APD Air Products and Chemicals Inc

LEHIGH VALLEY, Pa., Oct. 27, 2016 /PRNewswire/ --

Q4FY16 (all from continuing operations):

• On a GAAP basis, EPS of $1.84, up 16 percent over prior year, and operating margin of 22.2 percent, up 280 basis points over prior year
• Adjusted EPS of $2.01*, up 10 percent over prior year; previous adjusted guidance of $1.91 to $2.01
• Adjusted operating margin of 23.7 percent and adjusted EBITDA margin of 34.7 percent, both up at least 250 basis points over prior year

Fiscal 2016 (all from continuing operations):

• On a GAAP basis, EPS of $6.94, up 17 percent over prior year, and operating margin of 22.1 percent, up 480 basis points over prior year
• On a GAAP basis, Return on Capital Employed (ROCE) of 12.8 percent, up 200 basis points over prior year
• Adjusted EPS of $7.55, up 14 percent over prior year; previous adjusted guidance of $7.45 to $7.55
• Adjusted operating margin of 23.1 percent and adjusted EBITDA margin of 34.4 percent, both up at least 400 basis points over prior year
• Adjusted ROCE of 13.8 percent up 180 basis points versus prior year

Highlights

• Successfully spun-off Electronic Materials Division as Versum Materials, Inc. on October 1
• Making progress on sale of Performance Materials Division to Evonik
• Progress on Jazan project and profits for the year recognized in fourth quarter
• Recent project wins in U.S. and Korea

Guidance

• Excluding Electronic Materials and Performance Materials, fiscal 2017 adjusted EPS guidance of $6.25 to $6.50, up nine to 13 percent versus the comparable fiscal 2016, and fiscal 2017 first quarter adjusted EPS guidance of $1.40 to $1.50, up three to 10 percent versus the comparable fiscal 2016 first quarter
• Excluding Electronic Materials and including Performance Materials, fiscal 2017 adjusted EPS guidance of $7.10 to $7.35, up nine to 13 percent versus the comparable fiscal 2016, and fiscal 2017 first quarter adjusted EPS guidance of $1.60 to $1.70, up seven to 13 percent versus the comparable fiscal 2016 first quarter

*The results and guidance in this release, including in the highlights above, include references to non-GAAP continuing operations measures, which are identified by the word "adjusted" preceding the measure. A reconciliation of GAAP to non-GAAP results can be found at the end of this release.

Air Products (NYSE: APD) today reported GAAP net income from continuing operations of $402 million, up 16 percent versus the prior year, and diluted earnings per share (EPS) from continuing operations of $1.84, up 16 percent versus the prior year, for its fiscal fourth quarter ended September 30, 2016.

For the quarter, on a non-GAAP basis, adjusted net income from continuing operations of $441 million was up 11 percent versus prior year, and adjusted diluted earnings per share from continuing operations of $2.01 was up 10 percent versus prior year.

Fourth quarter sales of $2,463 million increased one percent from the prior year, as three percent higher volumes, primarily driven by the Jazan project, more than offset lower energy pass-through and unfavorable currency impacts of one percent each. Pricing was largely unchanged from the prior year.

For the quarter, on a GAAP basis, operating income of $547 million increased 15 percent and operating margin of 22.2 percent improved 280 basis points versus prior year.

Adjusted operating income of $584 million increased 13 percent, and adjusted EBITDA of $855 million increased nine percent over prior year. Adjusted operating margin of 23.7 percent improved 260 basis points and adjusted EBITDA margin of 34.7 percent improved 250 basis points over the prior year. GAAP ROCE of 12.8 percent increased 200 basis points. Adjusted ROCE increased 180 basis points to 13.8 percent. Productivity and operational improvements drove these results.

Fiscal 2016

For fiscal 2016, sales of $9.5 billion decreased four percent versus prior year, as two percent higher volumes were more than offset by three percent lower energy pass-through and three percent unfavorable currency. Operating income on a GAAP basis of $2.1 billion increased 23 percent, and operating margin of 22.1 percent improved 480 basis points. Adjusted operating income of $2.2 billion increased 16 percent, and adjusted operating margin of 23.1 percent improved 400 basis points. GAAP net income from continuing operations of $1.5 billion improved 18 percent. Adjusted EBITDA of $3.3 billion improved 10 percent, and adjusted EBITDA margin of 34.4 percent improved 420 basis points.

Commenting on the results for the quarter and the year, Seifi Ghasemi, chairman, president and chief executive officer, said, "The people of Air Products continually strive to be the best in the industrial gases industry, always looking for improvement opportunities and staying focused on what they can control. They delivered again, with our ninth consecutive quarter of double-digit adjusted earnings growth and improved margins across our segments.

