Praxair, Inc. has report a mixed set of third quarter 2016 results, summarised by fluctuating end-market trends and various macro-economic headwinds.
Strong demand was observed in resilient, non-cyclical markets such as food and beverage and healthcare in the quarter, but this was offset by persistent weakness from the manufacturing and upstream energy sectors.
Praxair reported third-quarter net income and diluted earnings per share of $339m and $1.18, respectively, results which included the impact of a $100m pre-tax charge primarily related to cost reduction actions taken in response to weaker underlying industrial activity in the Americas and Asia.
Excluding this charge, adjusted net income and diluted earnings per share were $405m and $1.41, respectively.
Overall, Praxair’s sales in the third quarter totalled $2.7bn – an increase of 1% over the prior year. Excluding negative currency translation of 1%, sales were 2% higher than the prior-year quarter. The takeover of Yara’s carbon dioxide (CO2) business drove results in the quarter in particular.
The company highlighted that volume growth from new onsite projects in South America, Asia and Europe was offset by lower base business volumes in North and South America, which Praxair puts down to weaker manufacturing activity in the US and Brazil.
Despite this sales growth, Praxair’s operating profit faltered, dropping by 16% to $497m. Excluding the current-quarter impact of the charge, adjusted operating profit of $597m was 4% below the prior-year quarter, which included a 1% headwind from foreign currency translation. Reported operating profit as a percentage of sales was 18.3%.
Adjusted operating profit as a percentage of sales was 22%; the adjusted EBITDA margin was 32.8%.
“We recently added several new long-term, onsite supply contracts to our project backlog, including a large investment in the US Gulf Coast, where bidding activity is strong, and we remain confident in our ability to win additional projects”
Chairman and CEO Steve Angel reflected, “As anticipated, the third quarter continued to experience mixed results in end-market trends with strong demand in more resilient food, beverage and healthcare markets, but persistent weakness from industrial sectors like manufacturing and upstream energy. In light of these trends, we took additional cost actions in the third quarter to properly align our organisation and to accelerate planned acquisition synergies.”
“Despite these macro-economic challenges, Praxair employees once again delivered high-quality results this quarter with 17% growth in operating cash flow, and operating and EBITDA margins of 22% and 33%, respectively.”
Featuring an increased project backlog of $1.4bn following the company’s recent long-term supply contract with MEGlobal in the Gulf Coast, Angel added, “We recently added several new long-term, onsite supply contracts to our project backlog, including a large investment in the US Gulf Coast, where bidding activity is strong, and we remain confident in our ability to win additional projects.”
Third-quarter cash flow from operations was $788m, 29% of sales and 17% above the prior-year quarter. Capital expenditures were $376m, while the company paid $214m of dividends.
Results by region
In North America, Praxair achieved third quarter sales of just over $1.4bn, 2% below the prior-year quarter. Excluding negative cost pass-through and currency translation, however, sales were comparable to the prior-year quarter.
Price attainment and volume growth to food and beverage, healthcare and refinery customers were offset by weaker sales to manufacturing, metals and upstream energy end-markets. Operating profit was $363m.
In Europe the narrative was a little different, with third quarter sales of $366m no less than 8% above the prior-year quarter. As in North America, volumes were actually comparable to the prior year, excluding a prior-year sale of equipment which reduced sales by 1%. Acquisitions contributed 9% growth.
Operating profit of $72m in Europe grew 14% from the prior year, primarily due to acquisitions and cost control.
In South America, third quarter sales were $378m, 10% above the prior-year quarter. Excluding positive cost pass-through and currency translation, sales grew 7% as a result of higher price and new on-site project volumes. Operating profit was $68m.
Finally, sales in Asia were $391m in the third quarter, 1% below the prior-year quarter, and yet 1% higher excluding negative currency impact. Volume growth included new plant start-ups, which was partially offset by customer turnarounds. Operating profit registered $68m.