Air Products & Chemicals Management Discusses Q3 2012 Results - Earnings Call Transcript

Air Products & Chemicals (APD)

Q3 2012 Earnings Call

July 24, 2012 10:00 am ET

Executives

Simon R. Moore - Former Director of Investor Relations

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

Analysts

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

James Sheehan - Deutsche Bank AG, Research Division

Vincent Andrews - Morgan Stanley, Research Division

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

John Hirt

Brian Maguire - Goldman Sachs Group Inc., Research Division

Mark R. Gulley - Gulley & Associates LLC

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

Alina Khaykin

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Laurence Alexander - Jefferies & Company, Inc., Research Division

John E. Roberts - The Buckingham Research Group Incorporated

Presentation

Operator

Good morning, and welcome to the Air Products and Chemicals Third 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 express written permission of Air Products. Your participation indicates your agreement. [Operator Instructions]

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

Simon R. Moore

Thank you, Lea. Good morning, and welcome to Air Products' third quarter earnings teleconference. This is Simon Moore. Today, our CFO, Paul Huck, and I will review our Q3 results and outlook for the remainder of 2012. We issued our earnings release this morning. It is available on our website along with the slides for this teleconference. Please go to airproducts.com to access the materials. Instructions for accessing the 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. Before we get into the quarter's operating results, I want to spend a few moments reviewing a few key items affecting this quarter's numbers. First, the sale of our Continental European Homecare business closed and included in our quarter 3 discontinued operations results is an after-tax gain of $150 million or $0.70 per share.

Regarding the remaining European Homecare business located in the U.K. and Ireland, we have received bids from several interested parties, and we expect to close on the sale of the remaining business before the end of calendar 2012. Quarter 3 results include an after-tax charge of $30 million or $0.14 per share in discontinued operations to adjust the book value of the remaining Homecare business to its estimated net realizable value.

As we mentioned on last quarter's call, we closed on the acquisition of the remaining 50% of our DA NanoMaterials joint venture at the beginning of April. Included in this quarter's results is a $55 million or $0.25 per share after-tax gain. This represents the gain on our previously held 50% ownership. This acquisition supports our strategy of delivering a portfolio of differentiated offerings to our semiconductor customers. Excluding these items, our adjusted non-GAAP earnings per share from continuing operations is $1.41 for the quarter, within our $1.40 to $1.45 guidance range. Good performance, given the weaker economy and unfavorable currency impacts, driven by a stronger dollar.

To help you with the quarterly comparisons, Slide #14 in the appendix shows earnings per share from continuing operations x disclosed items for the past 2 years. We are on track with our cost reduction plans, and in fact, saw about $4 million of benefit in this past quarter. As we said last quarter, most of the actions should be completed by the end of our fiscal year.

In quarter 4, the savings should more than offset the approximately $6 million of quarterly stranded costs generated by the Homecare divestiture. When fully implemented in 2013, we expect the cost-reduction plan to provide $60 million of annual savings.

Now let's turn to our operating results. Please turn to Slide #4. Overall results were within our expectations. However, weaker economic growth prevented our volumes from growing as much as we had forecast, and we had headwinds from the stronger dollar. While our forecast for stronger demand in the second half of fiscal year 2012 did not come true, we are pleased that our strong operating and cost performance drove improved margins broadly.

The European recession continues, and conditions worsened this quarter. Growth in China has slowed, and the seasonal rebound in electronics and other industries has been weaker than expected. For the quarter, sales of $2.3 billion were 5% lower versus prior year, primarily due to lower energy pass-through and a stronger dollar, particularly against the euro.

Underlying sales increased 1% year-on-year, primarily due to higher pricing in Merchant Gases. Higher Tonnage Gases volumes and higher Equipment segment sales were offset by lower volumes in both Merchant Gases and Electronics.

Sequentially, overall sales were unchanged. Underlying sales increased 1% on higher volumes in our Tonnage Gases and Electronics and Performance Materials segments, offset by lower equipment sales, and the DA NanoMaterials acquisition contributed 1%. Simon will provide segment and geographic details later.

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