Air Products & Chemicals 10-Q 2024-12-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

For the quarterly period ended 31 December 2024

or

For the transition period from to

Commission File Number 001-04534

AIR PRODUCTS AND CHEMICALS, INC.

(Exact name of registrant as specified in its charter)

1940 Air Products Boulevard

Allentown, Pennsylvania 18106-5500

(Address of principal executive offices and Zip Code)

610-481-4911

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of common stock, par value $1 per share, outstanding at 31 December 2024 was 222,475,666.

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended 31 December 2024

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts and can generally be identified by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “forecast,” "future," “goal,” “intend,” “may,” “outlook,” “plan,” “positioned,” “possible,” “potential,” “project,” “should,” “target,” “will,” “would,” and similar expressions or variations thereof, or the negative thereof, but these terms are not the exclusive means of identifying such statements. Forward-looking statements are based on management’s expectations and assumptions as of the date of this report and are not guarantees of future performance. You are cautioned not to place undue reliance on our forward-looking statements.

Forward-looking statements may relate to a number of matters, including expectations regarding revenue, margins, expenses, earnings, tax provisions, cash flows, pension obligations, share repurchases or other statements regarding economic conditions or our business outlook; statements regarding capital expenditures and plans, projects, strategies and objectives for our future operations, including our ability to win new projects and execute the projects in our backlog; and statements regarding our expectations with respect to pending legal claims or disputes. While forward-looking statements are made in good faith and based on assumptions, expectations and projections that management believes are reasonable based on currently available information, actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors, including, without limitation:

• changes in global or regional economic conditions, inflation, and supply and demand dynamics in the market segments we serve, including demand for technologies and projects to limit the impact of global climate change;

• changes in the financial markets that may affect the availability and terms on which we may obtain financing;

• the ability to execute agreements with customers and implement price increases to offset cost increases;

• disruptions to our supply chain and related distribution delays and cost increases;

• risks associated with having extensive international operations, including political risks, risks associated with unanticipated government actions and risks of investing in developing markets;

• project delays, scope changes, cost escalations, contract terminations, customer cancellations, or postponement of projects and sales;

• our ability to safely develop, operate, and manage costs of large-scale and technically complex projects;

• the future financial and operating performance of major customers, joint ventures, and equity affiliates;

• our ability to develop, implement, and operate new technologies and to market products produced utilizing new technologies;

• our ability to execute the projects in our backlog and refresh our pipeline of new projects;

• tariffs, economic sanctions and regulatory activities in jurisdictions in which we and our affiliates and joint ventures operate;

• the impact of environmental, tax, safety, or other legislation, as well as regulations and other public policy initiatives affecting our business and the business of our affiliates and related compliance requirements, including legislation, regulations, or policies intended to address global climate change;

• changes in tax rates and other changes in tax law;

• safety incidents relating to our operations;

• the timing, impact, and other uncertainties relating to acquisitions, divestitures, and joint venture activities, as well as our ability to integrate acquisitions and separate divested businesses, respectively;

FORWARD-LOOKING STATEMENTS (CONTINUED)

• risks relating to cybersecurity incidents, including risks from the interruption, failure or compromise of our information systems or those of our business partners or service providers;

• catastrophic events, such as natural disasters and extreme weather events, pandemics and other public health crises, acts of war, including Russia’s invasion of Ukraine and new and ongoing conflicts in the Middle East, or terrorism;

• the impact on our business and customers of price fluctuations in oil and natural gas and disruptions in markets and the economy due to oil and natural gas price volatility;

• costs and outcomes of legal or regulatory proceedings and investigations;

• asset impairments due to economic conditions or specific events;

• significant fluctuations in inflation, interest rates, and foreign currency exchange rates from those currently anticipated;

• damage to facilities, pipelines or delivery systems, including those we are constructing or that we own or operate for third parties;

• availability and cost of electric power, natural gas, and other raw materials; and

• the commencement and success of any productivity and operational improvement programs.

In addition to the foregoing factors, forward-looking statements contained herein are qualified with respect to the risks disclosed elsewhere in this document, including in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and Item 3, Quantitative and Qualitative Disclosures About Market Risk, as well as with respect to the risks described in Item 1A, Risk Factors, to our Annual Report on Form 10-K for the fiscal year ended 30 September 2024. Any of these factors, as well as those not currently anticipated by management, could cause our results of operations, financial condition or liquidity to differ materially from what is expressed or implied by any forward-looking statement. Except as required by law, we disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect any change in assumptions, beliefs, or expectations or any change in events, conditions, or circumstances upon which any such forward-looking statements are based.

PART I—FINANCIAL INFORMATION

Air Products and Chemicals, Inc. and Subsidiaries

CONSOLIDATED INCOME STATEMENTS

(Unaudited)

The accompanying notes are an integral part of these statements.

Air Products and Chemicals, Inc. and Subsidiaries

CONSOLIDATED COMPREHENSIVE INCOME STATEMENTS

(Unaudited)

The accompanying notes are an integral part of these statements.

Air Products and Chemicals, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(Unaudited)

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This Management’s Discussion and Analysis contains “forward-looking statements” within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about business outlook. These forward-looking statements are based on management’s expectations and assumptions as of the date of this Quarterly Report on Form 10-Q and are not guarantees of future performance. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors not anticipated by management, including, without limitation, those described in "Forward-Looking Statements" and Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended 30 September 2024 (the "2024 Form 10-K"), which was filed with the SEC on 21 November 2024.

