Q2 2026 Earnings Call Transcript

Good morning, and welcome to Air Products' Second Quarter 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 Megan Britt.

Hello, and welcome to the Second Quarter Fiscal 2026 Earnings Conference Call for Air Products. Our prepared remarks today will be led by Eduardo Menezes, Chief Executive Officer; and Melissa Schaeffer, 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 or furnished to 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 margin, the effective tax rate, ROC and net debt to EBITDA on a total company 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. Before we begin, I want to take a moment to express my appreciation to the entire Air Products team, especially the more than 3,000 employees of our direct operations and minority-owned joint ventures in the Middle East. During this period of uncertainty, our people have continued to show dedication, staying focused on safety, reliably serving our customers and supporting critical projects and operations.

Now please turn to Slide 3. Earlier today, we reported results for the second quarter of fiscal 2026. We delivered a broad-based operating income improvement across our reporting segments. Earnings per share of $3.20 increased 19% compared to the prior year quarter on improved volumes, productivity and currency. We also experienced reduced headwinds from with volumes better than expected Q2 Aerospace. Our operating margin of 23.7% was also up compared to the prior year quarter, reflecting the strong underlying volumes, particularly in our on-site business as well as the continued benefit of cost productivity.

Return on capital of 11.4% was in line with prior year and improved sequentially. Overall, we were able to improve our business performance during the first half of the fiscal year and effectively manage the market dynamics that have emerged due to the recent Middle East conflict. Moving to Slide 4. We remain focused on 3 key priorities for 2026, consistent with our strategic road map. On unlocking earnings growth, we are raising our full year earnings guidance which now implies an improvement of 8% to 10% at the midpoint of the full fiscal year.

We expect EPS growth to be achieved primarily through our continued focus on pricing actions, productivity and new asset contributions. Additionally, we anticipate a more favorable operating environment in the second half for improved volumes in several key end markets, including refining, electronics and aerospace. On our second priority, we continue to make progress on optimizing our large project portfolio. On NEOM, negotiations on a marketing and distribution agreement with Yara are progressing in line with expectations.

The project continues to make progress and is ready to produce renewable power that will be used in the commissioning of the hydrogen and ammonia plants. Notably, activities at NEOM have not been impacted by recent events in the Middle East. We continue to monitor the situation closely and prioritize safety. On the Louisiana project, we have set a high bar from moving forward where we required a reliable capital cost estimate and construction agreements that meet our project risk-adjusted return requirements.

We are currently revealing construction bids from EPC firms and remain committed to reaching a go, no-go decision in conjunction with our partners by the middle of this calendar year. Finally, on our third priority, maintaining capital discipline. We are staying focused on our capital allocation, invest in growth projects and returning cash to shareholders. As we have previously indicated, we expect to reduce our capital expenditure by approximately $1 billion in fiscal 2026 and remain on track to achieve that objective.

We are focused on investing in our backlog of traditional industrial gas projects and have strengthened our project pipeline in electronics and aerospace. In the electronics area, we are currently executing approximately $1 billion in ASU and hydrogen projects in Asia for several multiphase projects serving semiconductor and memory customers. We expect to add another $1.5 billion to $2 billion to backlog in the next 6 months, including the project we announced yesterday to build, own and operate multiple production facilities in both specialty gas supply systems for a new advanced fab with Samsung in South Korea.

We also have announced our intent to build, own and operate a new ASU in Florida to further enhance our support for our space launch customers. Lastly, we remain committed to disciplined capital allocations that ensures that we are well positioned to continue our strong track record of returning cash to our shareholders. In the first half of fiscal 2026, we have returned $800 million to shareholders in the form of dividends. Please turn to Slide 5. As has been widely reported, recent events in the Middle East have resulted in curtailment of helium supply from Qatar.

Helium is an important product line for our products with the largest end market sales in electronics, aerospace and medical. Air Products helium supply chain is very resilient with one, multiple sources in the U.S. in addition to our long-term partnerships in Algeria with Sonatrach and in Qatar with Qatar Energy. Two, a dedicated helium storage cavern in Texas, which has been operational for nearly 5 years. The cavern contains a significant volume, allowing us to provide high supply reliability to our customers when one of our sources is unable to produce as we are now experiencing. And three, a large helium ISO container fleet produced by our subsidiary, Gardner Cryogenics, which provides flexibility and responsiveness in managing supply flows during periods of uncertainty.

