netrashetty
Netra Shetty
Applebee’s International, Inc. is a United States company which develops, franchises, and operates the Applebee's Neighborhood Grill and Bar restaurant chain. As of November 2010, there were 2,000 restaurants operating system-wide in the United States, one U.S. territory and 16 other countries.[2] The company's headquarters are in Lenexa, KS.
The Applebee's concept focuses on casual dining with mainstream American dishes such as salads, shrimp, chicken, pasta, and "riblets" (which is considered Applebee's signature item). All Applebee's restaurants feature a bar area and serve alcoholic beverages (except where prohibited by law).
In November 2007, IHOP announced that it had completed a $1.9 billion purchase of the Applebee's chain
PE Ratio - LTM 28.3
Market Capitalisation 1,915.9 mil
Latest Shares Outstanding 75.2 mil
Earnings pS (EPS) 1.08 $
Dividend pS (DPS) 0.20 ¢
Dividend Yield 0.9 %
Dividend Payout Ratio 19 %
Revenue per Employee 41,041 $
Effective Tax Rate 33.8 %
Float 71.5 mil
Float as % of Shares Outstanding 95.0 %
Foreign Sales 0 mil
Domestic Sales 0 mil
Selling, General & Adm/tive (SG&A) as % of Revenue 10.40 %
Research & Devlopment (R&D) as % of Revenue 0.00 %
Gross Profit Margin 25.8 %
EBITDA Margin 15.4 %
Pre-Tax Profit Margin 8.9 %
Assets Turnover 1.5 %
Return on Assets (ROA) 7.3 %
Return on Equity (ROE) 12.3 %
Return on Capital Invested (ROCI) 10.0 %
Current Ratio 0.7
Leverage Ratio (Assets/Equity) 1.7
Interest Cover 13.5
Total Debt/Equity (Gearing Ratio) 0.22
LT Debt/Total Capital 18.0 %
Working Capital pS -0.64 $
Cash pS 0.25 $
Book-Value pS 7.36 $
Tangible Book-Value pS 5.43 $
Cash Flow pS 1.82 $
Free Cash Flow pS 0.85 $
KEY FIGURES (LTM): Price info
Price/Book Ratio 3.46
Price/Tangible Book Ratio 4.69
Price/Cash Flow 14.0
Price/Free Cash Flow 30.0
P/E as % of Industry Group 71.0 %
P/E as % of Sector Segment 100.0 %
Balance Sheet (at a glance) in Millions
DIVIDEND INFO
Type of Payment Cash Payment
Dividend Rate 0.22
Current Dividend Yield 0.9
5-Y Average Dividend Yield 0.3
Payout Ratio 19.0
5-Y Average Payout Ratio 7.0
Share price performance previous 3 years
Share price performance intraday
PRICE/VOLUME High Low Close % Price Chg % Price Chg vs. Mkt. Avg. Daily Vol Total Vol
1 Week - - - 1.1 99 30,185 164,939
4 Weeks 25.50 23.53 25.30 0.7 103 23,987 431,761
13 Weeks 25.50 23.53 24.81 2.7 103 13,594 842,858
26 Weeks 27.37 23.53 25.98 -1.9 103 15,728 1,981,732
52 Weeks 29.10 22.36 22.34 14.1 108 14,061 3,501,107
YTD 29.10 23.37 - 3.3 100 14,220 3,270,632
Moving Average 5-Days 10-Days 10-Weeks 30-Weeks 200-Days Beta (60-Mnth) Beta (36-Mnth)
25.20 24.97 25.06 25.28 25.32 0.95 1.67
GROWTH RATES 5-Year
Growh R² of 5-Year Growth 3-Year
Growth
Revenue 10.43 94.3 6.63
Income 0.36 0.2 -10.59
Dividend 45.24 82.3 70.33
Capital Spending 21.59 NA 12.15
R&D 0.00 NA 0.00
Normalized Inc. 5.36 NA -2.33
CHANGES YTD vs.
