Leading industrial gas company
Air Products and Chemicals Inc.
(
APD
) reported third-quarter fiscal 2012 adjusted (excluding one-time
items) earnings from continued operations of $1.41 a share, in line
with the Zacks Consensus Estimate.
Consolidated net income, as reported, surged 48% year over year to
$484.5 million (or $2.26 a share). The company reported a profit of
$326.5 million (or $1.50 a share) a year ago. Profit was boosted by
lower costs and one-time gains, which more than offset a decline in
sales.
Revenues dipped 5% year over year to $2,340.1 million, missing the
Zacks Consensus Estimate of $2,455 million. Challenging conditions
in Europe and Asia and unfavorable currency exchange impact
(stemming from a stronger dollar) weighed on the top line in the
quarter.
Costs and Margins
Cost of sales decreased 7% year over year to $1,690.8 million in
the quarter. Selling and administrative expenses declined 1.7% to
$230.4 million. Operating margin rose 130 basis points year over
year to 17%, helped by management's cost containment measures.
Segmental Highlights
Revenues from core Merchant Gases segment sales fell 5% year over
year to $874.1 million due to currency headwinds. Sales from the
Tonnage Gases division slid 12% to $767.4 million on lower energy
pass-through.
The Electronics and Performance Materials segment sales were
essentially flat year over year at $603.8 million. On a positive
note, revenues from the Equipment and Energy division climbed 19%
to $94.8 million as lower liquefied natural gas (LNG) sales were
more than offset by an increase in large air separation unit
revenues.
Financial Position
Air Products exited the quarter with cash and cash equivalents of
$361.2 million, down 16% year over year. Long-term debt decreased
5% year over year to $3,846.2 million.
Outlook
Moving ahead, Air Products expects its recent acquisitions coupled
with the divestiture of its Homecare business will position it for
future growth and profitability despite the weak macroeconomic
backdrop.
The company anticipates fourth quarter adjusted earnings from
continuing operations to be in the range of $1.42 and $1.47 per
share. This is below the current Zacks Consensus Estimate of $1.51.
For fiscal 2012, adjusted earnings from continuing operations are
now expected to be in the band of $5.40 to $5.45 per share, down
from the earlier view of $5.47 to $5.60 per share. The revision
reflects the uncertain economic environment.
Neutral on Air Products
Air Products' healthy project backlog and solid bidding activity
strongly position 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 deals are expected to support profit in 2012. However,
soaring energy and raw material costs pose a threat to margin
expansion.
We currently have a long-term Neutral recommendation on Air
Products. The company, which competes with
Praxair Inc.
(
PX
), has a short-term Zacks #3 Rank (Hold).
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