Praxair Reports Third-Quarter 2016 Results

Praxair, Inc. (NYSE:PX) reported third-quarter net income and diluted earnings per share of $339 million and $1.18, respectively. These results include the impact of a $100 million pre-tax charge, or 23 cents of diluted earnings per share. This charge was primarily related to cost reduction actions taken in response to weaker underlying industrial activity in the Americas and Asia. Excluding the charge, adjusted net income and diluted earnings per share were $405 million and $1.41, respectively.

Praxair’s sales in the third quarter were $2,716 million, 1% above the prior-year quarter. Excluding negative currency translation of 1%, sales were 2% higher than the prior-year quarter due to growth from acquisitions, largely a carbon dioxide business in Europe, and higher pricing. Overall volumes were comparable to the prior-year quarter. Volume growth from new on-site projects, primarily in South America, Asia and Europe, was offset by lower base business volumes in North and South America, due primarily to weaker manufacturing activity in the U.S. and Brazil.

Reported operating profit in the third quarter was $497 million, 16% below the prior-year quarter. Excluding the current-quarter impact of the charge, adjusted operating profit of $597 million was 4% below the prior-year quarter, which included a 1% headwind from foreign currency translation. Reported operating profit as a percentage of sales was 18.3%. Adjusted operating profit as a percentage of sales was 22.0% and the adjusted EBITDA margin was 32.8%.

Third-quarter cash flow from operations was $788 million, 29% of sales and 17% above the prior-year quarter. Capital expenditures were $376 million and the company paid $214 million of dividends. After-tax return on capital and return on equity for the quarter were 12.1% and 33.3%, respectively.

Commenting on the financial results and business outlook, Chairman and Chief Executive Officer Steve Angel said, “As anticipated, the third quarter continued to experience mixed results in end-market trends with strong demand in more resilient food, beverage and healthcare markets, but persistent weakness from industrial sectors like manufacturing and upstream energy. In light of these trends, we took additional cost actions in the third quarter to properly align our organization and to accelerate planned acquisition synergies.

“Despite these macro-economic challenges, Praxair employees once again delivered high-quality results this quarter with 17% growth in operating cash flow, and operating and EBITDA margins of 22% and 33%, respectively. Furthermore, we recently added several new long-term, on-site supply contracts to our project backlog, including a large investment in the U.S. Gulf Coast, where bidding activity is strong, and we remain confident in our ability to win additional projects. Praxair employees are successfully implementing our strategy to grow in resilient markets, execute and win new on-site projects, and protect and grow profitability regardless of the economic cycle.”

For the fourth quarter of 2016, Praxair expects diluted earnings per share in the range of $1.36 to $1.43.

For full-year 2016, Praxair expects adjusted diluted earnings per share to be in the range of $5.44 to $5.51. This guidance assumes a negative currency translation impact of approximately 3% year over year. This full-year guidance excludes a bond redemption charge taken in the first quarter and charges primarily related to a cost reduction program in the third quarter. As a result, GAAP diluted earnings per share are expected to be in the range of $5.17 to $5.24. Full-year capital expenditures are expected to be approximately $1.4 billion.

Following is additional detail on third-quarter 2016 results by segment.

In North America, third-quarter sales were $1,431 million, 2% below the prior-year quarter. Excluding negative cost pass-through and currency translation, sales were comparable to the prior-year quarter. Price attainment and volume growth to food and beverage, healthcare and refinery customers were offset by weaker sales to manufacturing, metals and upstream energy end-markets. Operating profit was $363 million.

In Europe, third-quarter sales were $366 million, 8% above the prior-year quarter. Volumes were comparable to the prior year, excluding a prior-year sale of equipment which reduced sales by 1%. Acquisitions contributed 9% growth, primarily related to a carbon dioxide business largely serving the food and beverage end-market. Operating profit of $72 million grew 14% from the prior year, primarily due to acquisitions and cost control.

In South America, third-quarter sales were $378 million, 10% above the prior-year quarter. Sales, excluding positive cost pass-through and currency translation, grew 7% as a result of higher price and new on-site project volumes. Operating profit was $68 million.

Sales in Asia were $391 million in the third quarter, 1% below the prior-year quarter, and 1% higher excluding negative currency impact. Volume growth included new plant start-ups which was partially offset by customer turnarounds. Operating profit was $68 million.

