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Airgas bullish in the long run

Sees bright prospects for U.S. manufacturing and energy industries

Airgas, Inc. (NYSE: ARG), the largest U.S. supplier of industrial, medical, and specialty gases, and related products, reported what it called “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 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%.

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.

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.

Resilience in face of sluggishness

“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.”

“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 10 of our 12 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.”

Short-term caution; long-term optimism

McCausland said, “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.”

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