10-QPeriod: Q2 FY2018

Air Products & Chemicals, Inc. Quarterly Report for Q2 Ended Mar 31, 2018

Filed April 26, 2018For Securities:APD

Summary

Air Products & Chemicals, Inc. (APD) reported a strong second quarter and first half of fiscal year 2018. Sales increased by 9% in the quarter and 13% year-to-date, driven by volume growth across its industrial gases segments and favorable currency impacts. The company demonstrated solid operational performance, with operating income increasing by 15% in the quarter and 27% year-to-date. Diluted EPS from continuing operations saw a significant boost of 36% year-over-year for the quarter. A notable development impacting the financial results was the U.S. Tax Cuts and Jobs Act (Tax Act) of 2017, which introduced a one-time tax expense related to deemed repatriation of foreign earnings. Despite this, the company's strategic focus on core industrial gases and robust operational execution led to increased profitability and a significant dividend increase, signaling confidence in future performance.

Financial Highlights

56 data points
Beta

Revenue

$2.16B

30.1% Gross Margin

Net Income

$416.40M

19.3% Net Margin

EPS (Diluted)

$1.89

Total Assets

$18.51B

Cash & Equivalents

$3.07B

Free Cash Flow

$230.10M

Financial Statements
Beta
Revenue$2.16B
Cost of Revenue$1.51B
Gross Profit$649.20M
R&D Expenses$14.50M
SG&A Expenses$194.60M
Operating Income$455.40M
Interest Expense$30.40M
Net Income$416.40M
EPS (Basic)$1.90
EPS (Diluted)$1.89
Shares Outstanding (Basic)219.40M
Shares Outstanding (Diluted)220.80M

Key Highlights

  • 1Sales increased by 9% for the three months ended March 31, 2018, reaching $2,155.7 million, driven by volume and favorable currency impacts.
  • 2Operating income grew by 15% to $455.4 million for the three months ended March 31, 2018, with an improved operating margin of 21.1%.
  • 3Diluted earnings per share from continuing operations rose by 36% to $1.89 for the three months ended March 31, 2018, compared to the prior year.
  • 4The company declared a quarterly dividend of $1.10 per share, a 16% increase, marking the 36th consecutive year of dividend increases.
  • 5The U.S. Tax Cuts and Jobs Act resulted in a significant one-time income tax expense of $239.0 million for the six months ended March 31, 2018, primarily due to deemed repatriation of foreign earnings.
  • 6Acquisitions totaling $281.0 million (net of cash acquired) were completed in the first half of fiscal year 2018, strengthening the company's position in key regions, particularly China.
  • 7For the six months ended March 31, 2018, sales increased by 13% to $4,372.3 million, and operating income increased by 27% to $916.1 million.

Frequently Asked Questions

The Tax Cuts and Jobs Act (Tax Act) enacted in late 2017 had a significant one-time impact. For the six months ended March 31, 2018, the company reported a net income tax expense of $239.0 million. This includes an expense of $453.0 million for a deemed repatriation tax on unremitted foreign earnings, partially offset by a benefit of $214.0 million from the remeasurement of deferred tax liabilities at the new, lower corporate tax rate. The company is reporting these impacts provisionally, as the accounting is not yet finalized.

Sales increased due to higher volumes across the company's regional industrial gases segments (Americas, EMEA, Asia) and favorable currency impacts. Operating income growth was driven by these same factors, along with favorable pricing and a reduction in cost reduction and asset action charges compared to the prior year. The company also benefited from new project onstreams and acquisitions.

The substantial increase in net income and EPS for the three months ended March 31, 2018, compared to the prior year, is primarily attributable to the 'Income (Loss) From Discontinued Operations' in the prior year's period. In the three months ended March 31, 2017, Air Products recorded $1,825.6 million in income from discontinued operations, largely from the gain on the sale of its Performance Materials Division (PMD). For the current year's three-month period, there was no significant income from discontinued operations, allowing the strong performance from continuing operations to be the primary driver of net income.

For fiscal year 2018, Air Products expects capital expenditures to be approximately $1,800 to $2,000 million. The company demonstrated its commitment to shareholder returns by increasing its quarterly dividend by 16% to $1.10 per share, which marked the 36th consecutive year of dividend increases. Additionally, $485.3 million in share repurchase authorization remained at the end of the period.