What's In Store For Air Products (APD) This Earnings Season?

Air Products and Chemicals, Inc. (NYSE:APD) is slated to release first-quarter fiscal 2019 results on Jan 25, before market opens.

The company recorded adjusted earnings per share (EPS) of $2.00 in fourth-quarter fiscal 2018, up 14% from the year-ago quarter. Earnings were in line with the Zacks Consensus Estimate.

Air Products logged net sales of $2,298.9 million in the fiscal fourth quarter, up 4.4% year over year. However, the top line missed the Zacks Consensus Estimate of $2,308 million.

Notably, Air Products surpassed the Zacks Consensus Estimate in three of the trailing four quarters, delivering an average positive surprise of around 3.9%.

The stock has lost 7% in a year’s time compared with the industry’s 24.3% decline.

Will the company surprise investors again or is it heading for a possible pullback? Let’s see how things are shaping up for this announcement.

Factors at Play in Q1

During fourth-quarter fiscal 2018 earnings call, Air Products stated that it expects adjusted EPS in the range of $1.85-$1.90 for first-quarter fiscal 2019. The projection reflects a 5% increase at the midpoint on a year-over-year basis.

The Zacks Consensus Estimate for fiscal first-quarter revenues is currently pegged at $2,289 million, reflecting an expected rise of 3.3% year over year.

The Zacks Consensus Estimate for revenues for the company’s Industrial Gases — Americas segment is currently pegged at $950 million for the fiscal first quarter, reflecting an expected increase of 4.4% year over year. Operating income in the segment is projected to increase 6.5% year over year as the Zacks Consensus Estimate is pegged at $231 million. Higher volumes and pricing are driving results in the segment. Hydrogen demand was strong, while merchant gases volumes were positive during the fiscal fourth quarter.

Revenues in the Industrial Gases — Asia segment are expected to increase 9.5% year over year as the Zacks Consensus Estimate is currently pegged at $705 million. Operating income in the segment is projected at $203 million, reflecting an expected year-over-year increase of 15.3%. In the last reported quarter, strong volumes along with the addition of Lu'An and favorable pricing supported margins in the segment.

The Zacks Consensus Estimate for revenues in the Industrial Gases — EMEA segment is projected at $527 million, reflecting an estimated rise of 2.1% year over year. Operating income in the segment is expected to inch up 1.9% year over year as the Zacks Consensus Estimate is currently pegged at $107 million. The segment benefitted from favorable energy pass-through, positive volumes and pricing in the fiscal fourth quarter, which were partly offset by unfavorable currency.

Revenues in the Industrial Gases — Global segment are expected to decline 13.5% year over year as the Zacks Consensus Estimate is currently pegged at $115 million. Operating income in the segment is expected to decline 7.6% year over year as the Zacks Consensus Estimate is currently pegged at $8.8 million. Lower activity from the Jazan project impacted the segment’s performance in the last reported quarter. The company expects the Jazan ASU project to remain a headwind for fiscal 2019 compared with fiscal 2018.

Air Products’ strategic investments in high-return projects, new business deals and acquisitions are likely to drive results in fiscal 2019. The company’s productivity and pricing actions are expected to support margins in the to-be-reported quarter. The Lu'An project is also likely to continue to drive volumes in the company’s Asia business. The company expects the Lu'An project to contribute more than 25 cents per share to its earnings in fiscal 2019.

However, the company witnesses lower activity from the Jazan project in Saudi Arabia and headwind from high power costs. The company witnessed a sharp increase in power cost in Europe in the fiscal fourth quarter, which affected profits in the EMEA business. While Air Products is undertaking appropriate pricing actions to recover the higher costs, it is expected to remain a headwind in the fiscal first quarter.

Earnings Whispers

Our proven model does not show that Air Products is likely to beat estimates this quarter. That is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here, as you will see below:

Earnings ESP: Earnings ESP for Air Products is -0.18%. The Zacks Consensus Estimate is currently pegged at $1.87. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Air Products currently carries a Zacks Rank #3, which when combined with a negative ESP, makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

Note that we caution against stocks with a Zacks Rank #4 (Sell) or #5 going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Estimates

Here are some companies in the basic materials space you may want to consider as our model shows they have the right combination of elements required for an earnings beat this quarter:

Teck Resources Limited (NYSE:TECK) has an Earnings ESP of +8.41% and carries a Zacks Rank #2.

New Gold Inc. (NYSE:NGD) has an Earnings ESP of +166.67% and carries a Zacks Rank #2.

Franco-Nevada Corporation (TO:FNV) has an Earnings ESP of +3.05% and carries a Zacks Rank #3.

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