Air Products (NYSE:APD) today reported net income of $277 million and diluted earnings per share (EPS) of $1.30, on a continuing operations basis, for its fiscal first quarter ended December 31, 2012, both up three* percent versus the prior year.
The discussion of first quarter results and guidance in this release is based on non-GAAP continuing operations. A reconciliation to GAAP results can be found on page four of this release.*
First quarter revenues of $2,562 million increased 10 percent versus prior year, with underlying sales up four percent on improved volumes in Tonnage Gases. Acquisitions contributed six percent. Operating income of $372 million was up five percent versus prior year. Operating margin of 14.5 percent was down 70 basis points versus prior year, driven by an inventory accounting revaluation and the Indura acquisition.
Sequential sales declined two percent, with underlying sales down four percent and seasonally lower volumes in the Merchant Gases, and Electronics and Performance Materials segments. Operating income decreased nine percent sequentially.
Commenting on the first quarter, John McGlade, chairman, president and chief executive officer, said, "Globally, economic growth underperformed our expectations for the quarter. We delivered higher volumes in Tonnage Gases, and Equipment and Energy. However, both Merchant Gases and Electronics volumes declined. Our operating performance was encouraging and we are seeing improvements from our cost and restructuring actions. It's a positive start that we expect to improve upon through the year. We also repurchased 5.7 million shares during the quarter."
Merchant Gases sales of $1,009 million increased 14 percent versus the prior year due to the Indura acquisition. Underlying sales declined one percent, with positive pricing in all regions more than offset by lower volumes in Europe. Operating income of $171 million increased three percent versus prior year due largely to Indura and positive pricing, partially offset by lower volumes. Sequential sales decreased one percent, with positive pricing and a weaker dollar offset by seasonally lower volumes. Sequential operating income increased six percent due to improved productivity and prior quarter Indura acquisition costs.
Tonnage Gases sales of $898 million increased 11 percent versus the prior year, on strong base loading and new plant volumes. Operating income of $138 million was up 24 percent versus prior year, driven by the volume growth and lower maintenance spending. Sequential sales increased six percent driven primarily by new plant volumes and higher energy pass-thru. Sequential operating income was down two percent, primarily from the previously announced decision to exit the PUI business.
Electronics and Performance Materials sales of $549 million were up three percent versus prior year primarily due to the DA NanoMaterials acquisition. Underlying sales were down one percent, as volume growth in Performance Materials was more than offset by lower Electronics volumes. Operating income of $61 million was down 22 percent versus prior year due largely to inventory accounting revaluation. Sequential sales declined 11 percent and sequential operating income declined 28 percent respectively on lower volumes and higher costs.
Equipment and Energy sales of $106 million increased 19 percent versus prior year, due to higher large ASU and LNG equipment sales. Operating income of eight million dollars increased 15 percent versus prior year due to the higher equipment sales. Sequentially, sales decreased 16 percent and operating income decreased 53 percent due mostly to reduced ASU project activity. The sales backlog is up 25 percent versus prior year on LNG sales.
Looking ahead, McGlade said, "Global economic growth is expected to be modest at best so we will continue to take actions to improve our performance. Solid execution, cost control, price improvement and volume growth are our priorities. Our strong project backlog and our significant leverage in existing assets position us well for the future."
Air Products is updating its guidance for fiscal 2013 of EPS in the range of $5.70 to $5.90 per share. For the second quarter of fiscal 2013 ending March 31, 2013, EPS is expected to be between $1.34 and $1.39 per share.
Access the Q1 earnings teleconference scheduled for 10:00 a.m. Eastern Time on January 23 by calling 719-325-4787 and entering pass code 3708364, or access event details on our website.
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