Peter McCausland
To Our Shareholders, Customers, Associates and Friends:
As I write this letter to you, we are keeping a weather eye on the U.S. economy. Our business is still strong, despite a general slowing of U.S. manufacturing over the last year. Clearly things aren’t as bad on Main Street, where we live, as they have been on Wall Street. As soon as the presidential campaigns began, which seems like decades ago, everyone started talking about a recession. Thankfully, the Main Street economy hasn’t cooperated. Despite all the doom and gloom sounded by presidential hopefuls, there are some bright spots worth noting.
First, here in the U.S., we continue to enjoy a long-term, secular boom in energy and infrastructure construction. Second, U.S. manufacturers, especially those that manufacture sophisticated equipment for export or for U.S. non-residential construction projects, are doing well because of a lower dollar, strong economies overseas, and a world-wide infrastructure boom.
These two trends — plus continued strength in the healthcare, life sciences, research, environmental, food and beverage markets — continue to support our samestore sales growth.
Our major challenge right now is not the strength of the economy, but severe inflation in many of our key cost components – electricity, diesel fuel and steel. Ours is an energy-intensive business, with electricity representing 60 to 70 percent of the cost of producing oxygen, nitrogen and argon — our principal gases. Add to that the cost of diesel fuel to deliver products in our 5,000 trucks to more than 1 million customers. Now factor in the steel used to manufacture cylinders and bulk tanks, which we need to store and transport gases, as well as the steel that is the primary raw material in welding filler metals.
Airgas remains committed to staying ahead of the cost curve with appropriate pricing actions. Rather than worrying about a recession that may eventually appear, we remain focused on managing the things we can control. It’s a commitment that will require a lot of work and dedication in this environment.
We also will be launching a program to reduce our carbon footprint and will be saying more about that soon.