Air Products and Chemicals Inc
NYSE:APD
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Air Products and Chemicals Inc
Earnings Call Analysis
Q3-2024 Analysis
Air Products and Chemicals Inc
In a volatile economic climate, Air Products' stellar performance stands out. Despite a 2% decline in top-line revenue, mostly due to unfavorable currency effects, the company has experienced a 5% increase in EBITDA to $1.3 billion. Key drivers included strong hydrogen demand and a favorable business mix, though this was offset slightly by lower demand for merchant products.
Adjusted earnings per share (EPS) for the quarter were $3.20, a 7% increase from the previous year, surpassing the upper end of prior guidance. This rise was mainly attributed to improved operating results including price gains and lower power costs which added $0.16 per share, while higher productivity helped balance inflationary pressures. Air Products maintains a robust EPS guidance for the full year at $12.20 to $12.50, reflecting consistent performance.
Different geographical segments painted a varied picture. The Americas showed resilience with a 2% boost in underlying sales and a 6% rise in EBITDA despite higher maintenance costs. Europe also performed well owing to steady merchant pricing and reduced power costs, leading to a 12% EBITDA improvement. Asia experienced a slight downturn in volume due to lower merchant demand and maintenance, contributing to an unfavorable EBITDA margin.
Air Products remains forward-thinking by engaging in significant strategic initiatives. Noteworthy among these is the long-term green hydrogen supply agreement with Total Energies, set to commence in 2030. This agreement, which will see Air Products supplying 70,000 tons of green hydrogen annually over 15 years, reinforces the company's commitment to pioneering clean hydrogen production. Additionally, the planned divestment of the LNG business to Honeywell for $1.8 billion in cash, and collaborations with Mercedes Benz, are strategically poised to streamline focus on core competencies and enhance liquidity.
Air Products remains optimistic about future growth, backed by a solid track record of more than 10% average annual EPS growth over the past decade. The company has ambitious plans to sustain this trend, underpinned by its dual growth strategy of operational excellence in industrial gases and breakthroughs in energy transition projects. Clear guidance and cautious project announcements ensure investor confidence is maintained.
The earnings call also highlighted changes in leadership, with Eric Gutter poised to bring decades of expertise to the role of Head of Investor Relations. Air Products is committed to good governance and strategic succession planning, ensuring continuity and stability. The formation of a dedicated management board assigns more responsibility to senior executives, strengthening corporate governance.
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Good morning, and welcome to Air Products' Third Quarter Earnings Release Conference Call. Today's call is being recorded at the request of Air Products. Please note that this presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Beginning today's call is Mr. Sidd Manjeshwar.
Thank you, Samira. Good morning, everyone. Welcome to Air Products' Third Quarter 2024 Earnings Results Teleconference. This is Sid Manjeshwar, Vice President of Investor Relations. I am pleased to be joined today by Seifi Ghasemi, our Chairman, President and CEO; Melissa Schaffer, our Chief Financial Officer; Sean Major, our Executive Vice President, General Counsel and Secretary; and Eric Guter, our incoming Head of Investor Relations. After our comments, we will be pleased to take your questions.
Our earnings release and the slides for this call are available on our website at airproducts.com. Today's discussion contains forward-looking statements, including those about earnings and capital expenditure guidance, business outlook and investment opportunities. Please refer to the cautionary note regarding forward-looking statements that is provided in our earnings release and on Slide #2. Additionally, throughout today's discussion, we will refer to various financial measures, including earnings per share, operating income, operating margin, EBITDA and EBITDA margin, the effective tax rate and ROCE, both on a total company and segment basis. Unless we specifically state otherwise, statements regarding these measures are referring to our adjusted non-GAAP financial measures. Reconciliations of these measures to our most directly comparable GAAP financial measures can be found on our website in the relevant earnings release section. Now with that, I'm pleased to turn the call over to Seifi.
Thank you, Sidd, and good day to everyone. Thank you for taking time from your busy schedules to join our call today. Before I discuss our results, I would like to introduce Eric Gutter, who is with us today. Eric has been with the company for nearly 30 years, most recently serving as our Vice President of hydrogen for mobility. He will bring a wealth of knowledge and experience to Investor Relations. I'm happy that he has agreed to take on this new challenge. Eric, would you like to say a few words?
Thank you, Seifi. I appreciate your kind words, and I'm humbled and honored to be part of this tremendous team and to be taking on this new role within Air Products. We're looking forward to meeting with our analysts and investors and continuing the great work Sid and the team have done as we continue to execute our growth strategy.