This discussion should be read in conjunction with the interim consolidated financial statements and the accompanying notes contained in this Quarterly Report on Form 10-Q. Financial information is presented on a continuing operations basis. Unless otherwise stated, amounts discussed are in millions of U.S. Dollars, except for per share data, which is calculated and presented on a diluted basis in U.S. Dollars per weighted average common share.

The financial measures discussed below are presented in accordance with U.S. generally accepted accounting principles ("GAAP"), except as noted. We present certain financial measures on an "adjusted", or "non-GAAP", basis because we believe such measures, when viewed together with financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance. For each non-GAAP financial measure, including adjusted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, adjusted effective tax rate, and capital expenditures, we present a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These reconciliations and explanations regarding the use of non-GAAP financial measures are presented under the “Reconciliations of Non-GAAP Financial Measures” section beginning on page 41.

Comparisons included in the discussion that follows are for the first quarter of fiscal year 2025 versus ("vs.") the first quarter of fiscal year 2024. The disclosures provided in this Quarterly Report on Form 10-Q are complementary to those made in our 2024 Form 10-K.

We manage our operations, assess performance, and report earnings under five reportable segments: Americas, Asia, Europe, Middle East and India, and Corporate and other. The discussion that follows is based on these operations. Refer to Note 15, Business Segment Information, to the consolidated financial statements for additional information.

For information concerning activity with our related parties, refer to Note 14, Supplemental Information, to the consolidated financial statements.

FIRST QUARTER 2025 VS. FIRST QUARTER 2024

FIRST QUARTER 2025 IN SUMMARY

• Sales of $2,931.5 decreased 2%, or $65.9, due to lower volumes of 2% and an unfavorable impact from currency of 1%, which were partially offset by favorable pricing of 1%. Lower volumes driven by the LNG business divestiture in September 2024, which resulted in a headwind of approximately 2%, and a lower contribution from on-sites and merchant in the Europe segment were partially offset by a significant, non-recurring sale of helium to an existing merchant customer in the Americas segment. Energy cost pass-through to customers was flat versus the prior year.

• Operating income of $643.6 decreased 3%, or $23.3, as higher costs and lower volumes were partially offset by higher pricing, net of power and fuel costs, and favorable currency. The recently divested LNG business contributed operating income of approximately $25 in the prior year. Operating margin of 22.0% decreased 20 basis points ("bp").

• Equity affiliates' income of $150.6 decreased 5%, or $7.8, driven by lower income from JIGPC in the Middle East & India segment.

• Net income of $649.8 increased 5%, or $28.2, as higher pricing, net of power and fuel costs, lower non-service pension costs, and a gain on de-designated cash flow hedges were partially offset by higher costs. Net income margin of 22.2% increased 150 bp.

• Adjusted EBITDA of $1,190.9 increased 1%, or $16.4, as higher pricing, net of power and fuel costs, was partially offset by higher costs and lower equity affiliates' income. Adjusted EBITDA margin of 40.6% increased 140 bp.

• EPS of $2.77 increased 1%, or $0.04 per share. On a non-GAAP basis, adjusted EPS of $2.86 increased 1%, or $0.04 per share. A summary table of changes to EPS is presented below.

Summary of Changes in EPS

The diluted per share impacts presented in the tables below were calculated independently and do not sum to the total change in EPS due to rounding.

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Information on our utilization of financial instruments and an analysis of the sensitivity of these instruments to selected changes in market rates and prices is included in our 2024 Form 10-K.

Our net financial instrument position decreased from a liability of $13,855.3 at 30 September 2024 to a liability of $13,746.8 at 31 December 2024. The decrease was primarily due to the strengthening of the U.S. Dollar that was offset by additional borrowings under the project financing associated with the NEOM Green Hydrogen Project as discussed in Note 3, Variable Interest Entities, to the consolidated financial statements.

Interest Rate Risk

Our debt portfolio as of 31 December 2024 and 30 September 2024, including the effect of currency and interest rate swap agreements, was composed of 87% fixed-rate debt and 13% variable-rate debt.

The sensitivity analysis related to the interest rate risk on the fixed portion of our debt portfolio assumes an instantaneous 100 bp parallel move in interest rates from the level at 31 December 2024, with all other variables held constant. A 100 bp increase in market interest rates would result in a decrease of $977 and $1,035 in the net liability position of financial instruments at 31 December 2024 and 30 September 2024, respectively. A 100 bp decrease in market interest rates would result in an increase of $1,128 and $1,197 in the net liability position of financial instruments at 31 December 2024 and 30 September 2024, respectively.

There were no material changes to the sensitivity analysis related to the variable portion of our debt portfolio since 30 September 2024.

Foreign Currency Exchange Rate Risk

The sensitivity analysis related to foreign currency exchange rates assumes an instantaneous 10% change in the foreign currency exchange rates from their levels at 31 December 2024, with all other variables held constant. A 10% strengthening or weakening of the functional currency of an entity versus all other currencies would result in a decrease or increase, respectively, of $422 and $408 in the net liability position of financial instruments at 31 December 2024 and 30 September 2024, respectively.

Disclosure Controls and Procedures

We maintain a comprehensive set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Under the supervision of the Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our disclosure controls and procedures as of 31 December 2024. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of 31 December 2024, our disclosure controls and procedures were effective.

Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended 31 December 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

None of the Company’s directors or Section 16 reporting officers adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K) during the first quarter of fiscal year 2025.

(a) Exhibits required by Item 601 of Regulation S-K

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.