"For the year, Air Products delivered adjusted EPS of $7.55, up 14 percent. We delivered what we promised one year ago, despite a $0.16 headwind from currency and an economic environment which was less robust than anticipated. We improved both adjusted operating and adjusted EBITDA margins by at least 400 basis points and increased our adjusted ROCE by 180 basis points to 13.8 percent. Most importantly, we did this while further improving safety and thinking like our customers to give them the innovative products and service they need.

"We also successfully completed the spin-off of Versum Materials on October 1 and continue to make progress on the sale of our Performance Materials Division – strategic moves that will give Air Products an even stronger foundation going forward. We continue to be very optimistic about the long-term growth opportunities for our focused industrial gases business. Air Products is now very well positioned to take full advantage of these great opportunities," he said.

Fourth Quarter Results by Business Segment

• Industrial Gases – Americas sales of $877 million decreased three percent versus prior year on lower volumes. Latin America volumes were down nearly 10 percent, negatively impacting overall Americas volumes by two percent, while weakness in North America, primarily in steel, impacted overall Americas volumes by one percent. Pricing, energy pass-through and currency were flat versus prior year. Segment operating income of $225 million increased eight percent over prior year, and adjusted EBITDA of $352 million increased seven percent, driven by operational improvements. Segment operating margin of 25.6 percent improved 250 basis points, and adjusted EBITDA margin of 40.1 percent improved 350 basis points over prior year.

• Industrial Gases – EMEA sales of $414 million declined 10 percent versus last year, with lower volumes reducing sales by four percent and lower energy pass-through and unfavorable currency both reducing sales by three percent. Pricing was flat. Segment operating income of $98 million increased eight percent from the prior year, and adjusted EBITDA of $154 million increased two percent versus prior year on strong cost performance and productivity actions. Segment operating margin of 23.7 percent and adjusted EBITDA margin of 37.2 percent were both up more than 400 basis points over the prior year.

• Industrial Gases – Asia sales of $449 million increased five percent versus prior year, as volume growth of seven percent, from both underlying base business and new plants, was partially offset by two percent unfavorable currency. Segment operating income of $110 million increased five percent and adjusted EBITDA of $172 million increased four percent on the benefits from higher volumes and productivity actions. Segment operating margin of 24.5 percent and adjusted EBITDA margin of 38.2 percent were roughly flat versus last year.

• Industrial Gases – Global sales of$157 million increased $68 million versus prior year, segment operating income of $23 million increased $25 million, and adjusted EBITDA of $25 million increased $26 million. The improvement was attributable to fourth quarter sales of $113 million and profits associated with the Jazan project. The fourth quarter profit was related to project activity during the full year and includes a cumulative catch up resulting from a reassessment of reserves associated with certain project risks.

• Materials Technologies sales of $515 million increased five percent versus the prior year on seven percent higher volumes, partially offset by two percent lower pricing. Segment operating income of $139 million was up 19 percent.
  
  Electronic Materials sales of $248 million increased seven percent from the prior year on higher volumes, driven by Advanced Materials and Delivery Systems. Adjusted EBITDA of $83 million was up five percent and operating income of $70 million was up 11 percent versus prior year.
  
  Performance Materials sales of $267 million increased four percent over the prior year, as eight percent higher volumes were partially offset by four percent lower pricing, driven by lower raw material costs. Operating margin of 25.3 percent increased 580 basis points and adjusted EBITDA margin of 27.8 percent increased 550 basis points, driven by productivity and favorable price/raw material balance.

Non-GAAP results for the Company in the fiscal fourth quarter of 2016 exclude $38.8 million of net loss, or $0.17 per share, and in the full fiscal year 2016, exclude $132.5 million of net loss, or $0.61 per share. Non-GAAP results for the Company in the fiscal fourth quarter of 2015 exclude $52.7 million of net loss, or $0.24 per share, and in the full fiscal year 2015, exclude $149.1 million of net loss, or $0.69 per share. See reconciliation of non-GAAP measures starting on page six.

Outlook

Management has provided the following adjusted diluted EPS guidance on a continuing operations basis. While it is likely that we will incur additional costs for items such as business separation, cost reduction actions, and pension settlements in future periods, it is not possible, without unreasonable efforts, to identify the amount or significance of these events or the potential for other transactions that may impact future GAAP EPS. Management does not believe these items to be representative of underlying business performance. Accordingly, management is unable to reconcile, without unreasonable effort, the Company's forecasted range of adjusted EPS to a comparable GAAP range.

Excluding Electronic Materials and Performance Materials, Air Products expects fiscal 2017 first quarter adjusted EPS from continuing operations of $1.40 to $1.50, up three to 10 percent versus the comparable prior year period results, and fiscal 2017 adjusted EPS of $6.25 to $6.50, up nine to 13 percent versus the comparable prior year results.

