Consistent with the findings this week of fellow US-based industrial gas majors Praxair and Airgas, Air Products is the latest company to report quarterly earnings affected by the challenging economic environment in the region.
Fiscal 2015 fourth quarter (Q4) sales of $2.44bn decreased 9% from the prior year on 7% unfavourable currency effects and 3% lower energy pass-through.
Volumes were unchanged as Industrial Gases – Asia growth continued and the LNG business posted another solid quarter, while Materials Technologies and Industrial Gases – Americas volumes were lower.
Air Products did, however, report quarterly net income of $397m, up 11% versus the prior year, for the period 30th September 2015. On a GAAP basis, net income from continuing operations was $345m for the quarter.
Operating income of $515m also increased 9% versus the prior year, and operating margin of 21% improved 340 basis points, driven by higher pricing and good cost performance. Adjusted EBITDA of $785m increased 2% over the prior year, and EBITDA margin of 32% improved 350 basis points – reflecting strong operating leverage.
Chairman, President and CEO Seifi Ghasemi said of the quarter, “The people of Air Products excelled again this quarter, delivering significant profit improvement in spite of increasingly challenging economic conditions around the globe. Compared to last year, EPS in the fourth quarter increased 10%, EBITDA margins were up 350 basis points to 32%, and operating margin of 21% was another record.”
Q4 results analysis
Industrial Gases – Americas sales of $902m decreased 13% versus the prior year, as lower energy pass-through reduced sales by 9% and currency reduced sales by 4%.
Underlying sales were flat, as 2% higher pricing offset 2% lower volumes.
Operating income of $209m decreased 5% and adjusted EBITDA of $330m decreased 3%, as unfavourable currency and lower energy pass-through more than offset the benefits of restructuring actions. Record operating margin of 23.1% improved 190 basis points, and record EBITDA margin of 36.6% improved 370 basis points over the prior year.
Industrial Gases – Europe, Middle East, and Africa (EMEA) sales of $460m declined 12% versus last year, driven by unfavourable currency. Underlying sales were up 2%, with pricing and volumes each up 1%. Operating income of $91m decreased 2% from the prior year, as strong pricing and cost performance were offset by unfavourable currency. On a constant currency basis, operating income was up 11%.
Record operating margin of 19.7% increased 190 basis points, and record EBITDA margin of 32.9% increased 220 basis points over the prior year, driven by the benefits of restructuring actions. Adjusted EBITDA of $151m decreased 5% versus prior year.
Industrial Gases – Asia sales of $428m increased 7% versus prior year, as 15% volume growth, primarily from new plants, was partially offset by 7% unfavourable currency. Operating income of $104m increased 44%, and operating margin of 24.4% improved 620 basis points over prior year due to higher volumes from the new plants and strong cost performance.
Adjusted EBITDA of $165m increased 17%, and EBITDA margin of 38.5% increased 330 basis points.
Full year and outlook
For fiscal 2015, sales of $9.9bn decreased 5% versus prior year. Underlying sales increased by 3% on 2% higher volumes, driven by Industrial Gases – Asia and Materials Technologies, and 1% higher pricing.
Operating income of $1.9bn increased 14%, and operating margin of 19% improved 310 basis points. Adjusted EBITDA of $3bn improved 8% and EBITDA margin of 30.1% improved 360 basis points.
“For the year, EPS of $6.57 was above the top of our original guidance despite a significant currency headwind of about 40 cents,” added Ghasemi. “We delivered this performance while improving safety, completing the most significant organisational change in Air Products’ 75-year history, winning a number of important projects with major customers around the world, and announcing the separation of our Materials Technologies business.”
“We made significant progress on our five-point plan this year, and this strong performance is a testament to our people’s hard work and their commitment to move Air Products forward.”
Air Products’ capital expenditure forecast for fiscal year 2016 is between $1.5bn and $1.6bn, while the company expects fiscal 2016 first quarter EPS from continuing operations to be between $1.65 and $1.75 per share.