Since the beginning of the conflict, we have activated our contingency plans, drawing product from the cavern and positioning our container fleet to bypass conflict-affected areas. We look forward to our partners in Qatar resuming normal production as soon as possible. But until we -- that can be achieved, we are well positioned to enable supply chain resilience through this current supply disruption. We are working very closely with our customers to meet our commitments to them and capture long-term volume growth in critical end markets.

Moving to Slide 6 before Melissa shares detailed quarterly performance, I wanted to offer some additional context on end market conditions. Given the ongoing conflict in the Middle East, we are closely engaged with key customers in each end market. We are also working strategically beyond current events to fully participate in compelling end market growth. Entering the fiscal year, we have a relatively conservative view given muted outlook for industrial production and manufacturing growth.

Now with our performance through the first half, we are more confident about a sustained level of industrial activity and the potential for continued volume growth in some areas. Though the ongoing conflict in the Middle East introduces some uncertainty, we expect a combination of favorable dynamics in core end markets and some new wins to support volume improvement. Looking at a few highlights. We see strong run rates across our refining customer base, particularly in the U.S.

Gulf Coast where we serve a large number of complex refineries that can process heavy sour crudes and produce high-demand products such as jet fuel. We expect U.S. refineries continue to run hard, which will support higher on-site volumes. Moving to Chemicals. We are closely monitoring supply chain conditions that would impact volumes.

In Europe, challenges securing feedstocks and high costs that customers cannot mitigate with pricing could have an impact on run rates. Beyond Europe volumes are relatively stable. Additionally, we expect to see stronger oxygen demand from our coal gasification customers in China where increased oil and LNG costs are supporting higher volumes. Electronics and aerospace continue to be bright spots. We have historically had a meaningful percentage of our sales in electronics and are benefiting from increased volumes in this end market due to a new asset onstream this year.

The industry is in the midst of a historical super cycle period to satisfy AI demands with record CapEx expenditures projected between now and 2030. This expansion will generate expansion opportunities for industrial gas providers. Currently, we are working closely with our large long-term electronic customers in helium supply. Already with the long-term agreements signed during the last 6 months, we expect our hidden volumes to large electronics customers in Asia to more than double between 2026 and 2030. Finally, in Aerospace, we have continued to see volume improvement in launches, engine testing and manufacturing.

We were very proud to be part of the recent NASA Artemis 2 mission where our products supply liquid hydrogen and liquid helium using our proprietary liquid helium pumps. We see a tremendous opportunity to continue to grow in the space area and our recently announced investment is expected to increase our participation of both NASA and commercial launches. Now I'll turn the call over to Melissa to discuss our financial results in greater depth and review our 2026 outlook. Melissa?

Thank you, Eduardo. Hello, and welcome to those joining our call today. Please move to Slide 7 for a high-level summary of our second quarter financial results. Sales were up 9%, while operating income grew 19% on volume, currency and lower costs, partially offset by price headwind.

With respect to volume, we saw growth from on-site in part due to the increased production from our U.S. refinery assets and new assets coming on stream in Asia. We also lapped a major turnaround in our Europe segment. Merchant volumes were stable, including a modest improvement in helium. On price, the headwind from helium was partially offset by pricing from non-helium merchant products, particularly in the Americas and Europe.

The base business once again delivered this quarter and operating margin expanded over 200 basis points to 23.7%, despite a 50 basis point headwind from higher energy pass-through. We have seen margin expansion in part due to our productivity initiatives. We have recognized approximately $50 million in savings year-to-date from head count reduction, which is on track with our plan for the year. Earnings per share of $3.20 grew 19% from the prior year. and exceeded the top end of our guidance range due to stronger on-site volume and better-than-expected helium volume from space launches.

Return on capital of 11.4% was in line with prior year, and up 40 basis points sequentially on strong base business performance while we execute our project backlog. Moving now to Slide 8. Our second quarter earnings per share of $3.20 increased $0.51 or 19% from prior year. We continue to see helium headwind driven by lower price. In line with our guidance, currency was favorable 3% as the U.S. dollar weakened against our key currencies.

