Air Products & Chemicals, Inc.

Discussion of First Six Months Consolidated Results

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Sales

The table below summarizes the major factors that impacted consolidated sales for the periods presented:

Sales of $6.3 billion increased 7%, or $426.6, due to a favorable currency impact of 3%, higher volumes of 2%, and higher energy cost pass-through to customers of 2%. Currency was favorable as the U.S. Dollar weakened, most notably against the Euro. Volume growth was driven by on-sites, primarily from new assets and Americas HyCO facilities, partially offset by lower helium demand and a significant, non-recurring helium sale to an existing merchant customer in the Americas segment in the prior year. Pricing was flat as improvement across non-helium product lines was offset by lower helium pricing.

Cost of Sales and Gross Margin

Cost of sales of $4.3 billion increased 5%, or $221.5, due to an unfavorable currency impact of $128 and higher energy cost pass-through to customers of $124. These increases were partially offset by $16 of lower costs driven by productivity improvements and reduced depreciation, which more than offset fixed-cost inflation, lower product sourcing costs of $9, and lower costs of $5 related to sales volumes. Gross margin of 31.6% increased 120 bp from 30.4% in the prior year as the benefits from higher volumes were partially offset by higher energy cost pass-through to customers.

Selling and Administrative Expense

Selling and administrative expense of $455.9 decreased 2%, or $8.5, as productivity improvements were partially offset by unfavorable currency and fixed-cost inflation. Selling and administrative expense as a percentage of sales improved to 7.3% from 7.9% in the prior year.

Research and Development Expense

Research and development expense of $42.0 decreased 6%, or $2.9. Research and development expense as a percentage of sales decreased to 0.7% from 0.8% in the prior year.

Our consolidated income statement for the six months ended 31 March 2026 included charges of $28.3 ($24.6 attributable to Air Products after tax, or $0.11 per share), related to project exit decisions reached in fiscal year 2025. Our consolidated prior-year income statement for the six months ended 31 March 2025 included charges of $2.9 billion ($2.3 billion attributable to Air Products after tax, or $10.28 per share), consisting of initial charges related to these decisions as well as costs incurred in connection with our global cost reduction plan. These charges were not reflected in results of our reportable segments. For additional information, refer to Note 4, Business and Asset Actions, to the consolidated financial statements.

We recorded shareholder activism-related costs in fiscal year 2025 in connection with a proxy contest that concluded in January 2025 following certification of the election of directors at the 2025 Annual Meeting of Shareholders. Costs of $61.3 ($52.9 after tax, or $0.24 per share) incurred during the first six months of fiscal year 2025 included executive separation costs for our former chief executive officer, professional service fees, and incremental proxy solicitation costs related to the 2025 Annual Meeting of Shareholders. These costs were not reflected in the results of our reportable segments. For additional information, refer to Note 17, Supplemental Information, to the consolidated financial statements.

Other Income (Expense), Net

Other income of $24.7 decreased 33%, or $12.1, primarily due to the prior year sale of a U.S. equity method investment.

Operating Income (Loss) and Operating Margin

Operating income of $1.5 billion increased 188%, or $3.2 billion, from an operating loss of $1.7 billion in the prior year. The fiscal year 2025 loss was driven by $2.9 billion of charges for business and asset actions, largely related to project exit decisions reached in the second quarter of fiscal year 2025, and also included $61 of shareholder activism‑related costs. Volume impacts were favorable by $121 driven by on-sites, partially offset by lower helium. Currency was favorable by $38, and costs were lower by $35, as productivity improvements and lower depreciation were partially offset by fixed-cost inflation. Pricing, net of power costs, improved by $11 driven by non-helium merchant products. Operating margin was 23.7% compared to negative 28.8% in the prior year, which was primarily attributable to the charge for business and asset actions in fiscal year 2025.

On a non-GAAP basis, which excludes the charges for business and asset actions and prior year-shareholder activism-related costs discussed above, adjusted operating income of $1.5 billion increased 16%, or $204.4 due to higher volumes, favorable currency, lower costs, and higher pricing, net of power costs. Adjusted operating margin improved to 24.1% from 22.3% in the prior year, primarily due to higher volumes and productivity, partially offset by energy cost pass-through to customers.

Equity Affiliates' Income

Equity affiliates' income of $351.6 increased 19%, or $55.5, driven by an affiliate in Mexico within the Americas segment. Additionally, the prior year included a project exit-related impairment charge of $6.8 related to a joint venture in China.

Interest Expense

Interest expense increased 23%, or $19.2, driven by higher interest on principal borrowings from Euro- and U.S. Dollar-denominated senior fixed-rate notes issued in fiscal year 2025.

Other Non-Operating Income (Expense), net

Other non-operating expense of $0.5 decreased $20.8 from income of $20.3 in the prior year. The prior year included a gain of $27.3 ($7.3 attributable to Air Products after tax, or $0.03 per share) on certain interest rate swaps held by the NEOM Green Hydrogen Company joint venture. As of 1 January 2026, all swaps were re‑designated as cash flow hedges. Refer to Note 3, Variable Interest Entities, and Note 8, Financial Instruments, to the consolidated financial statements for additional information. We also recognized lower interest income on short-term investments in fiscal year 2026.

These impacts were partially offset by income from excluded components from the assessment of effectiveness of our derivatives and lower non-service pension costs.

The effective tax rate equals the income tax expense (benefit) divided by income or loss before taxes. Equity affiliates' income is primarily included net of income taxes within income or loss before taxes on our consolidated income statements.

