Air Products and Chemicals Inc Q3 2010 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: John McNulty - Credit Suisse - Analyst : Good morning. Two quick questions for you. The first is, in the past, you've given guidance with regard to your project backlog and what it would mean for earnings in the upcoming year. Now that you have gotten a number of new contracts updated, can you give us an update as to what this may mean for next year?

Question: John McNulty - Credit Suisse - Analyst : Okay. Great. That's helpful. And then with regard to the electronics restructuring, can you remind us of what the cost of that restructuring was this quarter and how that should, I assume that -- it sounds like almost none of that remains in the fiscal fourth quarter.

Question: John McNulty - Credit Suisse - Analyst : Okay. Okay. Great.

Question: John McNulty - Credit Suisse - Analyst : Okay. Yes, that's what I was really looking for. (Multiple Speakers). Okay. Thanks.

Question: Kevin McCarthy - Banc of America Merrill Lynch - Analyst : Good morning, gentlemen. I was wondering if you could update us on what you're seeing with regard to merchant pricing in Asia? It looked like Asia was plus 1 versus slight declines in Europe and North America, whereas we typically hear of greater competitive intensity in Asia. Is that starting to change?

Question: Kevin McCarthy - Banc of America Merrill Lynch - Analyst : And then with regard to Electronics, you had a double-digit sequential volume increase. It sounds like you are expecting ongoing increases to wrap up the year. Can you maybe give us a little bit more color as to what you are seeing on equipment versus consumables, and where you are seeing the [strength]?

Question: Kevin McCarthy - Banc of America Merrill Lynch - Analyst : Okay. Thank you very much.

Question: Paul Mann - Morgan Stanley - Analyst : Thanks. Just looking at your Merchant division. I mean, in the first three quarters this year you're going to report operating margins of 19.5%. And I think you are targeting 20% in that division. You said that [pending] operating leverage to go. Should we view that 20% margin target as an intermediate target? And what is the longer-term margin target for that division? And what operating leverage do you get, what sort of incremental margins do you get in that division?

Question: Paul Mann - Morgan Stanley - Analyst : And what was [something coming] from margins should we assume on the return of revenues at the flowback?

Question: Paul Mann - Morgan Stanley - Analyst : Okay. And then just thinking about your CapEx 2011, I'm assuming that given the recent contract wins you have had, CapEx is going to go up in 2011. Is that a fair assumption?

Question: Paul Mann - Morgan Stanley - Analyst : Okay. Thank you very much.

Question: P.J. Juvekar - Citi - Analyst : Good morning. Recently, you won several projects in India and clean coal in China. In places like India, your competitor was traditionally strong. So to break into that market, what kind of IRR are you expecting on these new projects?

Question: P.J. Juvekar - Citi - Analyst : Okay. And then secondly, in Electronics, your volumes were up 18%. What are your operating rates in key chemicals for you like NF3?

Question: P.J. Juvekar - Citi - Analyst : And just to clarify it, Wilson is not running right now? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: P.J. Juvekar - Citi - Analyst : And finally, you are not seeing any inventory builds in the Electronics chain there, by your customers or their customers?

Question: P.J. Juvekar - Citi - Analyst : Thank you.

Question: Mike Harrison - First Analysis Securities - Analyst : Good morning, gentlemen. You guys noted a little bit of weakness in the European-packaged gases business. Was wondering in what country is that weakness most pronounced? And do you view that weakness as pretty typical lagging of packaged gases during the recovery? Or is it cause for greater concern?

Question: Mike Harrison - First Analysis Securities - Analyst : And what sort of metrics do you look at as leading indicators in that European packaged gases business? And which direction are they pointing right now? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Mike Harrison - First Analysis Securities - Analyst : Got it. And then a question on the liquid hydrogen front. You mentioned that pricing was lower there due to natural gas pass-throughs. But then we look at the Tonnage business and natural gas was a positive, year over year. So is there a lag on the liquid site and should we see pricing pressure in liquid hydrogen subside in the next quarter?

Question: Mike Harrison - First Analysis Securities - Analyst : All right. And last question I had is on the guidance. You have a $0.06 range in the guidance that's a little bit wider than the last couple of quarters. Are you guys seeing additional uncertainty right now? And can you maybe walk through some of the factors that could swing earnings towards the high end or the low end of your guidance range?

Question: Mike Harrison - First Analysis Securities - Analyst : Do you have a specific euro rate that you are assuming in your FX outlook?

Question: Mike Harrison - First Analysis Securities - Analyst : All right. Thanks very much.

Question: Mike Sison - KeyBanc Capital Markets - Analyst : Congratulations on a good quarter. In terms of Electronics, it sounds like everything is running on full cylinders sort of across the board. Any reason why we are not at that 15%? Anything else you need to do to get there? (multiple speakers) in terms of operating margins.

Question: Mike Sison - KeyBanc Capital Markets - Analyst : Right. And then when I think about your Merchant business in Europe, it had a very good quarter. And there has been a lot of concern, I guess, generally about Europe. Any changes in your outlook or anything to that degree from -- in Europe, generally speaking?

Question: Mike Sison - KeyBanc Capital Markets - Analyst : Right. And last question, Paul, when you think about fiscal '11 and you are tracking above 16% fairly -- I wouldn't disagree, you're pretty -- 17% seems pretty easy to get to for next year. Thinking longer term, any thoughts on sort of the potential above that?

Question: Mike Sison - KeyBanc Capital Markets - Analyst : Great. Thank you.

Question: David Begleiter - Deutsche Bank - Analyst : Good morning. Paul, can you comment on merchant pricing trends in the US?

