Air Products & Chemicals, Inc.

Discussion of First Nine 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 $9.4 billion increased 6%, or $564.9, due to a favorable currency impact of 3%, higher volumes of 2%, and higher energy cost pass-through to customers of 1%. Currency was favorable as the U.S. Dollar weakened, most notably against the Chinese Renminbi and Euro. Volume growth was driven by on-site, primarily from new assets and HyCO facilities, partially offset by 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 in the Americas segment. 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 $6.4 billion increased 5%, or $306.4, driven by an unfavorable currency impact of $156 and higher energy cost pass-through to customers of $130. Costs were unfavorable by $20 as fixed-cost inflation was partially offset by productivity improvements and lower depreciation expense. Additionally, higher sales volumes increased costs by an additional $7. These factors were partially offset by lower product sourcing costs of $7. Gross margin of 32.0% increased 90 bp from 31.1% in the prior year, driven by higher volumes.

Selling and Administrative Expense

Selling and administrative expense of $675.0 decreased 2%, or $12.0, as productivity improvements were partially offset by fixed-cost inflation and unfavorable currency. Selling and administrative expense as a percentage of sales improved to 7.2% from 7.7%, down 50 bp from the prior year.

Research and Development Expense

Research and development expense of $63.5 decreased 8%, or $5.5. Research and development expense as a percentage of sales decreased to 0.7% from 0.8% in the prior year.

Business and Asset Actions

During fiscal year 2026, the Company recognized project exit charges of $2.9 billion pre-tax ($2.2 billion after-tax, or $10.03 per share), which was primarily due to actions announced on 30 June 2026. In the prior-year nine months ended 30 June 2025, the Company recognized charges of $3.0 billion pre-tax ($2.3 billion after-tax, or $10.35 per share), primarily driven by project exit actions approved in the second quarter of fiscal year 2025. These charges were not reflected in the results of our reportable segments. For additional information, refer to Note 4, Business and Asset Actions, to the consolidated financial statements.

During the first nine months of fiscal year 2025, costs of $86.3 pre-tax ($71.7 after tax, or $0.32 per share) were recorded in connection with a proxy contest that concluded in January 2025 following certification of the directors elected at 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.

During the third quarter of fiscal year 2025, we recognized a gain of $67.3 pre-tax ($51.9 after tax, or $0.23 per share) on the sale of our 100% ownership interest in a consolidated subsidiary in Singapore. This gain was not reflected in the results of the Asia segment. Refer to Note 17, Supplemental Information, to the consolidated financial statements for additional information.

Other Income (Expense), Net

Other income of $39.6 decreased 46%, or $33.7, primarily due to a prior-year gain of $31.3 pre-tax ($23.8 after tax, or $0.11 per share) on the sale of a regional office in Hersham, England, which was not reflected in the results of the Europe segment.

Operating Income (Loss) and Operating Margin

Operating loss of $609.9 improved 32%, or $283.9, from an operating loss of $893.8 in the prior year. The losses in both periods were primarily driven by business and asset action charges associated with project exit decisions, which totaled $2.9 billion in fiscal year 2026 compared with $3.0 billion in fiscal year 2025. Additionally, the prior year included pre-tax gains totaling approximately $99 in connection with the sale of a consolidated subsidiary and a regional office, partially offset by shareholder activism-related costs of $86.

Volume impacts were favorable by $181 driven primarily by on-site, including new assets and HyCO facilities, partially offset by a one-time customer contract amendment. Currency was favorable by $59, and pricing, net of power costs, improved $26 driven by non-helium merchant products. Costs were favorable by $8, as productivity improvements and lower depreciation expense were partially offset by fixed-cost inflation. Operating margin was negative 6.5% compared to negative 10.1% in the prior year. The improvement primarily reflects lower charges for business and asset actions as well as higher volumes.

On a non-GAAP basis, which excludes the charges for business and asset actions, sales of businesses and other assets, and prior year-shareholder activism-related costs discussed above, adjusted operating income of $2.3 billion increased 13%, or $273.6, due to higher volumes, favorable currency impacts, and higher pricing. Adjusted operating margin improved to 24.6% from 23.1% in the prior year, primarily due to higher volumes.

Equity Affiliates' Income

Equity affiliates' income of $556.8 increased 20%, or $93.1, primarily driven by affiliates in the Americas and Middle East and India segments.

Interest Expense

Interest expense increased 5%, or $7.2, driven by higher interest on principal borrowings from Euro- and U.S. Dollar-denominated senior fixed-rate notes issued in fiscal year 2025, partially offset by an increase in capitalized interest due to a higher carrying value of projects under construction.

Other Non-Operating Income (Expense), net

Other non-operating income of $3.1 decreased $11.2 from the prior year. The prior year included a gain on certain interest rate swaps held by the NEOM Green Hydrogen Company joint venture as discussed in Note 3, Variable Interest Entities, and Note 8, Financial Instruments, to the consolidated financial statements. As of 1 January 2026, all swaps were re‑designated as cash flow hedges. We also recognized lower interest income on cash equivalents and 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.

During the third quarter of fiscal year 2025, we recorded a pre-tax loss from discontinued operations of $10.6 ($8.0 after tax, or $0.04 per share) primarily to increase existing liabilities for retained environmental remediation obligations associated with businesses sold in 2008. Refer to the "Piedmont" discussion under Note 12, Commitments and Contingencies, for additional information. The loss did not result in cash flows from discontinued operations.

