Air Products' Q1 Earnings Squeak Past Estimates

Zacks

Air Products and Chemicals Inc. (APD) saw higher profit in first-quarter fiscal 2014 (ended Dec 31, 2013), helped by its cost reduction measures. The industrial gas giant registered earnings from continuing operations of $1.34 a share in the quarter, up 3% from the year-ago earnings of $1.30. The results beat the Zacks Consensus Estimate by a penny.

Consolidated net income rose 4% year over year to $290.2 million (or $1.35 a share) from $278.3 million (or $1.31 a share) a year ago.

Revenues declined 0.7% year over year to $2,545.5 million, missing the Zacks Consensus Estimate of $2,562 million. The decline was due to lower volumes and flat pricing which were partly offset by higher energy pass-through. Underlying sales, barring the company’s exit from the Polyurethane Intermediates (PUI) business, fell 1%.

Segmental Highlights

Revenues from the core Merchant Gases segment increased 4% year over year to $1,048 million in the reported quarter, aided by higher volumes. Liquid oxygen, nitrogen and argon volumes rose across all regions, partly marred by lower packaged gases demand in Europe and lower helium volumes due to supply restrictions.

Sales from the Tonnage Gases division fell 10% to $808 million as lower volumes in Latin America coupled with plant outages more than offset healthy demand in the U.S. Gulf Coast.

Revenues from the Electronics and Performance Materials segment rose 5% year over year to $579 million on increased volumes. Electronics sales rose 4% on the back of higher equipment and onsite sales. Performance Materials sales moved up 8% with growth witnessed across all product lines and key regions.

In the Equipment and Energy division, sales rose 4% year over year to $111 million supported by liquefied natural gas (LNG) projects. Air Products said that it has agreed to supply technology and equipment for the largest LNG production and exports facility in Russia.

Financial Position

Air Products ended the quarter with cash and cash equivalents of $387.6 million, down 29% year over year. Total long-term debt fell around 1% year over year to $5,138 million. Operating cash flow almost doubled year over year to $546.2 million in the quarter.

Outlook

Air Products reaffirmed its earnings guidance for fiscal 2014 and anticipates earnings from continuing operations to be in the range of $5.70 and $5.90 per share. For the second quarter, earnings from continuing operations are expected in the band of $1.32 to $1.37 per share.

Air Products expects its strategic actions including productivity improvement, better asset utilization, disciplined project execution and cost management initiatives to drive earnings in fiscal 2014. The company expects stronger momentum in the back half of the year.

Air Products should benefits from a diverse customer base, sustained pricing power and cost-reduction measures. New business deals and strategic investments are expected to support results in fiscal 2014. However, higher energy costs pose a risk to margin expansion.

Air Products currently holds a Zacks Rank #4 (Sell).

Other companies in the chemical industry worth considering include L'Air Liquide SA (AIQUY), Northern Technologies International Corp. (NTIC) and PPG Industries Inc. (PPG). While both L'Air Liquide and Northern Technologies carry a Zacks Rank #1 (Strong Buy), PPG Industries holds a Zacks Rank #2 (Buy).

Read the Full Research Report on APD
Read the Full Research Report on NTIC
Read the Full Research Report on PPG
Read the Full Research Report on AIQUY


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