Earnings Call Transcript
Air Products & Chemicals, Inc. (APD)
Earnings Call Transcript - APD Q4 2025
Operator, Operator
Good day, and welcome to the Air Products Fourth Quarter Earnings Release Conference Call. Today's conference is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Beginning today's call is Megan Britt. Please go ahead.
Megan Britt, Investor Relations
Hello, and welcome to the Fourth Quarter and Full Year Fiscal 2025 Earnings Conference Call for Air Products. Our prepared remarks today will be led by Eduardo Menezes, Chief Executive Officer; and Melissa Schaeffer, Executive Vice President and Chief Financial Officer. We have prepared presentation slides to supplement our remarks during the call, which are posted on the Investor Relations section of the Air Products website. During this call, we'll make forward-looking statements, which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to these risks and uncertainties, including, but not limited to, those discussed on this call and in the forward-looking statements and Risk Factors sections of our reports filed with the SEC. We do not undertake any duty to update any forward-looking statements. Please note in today's presentation, we will refer to various financial measures including earnings per share, capital expenditures, operating income, operating income margin, the effective tax rate and ROCE, either on a total company or a segment basis. Unless we specifically state otherwise, statements regarding these measures refer to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our investor website in the relevant earnings release section. It's now my pleasure to turn the call over to Eduardo.
Eduardo Menezes, CEO
Thank you, Megan. Hello, and thank you for joining our call today. Earlier today, we reported our fourth quarter and full fiscal year 2025 results. Our numbers show consistent progress related to commitments we shared earlier this year. We delivered earnings per share of $12.03, which is above the midpoint of our full year fiscal guidance range. Our operating income margin of 23.7% and return on capital of 10.1% were also in line with our commitments for these metrics. Also, this year marks the 43rd consecutive year of increasing our dividend. In total, we returned $1.6 billion to our shareholders in fiscal 2025. I'm encouraged we are setting challenging but achievable targets and delivering on those commitments. We have taken several key actions starting in the second quarter to focus on the core industrial gas business and expect to unlock earnings growth through productivity, pricing, operational excellence and disciplined capital allocation. The last 3 quarters demonstrate that we are already making progress. Moving to Slide 4. We have 3 key priorities for 2026 that were part of the strategy we shared earlier this year. First, we expect to deliver high single-digit annual EPS growth. To be clear, our 2026 guidance anticipates additional helium headwinds in a sluggish macroeconomic environment. On our second priority, we will continue to make strides to optimize our large projects portfolio. We are working diligently to finalize our NEOM project and expect to improve our underperforming project portfolio with a goal of generating positive cash returns. On our third priority, we continue to take actions to balance our capital allocation and improve our balance sheet. We expect to reduce our capital expenditures to roughly $2.5 billion per year following the completion of several large projects. At this level of CapEx, we believe we can support our ongoing maintenance and invest in the traditional industrial gas projects while growing our dividend and longer term, returning additional cash to shareholders via share buybacks. In 2026, we expect our capital expenditures to be about $4 billion. In summary, we expect fiscal 2026 to demonstrate our commitment to continuously drive improvement in our core industrial gas business and growing alongside our customers. Please turn to Slide 5. We highlighted earlier this year that a portion of our productivity improvement will come from returning to an organizational headcount similar to what we had before we started several large clean energy projects. This slide offers a progress report on our actions and the savings that are being created. Since 2022, we have identified a total of 3,600 headcount reductions, which translates to 16% of our peak workforce. We expect these reductions to contribute approximately $250 million in annual cost savings or $0.90 per share in earnings once the reductions are complete. These cuts are not something we do lightly, but they are critical to offset inflation and adapt the organization to a lower level of CapEx spend. Our objective remains to return to staffing levels of 2018 adjusted for employee growth to support new assets, minus any other productivity we can find with new initiatives like AI. Moving to Slide 6. We have a summary of our expected CapEx expenditures after 2026. As we have previously said, we are also moving forward with several underperforming projects, giving our commercial obligations and project steps. We have roughly $2.5 billion remaining to be spent on these projects from 2026 to 2028. Though these projects are not expected to contribute materially to operating income, we continue to work to improve their results through commercial negotiations, operational improvement and productivity. For our NEOM project, this slide reflects the CapEx related to our equity contribution to the overall project, which will be completed in 2027. Any further investments for ammonia dissociation in Europe will need to be approved