Air Products and Chemicals, Inc. (APD) Q3 2017 Earnings Report, Transcript and Summary

Good morning and welcome to the Air Products and Chemicals' 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. Simon Moore, Vice President of Investor Relations. Simon R. Moore - Air Products & Chemicals, Inc.: Thank you, Cathy. Good morning, everyone. Welcome to Air Products' third quarter 2017 earnings results teleconference. This is Simon Moore, Vice President of Investor Relations. And I'm pleased to be joined today by Seifi Ghasemi, our Chairman, President & CEO; Scott Crocco, our Executive Vice President and Chief Financial Officer; and Corning Painter, Air Products' Executive Vice President, responsible for Industrial Gases. After our comments, we'll be pleased to take your questions. Our earnings release and the slides for this call are available on our website at airproducts.com. Please refer to the forward-looking statement disclosure on page 2 of the slides and in today's earnings release. Now, I'm pleased to turn the call over to Seifi. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you, Simon, and good morning to everyone. Thank you for taking time from your very busy schedule to be on our call today. We do appreciate your interest in Air Products. I am very pleased to report that due to the hard work and commitment of our people at Air Products, we delivered another quarter of very strong performance, with EPS growth of 15% over last year. This is the 13th consecutive quarter that we have reported year-over-year EPS growth. We also delivered excellent safety results and generated over $500 million of distributable cash flow this quarter. Our volumes are up 8%, the highest in more than two years, and we continue to win and execute successfully on major industrial gas projects for customers around the world. Now please turn to a slide number 3, where I would like to take a few minutes to remind everyone of the progress we have made. Specifically, I want to talk about the promises we made three years ago and the results we have delivered. In 2014, we made several commitments to ourselves and to our shareholders. And as I recall, there may have been skepticism in the investment community at the time about our ability to deliver. So let us update you on where we are today. Three years ago, we said that Air Products will be the safest industrial gas company in the world, we will be the most profitable industrial gas company in the world, we will divest our non-core assets, we will have the best balance sheet in the industry and we will deliver 10% per year EPS growth every year. I am proud of our team for delivering on every one of these promises. On slide number 4, you can see the results of the first two commitments. We are today the safest and most profitable industrial gas company in the world. We have delivered significant improvement in our employee lost-time injury rate and we have an EBITDA margin of 34%, which is up 900 basis points versus three years ago. On slide number 5, you can see our success in divesting non-core assets. We sold our chemical business to Evonik for almost 16 times EBITDA, and I'm confident this business and the people involved will thrive in Evonik. We spun off our Electronic Materials business as an independent company called Versum Materials. The Versum team is 100% focused on the electronic market as a leading material supplier. They have delivered strong results and the Versum stock is currently trading at over 13 times EBITDA, in fact, a higher multiple than Air Products right now. And as you saw this morning, the great management team there delivered very strong results also. Slide number 6 shows the results of our improved business performance and the successful transaction. Air Products has the strongest balance sheet in the industry. So we are well positioned to take advantage of the tremendous growth opportunities in industrial gases. That is our future and, as you can see, we had delivered EPS growth of 10% in 2015, 16% in fiscal year 2016, and at the mid-point of our 2017 guidance, we will be up another 10%. To summarize on slide 7, the hardworking and committed team at Air Products has delivered on what we promised. And what is most exciting to me right now is that we are very well positioned to grow Air Products and create significant further value for our shareholders. We now have the balance sheet to do it. Let me review the investment opportunities we see for this growth that I'm talking about. First, acquisitions of small size and medium size industrial gas companies, or assets or businesses from other industrial gas companies. Second area of opportunity is to purchase existing industrial gas facilities from our customers to create long-term contracts where we own and operate the plant and sell industrial gases to the customers based on a fixed fee. We see opportunities for oxygen and hydrogen plants around the world in this category. We also see the opportunity to expand our scope of supply to include the operation of existing gasification units and sale of syngas to customers under long-term agreement. Essentially, these opportunities are the same as the traditional onsite business model that we have, something that we do every day, but with existing rather than new production assets. And the third area of opportunity is the very large industrial gas projects around the world driven by demand for more energy, cleaner energy and emerging markets. The Jazan project in Saudi Arabia is a great example of how big these projects can be. The plant we are building in Jazan is the largest project in the history of industrial gas industry, with close to $2 billion of capital investment. Some of these new large projects that I'm talking about could also include gasification and syngas supply and could be as big or even bigger than Jazan. Scott will take you through the details, but like last quarter, the estimate that we will have at least $8 billion of capacity to invest over the next three years. And I truly believe that Air Products will be successful in utilizing our balance sheet to invest in our core Industrial Gases business to create significant shareholder value. But as I have always said, if we can't find good enough good projects, we will stay disciplined and return the cash to our shareholders; after all, it is your money. And I know everybody continues to be interested in a timeline for deploying the cash. But as I have said, we are not in a hurry and we will take our time to make sure that we are investing in value-generating projects. Now please turn to slide number 8, where you can see examples of the success that Air Products has had with major projects around the world. Just in the past quarter, we announced new Electronis wins in China, a new HyCO facility in Louisiana and a new air separation unit in New York. These new wins will drive growth for Air Products and create value for our shareholders. As importantly, our teams are executing well on our projects in the backlog. We successfully brought onstream a major hydrogen plant in India and another major oxygen plant in