Airgas Reports Fiscal 1Q 2015 Earnings
The industrial welding gas supplier reported that first quarter sales increased by 3 percent over the prior year, to $1.31 billion, and they anticipate long-term growth in U.S. manufacturing.
Airgas, Inc. (Radnor, PA), one of the nation’s leading suppliers of industrial, medical, and specialty gases and related products, reported its earnings per diluted share of $1.18 for its first quarter that ended June 30, 2014, concluding being up 4 percent over the prior year.
“There were bright spots in certain sectors, such as upstream energy, transportation, and retail, but on balance, underlying business conditions remained sluggish during the quarter, as anticipated,” said the president and chief executive officer of Airgas, Michael L. Molinini. “Strong growth in our rental welder business this quarter and increasing requests for staging of materials for energy-related construction projects indicate to us that non-residential construction activity should increase as the year progresses, providing a lift to our construction and other key end markets. In addition, sectors such as mining and heavy manufacturing that were significant headwinds in the prior year now appear to be stabilizing. As such, our guidance range continues to reflect our expectation for stronger sales growth in the back half of the fiscal year, while also reflecting that we’re early in our fiscal year and some uncertainty still exists.”
First quarter sales increased three percent over the prior year, to $1.31 billion. Organic sales were up one percent over the prior year, with gas and rent flat and hardgoods up two percent. In the Distribution segment, organic sales were up two percent over the prior year, in line with the Company’s expectations, with gas and rent up two percent and hardgoods up two percent. Acquisitions contributed sales growth of two percent in the quarter on both a consolidated basis and in the Distribution segment.
“We continue to believe the long-term growth prospects for the U.S. manufacturing and energy industries are strong,” said the Airgas executive chairman Peter McCausland. “In the near term, we’ll remain focused on the things we can control, including leveraging the SAP system, managing expenses, expanding our telesales business, enhancing our e-Business platform, and adjusting our regional management structures to help drive decision-making closer to our customers and increase our focus on sales growth. All of these areas will further enhance our competitive position to grow market share and to capitalize when sustained growth in the industrial economy resumes.”
Selling, distribution, and administrative expenses increased 4.5 percent over the prior year, with operating costs associated with acquired businesses representing approximately 1.5 percent of the increase. Normal expense inflation, as well as expenses associated with the cinvestments in long-term strategic growth initiatives, including its e-Business platform and continued expansion of its telesales business through Airgas Total Access, also contributed to the increase.
Operating margin was 11.8 percent, down 40 basis points compared to the prior year and primarily reflecting the impact of the increase in selling, distribution, and administrative expenses, including the company’s continued investment in strategic long-term growth initiatives, in the current low organic sales growth environment.
Free cash flow for the quarter was $104 million, up 4 percent over the prior year, and adjusted cash from operations was $206 million, up 16 percent over the prior year. Improvements in accounts receivable collection and inventory turn metrics contributed to the company’s strong cash flow this quarter. Return on capital was 12.1 percent for the twelve months ended June 30, 2014, consistent with the prior year.
Since the beginning of its fiscal year, the company has acquired five businesses with aggregate annual sales of more than $32 million, including Houston-based Team Welding, Ltd. d/b/a Technical Alloy & Industrial Gas. The addition of Technical Alloy to Airgas’ Gulf Coast region further increases the company’s distribution density and enhances its capabilities in the metal fabrication segment, strengthening its competitive position in that rapidly growing area of the country.
For the second quarter of fiscal year 2015, the company expects earnings per diluted share in the range of $1.27 to $1.32, representing an increase of zero percent to four percent over prior year earnings per diluted share of $1.27 and an increase of two percent to six percent over prior year adjusted earnings per diluted share of $1.25. Second quarter guidance assumes a year-over-year organic sales growth rate in the low single digits.
For the full fiscal year 2015, the company expects earnings per diluted share in the range of $5.00 to $5.20, representing an increase of seven percent to 11 percent over prior year earnings per diluted share of $4.68 and an increase of six percent to ten percent over prior year adjusted earnings per diluted share of $4.72.
Full year guidance includes a negative $0.11 to $0.16 per diluted share year-over-year impact from variable compensation reset following a below-budget year in fiscal 2014. The company currently expects the contribution from its refrigerants business to year-over-year earnings per diluted share growth in fiscal 2015 to be slightly favorable.
The company conducted an earnings teleconference at 10:00 am EST on Thursday, July 24. A webcast of the teleconference will available on demand through August at http://investorshareholder.com/arg/events.cfm. A replay of the teleconference will be available through July 31. To listen, call 888-203-1112 (U.S./Canada) or 719-457-0820 (international) and enter passcode 3888253.
Airgas (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.
The company 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 16,000 associates 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.
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 2015 second quarter and full fiscal year 2015 organic sales growth and earnings per diluted share, the contribution of its refrigerants business to earnings, and the company’s intent to continue to invest in its strategic initiatives to promote long-term growth. 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: adverse changes in customer buying patterns or weakening in the operating and financial performance of our customers, any of which could negatively impact our sales and our ability to collect our accounts receivable; postponement of projects due to economic conditions; customer acceptance of price increases; increases in energy costs and other operating expenses at a faster rate than our ability to increase prices; changes in customer demand resulting in our inability to meet minimum product purchase requirements under long-term supply agreements and the inability to negotiate alternative supply arrangements; supply cost pressures; shortages and/or disruptions in the supply chain of certain gases; EPA rulings and the pace and manner of U.S. compliance with the Montreal Protocol as they relate to the production and import of Refrigerant-22 (also known as HCFC-22 or R-22); higher than expected expenses associated with the expansion of our telesales business, e-Business platform, the adjustment of our regional management structures, our strategic pricing initiatives and other strategic growth initiatives; increased industry competition; our ability to successfully identify, consummate, and integrate acquisitions; our ability to achieve anticipated acquisition synergies; operating costs associated with acquired businesses; our continued ability to access credit markets on satisfactory terms; significant fluctuations in interest rates; the impact of changes in credit market conditions on our customers; our ability to effectively leverage our new SAP system to improve the operating and financial performance of our business; changes in tax and fiscal policies and laws; increased expenditures relating to compliance with environmental and other regulatory initiatives; the impact of new environmental, healthcare, tax, accounting, and other regulations; the extent and duration of sluggish conditions in the U.S. economy, including in particular, the U.S. industrial economy; the economic recovery in the U.S.; 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, 2014 Form 10-K, and other forms filed by the company with the SEC.