The base business remained resilient in an uncertain macroeconomic environment. The growth from our on-site volume, non-Helium pricing, continued progress on our productivity initiatives and lower depreciation was partially offset by fixed cost inflation and planned maintenance outages in the Americas. In addition to the strong base business performance this quarter, we also saw improved accrete affiliate income, primarily in Mexico. Moving now to Slide 9. I'll provide an overview of our results by segment.

You can find additional details of the quarterly segment results in the appendix. For the second quarter, Americas operating income growth of 2% was primarily driven by on-site volume. Merchant volume was also up, including helium supplied for the space launches. Additionally, non-Helium merchant price contributed to the results.

This improvement was partially offset by prior year income from a onetime customer contract addendum, lower price in helium and higher power costs and maintenance turnarounds in the quarter. Operating income grew 25% in our Asia segment, primarily due to continued productivity improvements and favorable on-site and helium volumes. We saw a modest contribution from our new assets as they continue to ramp up, which we expect to further contribute in the second half of our fiscal year. Additionally, reduced depreciation from certain gasification assets classified as held for sale also benefited our results.

This improvement was partially offset by a headwind from helium pricing. Europe operating income increased 8% due to the favorable on-site volume, including a prior year turnaround, as well as favorable currency and non-Helium price. We saw higher costs in the segment, including depreciation and fixed cost inflation as well as helium volume and pricing headwind. In our Middle East and India segment, operating income improved on lower cost, while equity and affiliate income was slightly positive.

Lastly, the Corporate and Other segment results improved due to lower sale of equipment cost headwinds as well as continued strong productivity. Moving now to Slide 10. Our base business continues to generate stable cash flow as we execute on our project backlog for both energy transition and traditional industrial gas projects. We remain on track to reduce capital spend by more than $1 billion relative to the prior year. Additionally, through the first half of the fiscal year, we returned $800 million in cash to our shareholders in the form of dividends.

As it relates to our leverage, our net debt-to-EBITDA ratio is 2.2x. We are committed to bringing the company back to an A/A2 rating over the long term. Please turn to Slide 11, where we will review our outlook. With a strong first half and outperformance in the market volume, we are raising our fiscal full year guidance to $13 to $13.25 or 8% to 10% growth from the prior year.

However, we remain cautious given uncertainty around the macroeconomic environment, especially in Europe and Asia. In the second half, we expect to see benefits from continued non-Helium pricing actions and progress on our productivity initiatives, while new assets ramp up. We still expect helium to be a headwind due to lower price while we look to capture long-term volume commitment. Specific during the third quarter, we expect to deliver earnings per share in the range of $3.25 to $3.35, representing a 5% to 8% growth from the prior year.

For capital expenditures, we are maintaining our guidance at approximately $4 billion for the fiscal year. Now we'll open the call up for questions. Operator?

[Operator Instructions] We'll take our first question from John McNulty of BMO Capital Markets.

Since the last call, obviously, the Middle East conflict has hit a lot of kind of things that may have changed. I guess maybe -- we can start with one on the project. So NEOM, can you give us an update on the progress there as well as at this point, given the spike in gray ammonia prices concern about industries maybe being beholden to oil, can you tell us if the demand environment has changed all that much for your green ammonia project?

Thank you for the call. Yes, I would say, starting from NEOM, the project, as you know, is on the West Coast of Saudi Arabia. So it has not been affected by the conflict at this point. Of course, we are taking a lot of precautions on the safety side, but we have all the materials in hand.

We have the people on site, and the project is continuing normally in the, I would say. And in terms of the progress, we are basically done with the renewable power side. We just energized the substation using the grid power. The next step is to basically connect the solar park and start commissioning using our own renewable power.

So it's progressing as expected over there. I would say that in terms of the ammonia price, everyone can see what is happening in the ammonia market. I think prices are getting very close to $1,000 a ton. Of course, that creates some speculation on projects and so forth.

But I would say it's too early for us to understand the demand for green ammonia and the impact they're going to have in prices in the long term. Again, this is -- we consider that a temporary effect that will go for a few months. But I think in the long term, it's clear that there is some advantage to be disconnected from natural gas from some areas of the planet. So the U.S. supply of natural gas will be a winner on that perspective.