China. Now, please turn to the slide number 9, that shows another quarter of very strong safety performance. These results do not happen without everyone of our team around the world being focused on safety every single day. I also believe these results also reflect an empowered and focused culture that also creates good financial results. Slide number 10 is our goal for the company. As I explained at the beginning of this call, we have made great progress and are determined to continue to be the safest and most profitable industrial gas company in the world, providing excellent service to our customers. Now, please turn to the slide number 11, our overall management philosophy that we have talked to you many times. We continue to be focused on shareholder value, cash generation, capital allocation, and empowered and decentralized organization. And slide number 12, that you have seen many times before, is our Five-Point Plan which is the roadmap for our success. Slide number 13 shows you the results of our three key metrics. We remain committed to our goal to be the most profitable industrial gas company in the world, as measured by each of these three metrics. And today, we are the most profitable industrial gas company in the world, as measured by each one of these metrics. We remain focused on driving further improvement as we move forward. Now please go to my favorite slide, slide number 14. It's obviously great to see that the margins improved versus last quarter. Also as you know, when natural gas prices are higher, we report higher sales with no profit, since the costs are passed through to our customers. Excluding this impact on natural gas, actually EBITDA margins were 30 basis points higher versus last year. Now I would like to turn the call over to Mr. Scott Crocco, our Executive Vice President and Chief Financial Officer, to discuss our results in detail. Then I will come back after comments from Corning and Simon to make some closing remarks and then we will be more than happy to answer your questions. Scott? Michael Scott Crocco - Air Products & Chemicals, Inc.: Thank you very much, Seifi. Now please turn to slide 15 for a more detailed review of our Q3 results. Sales of $2.1 billion increased 11% versus last year on 8% higher volumes. This was our best volume performance in at least two years. Higher energy cost pass-through added 5%, while the currency impact was 2% unfavorable. Volumes were higher across all the three regions, and taken together, the regions increased overall volumes by 8%. In our sale of equipment businesses, continued progress on our Jazan project was largely offset by the continued weakness in LNG. Overall, pricing remains unchanged, with increases in Asia being offset by weakness in Europe. EBITDA of $722 million improved by 7%, and operating income of $463 million improved by 11%. EBITDA margin of 34% decreased by 120 basis points and was negatively impacted by 150 basis points from higher energy cost pass-though. Excluding this impact, EBITDA margin was up 30 basis points. Operating margin of 21.8% was unchanged versus prior year as unfavorable energy pass-through of 90 basis points was offset by favorable volumes. Sequential margins improved by more than 100 basis points driven by higher volumes. Versus prior year, net income increased by 16%, and adjusted earnings per share increased by 15%. ROCE of 12.2% improved by 10 basis points versus last year and was down 10 basis sequentially. To provide you with some context, sequentially, ROCE is down slightly while profits are up because the denominator of the ROCE calculation has increased. The denominator is based on a five-quarter average and this now includes two quarters that contain a significantly higher denominator as a result of the PMD gain. Now, please turn to slide 16. As you know, Air Products continues to be very focused on cash flow. Our distributable cash flow was over $500 million this quarter, while our free cash flow was $139 million. Free cash flow was up $47 million versus last year, due to higher EBITDA. Year-to-date distributable cash flow is $1.3 billion, while our free cash flow is approximately $200 million. Please turn to slide 17. Before I discuss our underlying results, I want to spend a moment on non-GAAP items. In continuing operations, we had non-GAAP charges that totaled $1.18 per share. In Latin America, during the first nine months of fiscal year 2017 volumes declined and overall revenue growth was below our previous forecast due to weak Latin American economic conditions and a lack of recovery in mining-related demand. Our current outlook is now below the previous forecast used to establish the carrying value of the business. As a result, our goodwill review resulted in a non-cash goodwill impairment charge of $162 million or $0.70 per share. We also completed a review of the business plan and resulting outlook associated with Abdullah Hashim Industrial Gases, or AHG, a 25%-owned equity affiliate. We determined there was a decline in the value and recognized a non-cash impairment charge of $80 million, or $0.36 per share, that reduces the carrying value of our investment. The decline in value results from expectations for lower future cash flows to be generated by AHG, primarily due to weaker economic conditions in Saudi Arabia. The team is working hard to implement a profit improvement plan. Let me add that while no one can predict the future, at this time, we do not believe we will have similar impacts resulting from other acquisitions we have made in the past. And with our focus on capital allocation, we are highly confident that future M&A transactions will create value for our shareholders. Finally, cost reduction and asset actions continue through the year as we take further actions as part of the second $300 million of operational improvements and to offset stranded costs from our decision to divest Materials Technologies. The charge of $43 million, or $0.14 per share, includes the planned sale of a Latin American hardgoods business and closure of an LNG heat exchanger manufacturing facility. Further details on all non-GAAP items can be found in the appendix slide and the footnotes to our earnings release. Turning to slide 18, you can see an overview of this quarter's performance in terms of earnings per share. Excluding non-GAAP items, our Q3 continuing operations EPS of $1.65 increased $0.21 per share, or 15%, versus last year. Higher volumes broadly increased EPS by $0.19 per share. Pricing and power costs, taken together, decreased EPS by $0.01. This was driven in part by higher power cost in our Europe business. On a positive note, we saw significant pricing improvement this quarter in China. Net cost performance was unfavorable $0.02, as our productivity actions and the TSA income were more than offset by other costs including maintenance and inflation. We remain committed to delivering our $100 million of cost savings this year. As a reminder, included in the cost major factor is the other income (expense) line on our consolidated P&L. As I shared last quarter, we are providing services via transition