Air Products Reports Fiscal 2021 Third Quarter GAAP EPS# of $2.36 and Adjusted EPS* of $2.31

LEHIGH VALLEY, Pa., Aug. 9, 2021 /PRNewswire/ --

Q3 FY21 (comparisons versus prior year):

• GAAP EPS of $2.36, up 17 percent; GAAP net income of $532 million, up 16 percent; and GAAP net income margin of 20.4 percent, down 170 basis points.
• Adjusted EPS* of $2.31, up 15 percent; adjusted EBITDA margin* of 37.5 percent, down 520 basis points.

Q3 FY21 Highlights

• Advancing the hydrogen energy transition:
• Announced plans to build landmark net-zero hydrogen energy complex in Edmonton, Alberta, Canada, setting the stage for Air Products to operate the most competitive and lowest-carbon-intensity hydrogen network in the world; the facility's combination of advanced hydrogen reforming technology, carbon capture and storage, and hydrogen-fueled electricity generation makes net-zero possible.
• Formed strategic global collaboration with Baker Hughes to develop next generation hydrogen compression to lower the cost of production and accelerate the adoption of hydrogen as a zero-carbon fuel; Baker Hughes will provide Air Products with advanced hydrogen compression and gas turbine technology for global projects, including NovaLT16 turbines for the net-zero hydrogen energy complex in Edmonton and advanced compression technology for the NEOM carbon-free hydrogen project.
• Announced memorandum of understanding with Cummins Inc. to accelerate the integration of hydrogen fuel cell trucks in the Americas, Europe and Asia; Cummins will provide hydrogen fuel cell electric powertrains integrated into selected OEM partners' heavy-duty trucks for Air Products, as Air Products begins the process of converting its global fleet of distribution vehicles to hydrogen fuel cell vehicles.
• Announced CFO succession plan that will see Scott Crocco retiring on September 30, 2021 following a distinguished, 31-year career with the Company, and Melissa Schaeffer assuming leadership responsibility for Air Products' worldwide Finance organization on August 10, 2021.
• Updated Capital Deployment Scorecard, demonstrating that the original capital deployment commitment was met and significant investment capacity remains for sustainability-driven growth projects.
• Published 2021 Sustainability Report, providing stakeholders with economic, environmental and social performance data and highlighting the Company's sustainability goals and growth opportunities.

Major Project Updates

• Lu'An: Facility is operating.
• Jazan: Expect to close during this fiscal year.

Guidance

• Fiscal 2021 full-year adjusted EPS guidance* of $8.95 to $9.05, up approximately eight percent over prior year adjusted EPS*; fiscal 2021 fourth quarter adjusted EPS guidance* of $2.44 to $2.54, up 11 to 16 percent over prior year fourth quarter adjusted EPS*. This guidance does not include the Jazan transaction.
• Expect fiscal year 2021 capital expenditures* of approximately $2.5 billion. This guidance does not include the Jazan transaction.

^# Earnings per share is calculated and presented on a diluted basis from continuing operations attributable to Air Products.

*Certain results in this release, including in the highlights above, include references to non-GAAP financial measures on a consolidated, continuing operations basis and a segment basis. Additional information regarding these measures and reconciliations of GAAP to non-GAAP historical results can be found below. In addition, as discussed below, it is not possible, without unreasonable efforts, to identify the timing or occurrence of events and transactions that could significantly impact future GAAP EPS or cash flow used for investing activities if they were to occur.

Air Products (NYSE:APD) today reported third quarter fiscal 2021 GAAP EPS from continuing operations of $2.36, up 17 percent; GAAP net income of $532 million, up 16 percent; and GAAP net income margin of 20.4 percent, down 170 basis points, each versus prior year.

On a non-GAAP basis, adjusted EPS from continuing operations of $2.31 was up 15 percent; adjusted EBITDA* of $976 million was up 11 percent; and adjusted EBITDA margin of 37.5 percent was down 520 basis points, each versus prior year. Non-GAAP adjusted EPS excludes a $0.05 tax benefit, primarily resulting from reserve adjustments related to a 2017 tax election on a non-U.S. subsidiary.

