Air Products Signs Pact - Analyst Blog
August 09 2011 - 1:59PM
Zacks
Air Products & Chemicals Inc. (APD)
announced that it has inked a long-term hydrogen supply
agreement with
Shell Oil Company at Shell's Deer Park, Texas facility. The
hydrogen supply will commence in mid-2013, and will connect
Deer Park to Air Products' Gulf Coast hydrogen pipeline supply
network.
Air Products is working toward enhancing its hydrogen pipeline
supply capability in the Gulf Coast. In October 2010, the company
announced plans to build a new 180-mile long pipeline which will
connect its Texas hydrogen system to the Louisiana hydrogen
system.
According to the company, the new Gulf Coast hydrogen pipeline
network is expected to be operational in 2012. The new pipeline
extension, will connect Air Products' Texas hydrogen system to
the Louisiana hydrogen system.
Once
completed, Air Products' hydrogen pipeline supply network will
stretch from the Houston Ship Channel in Texas to New Orleans,
creating the world's largest hydrogen plant and pipeline supply
network.
This
integrated pipeline system will unite over 20 hydrogen plants and
over 600 miles of pipelines.
Recently,
Air Products reported third quarter fiscal 2011 EPS of $1.46,
versus $1.17 in the year-earlier quarter and matched the Zacks
Consensus Estimate of $1.46. The results exclude a 4-cent gain in
discontinued operations recognizing a tax benefit from the sale of
the company's U.S. healthcare operations in 2009.
Net sales
amounted to $2.6 billion, versus $2.3 billion in the prior-year
quarter, moving ahead of the Zacks Consensus Estimate of $2.5
billion. The improved results were mainly driven by higher volumes
in the Electronics and Performance Materials and Tonnage Gases
segments.
The company
witnessed strong volume growth across a number of businesses mainly
in the Asia Merchant business and the energy and electronics
markets. However, U.S. and Europe Merchant businesses saw slower
growth.
For the
quarter ahead, the company forecasts strong revenue growth in the
Tonnage, and Electronics and Performance Materials segments. The
company also expects to improve margins in the next quarter based
on the actions it is undertaking to improve Merchant segment
performance.
Management
expects fourth quarter EPS between $1.48 and $1.53. The company
raised the full fiscal year EPS guidance to $5.70-$5.75 from $5.65
and $5.75 previously.
In June
2011, the company also announced new financial targets for the 2015
timeframe. The company expects to deliver top line growth of 11% to
13% per year over the next four years, which would take its total
revenues to over $15 billion in 2015. Air Products also expects to
improve its operating margin to 20% and its return on capital to
15% by 2015.
Based in
Pennsylvania, Air Products benefits from a long-term take-or-pay
contract, a consolidated industry structure, a diverse customer
base and sustained pricing power. However, soaring energy and raw
material costs pose a threat to margin expansion.
In order to
compensate for escalating raw material costs, Air Products has been
increasing the price for a range of chemicals it makes for
industrial use. Air Products faces stiff competition from
Praxair
Inc. (PX) and The Linde
Group.
We currently
have a Zacks #3 Rank (short-term Hold recommendation) on the
stock.
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