Thank you, Eric. And as we have announced, Sid will be leaving the company to pursue other career opportunities. Sid has made great contribution to Air Products. I want to thank him for continuing to build strong relationship with investors and analysts and for his work over the past few years at the company. Sidd and Eric are already working closely together to ensure a smooth transition. Now please turn to Slide #3. As always, I would like to begin with our record on safety, which is our top priority at Air Products.
We have made significant progress on both our employee lost time injury rate and recordable injury rate since 2014. We are proud of this improvement, and we are very proud to have the best safety record in the industry. But we always strive to achieve 0 incidents and 0 accidents. That is our ultimate goal. Slide #4, summarizes our management philosophy. We have shared this with you many times before. We are, as we have been for the past 10 years, committed to these principles and practice them every single day.
Now please turn to Slide #5. Our third quarter adjusted earnings per share of $3.20 exceeded the upper end of our prior guidance range of $3 to $3.05 and improved 7% over last year. Our results reflect strong underlying performance in the Americas and Europe. Additionally, we saw improvements across our organization, driven by our price and productivity actions. We continue to execute our 2-pillar growth strategy, which includes driving operational excellence and growth in our industrial gas business while executing our energy transition projects focused on clean hydrogen.
Now please turn to Slide #6. We are maintaining our full year adjusted earnings per share guidance of $12.20 to $12.50 and we still expect our CapEx to be in the range of $5 billion to $5.5 billion in fiscal year 2024. Now please turn to Slide #7. During our fiscal third quarter, in addition to achieving 7% earnings per share growth, we have also reached overall significant milestones. In June, we announced a very large scale, long-term green hydrogen supply agreement with Total Energies. Beginning in 2030, Air Products will supply Total Energies with 70,000 tons per year of green hydrogen for 15 years. This pioneering agreement, which has already generated significant interest from other customers, validates our long-term strategy and demonstrates a strong demand for green hydrogen.
We are seeing the development of significant demand for green hydrogen in Europe. And as a result, we are even more excited and committed to our strategy to be a pioneer in the production of clean hydrogen. In July, we announced the planned sale of our LNG process technology and equipment business to Honeywell for an all-cash price of roughly $1.8 billion. The divestment of this business will allow us to focus on our core business while bolstering our balance sheet and our liquidity position. Also in July, we were pleased to announce our collaboration with Mercedes Benz to help decarbonize the heavy transport sector.
Air Products was among 5 other companies that took delivery of Mercedes-Benz hydrogen fuel cell trucks. This is a significant milestone toward the eventual mass production of hydrogen fuel cell heavy-duty trucks. In a related development, we have also announced plans to build a network of permanent commercial hydrogen fueling stations along the trans-European transport network. Now please turn to Slide #8, which illustrates or greater than 10% average growth rate for our adjusted earnings per share in the past 10 years. Our goal is to extend this trend for another 10 years, while remaining the safest, most diverse and most profitable industrial gas company in the world. We have done this before, and I'm confident we will do it again.
Now please turn to Slide #9. We take a balanced approach to determining our dividends. We are confident that our cash flows from operations and our ability to raise capital through financing and other strategic initiatives will allow us to continue rewarding our shareholders through increased dividends while meeting the cash needs of our growth strategy. Now turning to Slide #10, which, as I always say, is my favorite [indiscernible] . It shows that our EBITDA margins have significantly grown and now it stands at 42%, leading the industry by far and demonstrating our persistent focus on effectively running our base business.
We are very much focused on profitability, and this slide is a living proof of that. I want to thank all of our employees for delivering these outstanding results in very challenging economic conditions. At this point, I would like to turn over to Melissa Schaeffer, our Chief Financial Officer, to provide a summary of the third quarter financial and business segment results. Melissa?
Thank you, Seifi. Now please turn to Slide 11. Compared to last year, underlying sales volume and price together were up 1% and positive across most reporting segments. The 2% reduction on the company's top line was primarily due to unfavorable currencies. On-site volume was again positive this quarter, driven by strong demand for hydrogen as well as contributions from new assets. However, overall volume was flat due to lower demand for merchant products.
Overall price improved modestly at 1% with continued strong performance in the Americas coupled with lower power costs, which improved contribution margin. Declining natural gas prices in Europe and North America resulted in 1% lower energy cost pass-through, which has no impact on profit. EBITDA of $1.3 billion increased 5%, primarily driven by positive contribution margin and favorable business mix. Although cost was modestly unfavorable this with heavy planned maintenance this quarter, we are starting to see positive momentum on our productivity actions across the organization.
ROCE of 11% was down 70 basis points and relatively flat sequentially. Adjusted for cash, our ROCE is about 12%. Sequentially, volume improved across the reporting segments. Now please turn to Slide 12 for a discussion of our earnings per share. Our third quarter adjusted earnings per share was $3.20, up $0.22 or 7% compared to last year mainly due to better operating results. Overall, volume was up $0.05 on higher on-site, including new assets, partially offset by lower merchant demand. Price, net of variable costs contributed $0.16 this quarter driven by both pricing gains and lower power costs.
