Air Products' EPS Meets, Net Soars

Leading industrial gas company Air Products and Chemicals Inc. ( APD - Analyst Report ) reported third-quarter fiscal 2012 adjusted (excluding one-time items) earnings from continued operations of $1.41 a share, in line with the Zacks Consensus Estimate.

Consolidated net income, as reported, surged 48% year over year to $484.5 million (or $2.26 a share). The company reported a profit of $326.5 million (or $1.50 a share) a year ago. Profit was boosted by lower costs and one-time gains, which more than offset a decline in sales.

Revenues dipped 5% year over year to $2,340.1 million, missing the Zacks Consensus Estimate of $2,455 million. Challenging conditions in Europe and Asia and unfavorable currency exchange impact (stemming from a stronger dollar) weighed on the top line in the quarter.

Costs and Margins

Cost of sales decreased 7% year over year to $1,690.8 million in the quarter. Selling and administrative expenses declined 1.7% to $230.4 million. Operating margin rose 130 basis points year over year to 17%, helped by management’s cost containment measures.

Segmental Highlights

Revenues from core Merchant Gases segment sales fell 5% year over year to $874.1 million due to currency headwinds. Sales from the Tonnage Gases division slid 12% to $767.4 million on lower energy pass-through.

The Electronics and Performance Materials segment sales were essentially flat year over year at $603.8 million. On a positive note, revenues from the Equipment and Energy division climbed 19% to $94.8 million as lower liquefied natural gas (LNG) sales were more than offset by an increase in large air separation unit revenues.

Financial Position

Air Products exited the quarter with cash and cash equivalents of $361.2 million, down 16% year over year. Long-term debt decreased 5% year over year to $3,846.2 million.

Outlook

Moving ahead, Air Products expects its recent acquisitions coupled with the divestiture of its Homecare business will position it for future growth and profitability despite the weak macroeconomic backdrop.

The company anticipates fourth quarter adjusted earnings from continuing operations to be in the range of $1.42 and $1.47 per share. This is below the current Zacks Consensus Estimate of $1.51.

For fiscal 2012, adjusted earnings from continuing operations are now expected to be in the band of $5.40 to $5.45 per share, down from the earlier view of $5.47 to $5.60 per share. The revision reflects the uncertain economic environment.

Neutral on Air Products

Air Products’ healthy project backlog and solid bidding activity strongly position it to achieve its long-term growth target. Given its leading position in the gases business, the company is well positioned to capitalize on the cyclical recovery in its core industrial end markets.

New business deals are expected to support profit in 2012. However, soaring energy and raw material costs pose a threat to margin expansion.

We currently have a long-term Neutral recommendation on Air Products. The company, which competes with Praxair Inc. ( PX - Analyst Report ) , has a short-term Zacks #3 Rank (Hold).