Last YTD Curr Qtr vs.
Qtr 1-Yr ago Annual vs.
Last Annual
Revenue % -0.4 0.9 10.0
Earnings % -20.8 6.2 -20.7
EPS % -20.5 5.0 -15.6
EPS $ -0.17 0.01 -0.20
SOLVENCY RATIOS
SHORT-TERM SOLVENCY RATIOS (LIQUIDITY)
Net Working Capital Ratio -8.73
Current Ratio 0.6
Quick Ratio (Acid Test) 0.4
Liquidity Ratio (Cash) 0.12
Receivables Turnover 30.5
Average Collection Period 12
Working Capital/Equity -16.8
Working Capital pS -1.10
Cash-Flow pS 1.98
Free Cash-Flow pS 0.39
FINANCIAL STRUCTURE RATIOS
Altman's Z-Score Ratio 4.47
Financial Leverage Ratio (Assets/Equity) 1.9
Debt Ratio 48.0
Total Debt/Equity (Gearing Ratio) 0.36
LT Debt/Equity 0.36
LT Debt/Capital Invested 39.6
LT Debt/Total Liabilities 39.0
Interest Cover 11.7
Interest/Capital Invested 1.53
VALUATION RATIOS
MULTIPLES
PQ Ratio 49.62
Tobin's Q Ratio 2.05
Current P/E Ratio - LTM 28.30
Enterprise Value (EV)/EBITDA 11.26
Enterprise Value (EV)/Free Cash Flow 112.44
Dividend Yield 0.9
Price/Tangible Book Ratio - LTM 4.69
Price/Book Ratio - LTM 3.46
Price/Cash Flow Ratio 14.0
Price/Free Cash Flow Ratio - LTM 30.0
Price/Sales Ratio 1.43
P/E Ratio (1 month ago) - LTM 28.0
P/E Ratio (26 weeks ago) - LTM 30.9
P/E Ratio (52 weeks ago) - LTM 25.7
5-Y High P/E Ratio 24.5
5-Y Low P/E Ratio 13.0
5-Y Average P/E Ratio 20.1
Current P/E Ratio as % of 5-Y Average P/E 141
P/E as % of Industry Group 71.0
P/E as % of Sector Segment 100.0
Current 12 Month Normalized P/E Ratio - LTM 21.2
PER SHARE FIGURES
LT Debt pS 2.36
Current Liabilities pS 2.52
Tangible Book Value pS - LTM 5.43
Book Value pS - LTM 7.36
Capital Invested pS 8.80
Cash pS - LTM 0.25
Cash Flow pS - LTM 1.82
Free Cash Flow pS - LTM 0.85
Earnings pS (EPS) 1.08
OPERATING RATIOS
PROFITABILITY RATIOS
Free Cash Flow Margin 2.15
Free Cash Flow Margin 5YEAR AVG 4.33
Net Profit Margin 6.0
Net Profit Margin - 5YEAR AVRG. 8.6
Equity Productivity 2.75
Return on Equity (ROE) 16.6
Return on Equity (ROE) - 5YEAR AVRG. 20.9
Capital Invested Productivity 2.02
Return on Capital Invested (ROCI) 12.2
Return on Capital Invested (ROCI) - 5YEAR AVRG. 17.3
Assets Productivity 1.50
Return on Assets (ROA) 8.6
Return on Assets (ROA) - 5YEAR AVRG. 12.4
Gross Profit Margin 25.8
Gross Profit Margin - 5YEAR AVRG. 28.5
EBITDA Margin - LTM 15.4
EBIT Margin - LTM 9.7
Pre-Tax Profit Margin 9.1
Pre-Tax Profit Margin - 5YEAR AVRG. 13.2
Effective Tax Rate 33.8
Effective Tax Rate - 5YEAR AVRG. 35.0
EFFICIENCY RATIOS
Cash Conversion Cycle 19
Revenue per Employee 41,041
Net Income per Employee 2,482
Average Collection Period 13
Receivables Turnover 30.5
Day's Inventory Turnover Ratio 6
Inventory Turnover 61.9
Inventory/Sales 0.9
Accounts Payble/Sales 3.23
Assets/Revenue 0.67
Net Working Capital Turnover -16.39
Fixed Assets Turnover 1.61
Total Assets Turnover 1.5
Revenue per $ Cash 59.97
Revenue per $ Plant 2.10
Revenue per $ Common Equity 2.75
Revenue per $ Capital Invested 2.02
Selling, General & Adm/tive (SG&A) as % of Revenue 10.7
SG&A Expense as % of Revenue - 5YEAR AVRG. 10.1
Research & Devlopment (R&D) as % of Revenue 0.0
R&D Expense as % of Revenue - 5YEAR AVRG. 0.0
Air Products and Chemicals sells gases such as hydrogen, helium, nitrogen, and oxygen to industrial manufacturers and commercial end-users of industrial and lab-purity gas.
