Air Products Reports Very Strong Fiscal 2017 Fourth Quarter and Full-Year Results

LEHIGH VALLEY, Pa., Oct. 26, 2017 /PRNewswire/ --

Q4 FY17 (all from continuing operations):

• GAAP EPS of $2.15, up 63 percent versus the prior year; GAAP net income of $474 million
• Adjusted EPS of 1.76*, up 18 percent versus prior year; previous adjusted guidance of $1.65 to $1.70
• Adjusted EBITDA margin of 34.9 percent*

Fiscal 2017 (all from continuing operations):

• GAAP EPS of $5.16, up two percent versus prior year; GAAP net income of $1.1 billion
• Adjusted EPS of $6.31*, up 12 percent versus prior year
• Adjusted EBITDA margin of 34.1 percent*

Highlights

• Completed spin-off of Versum Materials and sale of Performance Materials business
• Brought major projects onstream, including large hydrogen plant for BPCL in India; large air separation unit (ASU) in Pyeongtaek City, South Korea; and large ASU for Yitai in China
• Made significant progress on the world's largest industrial gas complex in Jazan, Kingdom of Saudi Arabia (KSA)
• Signed agreement to form $1.3 billion joint venture for Lu'An coal-to-syngas project in China
• New project wins around the world for key customers in the electronics, manufacturing and chemical markets

Guidance

• Fiscal 2018 adjusted EPS guidance of $6.85 to $7.05 per share, up nine to 12 percent over prior year; fiscal 2018 first quarter adjusted EPS guidance of $1.60 to $1.70 per share, up nine to 16 percent over the fiscal 2017 first quarter. This guidance excludes the Lu'An project and any other significant acquisitions.

*The results and guidance in this release, including in the highlights above, include references to non-GAAP continuing operations measures. These exclude discontinued operations and are identified by the word "adjusted" preceding the measure. A reconciliation of GAAP to non-GAAP results can be found below.

Air Products (NYSE: APD) today reported GAAP net income from continuing operations of $474 million and GAAP diluted earnings per share (EPS) from continuing operations of $2.15, up 64 percent and 63 percent, respectively, from the prior year, for its fiscal fourth quarter ended September 30, 2017.

On a non-GAAP basis, quarterly adjusted diluted earnings per share from continuing operations of $1.76 showed very strong growth, up 18 percent versus prior year.

Fourth quarter sales of $2,203 million increased 13 percent from the prior year, on nine percent higher volumes, two percent higher pricing, and favorable energy pass-through and currency of one percent each. Volumes were higher in all three Industrial Gas regions.

For the quarter, adjusted EBITDA of $769 million increased 13 percent over the prior year on strong volume growth, higher pricing and productivity. Adjusted EBITDA margin of 34.9 percent increased 10 basis points from the prior year and was negatively impacted by 30 basis points from higher energy pass-through; excluding this impact, adjusted EBITDA margin increased 40 basis points.

Fiscal 2017

For the year, Air Products reported GAAP net income from continuing operations of $1.1 billion and GAAP diluted EPS from continuing operations of $5.16, up three percent and two percent, respectively.

On a non-GAAP basis, adjusted diluted earnings per share from continuing operations of $6.31 was up 12 percent versus prior year, the third consecutive year of significant growth.

Sales of $8.2 billion increased nine percent over prior year, on six percent higher volumes, three percent higher energy pass-through and one percent higher pricing, partially offset by one percent unfavorable currency.

Adjusted EBITDA of $2.8 billion increased seven percent over the prior year, led by strong volume growth and productivity. Adjusted EBITDA margin of 34.1 percent decreased 80 basis points and was negatively impacted by 90 basis points from higher energy pass-through; excluding this impact, adjusted EBITDA margin was up 10 basis points.

Commenting on the results, Seifi Ghasemi, chairman, president and chief executive officer, said, "The talented, committed and dedicated team at Air Products, our people, delivered an excellent set of results. For the fourth quarter of fiscal 2017, our adjusted EPS was up 18 percent versus the fourth quarter of fiscal 2016, and for fiscal 2017, adjusted EPS is 12 percent higher than last year. This is the fourteenth consecutive quarter that we have reported year-on-year adjusted EPS growth. This is also the third consecutive year that we have delivered adjusted EPS growth of more than 10 percent.

"We generated strong cash flow and returned about $800 million of that to our shareholders through dividends. We continue to be the safest and most profitable industrial gas company in the world, with adjusted EBITDA margin of over 34 percent. We have a great team that is totally focused on delivering strong performance, day in and day out. Ultimately, our success is built on providing excellent service to our customers. We are committed to providing them with the right innovations and solutions to make their processes better."

