Reporting on its earnings for the second quarter of 2009, Praxair’s CEO said the company is continuing to sign new contracts and consider new projects, despite the uncertain economic climate.
Praxair reported net income and diluted earnings per share of $299m and 96 cents respectively in the second quarter, compared to $349m and $1.08 in the second quarter of 2008.
Reported sales in the second quarter were $2,138m, 26% below $2,878m in the second quarter of 2008. Underlying sales were 12% below the previous year, excluding the negative effects of foreign currency and cost pass-through. Overall volumes declined by 14%, and were partially offset by higher pricing.
Operating profit in the second quarter was $447m, 18% below the previous-year period and sequentially unchanged from the first quarter. Operating margin improved to 20.9% as cost reductions more than offset volume declines.
The company generated strong cash flow from operations of $563m in the quarter, which funded $370m of capital expenditures, supporting the construction of new production plants around the world under long-term contracts for customers. It repurchased $64m of stock, net of issuances, and paid $123m of dividends. The after-tax return-on-capital ratio and return on equity for the quarter were 13.8%, and 27.5%, respectively.
Commenting on the results and business outlook, Chairman and Chief Executive Officer Steve Angel said, “Challenging economic conditions persisted globally in the quarter, resulting in overall volumes on par with the first quarter.”
“We have begun to see pockets of sequential improvement in Asia and South America, where economic activity appears to be reacting positively to fiscal and monetary stimulus programmes.”
“In Europe and North America, the overall industrial environment remains very weak, although volumes appear to have stabilised.”
$quot;We have held a tight rein on costs, and have continued to realise savings from our ongoing productivity initiatives. These actions have offset a substantial amount of the impact of lower volumes and will give us significant operating leverage when volume growth resumes.”
“In spite of the uncertain economic environment, we are continuing to evaluate a large number of new project proposals, and we signed several new contracts this quarter for on-site projects in emerging economies.$quot;
In North America, second-quarter sales were $1,120m, 29% below the second quarter of 2008. Higher refinery hydrogen volumes were offset by lower volumes to chemicals, metals, electronics and manufacturing markets. Operating profit of $264m was only 4% below the previous year quarter, due to significantly lower fixed and variable costs.
In Europe, second-quarter sales were $306m, 25% below the previous year.
In South America, second-quarter sales were $395m, 23% below the previous year period, primarily due to the negative impact of currency translation, which reduced sales by 19%. Sales to food and beverage and healthcare markets were relatively stable. Sales to metals and manufacturing markets were weak, compared to the previous year, but showed modest sequential improvement.
Sales in Asia were $199m in the quarter, 14% below the 2008 quarter. Excluding negative currency translation effects, sales declined 5% on a year-over-year basis. Sales grew 11% from the first quarter, as business conditions improved in manufacturing, metals and electronics markets.
For the third quarter of 2009, Praxair expects diluted earnings per share in the range of 95 cents to $1.00. For the full year of 2009, it expects sales to be in the area of $9bn and diluted earnings per share to be in the range of $3.85 to $4.05.
Full-year capital expenditures are expected to be in the area of $1.4bn, supporting the construction of 42 on-site production plants under contract, which will come on-stream in 2009 through 2011.