10-QPeriod: Q3 FY2010

Air Products & Chemicals, Inc. Quarterly Report for Q3 Ended Jun 30, 2010

Filed July 26, 2010For Securities:APD

Summary

Air Products & Chemicals, Inc. (APD) reported a strong third quarter for fiscal year 2010, with significant year-over-year improvements in sales and profitability. Sales increased by 14% to $2,252.3 million, driven by higher volumes across its key segments, particularly Electronics and Performance Materials, Tonnage Gases, and Merchant Gases. Operating income saw a substantial increase of 134% on a GAAP basis, and a healthy 22% increase on a non-GAAP basis, reflecting improved operational performance. Despite some one-time charges and costs associated with a major acquisition, the company demonstrated robust underlying business growth. Diluted earnings per share from continuing operations surged by 117% to $1.17 on a GAAP basis, and by 22% to $1.28 on a non-GAAP basis. The company also highlighted its commitment to shareholder returns by increasing its quarterly dividend and its continued practice of consecutive annual dividend increases. Investors should note the significant acquisition activity with the tender offer for Airgas, which is expected to be a transformative event, though it incurred substantial acquisition-related costs during the quarter.

Financial Highlights

53 data points
Beta

Revenue

$2.25B

28.5% Gross Margin

Net Income

$253.20M

11.2% Net Margin

EPS (Diluted)

$1.17

Total Assets

$13.00B

Cash & Equivalents

$405.30M

Free Cash Flow

$250.20M

Financial Statements
Beta
Revenue$2.25B
Cost of Revenue$1.61B
Gross Profit$641.20M
R&D Expenses$29.30M
SG&A Expenses$241.20M
Operating Income$336.40M
Interest Expense$30.00M
Net Income$253.20M
EPS (Basic)$1.19
EPS (Diluted)$1.17
Shares Outstanding (Basic)212.30M
Shares Outstanding (Diluted)216.90M

Key Highlights

  • 1Sales increased by 14% to $2,252.3 million in Q3 2010 compared to Q3 2009, driven by a 12% increase in underlying sales primarily due to higher volumes.
  • 2Operating income on a non-GAAP basis increased by 22% to $374.3 million, reflecting strong operational performance and volume growth across segments.
  • 3Diluted earnings per share (EPS) from continuing operations (GAAP) rose significantly by 117% to $1.17, with non-GAAP EPS up 22% to $1.28, demonstrating improved profitability.
  • 4The company is pursuing a significant acquisition of Airgas for approximately $7.3 billion, which is expected to be a transformative transaction and incurred $37.9 million in related costs during the quarter.
  • 5The Tonnage Gases segment showed exceptional sales growth of 28%, driven by a 19% volume increase, indicating recovery in industrial end markets like steel and chemicals.
  • 6The Electronics and Performance Materials segment reported a 21% sales increase, with volumes up 21%, highlighting strength in specialty materials and electronics markets.
  • 7Air Products continued its commitment to shareholders by increasing its quarterly dividend and marking its 28th consecutive year of dividend increases.

Frequently Asked Questions

The substantial increase in sales and operating income was primarily driven by higher volumes across Air Products' key business segments, particularly Electronics and Performance Materials, Tonnage Gases, and Merchant Gases. Underlying sales grew by 12%, indicating a healthy recovery and demand for the company's products. Additionally, cost pass-through from higher energy and raw material prices contributed positively to sales.

Air Products has made a significant move to acquire Airgas for approximately $7.3 billion. While this acquisition is expected to be transformative, it also incurred acquisition-related costs of $37.9 million in the third quarter of 2010. These costs, along with financing fees, impacted reported earnings on a GAAP basis. The company has secured committed financing for the transaction.

Performance varied across segments, with Tonnage Gases showing exceptional growth (28% sales increase) due to strong volume growth in steel and chemical end markets. Electronics and Performance Materials also performed well, with a 21% sales increase driven by higher volumes in specialty materials and electronics. Merchant Gases saw a 4% sales increase, with strong volume performance in Asia and improving liquid bulk businesses in the U.S. and Europe.

Air Products uses non-GAAP financial measures to provide a more comparable view of its baseline performance, excluding items like acquisition-related costs, global cost reduction plan charges, and pension settlement costs that can distort year-over-year comparisons. For instance, non-GAAP diluted EPS of $1.28 for Q3 2010 significantly outpaced the GAAP EPS of $1.17, highlighting the impact of these non-recurring or exceptional items.