For the six months ended 31 March 2026, our consolidated income statement includes an income tax expense of $318.1 compared to an income tax benefit of $365.1 in the prior year period. The tax expense in fiscal year 2026 represents an effective tax rate of 18.3% on the pre-tax income of $1.7 billion reported for the six months ended 31 March 2026. The tax benefit in fiscal year 2025 represented an effective rate of 25.1% on the pre-tax loss of $1.5 billion reported for the six months ended 31 March 2025.

The prior-year rate was primarily impacted by $2.9 billion of pre-tax charges for business and asset actions and other items as further discussed in Note 16, Income Taxes. Also contributing to a lower rate for the current fiscal year were higher foreign and domestic tax credits and incentives and higher equity affiliates' income. These items were partially offset by a higher cost of U.S. tax on foreign earnings, larger excess tax benefits on share-based compensation in the prior year, and a benefit from a U.S. state tax law change in the prior period.

Our adjusted effective tax rate, which excludes the impact of adjustments presented in the "Reconciliations of Non-GAAP Financial Measures" section beginning on page 62, was 18.3% and 18.9% for the six months ended 31 March 2026 and 2025, respectively.

Discussion of First Six Months Results by Business Segment

Americas

The table below summarizes the major factors that impacted sales in the Americas segment for the periods presented:

Sales of $2.7 billion increased 6%, or $150.8, due to higher energy cost pass-through to customers of 5%, higher pricing of 1%, and a favorable currency impact of 1%, partially offset by lower volumes of 1%. Higher energy cost pass-through reflects increased natural gas rates in the U.S. Gulf Coast. The 1% total segment price increase equates to a 2% improvement in our merchant business, driven by non-helium product lines. The modest volume decline was primarily due to favorable non‑recurring items in the prior year, including a significant helium sale to an existing merchant customer and a one‑time customer contract amendment, partially offset by higher on‑site volumes in fiscal year 2026.

Operating income of $777.7 increased 3%, or $23.8, as favorable business mix of $18, positive pricing, net of higher power costs, of $12, and favorable currency of $4 were partially offset by higher costs of $10. The increase in costs was primarily due to fixed-cost inflation and prior‑year income from the sale of an equity method investment, partially offset by lower depreciation. Operating margin of 28.5% decreased 80 bp from 29.3% as a headwind of approximately 150 basis points from higher energy cost pass‑through to customers was partially offset by favorable business mix.

Equity affiliates’ income of $107.5 increased 62%, or $41.2, driven by an affiliate in Mexico.

Asia

The table below summarizes the major factors that impacted sales in the Asia segment for the periods presented:

Sales of $1.7 billion increased 5%, or $72.9, as a favorable currency impact of 3%, higher volumes of 2%, and higher energy cost pass-through to customers of 2% were partially offset by lower pricing of 2%. Favorable currency reflected the weakening of the U.S. dollar against the Chinese Renminbi, while higher volumes were attributable to on‑sites, including contributions from new assets. The total segment pricing decline of 2% equates to a 4% decline in our merchant business, driven by lower helium pricing.

Operating income of $472.3 increased 16%, or $64.5, due to higher volumes of $41, lower costs of $31 driven by productivity, and a favorable currency impact of $12, partially offset by lower pricing, net of power costs, of $20. Depreciation was lower in fiscal year 2026 primarily due to certain gasification assets being classified as held for sale. Operating margin of 28.4% increased 280 bp from 25.6% in the prior year, primarily due to the impact of higher volumes and favorable costs, partially offset by lower pricing.

Equity affiliates’ income of $25.5 increased 23%, or $4.7, driven by affiliates in China and Thailand.

Europe

The table below summarizes the major factors that impacted sales in the Europe segment for the periods presented:

Sales of $1.6 billion increased 10%, or $146.4, due to a favorable impact from currency of 9% and higher volumes of 3%, partially offset by lower energy cost pass-through to customers of 2%, primarily due to lower natural gas rates. Favorable currency primarily reflected the weakening of the U.S. Dollar against the Euro. The higher volumes were driven by on-sites, including the impact of a prior-year turnaround, partially offset by lower helium. Pricing was flat as improvement across non-helium product lines was offset by lower helium pricing.

Operating income of $435.1 increased 14%, or $53.1, due to higher volumes of $37, favorable currency of $27, higher pricing, net of lower power costs, of $19, partially offset by higher costs of $30. The increase in costs was primarily due to higher depreciation and fixed-cost inflation. Operating margin of 27.7% increased 90 bp from 26.8% in the prior year as the benefits from higher volumes and pricing were partially offset by higher costs.

Equity affiliates’ income of $55.3 increased 20%, or $9.4, driven by an affiliate in Italy.

Middle East and India

Sales of $59.5 decreased 9%, or $6.1, primarily due to lower volumes. Operating income of $10.4 improved from a loss of $3.5 in the prior year, reflecting lower costs, including productivity improvements and the impact of the deconsolidation of BHIG in the second quarter of fiscal year 2025.

Equity affiliates' income of $163.7 was flat.

Corporate and other

Sales of $254.1 increased 33%, or $62.6. Operating loss of $186.3 improved 21%, or $49.1, primarily due to lower changes to sale of equipment project estimates and productivity improvements.

Equity affiliates' loss of $0.4 was unfavorable by $7.1 compared to income of $6.7 in the prior year, driven primarily by an affiliate in Algeria.