DEFA14A: Air Products Exceeds Expectations with Preliminary Q1FY25 Earnings, Battles Activist Investor

Air Products reports preliminary Q1FY25 GAAP EPS of $2.77 and adjusted EPS of $2.86, surpassing previous guidance, while simultaneously engaging in a proxy battle with Mantle Ridge LP.

Summary

• Air Products announced preliminary Q1FY25 GAAP EPS of $2.77 and adjusted EPS of $2.86.
• The adjusted EPS exceeded the company's previous guidance of $2.75 to $2.85.
• The company is currently engaged in a proxy contest with activist shareholder Mantle Ridge LP.
• Air Products is urging shareholders to vote for only Air Products nominees on the WHITE proxy card.
• The Annual Meeting of Shareholders will be held on January 23, 2025.
• The company incurred costs of $29.9 million ($21.9 million after tax, or $0.10 per share) related to the proxy contest with Mantle Ridge LP.
• An unrealized gain of $38.8 million ($10.3 million attributable to Air Products after tax, or $0.05 per share) was recognized due to the de-designation of cash flow hedges related to the NEOM Green Hydrogen Project.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the earnings beat, but tempered by the ongoing proxy battle and associated costs. The company's focus on growth and sustainability is a positive sign, but the uncertainty surrounding the activist investor adds risk.

Positives

• Air Products exceeded its previous adjusted EPS guidance for Q1FY25.
• GAAP EPS increased from $2.73 in Q1 2024 to $2.77 in Q1 2025.
• The company recognized an unrealized gain from the de-designation of cash flow hedges.

Negatives

• The company incurred significant costs ($29.9 million) related to the proxy contest with Mantle Ridge LP, reducing EPS by $0.10 per share.
• The proxy contest with Mantle Ridge LP creates uncertainty and requires management's attention and resources.

Risks

• The ongoing proxy contest with Mantle Ridge LP could lead to changes in the board of directors and potentially impact the company's strategy.
• Volatility in interest rates could impact future earnings due to the de-designation of cash flow hedges.
• The company faces risks associated with global economic conditions, supply chain disruptions, and project delays, as outlined in their annual report.

Future Outlook

The company provided preliminary fiscal 2025 first quarter adjusted EPS guidance in its Current Report on Form 8-K dated November 7, 2024. Management is unable to reconcile, without unreasonable effort, the Company's forecasted range of adjusted EPS to a comparable GAAP range.

Management Comments

• Air Products urges shareholders to vote FOR ONLY Air Products nominees on the WHITE proxy card and warns investors that following ISS voting recommendation could have a serious impact on the Company and their investment, as described in the letter to shareholders

Industry Context

Air Products, as a leading industrial gases company, is navigating a challenging environment with activist investor pressure while also focusing on growth in energy, environmental, and emerging markets, particularly in clean hydrogen projects. The proxy battle highlights the increasing scrutiny companies face from activist investors seeking to influence corporate strategy and governance.

Comparison to Industry Standards

• Without specific competitor data, it's difficult to provide a direct comparison. However, Air Products' focus on clean hydrogen projects aligns with the broader industry trend towards sustainable energy solutions.
• Companies like Linde and Air Liquide are also major players in the industrial gases sector and are likely facing similar pressures and opportunities related to sustainability and shareholder activism.
• The NEOM Green Hydrogen Project is a large-scale undertaking, and its success will be a key indicator of Air Products' ability to execute on its growth strategy.

Stakeholder Impact

• Shareholders are impacted by the earnings results and the proxy contest, which could influence the company's direction.
• Employees may be affected by any changes in strategy or leadership resulting from the proxy contest.
• Customers and suppliers could be impacted by any shifts in the company's focus or priorities.

Next Steps

• Shareholders will vote at the Annual Meeting on January 23, 2025.
• The company will continue to engage with shareholders regarding the election of directors.
• Air Products will continue to execute its strategy focused on growth and sustainability.

Key Dates

Keywords

Air Products, EPS, Mantle Ridge, Proxy Contest, Shareholders, Earnings, Guidance, Board Nominees, Industrial Gases, NEOM Green Hydrogen