Fourth Quarter Results by Business Segment

• Industrial Gases – Americas sales of $953 million increased nine percent, primarily driven by seven percent higher volumes. Hydrogen demand was strong despite hurricane impacts on the Gulf Coast. Operating income of $266 million increased 19 percent. Adjusted EBITDA of $402 million increased 14 percent on higher volumes, lower maintenance costs and productivity actions. Adjusted EBITDA margin of 42.2 percent increased 220 basis points over the prior year. Higher energy pass-through negatively impacted adjusted EBITDA margin by 60 basis points; excluding energy pass-through, adjusted EBITDA margin increased 280 basis points.
• Industrial Gases – EMEA sales of $515 million increased 24 percent versus last year, driven by 18 percent higher volumes and five percent favorable currency. The higher volumes were primarily from a new hydrogen plant in India; merchant demand was also positive. Operating income of $119 million increased 21 percent. Adjusted EBITDA of $180 million increased 17 percent over the prior year, primarily from the India plant as well as higher merchant volumes, productivity and the positive currency impact. Adjusted EBITDA margin of 35.0 percent decreased 220 basis points from the prior year, driven by the India hydrogen plant. While this plant delivers strong returns, the significant energy pass-through is dilutive to margins.
• Industrial Gases – Asia sales of $552 million increased 23 percent over prior year, with volumes up 17 percent and pricing up six percent. Approximately two-thirds of this volume growth was from new plants, while the remaining third was from broad, base business growth. China merchant pricing drove the overall pricing improvement. Operating income of $152 million increased 38 percent. Adjusted EBITDA of $224 million increased 31 percent, and adjusted EBITDA margin of 40.6 percent increased 240 basis points on strong volumes and higher pricing.

Outlook

Ghasemi said, "We continue to be optimistic about the future performance of Air Products and the opportunities we see in front of us. We have the strongest balance sheet in the industry, with over $8 billion available to invest over the next three years. We remain confident in our ability to create shareholder value by deploying this capital through acquisitions, asset buybacks and very large industrial gas projects around the world, driven by demand for more energy, cleaner energy and emerging market growth. We are committed to delivering excellent short-term and long-term performance by improving our adjusted EPS by 10 percent every year, as we have done in the past three years."

Air Products expects fiscal 2018 adjusted EPS of $6.85 to $7.05 per share, up nine to 12 percent over last year. For the fiscal 2018 first quarter, Air Products expects adjusted EPS from continuing operations of $1.60 to $1.70 per share, up nine to 16 percent over last year. This guidance excludes the Lu'An project and any other significant acquisitions.

The capital expenditure forecast for fiscal year 2018 is expected to be in the range of $1 to $1.2 billion on a GAAP and non-GAAP basis. This guidance excludes Lu'An and any other significant acquisitions.

Management has provided adjusted EPS guidance on a continuing operations basis. While Air Products might incur additional costs for items such as cost reduction actions and pension settlements in future periods, it is not possible, without unreasonable efforts, to identify the amount or significance of these events or the potential for other transactions that may impact future GAAP EPS. Management does not believe these items to be representative of underlying business performance. Accordingly, management is unable to reconcile, without unreasonable effort, the Company's forecasted range of adjusted EPS to a comparable GAAP range.

Earnings Teleconference

Access the Q4 earnings teleconference scheduled for 10:00 a.m. Eastern Time on October 26 by calling (323) 794-2093 and entering passcode 9786557, or access the Event Details page on Air Products' Investor Relations web site.

About Air Products

Air Products (NYSE:APD) is a world-leading Industrial Gases company in operation for over 75 years. The Company's core industrial gases business provides atmospheric and process gases and related equipment to manufacturing markets, including refining and petrochemical, metals, electronics, and food and beverage. Air Products is also the world's leading supplier of liquefied natural gas process technology and equipment.

The Company had fiscal 2017 sales of $8.2 billion from continuing operations in 50 countries and has a current market capitalization of approximately $30 billion. Approximately 15,000 passionate, talented and committed employees from a diversity of 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.

