Praxair (PX) Beats Q1 Earnings, Down Y/Y; Revenues Lag

Industrial gas producer and supplier Praxair Inc. (NYSE:PX) reported better-than-expected results for first-quarter 2016. The company’s adjusted earnings came in at $1.28 per share, above the Zacks Consensus Estimate of $1.26. However, the bottom line declined 10.5% from the year-ago tally of $1.43.

Talking of Praxair’s top-line result, revenues generated in the quarter totaled $2,509 million, below the Zacks Consensus Estimate of $2,537 million. Compared with the year-ago tally, the company’s revenue decreased 9%. The year-over-year fall in revenues was attributable to a 1% decline in organic revenues as well as a negative impact of 7% from foreign currency translation and 1% from lower cost pass-through.

Segmental Details

Praxair operates through five business segments, with their first-quarter 2016 top-line results briefed below:

On a segmental basis, revenues generated in North America decreased 4% year over year to $1,353 million, while that from Europe fell 2% to $320 million. In Asia, however, revenues increased 6% to $376 million. Surface Technologies revenues were $149 million, down from $160 million in the year-ago quarter. Revenues from South America also plunged 22% to $311 million.

Margins

In the quarter, Praxair’s cost of sales decreased 9.7% year over year, representing 55% net sales compared with 55.5% recorded in the year-ago quarter. Gross margin improved 50 basis points (bps) to 45%. Selling, general and administrative expenses were down 8.4% year over year to $274 million. Research and development expenses were $23 million, slightly below the year-ago tally of $24 million.

Adjusted operating profit came in at $554 million, down 11.1% year over year. Adjusted margin was 22.1%.

Balance Sheet & Cash Flow

Exiting first-quarter 2016, Praxair had cash and cash equivalents of approximately $221 million versus $147 million at the previous quarter-end. Long-term debt increased to $9,222 million from $8,975 million in the previous quarter.

In this quarter, Praxair generated net cash of $547 million from operating activities, up from $508 million in the year-ago quarter. Capital spent on purchase of property, plant and equipment was $323 million, down 18.6% year over year.

During the quarter, Praxair repurchased shares worth $32 million and paid dividends of $214 million.

Concurrent with the earnings release, Praxair announced that its Board of Directors has approved the payment of a quarterly dividend of 75 cents per share, on Jun 15, 2016 to the shareholders on record as of Jun 7, 2016.

Outlook

For 2016, Praxair expects earnings in the range of $5.35−$5.70 per share versus $5.30−$5.70 range expected earlier. This is including the negative impact of 7% from adverse foreign currency movements. Excluding the currency impact, earnings growth is predicted in the range of 2–4%. Capital spending is expected to be nearly $1.5 billion and tax rate is likely to be 28%.

For second-quarter 2016, Praxair expects earnings to range between $1.32 per share and $1.39 per share.

With a market capitalization of $33.7 billion, Praxair currently carries a Zacks Rank #2 (Buy). Other stocks worth considering in the chemical industry include Koninklijke DSM N.V. (OTC:RDSMY) , Arkema S.A. (OTC:ARKAY) and Sinopec Shanghai Petrochemical Co. Ltd. (NYSE:SHI) . All these stocks sport a Zacks Rank #1 (Strong Buy).