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Air Products Reports Mixed Results

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Air Products & Chemicals Inc. (NYSE:APD - News) reported first-quarter 2012 EPS of $1.36 versus $1.35 in the year-earlier quarter, in line with the Zacks Consensus Estimate of $1.36.

Net sales amounted to $2.4 billion, up 1% year over year, but down 7% sequentially. The increase was due to higher prices in Merchant Gases and Performance Materials. However, the results were below the Zacks Consensus Estimate of $2.5 billion.

Higher volumes from new plants in Tonnage Gases were offset by lower Equipment sales and lower volumes in Performance Materials and Merchant Gases. The sequential decline was driven by seasonality in Electronics and Performance Materials and Merchant Gases, in addition to currency effects.

Costs and Margins

Cost of sales increased to $1.8 billion in the reported quarter from $1.7 billion in the year-earlier quarter. Selling and administrative expenses also increased to $248.9 million from $244.6 million in the prior-year quarter.

The company reported an operating profit of $385 million, down 5% year over year, driven by lower Equipment sales and weaker Merchant Gases volumes.

Segmental Performance

Merchant Gases: Segment sales were $989 million, flat year over year as lower volumes were offset by higher pricing in U.S./Canada and Europe Liquid Bulk and Packaged Gases. The segment’s operating income inched down 4% year over year to $192 million, mainly due to decreased volumes and currency effects.

Tonnage Gases: Sales of the segment rose 6% year over year to $810 million mainly due to higher volumes on the back of new projects. Operating income amounted to $111 million, down 4% year over year due to higher maintenance costs from outages. 

Electronics and Performance Materials: This segment reported sales of $535 million, up 2% year over year, led by higher Electronics volumes and Performance Materials pricing. Operating income increased by 13% year over year to $78 million, primarily due to improved cost performance.

Equipment and Energy: Sales declined 21% year over year to $89 million. The poor performance is due to lower LNG and air separation unit activity. Operating income also decreased 64% year over year to $7 million.

Financial Position

Cash and cash equivalents were $407.3 million as of December 31, 2011 versus $422.5 million as of September 30, 201.

The company’s long-term debt increased to $3,884.2 million as of December 31, 2011 from $3,927.5 million as of September 30, 2011.

Homecare Business

On January 8, 2012, Air Products reached agreements with The Linde Group to purchase Homecare business in Belgium, Germany, France, Portugal and Spain. This business represents approximately 80% of the total Homecare business revenues.

The transactions are subject to regulatory approvals and employee consultation requirements and are expected to close in the second quarter of fiscal year 2012. Total sales proceeds of euro 590 million (approximately $767) will be received in cash at closing. This amount includes contingent proceeds of euro 110 million (approximately $143) related to future business activity in Spain and Portugal.

The gain related to the contingent proceeds will be deferred until the contingency period ends and the final proceeds are realized as per the terms of the agreement. Air Products will also be entitled to receive additional cash proceeds based on a percentage of the collection of the accounts receivable recorded between the 30th of September 2011 and the closing date of sale.

Air Products expects to sell the remaining portion of its Homecare business, which is primarily in the United Kingdom, within the next year.

The Homecare business is currently reported in the Merchant Gases segment and will be accounted for as discontinued operations in the second quarter of fiscal year 2012.


Looking ahead, management expects second-quarter 2012 to remain slow. Asia and North America growth is expected to accelerate in the second half of 2012, coupled with improved operating performance and new plant on-streams, leading to stronger sales and earnings growth in the later half of 2012. The company’s recent orders, strong project backlog and robust bidding activity position it well to achieve its 2015 goals for growth, margin and returns.

Air Products is maintaining its guidance for fiscal 2012 of $5.90 to $6.30 per share. The company expects second-quarter EPS to be between $1.37 and $1.43 per share.

Our Take

Currently, we have a Zacks #3 Rank (short-term Hold recommendation) on the stock.

Based in Pennsylvania, Air Products benefits from a long-term take-or-pay contract, a consolidated industry structure, a diverse customer base and sustained pricing power. However, soaring energy and raw material costs pose a threat to margin expansion.

In order to compensate for escalating raw material costs, Air Products has been increasing the price for a range of chemicals it manufacturing for industrial use. Air Products faces stiff competition from Praxair Inc. (NYSE:PX - News) and The Linde Group.

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