Airgas Reports Fiscal Second Quarter Earnings

Airgas Reports Fiscal Second Quarter Earnings

  • Second quarter diluted EPS of $1.03 and adjusted diluted EPS* of $1.05, each up 2% over prior year

  • Second quarter same-store sales up 3% over prior year

  • Year-to-date free cash flow* of $121 million, up 15% over prior year

  • Return on capital* of 12.5%, up 20 basis points over prior year

  • Revised fiscal year 2013 diluted EPS guidance to $4.42 to $4.57 from $4.61 to $4.71; revised fiscal year 2013 adjusted diluted EPS* guidance to $4.45 to $4.60 from $4.65 to $4.75

RADNOR, Pa.--(BUSINESS WIRE)-- Airgas, Inc. (NYS: ARG) , the largest U.S. supplier of industrial, medical, and specialty gases, and related products, today reported solid financial results for its second quarter ended September 30, 2012, in moderating macroeconomic conditions across its diversified customer base during the quarter and in light of the year-over-year impacts of incrementally higher SAP implementation costs, one less selling day, and helium supply constraints.

Second quarter earnings per diluted share were $1.03, an increase of 2% over prior year earnings per diluted share of $1.01. Excluding a $0.02 restructuring charge, adjusted earnings per diluted share* were $1.05, an increase of 2% over prior year adjusted earnings per diluted share* of $1.03. Results included SAP implementation costs and depreciation expense of $0.09 per diluted share in the current year quarter compared to $0.07 in the prior year quarter, a year-over-year negative impact of approximately $0.03 due to one less selling day in the current year quarter, and a year-over-year decline of $0.02 from the impact of lower sales due to helium supply constraints.

Second Quarter

FY2013

FY2012

% Change

Earnings per diluted share (GAAP)

$

1.03

$

1.01

2

%

Restructuring and other special charges

0.02

0.02

Adjusted earnings per diluted share (non-GAAP)

$

1.05

$

1.03

2

%


"Our second quarter earnings reflect the resilience of our business and our 15,000 dedicated associates in a sluggish economic environment," said Airgas Executive Chairman Peter McCausland. "Though the relative strength of the U.S. metal fabrication and energy sectors overall has softened of late, we continue to win new business in these sectors on the strength of our strategic accounts program, technical support, breadth of our product and service offering, and outstanding customer service. The year-over-year earnings headwinds we faced this quarter from one less selling day, helium supply constraints, and incremental SAP costs reduced our year-over-year earnings growth by $0.07, further highlighting the solid performance in our underlying business."

Second quarter sales were $1.23 billion, an increase of 4% over the prior year. Same-store sales grew 3% in the quarter, with gas and rent up 4% and hardgoods up 1%.

"Current business conditions present some near-term challenges, but we will continue to invest in our growth strategies," said Airgas Chief Executive Officer Michael L. Molinini. "Our SAP implementation is on-schedule, with ten of our twelve regional distribution businesses now running successfully on the new system. We remain confident that we will realize the economic benefits as planned and that this investment will further enhance the value of our full-service offering to customers and help our business operate more efficiently over the long-term."

Operating margin was 11.8% for the second quarter and included 90 basis points of impact from SAP implementation costs and depreciation expense. Prior year operating margin was 12.0% and included 70 basis points of impact from SAP implementation costs and depreciation expense. Adjusted operating margin* was 12.0% and 12.2% in the current and prior year quarters, respectively.

Return on capital* was 12.5% for the twelve months ended September 30, 2012, an increase of 20 basis points over the prior year.

Year-to-date free cash flow* through the second quarter was $121 million, an increase of 15% over the prior year, and adjusted cash from operations* was $277 million, an increase of 8% over the prior year.

Since the beginning of its fiscal year, the Company has acquired eight businesses with aggregate annual revenues of more than $19 million.