Costs were $0.04 unfavorable as productivity actions offset much of the cost related to planned maintenance and inflation. Again, we are making good progress implementing the productivity actions and exercising significant cost control throughout the organization. Currency was negative $0.04, mainly due to weaker currencies in Asia and South America. Additional debt contributed to higher interest expense of $0.03 onetime items helped lower the effective tax rate this quarter. Our full year effective tax rate is expected to be about 18%.
Now please turn to Slide 13. The for our discussion of our business segment results. Instead of viewing each business segment in detail, I would like to provide a focused discussion summarizing our segment results and highlighting key items for the quarter. You will find individual slides covering each of the business segments in the appendix. Looking at each business segment, Americas underlying sales were positive with price and volume together up 2%. Merchant pricing was 7% higher, which resulted in a 3% overall price gain for the region.
Volume was relatively stable as weaker merchant demand was offset by strong demand for hydrogen. EBITDA increased 6% and EBITDA margin increased about 400 basis points primarily driven by strong price despite increased costs due to higher planned maintenance. Looking at Asia results. The region's underlying sales were relatively stable. Volume was down 1% as lower demand for merchant products and planned maintenance outages were offset by new assets. EBITDA and EBITDA margin were unfavorable, primarily driven by the planned maintenance outages. Switching to our Europe segment, Merchant pricing was held firm and combined with our declining power cost in the region, drove improved contribution margin. Volume was up 1%, largely due to our new assets in Uzbekistan.
EBITDA improved 12% EBITDA margin increased nearly 500 basis points, mainly due to improved volume and contribution margin. Moving to our Middle East and India segment. Sales and operating income declined due to unfavorable merchant price and volume. Equity affiliate income was 7% lower due to higher costs. For our Corporate and Other segment, sales and profit were up this quarter, primarily due to higher sale of equipment, including LNG. We're making good progress on our productivity actions across all segments of the company.
Before I turn the call back to Seifi, let me take a moment to thank our teams around the world for delivering these outstanding results. Now I would like to turn the call back to Seifi to provide closing remarks.
Thank you, Melissa. Now please turn to Slide #14. Our industrial gases business is a great business, and we are committed to invest and grow it. Our recent announcements to expand our membrane production facility in St. Louis and to build 2 new air separation units in Georgia and North Carolina are just the latest examples. We are also leading the way to deliver low carbon hydrogen at scale, to help decarbonize the industrial and heavy-duty transportation sectors of the economy.
Our 2-pillar growth strategy drives our company towards these 2 goals in parallel. The outstanding results and the significant project milestones that we were able to achieve this quarter demonstrates that we have the right strategy. And as I always say, we have the commitment and motivation of our employees to make it happen. Now before I open it up for questions, I want to make some comments about our management Board and succession planning. The formation of the Management Board was a strategic step to delegate more responsibility to our senior executives who are close to the business.
You have seen our public announcements and our 8-K filing on these organizational changes, and I don't really have any additional comments to make on them. On a personal basis, you all know that I am firmly committed to our 2 pillar growth strategy. And as I have articulated that many times, I fully intend to continue leading Air Products, ensuring that our growth strategy is fully implemented, our mega projects are built, and we are serving our customers with low carbon and 0 carbon hydrogen.
However, with our continued commitment to good governance and succession planning, it is prudent and good practice to have a fully qualified individual who can be my successor if something unexpected were to happen to me. I currently share in 3 roles at Air Products. Chairman of the Board Chief Executive Officer and President. With good governance in mind, I have decided to bring into the company a fully qualified potential successor as President and a member of our Board of Directors. This person should be well known to investors with a clear record of success, preferably a current or former CEO of a public company with significant international experience and relationships.
I have started this process, and we will take our time to find the right person for the job. At this point, I will be delighted -- we all will be delighted to answer your questions.
[Operator Instructions]
And we'll take our first question from John McNulty with BMO Capital Markets.
Good morning Seifi, and thanks for all the color on the and the commentary around the management committee. It's definitely helpful in terms of how to think about things going forward. So I guess one of the things I wanted to dig into, one of the newer, I guess, events that came up during the quarter. was on the green hydrogen announcement with Total.
It came -- admittedly, it came earlier than what we were thinking in terms of offtake arrangements. So I guess, can you speak to, one, maybe what brought that forward or kind of brought the timing of it maybe a little bit earlier than expected? And then two, you spoke to kind of how that's heightened incremental demand for green hydrogen. Can you speak to that and maybe the potential for further offtake arrangements as we look out over the next 12 months or so?
