Amid Coronavirus (COVID-19) Pandemic, Company Continues to Run its Facilities Safely, Deliver Critical Products to Customers, and Win New Projects
April 23, 2020 Lehigh Valley, Pa.
Q2 FY20 (comparisons versus prior year):
- GAAP EPS of $2.21, including an estimated $0.06 to $0.08 negative impact from COVID-19, up 16 percent; GAAP net income, including discontinued operations, of $490 million, up 13 percent; and GAAP net income margin of 22.1 percent, up 230 basis points
- Adjusted EPS* of $2.04, including an estimated $0.06 to $0.08 negative impact from COVID-19, up six percent; adjusted EBITDA margin* of 40.3 percent, up 260 basis points
Q2 FY20 Highlights:
- Safely maintained plant operations and business continuity, provided essential products to customers, mobilized to meet urgent needs for medical oxygen, and continued to pursue and win new on-site opportunities during the COVID-19 pandemic
- Stable onsite business; Asia merchant volumes were impacted by COVID-19 but have since recovered; limited Americas and EMEA merchant volume impact during Q2
- Secure financial position with robust cash flow, $2.2 billion cash on hand and modest net debt* of $1.1 billion as of March 31, 2020
- Announced and closed on purchase of five operating hydrogen plants in the U.S. and began long-term hydrogen supply to PBF Energy
- Signed agreement to provide proprietary liquefied natural gas (LNG) technology, equipment and related process license and advisory services to the first onshore LNG project in the Republic of Mozambique
#Earnings per share is calculated and presented on a diluted basis from continuing operations and attributable to Air Products.
*Certain results in this release, including in the highlights above, include references to non-GAAP financial measures on both a consolidated, continuing operations basis and a segment basis. These measures exclude the impacts of the gain on the sale of property at our current corporate headquarters and impacts from the India Finance Act of 2020. Additional information regarding these measures and a reconciliation of GAAP to non-GAAP historical results can be found below.
Air Products’ (NYSE:APD) Chairman, President and Chief Executive Officer, Seifi Ghasemi
, today expressed solidarity in the world's collective fight against COVID-19 and thanked the global Air Products team for playing a critical role and making a real difference in people's lives.
He noted that Air Products is considered an essential business by governments around the world and expressed his pride in the Air Products team's efforts to keep plants running and provide essential industrial gases for critical needs, including medical oxygen.
"The true character of an individual, or a company, is revealed during times of crisis. The world is certainly going through a crisis—something none of us has experienced in our lifetime," Ghasemi said. "I am very proud of our people's tireless efforts to maintain business continuity, keep our plants running safely, reliably serve our customers, and care for our communities during this especially challenging time.
"Their hard work enabled us to deliver the fiscal second quarter results that we are reporting today. Meanwhile, Air Products remains in a secure financial position with a strong balance sheet and resilient business model, particularly our onsite business, which represents more than half of our sales and continues to drive our growth. Our strategy to create shareholder value has not changed—we continue to invest in high return project opportunities and are committed to increasing the dividend as we move forward."
For its fiscal 2020 second quarter, Air Products reported GAAP EPS from continuing operations of $2.21, up 16 percent, which includes an estimated $0.06 to $0.08 per share negative impact from COVID-19; GAAP net income of $490 million, up 13 percent, which was driven primarily by higher pricing and volumes in all three regions, as well as a gain on the sale of property at the company's current corporate headquarters and impacts from the India Finance Act of 2020; and GAAP net income margin of 22.1 percent, which was up 230 basis points, each versus prior year.
For the quarter, on a non-GAAP basis, adjusted EPS from continuing operations of $2.04 was up six percent, which includes an estimated $0.06 to $0.08 per share negative impact from COVID-19; adjusted EBITDA of $893 million was up eight percent, primarily driven by higher volumes and pricing in all three regions; and adjusted EBITDA margin of 40.3 percent was up 260 basis points, each versus prior year.
