Resilient Business Model, Financial Strength, and Continued Successful Execution of Growth Strategy Amid COVID-19
July 23, 2020 Lehigh Valley, Pa.
Q3 FY20 (comparisons versus prior year):
- GAAP EPS of $2.01, down nine percent, including an estimated $0.35-$0.40 negative impact from COVID-19; GAAP net income of $457 million, down nine percent; and GAAP net income margin of 22.1 percent, down 40 basis points
- Adjusted EPS* of $2.01, down seven percent, including an estimated $0.35-$0.40 negative impact from COVID-19; adjusted EBITDA margin* of 42.7 percent, up 260 basis points
Q3 FY20 Highlights
- Continued execution of the Company's strategy amid COVID-19, providing financial security for employees, reliable supply of critical products and services to customers, and winning new opportunities for world-scale projects
- Announced ground-breaking $7 billion NEOM project — including ~$3.7 billion total investment by Air Products — that will lead the way in transforming the world's use of energy and position Air Products as the leading supplier of carbon-free hydrogen for buses and trucks by 2025
- Announced ~$2 billion investment to build, own and operate a world-scale coal-to-methanol production facility in Indonesia by 2024, providing methanol to Bakrie and Ithaca under a long-term onsite business model arrangement
- Operating from a continued position of financial strength, executed successful US$3.8 billion and €1.0 billion (~US$5 billion) debt offerings, supporting significant opportunities for investment in high-return industrial gas projects and repayment of maturing debt
#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. Additional information regarding these measures and a reconciliation of GAAP to non-GAAP historical results can be found below.
For its fiscal 2020 third quarter, Air Products (NYSE:APD) today reported GAAP EPS from continuing operations of $2.01, down nine percent, which includes an estimated $0.35-$0.40 per share negative impact from COVID-19. GAAP net income of $457 million was down nine percent, primarily reflecting the negative impacts from COVID-19 and a prior year gain on an exchange of equity affiliates, partially offset by pricing actions, LNG project execution, and a prior year charge for cost reduction actions. GAAP net income margin of 22.1 percent was down 40 basis points, also reflecting favorable energy pass-through.
For the quarter, on a non-GAAP basis, adjusted EPS from continuing operations of $2.01 was down seven percent versus prior year, including the estimated $0.35-$0.40 per share negative impact from COVID-19. Adjusted EBITDA of $881 million was down one percent, reflecting business stability, pricing actions and LNG project execution, with adjusted EBITDA margin of 42.7 percent up 260 basis points, also reflecting favorable energy pass-through.
Third quarter sales of $2.1 billion decreased seven percent from the prior year due to four percent lower energy pass-through, three percent lower volumes, and two percent unfavorable currency, which were partially offset by two percent higher pricing. The estimated COVID-19 impact on sales was nine percent, primarily due to volume impacts in the Americas and Europe merchant businesses. The impact was partially offset by positive volume contributions from new plants and LNG activities.
Commenting on the results, Air Products' Chairman, President and Chief Executive Officer Seifi Ghasemi said, "As the world continues to navigate challenging conditions related to COVID-19, I am very proud of the Air Products team who have demonstrated their true character and commitment in keeping our plants running and our customers supplied with essential products. Meanwhile our onsite business—which represents more than half of our sales—remains stable, and we continued to execute on our growth strategy, announcing two new megaprojects in Saudi Arabia and Indonesia which together represent planned Air Products investment of approximately $5.7 billion."
Fiscal Third Quarter Results by Business Segment
(comparisons versus prior year)
- Industrial Gases - Americas sales of $850 million decreased 11 percent from the prior year. This was due to six percent lower energy pass-through; five percent lower volumes, mainly due to lower merchant demand impacts from COVID-19; and two percent unfavorable currency, which were partially offset by two percent higher pricing. Operating income of $248 million decreased five percent, primarily due to the lower volumes. Operating margin of 29.2 percent increased 180 basis points, with about a 150-basis point improvement due to lower energy cost pass-through. Adjusted EBITDA of $411 million was flat. Adjusted EBITDA margin of 48.4 percent increased 550 basis points, with about a 250-basis point improvement due to lower energy cost pass-through.
- Industrial Gases - EMEA sales of $430 million decreased 13 percent from the prior year. This was due to seven percent lower volumes, primarily due to lower merchant demand impacts from COVID-19; six percent lower energy pass-through; and three percent unfavorable currency, which were partially offset by three percent higher pricing. Operating income of $105 million decreased 15 percent, primarily due to the lower volumes. Operating margin of 24.5 percent decreased 40 basis points, with about a 120-basis point improvement due to lower energy cost pass-through. Adjusted EBITDA of $170 million decreased 11 percent, primarily due to the lower volumes. Adjusted EBITDA margin of 39.5 percent increased 110 basis points, with about a 200-basis point improvement due to lower energy pass-through.
- Industrial Gases - Asia sales of $652 million decreased four percent, driven in part by three percent unfavorable currency. Volumes decreased three percent, as COVID-19 impacts and planned maintenance outages were only partially offset by new plants that were brought onstream. Pricing increased two percent, with positive pricing across most major product lines. Operating income of $222 million decreased four percent, and operating margin of 34.0 percent decreased 10 basis points. Adjusted EBITDA of $327 million decreased two percent, and adjusted EBITDA margin of 50.1 percent increased 90 basis points.
Ghasemi added, "Significant uncertainty in the global economy remains, and the COVID-19 recovery is showing mixed results around the world. Despite these challenges, we have shown that with our stable business model, financial position, significant growth opportunities and the total commitment of our people, we can and will continue creating value for shareholders over the long term, growing our dividend and investing in world-scale, sustainability-focused projects."
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; our ability 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, public health crises, 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 and Quarterly Report on Form 10-Q for the period ended June 30, 2020. 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.
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 Q3 earnings teleconference scheduled for 10:00 a.m. Eastern Time on July 23, 2020 by calling 323-794-2093 and entering passcode 3757796, or access the Event Details page on Air Products’ Investor Relations website.
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 over $60 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.