service agreements, or TSAs, to both Versum and Evonik. The cost to provide these services are primarily in SG&A. The payment we received for these services was about $10 million this quarter and is shown in the other income (expense) line. We expect these TSAs to wind down in 2018 and are committed to taking actions to reduce the resulting stranded costs. For the quarter, currency and foreign exchange gains and losses net to $0.01 unfavorable. We added a new line to our income statement last quarter called other non-operating income (expense). This is where we are reporting the interest income from our more than $3 billion of cash and short-term investments. The interest income was about $0.03 this quarter. Since this is non-operating, it is not included in our EBITDA or operating income results. Interest expense was $0.02 lower due to our lower debt balance partially offset by higher rates. Our effective tax rate this quarter was 24%, about 1% lower than last year. We still expect our FY 2017 tax rate to be approximately 23%. Turning to slide 19, I would like to update you on our capital deployment capacity. We have about $3.3 billion of cash in short-term investments as of June 30. After we pay the remaining taxes due on the PMD gain and maintain a modest operating cash balance, we have about $2.9 billion of cash available to invest. Our debt balance as of June 30 is about $3.9 billion. As you know, we are committed to managing our debt balance to maintain our current targeted A/A2 rating. We expect this would enable a debt level in the range of 2.0 to 2.5 times EBITDA. Based on a trailing 12-month EBITDA of $2.7 billion, this would support a debt level in the range of about $5.5 billion to $7 billion. So in total, between available cash and additional debt capacity, we have about $5 billion we can deploy today, while maintaining our A/A2 rating. As we have mentioned, we also expect to generate over $1 billion per year of investable cash, that is after paying taxes, interest, maintenance CapEx and dividends. So as Seifi mentioned, over the next three years, we expect to have a total of at least $8 billion available to invest. Now to begin the review of our business segment results, I'll turn the call cover to Corning. Corning F. Painter - Air Products & Chemicals, Inc.: Thanks, Scott. This was our best quarter for both safety and volumes, since we began reporting on a regional basis in FY 2015. Our teams had worked hard to safely bring onstream large new projects and win merchant customers around the world. While this performance is very good, we have more work to do on productivity. We generated significant savings from our Taking the Lead productivity actions, but these were impacted by a number of offsetting cost items. The good news is that we continue to see productivity opportunities. I would like to again thank our people around the world for staying focused on our goals, especially safety, excellent customer service and our Taking the Lead productivity projects. As an example of Taking the Lead, improving compressor efficiency is an opportunity for us. Compressors consume most of the power at an air separation plant, we have many of them and we have many plants. So you can't have an engineer sitting next to every compressor. So we continue to develop remote diagnostic tools to identify opportunities and take actions across our global fleet of compressors. These actions drive both productivity and enhance reliability. Before I discuss the regions, I'm going to address helium. Industrial gases is primarily a local business, but helium has a global supply chain. The recent events in Qatar disrupted that global supply chain. Clearly, this is not over yet and the situation remains volatile, but we are confident that we can take good care of our customers through this. Air Products has a geographically diversified supply base. Our wholesale commitments take a big step down at the end of this month and we have a new tranche of helium supply coming on in January. Beyond that, we bought over 75% of the helium at offer at the BLM auction two weeks ago. So we are confident that we can continue to provide excellent service to our customers, whatever happens in the Gulf region. Now please turn to slide 20 for a review of our Gases Americas results. Volumes were up 3%, the best volume performance in over two years. The pass-through of higher energy prices, with the Houston Ship Channel natural gas prices up almost 70%, significantly diluted our margins again this quarter. Sales of $930 million were up 12% versus last year, with volumes up 3% and higher energy cost pass-through up 9%. North American volumes were up on modest merchant growth across most of our product lines and strong hydrogen volumes as our refinery customers continue to operate at a high level. Hydrogen volumes were also stronger sequentially, following customer planned outages in Q2. Latin American volumes were up slightly this quarter versus prior year, led by the liquid bulk business. However, economic activity remains weak. Results improved sequentially as expected on seasonality. EBITDA of $367 million was up 1% as the contribution from higher volumes and our Taking the Lead cost reduction programs were partially offset by planned maintenance-related costs. EBITDA margin of 39.5% was down 400 basis points, with higher energy cost pass-through accounting for about 330 basis points. Excluding this impact, the margin was down about 70 basis points. As I mentioned last quarter, we will be shedding about $70 million in annual wholesale volumes in North America, beginning next month with the end of our supply contract for liquid bulk products to Airgas. I am encouraged to see our sales efforts paying off and volumes building as we are working hard to replace this volume with retail sales. We had two significant project announcements since our last earnings call. First in June, we announced Air Products will retire our 1970s-era plant and build a new highly efficient air separation unit in Glenmont, New York, providing additional liquid oxygen, nitrogen and argon to the merchant market. Ours is a long-term business and this is an example of investing for the future. And just recently, we announced the award of a carbon monoxide and hydrogen supply contract from Huntsman to supply their world scale MDI facility in Geismar, Louisiana. We will be building a new steam methane reformer to supply Huntsman and connecting it to our 600-mile hydrogen pipeline system. Now, please turn to slide 21. In our Europe, Middle East and Africa business, the volume growth was driven primarily by our new hydrogen plant in India. Versus last year, sales of $452 million were up 5%, with volumes up 6%, price down 1%, higher energy cost pass-through up 4%, and currency down 4%. The currency impact was primarily the British pound, and other than the continued currency impact, we don't believe the Brexit discussions have had much impact on our business this quarter. Our new hydrogen and ASU project for BPCL in India was fully onstream as of the end of Q3. As a reminder, this one 100% Air Products-owned