Air Products & Chemicals, Inc. (APD) Q4 2026 Earnings Call Transcript

Good morning, and welcome to Air Products Fourth 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. Please go ahead.

Hello, and welcome to the fourth quarter and full year Fiscal 2026 Earnings Conference call for AIR Products. Our prepared remarks today will be led by Eduardo Menezes, Chief Executive Officer, and Melissa Schaefer, 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 will 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, net cash flow, 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 and 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 three. Earlier today, we reported our fourth quarter and full-year fiscal 2026 results. These results demonstrate the progress we made to drive earnings growth, while adjusting our portfolio of legacy energy transition projects and increasing the investment in our core industrial gas business. Our adjusted financial results were strong. We delivered 8% year-on-year sales growth and adjusted earnings per share of $13.45, which represents a 12% increase compared to the prior year. EPS growth was comprised of operating income growth of 11% and equity affiliate income growth of 14%. Our operating income margin was 24.4%, a 70 basis point improvement relative to prior year, and return on capital was 11.9%, a 100 basis point improvement relative to prior year. Our total capital expenditure was reduced by $1.8 billion compared to fiscal year 2025, and we achieved net cash flow neutrality. All that while significantly expanding our investment and backlog of industrial gas projects, primarily in the electronics and space sectors, and maintaining our historical track record of dividend increases with $1.6 billion paid to shareholders in fiscal 2026. Overall, our results for fiscal year 2026 demonstrate the benefit of focusing on our core industrial gas business, setting meaningful targets, and executing with resilience to ensure that we deliver on the targets we set. I want to express my appreciation to the entire Air Products team for their dedication to safety, reliably serving our customers, and supporting our projects. Moving to slide four, we show our progress relative to our midterm targets. In early 2025, we provided a roadmap on this slide, and we have made meaningful progress in 2026 on several of these targets. We delivered double-digit adjusted earnings per share in fiscal year 2026, Above our regional guidance for the year, and as you see in this slide, we also made progress relative to each of our mid-term targets. For example, we demonstrated progress on our commitment to return to excellence in execution through a right-size organization. We achieved $95 million in savings from cost reductions in the year and have completed approximately 93% of our previously announced workforce reduction. These actions are critical to offset inflation and adapt the organization to a lower level of CapEx Spain. We'll continue to pursue further productivity gains using tools like AI and taking meaningful productivity actions that keep us on track to deliver our multi-year commitments. Moving to slide 5, we have our key priorities for 2027 to continue our performance momentum and our progress to reach our medium-term targets. We have an objective to improve our operating income margin and achieve best-in-class margins among our primary peer group. We expect to deliver a step-up in margin improvement this year using a combination of pricing, productivity actions, and portfolio optimization. Also, we expect to continue to win high-quality industrial gas projects, particularly in the electronics and market. Last quarter, we highlighted that our industrial gas backlog was approximately $3 billion. With another group of project wins in the fourth quarter, which we plan to announce during the next few months, our IG backlog now stands at $3.3 billion, and we are still evaluating a healthy pipeline of opportunities. I will share more detail on the backlog in a moment. Finally, we expect to strengthen our balance sheet in fiscal 2027, as improved operating cash flow relative to capital expenditure is expected to generate positive net cash flow. We also anticipate the opportunity for proceeds related to several asset transactions to improve our overall balance sheet and support improved return on capital. Please turn to slide 6 for a summary of our current project backlog and our update to our capital expenditure forecast. We currently have a traditional industrial gas backlog of approximately $3.3 billion in projects. A significant portion of the capital projected for the backlog will support electronic customers, including over $2 billion in project wins for air products during the last 12 months. Translating our backlog into a view of capital expenditures, on the right-hand side of this slide, we are targeting to invest approximately $3 to $3.5 billion in CapEx in fiscal 2027, with over $1 billion currently forecasted to go toward traditional industrial gas growth projects. As a reminder, there are new projects being added and completed projects being removed from the list every quarter. As we have previously disclosed, we are also moving forward with several underperforming projects, giving our commercial obligations and project status. Although these projects are not expected to contribute materially to our future operating income, we continue to work to improve their results through commercial negotiations, operational improvements, and productivity. Overall, I would say 2026 was the year we demonstrated we can turn the ship and return air products to its long-term mission of being a high-performance, pure-play industrial gases company. I look forward to maintaining our momentum in 2027 and continue our progress on delivering our commitments. Now, I will turn the call over to Melissa to discuss our results in greater depth and review our 2027 outlook. Melissa?

