10-QPeriod: Q1 FY2007

Air Products & Chemicals, Inc. Quarterly Report for Q1 Ended Dec 31, 2006

Filed January 26, 2007For Securities:APD

Summary

Air Products & Chemicals, Inc. (APD) reported a strong first quarter for fiscal year 2007, with net income increasing by 27% to $230.3 million and diluted earnings per share rising 29% to $1.03 compared to the prior year period. This growth was driven by a significant 21% increase in sales, reaching $2.43 billion, attributed to robust volume growth across its segments, improved pricing, and higher equipment sales. The company also highlighted operational improvements, with operating income up 31% due to strong volume and cost performance. Key strategic developments include the announced agreement to acquire the industrial gas business of BOC Gazy Sp z o.o. for approximately $481 million, pending regulatory approval. APD also continued its share repurchase program, buying back $125.7 million worth of stock in the quarter, underscoring its commitment to returning value to shareholders. The company's outlook for 2007 remains positive, with expectations of continued manufacturing growth and benefit from cost reduction plans and new investments.

Key Highlights

  • 1Net income surged 27% to $230.3 million, with diluted EPS up 29% to $1.03, indicating strong profitability.
  • 2Total sales increased by a robust 21% to $2.43 billion, driven by significant volume growth across all business segments.
  • 3Operating income grew 31% to $332.3 million, reflecting effective cost management and operational efficiencies.
  • 4The company announced a definitive agreement to acquire BOC Gazy's industrial gas business for approximately $481 million, signaling strategic expansion.
  • 5Shareholder returns were prioritized with $125.7 million spent on share repurchases during the quarter under a $1.5 billion program.
  • 6The Merchant Gases segment showed particularly strong performance with a 19% increase in sales and a 32% increase in operating income.
  • 7Despite overall positive trends, the Tonnage Gases segment's sequential quarterly results were expected to be lower due to customer outages and increased maintenance.

Frequently Asked Questions

Sales increased by 21% driven by a combination of factors. Strong volume growth across all segments, improved pricing (particularly in Merchant Gases), higher equipment sales, and favorable currency effects (due to a weaker U.S. dollar) were the main contributors. Additionally, a modest increase from the acquisition of Tomah3 Products added to the sales growth, although this was partially offset by the pass-through of lower natural gas and raw material costs.

Profitability saw significant improvement. Net income rose by 27% to $230.3 million, and diluted earnings per share (EPS) increased by 29% to $1.03. This improvement was driven by a 31% increase in operating income, stemming from strong volume growth and better cost performance across the business segments.

The announced acquisition of BOC Gazy's industrial gas business for approximately $481 million, pending regulatory approval, represents a strategic move to expand Air Products' operations, particularly in regions where Linde was required to divest assets due to its own acquisition. This acquisition is expected to be financed through operating cash flows and new debt, aligning with the company's growth strategy.

Air Products continued to return capital to shareholders through its share repurchase program, buying back $125.7 million of its common stock in the first quarter. This is part of a larger $1.5 billion repurchase program authorized in March 2006. The company also maintains a focus on capital discipline for new investments, with anticipated capital expenditures of $1,000 for 2007, excluding the BOC Gazy acquisition.