In response to the substantial slowdown in demand during the fourth quarter, Praxair Inc. is reducing its fourth quarter guidance for fully diluted earnings per share and taking pre-emptive cost-cutting measures.
Fourth quarter guidance for fully diluted earnings per share is reduced to a range of $0.95 to $1.00, excluding charges. This range is roughly even with the $0.98 earned in the 2007 fourth quarter.
Just as with many other companies and industries, Praxair has seen a fall-off in demand during November and is expecting additional customer plant closures in December, which will further reduce volumes for the quarter.
New projects and new business applications are expected to offset this demand slowdown and a significant foreign-currency headwind.
The company has however, already initiated cost-reduction actions, including a reduction in workforce of about 1,600 and the closure of underperforming and non-core product lines and businesses. Such actions will result in a restructuring charge of around $120m on a pre-tax basis in the fourth quarter of 2008. These are also expected to reduce fixed costs by approximately $80m in 2009 and by around $100m on an ongoing annual basis.
In addition, the company expects to take a $55m pre-tax charge related to the settlement of a social tax case in Brazil dating back to the 1980s and increases in accruals reflecting recent developments for other cases.
In total, the charge is expected to be approximately $175m pre-tax or around $0.37 of diluted earnings per share in the fourth quarter.
Steve Angel, Chairman and CEO, elucidated, “We have moved quickly to take the necessary pre-emptive steps to make sure we have a cost structure appropriate to the current economic environment.”
“The slowdown in commodity production and manufacturing has been unprecedented and we believe customers are reducing inventory down the supply chain. Consequently, we should see an uptick in production later in 2009.”
“Additionally,” Angel added, “Praxair has a large backlog of new projects coming on stream in 2009 and 2010 which will grow sales and earnings.”
The company has also announced that an investor teleconference will be held from 9AM to 9:30AM (Eastern Time) on 10th December.