Air Products and Chemicals, Inc. (APD)

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Air Products & Chemicals (APD)

Q2 2013 Earnings Call

April 23, 2013 10:00 am ET

Executives

Simon R. Moore - Director of Investor Relations

John E. McGlade - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

M. Scott Crocco - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

Laurence Alexander - Jefferies & Company, Inc., Research Division

Neal Sangani - Goldman Sachs Group Inc., Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Vincent Andrews - Morgan Stanley, Research Division

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

P. J. Juvekar - Citigroup Inc, Research Division

Duffy Fischer - Barclays Capital, Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

Michael J. Harrison - First Analysis Securities Corporation, Research Division

Michael J. Sison - KeyBanc Capital Markets Inc., Research Division

Presentation

Operator

Good morning, and welcome to the Air Products and Chemicals Second Quarter Earnings Release Conference Call. [Operator Instructions] Also, this telephone conference presentation and the comments made on behalf of Air Products are subject to copyright by Air Products, and all rights are reserved. Air Products will be recording this teleconference and may publish all or a portion of the teleconference. No other recording or redistribution of this teleconference by any other party are permitted without the expressed written permission of Air Products. Your participation indicates your agreement.

Beginning today's call is Mr. Simon Moore, Director of Investor Relations. Mr. Moore, you may begin.

Simon R. Moore

Thank you, Alicia. Good morning, and welcome to Air Products' Second Quarter Earnings Teleconference. This is Simon Moore. I'm pleased to be joined today by John McGlade, our CEO; and Scott Crocco, our CFO. After our remarks, we'll be pleased to take your questions.

We issued our earnings release this morning. It is available on our website, along with the slides for this teleconference. Please go to airproducts.com to access the materials. Instructions for accessing a replay of this call beginning at 2 p.m. Eastern Time are also available on our website.

Please turn to Slide 2. As always, today's teleconference will contain forward-looking statements based on current expectations and assumptions. Please review the information on these slides and at the end of today's earnings release, explaining factors that may affect these expectations. Now I'll turn the call over to John.

John E. McGlade

Thanks, Simon. Before we take you through the details, let me make several overview remarks. While there were some bright spots, the second quarter was certainly a challenge given the softening of the global economy. Our earnings did come within guidance, but slower-than-expected economic growth and a weak electronics market resulted in lower volumes than we had anticipated. We expect this slow growth environment to continue for some time and are no longer anticipating that stronger second half economic improvement as we had originally planned for. Most importantly, we continue to stay focused on actions within our control.

We completed the European restructuring provision that we announced last year on schedule and with the full benefits achieved. We remain focused on execution and continue to drive improvement through cost discipline and productivity. As a result, we saw a good cost performance again this quarter, helping to offset the weaker volume. Over the long term, we are well positioned to grow via our $3 billion project backlog, which is over 80% Onsite/Pipeline business with long-term take-or-pay contract terms, and we've continued to be successful signing new business. In February, we announced another oxygen order for coal gasification in China for Lu’An Mining and just last week, another LNG order from PETRONAS in Malaysia.

In our Merchant and Electronics and Performance Materials businesses, we have a tremendous opportunity to load our existing assets when the economy does improve, and our cash priorities remain unchanged. Invest in core projects that have good returns; increase the dividend each year, which we've done now for 31 consecutive years, having announced an 11% increase in March; strive to maintain an A bond rating; and repurchase shares, which you saw us do in Q1 for $460 million. In addition, let me assure you we will continue to take decisive actions to improve our operation and deliver value to shareholders regardless of economic condition.

Now let me turn the call over to Scott to review our results.

M. Scott Crocco

Thanks, John. Turning to Slide 3. As we look back at this past quarter, the economy came in at the low end of what we anticipated when I provided you with our guidance in January. March volumes were a disappointment relative to the normal historical uptick we typically see to this month.

Moving around the globe. In North America, we experienced modest growth. Europe sunk deeper into recession, with Southern Europe remaining particularly weak, while the Northern continent and Central Europe worsened. And in Asia, there was a lower-than-expected ramp up after the Lunar New Year holiday. As I'm sure you've heard from other sources, the electronics industry has remained soft. We have seen new fab construction delays, and the outlook for silicon processing has been reduced significantly. MSI forecasts are now flat to down for our fiscal 2013 versus previous forecasts of 4% to 6% growth. For Air Products, both electronics materials and equipment sales were below our expectations. The pricing environment has held up to date, but is increasingly more difficult due to softer volumes. However, we continued to deliver good cost performance. As a result, we delivered EPS within the range provided in January. With that backdrop, let me take you through our overall results.

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