Praxair’s first-quarter 2009 results have left the company feeling cautious about the remainder of the year, but it believes provisions put in place to cope with the economic crisis will pay off once things start to improve.
Praxair reported net income attributable to Praxair and diluted earnings per share of $290m and 93 cents, respectively, in the first quarter, compared to $307m and 96 cents in the first quarter of 2008.
Reported sales in the first quarter were $2,123m, a decline of 20% compared to sales in the first quarter of 2008.
Higher product pricing was offset by significantly lower volumes in all geographies due to production cutbacks and lower demand by customers as a result of the global macroeconomic slowdown.
Operating profit in the first quarter was $442m, 11% below the previous year, but operating margin as a percentage of sales improved to 20.8% as a result of significant reductions in both fixed and variable costs.
The company generated cash flow from operations of $349m in the quarter, which funded $293m of capital expenditures, largely for new production plants under contract for customers in North and South America, China and India.
In March, the company issued $300m of five-year bonds at 4.375%, the proceeds of which were used to reduce short-term debt. The after-tax return-on-capital ratio and return on equity for the quarter were 13.8%, and 28.7%, respectively.
Commenting on the results, Chairman and Chief Executive Officer at Praxair, Steve Angel said, “As we anticipated, the low level of customer demand which we experienced in November and December continued right through the first quarter.”
“Demand appears to have stabilised, but at a lower level, with overall volumes down 12% versus the prior year. However, we have not yet seen meaningful signs of recovery and we are therefore cautious regarding our outlook for the remainder of the year.”
“Our productivity programmes have reduced costs significantly to offset the impact of lower volumes. When the economy does recover, this will give us substantial operating leverage on volume growth. In addition, our projects currently under construction will contribute sales and earnings growth as we bring these new facilities on line over the next several years. We signed several new contracts this quarter for energy projects in the U.S. and Europe.”
In North America, first-quarter sales were $1,164m, 20% below $1,454m in the first quarter of 2008; higher sales to energy markets were offset by sharply lower volumes to chemicals, metals, electronics and manufacturing markets.
Despite this sales decline, operating profit of $256m was only 2% below the previous year quarter, due to the effect of cost-reduction actions initiated in the fourth quarter and ongoing productivity programmes.
In Europe, sales in the first quarter were $303m, 22% below the prior year, and operating profit was $63m in the quarter, compared to $87m in the previous year, due to lower volumes and currency depreciation.
In South America, first-quarter sales were $353m, 24% below the previous year, and operating profit in the first quarter was $75m, 16% below $89m in the previous quarter.
The significant operating leverage was achieved by productivity programmes, cost reduction and higher pricing levels; this resulted in an improvement in operating margin to 21.2% from 19.1% in the 2008 quarter.
Sales in Asia were $180m in the quarter, 15% below the previous year and operating profit fell to $26m compared to $37m in 2008.
Sales and earnings growth from project start-ups in China, India, and Korea was more than offset by the sharp decline in sales to electronics customers.
For the second quarter of 2009, Praxair expects diluted earnings per share in the range of 95 cents to $1.00; this guidance assumes a negative currency impact of about 11% compared to the second quarter of 2008, based on current exchange rates.
Based on the current macroeconomic environment, Praxair expects sales for the full year of 2009 to be in the area of $9bn.