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Airgas Reports Fiscal 2014 Third Quarter Earnings


Airgas Reports Fiscal 2014 Third Quarter Earnings

  • Diluted EPS of $1.10, including an $0.08 per diluted share loss on debt extinguishment, up 5% over prior year
  • Adjusted diluted EPS* of $1.18, up 13% over prior year
  • Operating margin of 12.5%, up 30 basis points over prior year operating margin and up 40 basis points over prior year adjusted operating margin*
  • Organic sales up 1% over prior year; Distribution segment organic sales up 2% over prior year
  • Year-to-date free cash flow* of $333 million, up 52% over prior year
  • Revised fiscal year 2014 diluted EPS guidance to a range of $4.69 to $4.74, representing 8% to 9% year-over-year growth, and adjusted diluted EPS* guidance to a range of $4.75 to $4.80, representing 9% to 10% year-over-year growth

RADNOR, PA – January 30, 2014 –
Airgas, Inc. (NYSE: ARG), one of the nation’s leading suppliers of industrial, medical, and specialty gases, and related products, today reported sales and earnings results for its third quarter ended December 31, 2013, which reflected sluggish business conditions and the realization of SAP-related benefits as planned. Results for the quarter also reflected a previously announced loss on the early extinguishment of debt.

“Consistent with our expectation for continued sluggish business conditions during the quarter, our earnings results were at the midpoint of our guidance range,” said Airgas President and Chief Executive Officer Michael L. Molinini. “We are pleased to have achieved our long-standing target of reaching a run-rate of more than $75 million in SAP-enabled operating income benefits by the end of calendar year 2013. Delivering on that commitment made to shareholders more than three years ago is a remarkable achievement for which all Airgas associates are to be commended. We look forward to continuing to leverage SAP’s capabilities and the benefits of having a unified platform across our distribution operations to improve the way we manage our business on both the top and bottom lines for many years to come.”

Third Quarter
 FY2014 FY2013 % Change
Earnings per diluted share (GAAP)$1.10 $1.05 5% 
    Loss on the extinguishment of debt 0.08  -   
    Restructuring and other special charges (benefits), net -  (0.01)   
Adjusted earnings per diluted share (non-GAAP)$1.18 $1.04 13% 


Third quarter earnings per diluted share were $1.10, up 5% over prior year, and adjusted earnings per diluted share* were $1.18, up 13% over prior year. Results included SAP-related benefits, net of implementation costs and depreciation expense, of $0.14 per diluted share in the current year quarter compared to $0.03 of net expense in the prior year quarter. Results also included a previously announced loss of $0.08 per diluted share on the early extinguishment of the Company’s 7.125% senior subordinated notes with an original maturity in October 2018, which were redeemed in full on October 2, 2013.

“Our more than 15,000 associates are the best in the business. With most of the distraction of the SAP implementation in the rearview mirror, we are clearly focused on bringing the Airgas value proposition to new and existing customers across the broad array of industries we serve,” said Molinini. “There are bright spots within certain sectors, but overall choppiness in the industrial economy continues to frustrate us. As uncertainty persists, we will remain focused on the things that we can control, including leveraging the SAP system, managing expenses, expanding our telesales business, and enhancing our e-Business platform, and are ready to capitalize when sustained growth in the industrial economy resumes.”

Third quarter sales were $1.24 billion, an increase of 3% over the prior year. Organic sales in the quarter were up 1% over prior year, with gas and rent up 1% and hardgoods up 1%. Acquisitions contributed sales growth of 2% in the quarter. Distribution segment organic sales in the quarter were up 2% over prior year, with gas and rent up 3% and hardgoods up 1%.

Selling, distribution, and administrative expenses increased 3% over the prior year, with costs associated with acquired businesses representing 2% of the increase. The favorable impact of the reduction in SAP implementation costs compared to the prior year was substantially offset by expenses associated with the Company’s expansion of its telesales business through Airgas Total Access, strategic pricing initiative, and enhancement of its e-Business platform, as well as by rising healthcare costs.

Operating margin was 12.5%, up 30 basis points over prior year operating margin of 12.2% and up 40 basis points compared to prior year adjusted operating margin* of 12.1%, which excluded a net benefit related to lower than previously estimated restructuring charges in the prior year.

The combination of a reduction in SAP implementation costs and the achievement of SAP-related benefits contributed favorably to the net increase in operating margin this quarter compared to the prior year. Low organic sales growth challenged the Company’s operating margin in the third quarter, as did R-22 pricing in its refrigerants business following the EPA’s unexpected ruling in late March 2013 to allow for an increase in the production of R-22 during calendar 2013.

