Tags: Air | Products | Chemicals | APD

Air Products & Chemicals Depends on Return to Global Growth

By    |   Tuesday, 03 July 2012 11:40 AM

Air Products & Chemicals (APD) has operations in dozens of industrial and service sectors and operates in a widespread geography. The distribution of its business lines and locations makes it less prone to single-country or single-industry risk, yet it remains dependent on rising demand among customers, which in turn depends on a return to global economic growth.

Air Products & Chemicals supplies atmospheric gases, process and specialty gases, performance materials, equipment, and services. APD is the world’s largest supplier of hydrogen and helium and also sells in markets such as semiconductor materials, refinery hydrogen, natural gas liquefaction, and advanced coatings and adhesives.

The merchant gases segment sells atmospheric gases such as oxygen, nitrogen, and argon (primarily recovered by the cryogenic distillation of air); process gases such as hydrogen and helium (purchased or refined from crude helium); medical and specialty gases; and certain services and equipment, throughout the world to customers in many industries, including those in metals, glass, chemical processing, food processing, healthcare, steel, general manufacturing, and petroleum and natural gas industries.

Tonnage gases provides hydrogen, carbon monoxide, nitrogen, oxygen, and synthesis gas (a hydrogen-carbon monoxide mixture) principally to the energy production and refining, chemical, and metallurgical industries worldwide.

Electronics and performance materials employs applications technology to provide solutions to a broad range of global industries through chemical synthesis, analytical technology, process engineering, and surface science.

The equipment and energy segment designs and manufactures cryogenic equipment for air separation, hydrocarbon recovery and purification, natural gas liquefaction (LNG), and helium distribution (cryogenic transportation containers), and serves energy markets in a variety of ways. In this segment, gases are produced at large facilities located adjacent to customer facilities or by pipeline systems from centrally located production facilities and are generally governed by contracts with 15- to 20-year terms.

The company, through subsidiaries, affiliates, and less-than-controlling interests, conducts business in more than 40 countries outside the United States. APD has majority or wholly owned foreign subsidiaries that operate in Canada, 17 European countries (including the United Kingdom and Spain), nine Asian countries (including China, Korea, and Taiwan), and three Latin American countries (including Mexico and Brazil).

“We have taken a number of significant actions in 2012 that we are confident will deliver better performance in 2013 and beyond. We took actions to improve our portfolio and business mix by exiting our Homecare business,” Air Products CFO Paul Huck told analysts in a recent call.

“We are implementing cost reductions across Europe to remove the stranded costs of our Homecare operation and also reduce the cost of conducting our merchant European operations. We won a number of new orders under long-term take-or-pay agreements that expands our tonnage presence in China and add to our leading global hydrogen position.”

Air Products & Chemicals has a market cap of $16.83 billion in a sector, chemicals, where the average company size is $9.20 billion. Its trailing 12-month P/E ratio is 14.94 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.94, compared to 1.50 for the sector.

Its projected earnings per share growth for the coming year is 14.49 percent, compared to a sector average of 14.36 percent.

Margin threat

Analysts are positive on APD, with buy or outperform calls from Jefferies and Morgan Stanley. Zacks Investment Research rates the stock a hold.

“Air Products benefits from a long-term take-or-pay contract, a consolidated industry structure, diverse customer base and sustained pricing power. New business deals, including the recent supply contract with Xiamen Tianma Microelectronics, are expected to support profit in 2012,” Zacks analysts wrote in a recent report.

“However, soaring energy and raw material costs pose a threat to margin expansion.”

Air Products & Chemicals next reports on July 24.

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Tuesday, 03 July 2012 11:40 AM
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