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Can Air Products (APD) Spring a Surprise in Q3 Earnings?

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Air Products & Chemicals, Inc. (APD - Free Report) is slated to release third-quarter fiscal 2017 results before market opens on Aug 1.
 
The company logged adjusted earnings of $1.43 per share in the second quarter, up 4% from the year-ago quarter. Earnings surpassed the Zacks Consensus Estimate of $1.38.
 
Air Products posted net sales of $1.98 billion in the quarter, up 11% year over year, beating the Zacks Consensus Estimate of $1.83 billion.
 
Air Products surpassed the Zacks Consensus Estimate in three of the trailing four quarters while missing in one, with an average beat of 1.12%. 
 
Let’s see how things are shaping up for this announcement.
 
Air Products and Chemicals, Inc. Price and EPS Surprise
 
Air Products has a significant amount of cash to invest in its core industrial gases business. The company expects to deploy roughly $8 billion in strategic, high-return opportunities to create shareholder value over the next three years. 
 
For fiscal 2017, Air Products expects adjusted earnings per share of $6.00–$6.25, which at midpoint, represents a 9% increase over last year. For third-quarter fiscal 2017, Air Products anticipates adjusted earnings per share from continuing operations of $1.55–$1.60 per share, which at midpoint, also represents a 9% increase over last year.
 
Air Products is well placed to leverage the cyclical recovery in core industrial end-markets. The company has built a strong project backlog. These projects are expected to be accretive to earnings and cash flow over the next few years. Acquisitions and new business wins are expected to continue to drive results. The company is also progressing well with its $600 million cost-cutting program.
 
However, Air Products' industrial gases business in the Europe, Middle East, and Africa (EMEA) region is experiencing pressure from a weak operating environment. The company is also seeing lower volumes in Latin America due to weak demand. Moreover, volumes in packaged gases continue to be weak while LNG (liquefied natural gas) sales remain under pressure due to low project activity. Air Products sees roughly 30 cents per share headwind associated with its LNG business in fiscal 2017 on a year over year basis. The company is also exposed to currency headwinds.
 
Air Products’ shares have moved up 2.4% in the last three months, underperforming the industry’s gain of 5.7%.
 
 
Earnings Whispers
 
Our proven model does not conclusively show that Air Products is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below: 
 
Zacks ESP: Earnings ESP for Air Products is currently pegged at 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at $1.59 per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Zacks Rank: Air Products currently carries a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.
 
Note that, we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
 
Stocks to Consider
 
Here are some companies in the basic materials space you can consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
 
Westlake Chemical Corporation (WLK - Free Report) has an Earnings ESP of +5.04% and a Zacks Rank #2.You can see the complete list of today’s Zacks #1 Rank stocks here.
 
The Chemours Company (CC - Free Report) has an Earnings ESP of +4.44% and a Zacks Rank #2.
 
Endeavour Silver Corporation (EXK - Free Report) has an Earnings ESP of +100% and a Zacks Rank #3.
 
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