And I think green ammonia produced by clean power in places like Saudi Arabia, we also can benefit from that, but it's a little early to say that.

Got it. Okay. Fair enough. And then maybe just as a follow-up, I guess we were a little bit surprised given what's going on in the helium markets to see that you still expect about a 4% drag on EPS in 2026. Admittedly, we get, look, some of these are contracts that are multiyear and even the ones that reset last year, were going to be a drag.

But I guess we're a little bit surprised to not see some updraft in contracts that might be getting signed now or on the minimal part that you have that's tied to spot. So I guess, can you help us to think about what's going on in the helium markets and maybe why that's still pretty much the same drag you expected it to be at the start of the year.

Yes. I would say that to start with helium market, it was structurally long before the war. And of course, with Qatar representing 1/3 of the world's volume of helium the market is short now, but we all expect that we'll return to the original state in a few weeks, a few months after the crisis is over. So this is a temporary period that we have here.

As I described in the prepared remarks, Air Products has a very resilient system that was designed to basically be able to continue to supply our customers in the case of interruption in one of our sources like we're having today. It's designed basically for Air Products volumes, not for the entire market. So we may have a little more volume than we had before when we push our cavern. But it's not that significant and really doesn't allow us to supply the volumes that are not present in the market today.

So of course, we are trying to sign longer-term agreements. That's the objective. I think we also made a comment that this didn't start with, the conflict started before that. We were trying to sign these long-term agreements.

We made the point to say that our volumes for helium in Asia for electronics will more than double in the next 4 years. In fact, I expect to be more than that. And so we are focused on that, focused on signing these long-term agreements. We may have a little gain here and there on the spot market.

But it's -- at this point, it would be wrong for us to include that in the forecast, not knowing when the market will come down or come back to normal conditions.

We'll take our next question from Jeff Zekauskas with JPMorgan.

When you think about the Darrow project, you spoke about making a go, or no-go decision. Is it possible that, that project could be downsized? In other words, does it make sense to make half as much ammonia given that you've already invested in equipment that you may be able to use, and then what that may do is limit the inflationary factors in building a facility. Is that a possibility? .

Yes. We look at all that. It's a little more complicated than that. This plant, I would say there is like 3 different process units.

You have the air separation plants, you have the hydrogen generation units and you have the ammonia plants, the ammonia trains, and we do not have exactly 2 trains for each process area. We have one of the process areas that we have 3 trains, which makes it very difficult for us to only execute half of the project. So I would say that this would increase the cost significantly because we would need to build a plant larger than the 50% and would make the economics even more challenging than it is to build the entire facility.

Okay. And then secondly, year-over-year, your average prices were down 1%. If we excluded helium, what would your prices have been? Would they have been up 1%, 2% for the company as a whole?

Yes, sure. Thanks, Jeff. I'll take that question. So from a non-Helium merchant perspective, pricing actually would have been up about 2%. Half of that we would have seen in the Americas and half of that in Europe. Asia and from a non-Helium perspective, was largely flat.

We'll go next to John Roberts with Mizuho.

I'm here for the Yara discussions. Are you and Yara basically on the same page with respect to the risk around CBAM, so that it's not a key issue to getting closure on your discussions or is that a key thing that we need to continue to watch here? .

I think I mentioned that before, the CBAM is not part of our agreement. Our agreement is a U.S. agreement for hydrogen and nitrogen, so it's more a question for Yara. But I think we -- I mentioned that in the last question, the crisis now is making clear to everyone that the big advantage that you have is to be connected to the U.S. natural gas supply, and I think this is much bigger than the CBAM discussion. But I believe from everything I heard from Yara that they understand what the possibilities are in terms of CBAM and that's not part of our discussions with them.

Okay. And then secondly, do you have any material customers in Asia that are down because of raw material supply constraints, either refineries or chemical plants that are taking downtime because they can't get feedstock. .

No, not really. We -- our biggest supply for these sectors are in China. And I would say that China is basically replacing a lot of LNG with the coal facilities that they have. And in fact, we have seen a significant increase in oxygen volumes for this type of plants in China.

Well, next to David Begleiter with Deutsche Bank.

Eduardo, on Darrow, mentioned a high bar for that project. So is the base case still it does not move forward? And if it does not, do you have projects that you could pivot to in short order with that capital? That's my first question.

