Q1 FY18 (all from continuing operations):
- GAAP EPS of $.70, down 39 percent from the prior year; GAAP net income of $156 million
- Adjusted EPS of $1.79*, up 22 percent versus prior year; up 18 percent excluding a $.06 benefit from new U.S. Tax Cuts and Jobs Act
- Adjusted EBITDA margin of 33.2 percent*
- Gasification successes: continued progress toward $1.3 billion joint venture for Lu'An coal-to-syngas project in China; announced $3.5 billion syngas joint venture with Yankuang Group in China; signed agreement to acquire Shell's coal gasification technology business; announced syngas supply agreement for BPCL's new petrochemical project in Kochi, India
- Announced major contracts for Samsung's next phases of expansion in both Pyeongtaek and Tangjeong, Korea
- Increased quarterly dividend by 16 percent to $1.10
- Fiscal 2018 adjusted EPS guidance of $7.15 to $7.35 per share, up 13 to 16 percent over prior year, including an estimated $0.20 to $0.25 benefit from the US Tax Cuts and Jobs Act. Fiscal 2018 second quarter adjusted EPS guidance of $1.65 to $1.70 per share, up 15 to 19 percent over the fiscal 2017 second quarter, including an estimated $0.05 benefit from the US Tax Cuts and Jobs Act. This guidance excludes the Lu'An project and any other significant future acquisitions.
*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 below.
Air Products (NYSE: APD) today reported GAAP net income from continuing operations of $156 million and GAAP diluted earnings per share (EPS) from continuing operations of $.70, down 38 and 39 percent, respectively from the prior year, for its fiscal first quarter ended December 31, 2017. These results included a net $239 million, or $1.09 per share, charge related to the U.S. Tax Cuts and Jobs Act ("Tax Act").
For the quarter, on a non-GAAP basis, adjusted net income from continuing operations of $395 million increased 23 percent and diluted adjusted EPS from continuing operations of $1.79 increased 22 percent over prior year. Excluding a $.06 benefit from the new Tax Act, EPS increased 18 percent.
The adjusted EPS benefit from the Tax Act in the first quarter was $.06 per share. Air Products expects the full-year adjusted EPS benefit of the Tax Act to be $0.20 to $0.25 per share, with an expected adjusted full-year tax rate of 20 to 21 percent. Non-GAAP results for the Company in the fiscal first quarter of 2018 exclude a net expense of $239 million due to the Tax Act, which includes an expense of $453 million for the cost of the deemed repatriation tax and adjustments to the future cost of repatriation from foreign investments, and a benefit of $214 million, primarily from the re-measurement of the Company's net U.S. deferred tax liabilities at the lower corporate tax rate. See reconciliation of non-GAAP measures starting on page 4.
First quarter sales of $2.2 billion increased 18 percent from the prior year on 13 percent higher volumes, two percent higher pricing and three percent favorable currency. Volumes were higher in all three Industrial Gas regions, driven by new plants, a contract termination resulting in a plant sale in China, and base business growth.
For the quarter, adjusted EBITDA of $735 million increased 12 percent over the prior year, driven by the higher volumes and Asia pricing. Adjusted EBITDA margin of 33.2 percent decreased 160 basis points from the prior year, primarily driven by the China contract termination/plant sale and higher energy pass-through.
Commenting on the results, Seifi Ghasemi, chairman, president and chief executive officer, said, “The committed and motivated team at Air Products delivered another excellent quarter of safety and financial results. Adjusted EPS of $1.79 was another quarterly record. This is also the 15th consecutive quarter that we have reported adjusted EPS growth. In addition, we are winning new projects and delivering on our growth strategy. We generated a significant amount of investable cash and announced a 16 percent increase to our quarterly dividend, making our annual dividend $4.40 per share.”
First Quarter Results by Business Segment
- Industrial Gases – Americas sales of $910 million increased five percent over prior year, driven by higher volumes, primarily strong hydrogen demand. Adjusted EBITDA of $354 million increased one percent over the prior year, with higher volumes more than offsetting costs from higher planned maintenance outages. Adjusted EBITDA margin of 38.9 percent decreased 160 basis points from the prior year.
- Industrial Gases – EMEA sales of $516 million increased 29 percent over prior year, driven by 17 percent higher volumes, as well as nine percent favorable currency and three percent favorable energy pass through. The higher volumes were primarily from a new hydrogen plant in India; merchant volumes were also positive. Adjusted EBITDA of $167 million increased 18 percent over the prior year, primarily driven by the volume increase and the positive currency impact. Adjusted EBITDA margin of 32.3 percent decreased 320 basis points from the prior year; excluding the impact of higher energy pass through and high natural gas prices in India, margins were roughly flat.
- Industrial Gases – Asia sales of $644 million increased 47 percent over prior year, mainly due to the contract termination/plant sale in China; excluding this, volumes were up eight percent from both new plants and strong base merchant business. Pricing increased seven percent over prior year, driven by China merchant pricing. Adjusted EBITDA of $247 million increased 38 percent from the contract termination and plant sale, strong volumes, higher pricing and favorable currency. Excluding the contract termination/plant sale, adjusted EBITDA margins increased 240 basis points.
Ghasemi said, “We continue to be optimistic about the future of Air Products. We cannot predict, and do not have control, over worldwide political or economic developments. But we do have control over the operational and growth performance of Air Products, and we feel confident we can deliver on our goals. We have a strong balance sheet – the best in the industry. We will continue to focus on safety, controlling our costs, and investing in the many strategic growth opportunities we see.”
Air Products expects fiscal 2018 adjusted EPS of $7.15 to $7.35 per share, up 13 to 16 percent over prior year, including an estimated $0.20 to $0.25 benefit from the Tax Act. For the fiscal 2018 second quarter, Air Products expects adjusted EPS of $1.65 to $1.70 per share, up 15 to 19 percent over the fiscal 2017 second quarter, including an estimated $0.05 benefit from the Tax Act. This guidance excludes the Lu'An project and any other significant future acquisitions.
The capital expenditure forecast for fiscal year 2018 is expected to be in the range of $1.2 to $1.4 billion on a GAAP and non-GAAP basis. This guidance excludes Lu'An and any other significant future acquisitions.
The Company adopted accounting guidance in the first quarter which revised the reporting of pension and postretirement expense to reclassify non-service costs from operating costs to non-operating income/expense. There is no impact to reported EPS. See Note 2 to the consolidated financial statements for more details.
Management has provided adjusted EPS and adjusted tax rate guidance on a continuing operations basis. While Air Products might have additional impacts from the Tax Act or 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 or the effective tax rate. 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 or the impact of the adjusted tax rate to a comparable GAAP range.
Access the Q1 earnings teleconference scheduled for 10:00 a.m. Eastern Time on January 26 by calling (323) 994-2083 and entering passcode 9546225, or access the Event Details page on Air Products’ Investor Relations web site.
View entire earnings release with all financial tables.