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Air Products (APD) Q2 Earnings: Is a Beat in the Cards?

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Air Products & Chemicals, Inc. (APD - Free Report) is slated to release second-quarter fiscal 2017 results before market opens on Apr 27.

The company logged adjusted earnings of $1.47 per share for first quarter, up 9% from the year-ago quarter. Earnings narrowly missed the Zacks Consensus Estimate of $1.48.

Air Products posted net sales of $1.88 billion for the quarter, up 1% year over year. It also missed the Zacks Consensus Estimate of $1.96 billion.

Air Products surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average beat of 0.49%. Let’s see how things are shaping up for this announcement.

Earnings Whispers

Our proven model shows that Air Products is likely to beat the Zacks Consensus Estimate this quarter, because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is the case here as you will see below:

Zacks ESP: Earnings ESP for Air Products is currently pegged at +1.45%. This is because the Most Accurate estimate is $1.40 and the Zacks Consensus Estimate is $1.38. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Air Products currently sports a Zacks Rank #2, which when combined with a positive ESP, make us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks Rank #1 stocks here.

Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors to consider

The company benefits from a diverse customer base, sustained pricing power and cost-reduction measures.  Air Products, in its first-quarter call, said that for the second-quarter it expects adjusted earnings from continuing operations of $1.30 to $1.40.

Acquisitions, new business deals and strategic investments are also expected to support the company’s results. The company remains on track to deliver on its cost-reduction programs, which should support its margins. The company is also embarking on headcount reduction, keeping a tight control on SG&A expenses and undertaking work process improvement initiatives.

The company is well on track 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.

The separation of the Materials Technologies unit  has also 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.

Strong financials also allow Air Products to invest in core industrial gases segment. It plans to invest roughly $1 billion in fiscal 2017.

However, Air Products’ 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 in the fiscal first quarter and is expected to remain a headwind in the fiscal second quarter.

Air Products’ shares declined 6.6% in the last three months, underperforming the Zacks categorized Chemicals-Diversified industry’s gain of 1.4%.



Stocks That Warrant a Look

Here are some companies in the basic materials space you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:

The Hi-Crush Partners LP has an Earnings ESP of +100% and sports a Zacks Rank #1.

The Methanex Corporation (MEOH - Free Report) has an Earnings ESP of +13.04% and flaunts a Zacks Rank #1.

The Chemours Company (CC - Free Report) has an Earnings ESP of +4.08% and sports a Zacks Rank #1.

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