Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

119K characters. Original on sec.gov · Markdown

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations


Second Quarter 2026 in Summary			44
Second Quarter 2026 Results of Operations			46
First Six Months 2026 in Summary			53
First Six Months 2026 Results of Operations			55
Reconciliations of Non-GAAP Financial Measures			62
Liquidity and Capital Resources			68
Pension Benefits			72
Critical Accounting Policies and Estimates			73

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 regarding 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. These factors include, 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 2025 (the "2025 Form 10-K"), which was filed with the SEC on 20 November 2025, as well as in "Forward-Looking Statements" of this Quarterly Report on Form 10-Q.

This discussion should be read together with the accompanying interim consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. Financial information is presented on a continuing operations basis. Unless otherwise stated, amounts are stated 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 discuss certain financial measures on an "adjusted", or "non-GAAP", basis, which exclude gains or losses that management does not consider to be representative of our underlying business operations. These adjustments, which are described below for the periods presented, are not reflected in the results of our reportable segments. When viewed together with our GAAP results, we believe these non-GAAP financial measures offer a more complete understanding of the factors and trends affecting our financial performance and support analysis of our results on a more consistent basis. For each non-GAAP financial measure, including adjusted operating income, adjusted operating margin, adjusted earnings per share, the 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 further explanations of our use of non-GAAP financial measures are presented under the “Reconciliations of Non-GAAP Financial Measures” section beginning on page 62.

Comparisons included in the discussion that follows are for the second quarter and first six months of fiscal year 2026 versus ("vs.") the second quarter and first six months of fiscal year 2025. The disclosures provided in this Quarterly Report on Form 10-Q are complementary to those made in our 2025 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. Refer to Note 18, Business Segment Information, to the consolidated financial statements for additional information.

For information concerning activity with our related parties, refer to Note 17, Supplemental Information, to the consolidated financial statements.

SECOND QUARTER 2026 VS. SECOND QUARTER 2025

SECOND QUARTER 2026 IN SUMMARY

Sales of $3.2 billion increased 9%, or $255.6, due to higher volumes of 4%, a favorable impact from currency of 4%, and higher energy cost pass-through to customers of 2%, partially offset by lower pricing of 1% driven by lower helium pricing.
Operating income of $752.7 increased 132%, or $3.1 billion, from an operating loss of $2.3 billion in the prior year, and operating margin improved to 23.7% from negative 79.8%, primarily due to prior-year charges for business and asset actions related to project exit decisions reached in the second quarter of fiscal year 2025.
Adjusted operating income of $752.7 increased 19%, or $121.4, reflecting higher on-site volumes, favorable currency, and lower costs, partially offset by lower helium pricing. Adjusted operating margin improved to 23.7% from 21.6% in the prior year, primarily due to higher volumes and productivity, partially offset by energy cost pass-through to customers and pricing. These non-GAAP results exclude losses resulting from charges for business and asset actions as well as prior-year shareholder activism-related costs, as discussed below.
Equity affiliates' income of $179.4 increased 23%, or $33.9, driven primarily by an affiliate in Mexico within the Americas segment.
Earnings per share ("EPS") of $3.19 increased $10.96 from a loss per share of $7.77 in the prior year. On a non-GAAP basis, adjusted EPS of $3.20 increased $0.51 compared to $2.69 in the prior year. A summary table of changes in EPS is presented on page 45.

Summary of Changes in EPS

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


	Three Months Ended		Change vs. Prior Year
	31 March
	2026	2025
Earnings (Loss) per Share	$3.19	($7.77)	$10.96


% Change from prior year			141	%

Operating Items
Underlying business:
Volume			$0.34
Price, net of variable costs			(0.04)
Other costs			0.05
Currency			0.09


Business and asset actions(A)			10.26





Shareholder activism-related costs			0.14


Total Operating Items			$10.84
Other Items
Equity affiliates' income:
Equity method investment impairment associated with business and asset actions(A)			$0.02
Equity affiliates' income			0.10

Interest expense			(0.03)
Other non-operating income/expense, net:
Loss on de-designation of cash flow hedges(B)			0.01

Non-service pension cost, net			0.02
Other non-operating			0.01

Change in effective tax rate, excluding discrete tax items below			0.04

Tax reform adjustment related to deemed foreign dividends			(0.16)
Tax on repatriation of foreign earnings			0.14




Noncontrolling interests(A)(B)			(0.05)

Total Other Items			$0.10
Total Change			$10.96
% Change from prior year			141	%

(A)Per share impacts were calculated based on total after-tax charges for business and asset actions attributable to Air Products of $2.3 billion. Charges attributable to noncontrolling partners was $3.5.

(B)Per share impact reflected within "Loss on de-designation of cash flow hedges" was calculated based on an after-tax loss attributable to Air Products of $3.0 in fiscal year 2025. The loss attributable to noncontrolling partners was $7.5.

The table below summarizes the per share impact of our non-GAAP adjustments for the second quarter of fiscal years 2026 and 2025. These impacts were calculated independently and may not sum to totals due to rounding.


	Three Months Ended		Change vs. Prior Year
	31 March
	2026	2025
Earnings (Loss) per Share	$3.19	($7.77)	$10.96


Business and asset actions(A)	—	10.28	(10.28)









Shareholder activism-related costs	—	0.14	(0.14)


Loss on de-designation of cash flow hedges	—	0.01	(0.01)
Non-service pension cost, net	0.02	0.04	(0.02)


Tax reform adjustment related to deemed foreign dividends	—	(0.16)	0.16
Tax on repatriation of foreign earnings	—	0.14	(0.14)



Adjusted EPS	$3.20	$2.69	$0.51
% Change from prior year			19%

(A) The charge for business and asset actions in fiscal year 2025 was primarily recorded within operating loss. For additional information regarding this charge, refer to Note 4, Business and Asset Actions, to the consolidated financial statements.

SECOND QUARTER 2026 RESULTS OF OPERATIONS

Discussion of Second Quarter Consolidated Results


	Three Months Ended
	31 March				Change vs. Prior Year
	2026		2025		$	%
GAAP Financial Measures
Sales	$3,171.8		$2,916.2		$255.6	9	%





Operating income (loss)	752.7		(2,328.0)		3,080.7	132%
Operating margin	23.7	%	(79.8	%)		10,350 bp
Equity affiliates’ income	$179.4		$145.5		$33.9	23	%




Non-GAAP Financial Measures
Adjusted operating income	$752.7		$631.3		$121.4	19	%
Adjusted operating margin	23.7	%	21.6	%		210 bp

Sales

The table below summarizes the major factors that impacted consolidated sales for the periods presented:



Volume	4	%
Price	(1	%)
Energy cost pass-through to customers	2	%
Currency	4	%
Total Consolidated Sales Change	9	%

Sales of $3.2 billion increased 9%, or $255.6, due to higher volumes of 4%, a favorable currency impact of 4%, and higher energy cost pass-through to customers of 2%, partially offset by lower pricing of 1%. Volume growth was driven by on-sites, primarily HyCO in the Americas segment. The favorable currency impact reflected a weaker U.S. Dollar, most notably against the Euro, Chinese Renminbi, and British Pound Sterling. Lower pricing was primarily attributable to helium, partially offset by pricing improvements across non-helium product lines.

Cost of Sales and Gross Margin

Cost of sales of $2.2 billion increased 6%, or $130.5, due to an unfavorable currency impact of $81, higher energy cost pass-through to customers of $45, and higher costs of $19 related to sales volumes. These increases were partially offset by $8 of lower costs driven by productivity improvements and lower depreciation, which more than offset fixed-cost inflation and higher Americas maintenance costs, as well as $6 of lower product sourcing costs in our merchant business. Gross margin of 31.1% increased 150 bp from 29.6% in the prior year, driven by higher volumes.

Selling and Administrative Expense

Selling and administrative expense of $227.2 increased 2%, or $5.2, as unfavorable currency and labor inflation were partially offset by productivity improvements. Selling and administrative expense as a percentage of sales improved to 7.2% from 7.6% in the prior year.

Research and Development Expense

Research and development expense of $21.6 decreased 6%, or $1.3. Research and development expense as a percentage of sales decreased to 0.7% from 0.8% in the prior year.

Business and Asset Actions

We did not record any charges related to business and asset actions in the second quarter of fiscal year 2026.

Our consolidated prior year income statement for the three months ended 31 March 2025 included charges of $2.9 billion ($2.3 billion attributable to Air Products after tax, or $10.28 per share), consisting of initial charges related to project exit decisions as well as costs incurred in connection with our global cost reduction plan. These charges were not reflected in the results of our reportable segments. For additional information, refer to Note 4, Business and Asset Actions, to the consolidated financial statements.

