Air Products & Chemicals, Inc. SEC 10-K Report

Air Products & Chemicals, Inc., a leading industrial gases company founded in 1940, has released its annual 10-K report for fiscal year 2024. The report highlights the company's financial performance, operational achievements, strategic initiatives, and the challenges it faces in the current market environment. Known for its innovative culture, operational excellence, and commitment to sustainability, Air Products continues to focus on serving energy, environmental, and emerging markets.

Financial Highlights

• Sales: $12,100.6 million, decreased 4% primarily due to 5% lower energy cost pass-through driven by lower natural gas prices in North America and Europe.
• Operating Income: $4,466.1 million, increased 79% primarily due to the $1.6 billion gain recognized on the sale of the LNG business during the fourth quarter of fiscal year 2024.
• Net Income: $3,862.4 million, increased 65% primarily due to the $1.2 billion after-tax gain recognized upon the sale of the LNG business at the end of the fourth quarter.
• Diluted EPS: $17.24, increased 67% or $6.94 per share.
• Adjusted EBITDA: $5,046.3 million, increased 7% primarily due to positive pricing, net of power and fuel costs, and favorable business mix, partially offset by labor inflation and higher planned maintenance costs.

Business Highlights

• Company Overview: Air Products and Chemicals, Inc. is a leading industrial gases company known for its innovative culture, operational excellence, and commitment to safety and the environment. The company focuses on serving energy, environmental, and emerging markets with a commitment to sustainability.
• Core Business Segments: The company operates through five reportable segments: Americas, Asia, Europe, Middle East and India, and Corporate and other. The industrial gases business, organized regionally, produces and sells atmospheric gases (oxygen, nitrogen, argon), process gases (hydrogen, helium, CO2, carbon monoxide, syngas), and specialty gases.
• Industrial Gases Production: Industrial gases are produced at or near the point of use due to the complexity and inefficiency of storing molecules at low temperatures. The company uses cryogenic distillation for atmospheric gases and various methods for process gases, including steam methane reformers and gasifiers.
• Supply Modes: Air Products distributes gases through on-site production, merchant gases, and packaged gases. On-site gases are supplied through large facilities or pipeline systems, while merchant gases are delivered in bulk or packaged form. On-site supply mode generates approximately half of the company's total sales.
• Geographical Performance - Americas: Sales in the Americas segment decreased by 6% due to lower energy cost pass-through and unfavorable currency impacts, partially offset by higher pricing and volumes. Operating income increased by 9% due to positive pricing and favorable business mix.
• Geographical Performance - Asia: Sales in the Asia segment remained flat with higher volumes offset by unfavorable currency impacts. Operating income decreased by 5% due to unfavorable mix and higher variable costs, partially offset by lower distribution costs and strategic productivity actions.
• Geographical Performance - Europe: Sales in the Europe segment decreased by 5% due to lower energy cost pass-through, partially offset by favorable currency impacts and higher volumes. Operating income increased by 22% due to favorable mix, pricing, and lower power and fuel costs.
• Geographical Performance - Middle East and India: Sales in the Middle East and India segment decreased by 17% due to lower merchant volumes and pricing. Operating income decreased by 65% due to these factors.
• New Production Launches: The company continued to invest in new industrial gas plants and clean hydrogen projects, including the NEOM Green Hydrogen Project in Saudi Arabia, clean energy complexes in Louisiana, USA, and Alberta, Canada.
• Sustainability Initiatives: Air Products is committed to sustainability, focusing on low- and zero-carbon hydrogen projects to support the global energy transition. The company aims to generate a cleaner future by offering products and services that improve environmental performance.
• Human Capital Management: As of 30 September 2024, Air Products had approximately 23,000 employees, with a focus on safety, diversity, and inclusion. The company aims to achieve specific representation goals for women and minorities in professional and managerial roles by 2025.
• Future Outlook: In fiscal year 2025, Air Products expects merchant pricing improvement and positive volume contributions from new on-site plants. The company anticipates sustained performance and the ability to raise capital to meet growth strategy needs while rewarding shareholders through increased dividends.

Strategic Initiatives

• Strategic Initiatives: Air Products and Chemicals, Inc. has undertaken several strategic initiatives to enhance its core industrial gases business and expand its clean hydrogen projects. The company sold its LNG process technology and equipment business to Honeywell International Inc. for approximately $1.6 billion, reflecting its commitment to focus on industrial gases and clean hydrogen growth. Additionally, the company issued $2.5 billion of green senior notes to fund projects expected to have environmental benefits, including pollution prevention, renewable energy generation, and sustainable aviation fuel. The company also continued to invest in new industrial gas plants and maintain existing facilities, with significant capital allocated to clean energy projects such as the NEOM Green Hydrogen Project in Saudi Arabia, and clean energy complexes in Louisiana, United States, and Alberta, Canada.
• Capital Management: Air Products and Chemicals, Inc. has actively managed its capital structure through various financing activities. In fiscal year 2024, the company raised $4.7 billion through long-term debt proceeds, including $2.5 billion from green senior notes. The company also secured non-recourse project financing of approximately $6.1 billion for the NEOM Green Hydrogen Project, with additional non-recourse credit facilities totaling $500 million for working capital needs. The company returned approximately $1.6 billion to shareholders through dividend payments and maintained a strong focus on strategic capital allocation. The company also entered into new credit agreements, including a five-year $3.0 billion revolving credit agreement and a 364-day $500 million revolving credit agreement, to support its liquidity and commercial paper program.
• Future Outlook: Looking ahead, Air Products and Chemicals, Inc. expects to continue its strategic focus on clean hydrogen and industrial gases. The company anticipates capital expenditures for fiscal year 2025 to be approximately $4.5 billion to $5.0 billion, driven by ongoing investments in clean energy projects and maintenance of its core industrial gases business. The company plans to fund these expenditures through its current cash balance, cash generated from operations, and additional financing activities. The company also expects to continue increasing its quarterly dividend, as it has done for the past 42 consecutive years, and to sustain performance while raising capital to meet the cash needs of its growth strategy.

Challenges and Risks

• Economic Conditions: Changes in global and regional economic conditions, the markets served, or the financial markets may adversely affect results of operations and cash flows. Unfavorable conditions in the global economy or regional economies may decrease the demand for goods and services, impacting revenues, operating results, and cash flows.
• Operational Risks: Extensive international operations can be adversely impacted by operational, economic, political, security, legal, and currency translation risks that could decrease profitability. Approximately 60% of sales were derived from customers outside the United States, exposing the company to various international risks.
• Regulatory Risks: The company is subject to extensive government regulation in the jurisdictions in which it does business. Compliance with laws and regulations may involve significant costs or require changes in business practices that could result in reduced profitability.
• New and Emerging Risks: Legislative, regulatory, societal, and market efforts to address global climate change may impact the business and create financial risk. The company could face scrutiny from stakeholders regarding its reporting under various frameworks for disclosing GHG emissions-related data.
• Management's Discussion and Analysis: Management has identified increased competition as a primary challenge and has outlined steps to enhance the company’s competitive position. Strategic capital allocation is a top priority, with investments in low- and zero-carbon hydrogen projects and core industrial gases business.
• Market Risk: The company is exposed to foreign currency exchange rate fluctuations, which may adversely affect its financial results. The business is primarily exposed to translational currency risk as the results of foreign operations are translated into U.S. dollars at current exchange rates.

SEC Filing: Air Products & Chemicals, Inc. [ APD ] - 10-K - Nov. 21, 2024