Gases are vital inputs to many manufacturing processes, and APD is one of the largest global bulk gas sellers. For large customers, APD will put one of its own plants next to the customers' factory and supply gas directly via pipeline.
Business Overview
Business & Financial Metrics[1]
In 2009, APD generated $631.3 million in net income on $8.26 billion in total revenues. This represents a 30.6% decrease in net income on a 20.7% decrease in total revenues from 2008, when the company earned $909.7 million on revenues of $10.41 billion.
Business Segments
Merchant Gases ($3.61 billion, or 44% of total revenues)[2]
This segment industrial and lab purity species of gases such as oxygen, nitro, and hydrogen. This segment chiefly supplies the metals, glass, chemical processing, manufacturing, and energy industries. The distinction between this segment and the Tonnage Gases segment is chiefly one of how the product is delivered. Volume in Merchant gases is lower, and often delivered by tanker or tube trailer, or smaller containers.[3]
APD's old "Healthcare" segment, which sells home-based medical treatment, including chemical therapy, beds, and wheelchairs, is now a part of the "Merchant Gases" segment.
Tonnage Gases ($2.57 billion, or 31% of total revenues)[4]
Contents
1 Business Overview
1.1 Business & Financial Metrics[1]
1.2 Business Segments
1.2.1 Merchant Gases ($3.61 billion, or 44% of total revenues)[2]
1.2.2 Tonnage Gases ($2.57 billion, or 31% of total revenues)[4]
1.2.3 Electronics and Performance Materials ($1.58 billion, or 19% of total revenues)[6]
1.2.4 Equipment and Energy ($489.8 million, or 6% of total revenues)[8]
2 Key Trends & Forces
2.1 Significant Manufacturing Exposure to Electronics and Energy
2.2 APD's business is subject to legislation and regulation
2.3 Increasing energy costs pose a risk to APD's business, as energy is a significant input to its operations
3 Competitors
3.1 Global competitors
3.2 Regional (domestic)
4 References
In this segment, gases are supplied in very large quantities, and Air Products often places its plants adjacent to its customers, delivering gas via pipeline, and thus saving on transportation costs. This arrangement leads to reliable supply of gas as well as significant discounting of costs for the client, and often plants are designed with contractual arrangements in mind ensuring a steady relationship between APD and its client.[5]
Electronics and Performance Materials ($1.58 billion, or 19% of total revenues)[6]
This segment specializes in delivery of products relevant to the electronics industry, for the manufacture of silicon, semiconductors, displays, and photovoltaic devices. APD also has a chemical materials business that also sells related products to clients in this segment. [7]
Equipment and Energy ($489.8 million, or 6% of total revenues)[8]
This segment designs and sells equipment for energy production, and also partially owns and operates several small energy plants around the world.
