Air Products (APD) Q3 Earnings Beat Estimates, Revs Miss

Industrial gas giant Air Products and Chemicals Inc. (APD) posted third-quarter fiscal 2014 (ended Jun 30, 2014) earnings from continued operations of $1.46 a share, up roughly 7% from $1.36 a share reported in the year-ago quarter. The results also beat the Zacks Consensus Estimate of $1.45.

Net income from continuing operations increased 9% to $314 million in the quarter from $287.8 million recorded in the year-ago quarter.

Revenues rose 3% year over year to around $2,635 million driven by higher volumes across all businesses. However, it missed the Zacks Consensus Estimate of $2,660 million. Underlying sales, barring the company’s exit from the Polyurethane Intermediates (PUI) business, rose 4% year over year. Sales rose 2% on 4% increase in volumes in Electronics and Performance Materials, Tonnage Gases, and Merchant Gases units.

Segmental Highlights

Revenues from the core Merchant Gases segment increased 4% year over year to $1,077 million in the reported quarter, aided by higher volumes in U.S./Canada and Asia. Increase in volumes of Liquid oxygen and nitrogen was seen in all regions but was partly offset by lower helium volumes due to continued global supply restrictions.

Sales from the Tonnage Gases division declined 1% year over year to $835 million. Excluding PUI, volumes increased 2% on continued hydrogen demand in the U.S. Gulf Coast and contributions from new plants.

Revenues from the Electronics and Performance Materials segment rose 9% year over year to $618 million on increased volumes. Electronics sales rose 6% on the back of solid growth in all segments. Performance Materials sales moved up 12% with growth witnessed across all product lines and key regions.

In the Equipment and Energy division, sales were up 1% year over year to $104 million. Sales backlog increased 78% to $584 million.

Financial Position

Air Products ended the quarter with cash and cash equivalents of $337.6 million, down roughly 19.4% year over year. Total long-term debt rose 6.5% year over year to $4,951 million. Operating cash flow increased roughly 50.7% year over year to $1,584 million for nine months ended Jun 30, 2014.

Outlook

Air Products revised its earnings guidance for fiscal 2014 and now anticipates earnings from continuing operations to be in the range of $5.72–$5.77 per share versus its previous guidance of $5.70 to $5.85 per share. It also expects earnings from continuing operations for the fourth quarter to be in the range of $1.60-$1.65. The company has reaffirmed its capital expenditure forecast of roughly $2 billion for fiscal 2014.

Air Products should benefit from a diverse customer base, sustained pricing power and cost-reduction measures. New business deals and strategic investments are expected to support results in fiscal 2014.

Air Products currently holds a Zacks Rank #4 (Sell).

Better-ranked stocks in the chemical industry worth considering include Marrone Bio Innovations, Inc. (MBII), Ashland Inc. (ASH) and Cytec Industries Inc. (CYT). While Marrone Bio Innovations sports a Zacks Rank #1 (Strong Buy), Ashland and Cytec Industries hold a Zacks Rank #2 (Buy)