Zacks_Analysts' Blog : Air Products Teams with Dow Corning - Analyst Blog

Air Products & Chemicals Inc. (APD) entered into an agreement with Dow Corning, a 50:50 joint venture between The Dow Chemical Co. (DOW) and Corning Inc., for the long-term supply of electronic-grade silane. Silane is a type of material used for manufacturing flat panel displays, semiconductors and photovoltaic cells.

As per the agreement, Air Products will have access to significant silane volume to meet the present and future needs of its global customers, as well as help in the future growth of the electronics and solar industry.

Dow Corning has been producing electronic grade silane since March 2011. Besides, Dow Corning’s silane plant, which is currently ISO-9001:2000 certified with zero non-conformities and zero opportunities for improvement, has a world-leading capacity of 4,000 metric tons per year. Besides, it produces silane at the same or even higher level of purity currently offered in the market.

In October, Air Products reported its fourth-quarter 2011 EPS of $1.51 versus $1.35 in the year-earlier quarter, in line with the Zacks Consensus Estimate of $1.51. For full-year 2011, the company reported EPS of $5.73, up 14% year over year, in line with the Zacks Consensus Estimate of $5.73.

Net sales amounted to $2.6 billion versus $2.4 billion in the prior-year quarter, in line with the Zacks Consensus Estimate of $2.6 billion. The improved results were mainly driven by growth in the emerging markets and strong performance in its Tonnage Gases business. Despite a slowing global economy in the second half of 2011, the company won several projects and also witnessed double-digit sales and earnings growth.

For fiscal 2011, sales increased 12% year over year to $10,082 million driven by a 9% volume increase, which was in line with the Zacks Consensus Estimate.

Based in Pennsylvania, Air Products benefits from a long-term take-or-pay contract, a consolidated industry structure, a diverse customer base and sustained pricing power. However, soaring energy and raw material costs pose a threat to margin expansion.

In order to compensate for escalating raw material costs, Air Products has been increasing the price for a range of chemicals it manufactures for industrial use. Air Products faces stiff competition from Praxair Inc. (PX) and The Linde Group.

We currently have a Zacks #3 Rank (short-term Hold recommendation) on the stock.