Air Products & Chemicals, Inc. (APD)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis contains “forward-looking statements” within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements regarding business outlook. These forward-looking statements are based on management’s expectations and assumptions as of the date of this Quarterly Report on Form 10-Q and are not guarantees of future performance. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors not anticipated by management. These factors include, without limitation, those described in "Forward-Looking Statements" and Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended 30 September 2025 (the "2025 Form 10-K"), which was filed with the SEC on 20 November 2025, as well as in "Forward-Looking Statements" of this Quarterly Report on Form 10-Q.

This discussion should be read together with the accompanying interim consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q. Financial information is presented on a continuing operations basis. Unless otherwise stated, amounts are stated in millions of U.S. Dollars, except for per share data, which is calculated and presented on a diluted basis in U.S. Dollars per weighted-average common share.

The financial measures discussed below are presented in accordance with U.S. generally accepted accounting principles ("GAAP"), except as noted. We discuss certain financial measures on an "adjusted", or "non-GAAP", basis, which exclude gains or losses that management does not consider to be representative of our underlying business operations. These adjustments, which are described below for the periods presented, are not reflected in the results of our reportable segments. When viewed together with our GAAP results, we believe these non-GAAP financial measures offer a more complete understanding of the factors and trends affecting our financial performance and support analysis of our results on a more consistent basis. For each non-GAAP financial measure, including adjusted operating income, adjusted operating margin, adjusted earnings per share, the adjusted effective tax rate, and capital expenditures, we present a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These reconciliations and further explanations of our use of non-GAAP financial measures are presented under the “Reconciliations of Non-GAAP Financial Measures” section beginning on page 67.

Comparisons included in the discussion that follows are for the third quarter and first nine months of fiscal year 2026 versus ("vs.") the third quarter and first nine months of fiscal year 2025. The disclosures provided in this Quarterly Report on Form 10-Q are complementary to those made in our 2025 Form 10-K.

We manage our operations, assess performance, and report earnings under five reportable segments: Americas, Asia, Europe, Middle East and India, and Corporate and other. Refer to Note 18, Business Segment Information, to the consolidated financial statements for additional information.

For information concerning activity with our related parties, refer to Note 17, Supplemental Information, to the consolidated financial statements.

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THIRD QUARTER 2026 VS. THIRD QUARTER 2025

THIRD QUARTER 2026 IN SUMMARY

•Sales of $3.2 billion increased 5%, or $138.3, due to higher volumes of 3%, higher pricing of 1%, and favorable currency of 1%.

•Operating loss was $2.1 billion and operating margin was negative 66.3%. Third quarter 2026 GAAP results include pre-tax charges of approximately $2.9 billion associated with project exit decisions announced on 30 June 2026. In the prior-year quarter, operating income was $790.6 and operating margin was 26.2%.

•Adjusted operating income of $810.3 increased 9%, or $69.2, and adjusted operating margin of 25.6% improved 110 basis points ("bp"), primarily due to higher on-site volumes, favorable currency, and higher pricing, partially offset by higher costs. These non-GAAP results exclude losses resulting from charges for business and asset actions discussed in Note 4 to the consolidated financial statements, as well as other items, as described in the "Reconciliations of Non-GAAP Financial Measures" section below.

•Equity affiliates' income of $205.2 increased 22%, or $37.6, driven primarily by affiliates in the Americas and Middle East and India segments.

•Loss per share of $6.47 decreased 300%, or $9.71, from earnings per share ("EPS") of $3.24, driven by after-tax charges attributable to Air Products of $2.2 billion ($9.92 per share) associated with project exit decisions announced on 30 June 2026. Excluding these charges and other items, adjusted EPS of $3.47 increased 12%, or $0.38. A summary table of changes in earnings (loss) per share is presented below.

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Summary of Changes in Earnings (Loss) Per Share

The per share impacts for the items presented in the table below were calculated independently and do not sum to the total change in earnings (loss) per share due to rounding.

(A)Reflected on the consolidated income statements within "Other income (expense), net."

The table below summarizes the per share impact of non-GAAP adjustments for the third quarter of fiscal years 2026 and 2025. These impacts were calculated independently and may not sum to totals due to rounding.

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THIRD QUARTER 2026 RESULTS OF OPERATIONS

Discussion of Third Quarter Consolidated Results

Sales

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

Sales of $3.2 billion increased 5%, or $138.3, due to higher volumes of 3%, higher pricing of 1%, and favorable currency of 1%. Volume growth was driven by new on-site assets and HyCO facilities. Favorable currency reflected a weaker U.S. Dollar across multiple currencies.

