Air Products, Motiva Enter Deal (revised) - Analyst Blog
August 10 2011 - 1:54PM
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.
The hydrogen supply, which has already commenced, is from Air
Products' 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.
(Please note: our earlier post had erroneously mentioned that
APD will be building a new plant. The original article, released
earlier today, should no longer be relied upon.)
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