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Air Products Closes DuPont JV Buy

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Air Products and Chemicals Inc. (APD - Analyst Report) announced the completion of its acquisition of EI DuPont de Nemours & Co.’s (DD - Analyst Report) stake in its 50-50 joint venture (JV) with DuPont Air Products NanoMaterials LLC (DA NanoMaterials). The JV is engaged in manufacturing components for the semiconductor industry. The terms of the agreement remained undisclosed.  

Based in Tempe, Arizona, with regional headquarters in Taiwan, DA NanoMaterials manufactures chemical mechanical planarization (CMP) slurries. Slurries primarily polish semiconductors and wafers used in electronic devices.

The current market for CMP slurries and wafer polishing slurries is valued at more than $1 billion and is growing at a brisk rate, much faster than the semiconductor MSI index, which measures millions of square inches of silicon shipped.

The acquisition will enhance Air Products' presence in the electronics market. The company will also continue to work with its customers to provide services for the next generation such as smart phones and tablets. Further, Air Products also provides a host of post-CMP cleaning solutions designed to provide a leading edge cleaning performance.

Air Products, in January 2012, released its first-quarter 2012 results. The company reported earnings of $1.36 a share, in line with the Zacks Consensus Estimate. Net sales amounted to $2.4 billion, up 1% year over year, but down 7% sequentially. The year-over-year increase was due to higher prices in Merchant Gases and Performance Materials. However, sales were below the Zacks Consensus Estimate of $2.5 billion.

Looking ahead, management expects a soft second-quarter 2012. Besides, growth in Asia and North America is expected to accelerate in the second half of 2012. Improved operating performance and new plant on-streams is expected to lead to stronger sales and earnings growth in the second half. The company’s recent orders, strong project backlog and robust bidding activities position it well to achieve its 2015 targets for growth, margins and returns.

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

Based in Pennsylvania, Air Products benefits from a consolidated industry structure, 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 prices of a range of chemicals it manufactures for industrial use. Air Products competes with Praxair Inc. ((PX - Analyst Report) and The Linde Group. We currently have a long-term Neutral recommendation on Air Products. The stock maintains a Zacks #4 Rank, which translates into a short-term (1 to 3 months) Sell rating.

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