Tier One player Praxair announced that net income in its 2016 second-quarter results reached $399m, with the completion of Yara’s European carbon dioxide (CO2) business keeping the corporation on track in a “mixed macro-economic environment.”
Overall sales stood at $2.7bn, 3% below the prior-year quarter which the company attributes to negative currency translation impact and lower cost pass-through. Excluding these impacts, sales were actually 2% higher comparatively due to growth from acquisitions and higher pricing.
Operating profit soared by 23%, totalling $558m compared to the prior-year quarter of $480m. As a percentage of sales, Praxair’s operating profit margin was 22.1% and its EBITDA margin was 33%.
Fundamentally, volume growth from new on-site projects in Asia, Europe and South America, was offset by a lack of business traffic coming from the US. The company attributes this to weaker industrial manufacturing activity in the States and Brazil coupled with weaker demand in the upstream energy end-market in North America.
We continue to expect to grow capital investments with new long-term customer supply contracts to further secure future growth
Steve Angel, Praxair’s Chairman and CEO, stated, “Globally, consumer-related end-markets remained healthy and we completed a synergistic European carbon dioxide (CO2) acquisition that will further expand our food and beverage end-market exposure.”
“Praxair’s strategy of optimising the base business, growing resilient end-markets, executing the project backlog and capitalising on acquisition and project opportunities continues to drive strong value creation. During the second quarter, these efforts by Praxair employees resulted in robust operating cash flow generation at 26% of sales, and in a mixed macro-economic environment, delivered solid operating and EBITDA margins.”
Segments in focus
Broken down into independent business segments, the US and South America regions appeared to struggle, whilst Europe and Asia flourished thanks to new start-ups and acquisitions.
Most notably, the US-based corporation’s sales in Europe rocketed by 7% totalling $355m. Its organic sales also grew and were up by 4% due to higher volumes and higher prices. The company stated that acquisitions contributed to an increase in growth of 3% - largely thanks to its takeover of Yara’s CO2 business in June.
The company reported that sales in its Asia segment also benefitted from new start-ups in China and India, which contributed to sales of $393m – 6% above the prior-year quarter excluding negative currency impact.
However, the company’s performance flagged in North America with second-quarter sales dropping by 5% compared to the prior-year quarter, totalling $1.4bn. Praxair affirmed that, “Price attainment and volume growth to food and beverage, healthcare and refining customers were more than offset by weaker sales to upstream energy and manufacturing end-markets.” It’s South American sales also slumped this quarter, declining by 8% comparatively and settling at $358m.
Angel speculated on the year ahead, “As we look to the remainder of the year, while currency translation appears to be less of a headwind at current foreign exchange rates, we do not anticipate significant underlying economic improvement in the second half.”
“Project activity remains strong along the US Gulf Coast, and we continue to expect to grow capital investments with new long-term customer supply contracts to further secure future growth. Praxair’s relentless focus on operational excellence and financial discipline will consistently deliver strong cash flow and earnings per share for our shareholders,” he concluded.