Excluding Electronic Materials and including Performance Materials, Air Products expects fiscal 2017 first quarter adjusted EPS from continuing operations of $1.60 and $1.70, up seven to 13 percent versus the comparable prior year period results, and fiscal 2017 adjusted EPS of $7.10 to $7.35, up nine to 13 percent versus the comparable prior year results.

The capital expenditure forecast for fiscal year 2017 is approximately $1.2 billion on a GAAP and non-GAAP basis.

Access the Q4 earnings teleconference scheduled for 10:00 a.m. Eastern Time on October 27 by calling (719) 325-2484 and entering passcode 6631626, or access the Event Details page on Air Products' Investor Relations web site.

About Air Products
Air Products (NYSE:APD) is a world-leading Industrial Gases company in operation for over 75 years. The Company's core industrial gases business provides atmospheric and process gases and related equipment to manufacturing markets, including refining and petrochemical, metals, electronics, and food and beverage. Air Products is also the world's leading supplier of liquefied natural gas process technology and equipment. The Company's Performance Materials Division serves the polyurethanes, cleaning and coatings, and adhesives industries.

The Company had fiscal 2016 sales of $9.5 billion and has a current market capitalization of approximately $30 billion. Approximately 17,000 employees in 50 countries strive to make Air Products the world's safest and best performing industrial gases company, providing sustainable offerings and excellent service to all customers. For more information, visit www.airproducts.com.

NOTE: This report contains "forward-looking statements" within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about earnings guidance and business outlook. These forward-looking statements are based on management's reasonable expectations and assumptions as of the date this report is filed. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors not anticipated by management, including, without limitation, global or regional economic conditions (including, as to the United Kingdom and Europe, the impact of the recent "Brexit" referendum) and supply and demand dynamics in market segments into which the Company sells; the inability to eliminate stranded costs previously allocated to the Company's Electronic Materials division after the Company's spin-off of the division and other unexpected impacts of the spin-off; significant fluctuations in interest rates and foreign currencies from that currently anticipated; future financial and operating performance of major customers; unanticipated contract terminations or customer cancellations or postponement of projects and sales; asset impairments due to economic conditions or specific events; ability to protect and enforce the Company's intellectual property rights; unexpected changes in raw material supply and markets; the impact of price fluctuations in natural gas and disruptions in markets and the economy due to oil price volatility; the ability to recover increased energy and raw material costs from customers; costs and outcomes of litigation or regulatory investigations; the success of productivity and operational improvement programs; the timing, impact, and other uncertainties of future acquisitions or divestitures; political risks, including the risks of unanticipated government actions; acts of war or terrorism; the impact of changes in environmental, tax or other legislation and regulatory activities in jurisdictions in which the Company and its affiliates operate; and other risk factors described in the Company's Form 10-K for its fiscal year ended September 30, 2015. The Company disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this report to reflect any change in the Company's assumptions, beliefs or expectations or any change in events, conditions, or circumstances upon which any such forward-looking statements are based.

* Presented below are reconciliations of the reported GAAP results to the non-GAAP measures.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Millions of dollars unless otherwise indicated, except for share data)

The Company has presented certain financial measures on a non-GAAP ("adjusted") basis and has provided a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These financial measures are not meant to be considered in isolation or as a substitute for the most directly comparable financial measure calculated in accordance with GAAP.  The Company believes these non-GAAP measures provide investors, potential investors, securities analysts, and others with useful information to evaluate the performance of the business because such measures, when viewed together with our financial results computed in accordance with GAAP, provide a more complete understanding of the factors and trends affecting our historical financial performance and projected future results.

In many cases, our non-GAAP measures are determined by adjusting the most directly comparable GAAP financial measure to exclude certain disclosed items ("non-GAAP adjustments") that we believe are not representative of the underlying business performance. For example, Air Products is currently executing its strategic plan to restructure the Company and to focus on the Company's core Industrial Gases businesses, which has and will continue to result in significant disclosed items that we believe are important for investors to understand separately from the performance of the underlying business. The tax impact of our non-GAAP adjustments reflects the expected current and deferred income tax expense impact of the transactions and is impacted primarily by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions. In evaluating these financial measures, the reader should be aware that we may incur expenses similar to those eliminated in this presentation in the future. Investors should also consider the limitations associated with these non-GAAP measures, including the potential lack of comparability of these measures from one company to another.

ADJUSTED EBITDA

We define Adjusted EBITDA as income from continuing operations (including noncontrolling interests) excluding certain disclosed items, which the Company does not believe to be indicative of underlying business trends, before interest expense, income tax provision, and depreciation and amortization expense. Adjusted EBITDA provides a useful metric for management to assess operating performance.

Below is a reconciliation of Income from Continuing Operations on a GAAP basis to Adjusted EBITDA:

Below is a reconciliation of segment operating income to Adjusted EBITDA: