DANBURY, Conn., October 26, 2005 — Praxair, Inc. (NYSE: PX) reported third-quarter net income of $108 million, and diluted earnings per share of 33 cents. Net income included an income tax charge of $92 million, or 28 cents per diluted share, largely related to its plan to repatriate $1.1 billion pursuant to the Jobs Creation Act of 2004. Excluding this charge, net income grew to $200 million, from $177 million earned in the third quarter of 2004. Diluted earnings per share, excluding the income tax charge, grew 15% to 61 cents, compared to 53 cents in last year's quarter.
Sales in the quarter rose 13% to $1,890 million, compared to $1,674 million in the 2004 period. Operating profit grew by 13% to $317 million versus $280 million in last year's quarter. The third-quarter results were impacted by Hurricanes Katrina and Rita, which reduced sales by about $22 million, and operating profit by about $15 million, or 3 cents of diluted earnings per share.
"Our strong results in the third quarter once again validate Praxair's ability to perform well in a challenging environment," said Dennis H. Reilley, chairman and chief executive officer. "Our third-quarter results were negatively impacted by high energy prices and various plant outages experienced by us and our customers due to the two hurricanes which struck the Gulf Coast. Despite all of this, we were able to maintain our growth momentum and provide reliable supply to our customers under difficult and unusual circumstances."
In North America, sales in the third quarter of $1,159 million rose 7% from $1,085 million in the year-ago quarter. Sales grew to energy, chemicals, healthcare and manufacturing markets. Operating profit grew 5% to $165 million from $157 million a year ago. Excluding the negative effects of the hurricanes, operating profit would have grown by 13%.
In Europe, sales grew 32% to $262 million in the quarter. Sales growth was primarily due to the purchase of industrial gas operations in Germany in 2004. Organic business activity remained stable, as modest growth in Spain was partially offset by slowing economic activity in Italy and Western Europe. Operating profit grew to $63 million, from $54 million in the year-ago quarter.
In South America, sales of $293 million grew 34%, and 12% excluding currency effects. Underlying sales growth was driven by higher pricing and higher volumes of packaged gases, offset by lower volumes of on-site gases. Sales growth primarily came from healthcare, food and manufacturing markets. Operating profit rose to $52 million from $40 million in last year’s quarter.
Sales in Asia grew 11% to $136 million due to strong demand from electronics, metals and food-freezing markets in China, India, Korea and Thailand. Operating profit rose 20% to $24 million.
Praxair Surface Technologies’ sales in the quarter grew to $121 million, 11% above the prior year. Operating profit grew to $13 million versus $9 million in the year ago quarter. OEM aviation coatings markets and sales of thermal spray powders continue to be strong, driving the sales increase.
Praxair reported cash flow from operations of $420 million in the third quarter. Capital expenditures were $235 million. The company repurchased $74 million of stock, net of issuances, and the debt-to-capital ratio improved to 44%. The after-tax-return-on-capital ratio was 7.9%, or 12.9% excluding the impact of the previously mentioned tax charge. The effective tax rate during the quarter was 59%, or 26% excluding this charge.
For the fourth quarter of 2005, Praxair expects diluted earnings per share in the range of 61 cents to 65 cents, a double-digit increase from the prior year.
For the full year of 2005, Praxair expects sales and operating profit growth of 15% to 16%, versus 2004. Diluted earnings per share, excluding the third quarter’s income tax charge, are expected to be in the range of $2.44 to $2.48, an increase of 16% to 18% versus 2004. Reported diluted earnings per share, including the income tax charge, are expected to be $2.16 to $2.20. Full-year capital expenditures are expected to be in the area of $850 million.
Commenting on the business outlook, Reilley said, "In the near term, we expect high energy prices and the slow repair of infrastructure on the Gulf Coast to continue to present challenges to the chemical and refining industries. However, we believe that the strength of activity in our other end markets will continue. Our growing backlog of projects to come on-stream over the next several years, combined with productivity and investment discipline, should continue to drive strong cash flow and earnings growth."
Praxair is the largest industrial gases company in North and South America, and one of the largest worldwide, with 2004 sales of $6.6 billion. The company produces, sells and distributes atmospheric and process gases, and high-performance surface coatings. Praxair products, services and technologies bring productivity and environmental benefits to a wide variety of industries, including aerospace, chemicals, food and beverage, electronics, energy, healthcare, manufacturing, metals and others. More information on Praxair is available on the Internet at www.praxair.com.
Statements of Income, Balance Sheets, Statements of Cash Flows, Segment Information, Quarterly Financial Summary and Appendix: Non-GAAP Measures
Teleconference presentation on Praxair's 3Q05 results.
A teleconference on Praxair's third-quarter results is being held this morning, October 26, at 9:00 am Eastern Time. The number is (617) 801 -9712 – Passcode: 82692436. The call also is available as a web cast. Materials to be used in the teleconference are also available.
This document contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's reasonable expectations and assumptions as of the date the statements are made but involve risks and uncertainties. These risks and uncertainties include, without limitation: the performance of stock markets generally; developments in worldwide and national economies; the cost and availability of electric power, natural gas and other raw materials; the ability to achieve price increases to offset cost increases; the degree of inflation in wages and other compensation; the ability to attain expected operational efficiencies; changes in foreign currencies and interest rates; continued timely development and market acceptance of new products and applications; the impact of competitive products and pricing; the impact of changes in financial accounting standards; the impact of tax and other legislation and government regulation in jurisdictions in which the company operates; the cost and outcomes of litigation; future financial and operating performance of major customers and industries served; and the effectiveness and speed of integrating new acquisitions into the business. These risks and uncertainties may cause actual future results or circumstances to differ materially from the projections or estimates contained in the forward-looking statements. The company assumes no obligation to update or provide revisions to any forward-looking statement in response to changing circumstances.
Susan Szita Gore