10-QPeriod: Q1 FY2017

Air Products & Chemicals, Inc. Quarterly Report for Q1 Ended Dec 31, 2016

Filed January 27, 2017For Securities:APD

Summary

Air Products & Chemicals, Inc. (APD) reported its first quarter fiscal year 2017 results, ending December 30, 2016. The company experienced a slight increase in sales, up 1% to $1.88 billion, driven by higher volumes and energy cost pass-throughs, though partially offset by unfavorable currency impacts. However, operating income saw a notable decline of 12% to $328.1 million, and the operating margin compressed by 260 basis points. This decrease was largely attributed to significant business separation costs and cost reduction/asset actions, which collectively amounted to $80.2 million. On a non-GAAP basis, which excludes these items, operating income actually increased by 6% to $408.3 million, and operating margin improved, indicating underlying operational strength. The company's strategic divestitures continued, with the spin-off of Electronic Materials Division (EMD) completed on October 1, 2016, and the subsequent sale of Performance Materials Division (PMD) to Evonik Industries AG for $3.8 billion on January 3, 2017. These businesses are now presented as discontinued operations. The report also highlighted a $50 million charge related to cost reduction and asset actions, including the write-down of an air separation unit. Despite the GAAP operating income decline, management's focus on operational improvements and productivity actions, as reflected in the adjusted EBITDA growth, suggests a positive outlook for core industrial gas businesses.

Financial Highlights

54 data points
Beta

Revenue

$1.88B

30.1% Gross Margin

Net Income

$299.80M

15.9% Net Margin

EPS (Diluted)

$1.37

Total Assets

$15.96B

Cash & Equivalents

$655.50M

Free Cash Flow

$335.10M

Financial Statements
Beta
Revenue$1.88B
Cost of Revenue$1.32B
Gross Profit$565.80M
R&D Expenses$15.00M
SG&A Expenses$164.70M
Operating Income$328.30M
Interest Expense$29.50M
Net Income$299.80M
EPS (Basic)$1.38
EPS (Diluted)$1.37
Shares Outstanding (Basic)217.70M
Shares Outstanding (Diluted)219.70M

Key Highlights

  • 1Sales increased 1% to $1.88 billion, driven by volume and energy cost pass-through, partially offset by currency headwinds.
  • 2GAAP operating income decreased 12% to $328.1 million due to significant business separation costs ($30.2M) and cost reduction/asset actions ($50.0M).
  • 3Non-GAAP operating income increased 6% to $408.3 million, indicating underlying operational improvements and productivity gains.
  • 4Net income attributable to Air Products was $299.8 million, or $1.37 per diluted share, down from $363.6 million, or $1.67 per diluted share, in the prior year.
  • 5The company completed the spin-off of its Electronic Materials Division (Versum) and the sale of its Performance Materials Division for $3.8 billion (subsequent event).
  • 6Cash provided by operating activities increased significantly to $574.3 million compared to $397.2 million in the prior year.
  • 7The company declared a cash dividend of $0.86 per share for the quarter.

Frequently Asked Questions

The primary reasons for the decrease in reported operating income were significant business separation costs ($30.2 million) related to the divestiture of the Materials Technologies segment and cost reduction and asset actions ($50.0 million), which included charges for an asset write-down and severance. These items are considered non-recurring or non-operational for the purpose of underlying business performance analysis.

The spin-off of the Electronic Materials Division (EMD) on October 1, 2016, and the subsequent sale of the Performance Materials Division (PMD) on January 3, 2017, resulted in these businesses being classified as discontinued operations for all periods presented. This separation is part of Air Products' strategy to focus on its core industrial gases businesses.

The company presents non-GAAP measures like 'Adjusted EBITDA' and 'Adjusted Operating Income' to provide a clearer view of the performance of its core industrial gases businesses by excluding items like business separation costs and cost reduction/asset actions. These adjusted figures show that the underlying operations performed positively, with adjusted operating income increasing 6% and adjusted EBITDA increasing 3%, highlighting operational improvements and productivity gains.

Cash provided by operating activities saw a substantial increase, rising to $574.3 million from $397.2 million in the same quarter last year. This improvement was driven by higher net income from continuing operations and favorable changes in working capital.