The effective tax rate equals the income tax benefit divided by loss before taxes. Equity affiliates' income is primarily included net of income taxes within loss before taxes on our consolidated income statements. The table below outlines the calculation of the effective tax rate for the first nine months of fiscal years 2026 and 2025:

As discussed in Note 4, Business and Asset Actions, to the consolidated financial statements, we recorded charges for business and asset actions, primarily related to project exit decisions, that contributed to significant variability in our effective tax rate for the periods presented. During the first nine months of fiscal year 2026, we recognized net tax benefits of $698.5 associated with these charges, primarily reflecting tax benefits recognized at local statutory income tax rates in the U.S. In the prior year, a net tax benefit of $649.3 was recognized primarily during the second quarter. For additional information, refer to Note 16, Income Taxes, to the consolidated financial statements.

The current-year rate was also affected by higher foreign and domestic tax credits and incentives and increased income from equity affiliates, partially offset by a higher cost of U.S. tax on foreign earnings. The prior-year rate benefited from larger excess tax benefits on share-based compensation and a U.S. state tax law change. The prior year also included several discrete tax items that affected the effective tax rate, including costs related to withholding taxes on certain foreign earnings that were no longer considered indefinitely reinvested and shareholder activism-related costs. These items were partially offset by a tax benefit for a Tax Cuts and Jobs Act refund claim.

Our adjusted effective tax rate, which excludes the impact of project exit costs and other adjustments described in the "Reconciliations of Non-GAAP Financial Measures" section, was 18.4% and 18.6% for the nine months ended 30 June 2026 and 2025, respectively. A reconciliation of the adjusted measures to the effective tax rate calculated in accordance with GAAP is provided on page 71.

Discussion of First Nine 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 $4.0 billion increased 6%, or $211.2, due to higher volumes of 2%, higher energy cost pass-through to customers of 2%, higher pricing of 1%, and favorable currency of 1%. Volume growth was driven by on-site, including HyCO facilities and a new asset contribution. This benefit was partially offset by 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. Higher energy cost pass-through to customers reflects higher natural gas rates compared to fiscal year 2025.

Operating income of $1.2 billion increased 4%, or $45.1, as higher volumes of $47, higher pricing, net of power costs, of $18, and favorable currency of $6 were partially offset by higher costs of $26. The increase in costs included fixed-cost inflation, prior‑year income from the sale of an equity method investment, and increased product distribution and dislocation costs, partially offset by lower depreciation expense. Operating margin of 29.0% decreased 40 bp from 29.4% in the prior year, which included a 50 bp headwind from higher energy cost pass-through to customers.

Equity affiliates’ income of $163.7 increased 57%, or $59.6, 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 $2.6 billion increased 6%, or $148.9, as higher volumes of 3%, favorable currency of 2%, and higher energy cost pass-through to customers of 2% were partially offset by lower pricing of 1%. Volume growth was driven by higher on-site, including contributions from new assets, as well as helium. Favorable currency was primarily attributable to the weakening of the U.S. Dollar against the Chinese Renminbi. The decline in pricing was driven by lower helium pricing.

Operating income of $728.7 increased 17%, or $104.1, driven by higher volumes of $87, lower costs of $22, and a favorable currency impact of $16, partially offset by lower pricing, net of power costs, of $21. Depreciation expense was lower in fiscal year 2026, primarily due to the classification of certain gasification assets as held for sale. Operating margin of 28.6% increased 260 bp from 26.0% in the prior year, as the benefits of higher volumes and favorable costs more than offset lower pricing and higher energy cost pass-through to customers.

Equity affiliates’ income of $38.4 increased 27%, or $8.1, driven primarily 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 $2.4 billion increased 9%, or $191.6, due to a favorable impact from currency of 7%, higher volumes of 1%, and higher pricing of 1%. Favorable currency primarily reflected the weakening of the U.S. Dollar against the Euro. The higher volumes were driven by non-helium merchant and on-site, including the impact of a prior-year turnaround, partially offset by lower helium. Pricing improvements across non-helium product lines were partially offset by lower helium pricing.

Operating income of $665.8 increased 10%, or $58.6, due to higher volumes of $39, favorable currency of $32, and higher pricing, net of lower power costs, of $27. These benefits were partially offset by higher costs of $40 driven by fixed-cost inflation and higher depreciation expense. Operating margin of 27.9% increased 20 bp from 27.7% in the prior year as the benefits from higher volumes and pricing were partially offset by higher costs.

Equity affiliates’ income of $87.9 increased 16%, or $12.3, driven primarily by an affiliate in Italy.

Middle East and India

Sales of $94.3 decreased 9%, or $9.6, primarily due to lower volumes. Operating income of $18.4 improved from $4.6 in the prior year, driven by lower costs, including productivity improvements and the impact of the deconsolidation of the Blue Hydrogen Industrial Gases Company joint venture in Saudi Arabia in the second quarter of fiscal year 2025.

Equity affiliates' income of $264.8 increased 6%, or $15.6, driven primarily by affiliates in Saudi Arabia.

Corporate and other

Sales of $357.2 increased 7%, or $22.8. Operating loss of $266.5 improved 16%, or $52.0, primarily reflecting productivity improvements and lower changes to sale of equipment project estimates.

Equity affiliates' income of $2.0 decreased $9.3 driven primarily by an affiliate in Algeria.