Third quarter sales of $2.6 billion increased 26 percent on 12 percent higher volumes, six percent higher energy cost pass-through, six percent favorable currency, and two percent higher pricing. Volumes increased as COVID-19 recovery, new plants, and acquisitions more than offset reduced contributions from the Lu'An facility in China.

Commenting on the results, Air Products' Chairman, President and Chief Executive Officer Seifi Ghasemi said, "The stability of our business and the dedication of our people have been on full display, as we continue to deliver strong financial results despite the challenges of the pandemic. Our sales, adjusted EBITDA and adjusted EPS grew double digits this quarter versus prior-year quarter, and our price and volume continue to be strong. We continue to build on what we do best, driving the energy transition by developing, owning and operating world-scale, sustainability-driven projects and forming strategic partnerships that enhance our leadership positions."

Fiscal Third Quarter Results by Business Segment 

• Industrial Gases - Americas sales of $1,063 million were up 25 percent over the prior year on 10 percent higher energy cost pass-through; nine percent higher volumes, driven by merchant COVID-19 recovery, higher medical oxygen sales in South America, and one-time items; four percent higher pricing; and two percent favorable currency. Operating income of $286 million increased 15 percent and adjusted EBITDA of $465 million increased 13 percent, as higher volumes, pricing and one-time items more than offset power and other cost inflation and higher maintenance costs. Operating margin of 26.9 percent decreased 230 basis points, with higher energy cost pass-through accounting for approximately 250 basis points of the decline. Adjusted EBITDA margin of 43.7 percent decreased 470 basis points, with higher energy cost pass-through accounting for approximately 400 basis points of the decline.
• Industrial Gases - EMEA sales of $623 million increased 45 percent over the prior year on 24 percent higher volumes, driven primarily by COVID-19 recovery and acquisitions; 12 percent favorable currency; eight percent higher energy cost pass-through; and one percent higher pricing. Operating income of $140 million increased 33 percent and adjusted EBITDA of $212 million increased 25 percent, primarily driven by the higher volumes. Operating margin of 22.5 percent decreased 200 basis points, with higher energy cost pass-through accounting for approximately 100 basis points of the decline and the remainder mainly due to power and other cost inflation. Adjusted EBITDA margin of 34.1 percent decreased 540 basis points, with higher energy cost pass-through accounting for approximately 200 basis points of the decline and the remainder mainly due to power and other cost inflation.
• Industrial Gases - Asia sales of $752 million increased 15 percent from the prior year on eight percent favorable currency, six percent higher volumes, and one percent higher pricing. Higher merchant volumes and new plants were partially offset by reduced contributions from Lu'An. Operating income of $219 million decreased one percent, as reduced contributions from Lu'An and higher costs were mostly offset by favorable currency and higher volumes from merchant and new plants. Operating margin of 29.1 percent decreased 490 basis points. Adjusted EBITDA of $356 million increased nine percent, as higher volumes, equity affiliate income, and favorable currency more than offset the reduced contributions from Lu'An and higher costs. Adjusted EBITDA margin of 47.4 percent decreased 270 basis points.

Outlook
Air Products expects full-year fiscal 2021 adjusted EPS guidance of $8.95 to $9.05, up approximately eight percent over prior year adjusted EPS. For the fiscal 2021 fourth quarter, Air Products' adjusted EPS guidance is $2.44 to $2.54, up 11 to 16 percent over fiscal 2020 fourth quarter adjusted EPS. This guidance does not include the Jazan transaction.

Air Products expects capital expenditures of approximately $2.5 billion for full-year fiscal 2021. This guidance does not include the Jazan transaction.