facility will be reported in the EMEA segment, while the rest of our India business continues to be reported in the Asia equity affiliate income. Excluding the impact of our new hydrogen plant, our underlying volumes were positive on strength in tonnage and packaged gases. These gains were partially offset by lower equipment sales and a project close-out. Reported price was down 1%, as a mix effect, both in terms of customer mix and product mix, offset slightly higher underlying real pricing. So, when we say price, we mean exclusively merchant pricing. And when we say real price, I mean the same gas sold to the same customer. Although underlying real price is positive, we were not able to recover as much of the higher power costs as we had hoped to in this quarter. And I can assure you, our team continues to be very focused on pricing. EBITDA of $155 million was down 3%, but that would have been slightly up on a constant currency basis. Positive cost performance and higher equity affiliate income were offset by equipment and the negative mix and cost impacts. EBITDA margin of 34.3% was down 310 basis points, with a higher energy pass-through accounting for about 140 basis points. Excluding this impact, the margin was down 170 basis points about evenly impacted by equipment and mix costs. Please turn to slide 22, Gases Asia, where we showed very strong volume and profit growth. Sales of $538 million were up 20%, driven by volume growth of the same amount. About half of the volume growth was due to equipment sale projects, which we would not expect to reoccur in Q4. The remaining 10% of the growth was approximately evenly split between new project onstreams and base business growth. Our ongoing drive for retail sales and pricing, aided by the consolidation of the steel industry, is paying off. The Asia merchant gas business continues to improve in terms of both measures, retail sales and pricing. For example, LOX/LIN volumes were up high single-digits and the retail business was up low double-digits. And in China, this was even more dramatic, with mid-teen retail growth, that was about 2x our total LOX/LIN growth rate. At the same time, LOX/LIN prices were up nearly 4%. Our gains in argon were even more dramatic, with total volume, retail volume and pricing, all three up double-digits. We need to keep in mind that there is still significant overcapacity in China and a recovery in this market may be bumpy, but our efforts clearly delivered. EBITDA of $211 million was up 15%, with strong contributions from higher volumes, including the equipment sales and on higher pricing. We had Taking the Lead cost savings, but this was somewhat offset by a positive cost reimbursement in Q3 last year. We expect to receive this in Q4 this year. Equity affiliate income was down due to a one-time benefit last year. This impacts EBTIDA, but not operating income. EBITDA margin of 39.2% was down 160 basis points on the items just referenced. We continue to win and successfully execute projects throughout Asia. In the electronics area, we were pleased to be awarded the industrial gas supply for Fujian Jinhua's new memory fab in Fujian Province and SMIC's foundry capacity expansion in Tianjin. And we successfully brought on another very large air separation complex to supply oxygen, nitrogen, and air to Yitai Chemical's fine chemical coal gasification project in Inner Mongolia. These plants have a combined capacity of over 9,000 tons a day, and join our other successful oxygen for coal gasification projects in China, including Weihe Clean Energy, Pucheng Clean Energy, Shaanxi Future Energy, and Shanxi Lu'an Mining. Finally, please turn to slide 23 for a brief comment on our Global Gases segment, which includes our air separation unit sale of equipment business as well as central industrial gas business costs. Sales and profits were up versus prior year, driven by progress on the Jazan ASU sale of equipment project. We continue to make good progress on the Jazan project, and just as a reminder, we began booking profits on the sale of equipment in the fourth quarter of FY 2016. Now I'll turn the call back over to Simon for a comment on our Corporate segment. Simon R. Moore - Air Products & Chemicals, Inc.: Thank you, Corning. Please turn to slide 24, our Corporate segment includes our LNG business, our helium container business and our corporate costs. Sales and profits were down versus last year, as expected, on continued significantly lower LNG project activity. We were pleased to announce earlier this week a new project with TP JGC Coral France to provide our technology and heat exchanger equipment for the Coral South Floating LNG project to be located in the Indian Ocean, offshore Mozambique. However, we had anticipated this win, so still expect about a $0.30 headwind in LNG for FY 2017 versus FY 2016. We still have not yet seen other LNG customers moving forward with their investment decisions. We did see a positive impact from the TSAs with Evonik and Versum. Now please turn to slide 25 and I'll turn the call back over to Seifi for a discussion of our outlook. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you, again, Simon. Before we take your questions, I would like to make a few comments about our outlook. Having delivered on our promises from three years ago, we can now build on our success. We have significant opportunities to invest our cash to grow Air Products and create value for our shareholders. Our safety and operating performance continues to be strong. We continue to take action to deliver our $100 million of operational improvements this year and are focused on additional actions to offset the stranded costs from the separation of MT business. We remain committed and confident on our ability to deliver on our cost savings and our commitment to grow EPS by 10% each year. Our portfolio actions and the strong cash flow generation of our company provide us with almost $8 billion of capacity to invest over the next three years. We are committed to staying disciplined and won't invest our money unless we are confident the risk/return profile will create significant value for our shareholders. And as I said, I am now, more than ever, very confident that we will have the opportunity to fully utilize our balance sheet by investing in exciting opportunities in M&A, asset buybacks, and large industrial projects. Now, please turn to the slide number 25. With confidence in our ability to perform, we are raising our guidance for fiscal 2017. Our increased guidance of $6.20 to $6.25 is up $0.10 from last quarter at midpoint, and it represent 10% EPS growth over 2016. And our guidance for the fourth quarter the fiscal year EPS is $1.65 to $1.75 (sic) [$1.70] per share, which at midpoint is 12% up versus last year. I want to thank once again the great team of hardworking, dedicated, talented, and motivated employees that remain focused on being the safest and most profitable industrial gas company in the world, providing excellent service to our customers. I am very proud to be a member of this winning team. Now, we are delighted to answer your questions.

