Atmospheric and industrial gas producer Air Products and Chemicals (APD) announced operating results for the first quarter of fiscal 2010. Earnings for the quarter were $1.16 per share, slightly higher than both the Zacks Consensus Estimate and the market estimate of $1.14, helped by improving volumes and cost-cutting efforts. Earnings were up 72% year over year.
First quarter revenues of $2,174 million marks a decline of one percent year over year, as lower energy and raw material cost pass-throughs offset higher volumes and a favorable currency. Operating income of $345 million was up 20% from the previous year on improved volumes in Tonnage Gases and Electronics & Performance Materials segments, broad productivity gains across the company and favorable currency impacts. Sequentially, sales improved 2% while operating income gained 5%.
Air Products has consistently improved margins, and is on-track to meet the 17% goal in 2011. Both sequential and year-over-year results benefited from an improving global economy and a lower cost structure.
Merchant Gases sales of $934 million increased 1% as favorable currency was mostly offset by lower volumes, especially in the US and Europe. However, sales volumes were high in Asia. Operating income of $190 million reflected an 11% increase from the prior year, as significantly improved cost performance and favorable currency more than offset weaker volumes. Operating margin in the segment was over 20%.
Tonnage Gases sales of $698 million were down 6% on significantly lower energy and raw material costs. However, sales volumes were up due to rebounding chemical and steel production and new plants onstream. Operating income of $100 million decreased 8% from the prior year primarily on higher planned maintenance costs.
Electronics and Performance Materials sales of $433 million increased 7% on higher volumes and favorable currency, partially offset by price declines. Operating income almost doubled to $48 million from the previous year on improved volumes and productivity.
Equipment and Energy sales of $109 million were down 9% on lower sales activity. Operating income of $8 million increased 1% from the prior year on lower development spending.
Air products expects quarterly earnings to improve throughout 2010 as the global economy, led by Asia, continues on its gradual recovery. Air Products is raising its guidance for fiscal 2010 to $4.75 – $4.95 per share. The company also expects second quarter EPS from continuing operations to be between $1.15 and $1.20 per share.
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. The company’s Electronics and Performance Chemicals business is expected to make a meaningful rebound in 2010 based on solid cyclical recovery in the Asian semiconductor and LCD markets.
Air Products’ aggressive cost cutting and productivity initiatives, combined with portfolio realignment efforts, have helped mitigate fixed cost headwinds. We are also encouraged by the new contract wins across the industrial gas space in the recent months, reflecting a robust growth momentum across the emerging economies in Asia, where the company has a strong presence.
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