Air Products Reports Mixed Results - Analyst Blog
January 24 2012 - 10:39AM
Zacks
Air Products & Chemicals Inc. (APD)
reported first-quarter 2012 EPS of $1.36 versus $1.35 in the
year-earlier quarter, in line with the Zacks Consensus Estimate of
$1.36.
Net sales amounted to $2.4 billion, up 1% year over year, but
down 7% sequentially. The increase was due to higher prices in
Merchant Gases and Performance Materials. However, the results were
below the Zacks Consensus Estimate of $2.5 billion.
Higher volumes from new plants in Tonnage Gases were offset by
lower Equipment sales and lower volumes in Performance Materials
and Merchant Gases. The sequential decline was driven by
seasonality in Electronics and Performance Materials and Merchant
Gases, in addition to currency effects.
Costs and Margins
Cost of sales increased to $1.8 billion in the reported quarter
from $1.7 billion in the year-earlier quarter. Selling and
administrative expenses also increased to $248.9 million from
$244.6 million in the prior-year quarter.
The company reported an operating profit of $385 million, down
5% year over year, driven by lower Equipment sales and weaker
Merchant Gases volumes.
Segmental Performance
Merchant Gases: Segment sales were
$989 million, flat year over year as lower volumes were offset by
higher pricing in U.S./Canada and Europe Liquid Bulk and Packaged
Gases. The segment’s operating income inched down 4% year over year
to $192 million, mainly due to decreased volumes and currency
effects.
Tonnage Gases: Sales of the
segment rose 6% year over year to $810 million mainly due to higher
volumes on the back of new projects. Operating income amounted to
$111 million, down 4% year over year due to higher maintenance
costs from outages.
Electronics and Performance
Materials: This segment reported sales of $535
million, up 2% year over year, led by higher Electronics volumes
and Performance Materials pricing. Operating income increased by
13% year over year to $78 million, primarily due to improved cost
performance.
Equipment and Energy: Sales declined
21% year over year to $89 million. The poor performance is due to
lower LNG and air separation unit activity. Operating income also
decreased 64% year over year to $7 million.
Financial
Position
Cash and cash equivalents were $407.3 million as of December 31,
2011 versus $422.5 million as of September 30, 201.
The company’s long-term debt increased to $3,884.2 million as of
December 31, 2011 from $3,927.5 million as of September 30,
2011.
Homecare Business
On January 8, 2012, Air Products reached agreements with The
Linde Group to purchase Homecare business in Belgium, Germany,
France, Portugal and Spain. This business represents approximately
80% of the total Homecare business revenues.
The transactions are subject to regulatory approvals and
employee consultation requirements and are expected to close in the
second quarter of fiscal year 2012. Total sales proceeds of euro
590 million (approximately $767) will be received in cash at
closing. This amount includes contingent proceeds of euro 110
million (approximately $143) related to future business activity in
Spain and Portugal.
The gain related to the contingent proceeds will be deferred
until the contingency period ends and the final proceeds are
realized as per the terms of the agreement. Air Products will also
be entitled to receive additional cash proceeds based on a
percentage of the collection of the accounts receivable recorded
between the 30th of September 2011 and the closing date of
sale.
Air Products expects to sell the remaining portion of its
Homecare business, which is primarily in the United Kingdom, within
the next year.
The Homecare business is currently reported in the Merchant
Gases segment and will be accounted for as discontinued operations
in the second quarter of fiscal year 2012.
Outlook
Looking ahead, management expects second-quarter 2012 to remain
slow. Asia and North America growth is expected to accelerate in
the second half of 2012, coupled with improved operating
performance and new plant on-streams, leading to stronger sales and
earnings growth in the later half of 2012. The company’s recent
orders, strong project backlog and robust bidding activity position
it well to achieve its 2015 goals for growth, margin and
returns.
Air Products is maintaining its guidance for fiscal 2012 of
$5.90 to $6.30 per share. The company expects second-quarter EPS to
be between $1.37 and $1.43 per share.
Our Take
Currently, we have a Zacks #3 Rank (short-term Hold
recommendation) on the stock.
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
manufacturing for industrial use. Air Products faces stiff
competition from Praxair Inc. (PX) and The
Linde Group.
AIR PRODS & CHE (APD): Free Stock Analysis Report
PRAXAIR INC (PX): Free Stock Analysis Report
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