Key Trends & Forces
Significant Manufacturing Exposure to Electronics and Energy
APD's gases are inputs to many chemical and energy processes necessary for the production of energy and the manufacture of electronic devices. In addition, APD is the largest mover of hydrogen gas worldwide[9], which offers tremendous upside in any potential future hydrogen-based energy economy - such as one in which cars are powered by hydrogen fuel cells instead of gasoline.[10]
On the other hand, this exposure can be a double-edged sword. Significant economic contraction would impact consumer consumption, which will reduce consumer demand for goods and energy. Consumer demand is the lifeblood of manufacturing, and even more so for high-risk industries like electronics, where goods are typically consumer wants, rather than consumer needs.
APD's business is subject to legislation and regulation
Although the majority of APD's gases are environmentally innocuous, many of its customers use industrial gases in ways that are facing scrutiny. In addition, regulation adds to administrative costs to APD. For example, the European Union now requires volume producers of chemicals to register their chemicals and all their uses with the European Chemicals Agency.[11] This has both positive and negative effects for APD, as industrial gases can be used to improve energy efficiency as well as environmental performance, but demand for gases will decrease if regulation makes client businesses less profitable.[12]
Increasing energy costs pose a risk to APD's business, as energy is a significant input to its operations
Cost of electricity is the most significant component in cost of goods sold in the gases segments, and significant amounts of energy are required in any of APD's plants.[13] If prices were to substantially rise, APD will either be forced to pass-through costs to clients, or if it is not able to do so, take a hit to its margins.
Historically, this complicated relationship with energy was evidenced during the 1970s energy crisis. Increasing petrochemical fuel costs lowered revenues in that segment, but increased popularity of oxygen as a fuel. In addition, the higher input costs were offset by higher demand for other gases to create cheaper energy sources, such as liquified natural gas.[14]
Competitors
Global competitors
Praxair (PX)
L'Air Liquide
Linde
These 3 global suppliers operate on similar platforms to Air Products and Chemicals. Firms compete on a variety of factors, including price, performance or specifications, continuity of supply, and customer service.
Regional (domestic)
Airgas (ARG)
Since another large component of cost of goods sold is transportation, regional players can compete effectively against APD when they have on-site or cheaper delivery options.
The Applebee's concept focuses on casual dining with mainstream American dishes such as salads, shrimp, chicken, pasta, and "riblets" (which is considered Applebee's signature item). All Applebee's restaurants feature a bar area and serve alcoholic beverages (except where prohibited by law).
In November 2007, IHOP announced that it had completed a $1.9 billion purchase of the Applebee's chain
PE Ratio - LTM 28.3
Market Capitalisation 1,915.9 mil
Latest Shares Outstanding 75.2 mil