We...

Yes. So maybe I could take that one, absolutely. So from a Darrow perspective, I think Eduardo has said before that it is, in fact, our base case that we would not move forward. But we need to review the economics as we get the bids in from the construction party that we're talking to.

And then we'll make an economic decision on if we move forward from that. From a capital perspective, we just announced the Samsung project. That is one that we see a significant area of growth in electronics that could quickly replace that capital that we were going to spend on Darrow, and we continue to be very bullish on the electronic space over the next couple of years through the hyper cycle. So again, we have a base case of Darrow of not moving forward at this point in time, but we're reviewing the economics.

And again, we are very bullish on other growth opportunities if Darrow does not move.

Yes. And I just want to make a point here. When I say base case that for Darrow to move forward, we need to reach an agreement. So until you reach an agreement, the base case is that do not -- you don't have an agreement today.

But we're working on that, and we'll see what the result will be in the next 3 months. But today, we do not have an agreement yet to move that project forward, as you know. .

And just on the Americas margins, they were, I think, lower than 3 years. You mentioned power cost turnaround expenses. Would you expect margins to recover nicely in Q3 versus Q2 given those headwinds?

Yes. So when you think about margins in the Americas, one thing you obviously need to consider is the energy cost pass-through, which obviously affects margins, right? So we've seen very strong contributions in our HyCo assets, which has an impact from an energy cost pass-through. But we do expect once the energy cost to subside, then yes, our margins would continue to improve.

We are continuing to see strong productivity there, which obviously will also contribute to a healthy margin moving forward.

We'll take our next question from Duffy Fisher with Goldman Sachs.

Just a question on the coal gasification plants in China. So one, in the quarter, how much was the benefit from the reduced D&A for moving it out of the segment? And then two, I think you've talked about those being collectively net breakeven on an income basis since they're extensively coal to oil or synthetic oil at the end of the day. I would imagine they're much more profitable now and they're probably paying you the regulated percent where I think before you were saying that they were shorting you on paying.

So can you just talk about how the economics of those plans have changed within your P&L? And does that continue to get better from here as long as oil stays above $100?

Yes. Duffy, thanks for the question. And so yes, we have put 2 of our coal gasification assets held for sale in China. The impact to the quarter is a little bit of twofold.

So let's say, around 1%, 1.5% as far as the cancellation or the stop of the depreciation. And then you're absolutely right. Coal and methanol, it has improved from an economic perspective. So we are collecting on past dues that we did not have in our previous results because we are being prudent and fully reserving those items.

And that collection is really about a 1% to 1.5% tailwind for us as well. But we are actively pursuing the sale of those assets, and we will continue to do so.

Great. And then, Eduardo, if you could maybe just pontificate a little bit. When do you think under 2 scenarios that your helium pricing stops being negative? One, if there's a fairly quick resolution with Qatar and two, if this stays semi-permanent what do you think happens with your helium pricing? Basically, when do we see the inflection that helium stops being a negative on price? .

Yes. We were expecting helium to bottom by the end of this year. We still expect that to be the case. You need to remember that it's all a function of what we are comparing with, right?

So we started from a very high price level. And we're working on signing these long-term agreements. Our agreements are on average, between 3 and 5 years. But more recently, we have been signing agreements even longer than that as people get more concerned with reliability of supply, right?

So the system that we have with the cavern that we can bring product to the cavern, store as a gas and then take the gas as liquid and bring to one of our facilities to liquefy. It's very reliable, but it has a cost, right? So you just think about the just in inventory. We have hundreds of billions of dollars in helium in our cap.

So this system has a cost. It is much harder to get value for that cost when the market is long. The conversations are much -- it's not easy, but it's a little less difficult to get these long-term agreements right now, and that's what we are focusing on.

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

Melissa or Eduardo, just the way your second half guidance kind of just works out, it implies a fairly low single-digit growth rate in terms of EPS for the fourth quarter. Is that -- is there something else going on there? Is there something we should be monitoring in terms of turnarounds, hydrogen demand, you already went over helium, baseline merchant pricing. I just -- or is that just, hey, we want to see how the year turns out -- the fiscal year turns out just based on the degree of uncertainty out of the Middle East?

