Steve Byrne: Just curious about the business mix that was unfavorable in Asia. Was that primarily helium? And can you provide an update on how that business is going in Asia? Are you adjusting to the Russian source product coming in, in your outlook in the next couple of quarters?
Seifi Ghasemi: Thank you for the question. We are adjusting — I think that’s a very good word. We are adjusting to the helium condition — business conditions in China. And that situation has stabilized and we expect a stable situation on that for the balance of the year.
Steve Byrne: And a question about the Alberta project. Are you still expecting that blue hydrogen project up there to start up sometime in late 2025? And just curious, how much of the volume of that plant would you say has now been committed? Can you provide any update on that?
Seifi Ghasemi: The answer to your — first part of your question is yes. And the second part is that I would like to say, that’s just about all of it.
Steve Byrne: And you have contracts on that, Seifi?
Seifi Ghasemi: We believe that we’ll be all sold up [ph]. We do have it, okay? Thank you.
Operator: We’ll go next to David Begleiter with Deutsche Bank.
David Begleiter: Seifi, on NEOM, have you signed any offtake agreements for any portion of the production from that project?
Seifi Ghasemi: David, no, we have not signed any contracts that we are in a position to announce for that project yet.
David Begleiter: Understood. And the same question for Louisiana. Has any portion of that contract been contracted for?
Seifi Ghasemi: Not yet. And we have been very specific about this thing. That is not by accident. That is by design. We are not going to sign any contract for either 1 of these 2 projects until we get to the stage that we can get the price that we expect. We have taken the risk of being the first mover in this area of green and blue and therefore, we deserve returns which are more than a plain vanilla, going and building an air separation unit. So we are going to wait until we can extract the right price.
Operator: We’ll go next to Duffy Fischer with Goldman Sachs.
Duffy Fischer: First question, just on Europe. Could you take out the Uzbek impact and just let us know what volumes did in Europe excluding that? And then what was the split of that number between your turnarounds and the weak merchant business?
Seifi Ghasemi: All right. Duffy, you know that that’s a very detailed question and very sensitive competitively. But I’ll turn it over to Dr. Serhan to see what he wants to disclose.
Samir Serhan: Yes. I would emphasize what you mentioned, Seifi. We would really not like to get into those details. I mean…
Seifi Ghasemi: Thank you. That’s the right answer. Absolutely. Sorry, Duffy. Another question…
Samir Serhan: But we’ve highlighted before that the Uzbekistan project is expected to really produce around $0.35 per year of earnings.
Duffy Fischer: Okay. And then the difference between GAAP and non-GAAP, there’s $0.20 of charges that are called out as business and asset actions. Can you detail what exactly those are and call out a few of the bigger items to that number?
Seifi Ghasemi: Melissa, do you want to answer that?
Melissa Schaeffer: Sure, Seifi, sure will. So thanks for the question. So as we mentioned, we continue to focus on our cost productivity and have taken discrete actions that are reflected in that business and asset action line item. For the vast majority of these, that is severance costs that we’re recognizing in that $0.20. And just for your awareness, the full year run rate of that savings is about $75 million.
Operator: We’ll go next to Michael Leithead with Barclays.
Michael Leithead: Great. First question for Seifi. I think this morning, the European Commission announced the first winning bids for their green hydrogen subsidy auction. I think most of the winning bids were under $0.50 per kilo of hydrogen. I guess, does that outcome surprise you at all? Would you have expected higher subsidy bids? Or just — is that roughly consistent with the bidding activity you would have expected?
Seifi Ghasemi: I have no idea what you’re talking about in terms of $0.50. It is impossible to have $0.50 hydrogen. To make hydrogen, you make — you must have the unit — to make hydrogen, you need about at least 50 to 60-kilowatt hours of power and even the cost of power at $0.05, that’s $3 a kilogram for hydrogen, excluding your capital costs and excluding your running costs. So I’m not familiar with that number. I don’t know what you are referring to.
Michael Leithead: Apologies. I was referring to the European Union’s European Hydrogen Bank auction results this morning, referring to kind of the bid prices that were awarded to 7 different projects under $0.50 per kilogram of what they were awarded in terms of subsidy. But again…
Seifi Ghasemi: I’m sorry, I’m sorry. Now I understood your question. Yes. They are — those are not that they are buying hydrogen at that price, sorry, about that. They are giving subsidies for people to use hydrogen. Some countries are giving $0.50 a kilogram. Some countries are giving as high as $8 a kilogram. It depends on the country and it depends on which tranche and all of that. But whatever subsidies they give, it’s welcomed because that encourages use. My apologies at the beginning, I thought that they were buying hydrogen at $0.50. No, no, those are subsidies in terms of — yes.
Michael Leithead: No worries. Then again, it came out this morning. So I know it’s a quick…
Seifi Ghasemi: Yes.
