The industrial gas producer Air Products & Chemicals (APD, Financial) reported strong financial results for the third-quarter 2014, driven by higher volumes across its entire business segments such as merchant gases and electronics and performance material divisions along with better price and improved growth in its underlying sales.
The company posted an impressive 9% growth in its net profit to $314 million or earnings of $1.46 per share from $288.4 million or earnings of $1.36 per share a year earlier, beating the analyst’s estimates of $1.45 per share for the quarter. Its sales for the quarter came in at $2.64 billion, an upturn of 4% as compared to $2.55 billion in the year earlier period.
Looking ahead, for the fourth quarter the company expects earnings of $1.60 per share to $1.65 per share which is in line with consensus estimates of $1.62 earnings per share. Air Products, for the full year sees earnings to be in the range of $5.70 per share to $5.85 per share. The company expects its total capital expenditure for the full fiscal year to remain unchanged at $2.00 billion.
The momentum is expected to continue
Air Products is on track to carry forward this momentum into the fourth quarter through various strategic pains such as increased productivity, price and cost actions and embracing new businesses and briningg projects on-steam that should drive its growth in the fourth quarter. In addition, Seifi Ghasemi, new chief executive officer who recently took charge, said, “Air Products will focus on projects that generate more cash flow and on improving returns on invested capital."
Air product is aggressively concentrating on the boosting its capacity through new helium plants in Wyoming that is expected to ramp up production for crude helium. The company also expects the demand and supply balance to get corrected and release the pressure built on the supply side during the third-quarter 2014 that should better align its production with the increasing demand for helium worldwide.
Besides, the company is also observing positive shift in the pricing of helium and LOX/LIN that should assist the company in compensating the losses it had during the second-quarter 2014 due to severe weather. The prices are up 1% as compared to last year in the same quarter for helium and LOX/LIN.
Seeing good growth
In addition, the company is also experiencing solid growth in its liquid oxygen and nitrogen volumes in the United States and Canada as it is seeing improved strength in the metals and chemicals markets, where capacity utilization floats above 70s. Moreover, Air products will have the full benefit of recently acquired EPCO’s carbon dioxide products this quarter versus only a month in the same quarter last year.
Also, Air Products has recently publicized the installation of a new air separation unit for AGC Glass in the Czech Republic. Asahi Glass is one of the leading producers of flow glass and should take advantage of the new plant and produce maximum quality glass in a cutthroat environment.
Air Products is also seeing an augmented momentum, particularly in China where it recorded double-digit growth in the reported quarter for liquid oxygen nitrogen and argon. However, the company and the industry are confronted with the supply momentum that has grown faster than the demand in China that could hurt its margin in the short run. But once the demand and supply strike a balance, it should drive growth for the company and start yielding higher margins.
Furthermore, the company is also observing higher demand for hydrogen as its United States Gulf Coast customers have started adding heavy Canadian oil sands to a crude slate that is accelerating hydrogen demand in the region. Apart from this, the company is also realizing strong growth in its equipment and energy segments, where its leading position is helping them to create positive sales and backlog. Air Products has built remarkable backlog of $584 million during the third-quarter 2014 as it recently got a new LNG projects from PETRONAS. This new LNG project will certainly drive growth in the coming years in the floating LNG market.
Conclusion
Air Products looks confident to generate higher returns to investors and shareholders due to impressive traction in the market for its helium business along with remarkable order book that is growing day by day. The company is currently trading at the trailing P/E of 28.09 and forward P/E of 20.54 that indicate reasonable valuations for the stock and highlights potential growth prospects in the future. Besides, the company is fairly doing well on the performance and wealth matrixes as its profit and operating profit yields for the trailing twelve months are 9.90% and 15.37% respectively, while its ROE has yield of 14.04% for the last twelve months.
All these indicate that Air Products is a good bet for the future.