Chris, thanks for the question. So we have raised our guide, increased about 10% or $0.10 from the mid, right? And so if you think about the strong first half that we had, if we build on that, first, we look at market volumes, right? We do expect some continued market volume improvements largely in the Americas, like we saw in the first half.

We also have new asset contributions that we look to continue to increase, both in the Asia and Americas that will see some contributions continue to increase in the second half. However, we do remain uncertain about the macroeconomic environment, especially in Asia and Europe. Additionally, we're closely monitoring our customer supply chain conditions with impact on the Strait of Hormuz. And finally, we do have a turnaround that we moved from Q2. We're expecting in Q2 that will move and spread between Q3 and Q4 so that will have a bit of a headwind for us as well.

So we do have some green shoots in the Americas from a volume perspective, new asset contributions, but we do want to make sure that we're monitoring closely on the macroeconomic environment in Asia and Europe as well as, again, additional turnarounds.

Got it. And just as a quick follow-up, in the Samsung release from yesterday, you used the phrase, the greatest investment -- the largest investment in the semiconductor industry, I believe to date or something along those lines. Is that -- just to confirm definition here, considering you, I believe, did $900 million to build some in TSMC, does that imply that the multi-stages for Samsung would be in excess of that amount. Is there any more framework you could perhaps add?

And also, just a quick kind of side note, is this something you expect to be more consistent in terms of bidding activity over the next 12 months or so?

Yes. I think the message is exactly how you described. It is the largest investment we ever made in the electronics side, and we're not going to disclose the number, but the reference that you made through a previous project is correct. So that's all I can say about that.

This is probably the largest site for electronics in the world today. Air Products was the first supplier for that site on the Phase 1 and the phases are getting larger in terms of industrial gas consumption. So this is the fifth phase of the site and the volumes we're going to supply under this agreement when it's completely built is approximately 3x larger than what we did in Phase 1. So that gives you an idea. So it's a very significant project for us.

We are very proud to have reached this point with Samsung. And -- but it's just a start of probably a 4-year construction that we have to do in the multiple phase projects like that things. And on your other question about -- I'm sorry, the other question about the -- what we expect in terms of bid activity. As we said, there is a -- I've seen numbers in excess of $0.5 trillion of CapEx being spent by semiconductor and memory manufacturers.

And of course, there is a lot of projects in industrial gases. They are growing in volume, and we're working hard to get our fair share of that.

We'll go next to Vincent Andrews with Morgan Stanley. .

Just looking at Slide 17, corporate and other the operating income hit was a lot less year-over-year and sequentially. You called out lower changes to sale of equipment project estimates. Can you just give a little detail on that? And then also help us understand whether this is a good run rate for the rest of the year?

Or is there just some lumpiness? And maybe the back half will be a little bit higher in the run rate will sort of mean revert higher. That's my first question.

Yes. Thanks, Vincent. So speaking to our Corporate and Other segment, it is a bit of a mixed bag. But you are correct that the vast majority of the improvement was the prior year cost increase that we saw on a sale of equipment project, again, which is a percentage of completion projects, so increased costs go to the bottom line.

So it was a bit of a function of a prior year aspect. However, we do continue to have strong productivity in our Corporate and Other segment as well. So we will continue to see that flow through from a year-on-year perspective as we continue to reduce head count and rightsize the organization.

Okay. Maybe you could just give us a little sense of what that number should look like in the back half. And then I'd also ask, on the tax rate, it came in a bit lower than we thought for the quarter. It was down about 1 point year-over-year and about 0.5 point sequentially. So is this 18-ish percent, is that what we should be using for the back half?

So yes, thanks for the follow-up there. So from an ongoing perspective, I think that the run rate that we had this quarter should be consistent with what we see in corporate for the rest of the year as we should not have any more sale of equipment headwinds. So that comp will continue to flow through for the rest of the year. From a tax rate perspective, yes, 18 is the number that we should be forecasting against.

We did have some U.S. investment tax credits and increased estimates for a Dutch investment incentive that reduced our ETR for this quarter, but we should see that flow through the rest of the year.

We'll go next to James Hopper with Bernstein.

