Air Products has announced its Fiscal second quarter financial results which have been boosted by “good cost performance to offset weaker than expected sales”.
Second quarter revenues of $2,484m increased 6% versus prior year, with underlying sales down 2% due to the previously announced decision to exit the Polyurethane Intermediates business (PUI). Acquisitions contributed 6%. Operating income of $390m was up 4% versus prior year. Operating margin of 15.7% was down 30 basis points versus prior year, primarily on acquisitions and higher pension expense, partially offset by better cost performance.
Sequential sales declined 3%, with underlying sales down 3% on lower Tonnage Gases volumes due to planned customer maintenance. Operating income increased 5% sequentially, primarily from the inventory accounting revaluation last quarter and better cost performance.
Commenting on the second quarter, John McGlade, chairman, president and chief executive officer, said, “Good cost performance helped offset weaker than expected volumes in the second quarter. Global economic growth continued to be a challenge, with a slower US, contraction in Europe, softness in China, and an electronics market much weaker than we expected. Despite these difficult conditions, we were able to deliver bottom-line earnings growth in the first half of the year by focusing on superior execution and cost discipline. With a project backlog totaling over $3bn and significant leverage to an economic recovery, Air Products remains well positioned for growth over the long-term.”
Merchant Gases sales of $1,003m increased 14% versus the prior year due largely to the Indura acquisition. Underlying sales declined 1%, with positive pricing more than offset by lower volumes in Europe and in helium globally. Operating income of $168m increased 10% versus prior year due to Indura and improved productivity, including the benefits from our cost reductions in Europe. This was partially offset by lower volumes and higher energy and distribution costs. Sequentially, sales decreased 1% and operating income decreased 2%, primarily on lower seasonal volumes in Asia.
Tonnage Gases sales of $809m increased 3% versus the prior year on new plant volumes and higher energy pass-through, partially offset by lower PUI volumes. Operating income of $123m decreased 2% versus prior year including PUI, but was up 3% excluding PUI on new plant volumes and better operating efficiencies. Sequential sales decreased 10% driven by lower Tonnage and PUI volumes. Sequential operating income was down 11% on lower volumes and higher maintenance costs due to planned customer outages.
Electronics and Performance Materials sales of $549m declined 3% versus prior year, with lower electronics materials and equipment sales partially offset by the DA NanoMaterials acquisition. Operating income of $78m decreased 9% versus prior year on lower volumes and price pressure. Sequential sales were flat while operating income increased 26% largely on the inventory accounting revaluation last quarter.
Equipment and Energy sales of $124m increased 12% versus prior year, due to higher LNG project activity. Operating income of $21m more than doubled versus prior year due to the higher equipment sales and reduced development spending. Sequentially, sales increased 17% and operating income improved significantly due to higher equipment sales and lower development spending. The sales backlog of $326m is up 5% versus prior year.
Looking ahead, McGlade said, “Given the weakness we saw coming out of Q2, we are tempering our expectations for economic growth in the second half of our fiscal year. We remain focused on those things within our control, including reliable plant operations, disciplined project execution, capital allocation, and further productivity improvements. In light of our view of continuing slow growth, we are actively assessing whether there are additional actions we can take that would result in increased value to our shareholders.”
Air Products expects third quarter adjusted EPS from continuing operations to be between $1.33 and $1.38 per share. The company’s adjusted guidance for continuing operations for fiscal 2013 is a range of $5.45 to $5.60 per share.