Air Products and Chemicals (APD) is one of the current activist targets of Bill Ackman (Trades, Portfolio) and he currently holds 20,549,076 shares of the company. In addition to Bill Ackman, the company’s CEO - Seifollah Ghasemi – also seems very upbeat about the company’s prospects and is actively buying its shares. On May 1, 2015, he bought 20,000 shares of the company. In total, he has purchased 135,000 shares of the company since he became the CEO. He is the person in charge of turnaround and his buy back activity makes me bullish on the company.
Air Products recently reported solid 2Q FY2015 results with adjusted EPS of $1.55, up 17 percent versus prior year. The company's adjusted EBITDA margin of 29.4% was up 440 basis points versus prior year. In addition, the company also announced that it has been awarded contract with Saudi Aramco for the world’s largest industrial gas complex which will supply 75,000 metric tons per day (20,000 oxygen and 55,000 nitrogen) to Saudi Aramco’s refinery being built in Jazan, Saudi Arabia for 20 years. Commenting on the win, Air Product's CEO Seifi Ghasemi said:
“We at Air Products are very excited about being awarded this very significant project. We consider it an honor and a privilege to use our proprietary technology to design and build the world’s largest industrial gas complex for an outstanding client and the largest company in the world, Saudi Aramco. We are very pleased that Saudi Aramco trusts Air Products and our partner ACWA Holding to economically and reliably supply the critical gases needed for its refinery in Jazan. This award also demonstrates the value of our outstanding relationship with our partner in ACWA Holding, who has worked so closely with us to develop this great project.”
Air Products and Chemicals is a industrial gas company with a portfolio of products that include atmospheric gases, process and specialty gases, performance materials, equipment, and services. Last year, the company appointed Seifollah Ghasemi as the new CEO with the aim of improving the company's operating performance and increasing its margins by reducing costs and streamlining processes. Things have started improving at the company under the new CEO's tenure. The company delivered a strong performance in the first half of fiscal year 2015.
The company improved its safety record and improved its lost-time injury rate by 28% since the begining of this year. This is a clear indication that the employees are actually involved in improving the discipline of operations and distribution. The company increased its EBITDA margins by 440 basis points and earnings per share for the quarter increased 17% versus last year. Going forward, the company remains focused on becoming the safest and most profitable industrial gas company in the world.
Management is also focused on creating value for its shareholders, cash generation, capital allocation and moving towards a decentralized organization. In September 2014, the company laid out a detailed strategic plan to move forward. The plan included five key points:
- Focus on the core business
- Restructure the organization
- Change the company culture
- Control Capital/Costs
- Align Rewards
The company had made progress on all these fronts. The company is now focused on improving and growing its core Industrial Gases business. The management has implemented a new structure designed to create a simple empowered and accountable organization. The company is also making progress in implementing a culture of total focus on safety, simplicity and speed of execution. On the capital allocation front, the company has started examining all projects over $3 million on a weekly basis with full participation of its relevant executives. The company also has made significant changes to align reward to its compensation plans. The new plan encourages focus on EBITDA and cash generation.
Air Products is trading at 20 times FY2016 (Sept.) earnings estimates. The company's EPS is expected to grow 12.45% in the current year and 12.92% next year. Out of 21 analysts covering the company, six are bullish and have buy recommendations, thirteen have hold ratings and two have sell ratings.