Thank you. And we will take our first question from Don Carson with Susquehanna. Please go ahead.

Good morning. This is Emily Wagner on for Don. I just wanted to dial in to the Jazan earnings this quarter a little bit. How much of the guidance raise was due to the timing of Jazan? And I know that earnings stream there is a little lumpy. Is there any way to get some more clarity on the timing or outlook on these earnings? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Emily, first of all, good morning. The increase in our guidance is due to our confidence in the performance of our business in terms of volumes, especially in China. As Corning mentioned, we had a very good performance in Asia, better than we expected, and that is why we are – that's the principal reason we are increasing our guidance.

Okay. And... Seifollah Ghasemi - Air Products & Chemicals, Inc.: Okay?

Yeah. And then in terms of the consolidated volume growth of 8%, is there a way to break that down between the equipment sales and the new project startups? Seifollah Ghasemi - Air Products & Chemicals, Inc.: It is possible, but we don't plan to do it.

Okay. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you.

All right. Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Sure.

We'll take our next question from Robert Koort from Goldman Sachs. Robert Koort - Goldman Sachs & Co. LLC: Thanks very much. Seifi, I wanted to ask, you were quite emphatic that you're more confident now deploying your capital. Can you give us the reason for that increased confidence? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good morning, Bob. Obviously, if I say that, that means that we are seeing more projects that we can work on. And as time goes by, we see more projects that we can work on. So, I'm sure you'll bear with me to kind of stay general, but we have always said that we see a lot of opportunities, but as we engage with customers and prospective customers, we are becoming more confident that we can actually do these things. Robert Koort - Goldman Sachs & Co. LLC: And Seifi, can I ask, is it conscientious on your part – I mean last quarter, you sounded much more cautious, you noted concerns about economic policy in the U.S., Brexit, geopolitical tension. And now this quarter, it seems like the volumes have popped nicely. The tone just sounds more upbeat. Is there something that's changed from your perspective, that gives you that greater confidence, or is this sort of in the macros, or is this still all idiosyncratic to your own business? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Hi, Bob. That's an excellent question. I have always been very optimistic about the performance of Air Products. The other comments that I made about the general consensus in the economy, I don't need to make any comments about that because now you see that as the headline of the paper. So, I don't want to be stating the obvious about what is going on in the U.S., its policies and the geopolitical condition. So we didn't feel it was necessary for us to stress that. As I said, you see that in the news. Robert Koort - Goldman Sachs & Co. LLC: Got it. Thanks, Seifi. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you.

And we will take our next question from Jim Sheehan with SunTrust.

Thanks. On your price and mix performance in Europe, it looks like you are basically doing okay in gaining the underlying price, but you're having some issues with recovering electric power costs. And I'm just wondering, is that something that typically has a lag, historically, or how would you expect that issue to progress going forward? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, I'd like to refer that to Corning to answer. Corning. Corning F. Painter - Air Products & Chemicals, Inc.: Yeah. So, I'd just like to stress that on a real pricing basis, we see positive pricing. So, the mix impact is fairly powerful for us right now and there's two things behind that. So, on a product basis, we're selling a lot of CO2 right now, a year ago we had some production issues. It's the summer season, there's a lot going. CO2 is just a lower priced product and it's going to bring down that number. But the fact that I'm able to sell more is really a good thing for us. The other thing that's playing out in the mix effect is just larger customers taking more product. We can deliver the product to large customers more efficiently, they command and get better pricing. So, that hits as well. In terms of overcoming all that and still hitting the power, I'd say we're about 50% through, recovering what we were aiming for, and I remain confident that we're going to follow on on this and we will get that back.

Great. And on – I realize Seifi, it's a little bit early to talk about 2018, but given your sentiments on the global macro environment and geopolitical issues, do you see any reason to doubt that you could hit the 10% long-term EPS growth target in 2018? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, I said several times during the call that we promised everybody four years ago that we will hit 10% EBITDA growth over the long term. We are still committed to that. And if the geopolitical conditions and the economic conditions become tougher, then we need to take actions in order to deliver the number. The 10% is non-negotiable. We are very committed to that.

Thank you, Seifi. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you.

And we will take our next question from Jeff Zekauskas with JPMorgan.

Thanks very much. I'd like to go back to the price issue. Your pricing on a global basis was flat and I think some of your competitors had prices up 1% to 2%. Is that difficulties in comparability or does it turn out you're not executing as well as you might in getting your prices up right now? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good morning, Jeff.

Hey, good morning. Seifollah Ghasemi - Air Products & Chemicals, Inc.: When we report numbers for overall Air Products, there is significant amount of noise related to mix in terms of which part of the world, and then the pricing that we include includes our whole company, it's not just the merchant thing. Corning mentioned about different areas. We usually don't like to talk too much about pricing and all of that, but we are – I don't want to characterize it as if we are having difficulty in increasing prices. The prices in the market very much depends on the supply/demand situation and we are part of that. I wouldn't want to characterize it the way you said that we would have any difficultly on that, but Corning, do you want to make any additional comments on that? Corning F. Painter - Air Products & Chemicals, Inc.: Yeah, I think also going to where Seifi was just saying, I think the aggregation, when you do that, you lose a lot of color of what's really happening, especially on a business that is so local. So maybe just to peel back the onion one step further, we showed flat pricing in the Americas. In truth, underlying that, we had actually positive pricing in North America, negative pricing in Latin America and that kind of offset, just to give you a sense of – a little more color.

If I may follow up, in terms of the Jazan project, that's a base case, does the equipment piece conclude by mid 2019? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Something like that.

Great. Thank you so much. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you, sir.

And we will take our next question from P.J. Juvekar with Citi.