Guidance

"The broad-based moderation in business conditions that persisted during the second quarter has continued during October," McCausland said. "Accordingly, we're reducing our outlook for earnings growth for the balance of our fiscal year. Though we're appropriately cautious about the near-term business environment, we're very optimistic about the long-term prospects for the U.S. manufacturing and energy industries and our ability to leverage our unique value proposition and unrivaled platform to drive growth in these and other key customer segments."

The Company expects earnings per diluted share for the third quarter of fiscal 2013 to increase 11% to 17% from $0.93 in the prior year to $1.03 to $1.09. The Company expects adjusted earnings per diluted share* for the third quarter of fiscal 2013 to increase 8% to 14% from $0.97 in the prior year to $1.05 to $1.11. Guidance for both earnings per diluted share and adjusted earnings per diluted share* reflects an estimated year-over-year decline of $0.03 from the impact of lower sales due to helium supply constraints, as well as $0.01 to $0.02 of SAP implementation costs and depreciation expense, net of expected benefits, compared to $0.10 of expense in the prior year.

For fiscal 2013, the Company expects earnings per diluted share to increase 11% to 14% from $4.00 in the prior year to $4.42 to $4.57. The Company expects adjusted earnings per diluted share* to increase 8% to 12% from $4.11 in the prior year to $4.45 to $4.60. Guidance for both earnings per diluted share and adjusted earnings per diluted share* reflects an estimated year-over-year decline of $0.06 from the impact of two less selling days in fiscal 2013, an estimated year-over-year decline of $0.10 from the impact of lower sales due to helium supply constraints, as well as approximately $0.12 to $0.16 of SAP implementation costs and depreciation expense, net of expected benefits. Fiscal 2012 adjusted earnings per diluted share* included $0.34 of SAP implementation costs and depreciation expense.

Fiscal 2013 adjusted earnings per diluted share* guidance excludes restructuring and other special charges, which were $0.05 in the first quarter and $0.02 in the second quarter, and are expected to be $0.02 in the third quarter and $0.10 for the full year, and also excludes a $0.07 gain on the sale of businesses in the first quarter. Special gains and charges in fiscal 2012 were a net total charge of $0.11.

The Company will conduct an earnings teleconference at 10:00 a.m. Eastern Time on Tuesday, October 23. The teleconference will be available by calling (888) 204-4368 (U.S./Canada) or (913) 312-0968 (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 Information" section of the Company's website at www.airgas.com. A webcast of the teleconference will be available live and on demand through November 23 at http://investor.shareholder.com/arg/events.cfm. A replay of the teleconference will be available through October 31. To listen, call (888) 203-1112 (U.S./Canada) or (719) 457-0820 (International) and enter passcode 8448259.

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

About Airgas, Inc.

Airgas, Inc. (NYS: 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 eBusiness, 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: expectations related to the third quarter of fiscal 2013, including earnings per diluted share of $1.03 to $1.09, adjusted earnings per diluted share of $1.05 to $1.11, a year-over-year decline of $0.03 per diluted share from the impact of lower sales due to helium supply constraints, $0.01 to $0.02 per diluted share of SAP implementation costs and depreciation expense, net of expected benefits, and $0.02 per diluted share of restructuring and other special charges; expectations related to fiscal year 2013, including earnings per diluted share of $4.42 to $4.57, adjusted earnings per diluted share of $4.45 to $4.60, a year-over-year decline of $0.06 from the impact of two less selling days in fiscal 2013, a year-over-year decline of $0.10 per diluted share from the impact of lower sales due to helium supply constraints, approximately $0.12 to $0.16 per diluted share of SAP implementation costs and depreciation expense, net of expected benefits, and $0.10 per diluted share of restructuring and other special charges; expectations regarding future SAP implementation costs, our realization of the economic benefits as planned, the further enhanced value of our full-service offering to customers, and the more efficient operation of our business over the long-term; and our outlook for earnings growth for the balance of our fiscal year, the near-term business environment, and our long-term prospects. 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: continued or increased disruption in our helium supply chain; adverse changes in customer buying patterns resulting from deterioration in current 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; 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 eroding planned cost savings; 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 tightened credit markets 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 economic recovery in the U.S.; the effect of catastrophic events; political and economic uncertainties associated with current world events; and other factors described in the Company's reports, including its March 31, 2012 Form 10-K, subsequent Form 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.

