On May 29, we issued an updated research report on industrial gases giant, Air ProductsAPD .
Air Products topped earnings and revenue expectations in second-quarter fiscal 2017. The company sees adjusted earnings per share of $6.00 to $6.25 for fiscal 2017, which at midpoint, represents a 9% year over year increase.
Air Products is gaining from a diverse customer base and its cost-cutting measures. It is also well positioned to leverage the cyclical recovery in its core industrial end-markets. The company also has a strong project backlog. These projects are expected to be accretive to earnings and cash flow as they come on stream over the next few years.
Acquisitions, new business deals and strategic investments are also expected to support the company’s results in fiscal 2017. Air Products is also keeping a tight control on expenses and undertaking work process improvement initiatives.
Air Products remains on track in delivering on its cost reduction programs, which should support its margins. The company is making a good progress with its $600 million cost-cutting program. It looks to achieve $100 million in cost savings in fiscal 2017.
Moreover, separation of the Materials Technologies unit has allowed Air Products to direct resources to grow its core and stable industrial gases business and achieve its goal of becoming the safest and most profitable industrial gas company globally.
Air Products has a significant amount of cash to invest in its core industrial gases business. The company plans to deploy around $8 billion in high-return investments (including acquisitions and large industrial gases projects) in its core industrial gases business over the next three years, aimed at creating significant shareholder value.
However, Air Products has underperformed the Zacks categorized Chemicals-Diversified industry over the past year, reflecting the headwinds faced by the company. The company’s shares have gained a paltry 0.9% over this period, compared to roughly 17.2% gain recorded by the industry.
Air Products’ industrial gases business in the Europe, Middle East, and Africa (“EMEA”) region is seeing pressure from a weak operating environment. The company is also seeing lower volumes in Latin America due to weak demand.
Moreover, volumes in packaged gases continue to be weak while LNG (liquefied natural gas) sales remain under pressure due to low project activity. Air Products envisions at least 30 cents per share headwind associated with its LNG business in fiscal 2017 on a year over year basis.
Air Products is also exposed to currency headwinds. The company saw unfavorable currency translation impact in the last reported quarter, especially in its EMEA business.
Air Products currently carries a Zacks Rank #3 (Hold).
Air Products and Chemicals, Inc. Price and Consensus
Air Products and Chemicals, Inc. Price and Consensus | Air Products and Chemicals, Inc. Quote
Stocks to Consider
Better-ranked companies in the chemical space include Huntsman Corporation HUN , Kronos Worldwide Inc KRO and The Chemours Company CC , all sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Huntsman has an expected long-term earnings growth of 7%.
Kronos has an expected long-term earnings growth of 5%.
Chemours has an expected long-term earnings growth of 15.5%.
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