Praxair (PX) Q1 Earnings Beat, Improve Y/Y on Solid Sales

Praxair Inc. PX kept its earnings streak alive in the first quarter of 2018, pulling off a positive earnings surprise of 5.8%.

This industrial gas producer and supplier’s adjusted earnings in the quarter were $1.65 per share, surpassing the Zacks Consensus Estimate of $1.56. Also, the bottom-line result surpassed the year-ago tally of $1.37 per share by 20.4%, on the back of healthy sales growth in all business segments except one.

Notably, the quarter’s adjusted earnings excluded transaction costs related to proposed Praxair-Linde merger and other charges of approximately 6 cents per share.

Healthy End-Markets Drive Revenue Growth

In the reported quarter, Praxair’s sales totaled $2,999 million, reflecting year-over-year growth of 9.9%. The improvement was driven by 5% gain from volume growth, 2% from favorable pricing and 3% from the positive impact of currency translation. Businesses in manufacturing, healthcare, electronics, chemicals, metals, energy, and food and beverage end markets were strong.

The bottom line surpassed the Zacks Consensus Estimate of $2.93 billion by 2.4%.

At the end of the quarter, backlog was at $1.5 billion.

The company operates through five business segments. Their top-line results for the quarter are briefed below:

Revenues generated in North America increased 7.2% year over year to $1,563 million. The segment’s revenues represented 52.1% of the reported quarter’s sales.

Revenues in Europe, representing 14.3% of the first quarter’s sales, grew 20.2% year over year to $428 million.

In Asia, revenues increased 20.5% year over year to $476 million and represented 15.9% of the reported quarter’s sales.

Surface Technologies revenues were $167 million, up 11.3% year over year. The segment’s revenues represented 5.6% of sales in the quarter under review.

Revenues from South America decreased 1% to $365 million. It represented 12.3% of the reported quarter’s sales.

Margin Profile Improve Y/Y

Praxair’s costs of sales in the quarter grew 8.3% year over year to $1,677 million. It was 55.9% of the reported quarter’s sales versus 56.8% in the year-ago quarter. Gross margin improved 90 basis points (bps) to 44.1%. Selling, general and administrative expenses increased 6.9% to $310 million. Research and development expenses were $24 million, slightly above $23 million recorded in the year-ago quarter.

Adjusted operating profit increased 17.3% year over year to $672 million while adjusted operating margin increased 140 bps year over year to 22.4%. Adjusted effective tax rate in the reported quarter was 24% versus 27.2% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting the first quarter, Praxair’s cash and cash equivalents were $545 million, down from $617 million at the end of the preceding quarter. Long-term debt decreased 5.7% sequentially to $7,336 million. The company’s debt-to-capital ratio was 54.6% in the reported quarter, down from 59.7% in the year-ago quarter.

In the quarter under review, the company’s net cash generation from operating activities amounted to $688 million, down 3.1% year over year. Capital spent on the purchase of property, plant and equipment totaled $325 million, slightly below $327 million in the year-ago quarter.

During the quarter, Praxair paid dividends of $237 million but it did not repurchase any shares.

Concurrent with the earnings release, the company announced that its board of directors approved payment of a quarterly cash dividend of 82.50 cents per share to its shareholders of record as of Jun 7. The dividend payment will be made on Jun 15, 2018.

Outlook

In the quarters ahead, Praxair anticipates benefitting from rise in global industrial production, strengthening end markets, sound product portfolio and new project wins. Also, it anticipates delivering annual earnings growth of 3% in the next three to four years on the back of solid backlog and potential growth opportunities.

Also, the company is working on its business combination deal with Linde AG. It anticipates that the merger will be completed in the second half of 2018.

For the second quarter of 2018, the company anticipates earnings to be $1.67-$1.72 per share. The projection reflects year-over-year growth of 14-18% and includes 5 cents gain from the recent tax reform in the country. Tax rate in the quarter is predicted to be 23-25%.

Praxair, Inc. Price, Consensus and EPS Surprise

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research