maybe different strategic goals from Air Products. So I don't know, maybe you can get like 50% of that, right? Is there a way we can walk away with $1 billion and just say that's better than just a full project walk?

Yes. On the -- we starting with the last question first, yes, absolutely. As I said, we have a lot of the critical equipment done for the project. the project has good economics. So that's definitely what would happen if we decide to cancel.

We would try to monetize as much as we can. And I don't think your estimate of 50% is a bad estimate at this point. But again, this is something that you need to go and understand and see how much you can recover from that. On your first question, and I've seen your report on the prices in Europe and I think we're still trying to understand exactly the comparisons there because when you do comparisons quarter-by-quarter, not in an average for the year, you get to different results.

And I think we can talk offline and explain a little bit of that to you. But when you look at performance in Europe. Yes, I understand our competitor improved a lot of their performance. I have a personal understanding for what exactly happened there.

You always need to understand that Europe is -- it's easy to talk about as one market, but there are several different markets in Europe. It's easy to see that when you think about an island like the U.K. But the reality is, when you talk about industrial gases, Iberia is an Ireland, Italy is an island. And really the only large common market we have in Europe is the space between France and the Benelux in Germany.

Eastern Europe also doesn't have the same geographical barriers, but the density also leads to the point that you have several different markets here. So when you think about that, and you forgot about Scandinavia, it's also a separate market. If you look at the positions that we have and the positions that our competitors have, the margins are little -- you can understand a little bit the differences in margin. I'd not say that we cannot improve our business in Europe.

We're working to do that, to make it better on every line of business that we have. But I think the difference in performance is a little smaller than what you are -- you were calculating there just because of the positions that we may have or not in places like Scandinavia or Eastern Europe. But -- so that's the point I can guarantee you we're not giving -- we're not giving price back and we're working on our pricing day by day in Europe. And I look forward to have our group here reaching to you and talk about the difference on how you calculate that when you look at quarter results and annual cumulative results on pricing.

We'll move next Arun Viswanathan with RBC Capital Markets.

Just a clarification on the helium headwind. So I think maybe this year came in just slightly below your expectations. I think you're guiding at $0.55 to $0.60, maybe that's $0.49, so maybe that was a little bit better. Maybe you can just clarify that.

And then on the helium headwind for next year, it looks like Q1 is maybe a negative 6%, but then the full year is negative 4%. So that appears to be projected to get better as you move through the year. What's your confidence in that, I guess? And is there a possibility that it could get worse?

And then for my second question, just on CapEx, is there a possibility that maybe -- what kind of flex do you have there? Would you go down to maybe $3.5 billion if necessary for fiscal '26? And how soon you make those decisions? What kind of freedom are you giving yourselves to or time to make some more difficult decisions, I guess, if you need to?

Great. Thanks. I'll take this question. So let's start on helium.

So you are right. We had forecasted between $0.50 and $0.55 headwind on helium for the full year. We came in at $0.49. So a little bit better than we had forecasted, but not significantly off. For FY '26, we're looking about the same run rate as what we saw in FY '25. Obviously, there are areas that we're going to continue to look to be able to push volume and price, but this is a difficult market.

One of the things that I do want to remind everybody is that in Q1 last -- or this year, we had a bulk helium sale that we disclosed. That is causing a significant headwind as we lead into FY '26. So that is the difference in Q1 that you're seeing as a year-on-year comp that is giving us a little bit of a tough headwind. But again, full year, about 4% is what we're forecasting, 4% headwind coming into FY '26. Now on CapEx. So for CapEx, it's really a component of execution against our projects, right?

So as long as we're continuing to execute against the projects that we have in our backlog, we will see that $3.5 billion to $4 billion. That is not something that would significantly change or that we need to make a decision on. Now as for Darrow, we obviously have commitments on purchase orders that were continuing to progress, but no new commitments are being made. So I don't see a significant variance or decision point that would change the FY '26 CapEx forecast.

So between $3.5 billion and $4 billion is a number that I am pretty confident on.

We'll go next to Kevin McCarthy with Vertical Research Partners.

Can you elaborate on the decision to sell to coal gasification projects in Asia curious about what exactly you're divesting, whether you have any firm deals in hand today? If so, cash proceeds and any impact on your sales in Asia?

Yes, Kevin. We -- as we explained, I think, 2 quarters ago, we have 3 major coal gasification in China -- projects in China where we own and operate the coal gasification part of the project. We have several others that we have the oxygen plant, but that's a different story. Out of these 3 projects, Lu'An is the largest one, and we have absolutely no issues with this project.

It's operating. It's probably one of the largest coal gasification sites in the world, and this is continuing normally. We have 2 other sites that -- those are the sites we're taking actions that we have no operating issues, but we have customer issues. And we have been trying to work these issues for some time.

These projects really -- they have been a drag for us in terms of operating profit. We have been booking only the sales that they have been able to pay. So the impact on sales is not exactly very large for us. And we decided to -- after several months of negotiation we decided to set these assets aside for sale.

And we are in the middle of that process. I cannot give you specific data and value of when we can close this sale and the amount of money that we're going to be able to collect. But of course, we're trying to maximize the valuation. And we believe that the entire asset may have a better owner than us and the current owner of the syngas to methanol to olefins plant.

So we hope that we'll be able to find that and monetize this asset better than what we would have if we keep running these plants.

Eduardo. My second question is a bit of an unusual one. Would you comment on the market for rare gases, like crypton, xenon, neon, are you seeing any escalation of competitive intensity in Asia? And if so, is it meaningful? Or is it simply too small to matter given the small size of those markets.

Yes. Air Products, unfortunately, is not a big player in this market, traditionally. So it's not something that we focus a lot. We have seen some degradation in pricing and increasing in the competition level from other players. But really, it's not something that affects us that much. So I don't think I would be the right person to give you a feedback on that.

We will take our final question from Mike Sison with Wells Fargo.

One quick one on Louisiana. If you get to partners for sequestration pneumonia who want a similar return that you would want, is there still a good return on the hydrogen that you would do longer term? I suspect that -- that's kind of what the board of partner is looking for. So maybe just flesh that out as a scenario.

Every -- we are looking at this, Mike, as a normal hydrogen project for us. So we have our criteria. The customer has its own criteria. And it needs to work for both sides for the product to move forward.

That is all I can tell you. If it doesn't work for them, it's not going to work for us. And I believe there is a room today to get to the right returns. As I said, to get the right returns, you need to have a commercial negotiation on pricing, but we also need to have a firm estimate on the capital cost, and that's also part of the equation here.

And that will conclude the Q&A portion of today's call. I would now like to turn the call back to Eduardo Menezes for any additional or closing remarks.

I would like to thank everyone again for joining our call today. We appreciate your interest in Air Products, and we look forward to discuss our results with you in the next few quarters. Thank you, and have a great day. Bye.

Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.