Good morning John, and thanks for the very good question. John, we have been talking to potential customers for hydrogen since even before we announced our project in Neo, so for the past 5 years. And with these things, they have a life of their own. Their customers need to decide when they want to make a public announcement about having made a commitment, it depends on their needs. It depends on the regulatory conditions. It depends on conditions of the industry and all of that.
And I'm very happy to see that a visionary reader like Mr. Patrick Perner of Total decided to be the first mover and announced earlier that he is committed to green hydrogen, and he is committed to convert, at least his northern refineries to hydrogen. Since we had been talking to him for a long time, it was not too difficult to kind of get our act together and put the contract together and make a commitment on both sides. We are obviously delighted. We could not have found a better customer or a better application for a significant amount of hydrogen.
In terms of additional volumes for them, I want to leave it to Total Energies to make those statements. I do not want to preempt anything. But what has happened since we have made the announcement, it has proven that people go through an auction process and then they find out that the best possible alternative is Air Products. So a lot of other customers are taking the cue from Total Energy. Obviously, if they are going to convert their refinery to green, what are the other refineries is going to do? They have to follow. So we are being contacted by other refineries, we are being contacted by steelmakers who -- and now it has become a little bit of a dynamic of -- well, maybe we should get to Air Products before they run out of product, which obviously puts us in a very good position.
In terms of future contracts and so on, I have always been very -- acting very responsibly not to lead anything or give a hint until we actually do something. And I'd like to keep it that way. We are obviously working with other people. It is -- our intention is obviously to sell everything that we make. But if anything comes up at the appropriate time, we will make an announcement. But there is no question that agreement with Total is a significant new beginning for us.
Maybe just as a follow-up, so can you give us an update on the progress that you're making with the Louisiana project? And I guess, somewhat tied to the Total arrangement. It seems like if the market is opening up for green, I would imagine it's opening up even more quickly for what should be a more cost-effective solution, which would be blue. So can you speak to maybe that dynamic as well?
Sure. Again, another good question. Number one, our project in Louisiana, we call it the Daro project is moving very well. We feel very confident about capital that we have announced. And I feel very good that we have done our homework. We have done the testing and all of that. And we filed last week our Class 6 permits to the state of Louisiana. That is a major in milestone and the clock starts running in terms of getting approval for that, which is the most critical item for that project to be viable.
We feel very good about the poor space that we have, we have proven that we have the poor space, which I think is a challenge for a lot of other people. And we are very confident that we should be able to bring that plant on stream sometime in 2028. In terms of the demand for the product, you are right, there is a lot of discussions about the demand. And we have had discussions. The target for that product is to: number one, the blue hydrogen, we are going to put it in our pipeline and serve our existing customers with Blue Hydrogen. And then a significant part of the hydrogen will be converted to ammonia for shipment to places like Japan and Korea, to decarbonize their power plants.
So we feel very good about that. And if we have -- if you ever sign anything definitive, we will obviously be in a position to announce.
And we'll take our next question from Jeff Zekauskas with JP Morgan.
Is the Neon project still to come on stream at the end of calendar 2026? And what's the state of your hydrogen dissociation technology?
Jeff, #1, our plant in Neo is on schedule. We expect that plan to be mechanically complete and hopefully commissioned by, as you said, December of 2026, and we should have product for sale in early 2027. In terms of the cracking technology, which I think is what you're referring to with the ammonia [ associated, ] we have proven that technology, and we obviously will deploy it like in Total and in other places.
When I look at Air Products results, which I think are not dissimilar from what's happening with Air [ Liquide or Linda, ] there's been a slowdown in volume over time. And there's also been a slowdown in price change. Now it's hard to know whether -- raw materials have moved down, and so probably on-site prices have moved down, which in the end, doesn't really matter very much. But can you talk about the sequential change in merchant prices and the overall volume slowdown in the industrial gas industry?
Jeff, I wouldn't say that we have an overall reduction in industrial gases. Our merchant volumes in the U.S. is okay. And the place that when you look at overall at Air Products, where we are seeing a slowdown is obviously in China, and that affects our numbers. In terms of pricing, I can only comment on the past. I will not comment on the future, but obviously, when you increase prices, there comes a time when year-to-year, you don't show huge amount of improvement because there is a limit to what you can increase the price too because people find alternatives. And there is a certain price at which you start being demand destructive.
So I feel very good about what our people have done with pricing. And our overall volumes in the U.S. is good. In Europe, it's steady, but it is weak in China. No question about that. We have talked about that. That was one of the principal reasons that we missed our estimate in the first quarter and -- but it has stabilized, but we are not seeing much growth in that part of the world.