Prior Year Shareholder Activism-Related Costs

Other Income (Expense), Net

Other income of $14.1 increased 1%, or $0.2.

Operating Income (Loss) and Operating Margin

Operating income of $752.7 increased 132%, or $3.1 billion, from an operating loss of $2.3 billion in the prior year. The fiscal year 2025 loss was driven by $2.9 billion of charges for business and asset actions, largely related to project exit decisions reached in the second quarter of fiscal year 2025, and also included $31 of shareholder activism‑related costs. Volume impacts were favorable by $94, driven by on-sites. Currency was favorable by $25, and costs were lower by $13, as productivity improvements and lower depreciation more than offset fixed-cost inflation and higher Americas maintenance costs. These factors were partially offset by lower pricing, net of power costs, of $11, driven by lower helium pricing. Lower helium pricing was partially mitigated by pricing improvements across non-helium product lines. Operating margin was 23.7% compared to negative 79.8% in the prior year, which was primarily attributable to the charges for business and asset actions in fiscal year 2025.

On a non-GAAP basis, which excludes the charges for business and asset actions and prior-year shareholder activism-related costs discussed above, adjusted operating income of $752.7 increased 19%, or $121.4, due to higher volumes, favorable currency, and lower costs, partially offset by lower pricing. Adjusted operating margin improved to 23.7% from 21.6% in the prior year, primarily due to higher volumes and productivity, partially offset by energy cost pass-through to customers and pricing.

Equity Affiliates' Income

Equity affiliates' income of $179.4 increased 23%, or $33.9, primarily driven by an affiliate in Mexico within the Americas segment. Additionally, the prior year included a project exit-related impairment charge of $6.8 related to a joint venture in China.

Interest Expense


	Three Months Ended
	31 March
	2026	2025
Interest incurred	$167.5	$145.8
Less: Capitalized interest	118.0	103.6
Interest expense	$49.5	$42.2

Interest expense increased 17%, or $7.3, driven by higher interest on principal borrowings from Euro- and U.S. Dollar-denominated senior fixed-rate notes issued in fiscal year 2025.

Other Non-Operating Income (Expense), Net

Other non-operating income of $0.9 increased $19.5 compared to an expense of $18.6 in the prior year. The prior year included an expense of $11.5 ($3.0 attributable to Air Products after tax, or $0.01 per share) on certain interest rate swaps held by the NEOM Green Hydrogen Company joint venture. As of 1 January 2026, all swaps were re‑designated as cash flow hedges. Refer to Note 3, Variable Interest Entities, and Note 8, Financial Instruments, to the consolidated financial statements for additional information.

The increase also reflects income from excluded components from the assessment of effectiveness of our derivatives and lower non-service pension costs, partially offset by lower interest income on short-term investments.

Effective Tax Rate

The effective tax rate equals the income tax expense (benefit) divided by income or loss before taxes. Equity affiliates' income is primarily included net of income taxes within income or loss before taxes on our consolidated income statements.

For the three months ended 31 March 2026, our consolidated income statement includes an income tax expense of $158.7 compared to an income tax benefit of $505.8 in the prior year period. The tax expense in fiscal year 2026 represents an effective tax rate of 18.0% on the pre-tax income of $883.5 reported for the three months ended 31 March 2026. The tax benefit in fiscal year 2025 represented an effective rate of 22.5% on the pre-tax loss of $2.2 billion reported for the three months ended 31 March 2025.

The prior-year rate was primarily impacted by $2.9 billion of pre-tax charges for business and asset actions and other items as further discussed in Note 16, Income Taxes. Also contributing to a lower rate for the current fiscal year were higher foreign and domestic tax credits and incentives and higher equity affiliates' income. These items were partially offset by a higher cost of U.S. tax on foreign earnings and withholding taxes on foreign earnings we no longer intend to indefinitely reinvest.

Our adjusted effective tax rate, which excludes the impact of adjustments presented in the "Reconciliations of Non-GAAP Financial Measures" section beginning on page 62, was 18.0% and 19.1% for the three months ended 31 March 2026 and 2025, respectively.

Discussion of Second Quarter Results by Business Segment

Americas


	Three Months Ended
	31 March				Change vs. Prior Year
	2026		2025		$	%/bp
Sales	$1,383.9		$1,287.2		$96.7	8	%
Operating income	373.9		365.7		8.2	2	%
Operating margin	27.0	%	28.4	%		(140	bp)
Equity affiliates’ income	$55.8		$31.2		$24.6	79	%

The table below summarizes the major factors that impacted sales in the Americas segment for the periods presented:



Volume	3	%
Price	—	%
Energy cost pass-through to customers	4	%
Currency	1	%
Total Americas Sales Change	8	%

Sales of $1.4 billion increased 8%, or $96.7, due to higher energy cost pass-through to customers of 4%, higher volumes of 3%, and favorable currency of 1%. The higher energy cost pass-through reflects increased natural gas rates in the U.S. Gulf Coast. Volumes were favorable in both on-sites and merchant, including helium, partially offset by income from a favorable one-time customer contract amendment in the prior year.

Operating income of $373.9 increased 2%, or $8.2, as higher volumes of $15 and favorable currency of $3 were partially offset by higher costs of $6 and lower pricing, net of power costs, of $4. The lower pricing reflected lower helium pricing and higher power costs in our merchant business, which were partially mitigated by favorable pricing actions across non-helium product lines. The increase in costs was primarily due to maintenance turnarounds and fixed-cost inflation, partially offset by lower depreciation. Operating margin of 27.0% decreased 140 bp from 28.4% in the prior year driven by a headwind of approximately 100 bp from higher energy cost pass-through to our on-site customers.

Equity affiliates’ income of $55.8 increased 79%, or $24.6, driven primarily by an affiliate in Mexico.

Asia


	Three Months Ended
	31 March				Change vs. Prior Year
	2026		2025		$	%/bp
Sales	$832.6		$774.1		$58.5	8	%
Operating income	240.0		191.4		48.6	25	%
Operating margin	28.8	%	24.7	%		410	bp
Equity affiliates’ income	$11.7		$10.5		$1.2	11	%

The table below summarizes the major factors that impacted sales in the Asia segment for the periods presented:



Volume	4	%
Price	(1	%)

Energy cost pass-through to customers	1	%
Currency	4	%
Total Asia Sales Change	8	%

Sales of $832.6 increased 8%, or $58.5, due to higher volumes of 4% primarily related to on-site activity, including new assets, and improved helium, as well as favorable currency of 4% driven by the weakening of the U.S. Dollar against the Chinese Renminbi. Higher energy cost pass-through to customers contributed 1%, offset by lower pricing of 1%. The 1% total segment price decrease equates to a 5% decline in our merchant business, driven by lower helium pricing.

Operating income of $240.0 increased 25%, or $48.6, due to higher volumes of $34, lower costs of $16 driven by productivity, and favorable currency of $8, partially offset by lower pricing, net of power costs, of $10. Depreciation was lower in fiscal year 2026 primarily due to certain gasification assets being classified as held for sale. Operating margin of 28.8% increased 410 bp from 24.7% in the prior year, primarily due to the impact of higher volumes and favorable costs, partially offset by lower pricing.

Equity affiliates’ income of $11.7 increased 11%, or $1.2, driven primarily by an affiliate in Thailand.

Europe


	Three Months Ended
	31 March				Change vs. Prior Year
	2026		2025		$	%/bp
Sales	$789.0		$727.4		$61.6	8	%
Operating income	211.6		195.5		16.1	8	%
Operating margin	26.8	%	26.9	%		(10	bp)
Equity affiliates’ income	$31.9		$27.7		$4.2	15	%

The table below summarizes the major factors that impacted sales in the Europe segment for the periods presented:



Volume	2	%
Price	(1	%)
Energy cost pass-through to customers	(2	%)
Currency	9	%
Total Europe Sales Change	8	%

Sales of $789.0 increased 8%, or $61.6, as favorable currency of 9% and higher volumes of 2% were partially offset by lower energy cost pass-through to customers of 2% and lower pricing of 1%. Favorable currency primarily reflected the weakening of the U.S. Dollar against the Euro and British Pound Sterling. Higher volumes were driven by on-sites, including the impact of a prior-year turnaround, partially offset by lower helium. Energy cost pass-through declined due to lower natural gas rates. Lower helium pricing was partially mitigated by favorable pricing actions across non-helium product lines.