First question. Can you talk about -- a little bit about the pricing dynamics for the non-helium gases through the rest of the year? Obviously, you mentioned that plus 2 from Europe and Americas. But will the kind of come in inflation mean that your Asian pricing assumptions has changed also?

I'm sorry, I didn't get the last part. What assumptions do...

For Asia.

The Asia, yes. Asia is a little different. I think the dynamics there is China is a hypercompetitive market. I think every Western company will tell you that the PPI, CPI is negative for the last several years, and it's a really difficult file to keep your prices stable in China.

Outside of that, I would say, in Europe and the U.S., we consider the pass-through a separate issue. I would say that in pricing, we continue to make progress. And our goal is always to be able to pass inflation to that we experienced in our business to prices. So I expect that to continue to be the case in the near future.

And with helium, of course, subsiding the effects year-over-year, as I said, by the end of the year, we hope that the helium headwind in pricing will be done as well.

And then just in terms of the follow-up, Slide 6. Can you -- I thought it was very useful. Can you just give us a few indications of where you expect the biggest kind of shifts in your end markets to come from the second half versus the first half? For example, in chemicals. Are you seeing any European volume improvements based on some of the kind of Asian supply outages? .

Yes. In Europe, as you know, they benefit in terms of pricing from the absence of the Middle East supply in the market. But on the other hand, they are suffering from cost inflation on oil and natural gas. So it's a difficult dynamic.

I don't think the European industry is structurally changing the issues that they have, the chemical industry. I think they will be back when the conflict is over. But I think in this window now, we are basically seeing things a little stable, but Air Products is not a very large supply of the chemical industry in Europe. So you probably can find -- get better answers from other companies on that.

I would say the segments in general, as I said, electronics is a big bright spot for us. We are working to capture that. Same thing with aerospace energy in U.S. because of our connection in the pipeline system in the Gulf Coast with refineries, this is running at record levels at this point. So our hydrogen volume never been so high as it is right now.

So that's going okay. And the auto segments like food and medical, they are very stable, and they are less cyclical than other segments here.

We'll take our next question from Kevin McCarthy with Vertical Research Partners.

Can you speak to your degrees of freedom on the supply side of the helium market? I appreciate you have large inventory buffer and you're taking steps to maintain highly reliable supply. But in the scenario where we have a prolonged conflict, what are you doing differently? How much might you be able to increase sourcing arrangements and liquefaction?

Maybe you could just kind of frame out how you're operating today versus 2 or 3 months ago.

Yes. I would say, Kevin, most of our flexibility comes from the position that historically we have in Kansas in area that we are on, we were connected with the BLM. We're still connected, but we get very low volumes there. We have some other private volumes that we are able to liquefy in our plan, but we have access liquefaction capacity.

And our project with the cavern was connected to that. So the constraint that we have is really the ability to move the products from Texas to Kansas and then the second constraint would be the liquefaction capacity that we have over there. So we are working to maximize both points to eliminate these constraints. It is not an easy supply chain because you have to -- from East Texas to Kansas, like 900 miles one way. but we are working on that to maximize that.

But we can probably cover one of our sources being down. As you know, in Qatar, we are connected to, which is a different source. It's not the LNG source is the local natural gas grid there. So we are able to replace that, but not much more than that.

So I would say that the design was for -- to cover our customers. And if this thing gets prolonged for a long time, it will be a tough time for the market. But I would say that at the end, the customers that need the product the most, I think the market will find a way to keep them supplied. That's my guess at this point, but I can only talk about products in our supply.

Very helpful. If I may ask a second question. Can you speak to what you're baking into your financial guidance for volume growth in the back half of the year? I think your 4% number in the fiscal second quarter was the best in 3 years.

And it seems as though some of the impetus behind that is to do with the energy market changes, right? Refinery hydrogen and maybe some gasification as well. But I think PMIs have been broadening and improving. So how are you approaching the back half in terms of call it, nonenergy-related demand trajectory?

Yes, Kevin, we had a lot of debate on that on how to set our guidance. And as you imagine, it's not an easy situation, right? We -- the conflict -- we are in the middle of this conflict. What we have now is a ceasefire, right?

