APD Air Products and Chemicals Inc

Air Products and Chemicals Inc. (APD) announced that the company has signed a Memorandum of Understanding (MOU) with FuelCell Energy Inc. As per the contract, the companies will work towards the market development of stationary Direct FuelCell (DFC) power plants that simultaneously produce hydrogen, ultra-clean electricity and usable high quality heat.

The companies intend to develop tri-generation stationary fuel cell power plants’ market around the world. The tri-generation stationery will cater to industrial hydrogen users and vehicle fueling applications. By producing hydrogen at locations, which are easily accessible by the industrial hydrogen users and vehicle fueling applications, the companies aim to build a base for hydrogen.

Moreover, by using DFC power plants at the usage point, the companies intend to create employment opportunities for the local people. The industrial users of hydrogen will have the advantage to utilize all the three DFC revenue streams including hydrogen, electricity and heat. 

FuelCell, based in Danbury in Connecticut, (United States of America), is a manufacturer of ultra-clean, efficient and reliable fuel cell power plants. The company believes by utilizing FuelCell’s leading technology along with Air Products’ market strength and distribution capabilities, they can provide a hydrogen infrastructure based on the current demand.

If hydrogen, which is an alternative fuel, is available locally, then it can reduce the company’s dependence on the imported oil while significantly reducing greenhouse gas emissions. Air Products and FuelCell Energy are already working together on a three-year hydrogen production project in California, which began in 2011.

Recently, Air Products released its first-quarter 2012 results. The company reported an EPS of $1.36 in the quarter versus $1.35 in the year-earlier quarter, which is in line with the Zacks Consensus Estimate.

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, sales were below the Zacks Consensus Estimate of $2.5 billion.

Looking ahead, management expects second-quarter 2012 results to remain disappointing. However, growth in Asia and North America 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 2015 goals for growth, margin and returns.

Air Products continues to maintain EPS guidance in the range of $5.90 to $6.30 for fiscal 2012. The company expects second-quarter EPS to be between $1.37 and $1.43.

Air Products benefits from a long-term take-or-pay contract, a consolidated industry structure, diverse customer base and sustained pricing power. However, soaring energy and raw material costs pose a threat to margin expansion. The company faces stiff competition from Praxair Inc. (PX).

Currently, the company retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating and we have recommended the shares of the company as Neutral for the long term (more than 6 months).

 
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