Second quarter sales of $2.2 billion increased one percent over prior year on six percent volume growth and two percent higher pricing, partially offset by five percent lower energy pass-through and two percent unfavorable currency. Volume growth was primarily driven by base business growth, new plants, acquisitions, and a short-term contract in Asia, which were partially offset by an approximately one percent negative volume impact due to COVID-19. The negative COVID-19 impact was primarily due to Asia merchant volumes, which declined by about 25 percent for approximately six weeks following the Lunar New Year holiday before recovering in late March. Americas and EMEA merchant volumes declined modestly during the last week of March but only had a negligible impact on the quarter's results. Air Products did not see an impact on its onsite business from COVID-19 during its fiscal second quarter.
Fiscal Second Quarter Results by Business Segment
(comparisons versus prior year)
- Industrial Gases - Americas sales of $932 million decreased six percent, as three percent higher pricing and two percent higher volumes were more than offset by nine percent lower energy pass-through and two percent unfavorable currency. The higher volumes were primarily driven by strong hydrogen refinery demand in the U.S. Gulf Coast and Canada. Operating income of $268 million increased five percent, primarily driven by price and volume, and operating margin of 28.7 percent increased 290 basis points, with about 250 basis points of the margin improvement due to lower energy cost pass-through. Adjusted EBITDA of $425 million increased seven percent, primarily driven by price and volume, and adjusted EBITDA margin of 45.6 percent increased 540 basis points, with about 350 basis points of the margin improvement due to lower energy cost pass-through.
- Industrial Gases - EMEA sales of $493 million were flat with the prior year. Volumes increased four percent— primarily due to new projects and an acquisition, with solid refinery hydrogen demand—and higher pricing contributed three percent, offset by four percent lower energy pass-through and three percent unfavorable currency. Operating income of $125 million increased two percent, primarily driven by higher pricing, and operating margin of 25.3 percent increased 50 basis points. Adjusted EBITDA of $186 million increased two percent, primarily driven by higher pricing, and adjusted EBITDA margin of 37.7 percent increased 90 basis points.
- Industrial Gases - Asia sales of $658 million increased five percent. Volumes increased six percent, driven by new plants and a short-term contract, which more than offset the negative four percent impact from COVID-19 on merchant volumes. Pricing increased two percent, while currency had a negative three percent impact. Operating income of $209 million increased five percent, primarily on improved pricing, and operating margin of 31.8 percent declined 10 basis points. Adjusted EBITDA of $327 million increased 10 percent on improved volumes and pricing, and adjusted EBITDA margin of 49.7 percent increased 200 basis points.
Ghasemi said, "It is encouraging to see some improvement in the number of COVID cases and a flattening of the curve in certain areas around the world; however, significant economic uncertainty remains. Despite this, our strong financial position and robust business model will allow us to continue to execute our strategy to create long-term shareholder value through capital deployment and successful execution of the projects in our backlog. Our dividend growth remains a top priority. Most importantly, we will not let up our efforts to protect our people’s health and safety and take care of their welfare – they are what make the continued success of Air Products possible."