separately. After we bring these projects on stream, we expect capital expenditures of roughly $2.5 billion per year, which can sustain both our future growth and ongoing maintenance. For our blue hydrogen project in Louisiana, we have halted making new commitments until an offtake agreement is reached. In this slide, our capital investment for this project in '26 reflects only prior commitments on the project and we have excluded any spending beyond 2026. Like in the case of NEOM downstream investments, they would need to be justified and approved based on firm offtake commitments. I'll talk more about the Louisiana and NEOM projects in our next slide. On traditional core growth, we expect to invest approximately $1.5 billion per year going forward. These are air separation hydrogen projects that we normally execute in 18 to 30 months, so there are always new products being added and completed products being removed from the list. The CapEx figures for fiscal year 2027 and beyond represent our expected average spend. Our focus will be, as always, on opportunities that meet our return thresholds with quality customers and contractual uptake. Moving to Slide 7. I wanted to close with a brief update on NEOM and Louisiana. Start with NEOM, the project is progressing well and is about 90% complete. Solar and wind power generation will be completed by early 2026, and we will start commissioning the electrolyzers and ammonia production. We expect to have ammonia production on stream with full product availability in 2027. We are, of course, following the regulatory developments in Europe. It is important to highlight that the scale of the energy transition is such that the volumes required to meet even the smaller mandates such as the Red III EU mandate to convert 1% of fuel sold to RFNBO fuels would create a green hydrogen demand equal to approximately 7x the total production of our NEOM project by 2030. Obviously, a significant part of the volume is expected to be supplied by local electrolyzers using renewable power, but it's important to highlight that our solution to bring green ammonia from Saudi Arabia for dissociation in Europe is competitive in terms of pricing and requires zero public subsidies. As mentioned before, the market for green ammonia is also being developed, and that will be our main target from the time the NEOM project starts. Additional feedback on the market development will be provided during 2026. Regarding our blue hydrogen project in Louisiana, we are evaluating proposals to divest the carbon sequestration and ammonia production assets. We will only go forward with this project if we can sign firm offtake agreements for hydrogen and nitrogen from the facilities that will be owned and operated by Air Products. And of course, these agreements will need to comply with our return expectations with one or more high-quality counterparts. As previously committed, we expect to provide further updates related to this project prior to the end of 2025, so in less than 2 months from today. Let me finish by saying that I'm excited to launch my first full operating year with the Air Products team. We have been working hard to right the ship and bring the company back to a position where we can deliver maximum value to our shareholders, customers and employees. Now I'll turn the call over to Melissa to discuss our financial results in greater depth and discuss our 2026 outlook.
Melissa Schaeffer, CFO
Thank you, Eduardo, and welcome and hello to those joining us on the call today. Please move to Slide 8 for a high-level summary of our financial results. We ended the fiscal year with earnings per share of $12.03, delivering our commitment to our shareholders and above market consensus. With respect to sales, favorable volume for on-site and non-helium merchant were more than offset by a 2% headwind from the prior year LNG divestiture as well as project exits. Volume was also lower due to the reduced global helium demand. Partially was favorable for non-helium merchant products across all regions. Operating income was down on volume and higher costs, partially offset by non-helium price. The higher costs were driven by depreciation, largely offset by productivity improvements, net of fixed cost inflation. Operating income margin of approximately 24% declined 70 basis points compared to the prior year, largely driven by higher energy cost pass-through. Return on capital of 10.1% was lower versus prior year as we continue to exit on our project backlog. Moving now to Slide 9. Our fiscal year earnings per share of $12.03 decreased $0.40 or 3% from the prior year, driven by a 4% headwind from LNG divestiture and a 2% headwind from project exits. Without these discrete items, EPS would be up 3%. Additionally, we continue to see headwinds from helium, including unfavorable comparable volume and pricing across regions. Despite these headwinds, we continue to deliver on our base business with stronger non-helium pricing actions, ongoing productivity across our segments and favorable on-site and merchant contributions. Moving now to Slide 10. I will provide an overview of our results by segment for the full fiscal year. You can find additional details of the quarterly segment results in the appendix. For the fiscal year, America's results were down 3%. As a reminder, we reported a one-time asset sale associated with an early contract termination at the request of a customer in the prior year fourth quarter, which alone resulted in a 3% headwind in the Americas. Additional drivers include headwinds from project exits and helium and higher maintenance-related costs. These were partially offset by strong non-helium