Airgas, Inc. (Radnor, Pa.), the largest U.S. distributor of industrial, medical, and specialty gases, and related supplies, today reported strong performance in sales, operating income, and earnings for its third quarter ended December 31, 2011. Business trends reflect continued volume growth across the company's customer base with particular strength in large manufacturing, petrochemical, and energy customers.
Third quarter adjusted earnings per diluted share* were $0.97, an increase of 21% from $0.80 in the prior year. Results included SAP implementation costs and depreciation expense of $0.10 and $0.02 per diluted share for the current and prior year quarters, respectively, and the current quarter reflected the benefit of the Company's two recently completed share repurchase programs, which largely offset the incremental SAP costs.
Third Quarter FY2012 - FY2011 % Change
Earnings per diluted share (GAAP): $0.93$0.6543%
Restructuring and other special charges: 0.02-
Costs (benefits) related to unsolicited takeover attempt: (0.01)0.13
Multi-employer pension plan withdrawal charges: 0.03-
One-time interest penalty: - 0.02
Adjusted earnings per diluted share (non-GAAP): $0.97 $0.8021%
Third quarter sales were $1.15 billion, an increase of 12% over the prior year. Same-store sales grew 9% in the quarter, with hardgoods up 14% and gas and rent up 7%. Acquisitions contributed sales growth of 3% in the quarter. Sequentially, total sales declined 3% from the second quarter, driven by normal seasonality in the All Other Operations business segment, the impact of holidays, and two fewer selling days in the third quarter. Sequentially, sales per day were comparable to the second quarter on a consolidated basis and increased 2% in the Distribution business segment. "We continue to see evidence of steady economic growth in U.S. manufacturing, as well as in our petrochemical and energy customers," said Airgas Chief Executive Officer Peter McCausland. "Strong growth in welding and automation equipment revenue is outpacing the remainder of our hardgoods portfolio, which is an encouraging indicator of future activity in our industrial customer base."
Adjusted operating margin* of 11.7% for the third quarter included 110 basis points of impact from SAP implementation costs and depreciation expense. Prior year adjusted operating margin* of 12.2% included only 30 basis points of impact from SAP implementation costs and depreciation expense. Distribution segment operating margin, which does not include an allocation of SAP implementation costs, was 12.7% for the third quarter, a 30 basis point improvement over the prior year. "Our sharp operating focus drove sequential expansion in our Distribution segment gross and operating margins," McCausland said. "Our return on capital* increased by 100 basis points over last year to 12.3% as we continue to leverage our national footprint and industry-leading platform on growing sales volumes."
Year-to-date free cash flow* through the third quarter was $175 million, compared to $255 million in the prior year, and adjusted cash from operations* was $417 million for the current year-to-date period compared to $419 million in the prior year. The year-to-date decrease in free cash flow from the prior year reflects an increase in capital expenditures and working capital to support strong sales growth. Free cash flow for the current and prior year quarters was $69 million and $67 million, respectively. During the fiscal 2011 fourth quarter, the Company completed a $300 million share repurchase program, repurchasing 4.78 million shares at an average price of $62.76. During the first quarter of fiscal 2012, the Company completed an additional $300 million share repurchase program, repurchasing 4.46 million shares at an average price of $67.19.
The Company expects adjusted earnings per diluted share* for the fourth quarter of fiscal 2012 to increase 18% to 23% from $0.88 in the prior year to $1.04 to $1.08, which includes $0.08 of SAP implementation costs and depreciation expense, compared to $0.04 in the prior year, and also includes the benefit from share repurchases. The sequential increase in adjusted earnings per diluted share from the third quarter primarily reflects the impact of two additional selling days, the falloff of the third quarter holiday impact, and continued business growth in the Distribution segment.
For fiscal 2012, the Company expects adjusted earnings per diluted share* to increase 21% to 22% from $3.34 in fiscal 2011 to $4.03 to $4.07, which includes an anticipated $0.33 of SAP implementation costs and depreciation expense, compared to $0.14 in fiscal 2011, and also includes the benefit from share repurchases. Special gains and charges for fiscal 2012 are expected to approximate a net charge of $0.17 compared to a net charge of $0.41 in fiscal 2011. All special gains and charges are excluded from the quarter and full year adjusted earnings guidance above. "I am pleased with the significant progress we have made on our SAP implementation, with nearly forty percent of the business now running smoothly on our new platform," said McCausland. "While we are still primarily focused on converting our remaining regional companies to SAP, we have now begun to deploy resources toward the attainment of benefits, consistent with our implementation plan."
The Company will conduct an earnings teleconference at 10:00 a.m. Eastern Time on Thursday, January 26. The teleconference will be available by calling (888) 576-4397. 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 24 at http://investor.shareholder.com/arg/events.cfm. A replay of the teleconference will be available through February 3. To listen, call (888) 203-1112 and enter passcode 4238569.
* See attached reconciliations and calculations of the non-GAAP adjusted earnings per diluted share, adjusted operating margin, adjusted cash from operations, free cash flow, and return on capital.