Praxair, Inc. has reported third quarter (Q3) 2015 net income and diluted earnings per share of $401m and $1.40, respectively.
Results reflect a challenging macro-economic climate in North America in particular, with sales activity in the quarter notably affected.
This appears to be consistent with the news from fellow North America-based Tier One company Airgas earlier this week, having recorded flat organic sales in its own quarterly results.
Praxair’s Q3 figures also include the impact of a $26m pre-tax charge ($18m after-tax) – or 6 cents of diluted earnings per share – related to cost reduction actions and a pension settlement charge. Excluding the charge, adjusted net income and diluted earnings per share were $419m and $1.46, respectively.
Results in the third quarter were challenged by negative impacts from foreign currency translation, as the US dollar strengthened against most foreign currencies versus the prior year.
All of which saw sales in the third quarter fall 15% below the prior year quarter to $2.68bn, with primarily the impacts of negative currency translation and lower cost pass-through reducing sales by 11% and 2%, respectively.
Organic sales were lower than the prior-year quarter as growth from positive price and new project start-ups were offset by weaker underlying industrial activity in Brazil and China and in the metals, energy and manufacturing end-markets in North America.
The company did, however, achieve record operating margin.
Commenting on the financial results and business outlook, Chairman and CEO Steve Angel said, “As anticipated, third quarter macro-economic trends remained weak in North and South America. New project start-ups in Asia and Europe, as well as solid demand in the less-cyclical end-markets of food, beverage and healthcare, contributed positively to volumes.”
“Our employees excel at protecting and growing profitability regardless of the economic cycle. The incremental cost actions we have taken during the second and third quarters, as well as ongoing operational excellence, resulted in a record operating margin. Cash flow generation remained strong with operating cash flow at 25% of sales and we again returned more than $400m to shareholders.”
Reported operating profit in the third quarter was $594m. Adjusted operating profit of $620m was 2% below the prior-year quarter, excluding currency effects. Adjusted operating profit as a percentage of sales grew to a record 23.1% and the adjusted EBITDA margin grew to a record 33.7% primarily due to higher pricing, strong cost control and productivity gains.
Third-quarter cash flow from operations of $676m funded $405m of capital expenditures. The company paid $203m of dividends and repurchased $222m of stock, net of issuances. After-tax return on capital and return on equity for the quarter were 12.5% and 32.5%, respectively.
In North America, where the company’s performance was so affected by the macro-economic climate, Praxair’s third quarter sales were $1.46bn – 3% below the prior year quarter excluding cost pass-through and negative currency translation.
Volume growth to food and beverage and healthcare customers was more than offset by lower volumes to metals, energy and manufacturing end-markets. Operating profit of $385m was 2% lower than the prior-year quarter, excluding currency translation, as price, productivity and cost actions were more than offset by lower volumes.
In Europe, third quarter sales were $338m, 12% below the prior year quarter. Organic sales were 3% above the prior year primarily driven by new project contribution. Operating profit of $63m grew 4% from the prior year, excluding currency translation, due to solid operating leverage on volume growth.
In South America, third quarter sales were $343m, 34% below the prior year quarter. Sales, excluding negative currency translation, were steady as higher price and acquisitions were offset by lower volumes. Operating profit was $70m.
Sales in Asia were $395m in the quarter, 7% below the prior year quarter. Excluding negative currency translation, cost pass-through and the sale of equipment to a joint venture in the prior-year quarter, sales grew 7%. Organic growth included new project start-ups in China, Korea and India for chemical, electronics and metals customers. Operating profit of $77m was 9% above the prior year quarter, excluding currency translation.
Looking ahead, Praxair expects diluted earnings per share in the range of $1.45 to $1.52 for fourth quarter 2015. This guidance assumes a negative currency translation impact of approximately 11% year-over-year.
For full year 2015, Praxair expects adjusted diluted earnings per share to be in the range of $5.78 to $5.85, up 3% to 4% ex-currency from 2014. This assumes a negative currency translation impact of approximately 11% versus 2014.
Full year capital expenditures are expected to be approximately $1.6bn.
Angel concluded, “While we are expecting macro-economic conditions will remain challenging, we will continue to drive long-term growth through our strategy of building geographic density through high-return capital projects, synergistic acquisitions and continued growth in more defensive end-markets.”