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Air Products' Profit Up 16 Percent: The Trexlertown Company's Gases Unit Carries the Day.

Posted on: Thursday, 27 April 2006, 09:01 CDT

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

Apr. 27--Gases and equipment sales buoyed Air Products and Chemicals to another strong quarter, despite lackluster performance in some other parts of the company.

The Trexlertown gases and chemicals company reported net income of $204 million for its second quarter on revenue of more than $2.3 billion. Profit and revenue both rose 16 percent from the same period a year ago.

Also, earnings per share of 89 cents topped analysts' expectations by 2 cents per share. The company raised its year-end earnings guidance to $3.40 to $3.50 per share, which would be an increase of 15 percent to 19 percent over fiscal 2005.

"Our fiscal year is off to a good start, as we delivered solid results in the first half of fiscal 2006," Chief Financial Officer Paul Huck told analysts on a conference call. Air Products' fiscal year ends Sept. 30.

Wednesday's announcement, though, brought no news about what will likely be the biggest story of the year at Air Products: the company's attempts to sell its amines and polymers businesses. Those specialty products account for almost half the company's chemicals sales, but are not deemed profitable enough for Air Products to hang onto them.

Chief Executive Officer John Jones announced the possible sale of those businesses last month. Huck said Wednesday the company "is encouraged by the interest shown by potential buyers," but gave no further comment.

The earnings also revealed a slump in Air Products' home care operations. That business includes a range of health-related products and services, including medical oxygen, equipment such as wheelchairs, and in-home nursing treatment. Home care makes up a small piece of Air Products' sales, but is viewed as a strong growth platform.

Air Products does not break out home care results, which are grouped within its gases division. But Huck said U.S. sales were flat in the quarter while costs increased, dragging profits down. He also said the company "fell down" on basic operations, such as sales and customer service.

"We think what happened was a lot of the basics were not being watched," he said. "Sometimes, the growth in the business overcomes the management."

The company has replaced some top managers in its home care division, and has put its sales staff through new training and marketing programs. Also, it has stopped buying additional home care companies until it improves performance, Huck said. Air Products had spent $75 million to $100 million on home care acquisitions in each of the past few years.

"These issues are something that are somewhat new to us here," Huck said. "We were making good progress in that business."

Gases, which make up three-quarters of Air Products' annual sales, remained strong in the second quarter. Gases sales topped $1.6 billion, up 16 percent from the prior year, while operating income for that part of the business rose 15 percent.

Air Products is dropping prices for some gases -- particularly nitrogen trifluoride, or NF3, which is made at Air Products' plant in the rural Schuylkill County village of Hometown. The gas is used in the manufacturing process for flat-panel TV screens and semiconductors.

Air Products declined to say how far its NF3 prices have dropped. Rival gases company Air Liquide recently said its NF3 prices have fallen 25 percent, according to analyst Mark Gulley of Soleil Securities Group.

Huck said, though, that Asian electronics companies' ravenous demand for NF3 has far outpaced price declines. Also, the company believes the downward price trend will slow.

"We do see the pricing pressure abate," said Phil Sproger, Air Products' head of investor relations. "We don't see it as a straight line going down."

Equipment sales and profit also rose "significantly," according to Sproger. The company's products in that segment include liquid natural gas exchangers, massive machines that convert natural gas to very cold liquid. Those machines are made in Wilkes-Barre.

During the second quarter, Air Products also recorded a $70.4 million gain on the sale of a chemicals plant in Louisiana, took a loss of $65.8 million on loans to a bankrupt supplier of sulfuric acid, and recorded a $15 million positive impact from insurance payouts after hurricanes Katrina and Rita.

Air Products employs about 4,200 people in Lehigh and Northampton counties, making it the region's third-largest employer. It employs 20,000 people worldwide, and is one of two Fortune 500 companies with headquarters in the Valley. PPL Corp. of Allentown is the other.

Air Products stock fell $1.02, or 1.5 percent, on the New York Stock Exchange, closing at $68.14 per share in heavier-than-usual trading volume.

kurt.blumenau@mcall.com

610-820-6664

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Source: The Morning Call, Allentown, Pennsylvania

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