News Release

Air Products Reports Fiscal Q3 Financial Results

July 24, 2012 at 6:05 AM EDT

LEHIGH VALLEY, Pa., July 24, 2012 /PRNewswire via COMTEX/ --Third Quarter Summary

  • EPS up eight percent to $1.41* versus prior quarter on a non-GAAP continuing operations basis
  • Operating margin of 17%* up 130 basis points* versus prior year on lower costs
  • Acquired majority position in South America's largest independent industrial gas company
  • New Tonnage Hydrogen win in the U.S. Gulf Coast and Electronics wins in China

Air Products (NYSE:APD) today reported net income of $303 million* and diluted earnings per share (EPS) of $1.41* on a non-GAAP, continuing operations basis, for its fiscal third quarter ended June 30, 2012. This excludes a $.25 per share gain associated with acquiring the additional 50 percent equity interest in Air Products' existing DA NanoMaterials joint venture.

Results from discontinued operations of $.60 per share include a gain of $.70 per share associated with the sale of the Continental Europe Homecare business. These results also include a $.14 per share impairment associated with the planned disposal of the remaining Homecare business, primarily in the UK, and the income from the remaining Homecare business of $.04 per share.

On a GAAP basis, including discontinued operations, income and diluted EPS for the quarter were $485 million and $2.26 respectively.

The discussion of third quarter results and guidance in this release is based on non-GAAP continuing operations comparisons that exclude these items. A reconciliation can be found at the end of this release.*

Third Quarter Financial Results

Third quarter revenues of $2,340 million decreased five percent versus prior year, primarily on lower energy pass-through and a stronger dollar. Underlying sales were up one percent, largely due to higher pricing in the Merchant Gases segment. Operating income of $397 million was up two percent on improved cost performance, partially offset by a stronger dollar. Operating margin of 17 percent increased 130 basis points versus prior year.

Sequentially, while overall sales were unchanged, underlying sales grew one percent due to higher volumes. Better cost performance drove operating income up six percent and operating margin increased 100 basis points sequentially.

Commenting on the quarter, John McGlade, chairman, president and chief executive officer, said, "Economic growth this quarter was below what we expected in Asia, Europe and Electronics. Despite headwinds from the economy and a stronger dollar, we were able to deliver earnings within expectations due to excellent cost performance. In addition, we recently executed several key strategic activities, including the purchase of our majority position in Indura, taking full ownership of our DA NanoMaterials joint venture and the sale of our Continental Europe Homecare business."

Third Quarter Segment Performance

  • Merchant Gases sales of $874 million decreased five percent due to a stronger dollar. Underlying sales were flat, with two percent positive pricing offsetting the impact of lower volumes. Operating income of $165 million increased four percent versus prior year, as stronger pricing and better cost performance in all regions improved results. Sequentially, sales decreased one percent, due to a stronger dollar. Sequential operating income increased eight percent and margins of 18.8% were up 160 basis points on better cost performance.
  • Tonnage Gases sales of $767 million decreased 12 percent versus the prior year on 12 percent lower energy pass-through. Underlying sales rose two percent on higher volumes from new plants. Operating income of $134 million was up 17 percent versus prior year on higher volumes and lower operating and maintenance costs. Sequentially, sales decreased two percent, with volumes from new plants offset by lower energy pass-through and a stronger dollar. Operating income was up seven percent from the prior quarter, largely due to higher volumes and lower maintenance costs.
  • Electronics and Performance Materials sales of $604 million were unchanged versus the prior year. Underlying sales were down two percent on lower volumes and pricing. The DA NanoMaterials acquisition added four percent and the stronger dollar reduced sales by two percent. Operating income of $91 million was down 17 percent versus prior year, due primarily to lower volumes and pricing. Operating margin was 15 percent, down 310 basis points versus prior year due to lower volumes and pricing. Sequential sales were up six percent on higher volumes and the acquisition and operating income increased six percent.
  • Equipment and Energy sales of $95 million and operating income of $10 million increased 19 percent and 14 percent respectively, with higher large air separation unit sales offsetting lower LNG sales. Sequentially, sales decreased 14 percent and operating income was unchanged. The sales backlog is up 76 percent versus prior year and 39 percent versus prior quarter on recent LNG signings.

