As Air Products’ third quarter earnings are released, the CEO says the actions taken by the company are positioning it for continued margin improvement.
The company reported income from continuing operations of $115m, or diluted earnings per share (EPS) from continuing operations of $0.54. These results included charges of $110m, or $0.51 per share, for the company's global cost reduction plan, a customer bankruptcy and other asset actions, and a pension settlement.
Excluding the impact of these items, income from continuing operations was $225m and diluted EPS was $1.05, down 24 and 22 percent, respectively, compared with the previous year.
Approximately three-quarters of the fiscal third quarter global cost reduction plan is for severance and pension costs related to the elimination of approximately 1,150 positions from the company's global workforce. These reductions are targeted at continued cost and productivity efforts, including closure of certain manufacturing facilities. The remainder is for a write-down of certain assets held for sale to net realisable value.
The global cost reduction plan is expected to reduce fixed costs by approximately $30m in fiscal 2010, with annual benefits of $50m in fiscal 2011 and beyond.
Third quarter revenues of $1,976m decreased 28 percent from the previous year on weaker volumes, lower energy and raw material cost pass-throughs, and unfavorable currency.
Underlying sales were down 11 percent. Operating income of $308m declined 22 percent from the previous year on weaker volumes and unfavorable currency impacts, partially offset by lower operating and overhead costs.
John McGlade, Chairman, President and Chief Executive Officer, said, $quot;While we are still seeing the impact of the global recession on our volumes, we've seen signs of improvement during this quarter in some of our end markets, particularly in Electronics and Asia.”
He added, “The productivity and continuous improvement efforts of our employees are having an impact, as margins improved substantially both sequentially and versus prior year.$quot;
Merchant Gases sales of $883m declined 19 percent from the previous year on weaker volumes across manufacturing end-markets globally and unfavorable currency, partially offset by favorable pricing.
Tonnage Gases sales of $565m were down 42 percent from the previous year, principally on lower energy and raw material cost pass-throughs, and to a lesser extent, weaker volumes in steel and chemical end-markets and unfavorable currency.
Electronics and Performance Materials sales of $409m declined 29 percent and operating income of $39 million decreased 45 percent from the previous year on significantly lower volumes. While Electronics sales increased 21 percent sequentially due to improved customer run rates, year-on-year sales were down 35 percent.
Performance Materials volumes improved 26 percent sequentially, reflecting seasonal improvement and stronger Asian sales, but declined 23 percent from the prior year on weaker demand from coatings, autos, housing and other end markets.
Equipment and Energy sales of $119m were up 12 percent over the previous year on higher air separation unit activity.
McGlade continued, $quot;The global recession remains challenging; however, we believe the actions we are taking to drive improvement in costs are positioning the company for continued margin improvement. We are focused on and remain committed to achieving our 17 percent margin goal.$quot;
The company now expects fourth quarter EPS from continuing operations to be between $1.04 and $1.14 per share and full-year EPS from continuing operations to be between $3.95 and $4.05 per share, excluding the impact of disclosed items in the fiscal first and third quarters.