Chart Industries Inc., which provides cryogenic engineering for industrial gas users, agreed Thursday to pay $592 million for Harsco Corp.’s Industrial Air-X-Changers (AXC), a move designed to allow management to expand its global liquefied natural gas (LNG) business.
The AXC purchase expands access to the compression market; the Harsco unit already has a “well established presence” across the Lower 48.
Adding the new segment would allow management “to focus on LNG execution, and further increases investor information on big LNG activities,” Chart noted.
“This is a perfect match of two businesses with complementary strengths that together will generate more value for our customers and even stronger financial results,” Chart CEO Jill Evanko said.
With the purchase, Chart has increased its full-year sales guidance to $1.41-1.46 billion. The 2020 revenue outlook was bumped to $1.73-1.78 billion to include ACX portions for the proposed Venture Global LNG Inc.’s Calcasieu Pass project in Louisiana and Golar LNG Ltd.’s Gimi floating LNG project in Tortue.
The guidance “does not include 2020 revenue...from additional expected 2019 big LNG orders,” Chart said. “Our guidance assumes LNG project revenue in 2019 from the Venture Global Calcasieu Pass and Golar Gimi projects of $28-30 million, which is subject to project timing.”
The 2020 guidance assumes “receiving orders and notices to proceed...with at least three additional big LNG projects, which would add $300-370 million of 2020 revenue, bringing the 2020 revenue outlook to $2.03-2.145 billion.”
Adding ACX would help achieve Chart’s “stated goals of delivering 5-7% profitable organic growth through the cycle before big LNG and offering innovative solutions to our customers with a full suite of products,” management said.
Two years ago Chart acquired Hudson Products, which added air cooled heat exchangers for the downstream (LNG) market. “Hudson has less cyclicality than our traditional Energy & Chemicals products, as well as access to big LNG projects for which we previously would not have had content.
“Similarly, Harsco AXC brings us access to a market we were unable to penetrate organically, the compression market, which utilizes air cooled heat exchangers in the production and transport of oil and natural gas.” There also is “almost no customer overlap.”
More than 90% of the remaining AXC 2019 forecast is already in backlog, Chart said.
“With over $20 million of cost synergies expected in the first 12 months of ownership, we expect further margin expansion in the business.”
Cost synergies are expected from facility consolidations and manufacturing efficiencies at Chart’s Beasley, TX, and Monterrey, Mexico production facilities.
“As a derivative play on the fossil fuel with the most room for growth in global demand, Chart stands to benefit as North America, China and other geographies shift to more gas-centric economies,” Raymond James & Associates Inc.’s Pavel Molchanov said Friday. “These secular tailwinds, in the broader context of decarbonization, need to be balanced against quarterly choppiness and limited visibility, especially vis-à-vis large LNG newbuilds.
“The newly announced acquisition further boosts Chart's leverage to the energy cycle. This very needle-moving deal -- the largest in Chart's history -- adds incremental profitability, but by increasing the company's commodity sensitivity it may also lead to some multiple compression for the stock.”