So no one can tell you what the situation will be 1 month from now, 2 months from now, what the oil prices will be, what will happen in the LNG market, what will be the energy prices in Europe and so forth. So in the absence of clarity on this point, what we did was basically, we adjusted the guidance based on the beat that we have in the second quarter. And at this point, it would be premature for us to change what we forecast before for the second half of the year. I hope that will be better.

But again, anything can happen, right? We didn't expect this conflict to happen. I don't think anyone did. And when the impact we've seen in helium, for example, was not one of the scenarios we expected.

We had a scenario of one of the Qatar plants being down for technical reasons. That always happen, but we never had a scenario that 3 plants will be down at the same time because this trade is closed or because one of these facilities impacted by the war. We understand that one of these facilities trying to bring it back to production. The one that we have connected is supposed to come back in a year -- in the next few months.

Of course, there is the issue of how we move that product considering the logistic issues that you have right now, but there is a lot of uncertainty in the market. And based on this uncertainty, we decided that the prudent thing to do was to keep our second half of the year guidance that we had before.

We'll go next to Patrick Cunningham with Citi.

Just on Helium, just additional follow-ups there. If the supply disruption persists, would you need to put customers on allocation? How long does it take alternative supply sources to get qualified with some of the larger semiconductor customers? .

Again, we -- from the products perspective, we have the inventory, and we're working to replace the volumes that we were taking from Qatar. In fact, the plant that supplies in Qatar was down since December. So we were not taking product from Qatar since December. So it didn't change the conflict didn't change that much.

The situation that we have, and we have enough product to supply our customers, and that will be our position going forward.

Understood. And could you provide an update on the Alberta project in terms of offtakes timing and any update to costs?

There are no updates on the project. We continue to find a way to improve the conditions. There is some -- on the regulatory side, there is things that are moving in Canada. We're trying to understand exactly what the final regulation will be and the impact that we have in the project, and we have been working with the government of Canada and the government of Alberta to try to improve the conditions the best we can for this project.

We'll go next to Josh Spector with UBS. .

I was wondering if you could give us a size of what your backlog is now for profit contributing projects, considering you've signed a few more versus where you were at 6 months ago. Can you help us think about what comes online over the next few years or just a total number for us to be thinking about?

So we look at our backlog in a pretty consistent way, right? So this is things that are contributing, have been approved by the Board, but one thing, obviously, we have talked about is the NEOM project that has been variability in the impact of that as we lead up to the 2030 when CBAM and RFNBO is fully in ramp. But right now, again, the backlog is $9 billion. I do feel positive about the growth in the electronic space that we'll see continued contributions and winning our fair share of projects in that space.

And we've given the 5-year forecast. Previously that shows our mid- to high single-digit growth from an EPS perspective, both from contributions on the base and market growth as well as new assets coming on stream. And as I've mentioned previously, we have 2 new assets that will be contributing to the back half of this year, and we see that continuing as far as contributions similar throughout the rest of the next 5 years.

Okay. Appreciate that. And maybe I should have qualified and said, excluding NEOM, Darrow and all the projects that you guys have highlighted is nonprofit contributing. What does that trim that $9 billion down to?

So we have a little over 2.5 in our, what we would call our traditional industrial gas backlog. A significant portion of that is in the electronics space. .

We'll go next to Mike Sison with Wells Fargo.

There's a relatively sizable IPO coming at the summer in space. Just curious if you could give us your thoughts on your business in that sector, how big is it and where are you positioned?

Yes. It's a segment that is growing very fast, as you know, from the news, it's the situation basically changes every week or every day with the commercial launches. Air Products has a very traditional business in aerospace. We work with NASA since the 60s, and we are a large supplier of hydrogen, liquid hydrogen, liquid helium to the traditional space program, and we are working now to increase our share with the commercial launches.

You see forecasts that are -- go from extremely high to out of this world volumes in the segment and I think like everyone else, we need to see how this will develop and if they're going to really get to the point that they will launch a rocket every day. So we are trying to make some investments on the areas to try to grow our participation in the traditional separation gases for the segment, but I cannot give you more specific information on that at this point.

And at this time, there are no further questions.

Thank you. So I would like to thank everyone for joining our call today. We appreciate your interest in Air Products, and we look forward to discussing our results with you again next quarter. Have a safe day. Thank you. Bye-bye.

This does conclude today's conference. Thank you for your participation. You may now disconnect.