RADNOR, Pa. — Airgas, Inc. (NYSE: ARG), a supplier of industrial, medical, and specialty gases, and related products, on Thursday reported earnings per diluted share of $1.30 for its second quarter ended Sept. 30, up 4 percent over the prior year adjusted diluted EPS and consistent with the company’s expectations.
Second quarter sales increased 6 percent over the prior year to $1.36 billion. Organic sales were up 4 percent over the prior year, with gas and rent up 3 percent and hardgoods up 6 percent. Acquisitions contributed sales growth of 2 percent in the quarter.
Airgas is No. 8 on Industrial Distribution's 2014 Big 50 List.
“Organic sales during the quarter came in slightly above our expectations with hardgoods leading the growth, and our earnings were solidly in the middle of our guidance range,” Airgas President and Chief Executive Officer Michael L. Molinini said. “Although sluggishness persists in some sectors, activity this quarter reaffirmed our prior belief that sectors such as mining and heavy equipment that were significant headwinds in the prior year are now stabilizing. In addition, continued strong growth in our Red-D-Arc business and consistent requests for staging of materials for energy-related construction projects indicate to us that non-residential construction activity should continue to increase as the year progresses, providing a lift to our construction and other key end markets as reflected in our guidance.”
Selling, distribution, and administrative expenses increased 5 percent over the prior year, with operating costs associated with acquired businesses representing approximately 2 percent of the increase. The balance of the increase reflects normal expense inflation, as well as expenses associated with the Company’s investments in long-term strategic growth initiatives, including its e-Business platform and continued expansion of its telesales business through Airgas Total Access.
Operating margin was 12.9 percent, down 30 basis points compared to the prior year and primarily reflecting a sales mix shift towards hardgoods.
Year-to-date free cash flow was $147 million, compared to $238 million in the prior year, and adjusted cash from operations was $356 million, compared to $397 million in the prior year. The reduction in operating cash flow represents current year increases in working capital in support of sales growth in addition to the comparison of a particularly strong prior year which benefitted from improvements in accounts receivable following SAP conversions. Free cash flow in the current year is further impacted by a year over year increase in capital expenditures reflecting investment in revenue-generating assets including two air separation plants, our e-Business platform and a new distribution center.
Return on capital was 12.1 percent for the twelve months ended Sept. 30, down 30 basis points compared to the prior year.
Since the beginning of its fiscal year, the company has acquired 12 businesses with aggregate annual sales of more than $43 million.
“We’re squarely focused on executing on the fundamentals of our business,” Airgas Executive Chairman Peter McCausland said. “We continue to develop our sales channels through Total Access and our robust new e-Business platform, as well as strengthening our sales organization through enhancements like the new District Manager role, training, and sales force effectiveness initiatives. We’re leveraging SAP to improve the productivity of our business, and expense control is a high priority. As imbalances in supply and demand for certain products, particularly argon, have pressured our product costs and distribution expenses, we are working hard to try to recover those costs through our pricing actions.”
