Industrial gas giant
Air Products and Chemicals Inc.
(
APD
) is scheduled to report its fourth-quarter fiscal 2012 results
before market opens on Friday, October 19. Analysts polled by Zacks
currently expect revenues of $2,574 million and earnings of $1.44 a
share on average for the quarter. The Zacks Consensus Estimate for
earnings calls for an estimated year-over-year decline of 4.97%.
The Pennsylvania-based company, in its third quarter call, noted
that it anticipates fourth quarter adjusted earnings from
continuing operations to be in the range of $1.42 and $1.47 per
share. Factoring in the cloudy economic environment and negative
currency impact, the company slashed its adjusted earnings (from
continuing operations) target to $5.40 to $5.45 per share from its
earlier view of $5.47 to $5.60 per share.
Air Products witnessed a surge in its profit in the third quarter
following two straight quarters of decline. It will be interesting
to see how the company will fare in the fourth quarter in a
difficult operating backdrop. Weak end-market demand in Europe, a
slowdown in key Asian markets and currency headwinds continue to
pose challenges for Air Products.
Third Quarter Revisited
Air Products posted third quarter adjusted (excluding one-time
items) earnings from continued operations of $1.41 a share,
matching the Zacks Consensus Estimate. Consolidated net income, as
reported, soared 48% year over year to $484.5 million (or $2.26 a
share) boosted by lower costs and one-time gains, which more than
offset a decline in sales.
Revenues fell 5% year over year to $2,340.1 million, missing the
Zacks Consensus Estimate. Sales declined on account of challenging
conditions in Europe and Asia and unfavorable currency exchange
impact.
Management noted that recent acquisitions coupled with the
divestiture of Homecare business will position the company for
future growth despite the weak macroeconomic environment.
Estimate Revisions Trend
Agreement
Estimate for the fourth quarter elicit absolute lack of movements
over the past week with none (out of 14 analysts) revising their
forecasts in either direction. There have been a couple of downward
revisions over the past month with no reverse movements.
On a similar note, no activity was witnessed over the past 7 days
for fiscal 2012. Over the last 30 days, 1 analyst (out of 13) has
cut his/her estimate for fiscal 2012 with no upward movements.
Magnitude
Estimate for the fourth quarter remained stationary (at $1.44 a
share) over the past week and month. For fiscal 2012, estimate
declined by a penny over the past month while remaining unchanged
(at $5.42 a share) over the last week.
Surprise History
With respect to earnings surprises, Air Products has met the Zacks
Consensus Estimates in three of the trailing four quarters while
missing on one occasion. The company has delivered an average
negative earnings surprise of 1.50% over the past four quarters,
implying that it has trailed the Zacks Consensus Estimate by that
measure.
What to Expect in 4Q
Air Products is expected to witness improved volume in the Merchant
Gases segment in the fourth quarter. In addition, higher LNG
backlog is expected to support results in the Equipment and Energy
division. The company continues with its global cost reduction plan
and is expected to see continued benefit from this program in the
quarter.
However, sluggish economic conditions across the U.S. and Europe
may continue to impact the demand for the company's products in the
fourth quarter. Moreover, unfavorable currency exchange translation
(stemming from a stronger dollar) is expected to hurt earnings for
fiscal 2012.
While the acquisition of Indura S.A. is expected to usher in
substantial growth opportunity for Air Products and place it as
Latin America's second largest industrial gas producer, the
transaction is expected to be dilutive in the fourth quarter.
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. We are also encouraged by the increasing
opportunities in liquefied natural gas (LNG) market. However,
soaring energy and raw material costs pose a threat to margin
expansion.
Air Products, which competes with
Praxair Inc.
(
PX
), currently holds a short-term Zacks #2 Rank (Buy). We have a
long-term Neutral recommendation on the stock.
AIR PRODS & CHE (APD): Free Stock Analysis
Report
PRAXAIR INC (PX): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research