Air Products- Motiva Enter Deal - Analyst Blog
August 10 2011 - 4:30AM
Zacks
Air Products &
Chemicals Inc. (APD) entered a long-term agreement with
Motiva Enterprises LLC for an additional supply of hydrogen to be
used by Motiva's Convent, Louisiana refinery.
The hydrogen is used by refiners to
make cleaner transportation fuels and other petroleum products from
heavier, sour crude feedstocks.
Air Products will build a 110
million-standard-cubic-feet/day hydrogen plant in Louisiana to
supply refineries owned by Motiva and Marathon Ashland Petroleum
(MAP). The hydrogen plant will be constructed at Motiva's
225,000-b/d Convent refinery and will supply MAP's 255,000-b/d
Garyville refinery via pipeline.
The hydrogen supply, which has
already commenced, is from Air Products' industry-leading Gulf
Coast hydrogen pipeline supply network that serves multiple
refinery and petrochemical companies in the region.
Currently, Air Products operates
hydrogen pipelines in both Texas and Louisiana. Work is
underway to connect the two systems for making it the world's
largest hydrogen plant and 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.
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, in line with 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 witnessed 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 – $5.75.
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 manufactures 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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