Our next question comes from Vincent Andrews with Morgan Stanley.
Wondering if you can give us an update on the sustainable aviation fuel project out in Los Angeles, both in terms of how the relationship with World Energy is going in the JV itself, as well as the permitting process and what your expectations are, if there's any update in terms of time line or customers or just anything we should know incrementally there?
In terms of our relationship with World Energy, we have a very good relationship with them. Obviously, we have been working with them for a few years. in terms of the standards of the project, we have put that project on hold until we get our permits. We always said that, that process will probably take a year and we still expect that.
In terms of the demand for the product and all of that, [indiscernible] seems to be very much in demand. And as you have seen, Vincent, I mean, you're very, very informed. A lot of people are trying to make [indiscernible] all over the world. So we just got a contract to supply hydrogen to unit in Europe. So we feel pretty good about that project, but it is on hold until we get our permits. And considering that we are operating in the state of California, we just have to wait and see how that works out.
And as a follow-up, the tax rate in the quarter came in a little bit lower than we had expected. Should we assume that same tax rate in the fourth quarter?
I would like to turn that question to Melissa to give you a color on that.
Thank you, Seifi. I appreciate that. So for -- as we mentioned in the comments, we did see a lower tax rate this quarter. But for the full year, we do expect it to be at 8%. We had a number of onetime items that occurred this quarter. For example, there was a significant stock option exercise and some foreign restructuring which did support the lower tax rate. But again, 18% is what you should forecast for the year.
And we'll take our next question from David Begleiter with Deutsche Bank.
Do you have an update on the Alberta project as to when it will start up and will contribute to 25 earnings?
Our Alberta project will come on stream sometimes in '25 and whether it will contribute to our fiscal year results -- we have to wait and see exactly when that project comes on stream. We are building a plant in the middle of Alberta. You know what the vendors are like. So it's anybody's guess how much construction and how fast construction we can do during this winter. So I don't want to commit to any specific date. We are going to give you, when we issue our guidance for the year, we are going to be conservative and assume no contribution from that project in '25.
Understood. And just on the Q4 guidance, it is a bit wide. Why it's so wide? And is -- what would cause you to come in at the higher end or lower end of the guidance range?
David, you make a very good point. Number one, we didn't want to change the guidance for the year, quite honestly. So by default, you end up with the numbers that you have. Because I thought if we start changing the guidance for the year, it might get misinterpreted. Because we either had to move the bottom up or the top down and -- but there is a good reason for the wide range, David. You'll see the news, the geopolitical situation in the world is very unstable. We are going through an election cycle.
The Federal Reserve hasn't made up their mind about exactly what they want to do. There is a lot of unknowns. And therefore, to try to kind of thread the needle and come up with a $0.05 range and so on. We did that last quarter because it was -- I was not as worried about the overall geopolitical situation as I am now. But overall, I think you should focus -- appreciate your focus on the year guidance rather than just the quarter guidance. Yes. We are going to be somewhere between 12.20 and 12.50 , right?
And we'll take our next question from Chris Parkinson with Wolf Research.
So if you put together a couple of decent quarters, I should say, good between the U.S. and Europe -- and yet, the macro, I think, across all geographies has been fairly choppy and you've been navigating a lot of difficulties across the board and yet you're kind of moving in the right direction now. So can you just kind of give us a quick update on some of the key things that you're seeing on a regional basis, specifically what's the latest in manufacturing and electronics, perhaps a little update on helium in Asia? Just putting everything together now that we are in a more favorable trajectory, I'd love to just hear your thoughts on entering 2025.
That's an excellent question, Chris. On a macro basis, I'm always an optimist, and I'm generally optimistic. I think the U.S. economy has proven everybody wrong it is moving stronger than one expected. Our on-site volumes, especially hydrogen is very strong in the U.S. and the merchant business is doing fine. So for the U.S., I feel very comfortable going into 2025, unless something significantly unexpected happens with the interest rates.
And with the election, we all know what you expect. It's either one or the other. So I don't think that will change things that much. Then with respect to Europe, Europe is holding up relatively well. We have been successful in holding on to the price increases that is making sure that we have good margins there. And then my only concern going into '25 is how would Asia develop? But considering where China is right now, I don't expect it to get any worse. Some people are predicting that things will improve, especially in the electronics sector, as you mentioned, but we will wait and see.
So overall, going into 2025, I'm very optimistic for sure about Air Products. And in terms of our ability to deliver the growth that we in general, want, which is 10% growth every year on our EPS.
We'll take our next question from Duffy Fischer with Goldman Sachs.