NOTE: 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 reasonable expectations and assumptions as of the date this release is furnished. Actual performance and financial results may differ materially from projections and estimates expressed in the forward-looking statements because of many factors not anticipated by management, including, without limitation, global or regional economic conditions and supply and demand dynamics in market segments into which the Company sells; political risks, including the risks of unanticipated government actions; acts of war or terrorism; the inability to eliminate stranded costs previously allocated to the Company's Electronic Materials and Performance Materials divisions, which have been divested, and other unexpected impacts of the divestitures; significant fluctuations in interest rates and foreign currencies from that currently anticipated; future financial and operating performance of major customers; unanticipated contract terminations or customer cancellations or postponement of projects and sales; our ability to execute the projects in our backlog; asset impairments due to economic conditions or specific events; the impact of price fluctuations in natural gas and disruptions in markets and the economy due to oil price volatility; costs and outcomes of litigation or regulatory investigations; the success of productivity and operational improvement programs; the timing, impact, and other uncertainties of future acquisitions or divestitures, including reputational impacts; the Company's ability to implement and operate with new technologies; the impact of changes in environmental, tax or other legislation, economic sanctions and regulatory activities in jurisdictions in which the Company and its affiliates operate; and other risk factors described in the Company's Form 10-K for its fiscal year ended September 30, 2016. The Company disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained in this release to reflect any change in the Company's assumptions, beliefs or expectations or any change in events, conditions, or circumstances upon which any such forward-looking statements are based.

* Presented below are reconciliations of the reported GAAP results to the non-GAAP measures.

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

The Company has presented certain financial measures on a non-GAAP ("adjusted") basis and has provided a reconciliation to the most directly comparable financial measure calculated in accordance with GAAP. These financial measures are not meant to be considered in isolation or as a substitute for the most directly comparable financial measure calculated in accordance with GAAP. The Company believes these non-GAAP measures provide investors, potential investors, securities analysts, and others with useful information to evaluate the performance of the business because such measures, when viewed together with our 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, our non-GAAP measures are determined by adjusting the most directly comparable GAAP financial measure to exclude certain disclosed items ("non-GAAP adjustments") that we believe are not representative of the underlying business performance. For example, Air Products has executed its strategic plan to restructure the Company to focus on its core Industrial Gases business. This resulted in significant cost reduction and asset actions that we believe are important for investors to understand separately from the performance of the underlying business. The reader should be aware that we may incur similar expenses in the future. The tax impact of our non-GAAP adjustments reflects the expected current and deferred income tax expense impact of the transactions and is impacted primarily by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions. Investors should also consider the limitations associated with these non-GAAP measures, including the potential lack of comparability of these measures from one company to another.

ADJUSTED EBITDA

We define Adjusted EBITDA as income from continuing operations (including noncontrolling interests) excluding certain disclosed items, which the Company does not believe to be indicative of underlying business trends, before interest expense, other non‑operating income (expense), net, income tax provision (benefit), and depreciation and amortization expense. Adjusted EBITDA provides a useful metric for management to assess operating performance.

Below is a reconciliation of Income from Continuing Operations on a GAAP basis to Adjusted EBITDA:

Below is a reconciliation of segment operating income to Adjusted EBITDA:

Below is a reconciliation of segment total operating income to consolidated operating income:

Below is a reconciliation of segment total equity affiliates' income to consolidated equity affiliates' income:

INCOME TAXES

The tax impact of our non-GAAP adjustments reflects the expected current and deferred income tax expense impact of the transactions and is impacted primarily by the statutory tax rate of the various relevant jurisdictions and the taxability of the adjustments in those jurisdictions.

CAPITAL EXPENDITURES

We utilize a non-GAAP measure in the computation of capital expenditures and include spending associated with facilities accounted for as capital leases. Certain contracts associated with facilities that are built to provide product to a specific customer are required to be accounted for as leases, and such spending is reflected as a use of cash in the consolidated statements of cash flows within "Cash Provided by Operating Activities" if the arrangement qualifies as a capital lease.

Below is a reconciliation of capital expenditures on a GAAP basis to a non-GAAP measure:

We expect capital expenditures for fiscal year 2018 to be approximately $1,000 to $1,200 on a GAAP and non-GAAP basis.

RETURN ON CAPITAL EMPLOYED (ROCE)

Return on capital employed (ROCE) is calculated on a continuing operations basis as earnings after-tax divided by five-quarter average total capital. Earnings after-tax is calculated based on trailing four quarters and is defined as the sum of net income from continuing operations attributable to Air Products, interest expense, after-tax, at our effective quarterly tax rate, and net income attributable to noncontrolling interests. This non-GAAP measure has been adjusted for the impact of the disclosed items detailed below. Total capital consists of total debt, total equity, and redeemable noncontrolling interest less noncontrolling interests and total assets of discontinued operations.

OUTLOOK

Guidance provided is on a non-GAAP continuing operations basis, which excludes the impact of certain items that we believe are not representative of our underlying business performance. While we might incur additional costs for items such as cost reduction actions and pension settlements in future periods, it is not possible, without unreasonable efforts, to identify the amount or significance of these events or the potential for other transactions that may impact 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.