Air Products and Chemicals NYSE: APD forecast adjusted earnings growth of 5% to 8% in fiscal 2027, as the industrial gases company shifts spending toward its core business and works to complete legacy energy transition projects.
The outlook followed a fiscal 2026 in which sales rose 8% and adjusted earnings per share increased 12% to $13.45. Chief Executive Officer Eduardo Menezes said the company reduced capital expenditures by $1.8 billion from the prior year while expanding its industrial gases project backlog.
Adjusted operating income rose 11% for the year, while equity affiliate income increased 14%. Adjusted operating margin expanded 70 basis points to 24.4%, and return on capital improved 100 basis points to 11.9%.
Outlook calls for higher earnings and positive cash flow
Air Products expects adjusted earnings per share of $14.15 to $14.50 in fiscal 2027. For the first quarter, it forecasts $3.35 to $3.45 per share, an increase of 6% to 9% from a year earlier.
Chief Financial Officer Melissa Schaeffer said pricing and productivity are expected to more than offset inflation, including approximately $50 million in benefits from the company’s existing cost-reduction plan. Air Products recorded about $95 million in savings from the plan in fiscal 2026 and has reduced headcount 15% from its fiscal 2024 peak.
The outlook also includes a roughly 2% earnings headwind from non-operating items, including higher interest expense associated with canceled projects and a higher tax rate. Schaeffer said the company expects a 19% tax rate, primarily because of lower tax credits. Equity affiliate contributions are expected to be flat, and the forecast does not include share buybacks.
Air Products plans capital expenditures of $3 billion to $3.5 billion in fiscal 2027, compared with $3.3 billion in fiscal 2026. Schaeffer said improved operating cash flow and anticipated asset-sale proceeds are expected to cover capital expenditures and dividends, producing positive net cash flow. The company achieved net cash flow neutrality in fiscal 2026.
Industrial gas backlog grows
Menezes said the traditional industrial gases backlog reached approximately $3.3 billion, up from about $3 billion reported the previous quarter. A significant portion of the backlog supports electronics customers, including more than $2 billion in project wins over the past 12 months.
More than $1 billion of forecast fiscal 2027 capital spending is expected to go toward traditional industrial gas growth projects. Longer term, Menezes said the company is targeting a backlog of $4 billion to $4.5 billion in such projects.
For fiscal 2027, the company’s outlook assumes roughly 2% volume growth, with another 3% from new assets coming on stream, Menezes said. He expects U.S. hydrogen demand and electronics volumes to remain strong, while describing conditions in Europe, the U.S. and China as challenging.
Menezes said U.S. hydrogen and carbon monoxide volumes rose by approximately a mid-single-digit percentage in fiscal 2026, with the business essentially sold out. Further growth will depend largely on optimizing production, he said.
Legacy projects and asset sales
Air Products has a little over $2 billion left to spend on its remaining energy transition projects, including projects in Canada and the Netherlands and its share of NEOM, Menezes said. Most of that spending is expected in fiscal 2027, with the balance in fiscal 2028.
The company does not expect a material financial impact from NEOM in fiscal 2027. Menezes said construction at the green ammonia project is essentially complete and the company expects the plant to be fully operational in the second half of 2027. He said the company is also working to finish its Edmonton facility by the end of 2027, but the project, as initially expected to start, would not contribute to operating income.
In China, Air Products sold its Jiutai gasification asset around the start of fiscal 2027 and collected a little over $250 million, Menezes said. The company still expects to sell its Debang asset following legal proceedings, but recorded a write-down in the latest quarter. Its largest Chinese gasification asset, Lu’an, is operating above nameplate capacity, he said.
Air Products is also considering an initial public offering of its India subsidiary. Menezes said the company and its partner are considering selling an initial 10% to 15% stake, with a decision expected in the first calendar quarter of 2027. Under Indian regulations, he said, proceeding would create an obligation to sell 25% within three to five years.
Helium and fourth-quarter performance
Adjusted earnings per share rose 6% in the fourth quarter, helped by volumes from new assets and an asset sale associated with an early contract termination in the Americas, Schaeffer said. Higher costs, including incentive compensation and fixed-cost inflation, partly offset those gains.
The company expects helium to be neutral to results for fiscal 2027 as a whole, although lower pricing from a contract renewal is expected to create a first-quarter headwind. Schaeffer said a switch to average-cost inventory accounting for helium will also create a modest, noncash headwind included in the annual forecast.
Menezes said Air Products is signing longer-term helium agreements, some lasting as long as 15 years, as customers place value on reliable supply. He said the company’s storage cavern can supply 40% to 50% of its helium needs for many quarters.
About Air Products and Chemicals (NYSE:APD)
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