Air Products & Chemicals Inc (APD) — Q2 2026 Earnings Call Transcript

Hello, and welcome to the Second Quarter Fiscal 2026 Earnings Conference Call for Air Products. Our prepared remarks today will be led by Eduardo Menezes, Chief Executive Officer; and Melissa Schaeffer, Chief Financial Officer. We have prepared presentation slides to supplement our remarks during the call, which are posted on the Investor Relations section of the Air Products website. During this call, we'll make forward-looking statements which are our expectations about the future. These statements are based on current expectations and assumptions that are subject to various risks and uncertainties. Our actual results could materially differ from these statements due to these risks and uncertainties, including, but not limited to, those discussed on this call, and in the forward-looking statements and Risk Factors sections of our reports filed with or furnished to the SEC. We do not undertake any duty to update any forward-looking statements. Please note in today's presentation, we will refer to various financial measures, including earnings per share, capital expenditures operating income, operating margin, the effective tax rate, ROC and net debt to EBITDA on a total company basis. Unless we specifically state otherwise, statements regarding these measures refer to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our investor website in the relevant earnings release section. It's now my pleasure to turn the call over to Eduardo.

Thank you, Megan. Hello, and thank you for joining our call today. Before we begin, I want to take a moment to express my appreciation to the entire Air Products team, especially the more than 3,000 employees of our direct operations and minority-owned joint ventures in the Middle East. During this period of uncertainty, our people have continued to show dedication, staying focused on safety, reliably serving our customers and supporting critical projects and operations. Now please turn to Slide 3. Earlier today, we reported results for the second quarter of fiscal 2026. We delivered a broad-based operating income improvement across our reporting segments. Earnings per share of $3.20 increased 19% compared to the prior year quarter on improved volumes, productivity and currency. We also experienced reduced headwinds from helium with volumes better than expected in Q2 aerospace. Our operating margin of 23.7% was also up compared to the prior year quarter, reflecting the strong underlying volumes, particularly in our on-site business as well as the continued benefit of cost productivity. Return on capital of 11.4% was in line with prior year and improved sequentially. Overall, we were able to improve our business performance during the first half of the fiscal year and effectively manage the market dynamics that have emerged due to the recent Middle East conflict. Moving to Slide 4. We remain focused on 3 key priorities for 2026, consistent with our strategic roadmap. On unlocking earnings growth, we are raising our full year earnings guidance which now implies an improvement of 8% to 10% at the midpoint of the full fiscal year. We expect EPS growth to be achieved primarily through our continued focus on pricing actions, productivity and new asset contributions. Additionally, we anticipate a more favorable operating environment in the second half for improved volumes in several key end markets, including refining, electronics and aerospace. On our second priority, we continue to make progress on optimizing our large project portfolio. On NEOM, negotiations on a marketing and distribution agreement with Yara are progressing in line with expectations. The project continues to make progress and is ready to produce renewable power that will be used in the commissioning of the hydrogen and ammonia plants. Notably, activities at NEOM have not been impacted by recent events in the Middle East. We continue to monitor the situation closely and prioritize safety. On the Louisiana project, we have set a high bar for moving forward where we required a reliable capital cost estimate and construction agreements that meet our project risk-adjusted return requirements. We are currently receiving construction bids from EPC firms and remain committed to reaching a go, no-go decision in conjunction with our partners by the middle of this calendar year. Finally, on our third priority, maintaining capital discipline. We are staying focused on our capital allocation, investing in growth projects and returning cash to shareholders. As we have previously indicated, we expect to reduce our capital expenditure by approximately $1 billion in fiscal 2026 and remain on track to achieve that objective. We are focused on investing in our backlog of traditional industrial gas projects and have strengthened our project pipeline in electronics and aerospace. In the electronics area, we are currently executing approximately $1 billion in ASU and hydrogen projects in Asia for several multiphase projects serving semiconductor and memory customers. We expect to add another $1.5 billion to $2 billion to backlog in the next 6 months, including the project we announced yesterday to build, own and operate multiple production facilities in both specialty gas supply systems for a new advanced fab with Samsung in South Korea. We also have announced our intent to build, own and operate a new ASU in Florida to further enhance our support for our space launch customers. Lastly, we remain committed to disciplined capital allocations that ensure that we are well positioned to continue our strong track record of returning cash to our shareholders. In the first half of fiscal 2026, we have returned $800 million to shareholders in the form of dividends. Please turn to Slide 5. As has been widely reported, recent events in the Middle East have resulted in curtailment of helium supply from Qatar. Helium is an important product line for Air Products with the largest end market sales in electronics, aerospace and medical. Air Products' helium supply chain is very resilient with one, multiple sources in the U.S. in addition to our long-term partnerships in Algeria with Sonatrach and in Qatar with Qatar Energy; two, a dedicated helium storage cavern in Texas, which has been operational for nearly 5 years. The cavern contains a significant volume, allowing us to provide high supply reliability to our customers when one of our sources is unable to produce as we are now experiencing; and three, a large helium ISO container fleet produced by our subsidiary, Gardner Cryogenics, which provides flexibility and responsiveness in managing supply flows during periods of uncertainty. Since the beginning of the conflict, we have activated our contingency plans, drawing product from the cavern and positioning our container fleet to bypass conflict-affected areas. We look forward to our partners in Qatar resuming normal production as soon as possible. But until that can be achieved, we are well positioned to enable supply chain resilience through this current supply disruption. We are working very closely with our customers to meet our commitments to them and capture long-term volume growth in critical end markets. Moving to Slide 6 before Melissa shares detailed quarterly performance, I wanted to offer some additional context on end market conditions. Given the ongoing conflict in the Middle East, we are closely engaged with key customers in each end market. We are also working strategically beyond current events to fully participate in compelling end market growth. Entering the fiscal year, we had a relatively conservative view given muted outlook for industrial production and manufacturing growth. Now with our performance through the first half, we are more confident about a sustained level of industrial activity and the potential for continued volume growth in some areas. Though the ongoing conflict in the Middle East introduces some uncertainty, we expect a combination of favorable dynamics in core end markets and some new wins to support volume improvement. Looking at a few highlights. We see strong run rates across our refining customer base, particularly in the U.S. Gulf Coast where we serve a large number of complex refineries that can process heavy sour crudes and produce high-demand products such as jet fuel. We expect U.S. refineries will continue to run hard, which will support higher on-site volumes. Moving to chemicals, we are closely monitoring supply chain conditions that would impact volumes. In Europe, challenges securing feedstocks and high costs that customers cannot mitigate with pricing could have an impact on run rates. Beyond Europe, volumes are relatively stable. Additionally, we expect to see stronger oxygen demand from our coal gasification customers in China where increased oil and LNG costs are supporting higher volumes. Electronics and aerospace continue to be bright spots. We have historically had a meaningful percentage of our sales in electronics and are benefiting from increased volumes in this end market due to a new asset onstream this year. The industry is in the midst of a historical super cycle period to satisfy AI demands with record CapEx expenditures projected between now and 2030. This expansion will generate expansion opportunities for industrial gas providers. Currently, we are working closely with our large long-term electronic customers in helium supply. Already with the long-term agreements signed during the last 6 months, we expect our helium volumes to large electronics customers in Asia to more than double between 2026 and 2030. Finally, in aerospace, we have continued to see volume improvement in launches, engine testing and manufacturing. We were very proud to be part of the recent NASA Artemis 2 mission where our products supplied liquid hydrogen and liquid helium using our proprietary liquid helium pumps. We see a tremendous opportunity to continue to grow in the space area and our recently announced investment is expected to increase our participation in both NASA and commercial launches. Now I'll turn the call over to Melissa to discuss our financial results in greater depth and review our 2026 outlook. Melissa?