Cost of Sales and Gross Margin

Cost of sales of $2.1 billion increased 4%, or $84.9. Unfavorable costs of $36 were driven by fixed-cost inflation and higher incentive compensation, partially offset by lower depreciation expense. Unfavorable currency increased costs by $28, while higher sales volumes and energy cost pass-through to customers increased costs by an additional $12 and $6, respectively. Gross margin of 32.8% increased 30 bp from 32.5%.

Selling and Administrative Expense

Selling and administrative expense of $219.1 decreased 2%, or $3.5, driven by productivity improvements related to our global cost reduction plan, partially offset by higher incentive compensation, fixed-cost inflation, and unfavorable currency. Selling and administrative expense as a percentage of sales improved to 6.9% from 7.4%, down 50 bp from the prior year.

Research and Development Expense

Research and development expense of $21.5 decreased 11%, or $2.6. Research and development expense as a percentage of sales improved to 0.7% from 0.8% in the prior year.

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Business and Asset Actions (Project Exit Costs)

During the third quarter of fiscal year 2026, we recognized project exit charges of $2.9 billion ($2.2 billion after-tax, or $9.92 per share) as a result of our decision to cancel a clean energy complex under construction in Louisiana, a green hydrogen production facility under construction in Casa Grande, Arizona, and certain other smaller-scale projects supporting clean energy distribution. In the prior-year quarter, we recognized project exit charges of $24.1 pre-tax ($15.4 after-tax, or $0.07 per share), primarily reflecting revisions to cost estimates associated with 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.

Shareholder Activism-Related Costs

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 recorded during the third quarter of fiscal year 2025 were $25.0 pre-tax ($18.8 after-tax, or $0.08 per share), primarily related to the reimbursement of proxy-related expenses incurred by Mantle Ridge LP and its affiliated entities. These costs were not reflected in the results of our reportable segments. For additional information, refer to Note 17, Supplemental Information, to the consolidated financ

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis contains “forward-looking statements” within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about business outlook. These forward-looking statements are based on management’s expectations and assumptions as of the date of this Annual Report on Form 10-K and are not guarantees of future performance. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors not anticipated by management, including, without limitation, those described in "Forward-Looking Statements" and Item 1A, Risk Factors, of this Annual Report on Form 10-K.

This discussion should be read in conjunction with the consolidated financial statements and the accompanying notes contained in this Annual Report on Form 10-K. Financial information is presented on a continuing operations basis. Unless otherwise stated, amounts discussed are in millions of U.S. Dollars, except for per share data, which is calculated and presented on a diluted basis in U.S. Dollars per weighted average common share.

The financial measures discussed below are presented in accordance with U.S. generally accepted accounting principles ("GAAP"), except as noted. We present certain financial measures on an "adjusted", or "non-GAAP", basis because we believe such measures, when viewed together with financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance. For each non-GAAP financial measure, including adjusted operating income, adjusted operating margin, adjusted earnings per share ("EPS"), adjusted EBITDA, adjusted effective tax rate, and capital expenditures, we present a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These reconciliations and explanations regarding the use of non-GAAP financial measures are presented under the “Reconciliations of Non-GAAP Financial Measures” section beginning on page 42.

Comparisons included in the discussion that follows are for fiscal year 2025 versus ("vs.") fiscal year 2024. A discussion of changes from fiscal year 2023 to fiscal year 2024 and other financial information related to fiscal year 2023 is available in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended 30 September 2024, which was filed with the SEC on 21 November 2024.

For information concerning activity with our related parties, refer to Note 25, Supplemental Information, to the consolidated financial statements.

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BUSINESS OVERVIEW

Air Products and Chemicals, Inc., a Delaware corporation founded in 1940, is a world-leading industrial gases company that has built a reputation for its innovation, operational excellence, and commitment to safety and environmental stewardship. Focused on serving energy, environmental, and emerging markets and generating a cleaner future, we offer products and services that improve our customers’ operations and sustainability.

We serve a broad range of industries, including refining, chemicals, metals, electronics, manufacturing, medical, and food, providing essential industrial gases, related equipment, and applications expertise. We also develop, engineer, build, own, and operate some of the world’s largest clean hydrogen projects supporting the transition to low- and zero-carbon energy, particularly in industrial applications and the heavy-duty transportation sector. Additionally, our sale of equipment businesses provide specialized products such as turbomachinery, membrane systems, and cryogenic containers to customers worldwide. For additional information on our product and service offerings, including production, distribution, and end use, refer to Item 1, Business, of this Annual Report on Form 10-K.