Thank you, Eduardo. Please move to slide seven for a high-level summary of our fiscal year financial results. Sales were up 8% while operating income improved 11% and earnings per share improved 12% on strong underlying business performance. Even with headwinds from higher energy pass-through, operating margin expanded 70 basis points compared to the prior year. Return on capital of nearly 12% also improved from last year on strong base business performance and large project optimization. Please turn to slide 8. Our fiscal year earnings per share of $13.45 increased 12% on improved base business performance, led by strong onsite volume from our existing assets and new startups. We also saw benefits from portfolio optimization, pricing action, and our equity affiliates. Despite overall higher costs from inflation and incentive compensation, we recognized approximately $95 million in savings in fiscal 2026 from our headcount reduction plan and have reduced headcount 15% since the FY24 peak. These results also reflect a 3% headwind from Helium. Against a challenging supply chain environment, we're able to navigate the disruption while narrowing the pricing headwinds through positive volume momentum from reliably supplying our customers. Moving now to slide nine, I'll provide an overview of our results by segment for the fiscal year. You can find additional details on the fourth quarter results by segment in the appendix. America's operating income increased 8%, primarily driven by on-site volume, including higher production from U.S. refinery assets, as well as new assets, which began contributing in the second half. The volume and pricing improvement was partially offset by higher costs. America's equity affiliate income was elevated during the fiscal year due to higher volumes from a short-term contract in our Mexico joint venture. Asia's operating income grew 15 percent due to benefits from the gasification assets held for sale, new electronic assets starting up, and lower costs driven by productivity, partially offset by weaker pricing, particularly in China. Asia also saw improvement from helium volumes driven by reliably supplying our electronics customers. Currency improved results 3 percent. Europe's operating income improved 7%, including 4% from favorable currency. The remaining growth was primarily driven by on-site volume and pricing actions, which were partially offset by higher costs. Europe's equity-affiliated income was up due to the performance in our Italy joint venture. In our Middle East and India segment, operating income improved on lower cost, while equi-affiliate income increased 6%, primarily due to lower cost in an affiliate in Saudi Arabia. Lastly, the corporate and other segment experienced lower sale of equipment activity, which was partially offset by productivity improvements that drove a 10% reduction in corporate SG&A. We also recognize lower changes to cost estimates associated to our sale of equipment projects. Please turn to slide 10. For the fourth quarter, earnings per share increased 6%, which was primarily driven by higher volumes from new assets and a strategic asset sale associated with an early contract termination in the Americas. Additionally, we were able to implement timely pricing actions to recover higher power costs. This improvement was partially offset by higher costs, which included higher incentive compensation and fixed cost inflation, partially offset by productivity. While we continue to experience a helium price headwind in the quarter, we were able to partially offset the impact through positive momentum in electronics volume. Moving now to slide 11, we will review our outlook for fiscal 2027. For the full year, we expect earnings per share to be within the range of $14.15 to $14.50, which is an improvement of 5% to 8% from the prior year. In terms of key drivers, we expect to more than offset inflation with pricing actions and productivity. This includes realizing an approximate $50 million of benefit associated with our existing cost reduction plan. For new assets, we expect a continuation of the benefit recognized in the prior year from the ramp-up of new startups in the Americas and Asia. As a reminder, we do not anticipate a material financial impact from NEOM in fiscal 2027. In our outlook, we have assumed modest market volume growth in line with current industrial production growth rates. We also do not expect a prior year sale of equipment cost adjustments in our corporate segment to repeat. As a reminder, last fiscal year, we benefited from collections related to the China gasification assets that were held for sale that will not repeat, as we are now exiting both assets. We expect a 2% headwind from non-operating items, including higher interest expense due to the canceled projects and higher tax rate of 19%, primarily due to lower tax credits. We anticipate contributions from our equity affiliates to be flat, primarily due to the contractually lower interest income in our DAZAN joint venture, largely offset by modest improvement in our other affiliates. Lastly, we have not anticipated share buybacks within this outlook. In the first quarter, we expect earnings per share to be within the range of $3.35 to $3.45, up 6% to 9% from the prior year. Although we expect helium to stabilize for the full fiscal year, we anticipate a headwind in the first quarter due to lower pricing from a contract renewal with the strategic customers. For capital expenditures, as Eduardo noted earlier, we expect to spend within the range of $3 to $3.5 billion. From a cash perspective, we expect to be net cash flow positive as improvements in our operating cash flow and anticipated asset proceeds are expected to offset anticipated capital expenditures and dividends paid to our shareholders. We will now open the call up for questions. Operator?

