10-KPeriod: FY2016

Air Products & Chemicals, Inc. Annual Report, Year Ended Sep 30, 2016

Filed November 21, 2016For Securities:APD

Summary

Air Products & Chemicals, Inc. (APD) in its fiscal year 2016 10-K filing reported a strategic shift towards its core Industrial Gases business, marked by the divestiture of its Materials Technologies segment. The company announced an agreement to sell its Performance Materials division and completed the spin-off of its Electronic Materials division as Versum Materials, Inc. Financially, APD demonstrated resilience with improved operating margins and adjusted EBITDA, driven by cost improvement initiatives despite an anemic global economy and currency headwinds. Sales saw a slight decrease year-over-year, primarily due to unfavorable currency impacts and lower energy cost pass-throughs, though underlying sales showed growth. The company also continued its commitment to shareholders by increasing its quarterly dividend for the 34th consecutive year. Looking ahead, APD anticipated lower earnings in fiscal year 2017 due to the separation of its electronic materials business, with further potential reductions if the Performance Materials sale closes. The company's focus remained on executing new industrial gas plant investments and progress on major projects like the Jazan facility. Management highlighted strong operational execution, cost discipline, and a renewed focus on safety and performance-based compensation as key drivers for future profitability. The company navigated various market risks including economic slowdowns, currency fluctuations, and raw material cost volatility through contract management and operational efficiencies.

Financial Highlights

57 data points
Beta

Revenue

$7.50B

31.0% Gross Margin

Net Income

$631.10M

8.4% Net Margin

EPS (Diluted)

$2.89

Total Assets

$18.03B

Cash & Equivalents

$1.29B

Free Cash Flow

$1.35B

Financial Statements
Beta
Revenue$7.50B
Cost of Revenue$5.18B
Gross Profit$2.33B
R&D Expenses$71.80M
SG&A Expenses$683.80M
Operating Income$1.54B
Interest Expense$115.20M
Net Income$631.10M
EPS (Basic)$2.92
EPS (Diluted)$2.89
Shares Outstanding (Basic)216.40M
Shares Outstanding (Diluted)218.30M

Key Highlights

  • 1Strategic shift to focus on core Industrial Gases business, including the spin-off of Electronic Materials (Versum Materials) and agreement to sell Performance Materials.
  • 2Improved operating margin to 22.1% and adjusted EBITDA margin to 34.4% in FY2016, indicating enhanced profitability.
  • 3Sales decreased by 4% to $9.52 billion, primarily due to unfavorable currency impacts and lower energy cost pass-throughs, despite underlying sales growth of 2%.
  • 4Diluted EPS from continuing operations increased 17% to $6.94.
  • 5Continued commitment to shareholder returns with a 6% increase in quarterly dividend, marking the 34th consecutive year of dividend increases.
  • 6Exit from the Energy-from-Waste (EfW) business, presented as a discontinued operation, due to operational difficulties.
  • 7Managed significant operational costs and capital expenditures, including a substantial investment in the Jazan, Saudi Arabia project.

Frequently Asked Questions

The primary strategic change was the significant focus on the core Industrial Gases business. This included the successful spin-off of the Electronic Materials division as Versum Materials, Inc. on October 1, 2016, and entering into an agreement to sell the Performance Materials division. Additionally, the company decided to exit its Energy-from-Waste business.

While sales slightly decreased by 4% to $9.52 billion due to currency headwinds and lower energy cost pass-throughs, Air Products saw significant improvements in profitability. Operating income increased by 23% on a GAAP basis, and operating margin improved to 22.1%. Adjusted EBITDA also grew by 10%. Diluted EPS from continuing operations rose by 17% to $6.94.

The company expected lower earnings in fiscal year 2017 due to the separation of the Electronic Materials division. Further earnings reduction was anticipated if the Performance Materials sale closed. The focus remained on bringing new industrial gas plant investments online, progressing on the Jazan sale of equipment project, and continuing cost reduction efforts.

Air Products managed energy and raw material costs primarily through contractual pass-through arrangements, pricing formulas, and surcharges with customers. For atmospheric gases, electricity is the largest cost component, and for hydrogen and syngas, natural gas is the principal raw material. The company indicated that they did not encounter significant difficulties in obtaining adequate supplies of power and natural gas during fiscal year 2016.