Underlying sales were 9% below the prior year, excluding the negative effects of foreign currency and cost pass-through. Higher product pricing was offset by significantly lower volumes in all geographies due to production cutbacks and lower demand by customers as a result of the global macroeconomic slowdown.
Operating profit in the first quarter was $442 million, 11% below the prior year. Operating margin as a percentage of sales improved to 20.8% as a result of significant reductions in both fixed and variable costs.
The company generated cash flow from operations of $349 million in the quarter which funded $293 million of capital expenditures, largely for new production plants under contract for customers in North and South America, China and India. In March the company issued $300 million of five-year bonds at 4.375%, the proceeds of which were used to reduce short-term debt. The after-tax return-on-capital ratio and return on equity for the quarter were 13.8%, and 28.7%, respectively.
For the second quarter of 2009, Praxair expects diluted earnings per share in the range of 95 cents to $1.00. This guidance assumes a negative currency impact of about 11% versus the second quarter of 2008 based on current exchange rates.
Based on the current macroeconomic environment, Praxair expects sales for the full year of 2009 to be in the area of $9 billion. This guidance assumes a negative currency impact of about 9% and a negative impact of about 3% from lower cost pass-through. The company expects diluted earnings per share to be in the range of $3.85 to $4.15. Full-year capital expenditures are expected to be in the area of $1.4 billion, supporting the construction of 42 on-site production plants under contract which will come on-stream in 2009 through 2011.
The following provides additional detail on first-quarter 2009 results by geographic region and for Praxair Surface Technologies.
In North America, first-quarter sales were $1,164 million, 20% below $1,454 million in the first quarter of 2008. Excluding the negative effect of currency and cost pass-through, underlying sales declined 11% due to lower volumes, partially offset by higher overall pricing. Higher sales to energy markets were offset by sharply lower volumes to chemicals, metals, electronics and manufacturing markets. Despite this sales decline, operating profit of $256 million was only 2% below the prior-year quarter due to the effect of cost-reduction actions initiated in the fourth quarter and ongoing productivity programs.
In Europe, sales in the first quarter were $303 million, 22% below the prior year. The translation effects of a weaker euro reduced sales by 9%. Underlying sales were below the prior year due primarily to lower volumes in the chemicals, metals and electronics end-markets. Operating profit was $63 million in the quarter, compared to $87 million in the prior year due to lower volumes and currency depreciation.
In South America, first-quarter sales were $353 million, 24% below the prior year. The negative impact of currency translation reduced sales by 23%. Underlying sales were slightly below the prior year as lower volumes to metals and manufacturing customers were offset by growth in food and beverage and healthcare. Operating profit in the first quarter was $75 million, 16% below $89 million in the prior-year quarter. The significant operating leverage was achieved by productivity programs, cost reduction and higher pricing levels. This resulted in an improvement in operating margin to 21.2% from 19.1% in the 2008 quarter.
Sales in Asia were $180 million in the quarter, 15% below the prior year. Excluding currency translation and cost pass-though, sales declined 8%. Operating profit in the quarter fell to $26 million compared to $37 million in the prior year. Sales and earnings growth from project start-ups in China, India, and Korea was more than offset by the sharp decline in sales to electronics customers.
Praxair Surface Technologies had first-quarter sales of $123 million versus $142 million in the prior-year quarter. Excluding the negative impact of currency translation, sales were 7% below the prior year. Sales growth in energy markets was offset by lower sales to aviation and general manufacturing. Operating profit was $22 million in the quarter versus $24 million the prior year. The operating margin improved to 17.9% from 16.9% as the impact of lower volume was more than offset by lower costs.
Commenting on the results and business outlook, Chairman and Chief Executive Officer Steve Angel said, “As we anticipated, the low level of customer demand which we experienced in November and December continued right through the first quarter. Demand appears to have stabilized, but at a lower level, with overall volumes down 12% versus the prior year. However, we have not yet seen meaningful signs of recovery and we are therefore cautious regarding our outlook for the remainder of the year.
“Our productivity programs have reduced costs significantly to offset the impact of lower volumes. When the economy does recover, this will give us substantial operating leverage on volume growth. In addition, our projects currently under construction will contribute sales and earnings growth as we bring these new facilities on line over the next several years. We signed several new contracts this quarter for energy projects in the U.S. and Europe.”