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure the mute function is turned off to allow the signal to reach our equipment. In the interest of time, we ask that you please limit yourself to one question. Again, press star 1 to ask a question. We'll pause for just a moment to assemble the queue. And we will take our first question from David Begleiter with Deutsche Bank.

Hi, good morning. This is Emily Fusco on for Dave. Could you maybe quantify or give some color on where U.S. high co-volumes ended for 26, and if you're expecting maybe similar levels for 27, and if so, you know, whatever the outlook is there, what gives you confidence in the sustainability or finer rates, just any color there would be helpful. Thank you.

Yeah, I believe it's fair to say that we basically sold out in 26. Our volume increased probably in the mid-single-digit percentage. We are trying to squeeze more molecules and try to find a way to continue to grow the volume, but the demand is very strong, and it's going to be more a function of us optimizing our production And then the market, which is very, very strong, as you can imagine, with all the demand from the refineries.

Got it. Thank you.

We will take our next question from Vincent Andrews with Morgan Stanley.

Hey, good morning. This is Steve Haynes on for Vincent. I just want to ask a couple questions on Naom. I guess he kind of indicated that there's not much of a financial impact in 27, but just wanted to confirm that that also applies on the cash side of things. And then secondly, On the NAOM project financing, who exactly is paying the interest expense, and when does the principal start getting repaid? Thank you.

Yeah, we can confirm again that we do not expect any impact on 2027. You know, we do not disclose exactly on the cash flow of this project, but I can tell you that, you know, on this category of projects that we talked about that, you know, our energy transition projects, so including the project in Canada, the projects, the multiple projects in the Netherlands, and the hour portion of the NEON project, we have a little over $2 billion in CapEx to go to finish all these projects together. We expect that the majority of this money will be spent in 2027. I think we indicated in the preparing remarks that something around $1.5 billion. So the vast majority will be in 2027, the balance in 2028, and zero in 2029. And with that, we will close the expenditures on this energy transition project. So that's the... You know, the forecast, we have a project finance for this project, but we do not disclose the terms and conditions that we have with the banks and with our partners.

Okay. Thank you.

We will take our next question from Jeff Sakasas with J.P. Morgan.

Thanks very much. I think Lindy's average prices were up 3%, and maybe yours were less than that. And what they argued was that there are all kinds of inflationary costs that need to be captured. Do you feel you're capturing them, and do you feel that you're pricing up with your competitors?

Good morning, Jeff. Yeah, I believe so. I think we're very close. You know, at the end, as you know, there is a difference in portfolio, you know, in the package gas side that we do not have a price in U.S. and hard goods and so forth. So the numbers always are going to be a little different, you know, from one company to the other. But I believe on the products and the markets we serve, I think our numbers are similar to our competitors. And I think in 2026, it was a little bit of a battle to pass this cost. At the end of the year, as you know, there was extreme inflation, especially in Europe, that natural gas prices jumped close to $30 per million BTU power prices. We've seen power prices over 200 euros a megawatt. So we pass those prices, as always, to our on-site customers, basically as part of the normal price increases we have in our agreements. On the merchant side, you know, there is a little bit of a lag always, and that's a normal activity, so you may end it with a little less recovery than you would like at the closing of a year when the price increases at the end that we have, but we expect that we're going to be able to recover that in the next few months of our fiscal year.

Uh-huh, 2027. Yep.

We will take our next question from Chris Parkinson with Wolf Research.

Great. Thank you so much. In your guidance, it indicates that helium is a neutral for the year, following a slight headwind for the first fiscal quarter. And I guess that kind of aligns with what we saw in the fourth fiscal quarter. So could you just give us a little insight on how you're underpinning your assumptions in terms of cadence for the balance of the year, how you'd apply current, let's say, spot trends, albeit so small, to, let's say, contracts that are rolling over, and whether or not you've seen any propensity from customers to adapt, let's say, longer-term contracts with, you know, floors, you know, ceilings. Is there any difference in how everything's evolving in due course? Thank you so much.

