Despite mixed volume growth across the globe and continued slower than expected growth in many emerging markets, Praxair, Inc. has delivered ‘solid’ third quarter results and saw operating profit growth exceed that of sales.

The company today reported third quarter net income of $477m, 6% above the prior year, and sales of $3.144bn, up 4% against the prior year.

Organic sales grew 5% from higher volumes, including new project start-ups, in North America, South America and Asia, and higher prices across all operating segments.

By end-market, sales growth was strongest for manufacturing, food and beverage, healthcare and metals customers.

Operating profit in the third quarter was $711m, 5% above the prior year. Excluding negative currency translation impacts, operating profit rose 6%, primarily driven by higher pricing and productivity gains. Operating profit as a percentage of sales grew to 22.6% and the EBITDA margin grew to 32.5%.

Chairman and CEO Steve Angel reflected, “Praxair achieved record earnings per share and again delivered a solid quarter with operating profit growth outpacing sales growth, despite continued slower growth in most emerging markets. Operating margin grew to 22.6%, due to our employees’ relentless focus on margin expansion through productivity and price improvements greater than cost inflation. Cash flow generation remained strong with operating cash flow at 23% of sales.

Third-quarter cash flow from operations was $713m and funded capital expenditures of $430m, primarily for new production plants under long-term contracts with customers. Praxair paid dividends of $189m and repurchased $100m of stock, net of issuances.

The after-tax return on capital and return on equity for the quarter were 12.6% and 28.2%, respectively.

Angel added, “Volume growth was mixed. In North America, our US and Canadian businesses grew quite well, while sales to energy-related customers in Mexico remained weak. European volumes grew modestly across most countries. Asia experienced slowing volume growth in China, while India volumes were strong. Praxair Brazil delivered growth in a negative industrial production environment driven by new applications and growth in healthcare and food and beverage end-markets.”

Results by segment

In Praxair’s domestic market of North America, third quarter sales were $1.639bn, 3% above the prior-year quarter and up 4% excluding negative currency translation impacts. Organic sales growth of 2% was driven primarily by higher pricing and increased sales to the manufacturing, metals, food and beverage and healthcare end-markets.

Higher sales to energy customers in the US and Canada were mostly offset by weaker energy sales in Mexico, Praxair explained. Acquisitions contributed 1% growth, primarily US packaged gas distributors. Operating profit of $416m grew 2% from the prior year due to higher pricing and ongoing productivity initiatives.

“During the fourth quarter, we are expecting similar underlying business trends and currency headwinds from the recent devaluation of many of our major currencies. Despite these challenges, we will remain focused on operational excellence…”

In South America, third quarter sales were $523m. Sales grew 8% from the prior year quarter excluding a 2% negative currency impact, due to higher overall pricing and modestly higher volumes primarily driven by food and beverage, healthcare and manufacturing end-markets. Operating profit of $118m was up 5% excluding currency effects, due primarily to higher pricing which more than offset cost inflation.

In Europe, third quarter sales were $385m, consistent with third quarter 2013. Organic sales growth of 2% came from higher volumes in most major countries and higher pricing. Operating profit of $71m increased 11% versus the prior-year quarter, and was driven by higher volumes, pricing and net density and efficiency gains from the divestiture of France and acquisition in Italy.

And finally in Asia, sales rose 11% against the prior year to $426m, driven by higher pricing and volume growth. Sales growth came primarily from manufacturing and metals customers, including new plant start-ups. Operating profit was $75m, 12% above the prior year quarter due primarily to higher price, higher volumes and productivity initiatives.


Looking ahead, Praxair expects similar conditions for the quarter ahead and has also given its outlook for full year 2014.

Angel said, “During the fourth quarter, we are expecting similar underlying business trends and currency headwinds from the recent devaluation of many of our major currencies. Despite these challenges, we will remain focused on operational excellence to ensure we grow free cash flow and earnings per share for our shareholders.”

For full year 2014, Praxair expects sales in the range of $12.3bn to $12.4bn. The company expects diluted earnings per share to be in the range of $6.23 to $6.30, 5% to 6% above the prior year. This year-over-year growth rate reflects approximately 3% negative foreign currency translation impact.

Full-year capital expenditures are expected to be about $1.7bn, and the effective tax rate is forecasted to remain at about 28%.