APD Air Products and Chemicals Inc

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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