10-QPeriod: Q3 FY2018

Air Products & Chemicals, Inc. Quarterly Report for Q3 Ended Jun 30, 2018

Filed July 26, 2018For Securities:APD

Summary

Air Products & Chemicals, Inc. reported a significant increase in net income attributable to the company for the nine months ended June 30, 2018, reaching $1,044.9 million, a substantial jump from $2,531.7 million in the prior year. This year-over-year decrease is primarily driven by a large gain from discontinued operations in the prior year. However, focusing on continuing operations, net income attributable to Air Products increased to $1,002.7 million for the nine months ended June 30, 2018, compared to $660.2 million in the same period last year, indicating strong underlying business performance. Sales also saw robust growth, increasing by 11% to $6,631.3 million for the nine months ended June 30, 2018, driven by higher volumes across all regional industrial gases segments and favorable currency impacts. The company demonstrated improved operating efficiency, with operating income increasing by 46% to $1,431.9 million and operating margin expanding by 520 basis points. This performance highlights the company's ability to generate higher profits from increased sales, with positive contributions from both operational improvements and strategic growth initiatives, including recent acquisitions.

Financial Highlights

56 data points
Beta

Revenue

$2.26B

31.6% Gross Margin

Net Income

$473.90M

21.0% Net Margin

EPS (Diluted)

$2.15

Total Assets

$19.21B

Cash & Equivalents

$2.99B

Free Cash Flow

$164.60M

Financial Statements
Beta
Revenue$2.26B
Cost of Revenue$1.55B
Gross Profit$713.60M
R&D Expenses$15.00M
SG&A Expenses$188.60M
Operating Income$515.80M
Interest Expense$34.90M
Net Income$473.90M
EPS (Basic)$2.16
EPS (Diluted)$2.15
Shares Outstanding (Basic)219.50M
Shares Outstanding (Diluted)220.90M

Key Highlights

  • 1Sales increased by 11% to $6.63 billion for the nine months ended June 30, 2018, driven by volume growth across segments and favorable currency impacts.
  • 2Operating income surged by 46% to $1.43 billion for the nine months ended June 30, 2018, indicating strong operational efficiency and margin expansion.
  • 3Net income attributable to Air Products for the nine months ended June 30, 2018 was $1.04 billion, with income from continuing operations showing a significant increase to $1.00 billion from $660.2 million in the prior year.
  • 4The company completed the formation of a syngas supply joint venture with Lu'An, involving the acquisition of gasification and syngas clean-up assets, strengthening its position in the region.
  • 5Acquisitions during the first nine months of 2018 totaled $355.4 million, including a significant acquisition of air separation units in China to bolster presence in the region.
  • 6The company continues to manage its financial risk through various hedging instruments, including forward exchange contracts and interest rate swaps, with a focus on minimizing currency and interest rate volatility.
  • 7Effective tax rate for the nine months ended June 30, 2018 was 30.6%, impacted by the U.S. Tax Cuts and Jobs Act, which included a deemed repatriation tax and a reduction in the corporate income tax rate.

Frequently Asked Questions

Sales increased by 11% to $6.63 billion for the nine months ended June 30, 2018. This growth was primarily driven by an 8% increase in underlying sales, stemming from higher volumes across the company's regional industrial gases segments, and a 4% favorable impact from currency fluctuations. Pricing also contributed positively with a 1% increase, though this was partially offset by a 1% decrease from energy and natural gas cost pass-through to customers.

The Tax Act, enacted in December 2017, had a significant impact on the company's financial statements for the nine months ended June 30, 2018. Air Products recorded a net expense of $239.0 million for its impacts, including a $453.0 million expense for the deemed repatriation tax on unremitted foreign earnings and adjustments to future repatriation costs, which impacted the income tax provision by $420.5 million. Conversely, the company benefited from a $214.0 million reduction due to the re-measurement of U.S. deferred tax liabilities at the new lower corporate tax rate. The company is reporting these impacts provisionally, as the accounting is still being finalized within the one-year measurement period.

Air Products expects capital expenditures to be in the range of $1.8 billion to $2.0 billion for fiscal year 2018, which includes investments in its joint venture with Lu'An Clean Energy Company. Regarding share repurchases, the company had $485.3 million remaining authorization under its stock repurchase program as of June 30, 2018, but had not repurchased any shares during the first nine months of fiscal year 2018.

All major industrial gas segments showed strong performance. The Americas segment saw a 3% sales increase driven by volume. EMEA's sales grew by 29%, with significant contributions from volume, pricing, and currency. Asia also experienced a 29% sales increase, fueled by volume, pricing, and currency, along with contributions from acquisitions. The Global segment saw a sales decrease of 39%, primarily due to lower sale of equipment activity.