10-QPeriod: Q2 FY2020

Air Products & Chemicals, Inc. Quarterly Report for Q2 Ended Mar 31, 2020

Filed April 23, 2020For Securities:APD

Summary

Air Products & Chemicals, Inc. (APD) reported solid financial results for the second quarter and first six months of fiscal year 2020, ending March 31, 2020. The company demonstrated resilience despite the onset of the COVID-19 pandemic, which began impacting operations towards the end of the quarter. Sales increased modestly year-over-year, driven by higher volumes and pricing, partially offset by currency headwinds and lower energy cost pass-throughs. Profitability showed significant improvement, with operating income and net income both rising notably. This growth was bolstered by strong performance across most segments, particularly the Industrial Gases divisions, and a one-time gain from the relocation of the company's headquarters. Management highlighted increased dividends and a continued focus on strategic growth, even as they navigate the uncertainties presented by the global pandemic. The company provided updated risk factors related to COVID-19, emphasizing its potential impact on demand, operations, and financial access.

Financial Highlights

57 data points
Beta

Revenue

$2.22B

34.1% Gross Margin

Net Income

$477.80M

21.6% Net Margin

EPS (Diluted)

$2.15

Total Assets

$19.50B

Cash & Equivalents

$2.22B

Free Cash Flow

$88.60M

Financial Statements
Beta
Revenue$2.22B
Cost of Revenue$1.46B
Gross Profit$756.20M
R&D Expenses$19.20M
SG&A Expenses$201.70M
Operating Income$577.20M
Interest Expense$19.30M
Net Income$477.80M
EPS (Basic)$2.16
EPS (Diluted)$2.15
Shares Outstanding (Basic)221.20M
Shares Outstanding (Diluted)222.30M

Key Highlights

  • 1Sales increased by 1% to $2,216.3 million for the second quarter and 1% to $4,471.0 million for the first six months, driven by volume and pricing improvements.
  • 2Operating income saw a substantial increase of 12% to $577.2 million for the second quarter and 17% to $1,138.2 million for the first six months.
  • 3Net income attributable to Air Products grew by 13% to $477.8 million ($2.15/share) for the second quarter and 24% to $953.4 million ($4.29/share) for the first six months.
  • 4The company increased its quarterly dividend by over 15% to $1.34 per share, marking the 38th consecutive year of dividend increases.
  • 5A gain of $33.8 million from the sale of corporate headquarters property contributed to operating income.
  • 6The company recognized a pre-tax loss of $19.0 million related to environmental obligations from the sale of its former Amines business.
  • 7COVID-19 impacts were noted as approximately 1% volume reduction in the second quarter, with expectations for more significant impacts in the third quarter, particularly in Americas and EMEA segments.

Frequently Asked Questions

The company stated that the COVID-19 pandemic did not have a significant impact on its consolidated results for the second quarter and first six months ending March 31, 2020. However, it estimated an approximate 1% negative impact on volumes in the second quarter, primarily in the Asia merchant business, with recovery towards the end of March. The company anticipates more significant impacts in the third quarter, especially in the Americas and EMEA segments, and has withdrawn its fiscal year 2020 capital expenditure guidance due to uncertainties.

The increase in net income was primarily driven by positive pricing, higher volumes, a gain from the company headquarters relocation, and beneficial impacts from a new tax law in India. These factors more than offset unfavorable costs and a loss from discontinued operations.

Air Products demonstrated a strong commitment to returning capital to shareholders by increasing its quarterly dividend by over 15% to $1.34 per share. This marks the 38th consecutive year of dividend increases, signaling confidence in its financial position and future prospects.

Yes, the company recorded a pre-tax loss of $19.0 million in the second quarter to increase its liability for retained environmental obligations related to the sale of its former Amines business. Accruals for environmental loss contingencies were $87.2 million as of March 31, 2020, with an estimated exposure range of $87 million to $100 million.