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December 16, 2008
Air Products & Chemicals Inc., the world’s largest hydrogen producer, reduced its profit forecast and said it will cut jobs because of falling demand. The shares rose because some investors estimated profit would be even lower.
Earnings in the three months through December will be 95 cents to $1 a share, excluding restructuring charges, Air Products said today in a statement. In October, the Allentown, Pennsylvania-based company forecast per-share profit of $1.15 to $1.21.
Shedding 1,300 workers, or 7 percent of staff globally, is needed to help Air Products improve profitability amid falling demand for gases used to make computer chips and flat-panel displays, the company said. Sales, which have been hurt by the stronger dollar, are down 6 percent in the quarter, Air Products said.
“The downturn in electronics has intensified and deepened beyond our expectations, caused by a significant fall-off in consumer demand and a subsequent inventory de-stocking by our customers,” Chief Executive Officer John McGlade said today on a call with analysts.
The restructuring expenses will cost the gas supplier $140 million to $160 million. About three-quarters of the charge, equal to 43 cents to 50 cents a share, will be attributable to severance, Chief Financial Officer Paul Huck said on the conference call. The measures will yield savings of $50 million in the fiscal year ending Sept. 30, and $110 million in the following fiscal year, Huck said.
‘Good Sign’
“The lowest estimate on the street was 92 cents, so they basically said that the most pessimistic outlook was too conservative,” Laurence Alexander, a New York-based analyst at Jefferies & Co., said in a telephone interview. “It’s a good sign for the sector that the estimate revisions might be nearing an end.”
Air Products rose $1.88, or 3.9 percent, to $50.42 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have dropped 49 percent this year.
Air Products is betting that U.S. stimulus measures will help halt the sales decline.
“With a new administration and a stimulus package, you’ll see a rebound in consumer confidence in the second half of the year, and we anticipate that given the very low levels of inventory, you’ll see a rebound in demand,” McGlade said.
Recession Concerns
The U.S. economy entered a recession one year ago, the National Bureau of Economic Research said on Dec. 1. Federal Reserve policy makers today cut the main U.S. interest rate to “a target range” of between zero and 0.25 percent and said they will do whatever is needed to end the longest recession in a quarter-century.
“The inventory workdown argument is on the mark, but the big question is what is going to be the strength of demand in the second half,” Alexander said. “A lot depends on the potential for government stimulus on the one hand, but also whether the consumer runs into constraints in terms of consumer credit-card flexibility.”
Air Products also makes hydrogen used in the production of low-sulfur motor fuels and oxygen applications used to liquefy natural gas.
The company’s financial position and outlook for cash generation remain strong because of its medium- and long-term supply agreements, Air Products said in the statement.
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