10-QPeriod: Q3 FY2013

Air Products & Chemicals, Inc. Quarterly Report for Q3 Ended Jun 30, 2013

Filed July 24, 2013For Securities:APD

Summary

Air Products & Chemicals, Inc. (APD) reported its second quarter 2013 results, showing a year-over-year increase in sales driven by acquisitions and energy cost pass-through, though operating income and net income declined. The decline in profitability was impacted by a significant gain recorded in the prior year's comparable quarter related to a business combination. For the quarter ending June 29, 2013, sales rose 9% to $2.55 billion, primarily due to the acquisition of Indura and higher energy cost pass-through, while underlying sales (excluding these factors) decreased 2% due to lower volumes and exiting certain businesses. Operating income fell 21% to $383.1 million, and net income attributable to Air Products declined by 41% to $288.4 million. Diluted earnings per share from continuing operations decreased to $1.36 from $1.66 in the prior year. The company completed two acquisitions in 2013, EPCO Carbondioxide Products and Wuxi Chem-Gas Company, adding goodwill and expanding its geographic reach. Management highlighted ongoing efforts to manage costs and maintain a strong financial position.

Financial Highlights

55 data points
Beta

Revenue

$2.55B

26.4% Gross Margin

Net Income

$288.40M

11.3% Net Margin

EPS (Diluted)

$1.36

Total Assets

$17.49B

Cash & Equivalents

$418.80M

Free Cash Flow

$44.90M

Financial Statements
Beta
Revenue$2.55B
Cost of Revenue$1.88B
Gross Profit$671.80M
R&D Expenses$33.50M
SG&A Expenses$271.30M
Operating Income$383.10M
Interest Expense$35.40M
Net Income$288.40M
EPS (Basic)$1.38
EPS (Diluted)$1.36
Shares Outstanding (Basic)209.40M
Shares Outstanding (Diluted)211.90M

Key Highlights

  • 1Sales increased 9% to $2.55 billion for Q2 2013, driven by acquisitions (Indura) and energy cost pass-through, despite a 2% decrease in underlying sales volume.
  • 2Net income attributable to Air Products decreased 41% to $288.4 million, impacted by a significant gain recognized in the prior year's quarter.
  • 3Diluted EPS from continuing operations fell to $1.36, down from $1.66 in Q2 2012.
  • 4The company completed two acquisitions in 2013: EPCO Carbondioxide Products and Wuxi Chem-Gas Company, adding $67 million in goodwill.
  • 5Operating income declined 21% to $383.1 million, with a 200 basis point decrease in operating margin on a non-GAAP basis, primarily due to higher pension costs and acquisition impacts.
  • 6Cash provided by operating activities for the nine months ended June 30, 2013, was $1,051.2 million.
  • 7The company entered into a new five-year $2,500 million revolving credit agreement in April 2013, increasing its liquidity.

Frequently Asked Questions

Sales increased by 9% primarily due to the acquisition of Indura, which contributed 6% to the growth, and higher energy cost pass-through to customers, which added 5%. While underlying sales volume decreased by 2%, the positive impacts from acquisitions and cost pass-through offset this decline.

The significant decrease in net income was primarily due to a large gain recognized in the second quarter of 2012 related to the revaluation of a previously held equity interest in DA NanoMaterials. This gain boosted the prior year's net income, making the current year's comparison appear lower on a GAAP basis. Excluding this prior-year item, the decline in net income from continuing operations was less pronounced.

Air Products maintained a strong financial position. Cash provided by operating activities for the first nine months of 2013 was robust at $1,051.2 million. The company also secured a new five-year $2,500 million revolving credit agreement in April 2013, enhancing its liquidity and supporting its commercial paper program. Management expects cash flows to meet liquidity needs for the foreseeable future.

The company incurred charges in 2012 for business restructuring and cost reduction plans, primarily related to exiting the Homecare business, reorganizing the Merchant business, and right-sizing the European cost structure. The report indicates that these planned actions are substantially complete and did not result in significant new charges in the current quarter, though ongoing cost-saving initiatives are being evaluated.