If you could, maybe talk us through what the economics look like for the 2 hydrogen stations that you called out, the one that you were going to do in Europe and then the one in California? Roughly how much capital is that? And then what's the business model there? Will you own the stations and then push your hydrogen through it? Or will other people own it and just source from you I mean just can you give us some rough scope of what that project looks like?
Sure. Duffy, our intention is that we kind of own the whole supply chain. We produce the green hydrogen, we move it whether it's in form of liquid or informed of ammonia that we then crack, then we build the station. We will own the station. We might own the station jointly with some other people, but we will have control over the station, and we will sell it to the end customer, to the truck company or the train company or anybody else.
So we want to own the whole supply chain. And that is why in terms of economics, Obviously, it depends -- the capital deployed, it depends on the number of stations we are going to build. That will be a gradual development depending on how much products we have and all of that. I mean, right now, we fully intend to build these stations in Europe and in California. But in Europe, if we sell out new all for application of decarbonizing refineries, then obviously, we will build [indiscernible] and therefore, building their stations will be a little bit delayed. And same thing in California. So it very much depends on how the market develops.
But the idea is exactly what you said, that we will either own the stations 100% or we share the ownership with Air Products and control, so that we make sure that our molecules are the molecules that are going through it. And if other people build stations, we might or might not sell them the molecules. It depends.
And then for the second one, if I could. When we look at the sequential walk from Q3 to Q4, at the midpoint of the guide, it's up $0.28, but Melissa just talked about having a tax headwind sequentially that might be a nickel or a dime. Can you bridge us to getting, let's say, that $0.30 better in EPS going from Q3 and Q4? What drives that?
What drives that is that's obviously a very good question. What drives that is that #1 is -- when you look at our results in the last 10 years or 15 years or 20 years, fourth quarter of our fiscal year is one of our strongest quarters. It is not only 1 of it is our strongest quarter. So we expect that we would have better results than the 320 just because of the cyclicality. The second reason is that we have taken serious productivity actions. You are seeing some of the results in this quarter, but you'll see a lot more of that in the next quarter.
And then the third thing is that we do have some new smaller projects coming on stream that will contribute. So we feel pretty confident that we should be able to, as you said, bridge that $0.30 and deliver the midpoint of what we have delivered the 0.48 that we need to get to the midpoint of our guidance.
We'll take our next question from Steve Byrne with Bank of America.
This [indiscernible] filling in for Steve. So firstly, I want to go back a little bit to the Louisiana project where you mentioned you're still on track for a 2028 start-up and you made the comment that blue ammonia would be sold to the export market for energy. However, it seems like companies such as some of the major Japanese utilities will probably not need that much ammonia, if any at all, at that time, perhaps you have to wait 2 or 3 years. So is it safe to assume that you will not focus on ammonia until perhaps 2030? Or are there any other outlets for that when you start up?
Thank you for your question. Obviously, we are hearing a different story from them. I don't know what they tell you, but they tell us there is a lot of demand. But there is also another sector that is developing pretty rapidly, and that is ammonia for as a marine view or shipping. So we feel pretty confident that by 2028, we will be able to start loading that facility.
We also have the capacity and capability of balancing between hydrogen and ammonia and we do have the pipeline and I think by 2028, a lot of our existing customers might want blue hydrogen instead of [indiscernible] hydrogen.
And I wanted to go back a little bit to the World Energy project. You mentioned that it's roughly a 1-year on your time line to get the permit. I think the project itself was announced over 2 years ago. So is it safe to assume you didn't actually apply for permits a little over a year after that? And when is kind of the 1-year deadline that you kind of alluded to? And does this mean at that point, you're going to proceed with the final FID and we're going to -- we will know if it's a go or no go?
Well, we hope that we get our permit, and we hope to finish the plant, but we have to wait for the permits because we don't want to commit and then find out there is an issue with the permit or we have to wait some more. So I'm not sure if there is anything more for me to add. We are just waiting for the permit. We don't want to hurry up like we did last time and start getting ahead of ourselves and then finding that the permit gets challenged and all of that. We want to make sure that it is bulletproof before we have final FID decision.
And we'll take our next question from Mike Leithead with Barclays.
Seifi, I wanted to ask them the total green hydrogen agreement. I appreciate you likely won't talk about pricing. If you want to give us the agreed-upon price, I'd happily take it. But can you speak to the return hurdle of this agreement? You've obviously taken a lot of risk by being a first mover. So in this validation, are you getting a return profile that is materially above your traditional project hurdle?
Well, you're asking a very good question. Obviously, the answer to that is yes. But I hope you have some sympathy with me that we are negotiating with people to sell them something and you don't expect me to be sitting here on a public call saying, "Hey, we're going to make a lot of money, right? So we have to be cautious in terms of our comments -- but you can be sure that, as I have always said, we have taken the risk and therefore, the reward should be higher than what we do when we do things that are not risky.