Praxair Surface Technologies third-quarter sales were $150 million, 2% above the prior-year quarter. Cost pass-through and negative currency translation reduced sales by 2%. Underlying sales growth of 3% was driven by favorable price and higher aerospace volumes. Acquisitions contributed 1% growth. Operating profit of $26 million grew 4% from the prior year due to higher price and volumes.

About Praxair

Praxair, Inc., a Fortune 300 company with 2015 sales of $11 billion, is a leading industrial gas company in North and South America and one of the largest worldwide. The company produces, sells and distributes atmospheric, process and specialty gases, and high-performance surface coatings. Praxair products, services and technologies are making our planet more productive by bringing efficiency and environmental benefits to a wide variety of industries, including aerospace, chemicals, food and beverage, electronics, energy, healthcare, manufacturing, primary metals and many others. More information about Praxair, Inc. is available at www.praxair.com.

Adjusted amounts are non-GAAP measures. Additionally, measures such as EBITDA, free cash flow, after-tax return on capital, return on equity and debt-to-capital are also non-GAAP measures. See the attachments for a summary of non-GAAP Reconciliations and calculations of non-GAAP measures.

Attachments: Summary Non-GAAP Reconciliations, Statements of Income, Balance Sheets, Statements of Cash Flows, Segment Information, Quarterly Financial Summary, and Appendix: Non-GAAP Measures.

A teleconference about Praxair’s third-quarter results is being held this morning, October 27, 2016, at 11:00 am Eastern Time. The number is (631) 485-4849 – Conference ID: 91651900. The call is also available as a webcast live and on-demand at www.praxair.com/investors. Materials to be used in the teleconference are also available on the website.

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s reasonable expectations and assumptions as of the date the statements are made but involve risks and uncertainties. These risks and uncertainties include, without limitation: the performance of stock markets generally; developments in worldwide and national economies and other international events and circumstances; changes in foreign currencies and in interest rates; the cost and availability of electric power, natural gas and other raw materials; the ability to achieve price increases to offset cost increases; catastrophic events including natural disasters, epidemics and acts of war and terrorism; the ability to attract, hire, and retain qualified personnel; the impact of changes in financial accounting standards; the impact of changes in pension plan liabilities; the impact of tax, environmental, healthcare and other legislation and government regulation in jurisdictions in which the company operates; the cost and outcomes of investigations, litigation and regulatory proceedings; the impact of potential unusual or non-recurring items; continued timely development and market acceptance of new products and applications; the impact of competitive products and pricing; future financial and operating performance of major customers and industries served; the impact of information technology system failures, network disruptions and breaches in data security; and the effectiveness and speed of integrating new acquisitions into the business. These risks and uncertainties may cause actual future results or circumstances to differ materially from the GAAP or adjusted projections or estimates contained in the forward-looking statements. The company assumes no obligation to update or provide revisions to any forward-looking statement in response to changing circumstances. The above listed risks and uncertainties are further described in Item 1A (Risk Factors) in the company’s latest Annual Report on Form 10-K filed with the SEC which should be reviewed carefully. Please consider the company’s forward-looking statements in light of those risks.

The following adjusted amounts are non-GAAP measures and are intended to supplement investors' understanding of the company's financial statements by providing measures which investors, financial analysts and management use to help evaluate the company's operating performance. Items which the company does not believe to be indicative of on-going business trends are excluded from these calculations so that investors can better evaluate and analyze historical and future business trends on a consistent basis. Definitions of these non-GAAP measures may not be comparable to similar definitions used by other companies and are not a substitute for similar GAAP measures. See the Non-GAAP reconciliations starting on page 10 for additional details relating to the Non-GAAP adjustments.

Note: See page 4 for a reconciliation to 2016 adjusted amounts which are non-GAAP.

The following non-GAAP measures are intended to supplement investors’ understanding of the company’s financial information by providing measures which investors, financial analysts and management use to help evaluate the company’s financial leverage, return on capital and operating performance. Items which the company does not believe to be indicative of on-going business trends are excluded from these calculations so that investors can better evaluate and analyze historical and future business trends on a consistent basis. Definitions of these non-GAAP measures may not be comparable to similar definitions used by other companies and are not a substitute for similar GAAP measures. Adjusted amounts exclude the impacts of the 2016 third quarter cost reduction program and pension settlement, 2016 first quarter bond redemption, 2015 third quarter cost reduction program and pension settlement, 2015 second quarter cost reduction program and other charges, and 2014 fourth quarter pension settlement, bond redemption and loss on Venezuela currency devaluation.