On Dec 23, we issued an updated research report on industrial gas giant Air Products APD.
Air Products' adjusted earnings for fourth-quarter fiscal 2015 (ended Sep 30, 2015) topped the Zacks Consensus Estimate while sales missed. Profit jumped year over year, aided by its cost-management initiatives and improved pricing. However, the company saw lower sales in the quarter, partly due to unfavorable currency impact.
Air Products is gaining from a diverse customer base, cost-reduction measures and sustained pricing power. New business deals and strategic investments are expected to support results in fiscal 2016. The company has a strong project backlog. These projects are expected to be accretive to earnings and cash flow as they come on stream over the next few years.
Air Products is keeping a tight control on expenses and undertaking work process improvement initiatives. The company remains on track in delivering on its cost reduction programs, which should support its margins.
Moreover, the acquisition of a majority stake in the Chilean industrial gas company – Indura S.A. – has ushered in substantial growth opportunity for Air Product, placing it as Latin America’s second largest industrial gas producer. The acquisition of EPCO is also an excellent fit for Air Products and will help it expand its market share by offering an extended product portfolio to existing and new customers.
We are also encouraged by incremental opportunities in the liquefied natural gas (LNG) space given major contract wins by the company. The LNG technology is gaining importance as it meets the increasing global need for cleaner energy.
However, Air Products is faced with unfavorable currency impact stemming from weakening of most currencies against the U.S. dollar. The company saw a 16 cents per share earnings headwind associated with unfavorable currency swings in the fourth quarter. It is expected to continue to see currency headwinds moving ahead.
Moreover, Air Products’ industrial gases business faces certain challenges in the Europe, Middle East, and Africa (EMEA) region. Helium demand also remains sluggish in Latin America while volumes in packaged gases continue to be weak.
Some additional earnings headwinds are expected to come from spending associated with business restructuring and pension settlement. Maintenance outages are also expected to impact results in first-quarter fiscal 2016.
Air Products is a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked companies in the chemical space include Innospec Inc. IOSP, Celanese Corporation CE and PPG Industries, Inc. PPG with all retaining a Zacks Rank #2 (Buy).
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