Year-to-date free cash flow* was $333 million, up 52% over the prior year, and adjusted cash from operations* was $576 million, up 28% over the prior year. The increase in cash flows was primarily driven by the lower required investment in working capital in the current year compared to the prior year.

Return on capital* was 12.4% for the twelve months ended December 31, 2013, flat compared to both the prior year and the twelve months ended September 30, 2013.

Since the beginning of its fiscal year, the Company has acquired nine businesses with aggregate annual sales of approximately $70 million, including The Encompass Gas Group, Inc., headquartered in Rockford, IL. With eleven locations and more than 130 employees in Illinois, Wisconsin, and Iowa, Encompass was one of the largest privately-owned suppliers of industrial, medical, and specialty gases and related hardgoods in the U.S., generating approximately $55 million in annual sales in 2012. The transaction closed on October 31, 2013.

Revised Fiscal 2014 Guidance

“While we still expect a sequential seasonal uptick in our fiscal fourth quarter, our sales outlook has softened in light of weaker-than-expected activity levels in January, in part due to the extremely cold weather in large parts of the country,” said Airgas Executive Chairman Peter McCausland. “Despite our tempered outlook for the fourth quarter, our resulting revised fiscal year 2014 guidance represents 9% to 10% growth in adjusted earnings per diluted share* and strong execution on strategic initiatives in a challenging environment.”

“The U.S. industrial economy has not improved in the past year to the extent that we and many others had expected when we introduced our fiscal 2016 financial goals at our investor day in December 2012. As a result, and combined with the slow pace of acquisitions, it will take longer than expected to reach the goal of $6.5 billion in annual sales. If the long-awaited resurgence in the U.S. industrial economy were to gain real strength in the near-term, however, we could make up some of the lost ground,” said McCausland. “At this time, we are optimistic that the 15% low-end of our fiscal 2016 operating margin goal is still within reach.”

For the fourth quarter of fiscal year 2014, the Company expects earnings per diluted share in the range of $1.18 to $1.23, reflecting an increase of 4% to 9% over prior year earnings per diluted share of $1.13 and an increase of 4% to 8% over prior year adjusted earnings per diluted share* of $1.14. Guidance for both earnings per diluted share and adjusted earnings per diluted share* includes an estimated year-over-year increase of approximately $0.12 related to the SAP initiative, reflecting an estimated $0.16 of net benefit in the fiscal 2014 fourth quarter compared to $0.04 of net benefit in the fiscal 2013 fourth quarter. Guidance also reflects a year-over-year negative impact to earnings per diluted share related to a challenging and unpredictable refrigerants market, and year-over-year benefits to earnings per diluted share related to the Company’s fiscal 2013 share repurchase program and the incremental contribution from acquisitions closed to-date.

For the full fiscal year 2014, the Company expects earnings per diluted share, including an $0.08 loss on the early extinguishment of debt and a $0.02 benefit from a change in a state income tax law, in the range of $4.69 to $4.74, reflecting an increase of 8% to 9% over the prior year. The Company expects adjusted earnings per diluted share* of $4.75 to $4.80, an increase of 9% to 10% over the prior year. Both earnings per diluted share and adjusted earnings per diluted share* were $4.35 in the prior year. Fiscal 2014 guidance for both earnings per diluted share and adjusted earnings per diluted share* includes an estimated year-over-year increase of approximately $0.65 related to the SAP initiative, reflecting an estimated $0.47 of net benefit in fiscal 2014 compared to $0.18 of net expense in fiscal 2013. Guidance also reflects a year-over-year negative impact to earnings per diluted share related to a challenging and unpredictable refrigerants market, and year-over-year benefits to earnings per diluted share related to the Company’s fiscal 2013 share repurchase program and the incremental contribution from acquisitions closed to-date.

The Company’s previous fiscal year 2014 guidance range, which the Company provided on October 23, 2013, was for earnings per diluted share of $4.79 to $4.94, an increase of 10% to 14% over the prior year, and for adjusted earnings per diluted share* of $4.85 to $5.00, an increase of 11% to 15% over the prior year. The guidance revision primarily reflects a reduction in the Company’s year-over-year organic sales growth rate assumptions.

The Company will conduct an earnings teleconference at 10:00 a.m. Eastern Time on Thursday, January 30. The teleconference will be available by calling (888) 389-5987 (U.S./Canada) or (719) 325-2108 (International). The presentation materials (this press release, slides to be presented during the Company’s teleconference and information about how to access a live and on demand webcast of the teleconference) are available in the “Investor Relations” section of the Company’s website at www.airgas.com. A webcast of the teleconference will be available live and on demand through February 27 at http://investor.shareholder.com/arg/events.cfm. A replay of the teleconference will be available through February 6. To listen, call (888) 203-1112 (U.S./Canada) or (719) 457-0820 (International) and enter passcode 6835735.

