On Feb 6, we issued an updated research report on industrial gas giant Air Products (APD). While the company is gaining from its cost reduction measures, new business wins and strategic investments, it is exposed to currency headwind and some challenges in its industrial gases business in the Europe, Middle East, and Africa (EMEA) region.
Air Products’ first-quarter fiscal 2015 (ended Dec. 31, 2014) adjusted earnings, reported on Jan 29, outstripped the Zacks Consensus Estimate. The company’s profit rose in the quarter on the back of increased volumes and pricing.
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 2015.
Air Products is also 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 in fiscal 2015.
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.
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’ industrial gases business faces certain challenges in the EMEA region. Challenging conditions in Europe is expected to keep industrial gases volumes under pressure in the region. Moreover, helium volumes remain under pressure due to feedstock supply constraints.
Air Products is also faced with unfavorable currency impact stemming from weakening of most currencies against the U.S. dollar. The company saw 5 cents per share earnings headwind associated with unfavorable currency swings in the first quarter. Negative currency translation impact for fiscal 2015 is expected to be 25 cents per share.
Some additional earnings headwinds are also expected to come from spending associated with business restructuring and pension settlement.
Other Stocks to Consider
Other companies in the chemical industry worth considering include Compass Minerals International Inc. (CMP), Innophos Holdings Inc. (IPHS) and Olin Corp. (OLN). While both Compass Minerals and Innophos Holdings retain a Zacks Rank #1 (Strong Buy), Olin holds a Zacks Rank #2 (Buy).
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