Praxair (PX) Posts Upbeat Q3 Earnings; Lowers '16 View

Industrial gas producer and supplier Praxair Inc. (NYSE:PX) reported impressive results for third-quarter 2016. The company’s adjusted earnings came in at $1.41 per share, above the Zacks Consensus Estimate of $1.40 by 0.7%. However, the bottom line lagged the year-ago tally of $1.46 by 3.4%.

Praxair’s revenues totaled $2.716 billion, surpassing the Zacks Consensus Estimate of $2.66 billion. Also, the top line increased 1.2% from the year-ago tally on the back of 2% gains from acquired assets and favorable pricing. The positives were partially offset by 1% negative impact from unfavorable foreign currency movements.

Segmental Details

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

On a segmental basis, revenues generated in North America decreased 2.2% year over year to $1,431 million, while that from Europe grew 8.3% to $366 million. In Asia, revenues slipped 1% to $391 million. Surface Technologies revenues were $150 million, up from $147 million in the year-ago quarter. Revenues from South America increased 10.2% to $378 million.

Margins

In the quarter, Praxair’s cost of sales increased 3% year over year, representing 56.4% net sales compared with 55.4% recorded in the year-ago quarter. Gross margin decreased 100 basis points (bps) to 43.6%. Selling, general and administrative expenses grew 3.6% year over year to $291 million. Research and development expenses were $22 million, slightly below the year-ago tally of $23 million.

Adjusted operating profit came in at $597 million, down 3.7% year over year. Adjusted margin was 22%.

Balance Sheet & Cash Flow

Exiting the third quarter, Praxair’s cash and cash equivalents were $627 million, up from $567 million at the previous quarter-end. Long-term debt inched up 0.4% sequentially to $9,225 million.

In this quarter, Praxair generated net cash of $788 million from its operating activities, up from $676 million in the year-ago quarter. Capital spent on purchase of property, plant and equipment was $376 million, down 7.2% year over year.

During the quarter, Praxair repurchased shares worth $50 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 Dec 15, 2016 to the shareholders on record as of Dec 5.

Outlook

For 2016, Praxair expects earnings in the range of $5.44–$5.51 per share versus $5.45–$5.60 expected earlier. The revised guidance includes negative impact of 3% from adverse foreign currency movements. Capital spending is expected to be nearly $1.4 billion.

For the fourth quarter, Praxair expects earnings to range between $1.36 per share and $1.43 per share.

Zacks Rank & Stocks to Consider

With a market capitalization of $33.8 billion, Praxair currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the industry include The Chemours Company (NYSE:CC) , Koppers Holdings Inc. (NYSE:KOP) and Cabot Corporation (NYSE:CBT) . While both The Chemours Company and Koppers Holdings sport a Zacks Rank #1 (Strong Buy), Cabot Corporation carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Chemours Company’s average earnings surprise for the last four quarters is a positive 144.74%. Also, the company’s earnings estimates have improved for 2016 and 2017.

Koppers Holdings reported better-than-expected results in three of four trailing quarters, with a positive earnings surprise of 61.26%. Also, bottom-line expectations for 2016 and 2017 have improved over the past 60 days.

Cabot Corporation’s average earnings surprise is a positive 2.07% for the last four quarters. Also, earnings estimates for fiscal 2016 and fiscal 2017 have been revised upward over the last 60 days.

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