Q3 FY17 (all from continuing operations):
- On a GAAP basis, EPS of $.47, down 59 percent versus the prior year; operating margin of 11.9 percent, down 870 basis points versus the prior year
- Adjusted EPS of $1.65*, up 15 percent versus prior year; adjusted operating margin of 21.8 percent; adjusted EBITDA margin of 34.0 percent down 120 basis points versus the prior yea
- Increased fiscal 2017 adjusted EPS guidance to $6.20 to $6.25, which at the midpoint, is up $0.10 from prior guidance and represents a 10 percent increase over the prior year; fiscal 2017 fourth quarter adjusted EPS guidance of $1.65 to $1.70, which at the midpoint, represents a 12 percent increase over the prior year
- Awarded significant new industrial gas projects in Louisiana, New York and China; hydrogen/air separation unit project in India fully onstream; air separation unit project in China onstream
*The results and guidance in this release, including in the highlights above, include references to non-GAAP continuing operations measures. These exclude discontinued operations 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 $104 million and diluted earnings per share (EPS) from continuing operations of $.47, down 58 and 59 percent, respectively, from the prior year, for its fiscal third quarter ended June 30, 2017. These results include noncash impairment charges referenced below.
For the quarter, on a non-GAAP basis, adjusted net income from continuing operations of $363 million was up 16 percent versus prior year, and adjusted diluted earnings per share from continuing operations of $1.65 was up 15 percent versus prior year.
Third quarter sales of $2,122 million increased 11 percent from the prior year, on eight percent higher volumes and five percent favorable energy pass-through, partially offset by two percent unfavorable currency. Volumes were positive across all three regions, while continued progress on the Jazan project was partially offset by lower LNG activity. Taken together, the Industrial Gas regions increased overall volumes by eight percent. Pricing was flat with the prior year.
For the quarter, on a GAAP basis, operating income of $253 million decreased 36 percent. Operating margin of 11.9 percent decreased 870 basis points versus prior year.
Adjusted operating income of $463 million increased 11 percent, and adjusted EBITDA of $722 million increased seven percent over the prior year. Adjusted operating margin of 21.8 percent was unchanged versus prior year, as unfavorable energy pass-through of 90 basis points was offset by favorable volumes. Adjusted EBITDA margin of 34.0 percent decreased 120 basis points from the prior year and was negatively impacted by 150 basis points from higher energy pass-through; excluding this impact, this margin increased 30 basis points. ROCE based on GAAP items of nine percent decreased 180 basis points from the prior year. Adjusted ROCE increased 10 basis points over prior year to 12.2 percent.
Commenting on the results for the quarter, Seifi Ghasemi, chairman, president and chief executive officer, said, "Once again, the committed and motivated team at Air Products delivered strong results. We had another quarter of excellent improvement in our safety performance. Adjusted EPS increased 15 percent over prior year, which is the 13th consecutive quarter of adjusted EPS growth, and we generated a significant amount of cash flow. In addition, our customers awarded us significant new orders, and we successfully started up our very large hydrogen plant in India and another very large oxygen plant in China."
Air Products Q3FY17 Earnings Release – Tables
Reconciliation of Non-GAAP Measures, Consolidated Income Statements, Consolidated Balance Sheets, Consolidated Statements of Cash Flows, Summary by Business Segments, Notes to Consolidated Financial Statements
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Third Quarter Results by Business Segment
- Industrial Gases – Americas sales of $930 million increased 12 percent versus prior year on three percent higher volumes and nine percent higher energy pass-through. Operating income of $236 million increased one percent. Adjusted EBITDA of $367 million increased one percent, as the contribution of the higher volumes and productivity actions were partially offset by outage-related costs. Adjusted EBITDA margin of 39.5 percent decreased 400 basis points from the prior year, primarily due to higher energy pass-through; excluding energy pass-through, adjusted EBITDA margin decreased 70 basis points.
- Industrial Gases – EMEA sales of $452 million increased five percent versus last year, as six percent higher volumes and four percent higher energy pass-through were partially offset by four percent unfavorable currency and one percent lower pricing. The higher volumes were driven by the new hydrogen facility in India coming onstream. Operating income of $94 million decreased by 10 percent. Adjusted EBITDA of $155 million decreased three percent from the prior year, as productivity actions and higher equity affiliate income were offset by lower equipment sales and a negative impact from price versus variable cost; on a constant currency basis, adjusted EBITDA would have been up slightly. Adjusted EBITDA margin of 34.3 percent decreased 310 basis points from the prior year, with higher energy pass-through accounting for 140 basis points. Excluding this impact, adjusted EBITDA margin was down 170 basis points, approximately evenly impacted by lower equipment sales and price versus variable cost.
- Industrial Gases – Asia sales of $538 million increased 20 percent versus prior year, with volumes up 20 percent. About half of the volume growth was from equipment sale projects, and the remainder was evenly split between new project onstreams and base business growth. Higher pricing contributed two percent, as merchant pricing improved across Asia, including China. Operating income of $149 million increased 26 percent. Adjusted EBITDA of $211 million increased 15 percent, driven by the higher volumes and the higher pricing, partially offset by lower equity affiliate income and higher costs. Adjusted EBITDA margin of 39.2 percent declined 160 basis points.
Non-GAAP results for the Company in the fiscal third quarter of 2017 exclude pre-tax expenses of $162.1 million, or $0.70 per share, for a noncash goodwill impairment charge on the Latin America business; $79.5 million, or $0.36 per share, for an impairment charge on an equity investment in Abdullah Hashim Industrial Gases; $42.7 million, or $0.14 per share, for cost reduction and asset actions; and $5.5 million, or $0.02 per share, for pension settlement costs. Non-GAAP results also exclude $8.2 million, or $0.04 per share, of tax benefits related to changes in tax positions on business separation activities. See reconciliation of non-GAAP measures starting on page four.
Ghasemi said, “We continue to be optimistic about the future performance of Air Products. We see significant opportunities to use our very strong balance sheet to invest in our core business and create value for our shareholders. We have increased our full-year guidance by $0.10 at midpoint, now representing a 10 percent increase over prior year. Our great team of hardworking, dedicated, talented and motivated employees remain focused on being the safest and most profitable industrial gas company in the world, providing excellent service to our customers.”
Air Products increased fiscal 2017 adjusted EPS to $6.20 to $6.25, which at midpoint, is up $0.10 from prior guidance and represents an increase of 10 percent over last year. For the fiscal 2017 fourth quarter, Air Products expects adjusted EPS from continuing operations of $1.65 to $1.70 per share, which at midpoint, represents an increase of 12 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 Q3 earnings teleconference scheduled for 10:00 a.m. Eastern Time on August 1 by calling (323) 794-2130 and entering passcode 4223198, or access the Event Details page on Air Products’ Investor Relations web site.
View entire earnings release with all financial tables.