Airgas Reports Fiscal Third Quarter Earnings

Airgas Reports Fiscal Third Quarter Earnings

• Third quarter diluted EPS of $1.05, up 13% over prior year, and adjusted diluted EPS* of $1.04, up 7% over prior year

• Third quarter organic sales up 4% over prior year; Distribution segment organic sales up 2% over prior year

• Third quarter operating margin of 12.2%, up 80 basis points over prior year, and adjusted operating margin* of 12.1%, up 30 basis points over prior year

• Year-to-date free cash flow* of $219 million, up 25% over prior year

• Return on capital* of 12.4%, up 10 basis points over prior year

• Revised fiscal year 2013 diluted EPS guidance to $4.40 to $4.46 from $4.42 to $4.57; revised fiscal year 2013 adjusted diluted EPS* guidance to $4.40 to $4.46 from $4.45 to $4.60

RADNOR, Pa.--(BUSINESS WIRE)-- Airgas, Inc. (NYS: ARG) , one of the nation's leading suppliers of industrial, medical, and specialty gases, and related products, today reported sales and earnings growth for its third quarter ended December 31, 2012, which reflected the impact of continued economic uncertainty and moderation in business conditions on its diversified customer base. Results for the quarter also reflected the realization of SAP-related benefits as planned, tempered by slightly higher than anticipated implementation costs.

Third quarter earnings per diluted share were $1.05, an increase of 13% over prior year earnings per diluted share of $0.93. Excluding a net $0.01 benefit from certain lower-than-expected restructuring costs, adjusted earnings per diluted share* were $1.04, an increase of 7% over prior year adjusted earnings per diluted share* of $0.97. Results included SAP implementation costs and depreciation expense, net of benefits realized, of $0.03 per diluted share in the current year quarter compared to $0.10 of expense in the prior year quarter.

"Moderating activity levels in our industrial customer base throughout the quarter were further exacerbated in late December by uncertainty around the fiscal cliff and by the timing of the holidays during the work week," said Airgas Executive Chairman Peter McCausland. "We're pleased to be on target for our SAP benefits, which contributed to the Distribution segment's 200 basis point year-over-year expansion in gross margin and 30 basis point year-over-year expansion in operating margin on very modest sales growth. Although implementation costs were slightly higher than anticipated during the quarter, we demonstrated the ability to achieve the SAP benefits, and that reinforces that this program will create substantial shareholder value. Acquisition activity was another bright spot in the quarter, as we added seven businesses with aggregate annual revenues of $75 million. Though we remain appropriately cautious about near-term business conditions, we're very optimistic about the long-term prospects for the U.S. manufacturing and energy industries, as well as non-residential construction, and our ability to leverage our unique value proposition and unrivaled platform to drive growth. Some of the most challenging aspects of the SAP implementation are behind us, we're building momentum, and we're ready to capitalize on any improvement in the U.S. economy."

"The SAP implementation is on-schedule, with only one region remaining to convert to the new system," said Airgas Chief Executive Officer Michael L. Molinini. "To ensure the long-term success of this initiative, we expect to incur slightly higher than anticipated SAP-related expenses in our fourth quarter and to continue to incur some SAP-related costs during the first half of fiscal 2014 for post-conversion support and training. Our expectation that we will achieve our projected $75 to $125 million in run-rate operating income benefits by the end of calendar 2013, however, remains unchanged. These SAP milestones and the growth initiatives we presented at our analyst meeting in December, which support our fiscal 2016 financial goals, all make for a bright future for this company."

Third quarter sales were $1.21 billion, an increase of 5% over the prior year. Organic sales in the quarter were up 4% over the prior year, with gas and rent up 6% and hardgoods down 1%. Organic sales in the Distribution business segment were up 2% over the prior year, with gas and rent up 5% and hardgoods down 1%.

Operating margin was 12.2% for the third quarter and included 90 basis points of impact from SAP implementation costs and depreciation expense. Prior year operating margin was 11.4% and included 110 basis points of impact from SAP implementation costs and depreciation expense. Adjusted operating margin* was 12.1% and 11.8% in the current and prior year quarters, respectively.

Return on capital* was 12.4% for the twelve months ended December 31, 2012, an increase of 10 basis points over the prior year.

Year-to-date free cash flow* through the third quarter was $219 million, an increase of 25% over the prior year, and adjusted cash from operations* was $451 million, an increase of 8% over the prior year. During the third quarter, the Company repurchased 2.47 million shares on the open market for $222 million, reflecting an average price of $89.93 per share. The impact of share repurchases on weighted average diluted shares outstanding was largely offset by stock option exercises in the quarter.

