Air Products and Chemicals, Inc. (NYSE:APD) Q2 2018 Earnings Conference Call Transcript
Apr 26, 2018 • 10:00 am ET
(Operator Instructions) Don Carson, Susquehanna.
Just a question on base business. Scott, you mentioned that if you take out Jazan, your volume was up about 10%, half of the new plant, half base business. There appears to be a pickup from last quarter when I think base business was only contributing about 2%. So can you comment on the base business outlook or merchant loadings improving? And as a result, should we be expecting some good incremental margins going forward from the base business?
Scott, would you like to?
Sure. As you pointed out, we had good performance on the base business across each of the geographies with fundamental improvements. And who knows what the future holds, but we feel as though the loadings will continue to improve. I think it's been mentioned in the past, we've been in Asia, we're in the low 80% capacity utilization, and in Europe, we've crept up to a 1% of these. So that's improved as well. So we feel very good about what we see in this quarter and are cautiously optimistic about the outlook.
Don, this is Seifi, if I may add, we do see positive momentum in volumes. And, obviously, if there is positive momentum on volumes, pricing will follow. So we are actually more bullish than we have been before.
And Seifi, what's the competitive environment for bidding on some of these major new projects? I assume your primary competitors have other issues that are causing not to be as aggressive in going after some of these new projects. So who is the real competition and what does the competitive environment imply for returns on these new projects?
Well, the competitive environment hasn't changed that much. Our major competitors are all very strong, and they compete with us on every project, and the customers make sure that they get competitive bids. But as you know, we had a return expectation on these projects, which we have disclosed very publicly, at least 10% internal rate of return. And because of the competitive pressure, the returns are below that. They just don't take the projects. So that's our guiding principle, whether there is competition or not. We, obviously, have had a lot of good projects that's significantly higher than that. But that is our threshold. And if another one of our competitors wants to take the project for lower return, then they get it.
John Roberts, UBS.
Could I just confirm that you're still in discussions to possibly acquire some of the assets for sale related to the Praxair-Linde merger?
John, I cannot comment on that, please.
Okay. And then the $0.18 non-GAAP benefit in the quarter, could you just talk about what were the activities that generated that?
It's part of a restructuring of a acquisition that we did some time ago, when we moved some legal entities and were able to get that sort of a benefit. And so, as I mentioned, some foreign subsidiaries win made some adjustments that contributed