Air Products Misses on Q1 Earnings, Beats on Sales - Analyst Blog

Industrial gas giant Air Products and Chemicals Inc. APD logged second-quarter fiscal 2014 (ended Mar 31, 2014) earnings from continued operations of $1.32 a share, down roughly 4% from $1.37 a share in the year-ago quarter. The results also missed the Zacks Consensus Estimate of $1.35 per share.

Higher underlying volumes and strong execution of planned maintenance outages despite adverse weather conditions helped Air Products to deliver earnings within the guided range. However, net income from continuing operations decreased 2% to $283.5 million in the quarter from $289.3 recorded in the last-year quarter.

Revenues rose 4% year over year to $2,582 million, beating the Zacks Consensus Estimate of $2,564 million. Higher energy pass-through and stronger underlying volumes in Merchant Gases, and Electronics and Performance Materials segments boosted sales. Underlying sales, barring the company's exit from the Polyurethane Intermediates PUI business, rose 2% year over year.

Segmental Highlights

Revenues from the core Merchant Gases segment increased 4% year over year to $1,040 million in the reported quarter, aided by higher volumes in the U.S./Canada, Asia and Latin America, partly marred by lower helium volumes due to continued global supply restrictions.

Sales from the Tonnage Gases division rose 4% year over year to $840 million, backed by higher energy pass-through, which more than offset lower volumes resulting from planned customer outages and the negative impact of the exit from the PUI business.

Revenues from the Electronics and Performance Materials segment rose 8% year over year to $592 million on increased volumes. Electronics sales rose 6% on the back of higher delivery systems sales. Performance Materials sales moved up 10% with growth witnessed across all product lines and key regions.

In the Equipment and Energy division, sales declined 11% year over year to $110 million. Sales backlog increased 3% to $338 million.

Financial Position

Air Products ended the quarter with cash and cash equivalents of $357 million, down 11% year over year. Total long-term debt rose 7.5% year over year to $4,993 million. Operating cash flow almost doubled year over year to $1,024.7 million for six months ended Mar 31, 2014.

The company is confident about its future prospects and thus raised its quarterly dividend by 8.5%.
 
Outlook

Air Products revised its earnings guidance for fiscal 2014 and now anticipates earnings from continuing operations to be in the range of $5.70–$5.85 per share versus its previous guidance of $5.70 to $5.90 per share. For the third quarter, earnings from continuing operations are expected in the band of $1.42–$1.47 per share. The company has reaffirmed its capital expenditure forecast of roughly $2 billion for fiscal 2014.

Air Products expects its strategic actions including productivity improvement, better asset utilization, disciplined project execution and cost management initiatives to drive earnings in fiscal 2014. The company anticipates stronger momentum in the second half of the year.

Air Products should benefit from a diverse customer base, sustained pricing power and cost-reduction measures. New business deals and strategic investments are expected to support results in fiscal 2014. The company expects to recover the costs associated with planned maintenance outages and adverse weather in the second half of the year.

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

Other companies in the chemical industry worth considering include Methanex Corp. MEOH, Olin Corp. OLN and Huntsman Corporation HUN, all carrying a Zacks Rank #2 (Buy).