Air Products (APD) Q1 Earnings: Surprise in Store?

Air Products & Chemicals, IncAPD is slated to release first-quarter fiscal 2017 results ahead of the bell on Jan 27.

Air Products logged adjusted earnings of $2.01 per share for fourth-quarter fiscal 2016 (ended Sep 30, 2016), up 10% from the year-ago quarter, beating the Zacks Consensus Estimate of $1.99. Air Products has surpassed the Zacks Consensus Estimate in all of the trailing four quarters, with an average beat of 1.84%. Revenues improved roughly 0.6% year over year to $2,463 million in the fourth quarter but missed the Zacks Consensus Estimate of $2,481 million.

Factors to Consider

Excluding Electronic Materials and Performance Materials businesses, Air Products expects adjusted earnings from continuing operations for first-quarter fiscal 2017 in the range of $1.40-$1.50 per share, up 3%-10% from the comparable year-ago period.

Excluding Electronic Materials and including Performance Materials, Air Products sees first-quarter fiscal 2017 adjusted earnings from continuing operations in the band of $1.60-$1.70 per share, up 7%-13% year over year.

Air Products has outperformed the Zacks categorized Chemicals-Diversified industry over the past three months. The company's shares have gained 10.6% over the past three months while the industry has gained 9.8% over the same period. The company continues to enjoy a strong backlog of projects that is expected to deliver volume, revenue and earnings growth over the next few years.

Air Products is well positioned to capitalize on the cyclical recovery in its core industrial end-markets. Acquisitions and new business wins are expected to continue to provide cost and revenue synergies.

Air Products is also embarking on headcount reduction, keeping a tight control on SG&A expenses and undertaking work process improvement initiatives. The company is on track with its $600 million cost-cutting program and has already achieved the first $300 million of cost savings. Air Products also delivered over $75 million of the remaining $300 million in fiscal 2016 and looks to achieve another $100 million in cost savings in fiscal 2017.

The recently completed spin-off of EMD and the sale of PMD, both non-core businesses, will also allow Air Products to achieve its goal of becoming the safest and most profitable industrial gas company globally and create shareholder value in the longer term.

However, the company continues to face currency headwinds and challenges from sluggish global economic growth. Challenging economic conditions are affecting products demand and are expected to keep industrial gases volumes under pressure in Europe. The company is also seeing lower volumes in Latin America due to weak demand. Moreover, lower project activity (due to lack of customers' decisions on new projects) is hurting sales in the company's LNG business.

Air Products generates a considerable amount of revenues outside the U.S., and therefore, is exposed to foreign exchange fluctuations. Unfavorable currency swings affected its sales for the fourth quarter as well as fiscal 2016 and is expected to remain a headwind in the first quarter. The company sees currency headwinds of 5 cents to 10 cents per share for fiscal 2017.

Some additional earnings headwinds are expected to come from spending associated with business restructuring in the fiscal first quarter.

Air Products and Chemicals, Inc. Price and Consensus

Air Products and Chemicals, Inc. Price and Consensus | Air Products and Chemicals, Inc. Quote

Earnings Whispers

Our proven model does not conclusively show that Air Products is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP : Earnings ESP for Air Products is currently pegged at 0.00%. This is because the Most Accurate estimate as well as the Zacks Consensus Estimate both stands at $1.48. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Zacks Rank : Air Products carries a Zacks Rank #3, which when combined with a 0.00% ESP, makes surprise prediction difficult.

We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the chemical industry you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:

The Methanex Corp. MEOH has an Earnings ESP of +53.33% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

Albermale Corp. ALB has an Earnings ESP of +2.67% and a Zacks Rank #2.

The Dow Chemical Company DOW has an Earnings ESP of + 4.55% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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