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Air Products (APD) Gains on Project Investments, Productivity

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We issued an updated research report on Air Products and Chemicals, Inc. (APD - Free Report) on May 13.

Air Products, which is among the prominent players in the chemical space along with Dow Inc. DOW, Celanese Corporation CE and Eastman Chemical Company EMN, is benefiting from its productivity actions, investments in high-return projects and acquisitions.

The company is well placed to gain from its investments in high-return industrial gas projects and project wins. It remains committed to its gasification strategy and is executing its growth projects. The company has a total available capacity to deploy (over fiscal 2018-2022) around $17.6 billion in high-return investments aimed at creating significant shareholder value. It has already spent or committed roughly 95% of the capacity.

Notably, Air Products expects to complete the $12-billion Jazan gasification project in Saudi Arabia this fiscal year. The company, in May 2020, also inked a deal to invest roughly $2 billion for a world-scale coal-to-methanol manufacturing facility in East Kalimantan, Indonesia. The company will develop, own and operate the air separation, gasification, syngas clean-up, utilities and methanol production assets to manufacture methanol. The investment is in sync with Air Products’ long-term plan to deploy capital into high-return industrial gas projects.

Air Products, in April 2020, also completed the buyout of five steam methane reformer hydrogen production plants for $530 million from PBF Energy. The PBF deal is expected to be accretive to the company’s bottom line.

Moreover, Air Products is boosting productivity to improve its cost structure. It is seeing the positive impacts of its productivity actions. Benefits from additional productivity and cost improvement programs are likely to support its margins moving ahead. Air Products also has also been benefiting from higher pricing.

The company also remains committed to maximize returns to shareholders. Air Products’ board, earlier this year, increased its quarterly dividend by 12% to $1.50 per share from $1.34 per share. This marked the 39th straight year of dividend increase. Strong cash flow enables the company to boost shareholders’ value by increasing dividends and capital deployment.

However, the company’s results are likely to get affected by the unfavorable impacts from the coronavirus pandemic and weak volumes. Notably, disruptions due to coronavirus and the winter storm hurt its volumes in the Americas in the last reported quarter. The company is also exposed to headwind in its packaged gas business in Europe. Moreover, lower contribution from the Lu'An gasification project is hurting volumes in Asia.

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