Why Is Air Products and Chemicals (APD) Up 10.9% Since Last Earnings Report?

It has been about a month since the last earnings report for Air Products and Chemicals (APD). Shares have added about 10.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Air Products and Chemicals due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Air Products’ Q2 Earnings Miss, Sales Beat Estimates

Air Products logged earnings from continuing operations of $2.21 per share in second-quarter fiscal 2020 (ended Mar 31, 2020), up 16% from $1.90 recorded in the year-ago quarter. The bottom line in the reported quarter was driven by higher volumes and pricing across all regions.

Barring one-time items, earnings were $2.04 per share for the quarter, missing the Zacks Consensus Estimate of $2.05.

The company delivered fiscal second-quarter revenues of $2,216.3 million, up 1.3% year over year. It also beat the Zacks Consensus Estimate of $2,142.6 million.

Volumes rose 6%, while pricing increased 2%. These were offset by 2% unfavorable currency, 1% unfavorable impact from the coronavirus pandemic and 5% lower energy pass-through.

Volume gains were supported by base business growth, new plants, acquisitions and a short-term contract in Asia.

Segment Highlights

Revenues in the Industrial Gases — America segment fell 6% year over year to $932 million. Higher pricing and volumes were more than offset by lower energy pass-through and unfavorable currency.

Sales in the Industrial Gases — EMEA segment totaled $493 million, in line with the year-ago quarter figure. Higher pricing and volumes were offset by unfavorable currency and lower energy pass-through.

Sales in the Industrial Gases — Asia segment rose 5% year over year to $658 million. The upside was driven by higher volumes (supported by new plants) and pricing. These were partly offset by unfavorable currency and impact from coronavirus.

Financials

Air Products ended the quarter with cash and cash equivalents of $2,220.1 million, down 18.9% year over year. Long-term debt was down 0.4% year over year to $2,922.1 million.

Net cash from operating activities was $1,238.5 million, down 3.7% year over year.

Outlook

Air Products has withdrawn its earnings guidance for 2020 due to the unknown duration and impacts of the coronavirus pandemic. The company also has not provided earnings guidance for the fiscal third quarter due to uncertainties.

Air Products expects declines in the Americas and EMEA merchant volumes to sustain. Further, in the fiscal third quarter, it expects it to be more pronounced and potentially longer, depending on the duration and impacts of the coronavirus pandemic.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -14.52% due to these changes.

VGM Scores

At this time, Air Products and Chemicals has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Air Products and Chemicals has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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