Air Products & Chemicals Earnings Call Insights: Electronics Inventory Revaluation and Merchant Utilization Rates

Air Products & Chemicals Inc (NYSE:APD) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Electronics Inventory Revaluation

Don Carson – Susquehanna Financials: Two questions actually. On the inventory revaluation in Electronics, I know in the past there has been offset within the corporate line. Did that occur this time? Am I correct in saying or in understanding that you expect to reverse this as the year goes on? Just secondly, how much of the European $60 million of restructuring did you get, I think you had $40 left to come there?

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Paul E. Huck – SVP and CFO: On the inventory, Don, there is some offset which occurs in there but there are impacts which occur in the Merchant area also. That offset is really around what occurs on the LIFO accounting. The bulk of that is offset against the Merchant area for us in this quarter. So there is a small impact there but for over the large part the Electronics and Performance Materials segment that flowed directly through to the bottom line in the consolidated results.

M. Scott Crocco – Vice President and Corporate Controller: The second question Don, this is Scott. In terms of the Europe restructuring, we’re on track to wrap that up by the end of the second quarter, and we saw in this quarter about a $0.03 benefit and as we take the actions then going forward we expect to have that step up modestly in the second quarter, and then to get to a run rate of about $0.05 per quarter, $60 million is so on an annualized basis; so, consistent with what we have said in the past. We would expect to see in fiscal ’13, about a $0.15 favorable impact from the cost reduction actions in Europe.

Merchant Utilization Rates

P.J. Juvekar – Citi: Can you talk about your utilization rates in Merchant business by region, and given some low rates, is there any possibility of consolidation of Merchant facilities in any region that you can do?

Simon R. Moore – Director, IR: So, let me just go over the numbers that we talked about. So, for the U.S./Canada, and again these are LOX/LIN utilization rate. So in U.S./Canada, the low 70s, in the Europe, high 70s, in Asia, in the mid-70s. I think, one of the things that I know, you know, in this business, we have a very modest distribution radius for products out of these plants, perhaps 100 miles, and so in that environment it gets very difficult to create value just by shutting down capacity. It’s certainly something that we look at on an ongoing basis, but it isn’t really one of our expectations for one of the big drivers going forward. We are working hard to bring load to those facilities. We’re doing that in a disciplined manner relative to pricing with our applications expertise in loading up our sales teams. So, as we said, that’s one of our big opportunities going forward, as those assets load up.

Paul E. Huck – SVP and CFO: P.J., I think as Simon said, our pricing has been good in most regions here, as we go through and so, we don’t think the utilization rate is impacting pricing.

P.J. Juvekar – Citi: No, I understand that you don’t transport gasses in Merchant, more than 100, 200 miles, but is there a way you can do piggybacking on on-site project and then shut down some older Merchant facilities?

Simon R. Moore – Director, IR: So, I think, anytime that we have an opportunity to do that, P.J., we would absolutely take a look at that. To be honest with you in U.S., Canada there is only a modest amount of new ASU on-site opportunities. So, again, we look at that every time. I guess my point is I don’t think that’s going to be a huge driver of the growth going forward. I think more of an opportunity is to leverage the economic recovery that we are expecting to grow the volumes.

P.J. Juvekar – Citi: And then secondly in electronics. There was a sequential decline, how much of that was seasonal and then you talked about equipment decline can you just talk about how much was equipment versus gases and chemicals?

M. Scott Crocco – Vice President and Corporate Controller: So, P.J., this is Scott. From a sequential in electronics it’s about half between equipment and materials and heavily driven from materials perspective from seasonality.