Air Products Poised on Strategic Actions Amid Headwinds

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On Apr 7, we issued an updated research report on industrial gases giant, Air ProductsAPD .

Air Products is gaining from a diverse customer base, cost-cutting measures and sustained pricing power. The company also has a strong project backlog. These projects are expected to be accretive to earnings and cash flow as they come on stream over the next few years.

Acquisitions, new business deals and strategic investments are also expected to support the company's results in fiscal 2017. Air Products is also keeping a tight control on expenses and undertaking work process improvement initiatives. The company remains on track in delivering on its cost reduction programs, which should support its margins.

The company is making a good progress 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.

Moreover, separation of the Materials Technologies unit has allowed Air Products to direct resources to grow its core and stable industrial gases business and achieve its goal of becoming the safest and most profitable industrial gas company globally.

Moreover, Air Products remains committed to maximize returns to shareholders. The company, earlier this year, raised its quarterly dividend by 10% to 95 cents per share. This marked the 35th straight year in which Air Products has increased its dividend payout.

However, Air Products has underperformed the Zacks categorized Chemicals-Diversified industry over the past three months, reflecting the headwinds faced by the company and lower-than-expected earnings performance in the last reported quarter. The company's shares have declined around 7.5% over this period, compared to roughly 5.7% gain recorded by the industry.

Air Products' industrial gases business in the Europe, Middle East, and Africa ("EMEA") region is seeing pressure from a weak operating environment. The company is also seeing lower volumes in Latin America due to weak demand.

Moreover, volumes in packaged gases continue to be weak while LNG (liquefied natural gas) sales remain under pressure due to low project activity. Air Products envisions at least 25 cents per share headwind associated with its LNG business in fiscal 2017 on a year over year basis.

Air Products is also exposed to currency headwinds, stemming from weakening of most currencies against the U.S. dollar. Unfavorable currency swings affected its sales for the fiscal first quarter (ended Dec 31, 2016) and is expected to remain a headwind in the second quarter.

Air Products currently carries a Zacks Rank #3 (Hold).

Air Products and Chemicals, Inc. Price and Consensus

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

Other Stocks to Consider

Better-ranked companies in the chemical space include Univar Inc. UNVR , Kronos Worldwide Inc KRO and The Chemours Company CC , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Univar has an expected long-term earnings growth of 9.4%.

Kronos has an expected long-term earnings growth of 5%.

Chemours has an expected long-term earnings growth of 15.5%.

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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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