pricing actions, productivity improvement and favorable on-site contributions from our HyCO business. Asia fiscal year results were relatively flat, as lower helium was offset by favorable on-site, non-helium price and productivity. During the quarter, we made the decision to sell 2 coal gasification projects within Asia, which are now within assets held for sale. Europe's FY '25 results improved 4% as non-helium merchant pricing, productivity and favorable on-site contribution were partially offset by lower helium and higher costs associated with depreciation and fixed cost inflation. The full-year Middle East and India equity affiliates income decreased 2% from the prior year, primarily due to lower contributions from our Jazan joint venture. The full-year results for the Corporate and Other segment were primarily impacted by the headwind from the prior year sale of LNG, partially offset by lower changes to the sale of equipment project estimates and lower costs with our continued focus on productivity improvements. Moving now to Slide 11. We continue to generate strong cash flows from our base business, supporting investments in both energy transition and traditional industrial gas projects. Additionally, we returned $1.6 billion in cash to our shareholders. We remain committed to disciplined cost control, a reduction in capital expenditures and strategic asset actions aimed at unlocking value and generating cash. Moving now to Slide 12. We will review our outlook for fiscal 2026. For the full year, we expect to deliver earnings per share in the range of $12.85 to $13.15, an improvement of 7% to 9% from the prior year. Despite a helium headwind comparable to FY '25, this growth is expected to be achieved through new asset contribution and continued focus on pricing actions and productivity. We also expect a 1% benefit from the rationalization of projects in large part due to the 2 Asia gasification assets we wrote down in fiscal 2025. We are focused on delivering these results in line with the 5-year roadmap we introduced earlier this year. For the first quarter of 2026, we expect to deliver earnings per share in the range of $2.95 to $3.10, representing a 3% to 8% improvement from the prior year. Our outlook assumes growth from continued pricing actions and productivity as well as a benefit from the rationalization of projects and lower planned maintenance, partially offset by lower helium. As a reminder, we expect our first quarter to be lower sequentially due to normal seasonality. With respect to capital, we expect to spend approximately $4 billion as we execute on our project backlog, including approximately $1 billion on traditional industrial gas projects and invest in ongoing maintenance. As we look to derisk our Louisiana projects and optimize our portfolio, we expect to be modestly cash flow positive in fiscal year 2026 and are committed to staying cash flow neutral through 2028 as we close out on several projects. Now we'll open the call up for questions.
Operator, Operator
We'll go first to Jeff Zekauskas with JPMorgan.
Jeffrey Zekauskas, Analyst
In your opening remarks, I think you said that you were evaluating proposals to divest the carbon capture piece of the Louisiana project, but you're still evaluating whether you would proceed with the project. So could it be that those 2 events would be linked, that is you would sell the carbon capture piece to a party, and then work with them to provide them hydrogen or hydrogen and ammonia?
Eduardo Menezes, CEO
Jeff. Yes, let me try to explain that. The idea of this project is basically to transform into a regular hydrogen and air separation project where we supply hydrogen and nitrogen to someone that will produce the ammonia. The CO2 that is being produced by the facility has to be sequestered in order to capture the 45Q credit, right? So what we're basically saying is that Air Products was developing by itself its own pore space to do that. And what we are trying to do at this point, we're evaluating proposals for someone to buy the pore spaces from us and provide the service of CO2 sequestration or to just buy the pore space from us and provide the service from another location that this company may have. So that's the picture in terms of the CO2 sequestration. And yes, this is connected to the overall project, although if we decided not to go forward, of course, we still have this asset that is the pore space that we can try to monetize in the market.
Jeffrey Zekauskas, Analyst
Regarding the Alberta project, considering the significant cost overruns, why don't you just halt the project? What is preventing you from doing so? Would this project end up being a loss on an earnings per share basis due to the high depreciation charges from the cost overruns, if it proceeds?
Eduardo Menezes, CEO
Yes, Jeff. This project, as I explained before, we have a long-term commitment for almost 50% of the volume with a major customer that depends on us. So we have a contractual commitment that we take very seriously. So we need to finish the project and supply the hydrogen to this customer. And we have some additional volume that we are working hard to find other ways to place in the market. As you probably know, we already have infrastructure in place in Edmonton. We have 2 other sites that are connected to a pipeline. And this third site will also be connected there. So we can move the product from these 3 sites to basically all the refineries that are located in that area. So that's the work we're doing with the additional volume, but our commitment to go forward is basically what we need to have in order to fulfill our contractual obligations.
