Earnings Scorecard: Praxair Inc.

Praxair Inc.(PX - Analyst Report) missed the Zacks Consensus Estimate in its fourth-quarter 2011 results, registering a negative earnings surprise of 0.73%. However, the company’s announcements during the earnings release kept us on the sidelines and we continue to hold a Neutral recommendation on the stock.

Earnings Review

Praxair’s earnings per share in the fourth quarter were $1.36, up 9% year over year, but below the Zacks Consensus Estimate of $1.37. Top line increased by 7% on the back of increased volumes and prices, but was negatively impacted by currency translation impacts.

Higher sales volume, prices and cost savings from productivity programs mitigated the impact of an increase in operating expenses. Besides, operating profit shot up by 22.4% year over year while margins stood at 22.1%.

Agreement/Magnitude of Estimate Revisions

It seems the brokerage firms covering the stock agree on the near-term headwind communicated by management at its fourth-quarter earnings release. Of the 15 firms providing estimates in the last 7 days, approximately one-third have decreased their estimates for fiscal 2012.  There are roughly three downward revisions for the first quarter of 2012. For fiscal year 2013, there is one positive revision in earnings estimate.

Magnitude of estimate revision was minimal for the fiscal quarter of 2012 as the estimate went down by a cent to $1.36, still reflecting year-over-year increase of 5.61%. However, fiscal year 2012 estimate plummeted by 6 cents to $5.86 per share and year-over-year growth roughly came in at 7.92%.

Our Take

Praxair signed multiple contracts in fiscal year 2011 and its project backlog reached a whooping $2.7 billion at the end of the year. The company also adjusted its product prices to combat the impact of rising raw material costs. Moreover, being a shareholder-friendly company, Praxair raised its quarterly dividend rate by 5 cents and announced the approval of a new $1.5 billion of share buyback program.

Despite all these, outlook for the quarters ahead seems to be negatively impacted by expectation of negative currency translation; roughly 7 cents for the first quarter of 2012 and 25 cents for fiscal 2012.

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