Yes. Hi. Good morning. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good morning, P.J. How are you doing?

Good. So, you had two write-downs in the quarter, can you explain those? The first one was in Latin America, probably in Indura assets, and then second one was in Saudi Arabia. And I know that you're trying to acquire more assets in the Middle East, but you mentioned current challenging conditions in Saudi Arabia. Does that change your strategy towards Middle Eastern acquisitions? Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, P.J., thank you very much for asking the question, but there is a famous saying that the best time to buy is when things are not going well. So actually, the conditions are actually very favorable in buying things in the Middle East right now because of the oil prices being down. So I kind of actually see that as a favorable sign rather than a negative sign.

Okay. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Is that okay?

So you think this is an opportunity to buy in Middle East? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Yes, that is correct.

Okay, okay. And the second question on the backlog. Can you discuss the outlook for hydrogen or HyCO projects? Again, we go back to oil price and volatility there, refining margins are weak. What are you hearing in the HyCO projects? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, the thing is that the HyCO projects that we are focused on are – significant part of that is related to coal gasification, and the outlook for that is very positive. In terms of HyCO projects for other projects, there are not that many new projects, but as you know, we are focused on asset buybacks and we see opportunities there.

And lastly, can you just talk about the chemical opportunity on the U.S. Gulf Coast? Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, in the U.S. Gulf Coast, there was a lot of excitement about a lot of new projects, but then the oil prices came down, although gas prices are down, a lot of those projects they're put on hold. And you know that better than anybody else. I mean you're very knowledgeable about what everybody was trying to do. So we are in the Gulf Coast, we will participate. Obviously, you saw that project that we just announced in Geismar and there are other projects that we are working on, but I'm not as optimistic there as I am in other parts of the world.

Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you, P.J.

And we will take our next question from John Roberts with UBS.

Thank you. On slide 16, on maintenance capital versus growth CapEx, Praxair this quarter started reporting something related to this, CapEx towards secured contracts versus non-contracted CapEx. So, congrats in the first place on driving this change here; I was skeptical at first. But my question is how comparable are the two presentations? They indicated merchant tanks and cylinders were a large part of their growth CapEx. But since you do larger projects and you don't have a U.S. cylinder business, is the majority of your growth – or the vast majority of growth CapEx your large projects? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, John, first of all, thank you for your comment. I do appreciate that. We have always thought very strongly that looking at distributable cash is the right way to look at the valuation of industrial gases, and we are very pleased to see that others are following that. In terms of how they present their numbers and how we present, I quite honestly don't want to be making comments about what our competitors' financials are; I don't think that would be appropriate. We are very committed to the way we present the numbers and our numbers are very clear, detailed analysis and reflective of what we need to do to maintain our current EBITDA. That is the definition of maintenance CapEx that we have. That if everything stops, how much money do we need to invest in order to replace the assets that we have in order to maintain our current EBITDA. And that is our definition of maintenance CapEx.

Okay. Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you very much, John.

And we'll take our next question from David Begleiter with Deutsche Bank.

Thank you. Good morning. Seifi, good volumes... Seifollah Ghasemi - Air Products & Chemicals, Inc.: Good morning, David. How are you doing?

Good. Thank you, very good. So very good volumes in North America, you mentioned refining, but overall, is there any acceleration in your business that you're seeing or just, again, refining and plus other is driving that very good volume growth in your business? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, I don't want to characterize it as a significant acceleration of the business, but I think that we have our act together and we are trying to provide the service that our customers need in order to make sure that we get our fair share of – Corning, do you have any other comments? Corning F. Painter - Air Products & Chemicals, Inc.: I'm sorry, is your question mainly at North America or globally?

North America. Are you seeing any acceleration, North American activity? Corning F. Painter - Air Products & Chemicals, Inc.: Yeah. I would say North America was broad based for us and, by definition, being broad based, not like one particular thing or another. I'd say just hard work in sales activity across the board.

Very good. And, Corning, also on the maintenance costs in Q3, can you quantify the impact and what that tailwind might be heading to Q4? Corning F. Painter - Air Products & Chemicals, Inc.: Yeah, so I think we're not going for specific details on it, I'd say maybe just give a little bit of color for what we experienced in this quarter. There's a little bit more around some large air separation units that we worked on and they tend to have, in some ways, a broader impact, because there's product dislocation and making up the argon and that sort of thing. But that was the nature of a certain amount of the costs for North America this quarter.

Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you, David.