Thank you, Chris. Yes, healing, as you know, we've had a lot of changes in the market in the last year. Most of the changes, they started with the war, so after the first quarter, so we have a little bit of, you know, lap effect between the first quarter of last year to this year and some of price renegotiations that will affect this year. And in addition to that, we are working on the direction of changing a little bit how we value our inventory, and that will have also a negative effect for the year. That is part of our estimate. So when we say that our guidance is to be neutral, we have to overcome this change in inventory costs. And also we have to overcome several renegotiations that we had started in 25 and the beginning of 26 that will have a negative effect for us in 27. Put that aside, I would say that our volumes, they continue to grow. We continue to use our storage, our cavern. We have many, many quarters that we can continue to supply about 40%, 50% of our needs with product that comes from the cavern, And that is giving our customers the confidence to sign long-term agreements and work with us in a different way to contract heating in the future. So some of the agreements that we assign, especially with our new on-site plants in oxygen and nitrogen space, they are combined with agreements for heating that sometimes can go for the entire life of the air separation plant. So, 15-year conflicts for healing, which was not... That's something that we've seen before. I know the next question will be about price and heating. Of course, we understand the dynamics. Our customers understand the dynamics. This contract is a long-term contract. They have instruments that can make both parties feel comfortable, that they can work during these 15 years, but it is a change. And I think the resilience that we show in our system is really paying off, and it's really positioning us to start recovering our helium volumes. I know I talked about that in the past, that our products, you know, by 22, 23, we had a significant reduction in volumes when the prices were very high in the marketplace. But we are on our way to recover a significant part of that volume and be our goal is the most reliable supplier in this market. I'll, you know, since I mentioned this. This inventory thing, I'll ask Melissa to provide a little more color on that.

Sure, absolutely. So we are changing our inventory accounting method starting in FY27 for Helium. This is really to align with the industry standards. This is going to an average cost accounting. Now, this will create a modest headwind in FY27, which are, as Eduardo mentioned, currently considered in our range for the guidance.

And that's not a cash headwind?

Not a cash headwind. Purely an accounting.

Okay. Thank you. Thank you.

We will take our next question from John McNulty with BMO Capital Markets.

Yeah, good morning. Thanks for taking my question. So, Eduardo, I think you spoke early on around an early contract termination in asset sale. I guess, can you give us a little bit more color on that? Maybe how much of a benefit it gave you in 4Q on the sales and operating income side? And also, should we be thinking about that? Okay, if it's a contract that's now ended and you sold off the asset, is there any drag going forward with the absence of that business? And then I guess finally, in that, how would you characterize excluding this termination in asset sale, the overall America's volumes, just so we can kind of get a picture of kind of what you're seeing in the market? Okay.

Let me divide the question in two here. I'll take the first part and I'll ask Melissa to answer the second part. But related to that transaction, this is part of a collection of hydrogen plants that are products bought. I would say during COVID, and this specific facility, it's probably 60 years old, and so a very old reformer that sits in the middle of the refinery, and with time, I think both the products and the customer, They understood that the customer is probably the best owner for that asset as they can provide O&M services for a cost that is lower than our cost. So I think we both understood that. We were able to get to a resolution of the case where they are buying back the facility. They believe they can have a reduction in cost, and we believe we can have a reduction in the cost. And in the, let's say, the difference between what we're actually spending and what we're charging them for O&M. So I think it was a win-win approach for both sides. In going to 27, I would say that we do not expect an impact from our deal or the performance of that specific asset Because, you know, it's true that we've made some money this year with that sale, but it's also true that we're going to save O&M going forward. So there will be no impact year over year in 27, and I'll ask Melissa to answer the question specifically on 26 with the caveat that this transaction was part of our guidance and was part of what we expected. And as you know, in this business, we're always going to have some events like that. You know, last year, we have this one that was positive. We have, you know, the loss in the equipment sale that we have in the first half of the year that was negative. So these things, they tend to balance each other at the end. And I expect that we're going to have more in 27, but that's the nature of the business. But Melissa, in the 26th.

Sure, absolutely. Thank you, Eduardo. From a volume perspective in America, to answer your question, it was a good portion of the volumes, but I will remind you, we had very strong HICO volumes in America, so we also had the contributions of new assets as well. Now, one thing I want to note for as we lead into 27, this will be recognized as a financing agreement. So, at closing, we did remove the netbook value on the balance sheet and established a financing receivable at the present value of the fixed payment. So, what we will see next year, as Eduardo mentioned, will be neutral, and the customer will pay us a monthly fee for the purchase of the asset over the remaining nine years.

