Air Products Reports Strong Fiscal 3Q 2016 Results

Air Products reported GAAP net income from continuing operations of $356 million, up 11% versus the prior year, and diluted earnings per share (EPS) from continuing operations of $1.63, up 10% versus the prior year, for its fiscal third quarter ended June 30, 2016.
 
On a non-GAAP basis, adjusted net income from continuing operations of $420 million was up 17% versus prior year, and adjusted diluted earnings per share from continuing operations of $1.92 was up 16% versus prior year.
 
Third quarter sales of $2,434 million decreased 1% from the prior year, as 4% higher volumes were more than offset by 3% lower energy pass-through and 2% unfavorable currency. The volume improvement was primarily driven by Industrial Gases – Global, Asia, and North America. Pricing overall was flat despite higher pricing in Industrial Gases – Americas and Industrial Gases – Europe, Middle East, and Africa (EMEA).
 
On a GAAP basis, operating income of $535 million increased 26% and operating margin of 22.0% improved 480 basis points versus prior year.
 
Adjusted operating income of $560 million increased 16%, and adjusted EBITDA of $833 million increased 10% over prior year. Adjusted operating margin of 23.0% and adjusted EBITDA margin of 34.2% both improved 340 basis points over the prior year. Adjusted ROCE increased 200 basis points to 13.5%. These results were primarily driven by operational improvements and restructuring benefits.
 
“I am very pleased to report that our team at Air Products delivered another set of excellent results this quarter,” said Seifi Ghasemi, chairman, president and CEO. “Despite sluggish economic growth worldwide and continued currency headwinds, our team stayed focused on executing our strategic Five-Point Plan, delivering EPS of $1.92, up 16% over last year, and improving EBITDA margin by more than 300 basis points. This is the eighth consecutive quarter that Air Products has reported double-digit EPS growth. Also, our ROCE increased 200 basis points and now stands at 13.5%.
 
“As we move closer to the sale of our Performance Materials Division to Evonik and the tax-free spin-off of our Electronic Materials Division (Versum Materials) to shareholders, we see great opportunities ahead to win key projects and invest in our core industrial gases business so that we grow Air Products in the years to come.”
 
Third Quarter Results by Business Segment:
 
Industrial Gases – Americas sales of $832 million decreased 7% versus prior year, as lower energy pass-through reduced sales by 5% and unfavorable currency reduced sales by 2%. Volumes overall decreased one%, as strong hydrogen demand and the benefits of a new hydrogen plant in North America were more than offset by lower merchant demand in South America. Pricing increased 1%. Operating income of $235 million increased 14% over prior year, and adjusted EBITDA of $362 million increased 11%, driven by operational improvements and the benefits from restructuring actions. Record operating margin of 28.2% improved 520 basis points; excluding lower energy pass-through, it increased more than 400 basis points. Record adjusted EBITDA margin of 43.5% improved 700 basis points over prior year.
 
Industrial Gases – EMEA sales of $427 million declined six% versus last year, with lower energy pass-through reducing sales by 5% and unfavorable currency reducing sales by 1%. Pricing increased 1% and volumes decreased 1%. Operating income of $103 million increased 18% from the prior year, and adjusted EBITDA of $160 million increased 9% versus prior year on the benefits from productivity and pricing actions. Record operating margin of 24.2% increased 500 basis points; excluding lower energy pass-through, it increased 400 basis points. Record adjusted EBITDA margin of 37.4% increased 520 basis points over the prior year.
 
Industrial Gases – Asia sales of $448 million increased 7% versus prior year, as volume growth of 14%, driven by new plants and strong underlying business, was partially offset by 5% unfavorable currency and 2% lower pricing. Operating income of $118 million increased 17% and adjusted EBITDA of $182 million increased 10% on the benefits from productivity actions and higher volumes. Operating margin of 26.4% improved 220 basis points over prior year, and adjusted EBITDA margin of 40.7% increased 110 basis points.
 
Materials Technologies sales of $520 million decreased 4% versus the prior year on 2% lower pricing, 1% lower volumes, and 1% unfavorable currency. Operating income of $135 million was up three%. Adjusted EBITDA of $154 million was flat. Operating margin of 26.0% was up 160 basis points, and adjusted EBITDA margin of 29.7% was up 110 basis points.
 
Electronic Materials sales of $243 million declined 8% from the prior year on 6% lower volumes and 2% unfavorable currency. Materials volumes were flat, as growth in Advanced Materials was offset by softer Process Materials volumes. Operating margin of 30.0% and adjusted EBITDA margin of 35.3% were up modestly, driven by favorable pricing and mix, and productivity.
 
Performance Materials sales of $277 million were flat with the prior year as 4% higher volumes were offset by 4% lower pricing, driven by lower raw material costs. Operating margin of 22.7% increased 180 basis points and adjusted EBITDA margin of 24.9% increased 130 basis points, driven by productivity and favorable price/raw material balance.