Airgas Reports Fiscal 2014 4Q and Full Year Earnings
Results reflect the favorable impacts of planned and completed share repurchases; sluggish business conditions and the negative impact on the refrigerants business from the EPA March 2013 ruling; and the negative impact of severe weather across much of the U.S.
Airgas, Inc. (Radnor, PA), one of the nation’s leading suppliers of industrial, medical, and specialty gases, and related products, reported sales and earnings results for its fourth quarter and full year ended March 31, 2014, which reflected the favorable impacts of the realization of SAP-related benefits as planned and share repurchases completed in the second half of fiscal 2013, but also reflected sluggish business conditions and the negative impact on the Company’s refrigerants business from the EPA’s March 2013 ruling.
Results for the fourth quarter also reflected the negative impact of severe weather across much of the U.S. on both sales and expenses.
“We delivered record free cash flow of $441 million and 9 percent growth in adjusted EPS for fiscal 2014 in a sluggish economic environment,” said Airgas president and chief executive officer Michael L. Molinini. “We remained focused on outstanding customer service, expense management, and execution of strategic initiatives, which included the achievement of 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.”
FOURTH QUARTER RESULTS
- Fourth quarter diluted EPS of $1.17, up 4 percent over prior year, and adjusted diluted EPS of $1.15, up 1 percent over prior year
- Fourth quarter organic sales down 1 percent compared to prior year; Distribution segment organic sales up 1 percent over prior year
“We estimate that in our fourth quarter the net impact of severe weather conditions across much of the U.S. cost us at least $0.02 per diluted share more than expected, and the negative year-over-year impact on earnings related to our refrigerants business was $0.03 greater than anticipated,” Molinini added. “Absent those particular issues, our earnings for the quarter were within our guidance range.” The Company’s fourth quarter guidance had assumed year-over-year negative impacts of approximately $0.03 per diluted share due to severe weather conditions in January and $0.05 per diluted share related to refrigerants.
Fourth quarter earnings per diluted share were $1.17, up 4 percent over prior year earnings per diluted share of $1.13. Excluding a $0.02 state income tax benefit, adjusted earnings per diluted share were $1.15, up 1 percent over prior year. Results included SAP-related benefits, net of implementation costs and depreciation expense, of $0.16 per diluted share in the current year quarter compared to $0.04 of net benefits in the prior year quarter.
“Though there were bright spots within certain sectors, on balance, underlying business conditions remained choppy throughout the quarter, weather-related challenges notwithstanding,” said Molinini. “We remain focused on the things 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.”
Fourth quarter sales were $1.27 billion, flat compared to prior year. Organic sales in the quarter were down 1 percent compared to prior year, with gas and rent down 1 percent and hardgoods down 2 percent. Distribution segment organic sales in the quarter were up 1 percent compared to prior year, with gas and rent up 2 percent and hardgoods down 2 percent. Acquisitions contributed sales growth of 1 percent in the quarter on a consolidated basis and in the Distribution segment.
Selling, distribution, and administrative expenses increased 2 percent over the prior year. The favorable impact of the reduction in SAP implementation costs compared to the prior year was more than offset by rising healthcare costs and higher operating expenses due to severe weather, as well as 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.
Fourth quarter operating margin was 11.8 percent, down 30 basis points compared to prior year operating margin of 12.1 percent and down 40 basis points compared to prior year adjusted operating margin of 12.2 percent, which included restructuring and other special charges. Distribution segment operating margin was 12.5 percent for the quarter, down 30 basis points compared to prior year.
The combination of a reduction in SAP implementation costs and the achievement of SAP-related benefits contributed favorably to operating margin this quarter as compared to the prior year. Low organic sales growth challenged the Company’s operating margin in the 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.
FULL YEAR RESULTS
- Full year diluted EPS of $4.68, up 8 percent over prior year, and adjusted diluted EPS of $4.72, up 9 percent over prior yea
- Record full year free cash flow of $441 million on adjusted cash from operations of $776 million
For the full year, earnings per diluted share were $4.68, an increase of 8 percent over prior year earnings per diluted share of $4.35. Results included a loss of $0.08 per diluted share on the early extinguishment of the Company’s 7.125 percent senior subordinated notes which were originally due to mature in October 2018 but were redeemed in full on October 2, 2013, as well as $0.04 of state income tax benefits.
Excluding the loss on the extinguishment of debt and state income tax benefits, adjusted earnings per diluted share were $4.72, an increase of 9 percent over prior year adjusted earnings per diluted share of $4.35. Earnings per diluted share and adjusted earnings per diluted share included SAP-related benefits, net of implementation costs and depreciation expense, of $0.47 per diluted share in the current year compared to $0.18 per diluted share of net expense in the prior year.
The favorable year-over-year impact of share repurchases completed in the second half of fiscal 2013 on the Company’s earnings growth in fiscal 2014 was more than offset by the negative year-over-year impact related to its refrigerants business, which posted record results in fiscal 2013.
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