We conduct business in approximately 50 countries and regions throughout the world. Our industrial gases business is organized and operated regionally in the Americas, Asia, Europe, and Middle East and India segments and generates the majority of our sales via our on-site and merchant supply modes. Approximately half our total revenue is generated through the on-site supply mode, which is governed by contracts that are generally long-term in nature with provisions that allow us to pass through changes in energy costs to our customers.

Our Corporate and other segment includes the results of our sale of equipment businesses, costs for corporate support functions and global management activities, and other income and expenses not directly associated with the regional segments, such as foreign exchange gains and losses. In fiscal year 2024, this segment also included the results of our former liquefied natural gas ("LNG") process technology and equipment business, which we sold to Honeywell International Inc. on 30 September 2024.

For additional information regarding our supply modes and business segments, refer to Note 7, Revenue Recognition, and Note 26, Business Segment and Geographic Information, to the consolidated financial statements.

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2025 IN SUMMARY

Fiscal year 2025 was a transitional year for Air Products, marked by a renewed focus on our core industrial gas business under the leadership of our new Chief Executive Officer, who joined the Company in February 2025. We took decisive actions to reshape our portfolio, including the cancellation and descoping of several large energy transition projects, and enhance operations through targeted productivity initiatives. We also sharpened our approach to capital deployment, emphasizing strict return thresholds, appropriate risk-sharing, and alignment with long-term customer relationships. These efforts are helping to improve execution and support reductions in capital expenditures and debt over time.

Key results versus the prior year include:

•Sales of $12.0 billion decreased 1%, or $63.3, as 4% lower volumes were partially offset by 2% higher energy cost pass-through to customers and 1% higher pricing driven by non-helium merchant products across all regions. Lower volumes primarily reflect the September 2024 LNG sale, lower global helium demand, and previously announced project exits, partially offset by higher on-sites and favorable non-helium merchant.

•Operating loss was $877.0 compared to operating income of $4.5 billion in fiscal year 2024. The operating loss in fiscal year 2025 included approximately $3.7 billion in pre-tax charges related to business and asset actions ($3.0 billion after tax, or $13.68 per share). Operating income in fiscal year 2024 included a $1.6 billion pre-tax gain on the September 2024 sale of the LNG business ($1.2 billion after tax, or $5.38 per share).

•Adjusted operating income of $2.9 billion decreased 3%, or $89.8, due to lower volumes and higher costs, partially offset by higher non-helium pricing. The higher costs were driven by fixed-cost inflation and depreciation, partially offset by productivity improvements across all segments.

•Equity affiliates' income of $647.7 was flat. Increased contributions from affiliates in the Europe and Asia segments were offset by lower income from affiliates in the Corporate and other, Middle East and India, and Americas segments.

•Net loss was $354.4 compared to net income of $3.9 billion in fiscal year 2024. The decrease was primarily due to higher charges for business and asset actions in fiscal year 2025 and the prior year gain from the sale of the LNG business.

•Adjusted EBITDA of $5.1 billion increased 1%, or $30.1.

•Loss per share of $1.74 was driven by an after-tax charge attributable to Air Products of $3.0 billion for business and asset actions recorded during fiscal year 2025. On a non-GAAP basis, adjusted earnings per share ("EPS") was $12.03. In the prior year, EPS was $17.24 and adjusted EPS was $12.43. A summary table of changes in EPS is presented on page 31.

•We believe providing a consistent dividend plays a critical part in the creation of shareholder value. During fiscal year 2025, we marked our 43rd consecutive year of increasing our dividends and returned approximately $1.6 billion to our shareholders through dividend payments.

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Changes in Diluted EPS Attributable to Air Products

The per share impacts for the items presented in the table below were calculated independently and may not sum to the total change in diluted EPS due to rounding.

**Change versus prior period is not meaningful due to materially higher charges for business and asset actions in fiscal year 2025. The per share impact of these charges is primarily reflected in the "Operating Items" section in the table above.

(A)The per share impacts associated with charges for business and asset actions were calculated based on a total after-tax charge attributable to Air Products of approximately $3.0 billion ($13.68 per share). The amount of the charges attributable to our noncontrolling partners was $10.7.

(B)Gain on the sale of a regional office in Hersham, England, is reflected on the consolidated income statements within "Other income (expense), net."

(C)The per share impact reflected within "Gain on de-designation of cash flow hedges" was calculated based on an after-tax gain attributable to Air Products of $7.2 ($0.03 per share) compared to a loss of $4.3 ($0.02 per share) in the prior year. Amounts attributable to our noncontrolling partners were a gain of $17.6 and a loss of $10.6, respectively.

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The table below summarizes the diluted per share impact of our non-GAAP adjustments in fiscal years 2025 and 2024. These impacts were calculated independently and may not sum to totals due to rounding.

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