We are retaining our Neutral rating on industrial gas giant
) following our assessment of its second-quarter fiscal 2013
(ended Mar 31, 2013) results. We continue to tread with caution
considering high energy costs, volume pressure in the Merchant
Gases division and weakness in the electronics business.
AIR PRODS & CHE (APD): Free Stock Analysis
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Air Products' second quarter earnings from continued operations
of $1.37 a share were in line with the Zacks Consensus Estimate.
Revenues rose 6% year over year to $2,484.2 million aided by
acquisitions, but missed the Zacks Consensus Estimate of $2,585
million. Management cut its earnings guidance for fiscal 2013
citing challenging economic conditions.
Air Products benefits from a diverse customer base, sustained
pricing power and cost-reduction measures. New business deals and
strategic investments are expected to support results in fiscal
Moreover, the acquisition of a 67% stake in Chilean industrial
gas company, Indura S.A., has ushered in substantial growth
opportunity for Air Products. We are also encouraged by the
incremental opportunities in liquefied natural gas (LNG) market.
Air Products has been chosen for a major off-shore LNG project in
Malaysia, representing a major opportunity for its LNG technology
Air Products has also embarked on headcount reduction, keeping a
tight control on expenses and undertaking work process
improvement initiatives. Moreover, it remains committed to
maximize returns to shareholders. Air Products' Board, in Mar
2013, approved an 11% hike in its dividend.
However, volume in the core Merchant Gases segment may remain
under pressure partly due to weakness across a number of markets
in Europe. Helium supply constraints remain another concern. Air
Products' electronics business may also continue to see weak
Moreover, higher energy costs pose a threat to margin expansion.
We also take into account the company's high debt level.
Other Stocks to Consider
Other companies in the chemical industry with favorable Zacks
Shin-Etsu Chemical Co., Ltd.
). While Shin-Etsu Chemical retains a Zacks Rank #1 (Strong Buy),
both Celanese and Methanex hold a Zacks Rank #2 (Buy).