Thank you, Eduardo. Hello, and welcome to those joining our call today. Please move to Slide 7 for a high-level summary of our second quarter financial results. Sales were up 9%, while operating income grew 19% on volume, currency and lower costs, partially offset by price headwind. With respect to volume, we saw growth from on-site in part due to the increased production from our U.S. refinery assets and new assets coming on stream in Asia. We also lapped a major turnaround in our Europe segment. Merchant volumes were stable, including a modest improvement in helium. On price, the headwind from helium was partially offset by pricing from non-helium merchant products, particularly in the Americas and Europe. The base business once again delivered this quarter and operating margin expanded over 200 basis points to 23.7%, despite a 50 basis point headwind from higher energy pass-through. We have seen margin expansion in part due to our productivity initiatives. We have recognized approximately $50 million in savings year-to-date from head count reduction, which is on track with our plan for the year. Earnings per share of $3.20 grew 19% from the prior year and exceeded the top end of our guidance range due to stronger on-site volume and better-than-expected helium volume from space launches. Return on capital of 11.4% was in line with prior year, and up 40 basis points sequentially on strong base business performance while we execute our project backlog. Moving now to Slide 8. Our second quarter earnings per share of $3.20 increased $0.51 or 19% from prior year. We continue to see helium headwind driven by lower price. In line with our guidance, currency was favorable 3% as the U.S. dollar weakened against our key currencies. The base business remained resilient in an uncertain macroeconomic environment. The growth from our on-site volume, non-helium pricing, continued progress on our productivity initiatives and lower depreciation was partially offset by fixed cost inflation and planned maintenance outages in the Americas. In addition to the strong base business performance this quarter, we also saw improved accrete affiliate income, primarily in Mexico. Moving now to Slide 9. I'll provide an overview of our results by segment. You can find additional details of the quarterly segment results in the appendix. For the second quarter, Americas operating income growth of 2% was primarily driven by on-site volume. Merchant volume was also up, including helium supplied for the space launches. Additionally, non-helium merchant price contributed to the results. This improvement was partially offset by prior year income from a one-time customer contract addendum, lower price in helium and higher power costs and maintenance turnarounds in the quarter. Operating income grew 25% in our Asia segment, primarily due to continued productivity improvements and favorable on-site and helium volumes. We saw a modest contribution from our new assets as they continue to ramp up, which we expect to further contribute in the second half of our fiscal year. Additionally, reduced depreciation from certain gasification assets classified as held for sale also benefited our results. This improvement was partially offset by a headwind from helium pricing. Europe operating income increased 8% due to the favorable on-site volume, including a prior year turnaround, as well as favorable currency and non-helium price. We saw higher costs in the segment, including depreciation and fixed cost inflation as well as helium volume and pricing headwind. In our Middle East and India segment, operating income improved on lower cost, while equity and affiliate income was slightly positive. Lastly, the Corporate and Other segment results improved due to lower sale of equipment cost headwinds as well as continued strong productivity. Moving now to Slide 10. Our base business continues to generate stable cash flow as we execute on our project backlog for both energy transition and traditional industrial gas projects. We remain on track to reduce capital spend by more than $1 billion relative to the prior year. Additionally, through the first half of the fiscal year, we returned $800 million in cash to our shareholders in the form of dividends. As it relates to our leverage, our net debt-to-EBITDA ratio is 2.2x. We are committed to bringing the company back to an A/A2 rating over the long term. Please turn to Slide 11, where we will review our outlook. With a strong first half and outperformance in the market volume, we are raising our fiscal full year guidance to $13 to $13.25 or 8% to 10% growth from the prior year. However, we remain cautious given uncertainty around the macroeconomic environment, especially in Europe and Asia. In the second half, we expect to see benefits from continued non-helium pricing actions and progress on our productivity initiatives, while new assets ramp up. We still expect helium to be a headwind due to lower price while we look to capture long-term volume commitment. Specifically during the third quarter, we expect to deliver earnings per share in the range of $3.25 to $3.35, representing a 5% to 8% growth from the prior year. For capital expenditures, we are maintaining our guidance at approximately $4 billion for the fiscal year. Now we'll open the call up for questions. Operator?

Since the last call, obviously, the Middle East conflict has hit a lot of things that may have changed. I guess maybe we can start with one on the project. So NEOM, can you give us an update on the progress there as well as at this point, given the spike in gray ammonia prices and concern about industries maybe being beholden to oil, can you tell us if the demand environment has changed all that much for your green ammonia project?

Thank you for the question. Yes, I would say, starting from NEOM, the project, as you know, is on the West Coast of Saudi Arabia. So it has not been affected by the conflict at this point. Of course, we are taking a lot of precautions on the safety side, but we have all the materials in hand. We have the people on site, and the project is continuing normally. In terms of the progress, we are basically done with the renewable power side. We just energized the substation using the grid power. The next step is to connect the solar park and start commissioning using our own renewable power. So it's progressing as expected there. I would say that in terms of ammonia price, everyone can see what is happening in the ammonia market. I think prices are getting very close to $1,000 a ton. Of course, that creates some speculation on projects and so forth. But I would say it's too early for us to understand the demand for green ammonia and the impact it's going to have on prices in the long term. We consider that a temporary effect that will go for a few months. But in the long term, it's clear that there is some advantage to being disconnected from natural gas in some areas of the planet. So the U.S. supply of natural gas will be a winner from that perspective. And I think green ammonia produced by clean power in places like Saudi Arabia can also benefit from that, but it's a little early to say that definitively.

