Airgas Reports Fiscal 2013 Fourth Quarter and Full Year Earnings

Airgas Reports Fiscal 2013 Fourth Quarter and Full Year Earnings

• Fourth quarter diluted EPS of $1.13, up 1% over prior year, and adjusted diluted EPS* of $1.14, up 3% over prior year

• Record full year diluted EPS of $4.35, up 9% over prior year, and record adjusted diluted EPS* of $4.35, up 6% over prior year

• Fourth quarter organic sales flat compared to prior year; full year organic sales up 3% over prior year

• Fourth quarter gross margin up 80 basis points over prior year; full year gross margin up 100 basis points over prior year

• Full year free cash flow* of $298 million, up 14% over prior year

• Fiscal year 2014 diluted EPS guidance of $5.00 to $5.35, representing 15% to 23% year-over-year growth

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 results for its fourth quarter and fiscal year ended March 31, 2013, 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, net of implementation costs incurred, as planned.

"In my view, fiscal 2013 was a very good year for Airgas. We achieved record adjusted EPS* of $4.35, 6% over last year and only 7% below the low end of the initial guidance we issued back in May 2012, despite the fact that economic conditions deteriorated as the year progressed, with Non-Tech Industrial Production coming in below our original expectations. In addition, our free cash flow* increased by 14% over last year," said Airgas Executive Chairman Peter McCausland. "We also completed the implementation of SAP in the rest of our regional Distribution businesses, realized the first tranche of SAP-related benefits as planned for the year, completed the $600 million share repurchase program announced in October, and acquired 18 businesses with aggregate annual sales of more than $95 million. These achievements are significant milestones in the development of our company and help position us for sustainable long-term growth."

Fourth quarter earnings per diluted share were $1.13, up 1% over prior year earnings per diluted share of $1.12. Excluding a $0.01 restructuring charge, adjusted earnings per diluted share* were $1.14, an increase of 3% over prior year adjusted earnings per diluted share* of $1.11. Results included SAP-related benefits, net of implementation costs and depreciation expense, of $0.04 per diluted share in the current year quarter compared to $0.09 of expense in the prior year quarter. "As we announced on March 21^st, organic sales growth in our Distribution segment was flat through February, and absent a strong finish in March, we were likely to miss the low end of our fourth quarter adjusted EPS* guidance of $1.18 by approximately 4%, and that is essentially what happened," said McCausland.

Fourth quarter sales were $1.26 billion, an increase of 2% over the prior year. Organic sales in the quarter were flat compared to prior year, with gas and rent up 4% and hardgoods down 5%. Acquisitions contributed sales growth of 2% in the quarter.

Operating margin was 12.1% and 11.7% in the current and prior year quarters, respectively. Adjusted operating margin* was 12.2% in both the current and prior year quarters.

For the full year, earnings per diluted share were $4.35, an increase of 9% over prior year earnings per diluted share of $4.00. Adjusted earnings per diluted share* were also $4.35, an increase of 6% over prior year adjusted earnings per diluted share* of $4.11. Results included SAP implementation costs and depreciation expense, net of benefits realized, of $0.18 per diluted share in the current year compared to $0.34 of expense in the prior year.

Full year sales increased 4% over the prior year to $4.96 billion. Organic sales increased 3% over the prior year, with gas and rent up 5% and hardgoods up 1%, while acquisitions contributed 1% sales growth for the year.

"The more than 15,000 Airgas associates that make up the best team in the business are to be commended for their hard work and focus on operating safely and serving our customers day-in and day-out under difficult conditions," said Airgas President and Chief Executive Officer Michael L. Molinini. "While uncertainty is likely to persist for our customers in the near term, we remain 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, and we will continue to invest in our industry-leading position to drive growth."

Free cash flow* for the year was $298 million, compared to $262 million in the prior year, and adjusted cash from operations* was $604 million for the year, compared to $593 million in the prior year. During the fourth quarter, the Company completed the remainder of its previously-announced $600 million share repurchase program, repurchasing 3.82 million shares on the open market for $378 million, reflecting an average price of $98.89. During the third quarter, the company had repurchased 2.47 million shares on the open market for $222 million, reflecting an average price of $89.93 per share.

Return on capital* was 12.3% for the twelve months ended March 31, 2013, a decrease of 20 basis points from the prior year.

