Praxair has released strong Q2 financials thanks to employees’ ability to execute the core strategy and deliver high-quality results.
The company reported Q2 net income and diluted earnings per share of $406m and $1.41, respectively. These results include transaction costs of $15m after-tax related to the potential Linde AG merger.
Praxair’s sales in Q2 were $2,834m, 6% above the prior year quarter. Excluding cost pass-through, sales grew 4%, driven by higher volumes in North America, Europe and Asia, including new project start-ups, and price attainment. Sales growth was primarily led by electronics, chemicals, metals, energy and food and beverage end markets.
Reported operating profit in Q2 was $604m. 3% above the prior-year quarter. Excluding the current quarter impact of transaction costs, adjusted operating profit was $619m, 5% above the prior-year quarter. Reported operating profit as a percentage of sales was 21.3%. Adjusted operating profit as a percentage of sales was 21.8%. EBITDA margin was 32.05 and adjusted EBITDA margin was 32.5%.
The company generated strong Q2 cash flow from operations of $701m, 25% of sales. After capital expenditures of $325m, free cash flow was $376m, up 8% over the prior-year quarter. The company paid $225m of dividends.
”We expect Europe to remain stable, Asia to moderately grow and new project start-ups to contribute towards the latter part of the year.”
Steve Angel, Praxair Chairman and CEO
Commenting on the financial results and business outlook, Chairman and CEO Steve Angel said, “Our second quarter results reflect Praxair employees’ ability to execute our core strategy and deliver high-quality results. Adjusted operating profit growth of 5% outpaced underlying sales growth of 4%, and generated strong operating cash flow of 25% of sales.”
He continued, “The second quarter continued to reflect broad-based demand across all end-markets, but as anticipated, revealed further weakness in South America. In addition, we added to our project backlog another long-term on-site supply agreement with a petrochemical customer in the US Gulf Coast which will further strengthen our network in the region. Including this new win, over 80% of our $1.4bn project backlog now relates to the US Gulf Coast and we remain confident in our ability to win additional projects.
“Furthermore, during the second quarter we announced the signing of a business combination agreement between Praxair and Linde AG. This was an important milestone toward creating significant value for our stakeholders. We are currently working closely with regulators and shareholders to obtain the appropriate approvals and will provide a more detailed progress update in coming months.”
“Looking ahead, we are taking a more measured view as we do not anticipate significant underlying economic improvement in the second half of the year. In the US, aggregate customer demand has yet to match recent economic expectations and South America, specifically Brazil, continues to face political challenges that undermine the economy. Conversely, we expect Europe to remain stable, Asia to moderately grow and new project start-ups to contribute towards the latter part of the year. However, regardless of the economy, Praxair’s relentless focus on operational excellence and financial discipline will continue to deliver strong cash flow and earnings per share for our shareholders,” Angel concluded.
For the third quarter of 2017, Praxair expects diluted earnings per share in the range of $1.40 to $1.46, excluding transaction costs related to the potential merger.
For full-year 2017, Praxair expects adjusted diluted earnings per share to be in range of $5.63 to $5.75. This full-year guidance excludes transaction cost related to the potential merger. GAAP diluted earnings per share are expected to be in the range of $5.56 to $5.68 which includes $0.07 per diluted share for the first and second quarter transaction costs and excludes future transaction costs related to the potential merger. Full-year capital expenditures are expected to be approximately $1.4bn.
A deeper look by segment
In North America, Q2 sales were $1,505m, 4% above the prior-year quarter. Sales growth was driven primarily by stronger volumes to chemical, manufacturing and electronic end-markets and higher price. Operating profit was $378m, 5% above the prior-year quarter.
In Europe, Q2 sales were $383m, 8% above the prior year quarter. Excluding negative currency, sales grew 10% from the prior-year due to higher volumes including project start-ups, price and an acquisition primarily related to the carbon dioxide business largely serving the food and beverage end-market. Operating profit was $73m.
In South America, Q2 sales were $373m, 4% above the prior-year quarter. Excluding positive currency translation and cost pass-through, sales were 3% below the prior-year quarter due to lower volumes driven by continued weak macro-economic conditions, largely in manufacturing. Operating profit was $63m.
Sales in Asia were $422m in the quarter, up 7% from the prior-year. Excluding a prior-year net divestiture, sales grew 11% driven by higher volumes in China, India and Korea, primarily in the electronics, metals and chemicals end-markets and price attainment. Operating profit was $80m, 19% above the prior-year quarter.