Outlook

Looking ahead, McGlade said, "The current economic uncertainty continues to impact our near-term volume growth. To offset this, we will continue to deliver productivity and cost reduction to the bottom line. In the longer-term, we remain confident in the growth prospects for industrial gases and Air Products. Our recent Indura and DA NanoMaterials acquisitions and Homecare portfolio actions demonstrate our emphasis on execution and position us well for future growth and profitability."

Air Products expects fourth quarter adjusted EPS from continuing operations to be between $1.42 and $1.47 per share. The company's adjusted guidance for continuing operations for fiscal 2012 is $5.40 to $5.45 per share.

Access the Q3 earnings teleconference scheduled for 10:00 a.m. Eastern Time on July 24 by calling 719-457-2677 and entering pass code 1110494, or listen on the Web at: http://phx.corporate-ir.net/phoenix.zhtml?c=92444&p=Teleconference

Air Products (NYSE:APD) provides atmospheric, process and specialty gases; performance materials; equipment; and technology. For over 70 years, the company has enabled customers to become more productive, energy efficient and sustainable. More than 18,000 employees in over 40 countries supply innovative solutions to the energy, environment and emerging markets. These include semiconductor materials, refinery hydrogen, coal gasification, natural gas liquefaction, and advanced coatings and adhesives. In fiscal 2011, Air Products had sales of approximately $10 billion. For more information, visit http://www.airproducts.com/.

Note: This release contains "forward-looking statements" within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about earnings guidance, projections, targets and business outlook. These forward-looking statements are based on management's reasonable expectations and assumptions as of the date of this release. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors not anticipated by management, including, without limitation, deterioration in global or regional economic and business conditions; weakening demand for the Company's products and services; future financial and operating performance of major customers; unanticipated contract terminations or customer cancellations or postponement of projects and sales; the success of commercial negotiations; asset impairments or losses due to a decline in profitability of or demand for certain of the Company's products or businesses, or specific product or customer events; the impact of competitive products and pricing; interruption in ordinary sources of supply of raw materials; the ability to recover unanticipated increased energy and raw material costs from customers; costs and outcomes of litigation or regulatory activities; successful development and market acceptance of new products and applications; the ability to attract, hire and retain qualified personnel in all regions of the world where the Company operates; the success of productivity programs; the success and impact of restructuring and cost reduction initiatives; achieving anticipated acquisition synergies; the timing, impact, and other uncertainties of future acquisitions or divestitures; significant fluctuations in interest rates and foreign currencies from that currently anticipated; the continued availability of capital funding sources for all of the Company's foreign operations; the impact of environmental, healthcare, tax or other legislation and regulations in jurisdictions in which the Company and its affiliates operate; the impact of new or changed financial accounting guidance; the impact on the effective tax rate of changes in the mix of earnings among our U.S. and international operations; and other risk factors described in the Company's Form 10K for its fiscal year ended September 30, 2011. The Company disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this document to reflect any change in the Company's assumptions, beliefs or expectations or any change in events, conditions, or circumstances upon which any such forward-looking statements are based.

* The presentation of non-GAAP measures is intended to enhance the usefulness of financial information by providing measures which our management uses internally to evaluate our baseline performance on a comparable basis. Presented below are reconciliations of the reported GAAP results to the non-GAAP measures.

CONSOLIDATED RESULTS


Q3



Continuing Operations


2012 Q3 vs. 2011 Q3

Operating

Income


Operating

Margin


Income


Diluted
EPS


2012 GAAP

$

482.8



20.6%


$

357.2


$

1.66


2011 GAAP


387.7



15.7%



297.0



1.37


Change GAAP

$

95.1



490bp


$

60.2


$

.29


% Change GAAP


25%






20%



21%















2012 GAAP

$

482.8



20.6%


$

357.2


$

1.66


Gain on previously held equity interest (tax impact $31.3) (A)


(85.9)



(3.6)%



(54.6)



(.25)