Operator, Operator
We will go next to David Begleiter with Deutsche Bank.
David Begleiter, Analyst
Eduardo, on the cost savings and the employee headcount, is the 20,000 headcount you're targeting a new base? Or could it go lower from there?
Eduardo Menezes, CEO
Yes. This is what we are expecting to have at the end of this year. We continue to find ways to rationalize our workforce to make sure that we use all the technologies available. I think we demonstrate that we are reducing our SG&A year-by-year. And if my recollection is correct, I think we said that our original number when we were in 2018 was close to 18,500 people. Our objective is to go back to that number plus the people that we absolutely need to operate some assets that we added since that date. So I would say that we still have some room to go, but it's an ongoing process to always optimize and make sure that you are as competitive as possible.
David Begleiter, Analyst
Very good. And just back on Louisiana. If you do move forward with that project with these offtaker partners you suggested, what would be the CapEx remaining to Air Products?
Eduardo Menezes, CEO
Yes, we will provide that data when we update the project. I hope everyone understands that we are summarizing that there are no offtake deals and no final investment decision. Air Products began this project without securing an offtake deal. We have paused the project and are working diligently to find solutions. Considering the natural gas price, the existing infrastructure, and the 45Q tax credit, this is the ideal location to establish blue hydrogen and blue ammonia projects. Other ammonia producers and even our competitors working on similar projects in Texas and Louisiana agree that we can compete effectively against gray ammonia in Europe. We are actively pursuing a solution and, while we are about 45 days from the year's end, if I truly believed there was no chance for progress, it would be easier for me to say so. However, we still believe there is a viable solution for this project, and we will provide a complete update before the year concludes.
Operator, Operator
We'll go next to Duffy Fischer with Goldman Sachs.
Patrick Fischer, Analyst
Just want to get some insights into the growth into next year. So at the midpoint of your guide, you're up 8%, but there's a negative 4% from helium. So that's really 12%. Melissa called out one from the shutdown of the sale of the Chinese assets, which gets you to 11%. So of that 11% growth underlying, can you break that out kind of new projects, price, efficiencies, how you deliver that? And is that smooth throughout the year? Or are the oncoming projects back-end loaded?
Eduardo Menezes, CEO
Yes. We expect contribution from new assets in both in Asia and the Americas. That can give us around 2%, 3% growth. And then the balance will come from price and productivity. I would say, half and half there. We are working very hard on the productivity side, as we mentioned on our headcount slide and on pricing is a continuous work for us. The helium headwind that we have is very similar to what we had this year. I would say that when we say that this is the headwind for 2026, it is basically agreements that we are reviewing and we're signing this year in 2025 or the previous year, now the fiscal year. Air Products, most of our volume comes from large liquid customers. As you know, our packaged gas business is basically limited to Europe. So we pretty much know where these agreements are going to be next year, and that's where they are at the fourth quarter of this year. So we're pretty comfortable that we understand well the headwind that we have in helium and in the base business, as I said, 3% of new assets and the balance coming from productivity and price.
Patrick Fischer, Analyst
Great. And I'm sure it's not your favorite subject, but helium was mentioned 29 times in your slide deck this quarter. What is your view on the helium industry going forward? Do you think we've stabilized at this point? So '26 will be the last year of headwind? Or do you think we continue to see headwinds in the '27 and '28 for that product?
Eduardo Menezes, CEO
I didn't keep track of the number of times it was mentioned, but I appreciate you bringing that up. We have had extensive discussions about it. The question is whether there has been a structural shift in the market or if it's simply part of the typical cyclical nature of helium. There have indeed been notable changes in how the market functions, particularly with the BLM stepping back as a significant helium supplier both globally and in the U.S. This has affected some of the inventory that helped moderate the market. Most major players are now developing their own storage capabilities. We have our own cavern, and our two competitors have their own as well. I hope this will contribute to stabilizing the market somewhat. As for current trends, I still foresee a decline in 2027, but it's not expected to be as significant as this year. Our best estimate suggests that will be the lowest point, leading to market stabilization. However, it remains to be seen how supply sources will evolve and the impact of this helium storage on the overall market.
Operator, Operator
We'll go next to Patrick Cunningham with Citi.
Patrick Cunningham, Analyst
If you decide to forgo downstream investment in NEOM, maybe based on unfavorable regulatory environment, whatever it may be, what do the commercial options look like? And would you expect to see any positive EPS contribution in 2027 under a scenario where you have to sell ammonia exclusively?
