Praxair: Earnings Preview

Apr.23.11 | About: Praxair, Inc. (PX)

Praxair Inc. (NYSE:PX) is slated to release its first quarter 2011 results on Wednesday, April 27. The current Zacks Consensus Estimate for third quarter earnings per share (EPS) is $1.27, representing an annualized growth of 16.14%.

Praxair had outperformed the Zacks Consensus Estimate over the trailing four quarters with a positive surprise of 2.28%.

Fourth Quarter Highlights

Praxair’s fourth quarter results were encouraging; with adjusted earnings per share of $1.25. That's above the Zacks Consensus Estimate of $1.23 and up 15% year over year.

The results were also above management’s guidance range of $1.18-$1.23.

For full year 2010, adjusted earnings per share were $4.74, above the Zacks Consensus Estimate of $4.72 and up 19% year over year. The results were also above management’s guidance range of $4.67-$4.72.

Total revenue in the quarter was $2,623 million, up 9% year over year. Increased revenue was driven by enhanced volume of 8%, as sales rose in all geographical operating areas, mainly in electronics, manufacturing, energy and metals markets. In addition, positive currency effects also benefited the company sequentially. For the full year, higher volumes drove revenues 13% year over year to $10,116 million.

Agreement of Estimate Revisions

In the last seven days, only one earnings estimate was increased for 2011 and 2012, each out of 22 and 20 total estimates, respectively. There are no revisions for the first quarter of 2011.

The positive revision incorporates the company’s strong growth prospects in North America, Asia and South America. Moreover, contract wins, a favorable pricing trend and a solid backlog are encouraging attributes.

Magnitude of Estimate Revisions

Despite a positive revision, the absence of magnitude kept earnings estimates stable for 2011 and 2012 in the last seven days.

The estimate for the first quarter has also stable at $1.27 per share, reflecting a growth of 16.14% over the year-ago comparable quarter.

Our Take

We believe the growth prospects of industrial gas producers are very bright going forward, with demand for gases expected to increase due to their wide application areas. Hydrogen for refining; oxygen for healthcare; and nitrogen and carbon dioxide for oil and gas production are being increasingly used.

The demand environment for hydrogen is very strong, particularly in the emerging economies of Brazil, China, Russia and India. Praxair is expected to launch a large hydrogen plant in India by 2011, or 2012 at the latest. Project backlog for the company remains strong at 33 large projects with capital value of $2.2 billion.

Moreover, the pricing environment remains favorable for Praxair and the company recently raised prices of nitrogen, oxygen, argon, hydrogen and carbon dioxide by 15%, helium by 20% and facility fees or monthly basic charges and cylinder rental rates by 15%. Prices of equipment and consumables were raised up to 6%. The increased prices were applicable to all the bulk and packaged industrial and medical gas customers in the United States and Canada.

Overall, we believe Praxair is all set to deliver good financial results in the first quarter of 2011. We currently maintain our Neutral recommendation on the stock.