Got it. Thanks very much for the caller. Appreciate it.

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

Yeah, good morning. I was hoping maybe just walk through where your coal gasification business in China is today, you know, particularly the three plants with Luan, DeBang, and Jutai, two held not for sale, but there's a bigger, you know, coal, the chemistry business around that. So I would assume that just like your HICO business, that's doing very well given the stuff in the Middle East. But just year over year, what does coal gasification do from 26 to 27? And kind of what were the results of the held for sale assets?

Yeah. Yes, you know, we had three assets in China. We took two of these assets, and we announced that they were set aside for a sale. There were Jutai and Dibeng. Jutai was closed. We sold the asset at the end of the fiscal year, beginning of this fiscal year, 27. I believe we collected something a little over $250 million for that, and that will be out of our numbers going forward. Deep Bank is an asset that we also put for sale. We still expect to conclude that sale, but that also has some issues there with the customer, some legal procedures that are going forward. And because of limitations on how much time we can keep an asset held for sale in our books, we decided to take an adjustment right down of this asset this quarter. So this is also out of our books at this point. Again, we expect that as soon as the arbitration is concluded that we're going to be able to proceed and close the sale of that asset as well. Those two assets, as you said, the co-gasification is going very strong in China right now. The issue that we had in these both assets were the quality of the counterparts that we had and a history of very complicated relationship with payments. The third asset that we have, which is the largest asset, which is Luan, is running, you know, basically above nameplate capacity, you know, doing very well, and we do not expect any changes on that. So that's, in a nutshell, the story of our three projects in China.

Thank you, guys.

Thank you.

We will take our next question from Matthew Dio with Bank of America.

Good morning, Hakeem on for Matthew. So even growth for 2017 seems strong with interest in tax being a more headwind to EPS growth. Can you provide some context into why they're rising and does that pressure kind of skew toward any quarter?

Yeah, absolutely. I think I can handle that one. So I think, Akeem, what you were asking about is the non-operating items as we head into fiscal 27. So the non-operating items are a headwind. So as we are aware, because of the canceled projects, we have higher interest expense that was previously capitalized. So that is providing a headwind as we enter into next year. Additionally, we have a higher tax rate, and this is driven by the absence of U.S. tax credits and a decrease in foreign incentives associated to some of our foreign investments. So, as we've mentioned, it's going to be about a 2% headwind versus 26.

Got it. Thank you so much.

We will take our next question from John Roberts with Mizuho.

Thank you. Does your 2027 CapEx include anything for ammonia cracking or maybe give us an update on your plans there?

Good morning, John. No, we do not have anything specifically for that. We have one project we are still developing, a smaller project we're still developing in Rotterdam. We'll see how that goes, but we did not include anything material for 2027 in our guidance. I would say that the effort that we did as a company to reduce our capex was one of the things that I'm most proud of our performance in 26. And as you see, we had three years, consecutive years, that we were having a capex of $5 billion. We're able to reduce this year to 3.3. Our estimate for next year, it's still in this range of 3 to 3.5. That includes some of these legacy projects that we will finish by 27, 28, and at the same time, we're being able to raise our backlog and raise our expenditure in our traditional industrial gas projects. You know, our goal long term is to have a backlog for regular industrial gas projects in the range of $4 to $4.5 billion that allow us to start every year $1.5 to $2 billion in projects, which is our goal at this point as a company. So, 26 was also a very important year that we proved to ourselves that we can win in the marketplace, that we can bring these new projects on traditional air separation projects. You know, we got $2 billion more on CapEx. So the direction of our CAPEX is going to be more in the direction of these traditional air separation, HECO projects, and less on these energy transition projects, which include the ammonia dissociation. We are still pursuing some of these projects in Europe. The regulation keeps being a little fluid. At this point, there is an expectation that there will be a demand, a greater demand for RFNBO hydrogen by 2030, 2031, and we still have time to do that starting in 2028, if it makes sense. But we're only going to move after we understand exactly what the regulations are, and we have firm commitments from customers that justify these projects.

We will take our next question from Josh Spector with UBS.

