Air Products Endures Shaky Economy in Fiscal First-Quarter 2012, Sees Growth in Second Half of Year

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Researched by Industrial Info Resources (Sugar Land, Texas)--Air Products and Chemicals Incorporated (NYSE:APD) (Allentown, Pennsylvania), which sells various gas-related performance materials, equipment and services to industries worldwide, reported mixed results for the company's fiscal first quarter of 2012, as slow economic conditions constrained volumes and earnings growth. Net income for the quarter was reported to be $248.1 million, a 7.63% decrease from fiscal first-quarter 2011.

Air Products executives noted that results were slightly better when excluding a settlement with Spanish tax authorities during the first quarter and a transaction loss in the same period last year. Making these exceptions, net income stood at $291.9 million, a 1.32% decrease from fiscal first-quarter 2011.

Total sales were reported to be $2.42 billion, a 1.31% increase from the same period last year. Volumes were higher in the Tonnage Gases segment, and prices strengthened in the Merchant Gases and Electronics & Performance Materials segments. However, sales weakened in the Equipment & Energy segment, driven by less project activity for air-separation units and liquefied natural gas, and volumes dropped in Merchant Gases.

Industrial Info is tracking more than $1.5 billion in active Air Products projects, including the construction of a $245 million hydrogen facility in Luling, Louisiana. The project involves building a steam methane reformer with about 100 million standard cubic feet per day of purified hydrogen capacity, which will be connected to Air Product's East Gulf Coast Pipeline network. The company also is building a $60 million steam methane reformer and hydrogen gas separation plant in Detroit, Michigan, that will produce about 50 million standard cubic feet per day of hydrogen and steam for an adjacent refinery.

"We expected that the first half of our fiscal year would be slow in the U.S. and Asia, and that Europe would be in a recession," said Paul Huck, the senior vice president and chief financial officer of Air Products, in a conference call. "We also expected that the second half of our fiscal year would be much stronger, as economic activity picked up in the U.S. and Asia. So far, we have seen that scenario play out with continued slow growth in the U.S., and Asia seeing a slowdown, particularly in China, as policymakers took action to control inflation. Europe continued to decline."

Only the Electronics and Performance Materials segment reported gains in both revenue and operating income:

• The Merchant Gases segment reported sales of $989.3 million, a 0.15% increase from fiscal first-quarter 2011, and operating income of $191.6 million, a 4.44% decrease.
• The Tonnage Gases segment reported sales of $809.8 million, a 5.72% increase from the same period last year, and operating income of $111.4 million, a 3.63% decrease.
• The Electronics and Performance Materials segment reported sales of $535.2 million, a 1.75% increase from first-quarter 2011, and operating income of $78.1 million, a 13.35% increase.
• The Equipment and Energy segment reported sales of $88.8 million, a 20.64% decrease from first-quarter 2011, and operating income of $7.3 million, compared with $20.2 million in the same period last year.

Air Products executives do not expect economic activity to strengthen significantly in the fiscal second quarter, although they do predict that North America and Asia will see noticeable improvements in sales and earnings in the second half of 2012. Capital expenditures for the full year are expected to be about $1.9 billion to $2.2 billion, compared with $1.6 billion in fiscal 2011.

"In Electronics and Performance Materials, we expect higher volumes, as the first quarter is typically seasonally lower," Huck said in the conference call. "In Tonnage Gases, profits are expected to improve on higher operating bonuses and lower maintenance costs--and also less of an impact from our polyurethane intermediates contract renegotiation. Higher volumes from new plants on-stream, including our new hydrogen plant in Rotterdam and our new air-separation unit in LaPorte, Texas, will also contribute. Merchant volumes should improve in the U.S. and Canada, as we see the impact of our fiscal 2011 new-business signings."

For more information, visit Industrial Info's North American Chemical Processing Project Database and North American Oil & Gas Transmission Project Database.

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