* See attached reconciliations and computations of non-GAAP adjusted earnings per diluted share, adjusted effective tax rate, adjusted operating margin, adjusted cash from operations, free cash flow, and return on capital.

About Airgas, Inc.

Airgas, Inc. (NYSE: ARG), through its subsidiaries, is one of the nation’s leading suppliers of industrial, medical and specialty gases, and hardgoods, such as welding equipment and related products. Airgas is a leading U.S. producer of atmospheric gases with 16 air separation plants, a leading producer of carbon dioxide, dry ice, and nitrous oxide, one of the largest U.S. suppliers of safety products, and a leading U.S. supplier of refrigerants, ammonia products, and process chemicals. More than 15,000 employees work in approximately 1,100 locations, including branches, retail stores, gas fill plants, specialty gas labs, production facilities and distribution centers. Airgas also markets its products and services through e-Business, catalog and telesales channels. Its national scale and strong local presence offer a competitive edge to its diversified customer base. For more information, please visit www.airgas.com.

# # #

This press release contains statements that are forward looking, as that term is defined by the Private Securities Litigation Reform Act of 1995 or by the SEC in its rules, regulations and releases. These statements include, but are not limited to: the Company’s expectations regarding its fiscal 2014 fourth quarter and full fiscal year 2014 earnings per diluted share and adjusted earnings per diluted share*, as well as its fiscal 2016 financial goals; and expectations regarding its ability to leverage SAP and other strategic growth initiatives, expand its telesales business, and manage expenses. Forward-looking statements also include any statement that is not based on historical fact, including statements containing the words "believes," "may," "plans," "will," "could," "should," "estimates," "continues," "anticipates," "intends," "expects," and similar expressions. We intend that such forward-looking statements be subject to the safe harbors created thereby. All forward-looking statements are based on current expectations regarding important risk factors and should not be regarded as a representation by us or any other person that the results expressed therein will be achieved. Airgas assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law. Important factors that could cause actual results to differ materially from those contained in any forward-looking statement include: supply shortages of certain gases including the continued or increased disruption in our helium supply chain; impacts of the EPA ruling related to the production of R-22; the pace and manner of U.S. compliance with the Montreal Protocol; adverse changes in customer buying patterns resulting from continuing adverse economic conditions; weakening in the operating and financial performance of our customers, which could negatively impact our sales and our ability to collect our accounts receivable; postponement of projects due to economic developments; customer acceptance of price increases; our ability to achieve anticipated acquisition synergies; the impact of operating costs associated with acquired businesses; higher than expected expenses associated with the expansion of our telesales business, our strategic pricing initiatives and other strategic growth initiatives; supply cost pressures; increased industry competition; our ability to successfully identify, consummate, and integrate acquisitions; our continued ability to access credit markets on satisfactory terms; significant fluctuations in interest rates; increases in energy costs and other operating expenses at a faster rate than our ability to increase price eroding planned cost savings; changes in customer demand resulting in the inability to meet minimum product purchases under long-term supply agreements and the inability to negotiate alternative supply arrangements; higher than expected implementation costs of the SAP system; conversion or implementation problems related to the SAP system that disrupt our business and negatively impact customer relationships; our ability to achieve anticipated benefits enabled by our conversion to the SAP system; higher than expected costs related to our Business Support Center transition; the impact of changes in credit market conditions on our customers; the impact of changes in tax and fiscal policies and laws; the potential for increased expenditures relating to compliance with environmental regulatory initiatives; the impact of new environmental, healthcare, tax, accounting, and other regulation; the extent and duration of current economic trends in the U.S., including the strength of the U.S. industrial economy; the economic recovery in the U.S.; the effect of catastrophic events and/or severe weather conditions; political and economic uncertainties associated with current world events; and other factors described in the Company's reports, including its March 31, 2013 Form 10-K, subsequent Forms 10-Q, and other Forms filed by the Company with the SEC.

Consolidated statements of earnings, condensed consolidated balance sheets, consolidated statements of cash flows, and reconciliations and computations of non-GAAP financial measures follow below.

Please click here for the complete release including financials

# # #


For more information on Airgas, please visit www.airgas.com.
Contact Information

Airgas, Inc.
259 N. Radnor-Chester Road
Suite 100
Radnor, PA 19087
tel: (610) 687-5253
fax: (610) 687-1052

Barry Strzelec
Director, Investor Relations and Corporate Communications
(610) 902-6256
barry.strzelec@airgas.com

Manager, Investor Relations
(610) 263-8277
joseph.marczely@airgs.com

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