Got it. Okay. Fair enough. And then maybe just as a follow-up, I guess we were a little bit surprised given what's going on in the helium markets to see that you still expect about a 4% drag on EPS in 2026. Admittedly, some of these are contracts that are multiyear and even the ones that reset last year were going to be a drag. But I guess we're a little bit surprised to not see some updraft in contracts that might be getting signed now or on the minimal part that you have that's tied to spot. So I guess, can you help us to think about what's going on in the helium markets and maybe why that's still pretty much the same drag you expected it to be at the start of the year?

Yes. I would say that the helium market was structurally long before the war. And with Qatar representing roughly one-third of the world's volume of helium, the market is short now, but we all expect that we'll return to the original state in a few weeks or a few months after the crisis is over. So this is a temporary period. As I described in the prepared remarks, Air Products has a very resilient system that was designed to continue to supply our customers in the case of interruption in one of our sources like we're having today. It's designed basically for Air Products' volumes, not for the entire market. So we may have a little more volume than we had before when we draw from our cavern, but it's not that significant and really doesn't allow us to supply the volumes that are not present in the market today. Of course, we are trying to sign longer-term agreements. That's the objective. I think we also made the point to say that this didn't start with the conflict; we were already working to sign long-term agreements. We made the point to say that our volumes for helium in Asia for electronics will more than double in the next 4 years. In fact, I expect to be more than that. So we are focused on signing these long-term agreements. We may have a little gain here and there on the spot market, but at this point it would be wrong for us to include that in the forecast, not knowing when the market will come back to normal conditions.

When you think about the Darrow project, you spoke about making a go, or no-go decision. Is it possible that that project could be downsized? In other words, does it make sense to make half as much ammonia given that you've already invested in equipment that you may be able to use, and then what that may do is limit the inflationary factors in building a facility. Is that a possibility?

Yes. We look at all of that. It's a little more complicated than that. This plant has three different process areas. You have the air separation plants, you have the hydrogen generation units and you have the ammonia plants, the ammonia trains, and we do not have exactly two trains for each process area. We have one of the process areas that has three trains, which makes it very difficult for us to execute only half of the project. So I would say that this would increase the cost significantly because we would need to build a plant larger than 50% and that would make the economics even more challenging than building the entire facility.

Okay. And then secondly, year-over-year, your average prices were down 1%. If we excluded helium, what would your prices have been? Would they have been up 1%, 2% for the company as a whole?

Yes, sure. Thanks, Jeff. I'll take that question. From a non-helium merchant perspective, pricing actually would have been up about 2%. Half of that we would have seen in the Americas and half of that in Europe. Asia from a non-helium perspective was largely flat.

I'm here for the Yara discussions. Are you and Yara basically on the same page with respect to the risk around CBAM, so that it's not a key issue to getting closure on your discussions or is that a key thing that we need to continue to watch here?

I think I mentioned before, CBAM is not part of our agreement. Our agreement is a commercial agreement for hydrogen and nitrogen, so it's more a question for Yara. But I think the crisis now is making clear to everyone that the big advantage you have is to be connected to U.S. natural gas supply, and I think this is much bigger than the CBAM discussion. From everything I have heard from Yara, they understand what the possibilities are in terms of CBAM and that's not part of our discussions with them.

Okay. And then secondly, do you have any material customers in Asia that are down because of raw material supply constraints, either refineries or chemical plants that are taking downtime because they can't get feedstock?

No, not really. Our biggest supply for these sectors is in China. I would say China is basically replacing a lot of LNG with the coal facilities that they have. In fact, we have seen a significant increase in oxygen volumes for this type of plant in China.

Eduardo, on Darrow, you mentioned a high bar for that project. So is the base case still that it does not move forward? And if it does not, do you have projects that you could pivot to in short order with that capital? That's my first question.

We...

Yes. So maybe I could take that one, absolutely. From a Darrow perspective, I think Eduardo has said before that it is, in fact, our base case that we would not move forward. But we need to review the economics as we get the bids in from the construction parties that we're talking to. And then we'll make an economic decision on if we move forward. From a capital perspective, we just announced the Samsung project. That is one that we see as a significant area of growth in electronics that could quickly replace that capital that we were going to spend on Darrow, and we continue to be very bullish on the electronics space over the next couple of years through the hyper cycle. So again, we have a base case of Darrow not moving forward at this point in time, but we're reviewing the economics. And again, we are very bullish on other growth opportunities if Darrow does not move.

