Q1 FY17 (all from continuing operations):
- On a GAAP basis, EPS of $1.15, down 11 percent versus the prior year, and operating margin of 17.4 percent, down 260 basis points versus the prior year
- Adjusted EPS of $1.47*, up nine percent over prior year
- Adjusted operating margin of 21.7 percent and adjusted EBITDA margin of 34.7 percent, up 110 and 80 basis points, respectively, over prior year
- Successfully completed the sale of the Performance Materials Division to Evonik on 3 January
- Submitted preliminary, non-binding expression of interest in acquiring Yingde Gases Group Company Limited
- Increased dividend payable May 8, 2017 by 10 percent to 95 cents per share, reflecting its strong financial position and the 35th consecutive year of dividend increases
- Fiscal 2017 adjusted EPS guidance of $6.00 to $6.25, which at the midpoint, represents a nine percent increase over prior year, and fiscal 2017 second quarter adjusted EPS guidance of $1.30 to $1.40
*The results and guidance in this release, including in the highlights above, include references to non-GAAP continuing operations measures. These exclude the discontinued operations of the former Materials Technologies (MT) segment and Energy-from-Waste and are identified by the word “adjusted” preceding the measure. A reconciliation of GAAP to non-GAAP results can be found at the end of this release.
Air Products (NYSE: APD) today reported GAAP net income from continuing operations of $252 million, down 10 percent versus the prior year, and diluted earnings per share (EPS) from continuing operations of $1.15, down 11 percent versus the prior year, for its fiscal first quarter ended December 31, 2016.
For the quarter, on a non-GAAP basis, adjusted net income from continuing operations of $322 million was up 10 percent versus prior year, and adjusted diluted earnings per share from continuing operations of $1.47 was up nine percent versus prior year.
On a GAAP basis, the effective tax rate in the quarter was 23.3 percent. The adjusted effective tax rate in the quarter was 21.2 percent, lower than it has been recently due to the MT separation, new accounting for share-based compensation, and one-time adjustments.
First quarter sales of $1,883 million increased one percent from the prior year, as two percent higher volumes and two percent favorable energy pass-through were partially offset by three percent unfavorable currency. The volume increase was driven by strength in Industrial Gases – Asia and continued progress on the Jazan project. Pricing was flat with the prior year.
For the quarter, on a GAAP basis, operating income of $328 million decreased 12 percent and operating margin of 17.4 percent decreased 260 basis points versus prior year.
Adjusted operating income of $408 million increased six percent, and adjusted EBITDA of $652 million increased three percent over the prior year. Adjusted operating margin of 21.7 percent improved 110 basis points and adjusted EBITDA margin of 34.7 percent improved 80 basis points over the prior year. GAAP ROCE of 10.9 percent increased 130 basis points over the prior year. Adjusted ROCE increased 180 basis points to 12.7 percent. Productivity actions drove these results.
Commenting on the results for the quarter, Seifi Ghasemi, chairman, president and chief executive officer, said, “This was another quarter of strong operating performance by our dedicated employees who are making Air Products the safest and most profitable industrial gases company in the world. We increased adjusted EPS by nine percent over the previous year, improved both adjusted operating and adjusted EBITDA margins, and increased our adjusted ROCE by 180 basis points to 12.7 percent.
"This is the tenth consecutive quarter where we are reporting high single-digit or double-digit growth in our profitability. We also operated for the whole quarter without a lost-time accident. I am very proud that our people achieved these results while also delivering excellent safety performance and completing the sale of the Performance Materials Division to Evonik in early January. Despite the weak economy and currency headwinds, our robust financial position and ongoing productivity programs have us operating from a position of strength. All of this means that we remain in a strong position to grow Air Products' core industrial gases business and deliver value for our shareholders," he said.
First Quarter Results by Business Segment
- Industrial Gases – Americas sales of $864 million increased three percent versus prior year as five percent higher energy pass-through was partially offset by two percent lower volumes, primarily from weakness in Latin America and customer-driven outages in the U.S. Gulf Coast. Pricing and currency were flat versus prior year. Segment operating income of $224 million increased six percent over prior year and adjusted EBITDA of $350 million increased five percent, driven by productivity actions. Segment operating margin of 25.9 percent improved 60 basis points, and adjusted EBITDA margin of 40.5 percent improved 40 basis points over prior year. Excluding energy pass-through, operating margin increased 150 basis points.