Management has provided adjusted EPS guidance on a continuing operations basis, which excludes the impact of certain items that we believe are not representative of our underlying business performance, such as the incurrence of additional costs for cost reduction actions and impairment charges, or the recognition of gains or losses on disclosed items. It is not possible, without unreasonable efforts, to predict the timing or occurrence of these events or the potential for other transactions that may impact future GAAP EPS or the effective tax rate. Furthermore, it is not possible to identify the potential significance of these events in advance, but any of these events, if they were to occur, could have a significant effect on our future GAAP EPS. Management therefore is unable to reconcile, without unreasonable effort, the Company's forecasted range of adjusted EPS and effective tax rate to a comparable GAAP range.

Earnings Teleconference
Access the Q3 earnings teleconference scheduled for 8:30 a.m. Eastern Time on August 9, 2021 by calling 323-994-2093 and entering passcode 7037306 or access the Event Details page on Air Products' Investor Relations website.

About Air Products
Air Products (NYSE:APD) is a world-leading industrial gases company in operation for 80 years. Focused on serving energy, environment and emerging markets, the Company provides essential industrial gases, related equipment and applications expertise to customers in dozens of industries, including refining, chemical, metals, electronics, manufacturing, and food and beverage. Air Products is also the global leader in the supply of liquefied natural gas process technology and equipment. The Company develops, engineers, builds, owns and operates some of the world's largest industrial gas projects, including: gasification projects that sustainably convert abundant natural resources into syngas for the production of high-value power, fuels and chemicals; carbon capture projects; and world-scale carbon-free hydrogen projects supporting global transportation and the energy transition.

The Company had fiscal 2020 sales of $8.9 billion from operations in 50 countries and has a current market capitalization of about $65 billion. More than 19,000 passionate, talented and committed employees from diverse backgrounds are driven by Air Products' higher purpose to create innovative solutions that benefit the environment, enhance sustainability and address the challenges facing customers, communities, and the world. For more information, visit www.airproducts.com or follow us on LinkedIn, Twitter, Facebook or Instagram.

Cautionary Note Regarding Forward-Looking Statements: This release contains "forward-looking statements" within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements about earnings guidance, business outlook and investment opportunities. These forward-looking statements are based on management's expectations and assumptions as of the date of this release and are not guarantees of future performance. While forward-looking statements are made in good faith and based on assumptions, expectations and projections that management believes are reasonable based on currently available information, actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors, including, without limitation: the duration and impacts of the COVID-19 global pandemic and efforts to contain its transmission, including the effect of these factors on our business, our customers, economic conditions and markets generally; changes in global or regional economic conditions, inflation and supply and demand dynamics in market segments we serve, or in the financial markets that may affect the availability and terms on which we may obtain financing; risks associated with having extensive international operations, including political risks, risks associated with unanticipated government actions and risks of investing in developing markets; project delays, contract terminations, customer cancellations or postponement of projects and sales; future financial and operating performance of major customers and joint venture partners; our ability to develop, implement, and operate new technologies; our ability to execute the projects in our backlog; our ability to develop, operate and manage costs of large scale and technically complex projects, including gasification projects; tariffs, economic sanctions and regulatory activities in jurisdictions in which we and our affiliates and joint ventures operate; the impact of environmental, tax or other legislation, as well as regulations affecting our business and related compliance requirements, including legislation or regulations related to global climate change; changes in tax rates and other changes in tax law; the timing, impact and other uncertainties relating to acquisitions and divestitures, including our ability to integrate acquisitions and separate divested businesses, respectively; risks relating to cybersecurity incidents, including risks from the interruption, failure or compromise of our information systems; catastrophic events, such as natural disasters and extreme weather events, public health crises, acts of war, or terrorism; the impact on our business and customers of price fluctuations in oil and natural gas and disruptions in markets and the economy due to oil and natural gas price volatility; costs and outcomes of legal or regulatory proceedings and investigations; asset impairments due to economic conditions or specific events; significant fluctuations in interest rates and foreign currency exchange rates from those currently anticipated; damage to facilities, pipelines or delivery systems, including those we own or operate for third parties; availability and cost of raw materials; the success of productivity and operational improvement programs; and other risk factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. Except as required by law, we disclaim any obligation or undertaking to update or revise any forward-looking statements contained herein to reflect any change in the assumptions, beliefs, or expectations or any change in events, conditions, or circumstances upon which any such forward-looking statements are based.