And we'll take our next question from Chris Parkinson with Credit Suisse. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC: Thank you. As a large shareholder yourself, how do you believe the Air Products story will continue to evolve from here outside of the solid op execution? Just in terms of where we stand, right here, right now, can you just talk about the various views on project backlog growth versus a year ago, what you're seeing in the merchant business and then the capital deployment opportunities? Just any color on what you believe the key two to three drivers of your story are right now. Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Chris, that's an excellent question. And thanks for asking the question to give me the opportunity to talk about that. We have delivered on what we promised three years ago. So, obviously, the question from the investors is, okay, I've enjoyed the past, what are you going to do for me in the future? The key thing is that now, Air Products has margins of about 33% to 35%, the best in the industry. We have our act together, therefore, we will benefit as much as anybody else on any kind of economic activity and so on going forward. But then in addition to that, the key thing is that we do have $8 billion to $10 billion of firing capacity and we do see opportunities to deploy that. Therefore, the story of Air Products for the future is deploying that capital. And if we do that, we will generate significant value for our shareholders. So that is what we are promising the investors and that is three years from now, hopefully, we will look back and say, yeah, we said we have $10 billion to deploy and we did deploy that at good returns, and that $10 billion will generate $1 billion of operating profit. That is our story going forward, and we have a lot of confidence in our ability to deploy that and deliver that. And that's the key thing, while maintaining a first-class operation, getting the pricing, getting the volumes as anybody else will do. The differentiating thing for us versus other people is the fact that we have the balance sheet to go do these things. Okay? Christopher S. Parkinson - Credit Suisse Securities (USA) LLC: Okay. And just a quick follow-up. Can you just walk us through the Asian business a little bit more, parsing out a little more detail on the volume front, just anything you see in key end market trends, et cetera. And then also is there anything on the pricing front you'd be willing to discuss, whether it's regional nature, slightly favorable bulk operating rates, et cetera? Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, I would like to make some comments and turn it over to Corning. When you look at Asia, I mean, we reported 20% increase in sales. About half of that was related to some specific equipment sales that we had, the other half is genuine growth in our business. Some of that is coming up from the new plants we are bringing onstream, but a lot of that, as Corning mentioned before, is because we do – Chinese economy is growing, and most important the utilization is going up. I think Corning will mention, and I turn it over to him, that right now if you take Asia, the utilization of industrial gas business on the merchant side is getting close to 80%. That is a very good sign and that is usually an indication that the prices will strengthen. Corning? Corning F. Painter - Air Products & Chemicals, Inc.: Thank you, Seifi. Yeah. So, for sure, right now, China is the strongest economy for us in Asia, that's where I think we see most of the positive momentum in terms of strong volume growth, pricing, and so forth. Within China, as Seifi mentioned, we've broken the line to just north of 80% on our loading. I'd like to point out, that is our loading. That is not industry loading. And I would put industry loading, my estimate more in, let's say, the 60% sort of range. I would say a key thing about understanding our loading, not only is it now hitting the 80%, it is 80% with much higher retail sales than we had before, year-on-year, up like 5%, 500 basis points in terms of the proportion of the business that's retail. That helps us with pricing, that helps us with just the quality of the underlying basis. I think the other thing just to keep in mind in China, we know a sort of tailwind we have before us right now is the government getting serious about reform in the steel industry, and that has the potential to take captive capacity off the market. And to be honest with you, that's a positive for us as well right now. Christopher S. Parkinson - Credit Suisse Securities (USA) LLC: Great. Thank you. Corning F. Painter - Air Products & Chemicals, Inc.: Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you.

We'll take our next question from the line of Stephen Byrne from Bank of America.

Yes, thank you. Wanted to ask you about your sale of equipment business. Is that, as a fraction of your project backlog, likely to remain relatively stable, or could you see it going up as you pursue projects in regions that are more geopolitically challenged? Or could it possibly go down over time if there's little less aggressive offering of these services by your competitor in Germany? How do you see the outlook for that? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Yeah. Steve, our sale of equipment is not included in our backlog. We do not put that in our backlog. Our backlog is only sale of gas that would generate revenues for the longer term. Sale of equipment is a one-time thing, we don't consider that backlog. So...

Pardon me... Seifollah Ghasemi - Air Products & Chemicals, Inc.: ...Those things are not included in our backlog, sir.

Okay. I'm sorry, I didn't mean to imply the roster of projects. I meant as a business opportunity to pursue an opportunity where you sell the equipment versus build to own. That option that you have, is that driven primarily by customer demand, your preference or customer preference? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Our preference for sure, 100%, is sale of gas. We are not an equipment company to make money on sale of equipment. But considering the capabilities that we have, in order to maintain a relationship with the customer, if they insist on a sale of equipment, we do once in a while do that. But our focus and our preference has always been sale of gas, because that is our business.

And if there was less bidding activity on sale of equipment down the road, would you view that as constructive, maybe a greater opportunity for build to own? Seifollah Ghasemi - Air Products & Chemicals, Inc.: That is correct. That would be the case, yes.

And then just lastly on the Glenmont, New York facility, is that region in your merchant business tightening up, that would justify building a bigger liquid plant in that region? And why pursue that as a JV with Linde instead of go it alone? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, there was a tightening of the market and there is additional capacity required, and what made sense was that rather than us building another 300 or 400 ton-a-day plant to meet the requirements, it made sense to build a 1,200 ton-a-day plant, which is a lot more efficient, and at the end of the day, it's good for the customers because our cost base for both companies is lower and, therefore, the customers benefit. So that is actually a good thing for our customers and it also creates opportunity to produce the gas at a lower cost.

Okay. Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you.

We'll take our next question from Kevin McCarthy with Vertical Research Partners.

Hi, this is Matthew on for Kevin. I don't want to kind of beat the equipment sales dead horse here, but kind of just trying to track it down a little bit. Would it be fair to say the equipment sales in Asia were about $45 million year-over-year? And kind of what does the EBIT margin look like on that business? I'm guessing it'd be higher than the segment average. And maybe you touched on this a little bit, but what should we expect in 4Q 2018 as far as new equipment sale order book? Seifollah Ghasemi - Air Products & Chemicals, Inc.: As I've told you, we are not focused on equipment sales, we don't consider that to be a significant part of our business, and I don't think you should expect too much on that. That is not what drives our business, that's not what we are focused. We are not like some other industrial gases business, where half of their business is equipment sale. That is not – that has never been our focus and it will not be. We are – that's not a big deal for us.