Yes. And I just want to make a point here. When I say base case that for Darrow to move forward, we need to reach an agreement. So until you reach an agreement, the base case is that you do not have an agreement today. But we're working on that, and we'll see what the result will be in the next 3 months. But today, we do not have an agreement yet to move that project forward, as you know.

And just on the Americas margins, they were, I think, lower than three years. You mentioned power cost and turnaround expenses. Would you expect margins to recover nicely in Q3 versus Q2 given those headwinds?

Yes. When you think about margins in the Americas, one thing you obviously need to consider is the energy cost pass-through, which affects margins. We've seen very strong contributions in our hydrocabon (HyCo) assets, which has an impact from an energy cost pass-through. We do expect once energy costs subside, our margins would continue to improve. We are continuing to see strong productivity there, which will also contribute to a healthy margin moving forward.

Just a question on the coal gasification plants in China. So one, in the quarter, how much was the benefit from the reduced depreciation and amortization for moving it out of the segment? And then two, I think you've talked about those being collectively net breakeven on an income basis since they're effectively coal to methanol or synthetic oil at the end of the day. I would imagine they're much more profitable now and they're probably paying you the regulated percent where I think before you were saying that they were shorting you on paying. So can you just talk about how the economics of those plants have changed within your P&L? And does that continue to get better from here as long as oil stays above $100?

Yes, Patrick, thanks for the question. We have put two of our coal gasification assets held for sale in China. The impact to the quarter is a bit twofold. So let's say around 1% to 1.5% as far as the cancellation or the stop of the depreciation. And then you're absolutely right: coal and methanol economics have improved. We are collecting on past dues that we did not have in our previous results because we were prudent and fully reserving those items. That collection is really about a 1% to 1.5% tailwind for us as well. But we are actively pursuing the sale of those assets, and we will continue to do so.

Great. And then, Eduardo, if you could maybe just pontificate a little bit. When do you think under two scenarios that your helium pricing stops being negative? One, if there's a fairly quick resolution with Qatar and two, if this stays semi-permanent, what do you think happens with your helium pricing? Basically, when do we see the inflection that helium stops being a negative on price?

We were expecting helium to bottom by the end of this year. We still expect that to be the case. You need to remember that it's all a function of what we are comparing with. We started from a very high price level, and we're working on signing these long-term agreements. Our agreements are on average between three and five years. More recently, we have been signing agreements even longer than that as people get more concerned with reliability of supply. The system that we have with the cavern that we can bring product to the cavern, store as a gas and then take the gas as liquid and bring to one of our facilities to liquefy is very reliable, but it has a cost. Think about the just-in-inventory—we have a significant investment in helium inventory. This system has a cost. It is much harder to get value for that cost when the market is long. Conversations are a little less difficult to get long-term agreements right now, and that's what we are focusing on.

Melissa or Eduardo, just the way your second half guidance kind of works out, it implies a fairly low single-digit growth rate in terms of EPS for the fourth quarter. Is there something else going on there? Is there something we should be monitoring in terms of turnarounds, hydrogen demand, you already went over helium, baseline merchant pricing? Or is that just, hey, we want to see how the fiscal year turns out just based on the degree of uncertainty out of the Middle East?

Chris, thanks for the question. We have raised our guide, increasing about $0.10 from the midpoint. If you think about the strong first half that we had, first we look at market volumes. We do expect some continued market volume improvements largely in the Americas like we saw in the first half. We also have new asset contributions that we look to continue to increase, both in Asia and the Americas that will see further contributions in the second half. However, we do remain uncertain about the macroeconomic environment, especially in Asia and Europe. Additionally, we're closely monitoring our customer supply chain conditions with impacts on the Strait of Hormuz. Finally, we do have a turnaround that we moved from Q2; we're expecting that it will move and spread between Q3 and Q4 so that will have a bit of a headwind for us as well. So we do have green shoots in the Americas from a volume perspective and new asset contributions, but we want to make sure that we're monitoring closely the macroeconomic environment in Asia and Europe, as well as additional turnarounds.

Got it. And just as a quick follow-up, in the Samsung release from yesterday, you used the phrase the largest investment in the semiconductor industry to date, I believe. Is that implying that the multi-stages for Samsung would be in excess of previous projects like the TSMC project? Is there any more framework you could perhaps add? And also, is this something you expect to be more consistent in terms of bidding activity over the next 12 months or so?

