Air Products Earnings: Price and Volumes Up Across All Regions

We are maintaining our $319 fair value estimate for narrow-moat-rated Air Products APO following the industrial gas firm’s fiscal third-quarter earnings release. Management raised the bottom end of its full-year guidance and now anticipates adjusted EPS in the range of $11.40-$11.50 (up from $11.30-$11.50). We’ve made some puts and takes in our model, but nothing in the earnings release alters our long-term view of the firm.

Air Products’ fiscal third-quarter underlying sales increased by 7% from the same period last year, on 3% higher pricing (including 10% higher merchant pricing) and 4% higher volumes. All regions saw positive volume growth: 6% in the Americas, 8% in Asia, and 1% in Europe. The industrial gas firm expanded its fiscal third-quarter adjusted EBITDA margin by 590 basis points year over year, from 33.9% to 39.8%, thanks to a positive price-cost spread and higher equity affiliates’ income as well as a roughly 400-basis-point boost from lower energy cost pass-through.

During the quarter, Air Products completed the financial close on the NEOM project and signed an agreement to acquire a natural gas-to-syngas processing project in Uzbekistan for $1 billion. The Uzbekistan facility is already built and will start contributing to Air Products’ earnings in fiscal 2024. We were pleased to hear that the Jiutai gasification project is now operational and has been completed under budget, despite supply chain disruptions and COVID-19-related lockdowns. Management also said on the earnings call that the Gulf Coast Ammonia project is on pace to start delivering hydrogen in August.

We continue to see a long runway for growth for Air Products. The company aims to deploy over $30 billion of capital over the next decade, with nearly $18 billion of projects already in the backlog. We believe that Air Products is well positioned to capitalize on an acceleration in blue and green hydrogen investment opportunities.