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Air Products Earnings Meet, Sales Beat

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Industrial gas giant Air Products and Chemicals Inc. (APD - Free Report) logged third-quarter fiscal 2013 (ended Jun 30, 2013) earnings from continued operations of $1.36 a share. The results were at par with the Zacks Consensus Estimate, but dropped from the year-ago earnings of $1.66 (or $1.41 per share as adjusted).

Productivity and strong execution of plans, which offset the continued economic weakness, helped Air Products to deliver earnings within guidance. However, net income from continuing operation decreased 19% year over year to $287.8 million.

Revenues rose 9% year over year to $2,547.3 million, beating the Zacks Consensus Estimate of $2,543 million. Acquisitions and higher energy cost pass-through boosted sales. 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 increased 18% year over year to $1,033 million in the second quarter on the back of Indura acquisition and stronger volumes.

Sales from the Tonnage Gases division rose 10% to $846 million driven by higher energy pass through, partially offset by lower PUI volumes.

Revenues from the Electronics and Performance Materials segment fell 6% year over year to $566 million, affected by lower electronics process materials volumes and equipment sales.

The Equipment and Energy division saw healthy gains in the quarter with sales surging 9% to $104 million, boosted by higher LNG project activity. Air Products received two new LNG heat exchanger orders for a liquefaction project in the quarter.

Financial Position

Air Products’ cash and cash equivalents stood at $418.8 million as of Jun 30, 2013, compared with $361.2 million as of Jun 30, 2012. Long-term debt stood at $4,648.2 million as of Jun 30, 2013, compared with $3,795.5 million as of Jun 30, 2012.

EPCO Acquisition

Air Products acquired EPCO Carbon Dioxide Products, Inc., a privately-held company that makes liquid carbon dioxide (CO2), on Jun 3, 2013. The buyout also included Louisiana Leasing, Ltd., an affiliate to EPCO that owns liquid CO2 distribution assets solely leased to the host company. The transaction cost for this buyout was not revealed.

The EPCO buyout complements Air Products’ aim of expanding its portfolio of industrial gases offerings in North America, mainly liquid CO2, via EPCO's 12 CO2 purification and liquefaction plants situated in the central part of the U.S.


Air Products narrowed its earnings expectations for fiscal 2013 factoring in the challenging economic conditions. However, Air Products’ commitment to increase shareholders value remains in place. The company now anticipates earnings for fiscal 2013 to be in the range of $5.47 to $5.53 per share. Earlier, it expected earnings of between $5.45 and $5.60 per share. For fourth-quarter fiscal 2013, earnings are expected in the band of $1.44 to $1.50 per share.

Air Products remains focused on cost optimization, disciplined project execution, capital allocation and further productivity improvements. The company expects that its projected record backlog and the significant leverage in the existing assets are solid prospects for future growth.

Our View

Air Products’ healthy project backlog strongly positions it to achieve its long-term growth target. Given its leading position in the gas 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 EPCO is an excellent fit for the Air Products’ North American Merchant Gases set of core competencies. It will also help expand the company’s market share by offering an extended product portfolio to existing and new customers. It will also provide cost and revenue synergy benefits to Air Products.

However, sluggish economic conditions across the U.S. and Europe may continue to impact the demand for the company’s products. Soaring energy costs pose a risk to margin expansion.

Air Products currently maintains a Zacks Rank #4 (Sell).

Other companies in the chemical industry having favorable Zacks Rank are Cytec Industries Inc. , Northern Technologies International Corp. and PPG Industries Inc. (PPG - Free Report) . While Cytec and Northern Technologies carry a Zacks Rank #1 (Strong Buy), PPG Industries retains a Zacks Rank #2 (Buy).

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