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Why Are Analysts Expecting Praxair’s Margins to Fall in 3Q16?

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Praxair’s net profit margin

Wall Street analysts expect Praxair (PX) to post a net profit margin of 15% in 3Q16. It implies a fall in the expected net profit margin by 60 basis points on a year-over-year basis. Since 1Q14, Praxair’s net profit margin remained in the range of 14.8%–18.8%.

Praxair expects to take pension settlement charges in 3Q16. It will have a negative impact on the net profit margin. The margins will also be impacted negatively impacted by acquired businesses’ integration costs. The competitive pricing in China is expected to add pressure to the margins. Foreign currency translation will continue to add woes to the margins due to a stronger dollar compared to Asian currencies. On the other side, Praxair’s self-help cost management program will partially offset the negative impact on the net profit margin.

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EPS guidance for 3Q16 and fiscal 2016

Praxair expects that 3Q16 won’t be much different than 2Q16. For 3Q16, Praxair expects the adjusted EPS (earnings per share) to be $1.35–$1.42 excluding the impact of pension settlement charges of ~$0.01 per share. Praxair is expected to incorporate the pension settlement charges in its 3Q16 earnings.

Praxair expects fiscal 2016 adjusted EPS to be $5.45–$5.60—compared to the earlier guidance of $5.35–$5.70. The fiscal guidance excludes the $0.05 bond redemption charges taken in 1Q16 and pension settlement charges expected to record in 3Q16.

ETF investment

Notably, investors can hold Praxair by indirectly investing in the Guggenheim S&P 500 Equal Weight Materials ETF (RTM). RTM invested 3.7% of its holdings in Praxair as of October 21, 2016. The fund’s top holdings include Albemarle (ALB), LyondellBasell (LYB), and FMC (FMC). They have weights of 4.0%, 4.0%, and 3.9%, respectively, as of October 21, 2016. In the next part, we’ll discuss analysts’ recommendations on Praxair.

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