Air Liquide Engineering Drop Leads to First-Half Profit Miss

  • French gas supplier’s engineering division sales fall 32%
  • Company looking to Airgas acquisition for full-year growth

Air Liquide SA, the French industrial gas company that bought its U.S. competitor Airgas Inc., missed first-half earnings estimates amid a continued slump at its engineering division suffering from a slowdown in energy projects.

Operating income from recurring operations fell 1.9 percent to 1.38 billion euros ($1.54 billion), the Paris-based company said Monday in a statement. That compares with an average 1.43 billion-euro estimate of analysts compiled by Bloomberg.

The shares fell 3 percent to 92.48 euros at 11:44 a.m. in Paris. They have dropped 11 percent since the start of the year, giving the company a market value of 32 billion euros.

Air Liquide, Linde AG of Germany and other rivals are facing depressed demand for gas installations at sites like factories and refineries as energy companies delay or cancel projects amid relatively low crude prices. Sales at Air Liquide’s engineering and construction division fell 32 percent, while the order intake dropped 76 percent compared to a year earlier. Last week, Linde’s second-quarter profit also fell in part due to a 25 percent drop at its own engineering division.

Shale Slowdown

Project delays by energy customers are the main reason why profit in the engineering unit declined, Chief Executive Officer Benoit Potier said by phone.

“Large industrials in chemicals, petrochemistry, refining or steel have difficulties in making structured investment decisions and investing billions in new capacities,” he said. “A very strong slowdown” in North American natural gas and shale projects is also playing a part, he said.

The slump is temporary and large clients are looking at projects to be implemented in the next four years, he said. “We are at a rather active stage of studying and discussing with some large clients,” he said. “When we look further ahead, the portfolio for middle to long term projects remains good.”

In the meantime, in a bid to retain its engineering expertise, Air Liquide is shifting resources from the division to other, more dynamic markets, he said. The company recorded first-half growth at its business supplying gases to large manufacturers as well as at electronics factories and at the health-care division, which provides services and gases like oxygen to patients and hospitals.

Seeking Growth

Air Liquide is seeking growth from Airgas, the leader of U.S. packaged gas, while pursuing its cost-cutting program. The French company completed the purchase in May, gaining ground in the U.S. market against Linde, Air Products & Chemicals Inc. and Praxair Inc.

Following its acquisition of Airgas, Air Liquide expects growth this year in net income and net earnings per share including the effects of a planned capital increase of between 3 billion euros and 3.5 billion euros, according to the statement.

Looking further ahead, Air Liquide confirmed its forecast for annual revenue growth of between 6 percent and 8 percent through 2020, taking into account Airgas in 2017. The company also reiterated its goal to save more than 300 million euros a year on average, on top of a total of $300 million as it shares resources with Airgas. Synergies will start taking effect by the end of the year, Air Liquide said.

To comply with a ruling from competition authorities, Air Liquide agreed to sell assets in the U.S., including two facilities in Iowa. The divestitures are in line with what Air Liquide had planned, the company said Monday. The sale has to be approved by the Federal Trade Commission and should be finalized by the end of the year.

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