- Industrial Gases – EMEA sales of $400 million declined nine percent versus last year on six percent unfavorable currency, two percent lower volumes and one percent lower energy pass-through. Pricing was flat. Segment operating income of $88 million and adjusted EBITDA of $140 million both decreased five percent from the prior year; on a constant currency basis, they increased slightly, as productivity actions more than offset the impact from lower volumes. Segment operating margin of 22.0 percent increased 100 basis points and adjusted EBITDA margin of 35.0 percent increased 160 basis points over the prior year, driven by productivity actions.
- Industrial Gases – Asia sales of $438 million increased six percent versus prior year, as volume growth of 10 percent was partially offset by three percent unfavorable currency and one percent lower pricing. Segment operating income of $118 million increased one percent and adjusted EBITDA of $178 million decreased one percent. Segment operating margin of 26.9 percent declined 140 basis points, and adjusted EBITDA margin of 40.7 percent declined 290 basis points from the prior year, mainly due to increased utility cost pass-through at new plants.
Non-GAAP results for the Company in the fiscal first quarter of 2017 exclude expenses of $30.2 million, or $0.12 per share, for business separation costs; $2.7 million, or $0.01 per share, of tax costs associated with the business separation; and $50.0 million, or $0.19 per share, for cost reduction and asset actions. See reconciliation of non-GAAP measures starting on page four.
Management has provided the following adjusted diluted EPS guidance on a continuing operations basis. While it is likely that we will incur additional costs for items such as business separation, cost reduction and asset actions, and pension settlements in future periods, it is not possible, without unreasonable efforts, to identify the amount or significance of these events or the potential for other transactions that may impact future GAAP EPS. Management does not believe these items to be representative of underlying business performance. Accordingly, management is unable to reconcile, without unreasonable effort, the Company’s forecasted range of adjusted EPS to a comparable GAAP range.
Ghasemi said, "Air Products is in a strong position. We have put in place a robust and geographically-focused organization, and our productivity programs already implemented and the new ones underway will drive our EPS growth as we move forward. In addition, we now have an excellent balance sheet with effectively no net debt. Reflecting this financial strength, we raised the dividend for the 35th consecutive year and remain confident in the tremendous growth opportunities to invest in our core industrial gases business.
"But like any other global company, we are not immune from macro-economic and geopolitical events. The new administration in the United States has not yet articulated its full economic and foreign policy. In Europe, it is not yet certain how the UK government will address the exit from the European Union. In addition, it is impossible to predict how other countries will react to the new economic and political developments in the U.S and Europe. All of these events can have significant effects on currency exchange rates and the level of economic activity around the world. As a result, we are now more cautious in our outlook."
Air Products expects fiscal 2017 adjusted EPS of $6.00 to $6.25, which at midpoint, represents an increase of nine percent over last year. This includes an expected full-year adjusted tax rate of approximately 23 percent. For the fiscal 2017 second quarter, Air Products expects adjusted EPS from continuing operations of $1.30 to $1.40.
The capital expenditure forecast for fiscal year 2017 is approximately $1 billion on a GAAP and non-GAAP basis.
Access the Q1 earnings teleconference scheduled for 10:00 a.m. Eastern Time on January 27 by calling (719) 325-2353 and entering passcode 4746543, or access the Event Details page on Air Products’ Investor Relations web site.
Update on non-binding proposed transaction with Yingde Gases Group Company Limited ("Yingde")
As previously announced on January 8th and January 20th, Air Products has submitted to the board of directors of Yingde a preliminary, non-binding indication of interest to acquire all of the outstanding shares of Yingde, a Hong Kong listed company and a major industrial gas company in China. Air Products seeks to engage in a friendly transaction, which Air Products believes would be strategically and financially compelling for employees, customers and shareholders of both companies. Air Products currently has about $1 billion of sales and more than 2,500 people employed in its successful China business.
At this time, no agreement between Air Products and Yingde has been reached with respect to the proposal, and there cannot be any assurance that such an agreement will be reached or, if such an agreement is reached, that a transaction will be completed.
View entire earnings release with all financial tables.