Operating income of $211.6 increased 8%, or $16.1, due to higher volumes of $16, favorable currency of $16, and higher pricing, net of lower power costs, of $4, partially offset by higher costs of $20. The increase in costs was primarily due to higher depreciation and fixed-cost inflation. Operating margin of 26.8% decreased 10 bp from 26.9% in the prior year.

Equity affiliates’ income of $31.9 increased 15%, or $4.2, driven primarily by an affiliate in Italy.

Middle East and India


	Three Months Ended
	31 March		Change vs. Prior Year
	2026	2025	$	%
Sales	$29.2	$32.8	($3.6)	(11	%)
Operating income (loss)	4.6	(2.9)	7.5	259	%

Equity affiliates' income	79.2	78.2	1.0	1	%

Sales of $29.2 decreased 11%, or $3.6, primarily due to lower volumes. Operating income was $4.6 compared to a loss of $2.9 in the prior year, reflecting lower costs, including productivity improvements and the impact of the deconsolidation of Blue Hydrogen Industrial Gases Company ("BHIG") in the second quarter of fiscal year 2025.

Equity affiliates' income of $79.2 increased 1%, or $1.0.

Corporate and other


	Three Months Ended
	31 March		Change vs. Prior Year
	2026	2025	$	%
Sales	$137.1	$94.7	$42.4	45	%
Operating loss	(77.4)	(118.4)	41.0	35	%
Equity affiliates' income	0.8	4.7	(3.9)	(83	%)

Sales of $137.1 increased 45%, or $42.4. Operating loss of $77.4 improved 35%, or $41.0, primarily due to lower changes to sale of equipment project estimates and productivity improvements.

Equity affiliates' income of $0.8 decreased 83%, or $3.9, driven by an affiliate in Algeria.

FIRST SIX MONTHS 2026 VS. FIRST SIX MONTHS 2025

FIRST SIX MONTHS 2026 IN SUMMARY

Sales of $6.3 billion increased 7%, or $426.6, due to a favorable currency impact of 3%, higher volumes of 2%, and higher energy cost pass-through to customers of 2%.
Operating income of $1.5 billion increased 188%, or $3.2 billion, from an operating loss of $1.7 billion in the prior year, and operating margin improved to 23.7% from a negative 28.8%, primarily due to prior-year charges for business and asset actions related to project exit decisions reached in the second quarter of fiscal year 2025.
Adjusted operating income of $1.5 billion increased 16%, or $204.4, and adjusted operating margin improved to 24.1% from 22.3% in the prior year, driven by higher volumes. These non-GAAP results exclude losses resulting from charges for business and asset actions as well as prior-year shareholder activism-related costs, as discussed below.
Equity affiliates' income of $351.6 increased 19%, or $55.5, primarily driven by an affiliate in Mexico within the Americas segment.
EPS of $6.23 increased $11.23 from a loss per share of $5.00 in the prior year. On a non-GAAP basis, adjusted EPS of $6.37 increased $0.83 compared to $5.54 in the prior year. A summary table of changes in EPS is presented on page 54.

Summary of Changes in EPS

The per share impacts for the line items presented in the table below were calculated independently and may not sum to the total change in EPS due to rounding.


	Six Months Ended		Change vs. Prior Year
	31 March
	2026	2025
Earnings (Loss) per Share	$6.23	($5.00)	$11.23


% Change from prior year			225	%

Operating Items
Underlying business:
Volume			$0.44
Price, net of variable costs			0.04
Other costs			0.13
Currency			0.14


Business and asset actions(A)			10.17
Shareholder activism-related costs			0.24








Total Operating Items			$11.16
Other Items
Equity affiliates' income:
Equity method investment impairment associated with business and asset actions(A)			$0.02
Equity affiliates' income			0.18

Interest expense			(0.07)
Other non-operating income/expense, net:
Gain on de-designation of cash flow hedges(B)			(0.03)
Non-operating expense associated with business and asset actions(A)			(0.02)
Non-service pension cost, net			0.04


Change in effective tax rate, excluding discrete items below			0.05

Tax reform adjustment related to deemed foreign dividends			(0.16)
Tax on repatriation of foreign earnings			0.14




Noncontrolling interests(A)(B)			(0.08)

Total Other Items			$0.07
Total Change			$11.23
% Change from prior year			225	%

(A)Per share impacts were calculated based on total after-tax charges for business and asset actions attributable to Air Products of $24.6 million and $2.3 billion for the first six months of fiscal years 2026 and 2025, respectively, with $0.6 million and $3.5 million attributable to noncontrolling partners.

(B)Per share impact reflected within "Gain on de-designation of cash flow hedges" was calculated based on an after-tax gain attributable to Air Products of $7.3 in fiscal year 2025. The gain attributable to our noncontrolling partners was $17.7.

The table below summarizes the per share impact of our non-GAAP adjustments for the first six months of fiscal years 2026 and 2025. These impacts were calculated independently and may not sum to totals due to rounding:


	Six Months Ended		Change vs. Prior Year
	31 March
	2026	2025
Earnings (Loss) per Share	$6.23	($5.00)	$11.23


Business and asset actions(A)	0.11	10.28	(10.17)
Shareholder activism-related costs	—	0.24	(0.24)











Gain on de-designation of cash flow hedges	—	(0.03)	0.03
Non-service pension cost, net	0.03	0.07	(0.04)


Tax reform adjustment related to deemed foreign dividends	—	(0.16)	0.16
Tax on repatriation of foreign earnings	—	0.14	(0.14)



Adjusted EPS	$6.37	$5.54	$0.83
% Change from prior year			15	%

FIRST SIX MONTHS 2026 RESULTS OF OPERATIONS

Discussion of First Six Months Consolidated Results


	Six Months Ended
	31 March				Change vs. Prior Year
	2026		2025		$	%
GAAP Financial Measures
Sales	$6,274.3		$5,847.7		$426.6	7	%
Operating income (loss)	1,487.2		(1,684.4)		3,171.6	188	%

Operating margin	23.7	%	(28.8	%)		5,250	bp

Equity affiliates’ income	$351.6		$296.1		$55.5	19	%




Non-GAAP Financial Measures


Adjusted operating income	$1,509.2		$1,304.8		$204.4	16	%
Adjusted operating margin	24.1	%	22.3	%		180	bp

Sales

The table below summarizes the major factors that impacted consolidated sales for the periods presented:


Volume	2	%
Price	—	%
Energy cost pass-through to customers	2	%
Currency	3	%
Total Consolidated Sales Change	7	%

Sales of $6.3 billion increased 7%, or $426.6, due to a favorable currency impact of 3%, higher volumes of 2%, and higher energy cost pass-through to customers of 2%. Currency was favorable as the U.S. Dollar weakened, most notably against the Euro. Volume growth was driven by on-sites, primarily from new assets and Americas HyCO facilities, partially offset by lower helium demand and a significant, non-recurring helium sale to an existing merchant customer in the Americas segment in the prior year. Pricing was flat as improvement across non-helium product lines was offset by lower helium pricing.

Cost of Sales and Gross Margin

Cost of sales of $4.3 billion increased 5%, or $221.5, due to an unfavorable currency impact of $128 and higher energy cost pass-through to customers of $124. These increases were partially offset by $16 of lower costs driven by productivity improvements and reduced depreciation, which more than offset fixed-cost inflation, lower product sourcing costs of $9, and lower costs of $5 related to sales volumes. Gross margin of 31.6% increased 120 bp from 30.4% in the prior year as the benefits from higher volumes were partially offset by higher energy cost pass-through to customers.

Selling and Administrative Expense

Selling and administrative expense of $455.9 decreased 2%, or $8.5, as productivity improvements were partially offset by unfavorable currency and fixed-cost inflation. Selling and administrative expense as a percentage of sales improved to 7.3% from 7.9% in the prior year.

Research and Development Expense

Research and development expense of $42.0 decreased 6%, or $2.9. Research and development expense as a percentage of sales decreased to 0.7% from 0.8% in the prior year.

Business and Asset Actions

Our consolidated income statement for the six months ended 31 March 2026 included charges of $28.3 ($24.6 attributable to Air Products after tax, or $0.11 per share), related to project exit decisions reached in fiscal year 2025. Our consolidated prior-year income statement for the six months ended 31 March 2025 included charges of $2.9 billion ($2.3 billion attributable to Air Products after tax, or $10.28 per share), consisting of initial charges related to these decisions as well as costs incurred in connection with our global cost reduction plan. These charges were not reflected in results of our reportable segments. For additional information, refer to Note 4, Business and Asset Actions, to the consolidated financial statements.