Since the beginning of its fiscal year, the Company has acquired fifteen businesses with aggregate annual revenues of more than $94 million.

Guidance

The Company expects earnings per diluted share for the fourth quarter of fiscal 2013 to increase 4% to 10% from $1.12 in the prior year to $1.17 to $1.23. The Company expects adjusted earnings per diluted share* for the fourth quarter of fiscal 2013 to increase 6% to 12% from $1.11 in the prior year to $1.18 to $1.24. Guidance for both earnings per diluted share and adjusted earnings per diluted share* reflects an estimated year-over-year decline of $0.04 from the impact of one less selling day in the fiscal 2013 fourth quarter, an estimated year-over-year decline of $0.01 from the impact of lower sales due to helium supply constraints, and an estimated year-over-year decline of $0.02 due to a higher tax rate, as well as approximately $0.04 to $0.06 of expected SAP-related benefits, net of implementation costs and depreciation expense, compared to $0.09 of expense in the prior year. Guidance does not reflect the impact from potential share repurchases in the fourth quarter under the Company's current share repurchase authorization.

For fiscal 2013, the Company expects earnings per diluted share to increase 10% to 12% from $4.00 in the prior year to $4.40 to $4.46. The Company expects adjusted earnings per diluted share* to increase 7% to 9% from $4.11 in the prior year to $4.40 to $4.46. Guidance for both earnings per diluted share and adjusted earnings per diluted share* reflects an estimated year-over-year decline of $0.07 from the impact of two less selling days in fiscal 2013, an estimated year-over-year decline of $0.07 from the impact of lower sales due to helium supply constraints, and an estimated year-over-year decline of $0.02 due to a higher tax rate, as well as approximately $0.16 to $0.18 of SAP implementation costs and depreciation expense, net of expected benefits, compared to $0.34 of SAP implementation costs and depreciation expense in the prior year. Guidance does not reflect the impact from potential share repurchases in the fourth quarter under the Company's current share repurchase authorization.

Fiscal 2013 adjusted earnings per diluted share* guidance excludes the following restructuring and other special charges and net benefits: a $0.05 charge in the first quarter; a $0.02 charge in the second quarter; a $0.01 net benefit in the third quarter; and an expected charge of $0.01 in the fourth quarter (resulting in an expected net charge of $0.07 for the full year). Fiscal 2013 guidance also excludes a $0.07 gain on the sale of businesses in the first quarter. Special gains and charges and net benefits 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 Thursday, January 24. The teleconference will be available by calling (888) 228-5281 (U.S./Canada) or (913) 312-1507 (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 February 22 at http://investor.shareholder.com/arg/events.cfm. A replay of the teleconference will be available through February 1. To listen, call (888) 203-1112 (U.S./Canada) or (719) 457-0820 (International) and enter passcode 6472077.

Note that the Company has changed its reference to sales adjusted for the impact of acquisitions and divestitures from "same-store sales" to "organic sales." Growth rates presented in prior periods and the underlying calculation have not been materially affected by this change.

* See attached reconciliations and computations of non-GAAP adjusted earnings per diluted share, adjusted operating margin, adjusted cash from operations, adjusted capital expenditures, 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 fourth quarter of fiscal 2013, including earnings per diluted share of $1.17 to $1.23, adjusted earnings per diluted share of $1.18 to $1.24, a year-over-year decline of $0.04 from the impact of one less selling day in the fourth quarter of fiscal 2013, a year-over-year decline of $0.01 per diluted share from the impact of lower sales due to helium supply constraints, a decline of $0.02 due to a higher tax rate, as well as $0.04 to $0.06 per diluted share of SAP-related benefits, net of implementation costs and depreciation expense, and $0.01 per diluted share of restructuring and other special charges; expectations related to fiscal year 2013, including earnings per diluted share and adjusted earnings per diluted share of $4.40 to $4.46, a year-over-year decline of $0.07 from the impact of two less selling days in fiscal 2013, a year-over-year decline of $0.07 per diluted share from the impact of lower sales due to helium supply constraints, a decline of $0.02 due to a higher tax rate, approximately $0.16 to $0.18 per diluted share of SAP implementation costs and depreciation expense, net of expected benefits, and a net $0.07 per diluted share of restructuring and other special charges; expectations regarding future SAP implementation costs, our realization of economic benefits from our SAP implementation, shareholder value creation, and the completion of the SAP implementation and related distractions; and our outlook for future earnings growth, 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 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.