Reconciliations to Consolidated Results

The table below reconciles total operating income disclosed in the table above to consolidated operating income as reflected on our consolidated income statements:

The table below reconciles total equity affiliates' income disclosed in the table above to consolidated equity affiliates' income as reflected on our consolidated income statements:

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

We present certain financial measures, other than in accordance with U.S. generally accepted accounting principles ("GAAP"), on an "adjusted" or "non-GAAP" basis. On a consolidated basis, these measures include adjusted diluted earnings per share ("EPS"), adjusted EBITDA, adjusted EBITDA margin, adjusted effective tax rate, and capital expenditures. On a segment basis, these measures include adjusted EBITDA and adjusted EBITDA margin. In addition to these measures, we also present certain supplemental non-GAAP financial measures to help the reader understand the impact that certain disclosed items, or "non-GAAP adjustments," have on the calculation of our adjusted diluted EPS. For each non-GAAP financial measure, we present a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP.

Our non-GAAP financial measures are not meant to be considered in isolation or as a substitute for the most directly comparable measure calculated in accordance with GAAP. We believe these non-GAAP financial measures provide investors, potential investors, securities analysts, and others with useful information to evaluate the performance of our business because such measures, when viewed together with 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, non-GAAP financial measures are determined by adjusting the most directly comparable GAAP measure to exclude non-GAAP adjustments that we believe are not representative of our underlying business performance. For example, we previously excluded certain expenses associated with cost reduction actions, impairment charges, and gains on disclosed transactions. The reader should be aware that we may recognize similar losses or gains in the future. Readers should also consider the limitations associated with these non-GAAP financial measures, including the potential lack of comparability of these measures from one company to another. 

When applicable, the tax impact of our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax impact of our non-GAAP adjustments. These tax impacts are primarily driven by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions.

NON-GAAP ADJUSTMENTS

Our non-GAAP adjustments for the first nine months of fiscal year 2021 are detailed below. For information related to non-GAAP adjustments for the first nine months of fiscal year 2020, refer to Exhibit 99.1 to our Current Report on Form 8-K dated 23 July 2020.

Facility Closure

In the second quarter of fiscal year 2021, we recorded a charge of $23.2 ($17.4 after-tax, or $0.08 per share) primarily for a noncash write-down of assets associated with a contract termination in the Industrial Gases – Americas segment. This charge is reflected as "Facility closure" on our consolidated income statements for the nine months ended 30 June 2021 and was not recorded in segment results.

Gain On Exchange With Joint Venture Partner

As of 30 September 2020, we held a 50% ownership interest in Tyczka Industrie-Gases GmbH ("TIG"), a joint venture in Germany with the Tyczka Group that is primarily a merchant gases business. We accounted for this arrangement as an equity method investment in our Industrial Gases – EMEA segment.

Effective 23 February 2021 (the "acquisition date"), we agreed with our joint venture partner to separate TIG into two separate businesses. On the acquisition date, we acquired a portion of the business on a 100% basis, and our partner paid us $10.8 to acquire the rest of the business. The exchange resulted in a gain of $36.8 ($27.3 after-tax, or $0.12 per share), which is reflected as "Gain on exchange with joint venture partner" on our consolidated income statements for the nine months ended 30 June 2021. The gain included $12.7 from the revaluation of our previously held equity interest in the portion of the business that we retained and $24.1 from the sale of our equity interest in the remaining business. The gain was not recorded in segment results.

We accounted for the acquisition as a business combination within our Industrial Gases – EMEA segment. The results of this business did not materially impact our consolidated income statements for the periods presented.

Tax Election Benefit And Other

In the third quarter of fiscal year 2021, we recorded an income tax benefit of $12.2 ($0.05 per share) upon release of tax reserves established in 2017 for a tax election related to a non-U.S. subsidiary and other previously disclosed items.