2012 Non-GAAP Measure

$

396.9



17.0%


$

302.6


$

1.41















2011 GAAP

$

387.7



15.7%


$

297.0


$

1.37


2011 Non-GAAP Measure

$

387.7



15.7%


$

297.0


$

1.37















Change Non-GAAP Measure

$

9.2



130bp


$

5.6


$

.04


% Change Non-GAAP Measure


2%






2%



3%

















Continuing Operations


2012 Q3 vs. 2012 Q2

Operating

Income


Operating

Margin


Income


Diluted

EPS


2012 Q3 GAAP

$

482.8



20.6%


$

357.2


$

1.66


2012 Q2 GAAP


287.9



12.3%



279.0



1.30


Change GAAP

$

194.9



830bp


$

78.2


$

.36


% Change GAAP


68%






28%



28%















2012 Q3 GAAP

$

482.8



20.6%


$

357.2


$

1.66


Gain on previously held equity interest (tax impact $31.3) (A)


(85.9)



(3.6)%



(54.6)



(.25)


2012 Q3 Non-GAAP Measure

$

396.9



17.0%


$

302.6


$

1.41















2012 Q2 GAAP

$

287.9



12.3%


$

279.0


$

1.30


Cost reduction plan (tax impact $26.2) (B)


86.8



3.7%



60.6



.28


Q2 Spanish tax ruling


-



-



(58.3)



(.27)


2012 Q2 Non-GAAP Measure

$

374.7



16.0%


$

281.3


$

1.31















Change Non-GAAP Measure

$

22.2



100bp


$

21.3


$

.10


% Change Non-GAAP Measure


6%






8%



8%




Q4 2012


2012 Forecast



2012 Guidance GAAP (C)


$

1.42 to 1.47


$

5.36 to 5.41



Gain on previously held equity interest (tax impact $31.3)






(.25)



Q1 Spanish tax settlement






.20



Cost reduction plan (tax impact $26.2)






.28



Q2 Spanish tax ruling






(.27)



2012 Guidance Non-GAAP Measure


$

1.42 to 1.47


$

5.40 to 5.45













(A) Based on average statutory tax rate of 36.44%.


(B) Based on average statutory tax rate of 30.17%.


(C) Guidance is on a continuing operations basis.


ELECTRONICS AND PERFORMANCE MATERIALS








2012 Q3 vs. 2011 Q3

Operating
Income



Operating
Margin



2012 GAAP

$

176.7



29.3%



2011 GAAP


109.0



18.1%



Change in GAAP

$

67.7



1,120bp



% Change GAAP


62%














2012 GAAP

$

176.7



29.3%



Gain on previously held equity interest (A)


(85.9)



(14.3)%



2012 Non-GAAP Measure

$

90.8



15.0%











2011 GAAP

$

109.0



18.1%



2011 Non-GAAP Measure

$

109.0



18.1%











Change Non-GAAP Measure

$

(18.2)



(310bp)



% Change Non-GAAP Measure


(17)%






















2012 Q3 vs. 2012 Q2

Operating
Income



Operating
Margin



2012 Q3 GAAP

$

176.7



29.3%



2012 Q2 GAAP


85.5



15.1%



Change in GAAP

$

91.2



1,420bp



% Change GAAP


107%














2012 Q3 GAAP

$

176.7



29.3%



Gain on previously held equity interest (A)


(85.9)



(14.3)%



2012 Q3 Non-GAAP Measure

$

90.8



15.0%











2012 Q2 GAAP

$

85.5



15.1%



2012 Q2 Non-GAAP Measure

$

85.5



15.1%











Change Non-GAAP Measure

$

5.3



(10bp)



% Change Non-GAAP Measure


6%





Capital Expenditures

We utilize a non-GAAP measure in the computation of capital expenditures and include spending associated with facilities accounted for as capital leases. Certain facilities that are built to provide product to a specific customer are required to be accounted for as capital leases and such spending is reflected as a use of cash within cash provided by operating activities.