I think the message is exactly how you described. It is the largest investment we ever made in the electronics side, and we're not going to disclose the number, but the reference that you made through a previous project is correct. This is probably the largest site for electronics in the world today. Air Products was the first supplier for that site on Phase 1 and the phases are getting larger in terms of industrial gas consumption. This is the fifth phase of the site and the volumes we're going to supply under this agreement when it's completely built is approximately three times larger than what we did in Phase 1. So that gives you an idea. It's a very significant project for us. We are very proud to have reached this point with Samsung. It's just the start of probably a four-year construction period for the multiple phases. On your other question about bid activity: I've seen numbers in excess of $0.5 trillion of CapEx being spent by semiconductor and memory manufacturers. Of course, there are a lot of projects in industrial gases. They are growing in volume, and we're working hard to get our fair share of that.

Just looking at Slide 17, Corporate and Other: the operating income hit was a lot less year-over-year and sequentially. You called out lower changes to sale of equipment project estimates. Can you just give a little detail on that? And then also help us understand whether this is a good run rate for the rest of the year? Or is there just some lumpiness? Maybe the back half will be a little bit higher and the run rate will mean revert higher. That's my first question.

Thanks, Vincent. Speaking to our Corporate and Other segment, it is a bit of a mixed bag. But you are correct that the vast majority of the improvement was the prior year cost increase that we saw on a sale of equipment project, again, which is a percentage of completion project, so increased costs go to the bottom line. So it was a bit of a function of a prior year aspect. However, we do continue to have strong productivity in our Corporate and Other segment as well. So we will continue to see that flow through from a year-on-year perspective as we continue to reduce head count and rightsize the organization.

Okay. Maybe you could just give us a little sense of what that number should look like in the back half. And then I'd also ask, on the tax rate, it came in a bit lower than we thought for the quarter. It was down about 1 point year-over-year and about 0.5 point sequentially. So is this 18-ish percent what we should be using for the back half?

From an ongoing perspective, I think the run rate that we had this quarter should be consistent with what we see in Corporate for the rest of the year as we should not have any more sale of equipment headwinds. So that comp will continue to flow through for the rest of the year. From a tax rate perspective, yes, 18% is the number that we should be forecasting against. We did have some U.S. investment tax credits and increased estimates for a Dutch investment incentive that reduced our effective tax rate for this quarter, but we should see that flow through the rest of the year.

First question. Can you talk a little bit about the pricing dynamics for the non-helium gases through the rest of the year? Obviously, you mentioned that plus 2 from Europe and Americas. But will the decline in inflation mean that your Asian pricing assumptions have changed also?

Asia is a little different. The dynamics there are that China is a hypercompetitive market. PPI and CPI have been negative for the last several years, and it's a really difficult file to keep prices stable in China. Outside of that, in Europe and the U.S., we consider pass-through a separate issue. In pricing, we continue to make progress and our goal is always to be able to pass the inflation we experience in our business through to prices. So I expect that to continue to be the case in the near future. With helium subsiding year-over-year effects, by the end of the year we hope that the helium headwind in pricing will be reduced as well.

And then just in terms of the follow-up, Slide 6 was useful. Can you give us a few indications of where you expect the biggest shifts in your end markets to come from in the second half versus the first half? For example, in chemicals, are you seeing any European volume improvements based on some of the Asian supply outages?

In Europe, they benefit in terms of pricing from the absence of Middle East supply in the market. But on the other hand, they are suffering from cost inflation on oil and natural gas. So it's a difficult dynamic. I don't think the European industry is structurally changing its issues; I think they will be back when the conflict is over. Right now, things are relatively stable. The segments that are bright spots are electronics—we are working to capture that—and energy in the U.S. because of our connection in the pipeline system in the Gulf Coast with refineries; these are running at high levels right now. Our hydrogen volumes have never been so high as they are right now. Auto segments like food and medical are very stable and are less cyclical than other segments.

Can you speak to your degrees of freedom on the supply side of the helium market? I appreciate you have a large inventory buffer and you're taking steps to maintain highly reliable supply. But in the scenario where we have a prolonged conflict, what are you doing differently? How much might you be able to increase sourcing arrangements and liquefaction? Maybe you could frame out how you're operating today versus two or three months ago.