Prior-Year Shareholder Activism-Related Costs

We recorded shareholder activism-related costs in fiscal year 2025 in connection with a proxy contest that concluded in January 2025 following certification of the election of directors at the 2025 Annual Meeting of Shareholders. Costs of $61.3 ($52.9 after tax, or $0.24 per share) incurred during the first six months of fiscal year 2025 included executive separation costs for our former chief executive officer, professional service fees, and incremental proxy solicitation costs related to the 2025 Annual Meeting of Shareholders. These costs were not reflected in the results of our reportable segments. For additional information, refer to Note 17, Supplemental Information, to the consolidated financial statements.

Other Income (Expense), Net

Other income of $24.7 decreased 33%, or $12.1, primarily due to the prior year sale of a U.S. equity method investment.

Operating Income (Loss) and Operating Margin

Operating income of $1.5 billion increased 188%, or $3.2 billion, from an operating loss of $1.7 billion in the prior year. The fiscal year 2025 loss was driven by $2.9 billion of charges for business and asset actions, largely related to project exit decisions reached in the second quarter of fiscal year 2025, and also included $61 of shareholder activism‑related costs. Volume impacts were favorable by $121 driven by on-sites, partially offset by lower helium. Currency was favorable by $38, and costs were lower by $35, as productivity improvements and lower depreciation were partially offset by fixed-cost inflation. Pricing, net of power costs, improved by $11 driven by non-helium merchant products. Operating margin was 23.7% compared to negative 28.8% in the prior year, which was primarily attributable to the charge for business and asset actions in fiscal year 2025.

On a non-GAAP basis, which excludes the charges for business and asset actions and prior year-shareholder activism-related costs discussed above, adjusted operating income of $1.5 billion increased 16%, or $204.4 due to higher volumes, favorable currency, lower costs, and higher pricing, net of power costs. Adjusted operating margin improved to 24.1% from 22.3% in the prior year, primarily due to higher volumes and productivity, partially offset by energy cost pass-through to customers.

Equity Affiliates' Income

Equity affiliates' income of $351.6 increased 19%, or $55.5, driven by an affiliate in Mexico within the Americas segment. Additionally, the prior year included a project exit-related impairment charge of $6.8 related to a joint venture in China.

Interest Expense


	Six Months Ended
	31 March
	2026	2025
Interest incurred	$335.3	$285.7
Less: Capitalized interest	231.5	200.9
Interest expense	$104.0	$84.8

Interest expense increased 23%, or $19.2, driven by higher interest on principal borrowings from Euro- and U.S. Dollar-denominated senior fixed-rate notes issued in fiscal year 2025.

Other Non-Operating Income (Expense), net

Other non-operating expense of $0.5 decreased $20.8 from income of $20.3 in the prior year. The prior year included a gain of $27.3 ($7.3 attributable to Air Products after tax, or $0.03 per share) on certain interest rate swaps held by the NEOM Green Hydrogen Company joint venture. As of 1 January 2026, all swaps were re‑designated as cash flow hedges. Refer to Note 3, Variable Interest Entities, and Note 8, Financial Instruments, to the consolidated financial statements for additional information. We also recognized lower interest income on short-term investments in fiscal year 2026.

These impacts were partially offset by income from excluded components from the assessment of effectiveness of our derivatives and lower non-service pension costs.

Effective Tax Rate

For the six months ended 31 March 2026, our consolidated income statement includes an income tax expense of $318.1 compared to an income tax benefit of $365.1 in the prior year period. The tax expense in fiscal year 2026 represents an effective tax rate of 18.3% on the pre-tax income of $1.7 billion reported for the six months ended 31 March 2026. The tax benefit in fiscal year 2025 represented an effective rate of 25.1% on the pre-tax loss of $1.5 billion reported for the six months ended 31 March 2025.

The prior-year rate was primarily impacted by $2.9 billion of pre-tax charges for business and asset actions and other items as further discussed in Note 16, Income Taxes. Also contributing to a lower rate for the current fiscal year were higher foreign and domestic tax credits and incentives and higher equity affiliates' income. These items were partially offset by a higher cost of U.S. tax on foreign earnings, larger excess tax benefits on share-based compensation in the prior year, and a benefit from a U.S. state tax law change in the prior period.

Our adjusted effective tax rate, which excludes the impact of adjustments presented in the "Reconciliations of Non-GAAP Financial Measures" section beginning on page 62, was 18.3% and 18.9% for the six months ended 31 March 2026 and 2025, respectively.

Discussion of First Six Months Results by Business Segment

Americas


	Six Months Ended
	31 March				Change vs. Prior Year
	2026		2025		$	%/bp
Sales	$2,725.6		$2,574.8		$150.8	6	%
Operating income	777.7		753.9		23.8	3	%
Operating margin	28.5	%	29.3	%		(80	bp)
Equity affiliates’ income	$107.5		$66.3		$41.2	62	%

The table below summarizes the major factors that impacted sales in the Americas segment for the periods presented:



Volume	(1	%)
Price	1	%
Energy cost pass-through to customers	5	%
Currency	1	%
Total Americas Sales Change	6	%

Sales of $2.7 billion increased 6%, or $150.8, due to higher energy cost pass-through to customers of 5%, higher pricing of 1%, and a favorable currency impact of 1%, partially offset by lower volumes of 1%. Higher energy cost pass-through reflects increased natural gas rates in the U.S. Gulf Coast. The 1% total segment price increase equates to a 2% improvement in our merchant business, driven by non-helium product lines. The modest volume decline was primarily due to favorable non‑recurring items in the prior year, including a significant helium sale to an existing merchant customer and a one‑time customer contract amendment, partially offset by higher on‑site volumes in fiscal year 2026.

Operating income of $777.7 increased 3%, or $23.8, as favorable business mix of $18, positive pricing, net of higher power costs, of $12, and favorable currency of $4 were partially offset by higher costs of $10. The increase in costs was primarily due to fixed-cost inflation and prior‑year income from the sale of an equity method investment, partially offset by lower depreciation. Operating margin of 28.5% decreased 80 bp from 29.3% as a headwind of approximately 150 basis points from higher energy cost pass‑through to customers was partially offset by favorable business mix.

Equity affiliates’ income of $107.5 increased 62%, or $41.2, driven by an affiliate in Mexico.

Asia


	Six Months Ended
	31 March				Change vs. Prior Year
	2026		2025		$	%/bp
Sales	$1,664.1		$1,591.2		$72.9	5	%
Operating income	472.3		407.8		64.5	16	%
Operating margin	28.4	%	25.6	%		280	bp
Equity affiliates’ income	$25.5		$20.8		$4.7	23	%

The table below summarizes the major factors that impacted sales in the Asia segment for the periods presented:



Volume	2	%
Price	(2	%)
Energy cost pass-through to customers	2	%
Currency	3	%
Total Asia Sales Change	5	%

Sales of $1.7 billion increased 5%, or $72.9, as a favorable currency impact of 3%, higher volumes of 2%, and higher energy cost pass-through to customers of 2% were partially offset by lower pricing of 2%. Favorable currency reflected the weakening of the U.S. dollar against the Chinese Renminbi, while higher volumes were attributable to on‑sites, including contributions from new assets. The total segment pricing decline of 2% equates to a 4% decline in our merchant business, driven by lower helium pricing.

Operating income of $472.3 increased 16%, or $64.5, due to higher volumes of $41, lower costs of $31 driven by productivity, and a favorable currency impact of $12, partially offset by lower pricing, net of power costs, of $20. Depreciation was lower in fiscal year 2026 primarily due to certain gasification assets being classified as held for sale. Operating margin of 28.4% increased 280 bp from 25.6% in the prior year, primarily due to the impact of higher volumes and favorable costs, partially offset by lower pricing.

Equity affiliates’ income of $25.5 increased 23%, or $4.7, driven by affiliates in China and Thailand.

Europe


	Six Months Ended
	31 March				Change vs. Prior Year
	2026		2025		$	%/bp
Sales	$1,571.0		$1,424.6		$146.4	10	%
Operating income	435.1		382.0		53.1	14	%
Operating margin	27.7	%	26.8	%		90	bp
Equity affiliates’ income	$55.3		$45.9		$9.4	20	%

The table below summarizes the major factors that impacted sales in the Europe segment for the periods presented:



Volume	3	%
Price	—	%
Energy cost pass-through to customers	(2	%)
Currency	9	%
Total Europe Sales Change	10	%

Sales of $1.6 billion increased 10%, or $146.4, due to a favorable impact from currency of 9% and higher volumes of 3%, partially offset by lower energy cost pass-through to customers of 2%, primarily due to lower natural gas rates. Favorable currency primarily reflected the weakening of the U.S. Dollar against the Euro. The higher volumes were driven by on-sites, including the impact of a prior-year turnaround, partially offset by lower helium. Pricing was flat as improvement across non-helium product lines was offset by lower helium pricing.

