We are reaffirming our Neutral rating on leading industrial-gas
company
Air Products and Chemicals Inc
(
APD
). Its first-quarter 2012 earnings of $1.36 matched the Zacks
Consensus Estimate. Sales crept up 1% year over year to $2.4
billion, missing the Zacks Consensus Estimate.
Revenues increased narrowly as higher sales from Tonnage Gases
and Performance Materials businesses were masked by lower equipment
sales. During the quarter, Air Products reached an agreement with
The Linde Group, under which the latter will purchase the company's
Homecare businesses in Belgium, Germany, France, Portugal and
Spain.
Air Products offers industrial gases as well as a variety of
polymer and performance chemicals and serves technology, energy,
industrial and health care customers globally. The company competes
with
Praxair Inc.
(
PX
) among others.
Air Products' recent orders, 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.
Air Products remains focused on refinery hydrogen, which yields
nearly a third of its revenues. Over the next decade, the company
foresees incremental global hydrogen demand and has seven refinery
projects in the pipeline.
New business wins in the Merchant Gases segment should drive
results in the near term. In sync with its global cost reduction
plan, Air Products is embarking on headcount reduction, keeping a
tight control on selling, general and administrative (SG&A)
expense and undertaking work process improvement initiatives. The
company is also offering healthy returns to its shareholders in the
form of incremental dividends.
However, soaring energy and raw material costs pose a threat to
margin expansion. To compensate for escalating raw material costs,
Air Products has been increasing the price for a range of chemicals
it makes for industrial use.
Moreover, the company expects sluggish economic conditions
across the U.S. and Europe to impact the demand for its products,
and therefore, its results in second-quarter 2012. We are also
concerned about Air Products' high balance sheet leverage. Air
Products currently retains a Zacks #4 Rank, which translates into a
short-term "Sell" recommendation.
AIR PRODS & CHE (
APD
): Free Stock Analysis Report
PRAXAIR INC (
PX
): Free Stock Analysis Report
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