Eduardo Menezes, CEO
Yes, we are still discussing the guidance for 2026. We are addressing this issue and will continue to work on it throughout the year. By the end of 2026, we will be able to provide more guidance. Initially, we will need to commercialize the product as ammonia. The market for green and blue ammonia or low-carbon ammonia is developing, so I anticipate that we will have the capability to sell some of our production as green ammonia at the start of operations, with that percentage increasing over time. However, we will need to wait a bit longer to provide a forecast for 2027, as ammonia has its own market and different pricing dynamics.
Patrick Cunningham, Analyst
Understood. And then maybe just a quick one on equity affiliate income. We saw meaningful growth in the Americas this quarter. Can you provide some color on what was driving that and what we should sort of expect for step up or step down across all of the regions and equity income next year?
Eduardo Menezes, CEO
Yes, I can ask Melissa to respond, but essentially, Mexico has had a very strong second half of the year.
Melissa Schaeffer, CFO
Yes. Thanks, Eduardo. So our Mexican joint venture did see improvements year-over-year. We do expect about a flat going into FY '26. However, we did see a slight decline in our Jazan joint venture in '25, and we actually look for that to be a pickup in '26. And obviously, interest rates do impact that. So as interest rates do decline, we will see improvement on the equity affiliate contributions from our Jazan joint venture.
Operator, Operator
We'll go next to Josh Spector with UBS.
Joshua Spector, Analyst
Eduardo, I wanted to just ask you about the decision on Louisiana. I mean I think based on investor expectations, you might have had some license to maybe push out a decision there a little bit beyond year-end, but you're having the tax commitment to communicate something here in the next couple of months. So I'm just curious if you could talk about the range of scenarios there. Is that a go or no-go, meaning cancel decision? Or do you see a scenario where kind of some decision gets pushed out beyond the year-end time frame?
Eduardo Menezes, CEO
Yes, I understand your curiosity, Josh. We would like to communicate more at this point, but we need to wait until the end of the year. If we're saying that we believe there's a reasonable chance to share something by the end of this year, it means we are in advanced negotiations with our counterparts. This would be the largest project ever built by any industrial gas company, so it's a complex negotiation that we've been working on for several months. From that perspective, it's going well. My main concern with this project is the capital estimate. The major equipment and engineering are complete, but construction still needs to be done. The construction market in the U.S. is currently very competitive, with a lot of activity from data centers and other industries. This is impacting projects across the chemical industry. We're monitoring the situation closely to discern what is genuine and what may be inflated. We made a point of applying for a major air permit in Louisiana because our potential counterparts requested flexibility in operating the plant under a gray model if the CO2 sequestration doesn't proceed as expected. This is a significant aspect of the project. Applying for this permit will take several months, likely into mid-2026. After that, civil construction will commence, with peak mechanical and electrical construction projected for around mid-2027. We need to assess the state of the U.S. construction market at that time. We have been working through many details regarding this decision, and we will clearly communicate our status on the project before the end of the year.
Joshua Spector, Analyst
Okay. And just a quick follow-up just with the guide for '26. Your comments are minimal volume growth to something to that extent. Just wonder if you could quantify minimal. Are we talking about near 0 growth? And basically, if we end up having a macro environment that looks like where we've been at the last couple of quarters, is that a risk to your guidance? Or is that largely baked in?
Melissa Schaeffer, CFO
Yes, sure. Thanks for the question. So let's be clear. So again, as we stated, we do see several new assets coming on stream, both in the Americas and in Asia. Those will be ramping towards the back half of this fiscal year. So there is growth in volume associated with new assets. From a market volume perspective, we're not forecasting significant market growth at this time given the macroeconomic headwinds. However, if we see that improve, obviously, our results will improve. So definitely volume from new assets, but at this time, not forecasting significant market volume due to those headwinds.
Operator, Operator
We will move next to Vincent Andrews with Morgan Stanley.
Vincent Andrews, Analyst
Just trying to reconcile the CapEx slide in this deck versus the one in the last one. It looks to us like your CapEx forecast for fiscal '26 has gone from about $3.1 billion to $4 billion. So first of all, is that correct? And secondarily, if it is, what's changed in that slide that's causing that?