Operating income of $435.1 increased 14%, or $53.1, due to higher volumes of $37, favorable currency of $27, higher pricing, net of lower power costs, of $19, partially offset by higher costs of $30. The increase in costs was primarily due to higher depreciation and fixed-cost inflation. Operating margin of 27.7% increased 90 bp from 26.8% in the prior year as the benefits from higher volumes and pricing were partially offset by higher costs.

Equity affiliates’ income of $55.3 increased 20%, or $9.4, driven by an affiliate in Italy.

Middle East and India


	Six Months Ended
	31 March		Change vs. Prior Year
	2026	2025	$	%
Sales	$59.5	$65.6	($6.1)	(9	%)
Operating income (loss)	10.4	(3.5)	13.9	397	%
Equity affiliates' income	163.7	163.2	0.5	—	%

Sales of $59.5 decreased 9%, or $6.1, primarily due to lower volumes. Operating income of $10.4 improved from a loss of $3.5 in the prior year, reflecting lower costs, including productivity improvements and the impact of the deconsolidation of BHIG in the second quarter of fiscal year 2025.

Equity affiliates' income of $163.7 was flat.

Corporate and other


	Six Months Ended
	31 March		Change vs. Prior Year
	2026	2025	$	%
Sales	$254.1	$191.5	$62.6	33	%
Operating loss	(186.3)	(235.4)	49.1	21	%
Equity affiliates' income (loss)	(0.4)	6.7	(7.1)	(106	%)

Sales of $254.1 increased 33%, or $62.6. Operating loss of $186.3 improved 21%, or $49.1, primarily due to lower changes to sale of equipment project estimates and productivity improvements.

Equity affiliates' loss of $0.4 was unfavorable by $7.1 compared to income of $6.7 in the prior year, driven primarily by an affiliate in Algeria.

RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES

We present certain financial measures that are not calculated in accordance with U.S. generally accepted accounting principles ("GAAP") because they exclude items that management does not consider to be representative of our underlying business operations. We provide these adjusted non-GAAP financial measures to allow investors, potential investors, securities analysts, and others to evaluate our business in the same manner as management. When viewed together with our GAAP results, we believe these non-GAAP financial measures offer a more complete understanding of the factors and trends affecting our financial performance and support analysis of our results on a more consistent basis.

Readers are cautioned that non‑GAAP financial measures have inherent limitations and should not be considered in isolation or as a substitute for the corresponding GAAP measures. Our definitions and calculations of non‑GAAP financial measures may differ from those used by other companies, which may limit comparability.

Non-GAAP Performance Measures

Management uses non-GAAP performance measures, including adjusted operating income, adjusted operating margin, and adjusted earnings per share ("EPS"), to assess our performance because these measures exclude items that management does not consider to be representative of our underlying business operations. In addition, adjusted operating income and adjusted EPS are important components of our incentive compensation plans. We also use adjusted operating margin to assess operational efficiency, cost discipline, and overall profitability.

Our non‑GAAP performance measures are adjusted to exclude gains or losses that management believes are not associated with the ongoing operations of our business. These adjustments, which are described below for the periods presented, are not reflected in the results of our reportable segments. Although these items are often difficult to predict, readers should be aware that similar gains or losses may occur in future periods. The related tax effects reflect the expected current and deferred income tax impacts of our non-GAAP adjustments, which are primarily driven by the statutory tax rates of the applicable jurisdictions and the taxability of the underlying adjustments in those jurisdictions.

We reconcile each non‑GAAP performance measure to its most directly comparable GAAP measure in the table below, followed by descriptions of each non-GAAP adjustment. Margins are calculated by dividing the applicable line item by consolidated sales for the relevant period. In addition to our non-GAAP performance measures, we also present components used in calculating adjusted EPS to illustrate the per share effect of our non‑GAAP adjustments. All per share amounts are calculated on a diluted basis from continuing operations attributable to Air Products. Because margins and per share amounts are calculated independently, the individual components may not sum to the related totals due to rounding.


	Three Months Ended 31 March
Q2 2026 vs. Q2 2025	Operating Income/Loss	Operating Margin		Equity Affiliates' Income	Other Non- Operating Inc/Exp, Net	Income Tax Expense/Benefit	Net Income/Loss Attributable to Air Products	Earnings/Loss per Share(A)
Q2 2026 GAAP Measures	$752.7	23.7%		$179.4	$0.9	$158.7	$710.4	$3.19
Q2 2025 GAAP Measures	(2,328.0)	(79.8)%		145.5	(18.6)	(505.8)	(1,730.6)	(7.77)
$ GAAP Change	$3,080.7							$10.96
%/bp GAAP Change	132%	10,350	bp					141%
Q2 2026 GAAP Measures	$752.7	23.7%		$179.4	$0.9	$158.7	$710.4	$3.19
















Non-service pension cost, net	—	—%		—	4.6	1.1	3.5	0.02








Q2 2026 Adjusted Measures	$752.7	23.7%		$179.4	$5.5	$159.8	$713.9	$3.20
Q2 2025 GAAP Measures	($2,328.0)	(79.8)%		$145.5	($18.6)	($505.8)	($1,730.6)	($7.77)


Business and asset actions(B)	2,927.9	100.4%		6.8	—	640.6	2,290.6	10.28









Shareholder activism-related costs	31.4	1.1%		—	—	0.4	31.0	0.14
Loss on de-designation of cash flow hedges(C)	—	—%		—	11.5	1.0	3.0	0.01
Non-service pension cost, net	—	—%		—	10.7	2.7	8.0	0.04


Tax reform adjustment related to deemed foreign dividends	—	—%		—	—	34.9	(34.9)	(0.16)
Tax on repatriation of foreign earnings	—	—%		—	—	(31.4)	31.4	0.14




Q2 2025 Adjusted Measures	$631.3	21.6%		$152.3	$3.6	$142.4	$598.5	$2.69
$ Adjusted Change	$121.4							$0.51
%/bp Adjusted Change	19%	210	bp					19%

(A)Calculated and presented on a diluted basis from continuing operations attributable to Air Products. Because we reported a loss from operations in the prior year, Q2 2025 GAAP loss per share was calculated using the basic weighted average share value of 222.8 million and Q2 2025 adjusted earnings per share was calculated using a diluted weighted average share value of 222.9 million.

(B)Charge attributable to noncontrolling interests was $3.5.

(C)Loss attributable to noncontrolling interests was $7.5.


	Six Months Ended 31 March
2026 vs. 2025	Operating Income/Loss	Operating Margin		Equity Affiliates' Income	Other Non- Operating Inc/Exp, Net	Income Tax Expense/Benefit	Net Income/Loss Attributable to Air Products	Earnings/Loss per Share(A)
2026 GAAP Measures	$1,487.2	23.7%		$351.6	($0.5)	$318.1	$1,388.6	$6.23
2025 GAAP Measures	(1,684.4)	(28.8)%		296.1	20.3	(365.1)	(1,113.2)	(5.00)
$ GAAP Change	$3,171.6							$11.23
%/bp GAAP Change	188%	5,250	bp					225%
2026 GAAP Measures	$1,487.2	23.7%		$351.6	($0.5)	$318.1	$1,388.6	$6.23


Business and asset actions(B)	22.0	0.4%		—	6.3	3.1	24.6	0.11













Non-service pension cost, net	—	—%		—	8.0	2.0	6.0	0.03







2026 Adjusted Measures	$1,509.2	24.1%		$351.6	$13.8	$323.2	$1,419.2	$6.37
2025 GAAP Measures	($1,684.4)	(28.8)%		$296.1	$20.3	($365.1)	($1,113.2)	($5.00)


Business and asset actions(B)	2,927.9	50.1%		6.8	—	640.6	2,290.6	10.28









Shareholder activism-related costs	61.3	1.0%		—	—	8.4	52.9	0.24
Gain on de-designation of cash flow hedges(C)	—	—%		—	(27.3)	(2.3)	(7.3)	(0.03)
Non-service pension cost, net	—	—%		—	21.2	5.3	15.9	0.07


Tax reform adjustment related to deemed foreign dividends	—	—%		—	—	34.9	(34.9)	(0.16)
Tax on repatriation of foreign earnings	—	—%		—	—	(31.4)	31.4	0.14




2025 Adjusted Measures	$1,304.8	22.3%		$302.9	$14.2	$290.4	$1,235.4	$5.54
$ Adjusted Change	$204.4							$0.83
%/bp Adjusted Change	16%	180	bp					15%

(A)Calculated and presented on a diluted basis from continuing operations attributable to Air Products. Because we reported a loss from operations in the prior year, 2025 GAAP loss per share was calculated using the basic weighted average share value of 222.7 million and 2025 adjusted earnings per share was calculated using a diluted weighted average share value of 222.9 million.

