10-QPeriod: Q1 FY2012

Air Products & Chemicals, Inc. Quarterly Report for Q1 Ended Dec 31, 2011

Filed January 27, 2012For Securities:APD

Summary

Air Products & Chemicals, Inc. (APD) reported its first quarter 2012 results, showing a slight increase in sales driven by pricing across its Merchant Gases and Electronics and Performance Materials segments. However, overall volumes remained flat due to offsetting trends in different business units. While GAAP operating income saw a modest increase, non-GAAP operating income declined due to lower volumes and unfavorable currency impacts. Net income and diluted EPS both decreased on a GAAP basis, although non-GAAP diluted EPS saw a slight increase, reflecting the exclusion of the Spanish tax settlement in the current year and the Airgas transaction loss in the prior year. Investors should note the company's ongoing efforts to manage costs and productivity, which partially offset inflationary pressures. The company also announced a significant subsequent event: the agreement to sell approximately 80% of its Homecare business to The Linde Group, expected to close in Q2 2012, which will be accounted for as discontinued operations. This sale is anticipated to generate a gain in the second quarter. APD's liquidity position remains strong, supported by cash flow from operations and access to commercial paper markets, with no immediate need to repatriate foreign cash.

Financial Highlights

54 data points
Beta

Revenue

$2.32B

25.8% Gross Margin

Net Income

$248.10M

10.7% Net Margin

EPS (Diluted)

$1.16

Total Assets

$14.39B

Cash & Equivalents

$406.20M

Free Cash Flow

$88.40M

Financial Statements
Beta
Revenue$2.32B
Cost of Revenue$1.72B
Gross Profit$599.20M
R&D Expenses$28.10M
SG&A Expenses$231.00M
Operating Income$353.80M
Interest Expense$29.40M
Net Income$248.10M
EPS (Basic)$1.18
EPS (Diluted)$1.16
Shares Outstanding (Basic)210.30M
Shares Outstanding (Diluted)213.90M

Key Highlights

  • 1Sales increased by 1% to $2,423.1 million, driven by higher pricing in Merchant Gases and Electronics and Performance Materials segments, while overall volumes were flat.
  • 2GAAP operating income rose 7% to $384.7 million, but non-GAAP operating income decreased 5% to $384.7 million due to lower volumes and currency impacts.
  • 3GAAP net income decreased 8% to $248.1 million, and diluted EPS fell 6% to $1.16. Non-GAAP diluted EPS increased 1% to $1.36.
  • 4The company is selling approximately 80% of its Homecare business to The Linde Group for €590 million (approximately $767 million), with the transaction expected to close in Q2 2012 and be treated as discontinued operations.
  • 5Operating income for the Tonnage Gases segment decreased 4% to $111.4 million, despite a 6% sales increase driven by higher volumes from new plants.
  • 6The Electronics and Performance Materials segment saw a 2% sales increase and a 13% operating income increase, with improved operating margins.
  • 7APD's liquidity remains strong, with cash flow from operations expected to meet foreseeable needs. Capital expenditures increased by $63.5 million year-over-year to $405.4 million on a non-GAAP basis.

Frequently Asked Questions

The Spanish tax settlement resulted in a $43.8 million expense in the first quarter of 2012, which increased the GAAP effective tax rate to 34.7% from 22.8% in the prior year. On a non-GAAP basis, which excludes this settlement, the effective tax rate was 23.5% for Q1 2012.

Air Products has agreed to sell approximately 80% of its Homecare business in January 2012. This business will be treated as discontinued operations starting in Q2 2012, and the company anticipates recognizing a gain on the sale. The transaction is expected to close in Q2 2012, with total proceeds of approximately $767 million.

The primary differences between GAAP and non-GAAP EPS for the quarter were the Spanish tax settlement of $0.20 per share in Q1 2012 (which reduced GAAP EPS) and the net loss on the Airgas transaction of $0.12 per share recorded in Q1 2011 (which reduced prior year GAAP EPS). Excluding these items, the non-GAAP EPS comparison shows a slight increase of $0.01.

APD maintained a strong financial position with consistent access to commercial paper markets and positive cash flow from operations. Total debt as a percentage of debt and equity was 43.2% at the end of the quarter. The company has $395.2 million in foreign cash and cash equivalents and intends to reinvest these funds permanently outside the U.S., as there is no current need to repatriate them for U.S. operations.