Melissa Schaeffer, CFO
Thank you, Vincent, for the question. I'll address this. The capital expenditure guidance we provided in the second quarter was an estimate. As we progress through the year, we consult with all the regional presidents to create a detailed forecast of our capital spending for the upcoming years. We have refined our estimation and increased it based on new developments across various regions, projecting around $4 billion in capital expenditures. Maintenance contributes to that figure, and we aim to enhance our maintenance efforts which may help reduce that expenditure. This is part of our comprehensive review as we plan. Therefore, there is a small discrepancy between the capital expenditure forecast from the second quarter and our current projections.
Vincent Andrews, Analyst
Okay. As a follow-up, in the corporate segment, the results were certainly better than we expected and likely better than the consensus. The slide addresses lower estimates for the sale of equipment project changes. What does that imply?
Melissa Schaeffer, CFO
Yes. Thank you. So we do have certain sales. It's a very small part of our business, but what we would call a sale of equipment. When we sell a project to a company that's not going to be a long-term sale of gas project. We have had some cost increases associated with certain projects that are sale of equipment that are again accounted on a percentage of completion accounting perspective. So as cost increases there, we show that in the P&L. We did have some smaller cost increases this year compared to last year, and that's really what you're seeing flow through there.
Operator, Operator
We'll move next to Chris Parkinson with Wolfe Research.
Christopher Parkinson, Analyst
So let's talk about your base business a little bit, particularly electronics. Can you just go over kind of how we should be thinking about the intermediate to long-term growth algorithm that you have in your portfolio and how that exposure evolves with M.2 HBM growth and everything else? I'd love to hear your thoughts on that as well as where you think Air Products just broadly stands relative to peers in terms of what's embedded in, let's say, your non-large project outlook as it relates to your backlog?
Eduardo Menezes, CEO
Thank you, Chris. Yes, electronics make up about 17% of our total sales at Air Products and is a highly significant segment for us. We were among the first to enter this space, starting with Intel and now collaborating with other companies. This market is rapidly growing. We are currently commissioning new plants and making investments in additional facilities across Asia, while also actively participating in bids for several other projects. As you might know, the investment in this sector has been exceptionally strong. Therefore, it likely represents the most promising area within our traditional business, and we have devoted considerable attention to it. Regarding your question on other products, I would appreciate more clarification on what specifically you are inquiring about beyond our new project portfolio.
Christopher Parkinson, Analyst
Are you happy with where your existing electronics backlog exists relative to peers, given everybody has been wrong over the last few years? Or is that something you'd like to focus on as CEO?
Eduardo Menezes, CEO
Yes. No, no. I will never be happy with that because I always want to have more than that. We're working very hard to get some new opportunities. We believe that there are some new projects that we will be able to announce in 2026. But I still believe that we have a very, very strong position in this market. And I have no other way to make comparisons with our competitors. I think our position on that market is stronger than it is in most markets.
Melissa Schaeffer, CFO
And if I could add one point. So one of the assets that we spoke about is coming on stream this year is in the electronic space in Taiwan. So that's the starting of the ramp of that project. So that's one good example. But in the near term, where we're going to see improvements in the electronics space for Air Products.
Eduardo Menezes, CEO
Yes. And the reality is in these places, it's like a continuous project because they have so many expansions and we are always building new plants in Asia, and hopefully, we will be able to move that to other regions as well as these customers start to invest outside of Asia.
Christopher Parkinson, Analyst
Got it. And just as a quick follow-up. To the extent that you can, can you talk about just kind of how we should be thinking about the run rates from Uzbekistan as well as like GCA and some of these other projects which have had some maintenance or kind of been more start-and-go. Could you just perhaps just give us a little framework on how we should be thinking about those as well?
Eduardo Menezes, CEO
Yes. Uzbekistan is a very large syngas facility. It's operating well. We had maintenance this year, but it was scheduled maintenance; this kind of plants you have to do that every few years. So no real issues there and the plant is running at very high rates at this point. GCA is a project that we are still working on to basically bring to completion, and it's one of the projects that we expect to contribute this year in 2026.
Operator, Operator
We'll go next to John Roberts with Mizuho Securities.
John Ezekiel Roberts, Analyst
Are you still anticipating doing ammonia cracking in Europe and building an ammonia cracker there?