(B)Charge attributable to noncontrolling interests was $0.6 and $3.5 for the six months ended 31 March 2026 and 2025, respectively.

(C)Gain attributable to noncontrolling interests was $17.7.

Non-GAAP Adjustments

Business and Asset Actions

In the first half of fiscal year 2026, we recorded charges of $28.3 ($24.6 after tax, or $0.11 per share) related to project exit decisions reached in fiscal year 2025. Of these charges, $22.0 were recorded to operating income to update cost estimates as we settle project‑related commitments and dispose of associated assets, and $6.3 was recorded in "Other non‑operating income (expense), net" for losses on cross‑currency interest rate swaps terminated in connection with the early repayment of related intercompany loans for one of the affected gasification projects in China. No additional charges were recorded during the second quarter of fiscal year 2026.

Initial charges related to these project exit decisions were recorded together with costs associated with our global cost reduction plan during the second quarter of fiscal year 2025 and totaled $2.9 billion ($2.3 billion attributable to Air Products after tax, or $10.28 per share). These charges included $6.8 that was recorded in equity affiliates' income related to an other-than-temporary impairment of a joint venture in China formed to develop clean hydrogen infrastructure in the region.

For additional information regarding business and asset actions, refer to Note 4, Business and Asset Actions, to the consolidated financial statements.

Estimates related to business and asset actions reflect our best judgment based on information available at the time the charges were recorded. Final settlement of these items may differ materially from current estimates, which could impact our consolidated financial statements in future periods.

Prior-Year Shareholder Activism-Related Costs

We recorded shareholder activism-related costs in fiscal year 2025 in connection with a proxy contest that concluded in January 2025 following certification of the election of directors at the 2025 Annual Meeting of Shareholders. Costs of $31.4 ($31.0 after tax, or $0.14 per share) incurred during the second quarter of fiscal year 2025 primarily reflected executive separation costs for our former chief executive officer following the Board of Directors’ appointment of a new chief executive officer, which included a noncash expense of $22.4 related to the acceleration of vesting of share‑based awards and $7.3 in severance and other cash benefits. Costs of $61.3 ($52.9 after tax, or $0.24 per share) incurred during the first six months of fiscal year 2025 also included legal and other professional service fees, as well as incremental proxy solicitation costs related to the 2025 Annual Meeting of Shareholders, which were largely incurred during the first quarter of fiscal year 2025.

Prior-Year Gain on De-designation of Cash Flow Hedges

In fiscal year 2024, we discontinued cash flow hedge accounting for certain interest rate swaps due to changes in the anticipated drawdown timeline for hedged borrowings related to the NEOM Green Hydrogen Project. These swaps are held by NEOM Green Hydrogen Company, a consolidated joint venture accounted for under the variable interest model, in which Air Products holds a one-third ownership interest. As a result of the de-designation, unrealized gains and losses related to the affected swaps were recorded in "Other non-operating income (expense), net" on our consolidated income statements. During the second quarter of fiscal year 2025, we recorded an unrealized loss of $11.5 ($3.0 attributable to Air Products after tax, or $0.01 per share), with $7.5 attributable to our noncontrolling partners. For the six months ended 31 March 2025, the total amount recorded was a net unrealized gain of $27.3 ($7.3 attributable to Air Products after tax, or $0.03 per share), with $17.7 attributable to our noncontrolling partners, respectively.

We re-designated the affected swaps as cash flow hedges when the outstanding borrowings under the available project financing became commensurate with the swaps’ notional values. As of 1 January 2026, all swaps were re-designated as cash flow hedges. The unrealized gain on swaps that remained de-designated during the first quarter of fiscal year 2026 was not material.

Non-Service Related Pension Items

Non-service related pension items resulted in net non-operating costs of $4.6 ($3.5 after tax, or $0.02 per share) and $8.0 ($6.0 after tax, or $0.03 per share) for the three and six months ended 31 March 2026, respectively, compared to $10.7 ($8.0 after tax, or $0.04 per share) and $21.2 ($15.9 after tax, or $0.07 per share) for the three and six months ended 31 March 2025, respectively. Non-service related components are recurring, non-operating items that include interest cost, expected returns on plan assets, prior service cost amortization, actuarial loss amortization, as well as special termination benefits, curtailments, and settlements. The net impact of non-service related components is reflected within “Other non-operating income (expense), net” on our consolidated income statements. Adjusting for the impact of non-service pension components provides management and users of our financial statements with a more accurate representation of our underlying business performance because these components are driven by factors that are unrelated to our operations, such as volatility in equity and debt markets. Further, non-service related components are not indicative of our defined benefit plans’ future contribution needs due to the funded status of the plans.

Prior-Year Tax Reform Adjustment Related to Deemed Foreign Dividends

During the second quarter of fiscal year 2025, we recorded a net income tax benefit of $34.9 ($0.16 per share) related to our intent to file a refund claim after a review of several U.S. Tax Court cases regarding the U.S. taxation of deemed foreign dividends in the transition year of the U.S. Tax Cuts and Jobs Act (our fiscal year 2018). While we were not a party to these cases, the opinions resulted in a change to our intent to pursue a refund claim.

Prior-Year Tax on Repatriation of Foreign Earnings

During the second quarter of fiscal year 2025, we recorded an income tax expense of $31.4 ($0.14 per share) related to estimated withholding taxes on foreign earnings that we no longer intended to indefinitely reinvest.

ADJUSTED EFFECTIVE TAX RATE

The effective tax rate represents income tax expense (benefit) divided by income or loss before taxes as reported under GAAP. We calculate our adjusted effective tax rate by adjusting both the numerator and the denominator to exclude the tax and pre‑tax effects of our non‑GAAP adjustments, respectively.

The table below presents a reconciliation of the GAAP effective tax rate to our adjusted effective tax rate:



	Three Months Ended 31 March				Six Months Ended 31 March
	2026		2025		2026		2025
Income tax expense (benefit)	$158.7		($505.8)		$318.1		($365.1)
Income (loss) before taxes	883.5		(2,243.3)		1,734.3		(1,452.8)
Effective tax rate	18.0	%	22.5	%	18.3	%	25.1	%
Reconciliations of GAAP to Non-GAAP:
Income tax expense (benefit)	$158.7		($505.8)		$318.1		($365.1)

Business and asset actions tax impact	—		640.6		3.1		640.6

Shareholder activism-related costs tax impact	—		0.4		—		8.4


Loss (Gain) on de-designation of cash flow hedges tax impact	—		1.0		—		(2.3)
Non-service pension cost, net tax impact	1.1		2.7		2.0		5.3








Tax reform adjustment related to deemed foreign dividends	—		34.9		—		34.9
Tax on repatriation of foreign earnings	—		(31.4)		—		(31.4)




Adjusted income tax expense	$159.8		$142.4		$323.2		$290.4

Income (loss) before taxes	$883.5		($2,243.3)		$1,734.3		($1,452.8)


Business and asset actions	—		2,927.9		28.3		2,927.9
Shareholder activism-related costs	—		31.4		—		61.3


Loss (Gain) on de-designation of cash flow hedges	—		11.5		—		(27.3)
Non-service pension cost, net	4.6		10.7		8.0		21.2
Business and asset actions—equity method investment	—		6.8		—		6.8










Adjusted income before taxes	$888.1		$745.0		$1,770.6		$1,537.1
Adjusted effective tax rate	18.0	%	19.1	%	18.3	%	18.9	%

CAPITAL EXPENDITURES (NON-GAAP)

Capital expenditures is a non-GAAP financial measure that management uses to evaluate our deployment of capital and assess alignment with our strategic priorities. Our calculation of this measure begins as the sum of cash paid for additions to plant and equipment, including long-term deposits, acquisitions (less cash acquired), investment in and advances to unconsolidated affiliates, and investment in financing receivables, each of which are reported on our consolidated statements of cash flows.