Makes a lot of sense. And then I think you've talked before about being excited about building like you just said, NEOM-2 or other large clean energy projects -- but at the same time, you didn't want to commit to announcing much until you've signed tangible offtake agreements for what you already have out there. So now that we have the Total contract, it sounds like you're far along with some other negotiations, should we expect further clean energy project announcements in, say, the next 12 months or so?
I will only commit to that if we have announced enough projects so that the investors see that we are sold out. I don't want to say that, okay, we have sold 35% of Neom. Therefore, we should rush and go and build Neom2. I'd like to wait until we have sold 80% of Neom and then commit to that. So we are going to be conservative and cautious not to get ahead of ourselves, but the fact that we have demonstrated that there is significant volume demand is a good sign because until a few months ago, you have seen the slides from some of our competitors, where they put it in writing that there is no demand for green [indiscernible] .
So I think -- and now it's obviously a little bit of a different story. There is demand for green hydrogen. And -- but I would like to give some confidence to the investors that we are truly have signed enough things that it is sold out before we commit to additional projects. Depending on how fast those things come, you're right, it might be that in a year, we will announce Neom project, but it will depend on how fast it progress with signing contracts for the current production.
We'll take our next question from Mike Sison with Wells Fargo.
Nice quarter and outlook. Seifi, when you think about '25, and I know it's a little bit early to give any specific outlook. How much earnings growth do you think will be anchored by your projects next year? And maybe any sort of color you can have in terms of how much that could help or kind of sort of support some support earnings growth next year?
Thanks for your comment. It would be very difficult right now to give you details. We are going to give you all those details when we announce our fourth quarter results. But in general, I would like to say that Air Products, 10 years ago, we committed to delivering an average of 10% growth in earnings. And today, we are committing that for the next 10 years, we will do the same. So our target, our goal, our challenge is to deliver at least a 10% growth for next quarter, for next year.
But we will obviously -- we are going through the budgeting process. We are have all of the details and then we'll give you a number when we announce our results in late October or early November.
And we'll take our next question from John Roberts with Mizuho.
And Best is you did. Welcome, Eric, and Man, thanks for being in the rock. Seifi, in your price discussions on clean hydrogen between Alberta, Louisiana, Neom, I know you don't want to give any details, but is there a really wide range that you're seeing in terms of discussions with customers? And have they all been, I assume, above gray hydrogen plus a carbon credit?
John, the guidance that the overall guidance that we have been telling people is if the gray price is something they blew prices at least twice that, and the green price is twice that. So it's table for blue and then double blue for green -- and that is the kind of overall guidance for pricing. So I think you all have a pretty good idea of the kind of pricing that we are looking for, and we are getting that. And I think that the pricing thing will improve as we go forward then the demand exceeds the supply.
And that's price at the customer receipt level and your netback pricing will be significantly different across the various customers because, obviously, some in Alberta right next door. And for Neom, it's going to be pretty far away.
Well, the thing is that there is some element of that, but we do take that into consideration when we give the pricing. I mean if it is very difficult to serve a customer then obviously, the price will be significantly higher than -- as you said, if somebody is next to [indiscernible]
We'll take our next question from Josh Spector with UBS.
So I wanted to follow up on the question earlier around your commitment to announce additional projects. I think during the quarter, you've been more explicit that you won't FID, I believe, any projects until you get more offtakes. And I wanted to see how precise we should be taking that language. So you talked about Neom earlier. But as we think about Louisiana, should we think about both of those need to reach 80% offtakes before you announce anything else? Or is your expectation to be loose to than that?
I think you should expect that we would kind of see our way of loading those 3 facilities that you talked about, Neom, Louisiana and Edmonton, fully loaded before we make an FID for another project. There is one other project that we are working on, which is the project that we did announce, green hydrogen, hydrogen project in Northern Texas. But that project, we have not taken FID, we do not plan to take any FID until we have total clarity on what the IRA rules are for interpretation of this green hydrogen.
So other than that, I don't expect us to make any announcements until we see our way very clearly. And this is, quite frankly, fundamental issue of being respectful to the investors. I think we announced many, many projects and the investors got very concerned. And that is why, I mean, our stock should be $400 now, and it is a I don't know, 285, 290, 300. But that -- the reason for that is that I think we got the investors a little bit concerned that we are getting ahead of ourselves. We didn't think so, but certainly, the impression was with the investors that we are building plans without having a clue about where to sell it. That was never the case, but that was the impression. So I don't want to get into that mood again. We want to fully demonstrate there is demand before we make any FID, announce any major projects.