Eduardo Menezes, CEO
We are still waiting to see what the final regulation will be in Europe. As you know, they have this regulation to convert 1% of the fuels to RFNBO. This is for 2030 now. This has to be transposed by each country. There are other regulations that are probably not going to move. But this one, everything indicates that what you see in most countries, they are even proposing higher percentage than that. So I think Spain is 4%, Germany 1.5%. But all this has to be ratified, and the expectation now is that we'll see this transposition of the regulations by March of 2026. So when the regulation comes out, then we're going to understand the size of the market with the best information we have today; it's not a huge percentage of the fuels. But when you think about green hydrogen volumes that are really, really small, that will generate a market. I think in our slides, we said that if the number is 1%, is like 7x the volume of NEOM. At the current regulation levels that we see, that number is more like 20x. Again, these volumes can be supplied by local production using electrolyzers with renewable power, or they can be supplied by cracking ammonia coming from a place like Saudi Arabia. So it's really a way to do some arbitrage on power prices and so forth. We need to see how these ends. We need to see how the market develops and what opportunities we have. If the project makes sense, again, and if we have an offtake agreement, then we can do an FID and move forward with these projects. If not, we'll need to go in a different direction. But at this point, indications are that there will be a market, not a huge market, but very significant compared to the existing volumes in terms of green hydrogen and green ammonia.
Operator, Operator
We'll go next to Laurence Alexander with Jefferies.
Laurence Alexander, Analyst
Earlier this year, when you announced the target of 6% to 9% growth through 2029, what were your assumptions regarding NEOM? Did you base it on your predecessors' expectations of realized prices being approximately double the market price? Was it merely a placeholder of a 10% internal rate of return? Can you provide some insight into what factors were considered in the framework for the NEOM asset?
Eduardo Menezes, CEO
No, we didn't add any kind of very large contribution from NEOM. At this point, we have the contribution from the JV point of view. The contribution from the product that we'll need to sell from there is something that, as I said before, we need to continue to work on to get a better understanding of what the numbers will be. But on our guidance for that high single digits between now and the '29, we count with a minimum contribution from that project.
Operator, Operator
We'll go next to Matthew DeYoe with Bank of America.
Matthew DeYoe, Analyst
I have two questions for you. I apologize that the first one might be a bit lengthy. When comparing your performance to Linde, Europe appears to present the most significant opportunity for improvement. Specifically, it seems that pricing has significantly lagged, especially if we consider the period before and during COVID. Although helium is likely a factor, it appears that when electricity prices declined in 2022 and 2023, Air Products essentially reduced prices for customers, whereas Linde did not. Consequently, there is a substantial margin gap between the two companies. Do you agree with this perspective, and do you see a chance to bridge the price gap? Or is it too challenging to increase prices on your own? My second question is whether there’s a possibility of monetizing the $2 billion investment in Darrow to another entity that may have different strategic objectives from Air Products in the Gulf Coast region. For instance, could we potentially secure around $1 billion, which would be preferable to walking away from the entire project?
Eduardo Menezes, CEO
Yes, starting with the last question first, absolutely. We have completed a significant amount of the critical equipment for the project, and it has strong economic potential. If we decide to cancel, we would aim to recoup as much as possible. Your estimate of 50% is reasonable at this point, but it’s important to thoroughly assess how much can actually be recovered. Regarding your first question, I've seen your report on prices in Europe, and we're still trying to understand the comparisons because looking at quarter-by-quarter data differs significantly from annual averages. I think it would be beneficial to discuss this offline to clarify. As for performance in Europe, I recognize that our competitor has significantly improved their results, and I have insights into that situation. However, Europe consists of various distinct markets; for instance, while the U.K. is isolated, so are Iberia and Italy. The only sizable common market is between France, Benelux, and Germany. Eastern Europe lacks geographical boundaries but also has varied market dynamics. Additionally, Scandinavia is another separate market. When considering our competitive positioning and margins, the performance discrepancies may not be as extensive as you calculated, mainly due to positional factors in regions like Scandinavia or Eastern Europe. Nonetheless, I assure you that we are focused on enhancing our European business across all sectors. We are not reducing prices and are continuously refining our pricing strategy in Europe. I look forward to facilitating a discussion to address the differences in your quarterly versus annual pricing calculations.
Operator, Operator
We'll move next Arun Viswanathan with RBC Capital Markets.
