Praxair: Aggressive Growth Despite a Recession

| About: Praxair, Inc. (PX)

It’s hard to imagine an easy way to grow a company during recessionary times. Most are hunkering down, laying off workers, and closing factories. So how is it that a few CEO’s manage not just to survive a recession, but are actually able to grow and expand their businesses?

To try to answer that question, we can take a look at a good example: Praxair (NYSE:PX), a dominant player in the specialty gases sector.

Praxair – a global, Fortune 300 company – is the largest industrial gases company in the Americas, and one of the largest in the world. With 27,000 employees in 30 countries, Praxair supplies its products to a wide array of customers around the globe.

It produces, sells, and distributes atmospheric, process and specialty gases. It’s also a manufacturer of high-performance surface coatings for metals. The company’s advanced manufacturing segment designs and manufactures cryogenic and non-cryogenic gas supply systems for various manufacturing processes.

At first glance, you might think Praxair would be scrambling to downsize itself, particularly in the face of a slowdown in spending in the industrial and manufacturing sectors.

But you’d be dead wrong. Generalizations – especially in this market, can get you in trouble fast, and also cause you to miss out on increasingly rare upside opportunities.

Praxair’s Gases Used In Many Sectors

Praxair’s gases are used in many sectors: energy, electronics, chemicals, metals, manufacturing, healthcare, aerospace and food & beverage.

Last Wednesday when Praxair announced 4th quarter earnings, shareholders didn’t have to deal with the usual bad news. Why? Because the company didn’t flub its profit numbers, didn’t issue gloomy guidance, didn’t kill its dividend and didn’t announce massive layoffs.

What it did do was quite the opposite: the company beat its profit estimates, issued reasonable guidance, and announced an increase in its dividend. For the full year, adjusted earnings were up 14% and revenues increased 15%. As a result, Praxair was rewarded with an 8% boost in its share price to $64 a share.

Praxair Distribution President, George Ristevski had this to say: “Our acquisition program over the past two years has been very successful and remains an important part of our overall growth strategy.”

Successful is a bit of an understatement: in 2008 the company completed 15 profitable acquisitions, with five in the fourth quarter. Taken together, last year’s acquisitions added almost $90 million to the company’s bottom line. The company saw particularly strong growth in the energy, food and beverage sectors.

Praxair’s Backlog of Large On-Site Installations

But Praxair’s real upside lies in its strong project backlog of large on-site installations.

You see, many customers use very high volumes of gas in their manufacturing processes, and transporting it by tractor-trailer becomes prohibitively expensive.

So these types of customers warrant either a large, on-site storage facility, or if the usage is great enough, an on-site manufacturing facility for the specific types of gases required.

These facilities, are designed, constructed and managed by Praxair for the end-customer.

Let’s get back to our original question: how do you grow a business during recessionary times?

In Praxair’s case, it’s a combination of aggressive acquisitions that immediately add to the bottom-line, carefully managing its production costs, and eking out productivity gains wherever possible.

Its future ace-in-the-hole is the as-yet-unrealized revenue from the huge backlog of 42 on-site production plants it has under construction around the world. In that sense, both Praxair and its customers are looking well beyond the recession, and in effect are forecasting better times down the road.

For those investors with a long-term horizon, now is an excellent time to add a few shares of Praxair to your investment portfolio. The stock trades at a respectable P/E of around 16, and sports a 2.6% dividend yield.