Most of our flexibility comes from the positions we historically have in the U.S., including our Kansas volumes and private volumes that we can liquefy. We have some liquefaction capacity and our project with the cavern is connected to that. The constraint is really the ability to move products from Texas to Kansas and the liquefaction capacity. We are working to maximize both points to eliminate these constraints. It's not an easy supply chain because you have to move product long distances. We can probably cover one of our sources being down, such as Qatar, to which we are connected, but not much more than that. The system was designed to cover our customers. If this gets prolonged for a long time, it will be a tough time for the market. In the end, the customers that need the product the most, I think the market will find a way to keep them supplied. That's our view, but I can only speak to the products in our supply.

Very helpful. If I may ask a second question. Can you speak to what you're baking into your financial guidance for volume growth in the back half of the year? I think your 4% number in the fiscal second quarter was the best in three years. It seems some of the impetus behind that is to do with the energy market changes, like refinery hydrogen and maybe some gasification as well. PMIs have been broadening and improving. So how are you approaching the back half in terms of non-energy-related demand trajectory?

We had a lot of debate on how to set our guidance. The conflict introduces uncertainty. Right now there is a ceasefire, and no one can tell what the situation will be in one or two months—what oil prices will be, what will happen in the LNG market, or energy prices in Europe. In the absence of clarity, we adjusted the guidance based on the beat we had in the second quarter. At this point it would be premature to change what we forecast before for the second half of the year. I hope it will be better, but anything can happen. We didn't expect this conflict. The helium impact, for example, was not one of the scenarios we expected: we had scenarios of plants being down for technical reasons, but not multiple plants down at the same time due to conflict. We understand one of the facilities is trying to come back to production in the next few months. There's a lot of uncertainty in the market, and based on that, the prudent thing was to keep our previous second half guidance.

Just on helium, additional follow-ups. If the supply disruption persists, would you need to put customers on allocation? How long does it take alternative supply sources to get qualified with some of the larger semiconductor customers?

From our perspective, we have inventory and we're working to replace volumes that we were taking from Qatar. In fact, the plant that supplies Qatar was down since December, so we were not taking product from Qatar since December. The conflict didn't change that much for us. We have enough product to supply our customers and that will be our position going forward.

Understood. And could you provide an update on the Alberta project in terms of offtakes timing and any update to costs?

There are no updates on the project. We continue to find ways to improve the conditions. On the regulatory side, there are items moving in Canada. We're trying to understand exactly what the final regulation will be and the impact on the project. We have been working with the government of Canada and the government of Alberta to try to improve the conditions as best we can for this project.

I was wondering if you could give us the size of what your backlog is now for profit-contributing projects, considering you've signed a few more versus where you were six months ago. Can you help us think about what comes online over the next few years or just a total number for us to be thinking about?

We look at our backlog in a consistent way. This is things that are contributing and have been approved by the Board. One item to consider is NEOM, which has variability in its impact as we lead up to 2030 when CBAM and RFNBO are fully ramped. Right now the backlog is about $9 billion. I feel positive about growth in the electronic space that we'll see continued contributions and winning our fair share of projects in that space. We've given a five-year forecast previously that shows mid- to high-single-digit growth from an EPS perspective from base and market growth as well as new assets coming on stream. We've mentioned previously we have two new assets that will be contributing in the back half of this year, and we see that continuing for the next five years.

Okay. Appreciate that. Maybe I should have qualified and said excluding NEOM, Darrow and all the projects that you guys have highlighted as non-profit contributing. What does that trim the $9 billion down to?

We have a little over $2.5 billion in what we would call our traditional industrial gas backlog. A significant portion of that is in the electronics space.

There's a relatively sizable IPO coming in the summer in the space sector. Just curious if you could give us your thoughts on your business in that sector, how big is it and where are you positioned?

It's a segment that is growing very fast, and the situation changes frequently with commercial launches. Air Products has a traditional business in aerospace. We have worked with NASA since the 1960s and we are a large supplier of liquid hydrogen and liquid helium to the traditional space program, and we are working now to increase our share with commercial launches. There are forecasts that vary widely on how the segment will develop—some very high. We need to see how this evolves and whether launch cadence reaches very high levels. We are making investments to grow our participation in the space segment, but I cannot give you more specific information at this point.

Thank you. I would like to thank everyone for joining our call today. We appreciate your interest in Air Products, and we look forward to discussing our results with you again next quarter. Have a safe day. Thank you. Bye-bye.