Hi, good morning. It's Chris Perella on for Josh. Can you just talk through, I guess, the puts and takes of the corporate line in the quarter and the outlook for 27? I think the corporate costs are supposed to roll off with the startup of GCA and just how that's going to compare, how you guys are penciling that in with the equipment sales and all the moving parts there.

Thanks for the question, Chris. You are right. Corporate was down versus prior year for this quarter. We saw very strong corporate functional productivity, but that was largely offset by the sale of equipment cost increases that we saw largely in the beginning of the first two quarters. But we did see some trail into the fourth quarter. So, yes, again, strong functional productivity, but it was offset by the sale of equipment cost increases. And that will not repeat in FY27.

All right. So what would be the step up or the step down in corporate that you guys are expecting next year with the increased cost savings and the less SOE drag?

So, as you are aware, we had around a $70 million cost increase that will not repeat associated to the GCA project throughout the year. We do anticipate that to not repeat, and so that will be a tailwind for us in the corporate segment going into 27.

Thank you.

We will take our next question from Alexi Yefremov with Barclays.

Thank you. Good morning, everyone. In your $4 billion pipeline in electronics and space, what's the related timeline for awards? Is it something inside of 12 months or something longer term? And if this is a shorter term number, how do you see the total TAM for electronics pipeline over, say, next two to three years?

Good morning, Alex.

A good question. We asked this question ourselves because these projects, they are moving very fast, as you can imagine. We expect that the decision for some of these projects to come very soon. I would say that the main hurdles that our customers are facing now are both in the side of regulatory and a little bit on labor availability, even in countries where they didn't have that before. So it's getting, with the numbers that they have been publishing in terms of CapEx, you see that in Taiwan, you see that a little bit in Korea, in the U.S., and so forth. So I think the customers are trying to push as hard as they can to make these decisions. We are trying to be responsive and be there. I would expect that you're going to see probably some major definitions being done in the next 12 months. I don't think they have a good visibility much after that, but we'll see. In terms of the total market, we still believe that the semiconductor industry, Obviously, with all the capex we see, all the projects, they're still, let's say, behind the expected demand, especially when you see what people talk about data centers and so forth. So I think if a fraction of these data centers that people are talking about, if they go forward, it's still going to see a significant increase in semiconductors' demand for the next five to six years. But at this point, you know, the things are moving so fast and furious that our main objective is really to stay close to these products that are going to be decided in the next 12 months and try to get our fair share or more than our fair share on those.

We will take our next question from Abigail Eberts with Wells Fargo.

Thanks for taking my question. I'm curious about what your assumptions are regarding the conflict in the Middle East. It seems like the market is expecting, given election results, that it might conclude sooner than originally expected. Asking specifically as this pertains to what you called out on slide 20, regarding your expectation for elevated U.S. refinery rates for the full year 27. Thanks.

Yeah, if I knew the answer for that one,

I would be selling that. But as you imagine, it's very important for us. The Middle East, we have very large facilities. We have a very large project. We're building there. The impact of the Middle East crisis in the oil side, we see that in Europe in the form of higher prices. We see that in the U.S. in the form of higher demand for hydrogen and for refineries. We see that in China in the form of higher demand for oxygen, for gasification. And on top of that, we have the impact on helium that, you know, the one-third of the global capacity was basically put to the side by the conflict. So I follow this very closely. You know, I... I, uh, We try not to be moved by these short-term events, you know, like if the election goes this way, you know, what will be the impact tomorrow or the day after tomorrow? I think at this point, we do not expect any meaningful resolution that will affect the heating market for at least six months. That's our assumption. I would say for the demand of refined products in the U.S., I would say that that will continue to be very strong, not because only the U.S. I think there is a shortage of refining capacity globally, and I think that will take several years to be resolved, so we expect that to continue to be very strong in the next 12 months. And those are the main impacts that we see and the assumptions we're making. But again, things can change very quickly, and the strait may be open in a month, and things can go back to normal, but that's not the base assumption that we use today.

Got it. Thank you for the color.

We will take our next question from Salvatore Tiano with KeyBank Capital Markets.

Thank you very much. Just want to check firstly on the Alberta project. What's kind of the expectation at this point for startup and contribution as well as where do you stand on contracting the volumes? And on the same front, on contracted volumes on Neom, I don't think there's been any new developments or agreements. At the same time, there's been actually a pretty steep pickup in activity for green ammonia, you know, by other suppliers in Asia. And I wonder, is there any reason, for example, why you haven't Have they participated in this agreement? Is it a matter of price, for example, and the margins you could get?

