01—Abstract
Summary
Summary of the 10-K filed November 28, 2007. Cited figures are marked; the original filing is the authoritative source.
Air Products & Chemicals (APD) closed fiscal 2007 (year ended 30 September 2007) with sales of $10.04 billiona, up 15% year over year, and net income of $1.04 billion, up roughly 43% from $723 million.
Diluted EPS rose to $4.64b from $3.18. Growth was driven mainly by underlying volume gains across all six segments, with currency tailwinds from a weaker U.S. dollar. Operating income rose 33% to $1.41 billion, though part of the year-over-year improvement reflected prior-year one-time items such as the $70 million gain on sale of the Geismar DNT facility and the $66 million loan impairment, which were offset in 2007 by a $37 million customer contract settlement gain.
The balance sheet and capital allocation shifted meaningfully toward growth and shareholder returns. Total debt rose to $3.7 billionc from $2.8 billion, funding the $518 million acquisition of the Polish industrial gas business of BOC Gazy, share repurchases of $567 million, and pension contributions of $290 million. Management guided to further EPS growth in 2008, with higher interest expense, a higher effective tax rate, and lower Equipment and Energy results as the LNG equipment backlog declined from its 2006 peak to $258 million.
The board also approved an additional $1 billiond buyback and raised the quarterly dividend 12% to $0.38 per share. Key risks for investors include energy and raw material cost volatility (electricity is the largest cost input for atmospheric gases), a 2008 slowdown in manufacturing growth, pending divestitures of the Polymer Emulsions business and the HPPC business, a Brazilian antitrust investigation of the company's subsidiary, and environmental remediation exposure of $52 to $65 million.
02—Key points
Key Highlights
- Sales rose 15% to $10,037.8 million, driven by volume growth across all segments, with Merchant Gases up 18% and Tonnage Gases up 17%.
- Net income increased to $1,035.6 million from $723.4 million, and diluted EPS rose to $4.64 from $3.18, though 2006 included several one-time items.
- Operating income rose 33% to $1,407.7 million; the 2007 period also benefited from a $36.8 million customer contract settlement gain and a $27.5 million IRS tax audit benefit.
- Total debt climbed to $3.7 billion from $2.8 billion, funding the $518 million BOC Gazy acquisition, $567 million of share repurchases, and higher pension contributions.
- The board increased the quarterly dividend 12% to $0.38 and authorized an additional $1 billion share repurchase program on top of the remaining $436.6 million of the 2006 $1.5 billion program.
- 2008 guidance calls for another year of EPS growth, but with lower Equipment and Energy results (backlog fell to $258 million from $446 million), higher interest expense, and a higher effective tax rate.
- Pending divestitures of the Polymer Emulsions business (to Wacker Chemie) and the HPPC business (to KMG Chemicals, closing 31 December 2007) reshape the portfolio toward industrial gases and performance materials.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2007, Air Products & Chemicals, Inc. kept $0.11.
- Revenue$9.15B100.0%
- Cost of revenue−$6.70B73.2%
- Gross profit$2.45B26.8%
- Operating costs−$1.07B11.7%
- Operating income$1.38B15.0%
- Interest, other & tax−$340.0M3.7%
- Net income$1.04B11.3%
Where FY2007 revenue went
$9.15B- Cost of revenue: $6.70B, 73% of revenue
- Net income: $1.04B, 11% of revenue
- R&D: $129.0M, 1.4% of revenue
- SG&A: $999.8M, 11% of revenue
- Interest, other & tax: $340.0M, 3.7% of revenue
Kept 11% as net incomeNet income $1.04B · 11%R&D $129.0M · 1.4%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2007filed November 28, 2007Financial Statements
| Revenue | $9.15B |
| Cost of Revenue | $6.70B |
| Gross Profit | $2.45B |
| R&D Expenses | $129.00M |
| SG&A Expenses | $999.80M |
| Operating Income | $1.38B |
| Interest Expense | $162.40M |
| Net Income | $1.04B |
| EPS (Basic) | $4.79 |
| EPS (Diluted) | $4.64 |
| Shares Outstanding (Basic) | 216.20M |
| Shares Outstanding (Diluted) | 223.20M |
05—Questions
Frequently Asked Questions
What drove Air Products' revenue and earnings growth in fiscal 2007?
Growth came primarily from underlying volume increases across all six segments, which added about $292 million to operating income. Pricing was roughly flat at the consolidated level, with higher prices in Merchant Gases offset by lower electronic specialty materials pricing. A weaker U.S. dollar against the Euro and Pound Sterling added about 3% to sales and roughly $42 million to operating income.
How much debt does Air Products carry, and how is it being used?
Total debt was $3.7 billion at 30 September 2007, up from $2.8 billion a year earlier, and debt represented 39.3% of total capitalization (debt, equity and minority interest). The increase funded the BOC Gazy acquisition, the share repurchase program, and pension funding. The company is rated A/A2 long-term by S&P and Moody's, and it had a $1.2 billion undrawn committed revolving credit facility at year-end.
What are the main risks to the outlook for 2008?
Management cites energy price volatility and slower manufacturing growth as the two key risks. Electricity and natural gas are major cost inputs, and the company relies on pass-through contracts and pricing actions to recover them. Other risks include the expiration of the Equipment and Energy backlog peak, pension settlement losses of $20 to $25 million expected in 2008, a Brazilian antitrust proceeding against its subsidiary, and environmental exposure.
Is the dividend and share buyback program sustainable?
The dividend was raised 12% to $0.38 per quarter in March 2007 and has increased for 25 consecutive years, with annual dividends of $1.48 in 2007. Operating cash flow from continuing operations was $1.48 billion, against $312 million of dividends paid and $575 million of treasury stock purchases. Buybacks were funded partly with borrowings, so the company's capacity to sustain both depends on continued earnings growth and cash generation, since capital expenditures are guided to $1.1 to $1.2 billion in 2008.
What did the company's recent portfolio changes involve?
In 2007 the company acquired the Polish industrial gas business of BOC Gazy for $518 million, adding about $83 million of sales in the period since acquisition. It agreed to sell the HPPC business to KMG Chemicals, with closing expected 31 December 2007, and recorded a $15.3 million pretax write-down. It was also in advanced discussions to sell its Polymer Emulsions business to its partner Wacker Chemie AG, with the Board authorizing that sale on 15 November 2007.
06—Continue