AIRGAS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Amounts in thousands, except per share data)

(Unaudited)

Three Months Ended

Six Months Ended

September 30,

September 30,

2012

2011

2012

2011

Net sales

$

1,229,610

$

1,187,083

$

2,486,866

$

2,351,383

Costs and expenses:

Cost of products sold (excluding depreciation) (a)

552,313

552,334

1,121,051

1,082,873

Selling, distribution and administrative expenses (b)

458,301

423,437

918,432

846,883

Restructuring and other special charges (c)

2,443

2,500

8,155

15,830

Costs (benefits) related to unsolicited takeover attempt (d)

-

-

-

(6,700

)

Depreciation

64,649

60,382

129,016

120,649

Amortization

6,718

6,255

13,336

12,404

Total costs and expenses

1,084,424

1,044,908

2,189,990

2,071,939

Operating income

145,186

142,175

296,876

279,444

Interest expense, net

(15,880

)

(17,424

)

(31,630

)

(34,074

)

Other income (expense), net (e)

1,161

(581

)

9,524

149

Earnings before income taxes

130,467

124,170

274,770

245,519

Income taxes (a)

(49,447

)

(46,316

)

(102,952

)

(92,671

)

Net earnings (a)

$

81,020

$

77,854

$

171,818

$

152,848

Net earnings per common share:

Basic earnings per share (a)

$

1.05

$

1.03

$

2.23

$

1.99

Diluted earnings per share (a)

$

1.03

$

1.01

$

2.18

$

1.94

Weighted average shares outstanding:

Basic

77,078

75,630

76,973

76,980

Diluted

78,892

77,262

78,860

78,672

See attached Notes.

AIRGAS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

September 30,

March 31,

2012

2012

ASSETS

Cash

$

47,867

$

44,663

Trade receivables, net

686,940

652,439

Inventories, net

439,263

408,438

Deferred income tax asset, net

55,269

49,617

Prepaid expenses and other current assets

112,471

119,049

TOTAL CURRENT ASSETS

1,341,810

1,274,206

Plant and equipment, net

2,646,135

2,616,059

Goodwill

1,166,323

1,163,803

Other intangible assets, net

204,513

214,204

Other non-current assets

50,197

52,313

TOTAL ASSETS

$

5,408,978

$

5,320,585

LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable, trade

$

166,194

$

174,868

Accrued expenses and other current liabilities

362,234

356,344

Short-term debt (f)

329,427

388,452

Current portion of long-term debt

8,567

10,385

TOTAL CURRENT LIABILITIES

866,422

930,049

Long-term debt, excluding current portion (g)

1,752,515

1,761,902

Deferred income tax liability, net

800,574

793,957

Other non-current liabilities

82,875

84,419

Stockholders' equity

1,906,592

1,750,258

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

5,408,978

$

5,320,585

See attached Notes.

AIRGAS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

Six Months Ended

September 30,

2012

2011

CASH FLOWS FROM OPERATING ACTIVITIES

Net earnings (a)

$

171,818

$

152,848

Adjustments to reconcile net earnings to net cash

provided by operating activities:

Depreciation

129,016

120,649

Amortization

13,336

12,404

Impairment (c)

1,729

2,500

Deferred income taxes (a)

1,560

21,859

Gain on sales of plant and equipment

(99

)

(532

)

Gain on sale of businesses

(6,822

)

-

Stock-based compensation expense

18,192

17,070

Changes in assets and liabilities, excluding effects of business acquisitions and divestitures:

Trade receivables, net

(34,147

)

(43,248

)

Inventories, net (a)

(29,976

)

(7,303

)

Prepaid expenses and other current assets

(10,538

)

(4

)

Accounts payable, trade

(5,220

)

(9,692

)

Accrued expenses and other current liabilities

16,625

(66,009

)

Other non-current assets

1,327

2,067

Other non-current liabilities

(2,852

)

(1,357