Amidst the coronavirus pandemic, Air Products has released its fiscal 2020 second quarter (Q2) results as the company continues to run its facilities safely, deliver critical products to customers, and win new projects,

For the quarter Air Products reported a GAAP net income, including discontinued operations, of $490m, up 13%, and GAAP diluted earnings per share (EPS) of $2.21, including an estimated $0.06 to $0.08 negative impact from the coronavirus, up 16%. 

Q2 sales of $2.2bn increased 1% over the prior year on 6% volume growth and 2% higher pricing, partially offset by 5% lower energy pass-through and 2% unfavourable currency. Volume growth was primarily driven by base business growth, new plants, acquisitions and a short-term contract in Asia, which were partially offset by an approximately one percent negative volume impact due to COVID-19.

The negative COVID-19 impact was primarily due to Asia merchant volumes, which declined by about 25% for approximately six weeks following the Lunar New Year holiday before recovering in late March.

Americas and EMEA merchant volumes declined modestly during the last week of March but only had a negligible impact on the quarter’s results. Air Products did not see an impact on its onsite business from COVID-19 during its fiscal second quarter. 

“I am very proud of our people’s tireless efforts to maintain business continuity, keep our plants running safely, reliably serve our customers, and care for our communities during this especially challenging time,” said Seifi Ghasemi, Chairman, President and CEO of Air Products.

“Their hard work enabled us to deliver the fiscal second quarter results that we are reporting today. Meanwhile, Air Products remains in a secure financial position with a strong balance sheet and resilient business model, particularly our onsite business, which represents more than half of our sales and continues to drive our growth.”

“Our strategy to create shareholder value has not changed – we continue to invest in high return project opportunities and are committed to increasing the dividend as we move forward.”

Results by business segment

Industrial Gases – Americas sales of $932m decreased 6%, as 3% higher pricing and 2% higher volumes were more than offset by 9% lower energy pass-through and 2% unfavourable currency. Operating income of $268m increased 5%, primarily driven by price and volume, and operating margin of 28.7% increased 290 basis points, with about 250 basis points of the margin improvement due to lower energy cost pass-through. Adjusted EBITDA of $425m increased 7%, primarily driven by price and volume, and adjusted EBITDA margin of 45.6% increased 540 basis points, with about 350 basis points of the margin improvement due to lower energy cost pass-through.

Industrial Gases – EMEA sales of $493m were flat with the prior year. Volumes increased 4% - primarily due to new projects and an acquisition, with solid refinery hydrogen demand – and higher pricing contributed 3%, offset by 4% lower energy pass-through and 3% unfavourable currency. Operating income of $125m increased 2%, primarily driven by higher pricing, and operating margin of 25.3% increased 50 basis points. Adjusted EBITDA of $186m increased 2%, primarily driven by higher pricing, and adjusted EBITDA margin of 37.7% increased 90 basis points.

Industrial Gases – Asia sales of $658m increased 5%. Volumes increased 6%, driven by new plants and a short-term contract, which more than offset the -4% impact from COVID-19 on merchant volumes. Pricing increased 2%, while currency has a negative 3% impact. Operating income of $209m increased 5%, primarily on improved pricing, and operating margin of 31.8% declined 10 basis points. Adjusted EBITDA of $327m increased 10% on improved volumes and pricing, and adjusted EBITDA margin of 49.7% increased 200 basis points.

Outlook

“It is encouraging to see some improvement in the number of COVID cases and a flattening of the curve in certain areas around the world; however, significant economic uncertainty remains,” said Ghasemi.

“Despite this, our strong financial position and robust business model will allow us to continue to execute our strategy to create long-term shareholder value through capital deployment and successful execution of the projects in our backlog.”

“Our dividend growth remains a top priority. Most importantly, we will not let up our efforts to protect our people’s health and safety and take care of their welfare – they are what make the continued success of Air Products possible.”

Air Products expects declines in Americas and EMEA merchant volumes to continue and be more significant in its fiscal third quarter and potentially longer depending on the duration and impacts of the COVID-19 pandemic.

Given the significant uncertainty that remains regarding the duration of the crisis, the pace of recovery and the negative impact on the global economy from the rapidly evolving COVID-19 pandemic, Air Products is not providing Q3 FY20 EPS guidance.