Air Products and Chemicals (APD) Up 2.3% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Air Products and Chemicals (APD). Shares have added about 2.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Air Products and Chemicals due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Air Products Q2 Earnings Top, Revenues Trail Estimates

Air Products generated profit from continuing operations of $421.3 million or $1.90 per share in second-quarter fiscal 2019 (ended Mar 31, 2019). Also, the figure improved from $416.4 million or $1.89 in the year-ago quarter.

Barring one-time items, adjusted earnings per share (EPS) in the reported quarter were $1.92, up 12% from the year-ago quarter’s earnings of $1.71. The figure surpassed the Zacks Consensus Estimate of $1.88.

The company delivered fiscal second-quarter revenues of $2,187.7 million, up 1.5% year over year. Volumes and pricing rose 3% percent, which was roughly offset by 4% unfavorable currency and 2% from a contract modification in India. However, revenues missed the Zacks Consensus Estimate of $2,199.4 million.

Segment Highlights

Revenues in the Industrial Gases — America segment improved 9% year over year to $992 million. The upside can be attributed to higher volumes, pricing and higher energy pass-through, partly offset by unfavorable currency.

Sales in the Industrial Gases —EMEA segment fell 12% year over year to $494 million. Strong pricing, stable volumes and higher energy pass-through were offset by unfavorable currency and decline from the India contract modification.

Sales in the Industrial Gases — Asia segment rose 12% year over year to $625 million. The figures were mainly driven by higher volumes (supported by new projects, including the Lu'An gasification project) and pricing. These gains were partly offset by unfavorable currency.

Financial Position

Air Products ended the quarter with cash and cash equivalents of $2,735.9 million, down 10.8% year over year. Long-term debt was down roughly 14.8% year over year to $2,933 million.

Net cash from operating activities were $1,285.8 million, up 16.3% year over year.

Outlook

Air Products has raised adjusted EPS guidance for fiscal 2019 to the range of $8.15-$8.30 from the previous expectation of $8.05-$8.30. This suggests 10% rise year over year at the midpoint.

The company expects adjusted EPS for third-quarter fiscal 2019 in the band of $2.10-$2.15, which indicates 8-10% rise year over year. Also, it increased capital expenditure expectations for fiscal 2019 to the range of $2.4-$2.5 billion, from the previous range of $2.3-$2.5 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Air Products and Chemicals has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Air Products and Chemicals has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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