Air Products and Chemicals, Inc. (APD)

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Air Products & Chemicals, Inc. (APD)

F4Q09 (Qtr End 09/30/09) Earnings Call Transcript

October 21, 2009 10:00 am ET


Nelson Squires -- Director, IR

Paul Huck -- SVP and CFO


Kevin McCarthy -- Merrill Lynch

David Begleiter -- Deutsche Bank

Sergey Vasnetsov -- Barclays Capital

John Roberts -- Buckingham Research

Fred Seymour -- Seymour Management

Don Carson -- UBS

Mike Sison -- KeyBanc

Steve Shuman -- Lafayette Research

Jeff Zekauskas -- J.P. Morgan

Mike Harrison -- First Analysis

David Manthey -- Robert W. Baird

Mark Gulley -- Soleil Securities

P.J. Juvekar -- Citi

Edward Yang -- Oppenheimer

Laurence Alexander -- Jefferies



Good morning and welcome to Air Products & Chemicals fourth quarter 2009 earnings results conference call. Just a reminder that you will be in a listen-only mode until the question-and-answer segment of today’s 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 telephone conference 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. Nelson Squires, Director of Investor Relations. Mr. Squires, you may begin.

Nelson Squires

Thank you, Carey. Good morning, and welcome to Air Products fiscal year-end earnings teleconference. This is Nelson Squires. Today, our CFO Paul Huck and I will review our fiscal 2009 results and provide our initial fiscal 2010 outlook. We issued our earnings release this morning and it is available on our website, along with the slides for this teleconference.

Please go to and click on the scrolling red banner to access the materials. Instructions for accessing the replay of this call, beginning at 2:00 pm Eastern Time are also available on the website.

Please turn to slide two. As always, today’s teleconference will contain forward-looking statements based on current expectations regarding important risk factors. Please review the Safe Harbor language on this slide and at the end of today’s earnings release.

Now, I’ll turn the call over to Paul.

Paul Huck

Thanks, Nelson. Please turn to slide number three.

Good morning, and thanks for joining us today. Before we look at this quarter's results, I would like to spend a few moments reviewing fiscal 2009.

Certainly, the world has changed significantly over the past 12 months. In our plans for fiscal 2009, we expected modest global growth. On slide number three, you can see the severity of the worldwide manufacturing downturn. Globally, manufacturing was down about 11%. In Electronics, we expected a modest decline in silicon process, and it now looks like for fiscal 2009, MSI will end up down about 35%. Both of these headwinds had a major impact on our financial performance during fiscal 2009.

Let me take you through the numbers.

Turning to slide number four, sales of $8.3 billion declined $2.2 billion or 21%. Underlying sales declined 8%, with volumes of 9% and price gains of 1%. Energy cost pass-through accounted for 7% of the decline and currency translation reduced sales by 6%. Our operating margin fell only modestly, due to the weak demand, as the cost actions we took accounted to the weak volume increased margins significantly in the second half of the year. If you compare the first half versus the second half of fiscal 2009, our operating margin increased by more than 200 basis points to 15.5%.

For the year, earnings per share fell 20%, slightly less than sales did, and our return on capital employed declined to 10.6%, above our cost to capital by about 200 basis points.

In summary, 2009 was a challenging year due to the impact of the global recession, but we continued to make progress towards our goal. We continued to improve our portfolio, completing the sale of our US Home Care business this quarter, and we made progress through the year to improve both margins and returns. Our entire team remains committed to continuing this progress.

Now turning to slide number five for a review of this quarter's consolidated financial results from continuing operations.

For the quarter, sales decreased 22% versus the prior year. The major factor was lower natural gas prices, which lowered our contractual pass-through of energy-related costs, reducing sales by 12%. Underlying sales declined 7% on lower volumes in Merchant and the Electronics and Performance Materials segments, and lower pricing in Electronics and Performance Materials. A stronger dollar reduced sales by 3%.

Sequentially, sales increased 8%, primarily on volume growth across all business segments. Underlying sales were up 7%, an encouraging sign that the global economy continues to improve. Operating income of $328 million declined 12% from prior year, again due to lower volumes and unfavorable currency. This decline was partially offset by our cost reduction efforts. Our operating margin of 15.4% improved by 170 basis points versus last year, due to productivity and energy cost pass-through impacts, despite the decreased volumes.

For the quarter, net income and diluted earnings per share decreased by 10% each, versus the prior year.

Turning to slide six for a review of the factors that affected the quarter's performance in terms of earnings per share.

Our continuing operations earnings per share decreased by $0.12. Lower volumes reduced EPS by $0.41 year on year. Pricing in energy and raw materials together were favorable, adding $0.02. And lower costs contributed $0.18. The unfavorable impact to operating income from currency translation and foreign exchange was $0.05.

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