Air Products FY2026 Adjusted EPS Rises 12%; FY2027 Growth Forecast at 5%-8%

Air Products (APD) reported higher fiscal fourth-quarter and full-year adjusted earnings, supported by on-site volumes, new assets and equity affiliate contributions. The industrial gases company also forecast 5% to 8% adjusted earnings-per-share growth for fiscal 2027 while targeting positive net cash flow and further operating-margin improvement.

For fiscal 2026, sales increased 8% to $13.0 billion, with volume contributing four percentage points and currency and energy pass-through each adding two points. Adjusted operating income rose 11% to $3.18 billion, while adjusted operating margin expanded 70 basis points to 24.4%. Adjusted EPS increased 12% to $13.45.

Air Products generated $4.7 billion of operating cash flow, up $1.4 billion from the prior year. Capital expenditures declined by $1.8 billion to $3.3 billion, helping the company achieve neutral net cash flow on its adjusted measure. It paid $1.6 billion in dividends and reported an adjusted net debt-to-adjusted EBITDA ratio of 2.0 times, excluding net debt associated with the NGHC joint venture.

Adjusted return on capital improved 100 basis points to 11.9%, though construction in progress reduced the measure by about 400 basis points. The company ended September with approximately 19,600 employees, 1,700 fewer than a year earlier.

Fourth-quarter earnings rise as volume offsets higher costs

Fourth-quarter adjusted EPS rose 6% year over year to $3.61. Adjusted operating income increased 5% to $856 million, driven primarily by volume, partially offset by higher costs. Adjusted operating margin fell 150 basis points from both the prior-year quarter and the preceding quarter to 24.1%, including an approximately 50-basis-point drag from energy pass-through.

Quarterly sales grew 12% from both the prior year and the third quarter. Year over year, volume added nine percentage points, while price, energy pass-through and currency each contributed one point. On-site volume included a significant asset sale in the Americas related to an early contract termination, as well as contributions from new assets.

Pricing actions recovered higher power costs during the quarter. However, incentive compensation and fixed-cost inflation increased expenses, partly offset by productivity. The helium pricing headwind narrowed as electronics volumes improved.

Asia leads annual segment growth

In the Americas, fiscal 2026 operating income increased 8% to $1.64 billion, supported by favorable on-site volume, including hydrogen and carbon monoxide activity, and new assets. Higher costs partly offset pricing actions, while energy pass-through reduced margin by about 50 basis points. Equity affiliate income rose 39% to $218 million, reflecting a short-term contract in Mexico.

Asia operating income advanced 15% to $979 million and operating margin expanded 230 basis points to 28.3%. Results benefited from gasification assets held for sale, new assets, lower costs and favorable currency, partly offset by weaker pricing.

Europe operating income rose 7% to $907 million as on-site volume and currency gains outweighed some of the effect of higher costs. Operating margin declined 30 basis points to 28.0%, including an approximately 50-basis-point impact from energy pass-through. Equity affiliate income increased 18%, supported by performance in Italy.

Middle East and India operating income increased 130% to $22 million, with lower costs and productivity contributing to the result. Equity affiliate income rose 6% to $362 million, reflecting lower costs at a Saudi Arabian affiliate.

Backlog and capital discipline remain priorities

Air Products ended fiscal 2026 with a $3.3 billion traditional industrial gases backlog, primarily in electronics and space, including $2.6 billion of electronics projects. The company said it is evaluating an opportunity pipeline of more than $4.0 billion, largely in electronics and space, after securing new U.S. project wins in both markets during the fourth quarter.

Management expects fiscal 2027 capital expenditures of $3.0 billion to $3.5 billion, with the midpoint flat from fiscal 2026. About $1.5 billion is expected to be invested to complete the NEOM, Edmonton and Rotterdam projects. The company described fiscal 2027 as the final year of significant capital spending on energy-transition projects and said it remains focused on improving the economics and execution of the remaining projects.

Air Products is also exiting certain coal gasification assets and pursuing targeted portfolio actions. It expects cash proceeds from portfolio measures to help strengthen the balance sheet.

The company is targeting more than $250 million in annual profit-and-loss benefits from workforce reductions by the end of fiscal 2027 compared with the end of fiscal 2022. More than 93% of the planned actions had been completed by the end of fiscal 2026. Air Products expects a significant reduction in project-related staffing after project completions and is targeting a workforce of about 18,500, excluding employees needed for new assets.

Fiscal 2027 outlook

Air Products forecast fiscal 2027 adjusted EPS of $14.15 to $14.50, representing growth of 5% to 8%. Adjusted operating income is expected to increase 9% to 12%, while equity affiliate income is projected to remain flat. Management expects pricing and productivity to more than offset inflation, with new assets in the Americas and Asia contributing to results and helium having a neutral effect. The forecast assumes currency is flat from fiscal 2026.

Higher interest expense and taxes are expected to weigh on fiscal 2027 earnings. For the first quarter, the company projected adjusted EPS of $3.35 to $3.45, up 6% to 9% year over year. That outlook assumes a modest helium headwind and an approximately 1% currency benefit.

Management’s fiscal 2027 priorities include generating positive net cash flow, improving operating margin, extending the company’s record of dividend increases and allocating capital to high-quality industrial gas projects.

The presentation also identified uneven end-market conditions. Air Products expects persistent high production levels among U.S. refinery customers and reported strong gasification run rates in China, but cited continued weakness in European chemicals, pressure on European metals from imports, weakness in Asian metals and limited global manufacturing growth. Actual results may also differ from management’s projections because the earnings, capital-spending and project assumptions remain subject to operating conditions, negotiations and other risks described in the company’s regulatory filings.