Praxair Q2 Earnings Lag Estimates, Guidance Lowered


Industrial gas producer and supplier, Praxair Inc. (PX) reported earnings of $1.58 per share for second-quarter 2014. The bottom-line result was 6% above the year-ago earnings but fell short of the Zacks Consensus Estimate of $1.59.


Praxair generated revenues of $3,113 million in the second quarter, up 3.3% year over year but below the Zacks Consensus Estimate of $3,158 million. The improvement can be attributed to a 3% gain from volume growth driven by project start-ups in North America and Asia, 1% positive pricing impact and 1% gain from acquisitions, partially offset by a 2% negative impact from foreign currency translation.
In the second quarter, revenues generated from North America were up 4.9%, while revenues sourced from Europe grew 6.8% year over year. In Asia, revenues climbed 4.0% while Surface Technologies business recorded a 5.5% hike. However, these were partially offset by a 5% revenue decline in South America. 
Backlog at the quarter-end was at $1.9 billion.
Cost of sales increased 3.3% year over year and represented 56.8% of total revenues generated in the second quarter. Selling, general and administrative expenses were $335 million, down 2.6% year over year. Research and development expenses were $24 million, flat compared with the year-ago quarter.
Operating profit came in at $697 million, up 4.8% year over year while adjusted margin grew 30 basis points to 22.4%.
Balance Sheet
Exiting second-quarter 2014, Praxair’s cash and cash equivalents increased 20.1% to $173 million from $144 million in the previous quarter. Long-term debt was $8,565 million, roughly flat compared with $8,564 million in the preceding quarter.
Cash Flow
Praxair generated net cash of $847 million from its operating activities, down 46.8% from $577 million generated in the year-ago quarter. Capital spent on purchase of property, plant and equipment dropped 26.4% to $384 million.
Share Repurchases/Dividends
Following a policy of rewarding shareholders handsomely, Praxair paid dividends of $190 million in the second quarter along with repurchasing shares worth $160 million.  
Concurrent with the earnings release, Praxair announced that its board of directors has approved a quarterly dividend payment of 65 cents per share for third-quarter 2014. The dividend will be paid on Sep 15 to shareholders of record as on Sep 8.
Outlook: For third-quarter 2014, Praxair anticipates earnings per share to be in the $1.58−$1.65 range. 
For 2014, earnings per share guidance was revised to $6.30−$6.45 range from the prior forecast of $6.30−$6.50. The new guidance reflects a year-over-year increase of 6−9% and includes the impact of 2% currency headwind.
Sales are anticipated to be within $12.4−$12.7 billion as against $12.4−$12.8 billion expected earlier. Capital spending is expected to be roughly $1.8 billion and the effective tax rate is projected at 28%.
With a market capitalization of $38.6 billion, Praxair currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Marrone Bio Innovations, Inc. (MBII), Cytec Industries Inc. (CYT) and Ashland Inc. (ASH). While Marrone Bio Innovations sports a Zacks Rank #1 (Strong Buy), both Cytec Industries and Ashland holds a Zacks Rank #2 (Buy).
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