Guidance

"Our fiscal 2014 outlook assumes the continuation of current slow business conditions for at least the first half of the year, followed by slight improvement, resulting in low-to-mid single digit organic sales growth for the full year, with gas and rent outpacing hardgoods. We have been investing and will continue to invest to position Airgas for long-term growth. But we're going to keep a sharp eye on expenses this year and won't hesitate to take further action if the economy continues to weaken and our sales volumes don't recover," said McCausland. "We're also facing a challenging and unpredictable year ahead for our refrigerants business. The Environmental Protection Agency recently issued a ruling allowing for an increase in the production of R-22 in calendar year 2013 rather than reaffirming the further reductions that much of the industry had been expecting. Fortunately, compliance with the Montreal Protocol almost certainly requires a significant step-down in R-22 production in calendar year 2015, reinforcing our position as an industry leader in the reclamation and distribution of recycled refrigerant products. As a result of this one-year hurdle, our fiscal 2014 guidance includes an estimated $0.05 to $0.10 per share year-over-year negative impact from refrigerants, as prices and sales volumes of R-22 have both come under pressure following the EPA's ruling."

"We expect to achieve a minimum of $75 million in run-rate operating income benefits related to the SAP initiative by the end of calendar year 2013, consistent with our long-standing target," said Molinini. "In light of the difficult business conditions we are facing in the near term, combined with the extension of post SAP conversion support and training costs through the first half of fiscal 2014, which we highlighted on our last earnings call, our EPS guidance assumes a contribution from SAP benefits, net of expenses, at the low end of our previously-announced range of $0.45 to $0.55 in fiscal 2014. Our experience with SAP thus far reinforces our expectation that, as highlighted at our December analyst meeting, this initiative will enhance our earnings power over time as we leverage its capabilities in concert with the execution of our strategic growth initiatives."

For the first quarter of fiscal year 2014, the Company expects earnings per diluted share to increase 1% to 6% from adjusted earnings per diluted share* of $1.13 in the prior year to a range of $1.14 to $1.20, which includes an estimated year-over-year increase of approximately $0.16 related to the SAP initiative, reflecting an estimated $0.06 of net benefit in the fiscal 2014 first quarter compared to $0.10 of expense in the fiscal 2013 first quarter. Guidance also reflects year-over-year negative impacts to earnings per share related to variable compensation reset following a below-budget year and a challenging and unpredictable refrigerants market, and a year-over-year benefit to earnings per share related to the Company's recently completed share repurchase program.

For the full fiscal year 2014, the Company expects earnings per diluted share to increase 15% to 23% from $4.35 in the fiscal 2013 to a range of $5.00 to $5.35, which includes an estimated year-over-year increase of approximately $0.63 related to the SAP initiative, reflecting an estimated $0.45 of net benefit in fiscal 2014 compared to $0.18 of net expense in fiscal 2013. Guidance also reflects year-over-year negative impacts to earnings per share related to variable compensation reset following a below-budget year and a challenging and unpredictable refrigerants market, and a year-over-year benefit to earnings per share related to the Company's recently completed share repurchase program, one additional selling day in fiscal 2014, and the incremental contribution from acquisitions closed during fiscal 2013.

The Company will conduct an earnings teleconference at 10:00 a.m. Eastern Time on Thursday, May 2. The teleconference will be available by calling (888) 455-2295 (U.S./Canada) or (719) 325-2460 (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 May 31 at http://investor.shareholder.com/arg/events.cfm. A replay of the teleconference will be available through May 9. To listen, call (888) 203-1112 (U.S./Canada) or (719) 457-0820 (International) and enter passcode 7433226.

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 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: our expectation to continue to invest in our industry leading position and our ability to sustain long-term growth; our expectations regarding expenses and any actions we might take if the economy continues to weaken and sales volumes don't recover; our expectations for low-to-mid single digit organic sales growth for fiscal 2014, with gas and rent outpacing hardgoods; the magnitude and duration of the impact on our refrigerants business of the EPA's ruling regarding the production of R-22; the impact of compliance with the Montreal Protocol; our continued expectations of a minimum of $75 million in run-rate SAP-related operating income benefits by the end of calendar year 2013; our expectations of fiscal 2014 first quarter earnings per diluted share in the range of $1.14 to $1.20, reflecting an estimated $0.06 of net benefits related to SAP, and the impacts from variable compensation reset, refrigerants, and completion of the share repurchase program; our expectations of fiscal 2014 full year earnings per diluted share in the range of $5.00 to $5.35, reflecting an estimated $0.45 of net benefits related to SAP, and the impacts from variable compensation reset, refrigerants, completion of the share repurchase program, an additional selling day in 2014, and acquisitions closed in fiscal 2013; and expectations of long-term contribution to earnings power from the SAP initiative. 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; impacts of the EPA ruling related to the production of R-22; the impact of compliance with the Montreal Protocol; 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.