Discontinued Operations

Income from discontinued operations, net of tax, was $8.2 and $18.5 for the three and nine months ended 30 June 2021, respectively. In the third quarter of fiscal year 2021, we recorded a tax benefit from discontinued operations of $8.2 ($0.04 per share) for the release of tax reserves for uncertain tax positions associated with our former Energy-from-Waste business. Additionally, we recorded a tax benefit from discontinued operations of $10.3 ($0.05 per share) in the first quarter of fiscal year 2021, primarily from the settlement of a state tax appeal related to the gain on the sale of our former Performance Materials Division in fiscal year 2017.

ADJUSTED DILUTED EPS

The table below provides a reconciliation to the most directly comparable GAAP measure for each of the major components used to calculate adjusted diluted EPS from continuing operations, which we view as a key performance metric. In periods that we have non-GAAP adjustments, we believe it is important for the reader to understand the per share impact of each such adjustment because management does not consider these impacts when evaluating underlying business performance. The per share impact for each non-GAAP adjustment was calculated independently and may not sum to total adjusted diluted EPS due to rounding.

ADJUSTED EBITDA AND ADJUSTED EBITDA MARGIN

We define adjusted EBITDA as net income less income (loss) from discontinued operations, net of tax, and excluding non-GAAP adjustments, which we do not believe to be indicative of underlying business trends, before interest expense, other non-operating income (expense), net, income tax provision, and depreciation and amortization expense. Adjusted EBITDA and adjusted EBITDA margin provide useful metrics for management to assess operating performance. Margins are calculated independently for each period by dividing each line item by consolidated sales for the respective period and may not sum to total margin due to rounding.

The tables below present consolidated sales and a reconciliation of net income on a GAAP basis to adjusted EBITDA and net income margin on a GAAP basis to adjusted EBITDA margin:

The tables below present sales and a reconciliation of operating income and operating margin to adjusted EBITDA and adjusted EBITDA margin for each of our regional industrial gases segments for the three months ended 30 June 2021 and 2020:

ADJUSTED EFFECTIVE TAX RATE

The effective tax rate equals the income tax provision divided by income from continuing operations before taxes.

When applicable, the tax impact of our pre-tax non-GAAP adjustments reflects the expected current and deferred income tax impact of our non-GAAP adjustments. These tax impacts are primarily driven by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions.

CAPITAL EXPENDITURES

We define capital expenditures as cash flows for additions to plant and equipment, acquisitions (less cash acquired), and investment in and advances to unconsolidated affiliates. A reconciliation of cash used for investing activities to our reported capital expenditures is provided below:

The components of our capital expenditures are detailed in the table below:

We expect capital expenditures for fiscal year 2021 to be approximately $2.5 billion. This guidance does not include the Jazan transaction.

It is not possible, without unreasonable efforts, to reconcile our forecasted capital expenditures to future cash used for investing activities because we are unable to identify the timing or occurrence of our future investment activity, which is driven by our assessment of competing opportunities at the time we enter into transactions. These decisions, either individually or in the aggregate, could have a significant effect on our cash used for investing activities.

OUTLOOK

The guidance provided below does not include the Jazan transaction. This guidance is provided on an adjusted continuing operations basis and is compared to adjusted historical diluted EPS. These adjusted measures exclude the impact of certain items that we believe are not representative of our underlying business performance, such as the incurrence of additional costs for cost reduction actions and impairment charges, or the recognition of gains or losses on disclosed items. It is not possible, without unreasonable efforts, to identify the timing or occurrence of these events or the potential for other transactions that may impact future GAAP EPS. Furthermore, it is not possible to identify the potential significance of these events in advance, but any of these events, if they were to occur, could have a significant effect on our future GAAP EPS. Accordingly, management is unable to reconcile, without unreasonable effort, the Company's forecasted range of adjusted EPS on a continuing operations basis to a comparable GAAP range. The per share impact for each non-GAAP adjustment was calculated independently and may not sum to total adjusted diluted EPS due to rounding.

SOURCE Air Products

Related Links

www.airproducts.com

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