Question: David Begleiter - Deutsche Bank - Analyst : And Paul, just looking at the backlog again, what is the return profile of the entire backlog right now?

Question: David Begleiter - Deutsche Bank - Analyst : And lastly, just on the potential new projects coming on in the next few quarters, are they still pointed towards Asia and China? Or are they more broadly speaking [electronics] US, etc.?

Question: David Begleiter - Deutsche Bank - Analyst : Thank you very much.

Question: Mark Gulley - Soleil Securities - Analyst : Good morning. Couple of questions if I can. First of all, with respect to that second project in China. I wasn't clear if that was sales of equipment or sale of gas.

Question: Mark Gulley - Soleil Securities - Analyst : Okay. Congratulations.

Question: Mark Gulley - Soleil Securities - Analyst : Do you have piggyback liquifiers on both of those plants that you talked about for China? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Mark Gulley - Soleil Securities - Analyst : I'm sorry, of course.

Question: Mark Gulley - Soleil Securities - Analyst : Sticking with Merchant, if I may, it is the largest business by earnings but has the slowest growth right now. So, Nelson, when do you think you might get back to normal growth rates in LOX/LIN globally and what might that level of growth be?

Question: Mark Gulley - Soleil Securities - Analyst : Okay. Thanks. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Chris Shaw - Monness Crespi Hardt - Analyst : You might have given this number. But on the Tonnage side, you gave a 4% sequential growth in volume. I was wondering, could you split that out between what was new plants and what was actual new loadings? Higher loadings?

Question: Chris Shaw - Monness Crespi Hardt - Analyst : Okay. Then in the Equipment and Energy, it is doing very well on the profit side. But is there going to be some point when, I guess, the LNG exchangers come on or orders start picking up that the sales part is going to start ramping up? Will there be an inflection point some quarter that we should expect?

Question: Chris Shaw - Monness Crespi Hardt - Analyst : And do you still think there is upside to the margins from here?

Question: Chris Shaw - Monness Crespi Hardt - Analyst : Great. Thanks a lot.

Question: John Roberts - Buckingham Research Group - Analyst : Good morning. Trying to actually find the US recovery in your Merchant volumes. Your year ago Merchant volumes in North America were down 19%. So you had a really easy comp there. And you are only -- you are up 6% this quarter. You were only up 5% last quarter and the total global number was up 4% sequentially. I don't know what the North American sequential Merchant growth was, but it seasonally would pick up normally. So is there more than just a seasonal improvement in any real sign of recovery in your Merchant liquid business in North America?

Question: John Roberts - Buckingham Research Group - Analyst : And then back to Electronics, just quickly, Paul. I think you said it normally seasonally increases into your September quarter here. But I think Nelson said that you expect the customer operating rates to hold up that's there. You are expecting to more than hold up?

Question: John Roberts - Buckingham Research Group - Analyst : But June to September would be more stable rather than (multiple speakers).

Question: John Roberts - Buckingham Research Group - Analyst : Thank you.

Question: David Manthey - Robert W. Baird & Company, Inc. - Analyst : Good morning. Is there any clarity on whether or not the movement of the shareholder meeting up to January at Airgas -- is that a simple majority or a super majority or has that been decided yet?

Question: David Manthey - Robert W. Baird & Company, Inc. - Analyst : Okay. Understood. Finally, on the cost containment efforts here between the two quarters, sequentially it swung about $0.13 and I know you mentioned pension and Electronics restructuring. I was just wondering if you could talk about the trend from this quarter to next quarter. Do those continue to stay at elevated levels or get some relief there?

Question: David Manthey - Robert W. Baird & Company, Inc. - Analyst : Great. All right. Thank you.

Question: Robert Koort - Goldman Sachs - Analyst : Thanks very much. Just a question on the Electronics side. Obviously, a dramatic recovery from the depths of despair not so long ago. What do you see happening on the -- as we go into the next fiscal year? Can you still maintain a very lofty 20 plus percent silicon acreage growth rate or do you think we are going to see some pretty dramatic deceleration back to a more steady-state rate?

Question: Robert Koort - Goldman Sachs - Analyst : Very good. Thanks, Paul.

Question: Robert Reitzes - BroadArch Capital - Analyst : Yes, I guess, Paul, I wanted to ask you one question. What gives you the confidence that you are going to have a strong second half in Europe?

Question: Robert Reitzes - BroadArch Capital - Analyst : Okay. Thank you very much.

Question: Lucy Watson - Jefferies & Company - Analyst : This is [Lucy Watson] on for Lawrence today. Just a couple of clarification questions. On Electronics, as your customers run closer to their capacity limits, do you expect to see any sequential slowing in month-over-month momentum until your customers start bringing more capacity onstream? Or, I guess, would you mind just providing a little bit more color there?

Question: Lucy Watson - Jefferies & Company - Analyst : Okay. Thanks. And then just to clarify your earlier comment on the Middle East opportunity, how are you thinking about the timing of an acceleration there?

Question: Lucy Watson - Jefferies & Company - Analyst : Thank you. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Jeff Zekauskas - JPMorgan Securities Inc. - Analyst : Good morning. How much were hydrogen tonnage volumes up for the quarter and for the year?

Question: Jeff Zekauskas - JPMorgan Securities Inc. - Analyst : 20%.

Question: Jeff Zekauskas - JPMorgan Securities Inc. - Analyst : 8%. And in the beginning of your presentation, you said that your underlying sales for the quarter were up about 12%. So if you looked at your business in April, May and June, what was the trend? Was June greater than 12% or less than 12% or a lot greater or a lot less?

Question: Jeff Zekauskas - JPMorgan Securities Inc. - Analyst : Okay. Thank you very much.