We then adjust this amount to exclude spending for additions to plant and equipment by our consolidated joint venture, NEOM Green Hydrogen Company (“NGHC”), to the extent such spending is funded by sources other than Air Products’ cash. These other funding sources include NGHC’s project financing, which is non‑recourse to Air Products, as well as equity contributions from the other joint venture partners. Management believes this adjustment provides a more useful view of the capital we deploy to support the ongoing growth of our business.

The most directly comparable GAAP measure to our non‑GAAP capital expenditures is “Cash used for investing activities,” as reported on our consolidated statements of cash flows. The reconciliation of cash used for investing activities to our reported capital expenditures is provided below:



	Six Months Ended
	31 March
	2026	2025
Cash used for investing activities	$2,318.8	$4,419.4
Proceeds from sale of assets and investments	49.0	36.5
Purchases of short-term investments	—	(117.6)
Proceeds from short-term investments	—	11.1
Proceeds from other investing activities	11.0	60.9
NGHC expenditures not funded by Air Products' equity(A)	(590.4)	(1,470.9)
Capital expenditures	$1,788.4	$2,939.4

(A)Reflects the portion of "Additions to plant and equipment, including long-term deposits" that is associated with NGHC, less our approximate cash investment in the joint venture. Substantially all the funding we provide to NGHC is limited for use by the joint venture for its capital expenditures.

LIQUIDITY AND CAPITAL RESOURCES

We believe we have sufficient cash, cash flows from operations, and access to funding sources to meet our liquidity needs. As further discussed in the "Cash Flows From Financing Activities" section below, we are able to raise capital through a variety of financing activities, including accessing capital or commercial paper markets or drawing upon our credit facilities.

As of 31 March 2026, we held cash and cash items of $951.0, substantially all of which were held outside the U.S. We do not expect a significant portion of the earnings from our foreign subsidiaries and affiliates to be subject to U.S. income tax upon repatriation. Depending on the country in which these entities operate, repatriation of earnings may be subject to foreign withholding and other taxes. However, we intend to indefinitely reinvest the majority of our foreign cash and cash items that would be subject to additional taxes outside the U.S.

Cash Flows From Operations


	Six Months Ended
	31 March
	2026	2025

Net income (loss) attributable to Air Products	$1,388.6	($1,113.2)
Adjustments to reconcile income to cash provided by operating activities:
Depreciation and amortization	745.7	750.4
Deferred income taxes	125.6	(540.1)
Tax reform repatriation	—	(34.9)

Business and asset actions	22.0	2,927.9

Undistributed earnings of equity method investments	(34.7)	(129.4)
Gain on sale of assets and investments	(4.0)	(12.3)
Share-based compensation	26.5	54.7
Noncurrent lease receivables	24.1	28.0


Other adjustments	(18.1)	(87.8)
Changes in working capital accounts	(271.3)	(703.5)
Cash Provided by Operating Activities	$2,004.4	$1,139.8

For the first six months of fiscal year 2026, cash provided by operating activities was $2.0 billion. The adjustment for deferred income taxes of $125.6 primarily reflects the timing of tax deductions associated with prior-year charges for business and asset actions. For additional information, refer to Note 4, Business and Asset Actions, to the consolidated financial statements. The working capital accounts were a net use of cash of $271.3, primarily driven by a $246.4 use related to payables and accrued liabilities. This use primarily included payments for incentive compensation under the fiscal year 2025 plan, contract terminations tied to our business and asset actions, and previously accrued severance actions under our global cost reduction plan.

For the first six months of fiscal year 2025, cash provided by operating activities was $1.1 billion. The adjustment for deferred income taxes of $540.1 was primarily driven by the tax impacts of charges recorded for business and asset actions in the second quarter of fiscal year 2025 as discussed in Note 4, Business and Asset Actions, to the consolidated financial statements. Other adjustments of $87.8 primarily included adjustments for noncash currency impacts of intercompany balances. The working capital accounts were a use of cash of $703.5, which was primarily driven by a use of cash of $571.0 within "Other working capital". Further, "Other working capital" included income tax payments in excess of expense of $515.4, which was driven by payments of $395 related to the gain on the sale of the LNG business in September 2024. The use of cash of $66.9 within "Trade receivables", primarily related to the timing of cash collections.

Cash Flows From Investing Activities


	Six Months Ended
	31 March
	2026	2025
Additions to plant and equipment, including long-term deposits	($2,358.8)	($4,009.1)

Investments in and advances to unconsolidated affiliates	(20.0)	(365.4)
Investments in financing receivables	—	(35.8)
Proceeds from sale of assets and investments	49.0	36.5
Purchases of short-term investments	—	(117.6)
Proceeds from short-term investments	—	11.1

Proceeds from other investing activities	11.0	60.9
Cash Used for Investing Activities	($2,318.8)	($4,419.4)

For the first six months of fiscal year 2026, cash used for investing activities of $2.3 billion was primarily driven by additions to plant and equipment, including long-term deposits, as discussed in the "Capital Expenditures" section below.

For the first six months of fiscal year 2025, cash used for investing activities was $4.4 billion. The use of cash primarily resulted from additions to plant and equipment, including long-term deposits, of $4.0 billion. Refer to the "Capital Expenditures" section below for further detail. Investments in and advances to unconsolidated affiliates resulted in a use of cash of $365.4. Purchases of investments of $117.6 included purchases of time deposits, which have terms greater than three months but less than one year, and exceeded proceeds from investments of $11.1.

Capital Expenditures (Non-GAAP Financial Measure)

The components of our capital expenditures are detailed in the table below. Refer to page 67 for a definition of this non-GAAP financial measure as well as a reconciliation to cash used for investing activities.


	Six Months Ended
	31 March
	2026	2025
Additions to plant and equipment, including long-term deposits	$2,358.8	$4,009.1

Investments in and advances to unconsolidated affiliates	20.0	365.4
Investments in financing receivables	—	35.8
NGHC expenditures not funded by Air Products' equity(A)	(590.4)	(1,470.9)
Capital expenditures	$1,788.4	$2,939.4

Capital expenditures for the first six months of fiscal year 2026 totaled $1.8 billion compared to $2.9 billion in the prior year. Cash outflows for both periods primarily reflect investments in clean energy initiatives, including the NEOM Green Hydrogen Project and clean energy complexes in Louisiana, United States, and Alberta, Canada, as well as ongoing capital spending to maintain and replace assets in our core industrial gases business. Spending on the NEOM Green Hydrogen Project declined in fiscal year 2026 as the project nears completion.

Outlook for Investing Activities

It is not possible, without unreasonable efforts, to reconcile our forecasted capital expenditures to future cash used for investing activities because management is unable to identify the timing or occurrence of our future investment activity, which is driven by our assessment of competing opportunities at the time we enter into transactions. These decisions, either individually or in the aggregate, could have a significant effect on our cash used for investing activities. Accordingly, management is unable to fully reconcile, without unreasonable efforts, our forecasted capital expenditures to future cash used for investing activities.

We expect capital expenditures for fiscal year 2026 to be approximately $4.0 billion, reflecting continued investment in our energy transition projects, traditional industrial gas projects, and maintenance within our core business. Approximately $1 billion of this amount is expected to be dedicated to traditional industrial gas projects. We anticipate funding these expenditures through our existing cash balance and cash generated from continuing operations. We also have access to capital and money market financing as well as other sources of funding as discussed in the "Financing and Capital Structure" section below.

Cash Flows From Financing Activities


	Six Months Ended
	31 March
	2026	2025
Long-term debt proceeds	$439.2	$2,002.5
Payments on long-term debt	(588.7)	(332.3)
Net increase in commercial paper and short-term borrowings	269.7	645.6
Dividends paid to shareholders	(797.0)	(787.4)


Investments by noncontrolling interests	120.5	355.7

Other financing activities	(34.8)	(59.0)
Cash (Used for) Provided by Financing Activities	($591.1)	$1,825.1

For the first six months of fiscal year 2026, cash used for financing activities was $591.1. The use of cash was driven by cash dividends paid to shareholders of $797.0 and long-term debt repayments of $588.7. Long-term debt repayments included the repayment of $550.0 aggregate principal amount of 1.50% senior notes due October 2025. These uses of cash were partially offset by $439.2 of long-term debt proceeds, primarily from incremental borrowings under the project financing arrangement available to NGHC for the NEOM Green Hydrogen Project. Additionally, we received net proceeds of $269.7 from commercial paper and short-term borrowings, and $120.5 from investments by noncontrolling interests.

