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Industrial gas giant Air Products and Chemicals Inc. (APD - Analyst Report) logged second-quarter fiscal 2013 (ended Mar 31, 2013) earnings from continued operations of $1.37 a share, at par with the Zacks Consensus Estimate and higher than the year ago earnings of $1.30 (or $1.31 per share as adjusted).

Net income from continuing operation increased 3.7% year over year to $289.3 million. Efficient cost management and execution of plans led to the increased earnings.

Revenues rose 6% year over year to $2,484.2 million, missing the Zacks Consensus Estimate of $2,585 million. Sales were aided by acquisitions. Underlying sales declined 2% due to Air Products’ previously announced decision to exit the Polyurethane Intermediates business.

Segmental Highlights

Revenues from the core Merchant Gases segment sales climbed 14% year over year to $1,003 million in the second quarter on the back of Indura acquisition. Sales from the Tonnage Gases division rose 3% to $809 million driven by strong new plant volumes and higher energy pass through.

Revenues from the Electronics and Performance Materials segment fell 3% year over year to $549 million, affected by lower electronics materials and equipment sales, partially offset by the DA NanoMaterials acquisition.
The Equipment and Energy division saw healthy gains in the quarter with sales surging 12% to $124 million, boosted by higher liquefied natural gas (LNG) project activity.

Financial Position

Air Products’ cash and cash equivalents stood at $401.6 million as of Mar 31, 2013, compared with $319.5 million as of Mar 31, 2012. Long-term debt stood at $4,644.7 million as of Mar 31, 2013, compared with $3,879.8 million as of Mar 31, 2012.

Outlook

Air Products trimmed its 2013 expectations due to the challenging economic conditions it faced in the second quarter. The company now anticipates earnings for fiscal 2013 to be in the range of $5.45 to $5.60 per share, down from its previous guidance of $5.70 to $5.90 per share. For third-quarter fiscal 2013, earnings are expected in the band of $1.33 to $1.38 per share.

Air Products remains focused on having reliable plant operations, disciplined project execution, capital allocation, and further productivity improvements. The company expects that its recent strategic moves will position it for future growth and profitability despite the modest economic backdrop.

Our Take

Air Products’ healthy project backlog strongly positions 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 wins in the Merchant Gases segment should drive results in the near term. The acquisition of a 67% stake in Chilean industrial gas company, Indura, is expected to usher in substantial growth opportunity for Air Product, placing it as Latin America’s second largest industrial gas producer.

However, sluggish economic conditions across the U.S. and Europe may continue to impact the demand for the company’s products.

Air Products currently holds a short-term Zacks Rank #3 (Hold).

Other companies in the chemical industry having favorable Zacks Rank are Olin Corp. (OLN - Snapshot Report), LyondellBasell Industries NV (LYB - Analyst Report) and Eastman Chemical Co. (EMN - Analyst Report). All of them retain a Zacks Rank #2 (Buy).

 

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