01—Abstract
Summary
Summary of the 10-K filed November 21, 2016. Cited figures are marked; the original filing is the authoritative source.
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.
02—Key points
Key Highlights
- Strategic shift to focus on core Industrial Gases business, including the spin-off of Electronic Materials (Versum Materials) and agreement to sell Performance Materials.
- Improved operating margin to 22.1% and adjusted EBITDA margin to 34.4% in FY2016, indicating enhanced profitability.
- Sales 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%.
- Diluted EPS from continuing operations increased 17% to $6.94.
- Continued commitment to shareholder returns with a 6% increase in quarterly dividend, marking the 34th consecutive year of dividend increases.
- Exit from the Energy-from-Waste (EfW) business, presented as a discontinued operation, due to operational difficulties.
- Managed significant operational costs and capital expenditures, including a substantial investment in the Jazan, Saudi Arabia project.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, Air Products & Chemicals, Inc. kept $0.08.
- Revenue$7.50B100.0%
- Cost of revenue−$5.18B69.0%
- Gross profit$2.33B31.0%
- Operating costs−$792.0M10.6%
- Operating income$1.54B20.5%
- Interest, other & tax−$904.0M12.0%
- Net income$631.1M8.4%
Where FY2016 revenue went
$7.50B- Cost of revenue: $5.18B, 69% of revenue
- Interest, other & tax: $904.0M, 12% of revenue
- Net income: $631.1M, 8.4% of revenue
- R&D: $71.8M, 1.0% of revenue
- SG&A: $683.8M, 9.1% of revenue
Kept 8.4% as net incomeR&D $71.8M · 1.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed November 21, 2016Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $7.50B$7.82B | −4.1% |
| Cost of Revenue | $5.18B$5.60B | −7.5% |
| Gross Profit | $2.33B$2.96B | −21.3% |
| R&D Expenses | $71.80M$76.40M | −6.0% |
| SG&A Expenses | $683.80M$773.00M | −11.5% |
| Operating Income | $1.54B$1.23B | +24.5% |
| Interest Expense | $115.20M$102.80M | +12.1% |
| Net Income | $631.10M$1.28B | −50.6% |
| EPS (Basic) | $2.92$5.95 | −50.9% |
| EPS (Diluted) | $2.89$5.88 | −50.9% |
| Shares Outstanding (Basic) | 216.40M214.90M | +0.7% |
| Shares Outstanding (Diluted) | 218.30M217.30M | +0.5% |
05—Questions
Frequently Asked Questions
What were the major strategic changes for Air Products in fiscal year 2016?
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.
How did Air Products' financial performance change in fiscal year 2016 compared to 2015?
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.
What is the outlook for Air Products in fiscal year 2017?
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.
How did Air Products manage raw material and energy costs?
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.
06—Continue