Air Products today (Tuesday) reported net income of $303 million and diluted earnings per share (EPS) of $1.41 on a non-GAAP, continuing operations basis, for its fiscal third quarter ended June 30, 2012.

Third quarter revenues of $2,340 million decreased 5% versus prior year, primarily on lower energy pass-through and a stronger dollar. Underlying sales were up one percent, largely due to higher pricing in the Merchant Gases segment. Operating income of $397 million was up 2% on improved cost performance, partially offset by a stronger dollar. Operating margin of 17% increased 130 basis points versus prior year.

Sequentially, while overall sales were unchanged, underlying sales grew one percent due to higher volumes. Better cost performance drove operating income up six percent and operating margin increased 100 basis points sequentially.

Commenting on the quarter, John McGlade, chairman, president and chief executive officer, said, “Economic growth this quarter was below what we expected in Asia, Europe and Electronics. Despite headwinds from the economy and a stronger dollar, we were able to deliver earnings within expectations due to excellent cost performance. In addition, we recently executed several key strategic activities, including the purchase of our majority position in Indura, taking full ownership of our DA NanoMaterials joint venture and the sale of our Continental Europe Homecare business.”

Brief details of each section of the business’ performance are as follows.

•               Merchant Gases sales of $874 million decreased 5% due to a stronger dollar. Operating income of $165 million increased 4% versus prior year, as stronger pricing and better cost performance in all regions improved results.

•               Tonnage Gases sales of $767 million decreased 12% versus the prior year on 12% lower energy pass-through. Operating income of $134 million was up 17% versus prior year on higher volumes and lower operating and maintenance costs. Operating income was up 7% from the prior quarter, largely due to higher volumes and lower maintenance costs.

•               Electronics and Performance Materials sales of $604 million were unchanged versus the prior year. Underlying sales were down 2% on lower volumes and pricing. The DA NanoMaterials acquisition added 4% and the stronger dollar reduced sales by 2%. Operating income of $91 million was down 17% versus prior year, due primarily to lower volumes and pricing.

•               Equipment and Energy sales of $95 million and operating income of $10 million increased 19% and 14% respectively, with higher large air separation unit sales offsetting lower LNG sales. Sequentially, sales decreased 14% and operating income was unchanged. The sales backlog is up 76% versus prior year and 39% versus prior quarter on recent LNG signings.

Looking ahead, McGlade said, “The current economic uncertainty continues to impact our near-term volume growth. To offset this, we will continue to deliver productivity and cost reduction to the bottom line. In the longer-term, we remain confident in the growth prospects for industrial gases and Air Products. Our recent Indura and DA NanoMaterials acquisitions and Homecare portfolio actions demonstrate our emphasis on execution and position us well for future growth and profitability.”

Air Products expects fourth quarter adjusted EPS from continuing operations to be between $1.42 and $1.47 per share. The company’s adjusted guidance for continuing operations for fiscal 2012 is $5.40 to $5.45 per share.