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Analyzing APD’s Industrial Gases-Americas Segment in 3Q17

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Industrial Gases-Americas segment

Air Products & Chemicals’ (APD) Industrial Gases-Americas segment was the largest revenue contributor to the company’s overall revenue. The segment accounted for 44.0% of Air Products & Chemicals’ revenue in 3Q17. The segment reported revenue of $930 million—an increase of 11.8% on a YoY (year-over-year) basis. In fiscal 3Q16, the segment reported revenue of $832.3 million.

The segment’s revenue has been on an upward trend. The increase in the segments’ revenue was primarily driven by higher energy costs passed to customers and higher volume. The increase in volume growth was driven by higher demand for hydrogen and new business deals. Foreign currency translations didn’t have a major impact on the segment.

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Operating income and margins

Air Products & Chemicals’ Americas segment reported operating income of $236.2 million—a marginal increase of ~0.90% on a YoY basis. In 3Q16, the segment’s operating income was $234 million. Higher energy and natural gas costs passed to customers impacted the segment’s operating margin. The segment reported an operating margin of 25.40% in 3Q17—compared to 28.10% in fiscal 3Q16. It implies a reduction by 270 basis points on a YoY basis.

Outlook

The segment is expected to grow due to higher volumes and new business wins. In July, Air Products & Chemicals signed an agreement with Huntsman (HUN) to supply carbon monoxide and hydrogen. During the quarter, Air Products & Chemicals entered into a new joint venture with Linde North America to set up a gas plant in New York. The plant is expected to be operational in 2018.

Investors can hold Air Products & Chemicals indirectly by investing in the ProShares Ultra Basic Materials (UYM). UYM has invested 3.40% in Air Products & Chemicals. The fund’s top holdings include Dow Chemical (DOW) and DuPont (DD) with weights of 7.60% and 7.50%, respectively, as of August 1, 2017.

In the next part, we’ll discuss how the Industrial Gases-Asia segment performed in 3Q17.

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