Tier 1 company Praxair will continue to keep costs to a minimum, in the hope that the strategy will give it significant operating leverage as volumes improve.
Praxair reported third-quarter net income and diluted earnings per share of $325m and $1.04, respectively.
These results include a net after-tax benefit of $7m, or two cents of diluted earnings per share, resulting from a $306m pre-tax charge, and $313m of income tax benefits, related primarily to a Brazilian government tax amnesty programme.
Excluding these items, net income was $318m and diluted earnings per share were $1.02, as compared to $355m and $1.11 in the previous-year quarter.
Sales in the third quarter were $2,288m, 20% below $2,852m in the third quarter of 2008.
Excluding the negative effects of foreign currency and cost pass-through, underlying sales were 9% lower due to 11% lower volumes partially offset by 2% higher overall pricing. Sequentially, sales rose 7% from the 2009 second quarter.
Reported operating profit in the third quarter was $174m. Excluding the above-mentioned charge, adjusted operating profit was $480m, 12% below the previous-year period and 7% above the second quarter. Adjusted operating margin was 21% in the current quarter, up from 19.1% in the previous year as cost reductions and pricing more than offset volume declines.
The company generated strong cash flow from operations of $547m in the quarter, which funded $334m of capital expenditures, supporting primarily the construction of new on-site production plants for customers under long-term contracts.
Acquisition expenditures were $117m, primarily for the purchase of Sermatech International Holdings Corp. which was announced on 1st July 2009 and closed during the quarter. The company paid $122m of dividends. The after-tax return-on-capital ratio and return on equity for the quarter were 13.6%, and 26.2%, respectively.
Commenting on the results and business outlook, Chairman and Chief Executive Officer Steve Angel said, $quot;Business conditions stabilized globally during the quarter. Our base business volumes improved from the second quarter in all our geographic regions.”
“The strongest pick-up was in Asia and South America, where government stimulus programs have increased domestic demand and industrial production. To a lesser extent, volumes in North America and Europe also improved from the 2009 second quarter, due primarily to increased production by our metals, chemicals and electronics customers. Overall demand from general manufacturing markets in these regions remains relatively weak and has yet to show meaningful signs of recovery.”
$quot;We continue to hold a tight rein on costs. Our cost reduction and productivity programs have offset a substantial amount of the impact of lower volumes compared to last year. Our lower cost base will therefore give us significant operating leverage as volumes improve.$quot;
In North America, third-quarter sales were $1,162m, 25% below the third quarter of 2008.
In Europe, third-quarter sales were $323m, 16% below the previous year period. Compared to the 2009 second quarter, sales and operating profit both improved.
In South America, third-quarter sales were $436m, 17% below the previous-year period.
Sales in Asia were $232m in the quarter, 3% below the third quarter of 2008.
For the fourth quarter of 2009, Praxair expects diluted earnings per share in the range of $1.05 to $1.10.
For the full year of 2009, Praxair expects sales to be about $9bn. The company expects adjusted diluted earnings per share to be in the range of $3.96 to $4.01. Full-year capital expenditures are expected to be about $1.4bn.