Yeah, two very different questions.

So, on Edmonton, we are working hard to finish the facility by the end of 27, so we do not expect any impact on that on our fiscal year 27. Seven, we are working on how to improve this project. We already made it clear that the project, as it was expected to start, would not contribute to our operating income. Of course, we're trying to see how we can improve that. I would say that the changes in Canada in the direction of the prices of renewable diesel and credits and so forth, they gave us some hope that we can improve our position on that. But again, these are also part of all these geopolitical and tariff situations, and these things can change very quickly. We understand the ins and outs, but we see some light there on trying to be able to commercialize the balance of the volume. But we'll keep you informed, and again, we still have more than a year to be able to get to the point that we need to do something there. And on Neon... Again, you know, everyone can read all these announcements. A lot of those are MOUs and LOIs and from projects that do not exist today. Again, I tell people that, you know, it doesn't matter where you're making green ammonia, if it's in South Arabia or in Japan or in India or in the U.S., it will take 10, 11 megawatts to make a ton of ammonia. And when I see people coming with prices that, doing LOIs with prices that do not make a lot of sense versus the cost of the power plus all the capex you need to invest, I'm always very suspicious of that. So our project is basically construction completed. We're going to go through commissioning. It is a very... We're doing a complex commission. I mentioned that before. We're working on that. We expect to have the plant completed up and running at 100% by the second half of 27. And in the meantime, we're probably going to start making some product that we're going to test the market, but will be very different because it's going to be a real product and not LOIs or MOUs and promises from things that are not being even in the construction stage. So that's my take. We'll see how that develops. I mentioned before that I believe we're going to be the lowest cost producer of green ammonia forever, and we'll see how that position us in the marketplace to sell that product.

We will take our next question from Patrick Cunningham with Citi.

Hi, good morning. Just in terms of your line of sight and deposit free, it seems like most of the legacy clean energy projects will be near completion at year end. Are your base assumptions cash flow neutrality this year? And if you do expect to achieve more meaningful positive free cash flow in 2028, are you considering commencing a buyback program?

Well, Patrick, I think we... We're probably going to get to that point. Of course, when we get there, we need to go to our board first and get authorization for all that, and we're going to let you guys know. But, yes, we expect that with these projects, as I said, we have a little over $2 billion to finish these projects. The majority of that will be spent in 27. We'll have a tail in 28. And assuming that everything goes as expected, even as we grow our capex and backlog for traditional industrial gas projects, we should have enough room on our cash flow to do that. And at that point, we'll discuss with our board and we'll make a decision on how to allocate the capital.

We will take our next question from James Hooper with Bernstein.

Hi, good morning. Thank you for taking my question. Can I follow up on your portfolio optimization comments you made, Eduardo, please? And I know you've already talked about the gasification assets, but if you could give us a bit more color on what that means and how you're thinking about what assets in the portfolio and how you test them for returns, please. Thank you.

Good morning, James. Yeah, I, you know, it's not anything major. I think we talked about these gasification projects. We talked about the transaction we did in the U.S. for that reformer. I would say that... The next one, which became public a few months ago, was the work that we're doing, you know, trying to understand if we're going to go forward with the IPO of our subsidiary in India. It is a fantastic business that we have, probably our fastest-growing JV, and the market in India is at... Very high multiples at this point, and our partner wants to go for that IPO. The disclosure obligations that you have in India with the local regulations, SEBI, they're very, very specific. We publish an IPO prospectus of more than 500 pages, and we cannot say more than what is there. We have to say a lot of things, and then we cannot say more than what absolutely is there, so I cannot make more comments on that. The only thing I would say is that if you read the prospectus, you'll see that the sponsors, which is Air Products and our partner, we are proposing to or considering to sell between 10% and 15% of the company, And by the Indian regulations, if we go forward, we will have an obligation to do 25% in between three to five years. Of course, this is a question of opportunity, how you see the valuation, and we expect this decision for the initial trench that will also make us basically liable to do the entire 25%. We should take this decision during the first calendar quarter of 27, and that, you know, if we make that decision, you know, it will be a function of what we think the proceedings will be, and we will inform the... the market about that, but I've seen several numbers around. I think sometimes people miss the point that this 15% what we have in the prospectus and the total obligation to sell is 25%. But this is the largest one, and other than that, we always had some small things here and there, but they are not material to our overall results.

