Second quarter revenues of $2.25 billion were up 15% year over year, primarily due to favorable contribution from the lower energy and raw material cost pass-throughs and a favorable currency impact as well as improved volumes in Tonnage Gases, and Electronics and Performance Materials. Sequentially, sales improved 3%.
Operating income of $364 million was up 40% from the previous year on improved volumes and lower costs. The company cut its research and development spending by 11%, which was partially offset by an increase of 4.4% in selling and administrative costs in the quarter. As a result, operating margin came in at 16.2% in the quarter.
Segment Performance
Merchant Gas sales of $922 million increased 6% owing to favorable currency movements. Operating income of $178 million reflected a 14% increase from the prior year, due to significantly improved cost performance and favorable currency impact coupled with higher volumes.
Tonnage Gas sales of $757 million increased 21% as sales volumes were up due to rebounding chemical and steel production and new plants going on stream as well as favorable currency movements and higher raw material costs pass-through. Operating income of $107 million increased 9% from the prior year primarily on higher volumes and new plants going on stream.
Electronics and Performance Materials sales of $454 million increased 36% on higher volumes. Operating income of $57 million was up from the previous year on improved volumes and lower costs.
Equipment and Energy sales of $119 million were down 7% on declining ASU orders. Operating income of $18 million increased 12% from the prior year on higher LNG activity.
Balance Sheet
Air Products ended the quarter with $230.9 million in cash and equivalents and $3.47 billion in long-term debt.
Raised Guidance for 2010
Air Products expects fiscal 2010 earnings to grow over 20% as the global economy, led by Asia, experiences gradual recovery, coupled with the leverage in its existing capacity, new projects being commissioned and improving productivity. As a result, Air Products lifted its guidance for fiscal 2010 again to $4.90 to $5.00, from its previous guidance of $4.75 – $4.95 per share. This represents a 21% to 23% year-over-year EPS growth.
Air Products expects third quarter EPS from continuing operations to be between $1.25 and $1.29. Air Products has consistently improved margins, and is on track to meet the 17% goal in 2011.
Air Products and Chemicals, an industrial gas producer, is benefiting from long-term take-or-pay contracts, a consolidated industry structure, a diverse customer base and sustained pricing power. Air Products’ aggressive cost cutting and productivity initiatives, combined with portfolio realignment efforts, have helped mitigate fixed cost headwinds, which is very encouraging.
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