Air Products & Chemicals Management Discusses Q1 2013 Results - Earnings Call Transcript
January 23, 2013 1:50 PM ET
Air Products & Chemicals (APD)
Q1 2013 Earnings Call
January 23, 2013 10:00 am ET
Simon R. Moore - Director of Investor Relations
Paul E. Huck - Chief Financial Officer and Senior Vice President
M. Scott Crocco - Principal Accounting Officer, Vice President and Corporate Controller
Donald Carson - Susquehanna Financial Group, LLLP, Research Division
P.J. Juvekar - Citigroup Inc, Research Division
Vincent Andrews - Morgan Stanley, Research Division
Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division
David L. Begleiter - Deutsche Bank AG, Research Division
Duffy Fischer - Barclays Capital, Research Division
Kevin W. McCarthy - BofA Merrill Lynch, Research Division
Robert Koort - Goldman Sachs Group Inc., Research Division
Michael J. Harrison - First Analysis Securities Corporation, Research Division
Jeffrey Schnell - Jefferies & Company, Inc., Research Division
Mark R. Gulley - BGC Partners, Inc., Research Division
Michael J. Sison - KeyBanc Capital Markets Inc., Research Division
David J. Manthey - Robert W. Baird & Co. Incorporated, Research Division
Good morning, and welcome to the Air Products and Chemicals' First Quarter Earnings Release Conference Call. [Operator Instructions] Also, this telephone conference presentation and the comments made on behalf of Air Products are subject to copyright by Air Products, and all rights are reserved. Air Products will be recording this teleconference and may publish all or a portion of the teleconference. No other recording or redistribution of this telephone conference by any other party are permitted without the express written permission of Air Products. Your participation indicates your agreement.
Beginning today's call is Mr. Simon Moore, Director of Investor Relations. Please go ahead, sir.
Simon R. Moore
Thank you, Gwen. Good morning, and welcome to Air Products' First Quarter Earnings Teleconference. This is Simon Moore. I'm pleased to be joined today by Paul Huck, our CFO. As we announced in October, Paul will be retiring at the end of February. I'm also pleased to be joined by Scott Crocco who will succeed Paul as CFO. Paul will review our overall Q1 results, I will review the segments and Scott will provide our outlook for Q2 and the rest of 2013.
We issued our earnings release this morning. It is available on our website, along with the slides for this teleconference. Please go to airproducts.com to access the materials. Instructions for accessing the replay of this call beginning at 2 p.m. Eastern Time are also available on our website.
Please turn to Slide 2. As always, today's teleconference will contain forward-looking statements based on current expectations and assumptions. Please review the information on these slides and at the end of today's earnings release, explaining factors that may affect these expectations.
Now I'll turn the call over to Paul.
Paul E. Huck
Thanks, Simon. Good day, everyone, and thanks for joining us. Let me start by saying it's been a pleasure working with all of you over the past 9 years. I will truly miss it.
Let's turn to our results for the quarter on Slide #3. Our overall earnings per share results were in the top half of our expectations. However, softer-than-expected economic growth in the U.S., a deeper contraction than expected in Europe and continued soft volumes in China and a weaker electronics market prevented volumes from growing as much as we had hoped. Despite the weaker economic environment, we continue to take actions to improve our businesses.
Pricing held firm. We are almost complete with our Europe restructuring actions, and our plans ran well. We also repurchased 5.7 million shares this quarter. We did this opportunistically when we saw the weakness in our share price in the fall. Our cash projections had us repurchasing shares later in our multiyear planning cycle. When we saw the weakness in the price, we decided to move the repurchase forward. Overall, we spent $462 million and paid an average price of $80.69 per share. We still have a little under $500 million left in our repurchase authorization.
Our cash priorities remain the same, investing in good high-return projects, increasing our dividend each year and maintaining our A bond rating. For the quarter, sales of $2.6 billion were 10% higher versus prior year, with the Indura and DA NanoMaterials acquisitions contributing 6%. On an underlying basis, sales were up 4% on higher volumes in our Tonnage Gases segment across all regions. Our Equipment and Energy segment and our Performance Materials business also posted strong year-on-year volume improvement. Not surprisingly, this was partially offset by weakness in our European Merchant and Electronics businesses.
Sequentially, overall sales declined 2%, with underlying sales down 4% on seasonally lower volumes across the Merchant and Electronics and Performance Materials segments and lower activity in Equipment and Energy. Simon will provide more segment and geographic details later.
Operating income of $372 million increased 5% versus prior year and decreased 9% sequentially. Our operating margin of 14.5% was down 70 basis points versus prior year, mainly due to the impact of inventory accounting revaluation, higher pension costs and the Indura acquisition. Excluding these impacts, operating margin would have been up 50 basis points, primarily due to our European cost reduction and improved plant operating efficiencies.
This quarter, we had some larger-than-normal impacts flow through our P&L related to inventory accounting and not related to cash or inventory levels. In our year-end balance sheet, we adjust our inventory to actual costs for the year. During the year, we used standard cost for our inventory. This necessitates an adjustment at the beginning of the year to move from the previous year actual cost to our new standards.
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