Air Liquide put its peers in the shade recently, as the French industrial gases group shrugged off the global economic slowdown to report an 11% rise in first-half net profit to Euro 328.6 million.
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Air Liquide put its peers in the shade recently, as the French industrial gases group shrugged off the global economic slowdown to report an 11% rise in first-half net profit to Euro 328.6 million. But analysts fear the group“s plan to raise earnings per share by 50% by 2003 may have come off the rails as its electronics and chemicals businesses feel the squeeze of the global economic slowdown. Those fears were stoked by a less-than-emphatic confirmation of the target made by chairman and chief executive Alain Joly. “It“s still premature to change our (medium-term) target, but we have told you what our target for this year is,” Joly said, referring to the group“s forecast that second-half EPS growth should match the 12% posted in the six months to June 30. Joly said “this is an environment we need to give close attention to in the coming months.” Joly did say EPS second-half growth should match the 12% achieved in the first half, which was lifted a little by the company“s share buyback program. However, analysts said Joly is preparing the market for slower-than-expected earnings. Joly“s comment gives the market a strong signal that “it“s going to be very hard for them to meet the 2003 target” of 50% growth in EPS, said Thierry Baudin at Societe Generale. That target now appears “too ambitious,” agreed Jacques Humbert at KBC Securities. “I“m not sure they can do it. They talk about raising their share of revenue from services, but are the profits going to follow? It“s not so sure.” The group“s improvement in bottom-line profit came despite a sharp decline in the sale of specialty gases to electronics companies, the delay of some projects with large industrial customers, a 20% rise in net financial charges, and a higher tax bill. Air Liquide turned in an 11% improvement in operating income, before amortization and depreciation, to Euro 1.00 billion, on a 13% rise in revenue to Euro 4.31 billion. This robust performance is based in part on Air Liquide“s relatively low exposure to the slowing US market – the Americas contributed only 25% of operating income in the first half – and contrasts with more modest showings by Air Liquide“s UK and US.competitors. This month, the UK“s BOC Group PLC managed only a 3% rise in third-quarter pretax profit, while flat or lower earnings are expected from US competitors Praxair, Inc. and Air Products & Chemical, Inc. In 2000, Air Liquide and Air Products were blocked by antitrust authorities from taking over BOC. Air Liquide“s net profit was at the lower end of analysts“ expectations, but its operating profit margin, excluding the impact of higher gas prices, improved to 14.4% from 13.9% in the first half of 2000. Delta Lloyd Securities analyst Vincent Neels said Air Liquide deserves its high, 19-times future earnings multiple and said he“s keeping the stock at accumulate after the group demonstrated its resilience in the first half. Joly acknowledged that parts of Air Liquide“s business are under intense pressure, but said that the group is accelerating efforts to cut costs and improve its internal organization, and continues to tilt the business toward services and new sectors such as health care. The company said carrier gas, services, and equipment sales to the electronics sector are holding up, even though the sale of specialty gases to companies like makers of semiconductors has slumped. Air Liquide said it has also built a “strong and profitable platform for growth” in services offered to industrial customers, such as noxious-gas controls and remote monitoring for auto parts makers and research centers such as the CERN atomic center in Switzerland. It said a number of new contracts to large industrial customers should compensate for past sluggishness in this sector, while lower natural gas prices should benefit Air Liquide by easing cost pressures on US chemicals companies, which are among its most important customers.