Air Products is reflecting on strong underlying performance across its gases business, as the company disclosed its fiscal 2017 third quarter results with a headline 11% increase in sales in the quarter.
While Air Products reported (GAAP) net income from continuing operations of $104m (down 58% over the prior year) and diluted earnings per share (EPS) from continuing operations of $.47 (down 59%) for its fiscal third quarter ended 30th June 2017, these results include non-cash impairment charges.
On a non-GAAP basis, adjusted net income from continuing operations of $363m was actually up 16% versus the prior year, and adjusted diluted earnings per share from continuing operations of $1.65 was up 15%, respectively.
All of which was underpinned by third quarter sales of $2.1bn which had increased 11% over the prior year, on 8% higher volumes and 5% favourable energy pass-through – partially offset by 2% unfavourable currency.
Volumes were positive across all three regions (Americas, EMEA, Asia), while continued progress on the Jazan project was partially offset by lower LNG activity.
Taken together, the Industrial Gas regions increased overall volumes by 8%. Pricing was flat with the prior year.
Commenting on the results, Chairman, President and CEO Seifi Ghasemi said, “Once again, the committed and motivated team at Air Products delivered strong results. We had another quarter of excellent improvement in our safety performance. Adjusted EPS increased 15% over prior year, which is the 13th consecutive quarter of adjusted EPS growth, and we generated a significant amount of cash flow.”
“In addition, our customers awarded us significant new orders, and we successfully started up our very large hydrogen plant in India and another very large oxygen plant in China.”
For the quarter, on a GAAP basis, operating income of $253m decreased 36%, with operating margin of 11.9% also decreasing 870 basis points versus prior year. Adjusted operating income of $463m increased 11%, however, and adjusted EBITDA of $722m increased 7% over the prior year.
Adjusted operating margin of 21.8% was unchanged versus the prior year, as unfavourable energy pass-through of 90 basis points was offset by favourable volumes.
Performance by region
Sales in Air Products’ native Americas market were $930m in its fiscal third quarter, up 12% versus the prior year on 3% higher volumes and 9% higher energy pass-through.
Operating income of $236m increased 1%, as did adjusted EBITDA of $367m, as the contribution of the higher volumes and productivity actions were partially offset by outage-related costs.
Sales in the emerging Asia market showed the highest increases across the three regions, up 20% versus the prior year at $538m. Volumes were up 20%, about half of which was from equipment sale projects, and the remainder was evenly split between new project on-streams and base business growth. Higher pricing contributed 2%, as merchant pricing improved across Asia, including China.
Operating income of $149m increased 26%, while adjusted EBITDA of $211m increased 15%, driven by the higher volumes and the higher pricing, partially offset by lower equity affiliate income and higher costs.
In Europe, Middle East and Africa (EMEA) sales of $452m increased 5% over last year, as 6% higher volumes and 4% higher energy pass-through were partially offset by 4% unfavourable currency and 1% lower pricing. Higher volumes were driven by the company’s new hydrogen facility in India coming on-stream.
Operating income of $94m decreased 10%, while adjusted EBITDA of $155m decreased 3% from the prior year, as productivity actions and higher equity affiliate income were offset by lower equipment sales and a negative impact from price versus variable cost; on a constant currency basis, adjusted EBITDA would have been up slightly, Air Products explained.
Based upon results to date, Air Products has increased fiscal 2017 adjusted EPS to $6.20 to $6.25, which at midpoint, is up $0.10 from prior guidance and represents an increase of 10% over last year.
The capital expenditure (CAPEX) forecast for fiscal year 2017 is approximately $1bn on a GAAP and non-GAAP basis.
Looking ahead, Ghasemi said, “We continue to be optimistic about the future performance of Air Products. We see significant opportunities to use our very strong balance sheet to invest in our core business and create value for our shareholders. We have increased our full-year guidance by $0.10 at midpoint, now representing a 10% increase over prior year.”
“Our great team of hardworking, dedicated, talented and motivated employees remain focused on being the safest and most profitable industrial gas company in the world, providing excellent service to our customers.”