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Air Products Poised on Strategic Measures Amid Headwinds
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On Sep 5, we issued an updated research report on industrial gas giant Air Products (APD - Free Report) .
Air Products’ profits (as reported) rose in third-quarter fiscal 2016 (ended Jun 30, 2016), helped by its cost reduction actions and operational improvements. Adjusted earnings surpassed the Zacks Consensus Estimate while sales trailed. The company raised the lower end of its fiscal 2016 earnings guidance to the range of $7.45–$7.55 per share from the earlier view of $7.40–$7.55.
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 2016. The acquisition of a majority stake in the Chilean industrial gas company – Indura S.A. – has ushered in substantial growth opportunity for Air Product, placing it as Latin America’s second largest industrial gas producer.
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.
Air Products, in May 2016, agreed to divest the Performance Materials Division (“PMD”) of its Materials Technologies segment to Germany's Evonik Industries AG. The company is also on track to spin-off the Electronic Materials Division (“EMD”) of the Materials Technologies unit to shareholders as a separate public company, dubbed Versum Materials.
The planned sale of PMD and spin-off of EMD, both non-core businesses, will allow Air Products to direct resources to grow its core and stable industrial gases business. These actions (part of the company’s strategic five-point plan) are expected to enable 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, 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. Volumes in packaged gases continue to be weak.
The company is also exposed to currency headwinds, stemming from weakening of most currencies against the U.S. dollar. Unfavorable currency translation weighed on its sales in the third quarter and is expected to remain a headwind in the fourth. The company currently sees currency headwinds of around 20 cents per share for fiscal 2016.
Moreover, Air Products still has a debt-laden balance sheet. It had total long-term debt of roughly $4.6 billion at the end of the third quarter as against cash and cash equivalent of roughly $515 million.
Better-ranked companies in the chemical space include Innospec Inc. (IOSP - Free Report) , Innophos Holdings Inc and Mitsubishi Chemical Holdings Corporation (MTLHY - Free Report) , all sporting a Zacks Rank #1 (Strong Buy).
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Air Products Poised on Strategic Measures Amid Headwinds
On Sep 5, we issued an updated research report on industrial gas giant Air Products (APD - Free Report) .
Air Products’ profits (as reported) rose in third-quarter fiscal 2016 (ended Jun 30, 2016), helped by its cost reduction actions and operational improvements. Adjusted earnings surpassed the Zacks Consensus Estimate while sales trailed. The company raised the lower end of its fiscal 2016 earnings guidance to the range of $7.45–$7.55 per share from the earlier view of $7.40–$7.55.
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 2016. The acquisition of a majority stake in the Chilean industrial gas company – Indura S.A. – has ushered in substantial growth opportunity for Air Product, placing it as Latin America’s second largest industrial gas producer.
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.
Air Products, in May 2016, agreed to divest the Performance Materials Division (“PMD”) of its Materials Technologies segment to Germany's Evonik Industries AG. The company is also on track to spin-off the Electronic Materials Division (“EMD”) of the Materials Technologies unit to shareholders as a separate public company, dubbed Versum Materials.
The planned sale of PMD and spin-off of EMD, both non-core businesses, will allow Air Products to direct resources to grow its core and stable industrial gases business. These actions (part of the company’s strategic five-point plan) are expected to enable 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, 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. Volumes in packaged gases continue to be weak.
The company is also exposed to currency headwinds, stemming from weakening of most currencies against the U.S. dollar. Unfavorable currency translation weighed on its sales in the third quarter and is expected to remain a headwind in the fourth. The company currently sees currency headwinds of around 20 cents per share for fiscal 2016.
Moreover, Air Products still has a debt-laden balance sheet. It had total long-term debt of roughly $4.6 billion at the end of the third quarter as against cash and cash equivalent of roughly $515 million.
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Air Products is a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked companies in the chemical space include Innospec Inc. (IOSP - Free Report) , Innophos Holdings Inc and Mitsubishi Chemical Holdings Corporation (MTLHY - Free Report) , all sporting a Zacks Rank #1 (Strong Buy).
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>