For the first six months of fiscal year 2025, cash provided by financing activities was $1.8 billion. The source of cash was driven by long-term debt proceeds of $2.0 billion, which included approximately $1.0 billion from Eurobonds issued in February 2025. We used the proceeds from the offering to repay commercial paper obligations, including those incurred prior to the closing of our 2025 Eurobond offering for repayment of €300 million aggregate principal amount outstanding of our 1.000% Eurobonds at maturity, plus accrued interest. The remaining $1.0 billion was borrowed by the NGHC joint venture as further discussed below. Additionally, we received proceeds of $645.6 from commercial paper and short-term borrowings, and $355.7 from investments by noncontrolling interests. These sources of cash were partially offset by dividend payments to shareholders of $787.4.

Financing and Capital Structure

Debt

Total debt increased to $17.8 billion as of 31 March 2026 from $17.7 billion as of 30 September 2025. The increase in debt was driven by approximately $415 in incremental long-term principal borrowings under the project financing arrangement for the NEOM Green Hydrogen Project, which is non-recourse to Air Products, as further discussed below. Additionally, net issuances of commercial paper and cash received from short-term borrowings totaled $269.7. These borrowings were partially offset by the repayment of $550.0 aggregate principal amount of 1.50% senior notes due October 2025. Total debt included related party debt of $244.3 and $236.5 as of 31 March 2026 and 30 September 2025, respectively.

Various debt agreements to which we are a party include financial covenants and other restrictions, including restrictions pertaining to the ability to create property liens and enter into certain sale and leaseback transactions. As of 31 March 2026, we were in compliance with all the financial and other covenants under our debt agreements.

Committed Credit Facilities

On 26 March 2026, we amended our existing 364-day $500 revolving credit agreement to extend its maturity date from 26 March 2026 to 25 March 2027. The amendment also provides that if we elect to convert the facility into a term loan, the maturity date of the term loan would be 25 March 2028. Fees incurred in connection with the amendment were not material.

We also maintain a five-year $3.0 billion revolving credit agreement that matures on 31 March 2029. Both the 364-day agreement and the five-year agreement are syndicated committed facilities that provide a source of liquidity and support our commercial paper program through the availability of senior unsecured debt to us and certain of our subsidiaries. No borrowings were outstanding under either of the agreements as of 31 March 2026 or 30 September 2025.

Separately, certain of our foreign subsidiaries maintain access to committed credit facilities with a combined maximum borrowing capacity of $430.6, of which $337.0 was borrowed and outstanding as of 31 March 2026. The amount available and borrowed as of 30 September 2025 was $394.0.

NEOM Green Hydrogen Project Financing

To support the NEOM Green Hydrogen Project, NGHC has access to project financing of approximately $6.1 billion, which is expected to fund about 73% of the project and is being drawn over the construction period, as well as additional credit facilities totaling approximately $500 primarily for NGHC's working capital needs. Creditors of NGHC do not have recourse to the general credit of Air Products. As of 31 March 2026, the joint venture had borrowed short- and long-term principal amounts totaling $5.4 billion compared to $4.9 billion as of 30 September 2025. Refer to Note 3, Variable Interest Entities, to the consolidated financial statements for additional information.

Dividends

We believe that providing a consistent dividend plays a critical role in creating shareholder value. The Board of Directors determines whether to declare cash dividends on our common stock, and the timing and amount of those dividends, based on our financial condition and other factors it deems relevant. In January 2026, the Board of Directors approved a $0.02 per share increase to our quarterly dividend, raising it to $1.81 per share and marking our 44th consecutive year of dividend increases.

Dividends are paid quarterly, typically during the sixth week following the close of the fiscal quarter. During the first half of fiscal year 2026, we paid $797.0 in dividends to shareholders. Dividends declared but unpaid as of the date of this report were as follows:


Declaration Date	Dividend Per Share	Record Date	Date Payable
27 January 2026	$1.81	1 April 2026	11 May 2026
23 April 2026	$1.81	1 July 2026	10 August 2026

In total, we expect to return approximately $1.6 billion to shareholders in 2026.

PENSION BENEFITS

We and certain of our subsidiaries sponsor defined benefit pension plans and defined contribution plans that cover a substantial portion of our worldwide employees. The principal defined benefit pension plans are the U.S. salaried pension plan and the U.K. pension plan. These plans were closed to new participants in 2005, after which defined contribution plans were offered to new employees. The shift to defined contribution plans is expected to continue to reduce volatility of both plan expense and contributions. For additional information, refer to Note 11, Retirement Benefits, to the consolidated financial statements.

Net Periodic Cost

The table below summarizes the components of net periodic cost for our U.S. and international defined benefit pension plans:


	Three Months Ended		Six Months Ended
	31 March		31 March
	2026	2025	2026	2025
Service cost	$4.5	$5.0	$9.4	$10.2








Non-service cost	4.6	10.7	8.0	21.2
Other	0.3	—	0.6	0.1
Net Periodic Cost	$9.4	$15.7	$18.0	$31.5

Net periodic cost was $9.4 and $18.0 for the three and six months ended 31 March 2026, respectively. Net periodic cost was $15.7 and $31.5 for the three and six months ended 31 March 2025, respectively. The lower non-service related costs are the result of higher expected return on plan assets from increases in the return assumption and a decrease in actuarial loss amortization. Non-service related components of net periodic cost are reflected within "Other non-operating income (expense), net" on our consolidated income statements.

Service costs result from benefits earned by active employees and are reflected as operating expenses primarily within "Cost of sales" and "Selling and administrative expense" on our consolidated income statements. The amount of service costs capitalized in the first six months of fiscal years 2026 and 2025 was not material.

Company Contributions

Management considers various factors when making pension funding decisions, including tax, cash flow, and regulatory implications. For the six months ended 31 March 2026 and 2025, our cash contributions to funded pension plans and benefit payments for unfunded pension plans were $13.8 and $14.3, respectively.

Total contributions for fiscal year 2026 are expected to be approximately $25 to $35. During fiscal year 2025, total contributions were $29.9.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

A description of our major accounting policies, including those that we consider to be the most critical to understanding our financial statements, is included in our 2025 Form 10-K. There were no significant changes to our accounting policies during the first six months of fiscal year 2026.

Management’s Discussion and Analysis of our financial condition and results of operations is based on the consolidated financial statements and accompanying notes that have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates reflect our best judgment about current and/or future economic and market conditions and their effect based on information available as of the date of our consolidated financial statements. If conditions change, actual results may differ materially from these estimates.

Judgments and estimates of uncertainties are required to apply our accounting policies in many areas. However, application of policies that management has identified as critical places significant importance on management’s judgment, often as the result of the need to make estimates about the effects of matters that are inherently uncertain.

During the first six months of fiscal year 2026, we recorded changes to project revenue and cost estimates on certain sale of equipment projects that are accounted for under the cost incurred input method. Accordingly, we recorded cumulative effect adjustments that unfavorably impacted operating income by approximately $25 and $58 for the three and six months ended 31 March 2026, respectively.

Additionally, we recorded a charge of $22.0 within operating income during the first quarter of fiscal year 2026 to update cost estimates related to previously announced project exit decisions as described in Note 4, Business and Asset Actions, to the consolidated financial statements. We estimate the value of certain long-lived assets associated with these decisions using Level 3 inputs under the fair value hierarchy due to the absence of observable market prices and significant reliance on management judgment and estimation techniques. For long-lived assets that met the held-for-sale criteria and are actively being marketed for sale, fair value, including costs to sell, was estimated using an internally developed discounted cash flow analysis as of 30 September 2025. There were no material changes to valuation assumptions related to assets held for sale during the first six months of fiscal year 2026. For plant and equipment that did not meet the held‑for‑sale criteria but are capable of being sold through secondary equipment markets, we estimated the net realizable value of the assets as of 31 March 2025 using an orderly liquidation valuation approach. There were no material changes in the estimated net realizable value for any remaining assets not disposed as of 31 March 2026.

Estimates related to these actions are considered critical because they involve significant assumptions regarding future cash flows, asset disposition strategies, and market conditions, all of which are subject to change and could materially affect the amount and timing of impairment charges. Additionally, because the project review is ongoing, we may make further project-related decisions that could impact the intended use or recoverability of certain assets, potentially resulting in the recognition of additional charges in future periods.

There were no other changes to our estimates during the first six months of fiscal year 2026 that had a significant impact on our financial condition, change in financial condition, liquidity, or results of operations.

Previous: Item 1. Financial Statements · Next: Item 3. Quantitative and Qualitative Disclosures About Market Risk