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Air Products and Chemicals Posts 17.8 Percent Hike in Annual Profit

Posted on: Friday, 28 October 2005, 09:00 CDT

By Kurt Blumenau, The Morning Call, Allentown, Pa.

Oct. 27--Air Products and Chemicals said Wednesday its fourth-quarter and year-end financial results withstood the battering of three hurricanes.

The Trexlertown, Pa., gases and chemicals giant announced net income of $711.7 million for the fiscal year ended Sept. 30, on sales of $8.1 billion. Profit rose 17.8 percent from the year before, while sales were up 9.9 percent.

Air Products is one of the Lehigh Valley's two Fortune 500 companies, and one of the region's largest employers. It employs about 4,200 people in Lehigh and Northampton counties and more than 20,000 worldwide.

For the fourth quarter, Air Products posted a profit of $179 million on sales of more than $2 billion. Quarterly profit rose 6.5 percent, while sales increased 4.7 percent.

"We accomplished a great deal \[during the year\], despite the continued challenges we faced," Chief Financial Officer Paul Huck told analysts.

The company took a $20 million hit in the fourth quarter, due to the impacts of Hurricanes Katrina and Rita. Katrina caused severe damage to an industrial gases complex in New Orleans, which remains closed for repair. Rita forced Air Products to close several plants on the Gulf Coast, though those facilities escaped with relatively little damage.

A third hurricane during the quarter, Hurricane Dennis, swept through the Florida Panhandle and Alabama in early July. Air Products was briefly forced to shut down a chemicals facility in Pace, Fla.

Repair work at the New Orleans plant continues around the clock, according to Air Products. The company hopes to start limited production of liquid hydrogen there by the middle of next month, with substantial production restored by the end of the year.

The company warned, though, that ongoing cleanup costs are one of several challenges Air Products will have to overcome in the first quarter of its 2006 fiscal year.

The storms also damaged the plants of Air Products' customers, and Air Products' sales could suffer if those clients are slow to reopen. Manufacturing growth, in the United States and worldwide, is expected to be slightly slower than last year.

Also, Air Products lost two stable, long-term contracts in its chemicals business, and is concerned that ongoing price increases could drive away other buyers. The price hikes are ways for the company to recoup rising costs of natural gas and other raw materials, as well as transportation.

Still, Huck predicted earnings per share of 75 to 79 cents for the first quarter. That's up from 72 cents per share in the same period a year ago. For the full year, Air Products expects earnings per share of $3.25 to $3.45, as compared to $3.08 per share for the 2005 fiscal year.

Insurance payouts, higher sales in electronics, and the opening of six new hydrogen plants will contribute to growth next year, Huck said.

"Another year of solid earnings growth and improved returns is on the horizon," he said.

Analyst Peter Butler of Glenhill Investments asked how buyers were reacting to the latest price increases. Huck said clients have accepted the hikes so far, because they see energy costs driving up the prices of other goods.

"In terms of being able to pass price increases through, we have done well," he said.

An expansion of the company's Hometown, Schuylkill County, plant will also fuel sales next year. This week, Air Products said it completed an expansion at Hometown that nearly doubles the plant's capacity for nitrogen trifluoride, a gas used in the production of flat-panel television screens.

Analyst P.J. Juvekar of Salomon Smith Barney asked why the company expanded production in Hometown, when the companies demanding the gas are in Asia. Phil Sproger, director of investor relations, said the growth at Hometown -- Air Products' only plant making nitrogen trifluoride -- does not preclude making the gas in Asia as well.

"We are going to continue to put our eye on the market, and look at where the lowest-cost source of supply is for us," he said. "Right now, with this expansion in Hometown -- we believe we are the lowest-cost producer in the world."

Air Products will begin expensing stock options in fiscal 2006, in keeping with an accounting rule that requires public companies to reflect the value of those options in their earnings. The company will take a related charge of 13 cents per share for the full fiscal year, including 3 cents per share in the first quarter.

Air Products stock gained $1.37 per share, or 2.5 percent, on the New York Stock Exchange, closing at $56.77. The stock traded at twice its usual volume.

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APD,

Source: The Morning Call, Allentown, Pennsylvania

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