Air Products & Chemicals Management Discusses Q4 2011 Results - Earnings Call Transcript

Air Products & Chemicals (APD)

Q4 2011 Earnings Call

October 21, 2011 10:00 am ET

Executives

Paul E. Huck - Chief Financial Officer and Senior Vice President

Simon R. Moore - Director of Investor Relations

Analysts

P.J. Juvekar - Citigroup Inc, Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

Robert Koort - Goldman Sachs Group Inc., Research Division

Mark R. Gulley - Ticonderoga Securities LLC, Research Division

Michael J. Sison - KeyBanc Capital Markets Inc., Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division

Michael J. Harrison - First Analysis Securities Corporation, Research Division

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

John P. McNulty - Crédit Suisse AG, Research Division

Presentation

Operator

Good morning, and welcome to the Air Products & Chemicals Fourth Quarter Earnings Release Conference Call. [Operator Instructions] Also, this telephone conference presentation and the comments made on behalf of Air Products are subject to copyright by Air Products and all rights are reserved. Air Products will be recording this teleconference and may publish all or a portion of the teleconference. No other recording or redistribution of this telephone conference by any other party are permitted without the express written permission of Air Products. Your participation indicates your agreement.

Beginning today's call is Mr. Simon Moore, Director of Investor Relations. Mr. Moore, you may begin.

Simon R. Moore

Thank you, David. Good morning, and welcome to Air Products' Fourth Quarter Earnings Teleconference. This is Simon Moore. Today, our CFO, Paul Huck, and I, will review our fiscal 2011 results and outlook for fiscal 2012. We issued our earnings release this morning. It's available on our website along with the slides for this teleconference. Please go to airproducts.com to access the materials. Instructions for accessing a replay of this call beginning at 2 p.m. Eastern Time are also available on our website.

Please turn to Slide 2. As always, today's teleconference will contain forward-looking statements based on current expectations and assumptions. Please review the information on these slides and at the end of today's earnings release explaining factors that may affect these expectations.

Now, I'll turn the call over to Paul for a review of our financials.

Paul E. Huck

Thanks, Simon. Good day, everyone, and thanks for joining us. Please turn to Slide #3 for a review of the key highlights from our fiscal year 2011. Clearly, the top highlight for us in 2011 was the number of new projects we announced over the last 12 months. Some of the larger ones are shown at the top of this slide. For some time, we have been sharing with you that bidding activity for new project remains high and as a validation of that point, our capital project backlog continues to rise and now stands at $2.5 billion. For this year, our capital spending was $1.6 billion, up 22% from 2010 and our outlook is now for this to grow to $1.9 billion to $2.2 billion in 2012. You can see that these projects are aligned with the key growth drivers we discussed at our Investor Conference. Hydrogen and oxygen for energy and environmental markets, nitrogen for electronics and merchant capacity for emerging markets.

Now some financial highlights. We had a strong year, with significant improvement in operating cash flow, up 15%. We increased our dividend for the 29th consecutive year, an increase of 18%. We repurchased $649 million of stock during fiscal year 2011 and announced a new $1 billion share repurchase authorization. And our adjusted earnings per share of $5.73 was up 14%, just above the high end of our original guidance range. On the sustainability front, we renamed the both the Carbon Disclosure Project and Dow Jones Sustainable indices, reflecting the results and leadership we are delivering in this important area.

Turning to Slide #4, sales of $10.1 billion increased 12% as we delivered strong gains across our Merchant Gases, Tonnage Gases and our Electronics and Performance Materials segments. Our underlying sales grew 10%, with volumes up 9% and price up 1%. We delivered good volume growth in a period of modest economic growth driven by strong performance on our Electronics and Performance Materials segment, which posted its second consecutive year of over 20% growth. Volume growth of 11% in Tonnage Gases, principally from new investments and contracts. And in our Merchant segment, growth in Asia was well above 20% with much more modest growth experienced in the U.S. and Europe. Operating income of $1.7 billion grew 13% mainly from better performance in Electronics and Performance Materials and Tonnage Gases segments.

Our operating margin for the year was 16.6%, a modest improvement from last year. While we attained the highest operating margin in more than a decade, our operating leverage was partially offset by a number of product supply and cost issues in the second half of the year. As a result, we finished short of our 17% target. Looking forward, margin should continue to expand. We have operating leverage in the United States and Europe and we have solutions to our product supply and cost issues. And we remain committed to continuing to drive our cost reductions as we expand our business. Equity affiliates income increased 22% to $154 million this year, due to better results across a number of our joint ventures. The largest improvement came from Mexico, where volumes were significantly higher on strong LOX/LIN and packaged gas sales driven by glass, oil field services, refining and general manufacturing. And most importantly, our annual after-tax return on capital employed improved to 13.3%, 80 basis points above last year.

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