Q2 FY17 (all from continuing operations):
- On a GAAP basis, EPS of $1.39, up nine percent versus the prior year; operating margin of 19.8 percent, down 110 basis points versus the prior year
- Adjusted EPS of $1.43*, up four percent versus prior year; adjusted operating margin of 20.5 percent and adjusted EBITDA margin of 32.9 percent, down 150 and 300 basis points, respectively, versus the prior year
- Maintaining fiscal 2017 adjusted EPS guidance of $6.00 to $6.25, which at the midpoint, represents a nine percent increase over the prior year; fiscal 2017 third quarter adjusted EPS guidance of $1.55 to $1.60, which at the midpoint, also represents a nine percent increase over the prior year
- Completed the sale of the Performance Materials Division for $3.8 billion, resulting in a $1.8 billion after-tax book gain in discontinued operations
- Awarded expanded supply to Marathon Petroleum in Garyville, Louisiana; started-up first phase of hydrogen/ASU project in India; brought onstream first phase of new facilities serving South Korea fab; brought two China plants onstream
*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 $304 million and diluted earnings per share (EPS) from continuing operations of $1.39, both up nine percent versus the prior year, for its fiscal second quarter ended March 31, 2017.
For the quarter, on a non-GAAP basis, adjusted net income from continuing operations of $314 million was up five percent versus prior year, and adjusted diluted earnings per share from continuing operations of $1.43 was up four percent versus prior year.
Second quarter sales of $1,980 million increased eleven percent from the prior year, as seven percent higher volumes and five percent favorable energy pass-through were partially offset by one percent unfavorable currency. Volumes were positive in Asia, North America and Europe, while continued progress on the Jazan project was partially offset by lower LNG activity. Taken together, the Industrial Gas regions increased overall volumes by two percent. Pricing was flat with the prior year.
For the quarter, on a GAAP basis, operating income of $391 million increased five percent. Operating margin of 19.8 percent decreased 110 basis points versus prior year.
Adjusted operating income of $406 million increased four percent, and adjusted EBITDA of $652 million increased two percent over the prior year. Adjusted operating margin of 20.5 percent and adjusted EBITDA margin of 32.9 percent decreased 150 and 300 basis points, respectively, from the prior year, as productivity actions were more than offset by higher energy pass-through, increased maintenance costs, and higher power costs. Adjusted EBITDA margin was negatively impacted 140 basis points by higher energy pass through and by 120 basis points due to sale of equipment business mix; excluding these impacts, underlying adjusted margin decreased by only 40 basis points from the prior year. GAAP ROCE of 10.7 percent increased 10 basis points over the prior year. Adjusted ROCE increased 70 basis points to 12.3 percent.
Commenting on the results for the quarter, Seifi Ghasemi, chairman, president and chief executive officer, said, “For the twelfth consecutive quarter, Air Products reported higher adjusted EPS growth versus prior year. This performance is entirely due to the commitment and dedication of our people around the world as they continue implementing our strategic Five-Point Plan. We had excellent safety performance, and despite the margin decline, our adjusted EPS increased four percent versus prior year and adjusted ROCE increased 70 basis points to 12.3 percent," he said.
Second Quarter Results by Business Segment
- Industrial Gases – Americas sales of $890 million increased twelve percent versus prior year on nine percent higher energy pass-through. Higher volumes, higher pricing and favorable currency each contributed one percent. Segment operating income of $225 million was flat, while adjusted EBITDA of $354 million increased four percent, as productivity actions were offset by higher maintenance costs supporting planned customer outages. Segment operating margin of 25.2 percent decreased 280 basis points, and adjusted EBITDA margin of 39.7 percent decreased 300 basis points from the prior year, primarily due to higher energy pass-through; excluding energy pass-through, operating margin decreased 90 basis points.
- Industrial Gases – EMEA sales of $414 million decreased two percent versus last year, as three percent higher energy pass-through and one percent higher volumes were more than offset by six percent unfavorable currency. Pricing was flat. Segment operating income of $87 million decreased four percent and adjusted EBITDA of $136 million decreased six percent from the prior year; on a constant currency basis, both operating income and adjusted EBITDA increased, as productivity actions and positive volumes more than offset the impact from higher power costs and planned maintenance outages. Segment operating margin of 20.9 percent decreased 40 basis points and adjusted EBITDA margin of 32.9 percent decreased 160 basis points from the prior year, primarily due to higher energy pass-through.
- Industrial Gases – Asia sales of $436 million increased seven percent versus prior year, as volume growth of eight percent was partially offset by one percent unfavorable currency. Pricing was flat. Segment operating income of $112 million increased seven percent and adjusted EBITDA of $174 million increased two percent, driven by higher volumes. Segment operating margin of 25.7 was flat, and adjusted EBITDA margin of 40 percent declined 200 basis points from the prior year, primarily due to the ramp-up of utility pass-through volumes.
Non-GAAP results for the Company in the fiscal second quarter of 2017 exclude expenses of $10.3 million, or $0.03 per share, for cost reduction actions, and $4.1 million, or $0.01 per share, for pension settlement costs. See reconciliation of non-GAAP measures starting on page four.
Ghasemi said, "Air Products continues to operate from a position of strength. Cash generation and disciplined capital allocation drive long-term value, and Air Products has a significant amount of cash to invest in our core industrial gases business. In fact, over the next three years, we expect to have approximately $8 billion to deploy in strategic, high-return opportunities to create shareholder value.
"However, we maintain our cautious outlook for economic activity around the world, since we have not seen any concrete evidence to allow us to make a different prediction. At the same time, we are driving productivity and cost actions in our business to deliver on our commitments," he said.
Air Products continues to expect fiscal 2017 adjusted EPS of $6.00 to $6.25, which at midpoint, represents an increase of nine percent over last year. For the fiscal 2017 third quarter, Air Products expects adjusted EPS from continuing operations of $1.55 to $1.60 per share, which at midpoint, also represents an increase of nine percent over last year.
The capital expenditure forecast for fiscal year 2017 is approximately $1 billion on a GAAP and non-GAAP basis.
Management has provided adjusted EPS guidance on a continuing operations basis. While it is likely that we will incur additional costs for items such as cost reduction 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.
Access the Q2 earnings teleconference scheduled for 10:00 a.m. Eastern Time on April 27 by calling (719) 325-2216 and entering passcode 5845902, or access the Event Details page on Air Products’ Investor Relations web site.
View entire earnings release with all financial tables.