Cautionary Note Regarding Forward-Looking Statements: This release contains “forward-looking statements” within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about earnings guidance, business outlook and investment opportunities. These forward-looking statements are based on management’s expectations and assumptions as of the date of this release and are not guarantees of future performance. While forward-looking statements are made in good faith and based on assumptions, expectations and projections that management believes are reasonable based on currently available information, actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors, including, without limitation: the duration and impacts of the novel coronavirus (“COVID-19”) global pandemic and efforts to contain its transmission, including the effect of these factors on our business, our customers, economic conditions and markets generally; changes in global or regional economic conditions, supply and demand dynamics in market segments we serve, or in the financial markets that may affect the availability and terms on which we may obtain financing; risks associated with having extensive international operations, including political risks, risks associated with unanticipated government actions and risks of investing in developing markets; project delays, contract terminations or customer cancellations or postponement of projects and sales; future financial and operating performance of major customers and joint venture partners; our ability to develop, implement, and operate new technologies, or to execute the projects in our backlog; our ability to develop and operate large scale and technically complex projects, including gasification projects; tariffs, economic sanctions and regulatory activities in jurisdictions in which we and our affiliates and joint ventures operate; the impact of environmental, tax or other legislation, as well as regulations affecting our business and related compliance requirements, including legislation or regulations related to global climate change; changes in tax rates and other changes in tax law; the timing, impact, and other uncertainties relating to acquisitions and divestitures, including our ability to integrate acquisitions and separate divested businesses, respectively; risks relating to cybersecurity incidents, including risks from the interruption, failure or compromise of our information systems; catastrophic events, such as natural disasters, acts of war, or terrorism; the impact on our business and customers of price fluctuations in oil and natural gas and disruptions in markets and the economy due to oil and natural gas price volatility; costs and outcomes of legal or regulatory proceedings and investigations; asset impairments due to economic conditions or specific events; significant fluctuations in interest rates and foreign currency exchange rates from those currently anticipated; damage to facilities, pipelines or delivery systems, including those we own or operate for third parties; availability and cost of raw materials; the success of productivity and operational improvement programs; and other risk factors described in the Company’s Form 10-K for its fiscal year ended September 30, 2019. Except as required by law, the Company disclaims any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect any change in the assumptions, beliefs, or expectations or any change in events, conditions, or circumstances upon which any such forward-looking statements are based.
Air Products expects declines in Americas and EMEA merchant volumes to continue and be more significant in its fiscal third quarter and potentially longer depending on the duration and impacts of the COVID-19 pandemic.
Given the significant uncertainty that remains regarding the duration of the crisis, the pace of recovery and the negative impact on the global economy from the rapidly evolving COVID-19 pandemic, Air Products is not providing Q3 FY20 EPS guidance. In addition, in light of current conditions, Air Products also believes it is prudent to withdraw its FY20 EPS and capital expenditure guidance; the Company advises its investors that such guidance should no longer be relied upon. Air Products is not providing new FY20 guidance at this time.
New Accounting Guidance
Effective October 1, 2019, Air Products adopted accounting standards pertaining to leases and hedging activities. In accordance with the new lease guidance, we recorded lease liabilities and right-of-use assets on our consolidated balance sheets for operating leases where we are the lessee. In adopting the new hedging guidance, we presented the impacts of excluded components from our cash flow hedges on intercompany loans in other non-operating income (expense), net. In the prior year, these impacts were included in interest expense. The adoption of these accounting standards did not have a significant impact on the Company’s net income.
Access the Q2 earnings teleconference scheduled for 10:00 a.m. Eastern Time on April 23, 2020 by calling 323-794-2551 and entering passcode 1932129, or access the Event Details page on Air Products’ Investor Relations web site.
About Air Products
Air Products (NYSE:APD) is a world-leading industrial gases company in operation for nearly 80 years. Focused on serving energy, environment and emerging markets, the Company provides essential industrial gases, related equipment and applications expertise to customers in dozens of industries, including refining, chemical, metals, electronics, manufacturing, and food and beverage. Air Products is also the global leader in the supply of liquefied natural gas process technology and equipment. The Company develops, engineers, builds, owns and operates some of the world's largest industrial gas projects, including gasification projects that sustainably convert abundant natural resources into syngas for the production of high-value power, fuels and chemicals.
The Company had fiscal 2019 sales of $8.9 billion from operations in 50 countries and has a current market capitalization of about $50 billion. More than 17,000 passionate, talented and committed employees from diverse backgrounds are driven by Air Products’ higher purpose to create innovative solutions that benefit the environment, enhance sustainability and address the challenges facing customers, communities, and the world. For more information, visit airproducts.com or follow us on LinkedIn, Twitter, Facebook or Instagram.