Industrial gas giant Air Products and Chemicals Inc.
) recently said that it will raise the prices for North American liquid and bulk helium gases. The move, which will be effective January 1, 2013, or as contracts permit, will help the company to recover significant costs that it has incurred to maintain supply and secure new sources of helium for its customers.
Air Products is seeing a sharp increase in the cost of inputs and its operations given the ongoing global helium shortage. The pricing actions will help it to counter rising input costs.
Helium is used in a plethora of applications including magnetic resonance imaging (“MRI”), fiber optics and semi-conductor manufacturing, analytical chemistry, metallurgy and pressurizing and purging pipes. Air Products is one of the world’s largest suppliers of helium and holds the largest helium production and distribution system on the planet.
Air Products benefits from a long-term take-or-pay contract, a consolidated industry structure, diverse customer base and sustained pricing power. The company’s healthy project backlog strongly positions it to achieve its long-term growth target.
New business wins in the Merchant Gases segment should support results in fiscal 2013. Moreover, Air Products continues with its global cost reduction plan. The company is also offering healthy returns to its shareholders in the form of incremental dividends.
However, sluggish economic conditions across the U.S. and Europe may continue to impact the demand for the company’s products. Volume in the Merchant Gases division is expected to remain under pressure, partly due to the recessionary conditions in Europe.
Moreover, the Electronics and Performance Materials segment is expected to witness lower seasonal demand in first-quarter fiscal 2013 while profits are expected to fall in the Tonnage Gases division due to lower volume and higher maintenance spending.
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Air Products, which competes with Praxair Inc.
) among others, currently retains a short-term Zacks #3 Rank (Hold). We currently have a long-term Underperform recommendation on the stock.
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