Morningstar | Praxair Delivers Strong 2Q Performance but All Eyes are on Pending Linde Merger
We expect to raise our $150 per share fair value for wide-moat Praxair by about 5% after above-guidance second-quarter results. We're looking ahead to the Linde merger and note that the German company delivered a sharp increase in second quarter profits yesterday. Although approval is still required from six out of the nine regulators, we think the Linde merger will close in the third quarter. Despite some divestments (Praxair and Linde have already agreed to sell some assets) the combination of the two companies will create the world's largest industrial gas supplier by revenue and gross assets, with a leading position in each major region.Praxair's second-quarter results confirmed our view of a broad-based turnaround in global industrial demand. Adjusted EPS of $1.72 exceeded guidance and operating cash flow rose $89 million to $790 million. Year over year revenue growth this quarter of 8% was down versus the 10% achieved last quarter. However, stripping out currency and cost pass throughs reveals that year-over-year growth didn't slowdown with both the second and first quarters registering 7% year-over-year revenue increases from price/mix plus volume. Like last quarter, demand growth was solid across all markets with chemicals and metals registering double-digit growth this quarter. Across Praxair's regions, North America and Asia drove the business with 6% growth in the former and 19% growth in the latter. Management highlighted three new on-site project wins in the quarter and a $200 million increase in its project backlog, which now stands at $1.7 billion.
Although the company didn't provide third-quarter earnings guidance due to the anticipated Linde merger, it did mention that it is expecting growth trends in the second quarter to continue into next quarter. Currency didn't impact growth during the second quarter but management did flag the possibility of currency headwinds next quarter of 2%-4% due to a stronger dollar.
Praxair is an industrial gas company in North and South America. The company's operations consist of two main product lines: industrial gases and surface technologies. The industrial gases product line centers on the manufacturing and distribution of atmospheric gases (oxygen, nitrogen, argon, rare gases) and process gases (carbon dioxide, helium, hydrogen, electronic gases, specialty gases, acetylene). The company's surface technologies segment supplies wear-resistant and high-temperature corrosion-resistant metallic and ceramic coatings and powders. The company's subsidiary, Praxair Surface Technologies, supplies wear-resistant and high-temperature corrosion-resistant metallic and ceramic coatings and powders.
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