Arun Viswanathan, Analyst
I would like some clarification regarding the helium headwind. It seems that this year may have come in slightly below expectations, with your guidance at $0.55 to $0.60, and possibly coming in around $0.49, which might be a bit better. Could you clarify that? Additionally, looking ahead to next year, Q1 seems to project a negative 6% impact from the helium headwind, but for the full year, it’s negative 4%, suggesting an improvement as the year progresses. What’s your confidence level in that projection? Is there a chance it could worsen? For my second question, regarding capital expenditures, is there flexibility in your plans? Could you potentially reduce it to around $3.5 billion if needed for fiscal '26? How soon do you typically make those decisions? What kind of leeway do you have to make more challenging choices if necessary?
Melissa Schaeffer, CFO
Thank you. I'll address this question. Regarding helium, we had anticipated a headwind of $0.50 to $0.55 for the entire year, and we actually came in at $0.49, which is slightly better than our forecast but not significantly different. For fiscal year 26, we expect a similar run rate to what we experienced in fiscal year 25. We will continue to seek opportunities to increase both volume and price, although it remains a challenging market. I want to highlight that in the first quarter of this year, we had a bulk helium sale that we previously announced, which will contribute to a significant headwind as we move into fiscal year 26. This is the reason for the tougher year-on-year comparison in the first quarter. Overall, we are forecasting about a 4% headwind as we approach fiscal 26. Now, concerning capital expenditure, it is primarily tied to our project execution. As long as we continue to advance our backlog projects, we expect CapEx to remain between $3.5 billion and $4 billion, and this figure is not likely to change significantly. In terms of Darrow, while we have ongoing commitments on purchase orders, there are no new commitments being added. Thus, I do not foresee any significant variances or decisions altering the fiscal 26 CapEx forecast, and I am quite confident in the range of $3.5 billion to $4 billion.
Operator, Operator
We'll go next to Kevin McCarthy with Vertical Research Partners.
Kevin McCarthy, Analyst
Can you elaborate on the decision to sell to coal gasification projects in Asia curious about what exactly you're divesting, whether you have any firm deals in hand today? If so, cash proceeds and any impact on your sales in Asia?
Eduardo Menezes, CEO
Yes, Kevin. As we mentioned a couple of quarters ago, we have three major coal gasification projects in China, where we own and operate the coal gasification component. We also have several other projects with an oxygen plant, but that's a separate matter. Among these three projects, Lu'An is the largest, and we have no issues with it; it is operating smoothly and is likely one of the largest coal gasification sites globally. The other two sites are running without operational issues, but we are facing customer-related challenges. We've been working to address these issues for some time, and they have adversely affected our operating profit. We have only recorded sales that our customers have been able to pay, which has limited the sales impact on us. After months of negotiation, we decided to set these assets aside for sale and are currently in that process. I can't provide specific details on when we might close the sale or the expected proceeds, but we aim to maximize their valuation. We believe that the assets could have a better owner than us and the current owner of the syngas to methanol to olefins plant. We hope to find a buyer that can monetize these assets more effectively than if we continued operating the plants.
Kevin McCarthy, Analyst
Eduardo. My second question is a bit of an unusual one. Would you comment on the market for rare gases, like crypton, xenon, neon, are you seeing any escalation of competitive intensity in Asia? And if so, is it meaningful? Or is it simply too small to matter given the small size of those markets?
Eduardo Menezes, CEO
Yes. Air Products, unfortunately, is not a big player in this market, traditionally. So it's not something that we focus a lot. We have seen some degradation in pricing and increasing in the competition level from other players. But really, it's not something that affects us that much. So I don't think I would be the right person to give you feedback on that.
Operator, Operator
We will take our final question from Mike Sison with Wells Fargo.
Michael Sison, Analyst
One quick question about Louisiana. If you have partners for sequestration and ammonia who expect a similar return as you do, is there still a good long-term return on hydrogen that you would pursue? I think that’s what the board of partners is interested in, so could you elaborate on that scenario?
Eduardo Menezes, CEO
We are viewing this as a standard hydrogen project. We have our own criteria, and the customer has theirs; it must work for both parties for the product to proceed. If it doesn't work for the customer, it won't work for us. I believe there is potential to achieve the right returns. To do that, we need to engage in a commercial negotiation on pricing, as well as have a solid estimate on the capital costs, which is also a crucial part of the equation.
Operator, Operator
And that will conclude the Q&A portion of today's call. I would now like to turn the call back to Eduardo Menezes for any additional or closing remarks.
Eduardo Menezes, CEO
I would like to thank everyone again for joining our call today. We appreciate your interest in Air Products, and we look forward to discussing our results with you in the next few quarters. Thank you, and have a great day. Bye.
Operator, Operator
Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.