The industrial gas company Air Products & Chemicals Inc. (APD) announced that it will increase production of ultra high-purity nitrogen and oxygen and expand its nitrogen pipeline serving the electronics industry in Chandler, Arizona.
Air Products has been serving the electronics industry in Chandler for 30 years. With the expansion the company will be able to meet the growing merchant needs and supply additional nitrogen and oxygen in the area.
Air Products supplies next generation fabs with the high volumes of nitrogen necessary for semiconductor and TFT-LCD production. The company provides its customers with reliable supply and offers the ability to make low-cost increases in volumes when required.
About two days back the company also signed two agreements with Valero Energy Corp. (VLO) and Denbury Onshore to boost Texas carbon capture and sequestration project forward. Air Products will build a carbon capture and storage system at a Valero Energy refinery in Port Arthur, Texas, to refine and sell about 1 million tons of carbon dioxide a year.
Based in Pennsylvania, Air Products benefits from a long-term take-or-pay contract, a consolidated industry structure, a diverse customer base and sustained pricing power. Air Products’ aggressive cost cutting and productivity initiatives, combined with its portfolio realignment efforts, have helped mitigate fixed cost headwinds, which is very encouraging.
However, soaring energy and raw material costs pose a threat to margin expansion. In order to compensate for escalating raw material costs Air Products has been increasing the price for a range of chemicals it makes for industrial use.
In April 2011, the company reported second quarter fiscal 2011 EPS of $1.39, versus $1.16 in the year-earlier quarter and matched the Zacks Consensus Estimate of $1.39. The results included an after-tax cost of $4 million or 2 cents per share, excluding which adjusted EPS amounted to $1.41 versus $1.23 in the year-ago quarter.
Net sales amounted to $2.5 billion, versus $2.2 billion in the prior-year quarter, moving ahead of the Zacks Consensus Estimate of $2.4 billion. The improved results were mainly driven by higher volumes in the Electronics and Performance Materials, Merchant Gases and Tonnage Gases segments.
Air Products faces stiff competition from Praxair Inc. (PX).
Currently, Air Products has a short-term (1 to 3 months) Zacks #2 Rank (Buy) but a long- term Neutral recommendation.