Earnings pS (EPS) 1.08 $
Dividend pS (DPS) 0.20 ¢
Dividend Yield 0.9 %
Dividend Payout Ratio 19 %
Revenue per Employee 41,041 $
Effective Tax Rate 33.8 %
Float 71.5 mil
Float as % of Shares Outstanding 95.0 %
Foreign Sales 0 mil
Domestic Sales 0 mil
Selling, General & Adm/tive (SG&A) as % of Revenue 10.40 %
Research & Devlopment (R&D) as % of Revenue 0.00 %
Gross Profit Margin 25.8 %
EBITDA Margin 15.4 %
Pre-Tax Profit Margin 8.9 %
Assets Turnover 1.5 %
Return on Assets (ROA) 7.3 %
Return on Equity (ROE) 12.3 %
Return on Capital Invested (ROCI) 10.0 %
Current Ratio 0.7
Leverage Ratio (Assets/Equity) 1.7
Interest Cover 13.5
Total Debt/Equity (Gearing Ratio) 0.22
LT Debt/Total Capital 18.0 %
Working Capital pS -0.64 $
Cash pS 0.25 $
Book-Value pS 7.36 $
Tangible Book-Value pS 5.43 $
Cash Flow pS 1.82 $
Free Cash Flow pS 0.85 $
KEY FIGURES (LTM): Price info
Price/Book Ratio 3.46
Price/Tangible Book Ratio 4.69
Price/Cash Flow 14.0
Price/Free Cash Flow 30.0
P/E as % of Industry Group 71.0 %
P/E as % of Sector Segment 100.0 %
Balance Sheet (at a glance) in Millions
DIVIDEND INFO
Type of Payment Cash Payment
Dividend Rate 0.22
Current Dividend Yield 0.9
5-Y Average Dividend Yield 0.3
Payout Ratio 19.0
5-Y Average Payout Ratio 7.0
Share price performance previous 3 years
Share price performance intraday
PRICE/VOLUME High Low Close % Price Chg % Price Chg vs. Mkt. Avg. Daily Vol Total Vol
1 Week - - - 1.1 99 30,185 164,939
4 Weeks 25.50 23.53 25.30 0.7 103 23,987 431,761
13 Weeks 25.50 23.53 24.81 2.7 103 13,594 842,858
26 Weeks 27.37 23.53 25.98 -1.9 103 15,728 1,981,732
52 Weeks 29.10 22.36 22.34 14.1 108 14,061 3,501,107
YTD 29.10 23.37 - 3.3 100 14,220 3,270,632
Moving Average 5-Days 10-Days 10-Weeks 30-Weeks 200-Days Beta (60-Mnth) Beta (36-Mnth)
25.20 24.97 25.06 25.28 25.32 0.95 1.67
GROWTH RATES 5-Year
Growh R² of 5-Year Growth 3-Year
Growth
Revenue 10.43 94.3 6.63
Income 0.36 0.2 -10.59
Dividend 45.24 82.3 70.33
Capital Spending 21.59 NA 12.15
R&D 0.00 NA 0.00
Normalized Inc. 5.36 NA -2.33
CHANGES YTD vs.
Last YTD Curr Qtr vs.
Qtr 1-Yr ago Annual vs.
Last Annual
Revenue % -0.4 0.9 10.0
Earnings % -20.8 6.2 -20.7
EPS % -20.5 5.0 -15.6
EPS $ -0.17 0.01 -0.20
SOLVENCY RATIOS
SHORT-TERM SOLVENCY RATIOS (LIQUIDITY)
Net Working Capital Ratio -8.73
Current Ratio 0.6
Quick Ratio (Acid Test) 0.4
Liquidity Ratio (Cash) 0.12
Receivables Turnover 30.5
Average Collection Period 12
Working Capital/Equity -16.8
Working Capital pS -1.10
Cash-Flow pS 1.98
Free Cash-Flow pS 0.39
FINANCIAL STRUCTURE RATIOS
Altman's Z-Score Ratio 4.47
Financial Leverage Ratio (Assets/Equity) 1.9
Debt Ratio 48.0
Total Debt/Equity (Gearing Ratio) 0.36
LT Debt/Equity 0.36
LT Debt/Capital Invested 39.6
LT Debt/Total Liabilities 39.0
Interest Cover 11.7
Interest/Capital Invested 1.53
VALUATION RATIOS
MULTIPLES
PQ Ratio 49.62
Tobin's Q Ratio 2.05
Current P/E Ratio - LTM 28.30
Enterprise Value (EV)/EBITDA 11.26
Enterprise Value (EV)/Free Cash Flow 112.44
Dividend Yield 0.9
Price/Tangible Book Ratio - LTM 4.69
Price/Book Ratio - LTM 3.46
Price/Cash Flow Ratio 14.0
Price/Free Cash Flow Ratio - LTM 30.0
Price/Sales Ratio 1.43
P/E Ratio (1 month ago) - LTM 28.0
P/E Ratio (26 weeks ago) - LTM 30.9
P/E Ratio (52 weeks ago) - LTM 25.7