I get that. I'm just trying to kind of effectively strip it out of the numbers to maybe to get a better sense of what ongoing profitability will look like in the Asia segment. Just trying to make apples-to-apples basically. Seifollah Ghasemi - Air Products & Chemicals, Inc.: We have tried to make sure that we do give you that visibility, because when we report Gases Americas or Gases Europe or Gases Asia, it doesn't have equipment sales in it because that is – it's all in Global Gases. Corning F. Painter - Air Products & Chemicals, Inc.: So, maybe just one clarification to that. When we have, in this case, some gas handling equipment that is in the Asia segment, I don't think we're going to go into the exact quantification because it's a small group of customers and so forth. I will say it was a positive impact on our margins. But the nature of this was not something that's going to repeat every day. As Seifi says, I wouldn't be expecting that going forward. Seifollah Ghasemi - Air Products & Chemicals, Inc.: But there is a difference that we need to kind of make sure that the investors understand. One thing is sale of equipment in terms of selling an air separation unit. The other thing is that when we deal with, specifically, with our electronic customers. The electronic customer sometimes require equipment which is related to the delivery of gas and purifying of the gas. That we do do for our customers, we do that for our electronic customers, and that specific area did contribute some to our Asian results. But your question was equipment sales on the major air separation units, and I said we are not focused on that. But for some of our electronic customers, as a matter of necessity, when we build them a nitrogen generator – high-purity nitrogen generator, there are equipment related to the delivery of that to the customer, we do provide those equipment, and those are in the category of equipment sale, but they are not air separation units.

Okay. Thanks. Nice quarter.

We'll take our next question from Vincent Andrews from Morgan Stanley. Vincent Stephen Andrews - Morgan Stanley & Co. LLC: Thanks. I just wanted to ask on the LNG weakness, you said $0.30 for 2017 and despite the, I guess, the new plants that was in line. Should we be done with this headwind moving into 2018 or do you think there's still a little bit of a drag from it? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, obviously in that business, which was such a lumpy business, it's difficult to predict, but right now, if you wanted to be pessimistic, there might be another $0.04 or $0.05 hit to us in 2018 because of LNG. Vincent Stephen Andrews - Morgan Stanley & Co. LLC: Okay, thanks. If I could just ask one... Seifollah Ghasemi - Air Products & Chemicals, Inc.: That's the way it looks right now. Yeah. Vincent Stephen Andrews - Morgan Stanley & Co. LLC: Okay. And was there any way we could get you to break out the organic volume versus the new projects and everything else? Seifollah Ghasemi - Air Products & Chemicals, Inc.: For where, for... Vincent Stephen Andrews - Morgan Stanley & Co. LLC: Well, regionally or globally, however you'd be willing to do it. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, organic volumes, most of the volumes that we reported was organic except in Asia, where we said that half of the 20% was equipment. So, Corning? Corning F. Painter - Air Products & Chemicals, Inc.: Yeah, I think we said... Vincent Stephen Andrews - Morgan Stanley & Co. LLC: Well, also, I guess, I'm trying to break out just sort of base business versus new project startups versus equipment sale, just the base business. Corning F. Painter - Air Products & Chemicals, Inc.: Understood, understood. So I think the main energy is around Asia, that's where we had the biggest impact on it. And if you're looking at that 20% we had, about half of that was the equipment, the other half was on our gas side, and I'd say roughly 50/50 on that in terms of volume between new projects and just organic merchant growth. Vincent Stephen Andrews - Morgan Stanley & Co. LLC: Thank you very much. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Yeah, I mentioned that in my opening remarks, in the other question that out of that, as Corning said, about 10% is equipment that we do for electronic customers, the other 10%, half of it is new project startups and half of it is organic growth. Vincent Stephen Andrews - Morgan Stanley & Co. LLC: Okay. Seifollah Ghasemi - Air Products & Chemicals, Inc.: So we had 5% organic growth. Vincent Stephen Andrews - Morgan Stanley & Co. LLC: Okay. Thank you very much. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Thank you, Vincent.

We'll take our next question from Laurence Alexander from Jefferies.

Good morning. I have just two quick ones. First, do you expect over the next two, three years to get back to the pattern of EBITDA growth in each region, outpacing organic growth? And I think you've been pretty clear about the dynamics that have caused this quarter to have its characteristics. So just want to see if you expect those trends to reverse. And secondly, just eyeballing the backlog, is it fair to put roughly $1 billion to $1.2 billion worth of gases startups in terms of capital that's going to be ramping up in 2018 and a tailwind into 2019? Is that roughly a good bogey? Seifollah Ghasemi - Air Products & Chemicals, Inc.: Well, first of all, with respect to the growth thing, I think we have always said that when you are looking at different regions of the world, in mature economies, our EBITDA will grow with economic development, and our volumes will grow with GDP. In emerging markets it is – if industrial production is 2%, usually, gases grow more than that, about 1.2, 1.3 times that. So I expect our EBITDA growth in the growth markets like China and India would be better than that. With respect to the other question that you had, Simon, do you want to make some comments on that? Simon R. Moore - Air Products & Chemicals, Inc.: Sure. I think, Laurence was asking about the amount of the backlog we expect to come on in 2018. I think, Laurence, as usual, it's hard to know exactly when these projects are going to come onstream, so I think we'll give you more clarity on 2018 when we get to October.

Yeah. Thank you. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Then we do our forecast for the year. Seifollah Ghasemi - Air Products & Chemicals, Inc.: Okay. At this time, then, I would like to – since there are no other questions, I would like to thank everybody for being on the call. Thank you for taking time from your busy schedule to listen to our presentation. We appreciate your interest and we look forward to discussing our results with you again next quarter. Have a very nice day and those of you who are in the Northern Hemisphere, have a great summer. Take care. Thank you.

Ladies and gentlemen, this does conclude today's call. Thank you for your participation and you may now disconnect.