I appreciate that. And just a quick follow-up then on Texas, I guess, specifically, do you consider that a new project? So if we get IR clarity, IRA clarity in the next I don't know, 6, 9 months, but Japan takes longer to say what their credits are going to be for blue hydrogen into utility coal energy production -- is that something you would FID, that Texas project without that Louisiana project sold out? Or is the Louisiana project or whatever project sold out the limiting factor in your view?
The project in Northern Texas, we can demonstrate to you that it is fully sold out in a few years because that project is directed at making liquid green hydrogen, liquid green hydrogen, and that is targeted for the market in California. We can easily transport that without any significant cost to California. And when you look at the demand in California for green hydrogen and the number of stations and so on, you can easily come up with the demand to fill that project up.
The main reason that we are holding on that project is because we want to understand what is the definition of green. And we know that we qualify to get $3. We want to see if other people qualify to get the $3 or not. But I am very, very confident about the fact that we can sell that product for very good prices. Right now, we are selling green hydrogen into that market at close to $30 a kilogram, $30 a kilogram. If you do the math, that makes everything -- so the project in Northern Texas is very much -- we are waiting for the definition of the IRA. And as you said, I don't think we will have clarity on that until probably beginning of next year. So we are not going to do anything until then.
Operator, we have time for 2 other questions, please?
The next question comes from Patrick Cunningham with Citi.
Maybe just wanted to follow up. You mentioned the election multiple times. So I just want to understand your latest and greatest thoughts on what either outcome might mean for the 2 pillars of your business? And then maybe more specifically, what you think each outcome might mean for the interpretation of the IRA rules?
I'm not sure, I'm fully if I understood. Can you just hold on. Sidd, can you...
Yes, I think the question was related to the IRA guidance and with the incumbents or a new administration coming in, what does that mean?
Well, the IRA is the part that is related to us, it has 2 dimensions. One dimension is the so-called 45Q which is, that you get $85 per ton of CO2 that you sequester. I think there is not much controversy around that rule no matter which administration you have, I think that will get support. And that is why we are building the project in Louisiana. We feel very confident about that. The challenge is on the other part, which is called [ 45V, ] which is the $3 subsidy for green hydrogen.
And the controversy is very simple. What is the definition of green hydrogen? Is it enough to say, "Oh, I connect it to the grid. I'm getting electricity on breaking down water -- and therefore, I'm making green hydrogen and therefore, give me the $3 irrespective of the fact that I might be using the electricity that is made by burning coal. That is the controversy. Obviously, Air Products has positioned has been crystal clear from day 1 that we believe that green hydrogen means that you are using green electricity. If you are not using green electricity, then it is not green hydrogen.
And green electricity should also be available 24 hours a day. That means you need to prove that every hour, you have green electricity. You can't make a lot of green electricity during the day that the sun shines and then say, okay, now in the night, I'm going to connect to the grid. So we have been very clear with our 3 pillars and that is what we think is the definition of green. The administration -- the current administration has agreed with us, that is the way they have issued the rules that are public right now. The issue is they have not finalized the rules. And from what I hear, they are saying they are not going to finalize the rules until after the election.
So the issue is if we have a change of administration, would the new administration see those rules as good or bad or do they want to modify? And we are not going to call and commit billions of dollars building a facility, not knowing what the exact interpretation is. So we are going to wait until we have rules that have been approved, press and the treasury department that we can certainly count on and then we will proceed. Sorry for the long answer, but I just wanted to address all issues.
Okay, operator, last question, please.
We'll take the last question from Laurence Alexander with Jefferies.
This is Dan Rizzo on for Laurence. And I'm sorry if I missed this, but have you provided an update on the status for the green hydrogen project in Upstate New York? I don't remember that being mentioned recently.
Yes. We are building a green hydrogen project in Upstate New York. We are using hydropower to hydropower is green power. And the capacity of that plant is not huge. It's a small plant, 35-tonne a day. And the reason we have put it in that part of the world is because we obviously could get the power from Niagara Falls is coming from. And we see significant demand for mobility. We are going to produce liquefied green hydrogen, and we see significant demand for that in that part of the world because by being in machine, we can serve all the way to Pennsylvania or New York and all of that. And therefore, we are very optimistic about that project. That project is moving forward and it is on time.
I'm sorry, just remind me when estimate online?
In terms of the timing, I think we have said some time in '27 or '28.
Well, thank you very much, and thank you, operator, and we thank you. I'd like to thank everybody for joining our call. We do appreciate your interest in Air Products. And we do appreciate your very good and insightful questions. Please be safe, stay healthy, and we look forward to talking to you then we announce our fourth quarter results. Thanks, again, everybody.
This concludes today's call. Thank you for your participation. You may now disconnect.