5-Y High P/E Ratio 24.5
5-Y Low P/E Ratio 13.0
5-Y Average P/E Ratio 20.1
Current P/E Ratio as % of 5-Y Average P/E 141
P/E as % of Industry Group 71.0
P/E as % of Sector Segment 100.0
Current 12 Month Normalized P/E Ratio - LTM 21.2
PER SHARE FIGURES
LT Debt pS 2.36
Current Liabilities pS 2.52
Tangible Book Value pS - LTM 5.43
Book Value pS - LTM 7.36
Capital Invested pS 8.80
Cash pS - LTM 0.25
Cash Flow pS - LTM 1.82
Free Cash Flow pS - LTM 0.85
Earnings pS (EPS) 1.08
OPERATING RATIOS
PROFITABILITY RATIOS
Free Cash Flow Margin 2.15
Free Cash Flow Margin 5YEAR AVG 4.33
Net Profit Margin 6.0
Net Profit Margin - 5YEAR AVRG. 8.6
Equity Productivity 2.75
Return on Equity (ROE) 16.6
Return on Equity (ROE) - 5YEAR AVRG. 20.9
Capital Invested Productivity 2.02
Return on Capital Invested (ROCI) 12.2
Return on Capital Invested (ROCI) - 5YEAR AVRG. 17.3
Assets Productivity 1.50
Return on Assets (ROA) 8.6
Return on Assets (ROA) - 5YEAR AVRG. 12.4
Gross Profit Margin 25.8
Gross Profit Margin - 5YEAR AVRG. 28.5
EBITDA Margin - LTM 15.4
EBIT Margin - LTM 9.7
Pre-Tax Profit Margin 9.1
Pre-Tax Profit Margin - 5YEAR AVRG. 13.2
Effective Tax Rate 33.8
Effective Tax Rate - 5YEAR AVRG. 35.0
EFFICIENCY RATIOS
Cash Conversion Cycle 19
Revenue per Employee 41,041
Net Income per Employee 2,482
Average Collection Period 13
Receivables Turnover 30.5
Day's Inventory Turnover Ratio 6
Inventory Turnover 61.9
Inventory/Sales 0.9
Accounts Payble/Sales 3.23
Assets/Revenue 0.67
Net Working Capital Turnover -16.39
Fixed Assets Turnover 1.61
Total Assets Turnover 1.5
Revenue per $ Cash 59.97
Revenue per $ Plant 2.10
Revenue per $ Common Equity 2.75
Revenue per $ Capital Invested 2.02
Selling, General & Adm/tive (SG&A) as % of Revenue 10.7
SG&A Expense as % of Revenue - 5YEAR AVRG. 10.1
Research & Devlopment (R&D) as % of Revenue 0.0
R&D Expense as % of Revenue - 5YEAR AVRG. 0.0
Air Products and Chemicals sells gases such as hydrogen, helium, nitrogen, and oxygen to industrial manufacturers and commercial end-users of industrial and lab-purity gas.
Gases are vital inputs to many manufacturing processes, and APD is one of the largest global bulk gas sellers. For large customers, APD will put one of its own plants next to the customers' factory and supply gas directly via pipeline.
Business Overview
Business & Financial Metrics[1]
In 2009, APD generated $631.3 million in net income on $8.26 billion in total revenues. This represents a 30.6% decrease in net income on a 20.7% decrease in total revenues from 2008, when the company earned $909.7 million on revenues of $10.41 billion.
Business Segments
Merchant Gases ($3.61 billion, or 44% of total revenues)[2]
This segment industrial and lab purity species of gases such as oxygen, nitro, and hydrogen. This segment chiefly supplies the metals, glass, chemical processing, manufacturing, and energy industries. The distinction between this segment and the Tonnage Gases segment is chiefly one of how the product is delivered. Volume in Merchant gases is lower, and often delivered by tanker or tube trailer, or smaller containers.[3]
APD's old "Healthcare" segment, which sells home-based medical treatment, including chemical therapy, beds, and wheelchairs, is now a part of the "Merchant Gases" segment.