Michael Leithead: And then second question related to Jazan, maybe for Melissa. Can you just remind us, again, you’ve talked about the EPS impact. But can you just remind us on the cash portion, are you receiving cash commensurate with your earnings per share? Or how should we think about the cash from the joint venture relative to the EPS impact?
Seifi Ghasemi: Melissa, you want to go ahead and answer that?
Melissa Schaeffer: Yes, I sure will, Seifi. So yes, we do get regular dividends from the joint venture in commensurate with the earnings. Sometimes in our cash flow statements, you will see a little bit of timing of when those distributions do occur. But yes, absolutely, we are getting the dividends as expected.
Operator: We’ll go next to Marc Bianchi with TD Cowen.
Marc Bianchi: On the earlier discussion around Louisiana, Seifi, you mentioned that there’ll be a market for your blue hydrogen into the pipeline network. Investors have asked if that could cannibalize some of your existing gray hydrogen volumes. Can you talk about how we should think about that dynamic?
Seifi Ghasemi: Well, it will eventually cannibalize that because I think, eventually, everybody will be using blue hydrogen. I mean, 10 years from now, I don’t think anybody will be using gray hydrogen. So — but the thing is that we expect volumes to grow. The volumes, as you saw even this quarter on our pipeline system is, we are totally sold out. And if we had any more hydrogen today, we could sell it. So we expect that there will be significant growth in addition to what is in the pipeline. And in the long term, we are going to make only blue hydrogen. I mean, 15 years from now, we will not have any SMRs running.
Marc Bianchi: Okay. And Dr. Serhan made a comment in your prepared remarks about the electronics market outlook. It sounded like maybe looking a little bit better. I was hoping you could expand on that and maybe help us understand how much your earnings are being held back by that. So once the electronics market recovers what sort of uplift in EPS should we expect?
Seifi Ghasemi: Dr. Serhan, you want to comment on that?
Samir Serhan: Yes. We do see signs of the electronic businesses picking up but really, we’re not counting on any of that upside in our outlook for the second half of the year. So we’re being conservative in this regard. But we do — especially in Asia, I mean, with our major customers, their volumes are picking up across nitrogen, argon, helium, especially helium.
Operator: We’ll go next to Vincent Andrews with Morgan Stanley.
Vincent Andrews: And I apologize. I fell off the call before. So if this has been asked, please move on. Seifi, I wanted to ask you, you did better in the second quarter. You were above the high end of your guidance. It seems to me that maybe that was a function of costs coming in on the power and maybe nat gas side, a little bit lower than maybe what you thought 3 months ago. So one, is that the case? And then two, just given those costs have indeed come down, whether it was more than you expected or not. But how are you thinking about that on a go-forward basis? Just because we’ve seen price be nicely sticky despite the deflationary environment. And obviously, many things can happen that could cause those costs to go back up. So if they do go back up, do you think you’ll be able to reprice for it? Or should we just assume that there could be a little bit of a give back over the next, let’s say, 12 months if we do see some reflation.
Seifi Ghasemi: Vincent, the thing is that your comment about our second quarter coming out better than we expected is because obviously we have taken — we are seeing better volumes in U.S. and Europe. U.S. and Europe were very strong for us in the quarter which was not what we expected. So that was the good news. The addition is that we are taking cost actions. In terms of pricing, I think that right now, with the inflation the way it is, I’m sure everybody is paying attention that consumer price index is up 30% in the last 4 years. So we are having serious inflation and that is giving us the ability to go to the customers and ask for higher prices. And as you saw in the U.S., our merchant pricing was up 6% in the quarter versus quarter of last year.
So we — as I’ve said in my prepared remarks, our focus is on two things: cost, pricing. Those are the things that affects our short-term results and obviously executing our projects. But we have always — in the last 10 years, Vincent, you know us very well, we have always reacted to the environment. As I said in my prepared remarks, these are the times when the organization needs to be very agile. And that’s what Air Products is about. We can adapt. We are not very big but we can adapt. I mean, as they say, the dinosaurs died. They were very big but they were not agile and they are extinct. So hopefully, we are the agile ones who are going to survive for the long term, no matter what.
Operator: We’ll go next to Kevin McCarthy with Vertical Research Partners.
Kevin McCarthy: Seifi, congratulations for the results that you outlined over the last decade and it’s nice to see the 10% earnings growth goal moving forward. Unfortunately, one thing that has changed over the last 15 months or so is Air Products’ trading multiple of EBITDA. And so I’m wondering, to the extent that the company’s hydrogen projects and investor anxiety around that issue may be weighing on the multiple, might Air Products be interested in establishing a market value for its hydrogen business through an IPO and/or a spin-off, for example? Is that something you would consider, if not today, then perhaps in 2025 or ’26 when we move closer to sustaining cash flows from the various project startups?
