APD Air Products and Chemicals Inc

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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