Thank you.

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

Thank you very much, and good morning. Curious to hear your thoughts on volume trajectory moving forward, and so maybe a two-part question on that subject. First, what are you baking into your fiscal? The 2027 EPS guide related to volume specifically. And then second, maybe more broadly, Eduardo, as you look across the portfolio, where would you expect volumes to accelerate sitting here today in 27 versus 26? And where would you expect deceleration, either from an end market perspective or regionally?

Yeah. Yeah, our 27 numbers guidance, I would say that, you know, you guys probably got that from the presentation, the remarks, that in 26, we had a very strong performance on our business, and we had a very strong performance on our affiliates. So our affiliate income in 26 increased around 14%, and that's a very significant number for our product. So 20% of our operating income comes from that equity-affiliated income. No, not operating income. Our EPS comes from that. 80% comes from our operating income from the business we consolidate, They both had strong performances in 26 with the EAI growing faster than our business. For 27, for several different reasons, we expect the equity affiliate income to be flat year over year, and when you have 20% of our UPS being flat, you imagine the pressure that it's putting on the rest of the operating income. So our operating income, our volumes that are embedded, our total number is around 2%, with another 3% additional coming from new assets that are coming on the stream. But that is on the overall company, I would say, for the business we consolidate is even a little higher than that. But that's what we expect. On that map, there is a... You know, a lot of components. We expect, you know, the hydrogen business in the U.S. to continue to be very strong and grow a little bit. We continue to expect the volumes in electronics to grow. And frankly, the rest of the economy, we see the same things that everybody sees, a tough scenario, a very negative scenario in Europe, a tough scenario in the U.S., and a tough scenario in China. But overall, our assumption is around 2%.

Thank you very much.

We will take our next question from Mike Harrison with Seaport Research Partners.

Hi, good morning. Just a question about on-site maintenance costs in the Americas. It sounds like your Gulf Coast assets have been running pretty hard. Your refinery customers are running hard, maybe skipping or delaying maintenance or turnaround activity. Just hoping that you could provide some guidance on how we should think about maintenance costs during fiscal 27, and are there any quarters where turnaround activity is maybe expected to be different from the normal We'll see you next time.

Yeah, we continue to make progress with our maintenance costs.

I think in 2016, we made meaningful progress reducing our overall maintenance costs in the company. In 2017, we're still making the assumption that we're going to be able to do that. You are correct that there is some pressure on trying to run our assets as hard as possible, and we'll do that. We'll try to work with our customers, but there is always a physical limitation of what you can and cannot do. But I would say that our goal is always to spend less on our maintenance. I have to say that the same labor restrictions that we see in new projects, we see them in turnarounds and projects as well. So, in fact, we are insourcing some resources to make sure that we have a little more internal capacity to do some of these turnarounds and try to control the cost a little better, just because what we see in the marketplace from suppliers and contractors, especially when you go for a turnaround at the same time, your customer next door is doing the same, And they are normally much, much bigger than we are, you know, has been a headwind for us in terms of maintenance costs for several years. So we're trying to be creative and try to find different ways to reduce our costs.

We will take our final question from Lourdes Alexander with Jeffries.

Good morning. This is Kevin. I'm for Lawrence. Thank you for taking my question. So most of my questions have been asked, but just on maybe margin expansion, just wanted to get a sense of, you know, after the first quarter, what the sort of cadence of margin expansion would be, maybe from Q2 to Q4?

Absolutely. Thanks for the question. So as we look into our guidance for FY27 and our margin forecast, we are expecting a sizable improvement. This is driven by new asset contributions and base volume driving a good portion of that improvement. We are looking for also strong price over recovery as we continue to see those cost inflations that we talked about previously. The headwinds that we will be seeing are obviously the assets for held for sale and the gasification space that we have sold down, so those will not continue, and any other significant headwinds from cost inflation. So, again, improvement through 27, largely driven on new asset contributions and base volume.

Okay, thank you.

That concludes today's question-and-answer session. I will now turn the call back to Mr. Menezes for any additional or closing remarks.

Thank you all for joining our call today. We appreciate your interest in air products, and we look forward to discuss our results in the next one. Have a safe day. Thank you. Bye.

This concludes today's call. Thank you for your participation. You may now disconnect.