The second-biggest U.S. industrial-gas producer, Air Products & Chemicals Inc. (APD) at an Investor Conference, announced new financial targets for 2015 to take the company to a new level of performance.
The company announced that profit margins will expand 3 percentage points through 2015 and sales will rise about 12% annually, led by growth in energy and electronics markets.
Air Products expects revenues to surpass $15 billion in 2015, up from $9 billion last year. The company forecasts operating margins to increase to 20% by 2015 from 17% which will be an improvement of 300 basis points. The return on capital is expected to increase 150 basis points to 15% from 2011 to 2015.
With these results the company expects to deliver enhanced revenue growth and sustained margin and return improvement. The company has a record of setting and meeting its long-term goals and has a strong presence in the energy, environmental and emerging markets worldwide. Thus by implementing these strategic actions, the company expects to continue to lower its costs, improve returns and gain a greater competitive advantage over its peers.
The company very recently 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. 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 also signed two agreements with Valero Energy Corp. (VLO) and Denbury Onshore to boost Texas carbon capture and the sequestration project. 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 the 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.
AIR PRODS & CHE (APD): Free Stock Analysis Report
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