Tonnage Gases ($2.57 billion, or 31% of total revenues)[4]
Contents
1 Business Overview
1.1 Business & Financial Metrics[1]
1.2 Business Segments
1.2.1 Merchant Gases ($3.61 billion, or 44% of total revenues)[2]
1.2.2 Tonnage Gases ($2.57 billion, or 31% of total revenues)[4]
1.2.3 Electronics and Performance Materials ($1.58 billion, or 19% of total revenues)[6]
1.2.4 Equipment and Energy ($489.8 million, or 6% of total revenues)[8]
2 Key Trends & Forces
2.1 Significant Manufacturing Exposure to Electronics and Energy
2.2 APD's business is subject to legislation and regulation
2.3 Increasing energy costs pose a risk to APD's business, as energy is a significant input to its operations
3 Competitors
3.1 Global competitors
3.2 Regional (domestic)
4 References
In this segment, gases are supplied in very large quantities, and Air Products often places its plants adjacent to its customers, delivering gas via pipeline, and thus saving on transportation costs. This arrangement leads to reliable supply of gas as well as significant discounting of costs for the client, and often plants are designed with contractual arrangements in mind ensuring a steady relationship between APD and its client.[5]
Electronics and Performance Materials ($1.58 billion, or 19% of total revenues)[6]
This segment specializes in delivery of products relevant to the electronics industry, for the manufacture of silicon, semiconductors, displays, and photovoltaic devices. APD also has a chemical materials business that also sells related products to clients in this segment. [7]
Equipment and Energy ($489.8 million, or 6% of total revenues)[8]
This segment designs and sells equipment for energy production, and also partially owns and operates several small energy plants around the world.
Key Trends & Forces
Significant Manufacturing Exposure to Electronics and Energy
APD's gases are inputs to many chemical and energy processes necessary for the production of energy and the manufacture of electronic devices. In addition, APD is the largest mover of hydrogen gas worldwide[9], which offers tremendous upside in any potential future hydrogen-based energy economy - such as one in which cars are powered by hydrogen fuel cells instead of gasoline.[10]
On the other hand, this exposure can be a double-edged sword. Significant economic contraction would impact consumer consumption, which will reduce consumer demand for goods and energy. Consumer demand is the lifeblood of manufacturing, and even more so for high-risk industries like electronics, where goods are typically consumer wants, rather than consumer needs.
APD's business is subject to legislation and regulation
Although the majority of APD's gases are environmentally innocuous, many of its customers use industrial gases in ways that are facing scrutiny. In addition, regulation adds to administrative costs to APD. For example, the European Union now requires volume producers of chemicals to register their chemicals and all their uses with the European Chemicals Agency.[11] This has both positive and negative effects for APD, as industrial gases can be used to improve energy efficiency as well as environmental performance, but demand for gases will decrease if regulation makes client businesses less profitable.[12]
Increasing energy costs pose a risk to APD's business, as energy is a significant input to its operations
Cost of electricity is the most significant component in cost of goods sold in the gases segments, and significant amounts of energy are required in any of APD's plants.[13] If prices were to substantially rise, APD will either be forced to pass-through costs to clients, or if it is not able to do so, take a hit to its margins.
Historically, this complicated relationship with energy was evidenced during the 1970s energy crisis. Increasing petrochemical fuel costs lowered revenues in that segment, but increased popularity of oxygen as a fuel. In addition, the higher input costs were offset by higher demand for other gases to create cheaper energy sources, such as liquified natural gas.[14]
Competitors
Global competitors
Praxair (PX)
L'Air Liquide
Linde
These 3 global suppliers operate on similar platforms to Air Products and Chemicals. Firms compete on a variety of factors, including price, performance or specifications, continuity of supply, and customer service.
Regional (domestic)
Airgas (ARG)
Since another large component of cost of goods sold is transportation, regional players can compete effectively against APD when they have on-site or cheaper delivery options.
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