Air Products and Air Reduction: where are they now?

I saw a post not all that long ago about Buffett’s purchase of a Cooperage in 1951. It inspired me to drag my copy of Intelligent Investor from the attic, and have a little dig into it. I will refer to the 4th revised edition, published 1973.

Chapter 18 was “A Comparison of Eight Pairs of Companies”. Page 250 looked at pair number 2: Air Products and chemicals (“Products”) against Air Reduction Co. (“Reduction”). Both companies were in similar industries, with Products being in the “industrial and medical gases, etc.” sector, and Reduction being in the “industrial gases and equipment; chemicals” sector.

I am going to show an extract from his table of statistics of 1969.

                     Products Reduction  
Mkt value of common     $231m     $185m
Sales                 $221.5m   $487.6m
Net Income             $13.6m    $20.3m

P/E                      16.5       9.1
PBV                      165%       75%
Dividend yield           0.5%      4.9%
Net/Sales                6.2%      4.3%
ROE                     11.0%      8.2%

Growth in per-share earnings
  1969 vs 1964           +59%      +19%
  1969 vs 1959          +362%  decrease

Here’s what Graham wrote:

Products is a new company that Reduction, and in 1969 had less that half of the other’s volume. Nonetheless its equity issues sold for 25% more in aggregate than Air Reduction’s stock … the reason can be found both in Air Reductions greater profitability and in its stronger growth record. We find here the typical consequences of a better showing of “quality”. Air products sold at 16.5 times its latest earnings against only 9.1 times for Air Reduction. Also Air Products sold well above its asset backing, while Air Reduction could be bought at only 75% of its book value. Air Reduction paid a more liberal dividend; but this may be deemed to reflect the greater desirability for Air Products to retain its earnings. Also, Air Reduction had a more comfortable working-capital position. … If the analyst were called on to choose between the two companies he would have no difficulty in concluding that the prospects of Air Products looked more promising than those of Air Reduction.

Graham sits on the fence as to which one he would choose, but I think he demonstrates some dismissiveness that paying up for quality is the right choice:

Whether this preference is to prove right or wrong is more likely to depend on the unpredictable future than on any demonstrable investment principle. In this instance, Air Reduction appears…

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