FY 2011


Capital expenditures - GAAP basis



$

1,408.3


Capital lease expenditures




173.5


Capital expenditures - Non-GAAP basis



$

1,581.8










2012 Forecast


Capital expenditures - GAAP Measure



$

2,650


Capital lease expenditures




250


Capital expenditures - Non-GAAP Measure



$

2,900

AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

CONSOLIDATED INCOME STATEMENTS

(Unaudited)

























Three Months Ended




Nine Months Ended







30 June




30 June



(Millions of dollars, except for share data)


2012




2011




2012




2011



Sales

$

2,340.1



$

2,472.0



$

7,005.9



$

7,167.5



Cost of sales


1,690.8




1,825.7




5,128.9




5,243.5



Selling and administrative


230.4




234.5




698.8




703.0



Research and development


32.5




29.3




90.3




86.4



Cost reduction plan


-




-




86.8




-



Gain on previously held equity interest


85.9




-




85.9




-



Net loss on Airgas transaction


-




-




-




48.5



Other income, net


10.5




5.2




37.5




26.6



Operating Income


482.8




387.7




1,124.5




1,112.7



Equity affiliates' income


41.7




39.7




114.3




99.2



Interest expense


26.0




26.5




84.8




86.9



Income from Continuing Operations before Taxes


498.5




400.9




1,154.0




1,125.0



Income tax provision


133.3




95.4




269.5




271.9



Income from Continuing Operations


365.2




305.5




884.5




853.1



Income from Discontinued Operations, net of tax


127.3




29.5




166.5




69.3



Net Income


492.5




335.0




1,051.0




922.4



Less: Net Income Attributable to Noncontrolling Interests


8.0




8.5




22.4




23.0



Net Income Attributable to Air Products

$

484.5



$

326.5



$

1,028.6



$

899.4






















Net Income Attributable to Air Products

















Income from continuing operations

$

357.2



$

297.0



$

862.1



$

830.1



Income from discontinued operations


127.3




29.5




166.5




69.3



Net Income Attributable to Air Products

$

484.5



$

326.5



$

1,028.6



$

899.4






















Basic Earnings Per Common Share Attributable to Air Products










Income from continuing operations

$

1.69



$

1.40



$

4.08



$

3.89



Income from discontinued operations


.60




.14




.79




.32



Net Income Attributable to Air Products

$

2.29



$

1.54



$

4.87



$

4.21






















Diluted Earnings Per Common Share Attributable to Air Products

















Income from continuing operations

$

1.66



$

1.37



$

4.02



$

3.80



Income from discontinued operations


.60




.13




.77




.32



Net Income Attributable to Air Products

$

2.26



$

1.50



$

4.79



$

4.12






















Weighted Average of Common Shares Outstanding (in millions)


211.5




212.5




211.0




213.5



Weighted Average of Common Shares Outstanding



















Assuming Dilution (in millions)


214.7




217.3




214.6




218.4



Dividends Declared Per Common Share - Cash

$

.64



$

.58



$

1.86



$

1.65



Other Data from Continuing Operations


















Depreciation and amortization

$

212.2



$

212.3



$

620.5



$

627.6




Capital expenditures on a Non-GAAP basis


797.1




404.3




1,661.9




1,136.5





(see page 12 for reconciliation)



































AIR PRODUCTS AND CHEMICALS, INC. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(Unaudited)












30 June


30 September


(Millions of dollars)

2012



2011



Assets









Current Assets









Cash and cash items

$

361.2



$

421.4



Trade receivables, net


1,418.5




1,361.6



Inventories


699.5




670.2



Contracts in progress, less progress billings


162.7




146.7



Prepaid expenses


75.0




77.5



Other receivables and current assets


300.3




269.2



Current assets of discontinued operations


15.9




243.2



Total Current Assets


3,033.1




3,189.8



Investment in net assets of and advances to equity affiliates


1,135.0




1,011.6



Plant and equipment, at cost


17,592.4




16,858.8



Less: accumulated depreciation


9,884.3




9,636.1



Plant and equipment, net


7,708.1




7,222.7



Goodwill


927.9




796.2



Intangible assets, net


356.8




260.5



Noncurrent capital lease receivables


1,250.1




1,042.8



Other noncurrent assets


444.2




478.2



Noncurrent assets of discontinued operations


25.7




288.9



Total Noncurrent Assets


11,847.8




11,100.9



Total Assets

$

14,880.9



$

14,290.7












Liabilities and Equity









Current Liabilities









Payables and accrued liabilities

$

1,621.4



$

1,599.7



Accrued income taxes