AIQUY L Air Liquide (PK)

Industrial gas giant Air Products and Chemicals Inc. (APD) logged first-quarter fiscal 2013 (ended December 31, 2012) earnings from continued operations of $1.30 a share, beating the Zacks Consensus Estimate by a penny. Consolidated net income from continuing operation increased 22.6% year over year to $276.9 million

Revenues rose 10.4% year over year to $2,562.4 million, beating the Zacks Consensus Estimate of $2,471 million. Sales were aided by higher volumes in the Tonnage Gases, Equipment and Energy divisions and acquisitions.

Segmental Highlights

Revenues from the core Merchant Gases segment sales climbed 14% year over year to $1,009 million in the first quarter on the back of Indura acquisition. Sales from the Tonnage Gases division rose 11% to $898 million driven by strong new plant volumes.

Revenues from the Electronics and Performance Materials segment rose 3% year over year at $549 million, supported by the acquisition of DA NanoMaterials. The Equipment and Energy division saw healthy gains in the quarter with sales surging 19% to $106 million, boosted by an increase in large air separation unit and liquefied natural gas (LNG) equipment revenues.

Financial Position

Air Products exited the first quarter with cash and cash equivalents of $545.6 million, up roughly 20.1% sequentially. Long-term debt stood at $5,107.3 million as of December 31, 2012, compared with $4584.2 million as of September 30, 2012.

Outlook

For fiscal 2013, Air Products plans to take a number of steps including cost control measures, restructuring actions, price improvements and volume growth. The company expects that its recent strategic moves will position it for future growth and profitability despite the modest economic backdrop.

The company now anticipates earnings for fiscal 2013 to be in the range of $5.70 to $5.90 per share, up from its previous guidance of $5.65 and $5.85 per share. For second-quarter fiscal 2013, earnings are expected in the band of $1.34 to $1.39 per share.

Our Recommendation

Air Products’ healthy project backlog strongly positions it to achieve its long-term growth target. Given its leading position in the gases business, the company is well positioned to capitalize on the cyclical recovery in its core industrial end markets.

New business wins in the Merchant Gases segment should drive results in the near term. The acquisition of a 67% stake in Chilean industrial gas company, Indura, is expected to usher in substantial growth opportunity for Air Product, placing it as Latin America’s second largest industrial gas producer. However, Air Products remains exposed to raw material inflation.

Air Products currently holds a short-term Zacks Rank #2 (Buy).

Other companies in the chemical industry having favorable Zacks Rank are Arkem S.A. (ARKAY) with a Zacks Rank #1 (Strong Buy), BASF SE (BASFY) with a Zacks Rank #1 (Strong Buy) and L’Air Liquide SA (AIQUY) with a Zacks Rank #2 (Buy).

 
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