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Good news, disappointment for Airgas

Future looks better than current sales

May 15, 2013
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Airgas, Inc. (NYSE: ARG), one of the nation’s leading suppliers of industrial, medical, and specialty gases, and related products, provided an update on organic sales growth, its previously announced $600 million share repurchase program, and the potential impact on its adjusted earnings guidance for its fourth quarter ending March 31, 2013.

“Organic sales growth in our Distribution segment has been disappointing this quarter,” said Executive Chairman Peter McCausland. “Although organic sales growth in January was in-line with the low-single-digit growth assumption in our fourth quarter guidance, organic sales growth for the month of February was negative 2%. As a result, quarter-to-date organic sales growth through February was flat compared to the prior year and roughly 2% to 3% behind our guidance assumptions, with the shortfalls being volume-related and in both gases and hardgoods.

“Sales to-date in the month of March have not improved appreciably over February, and absent a strong finish in the next ten days, these weaker-than-expected sales suggest that we may miss the low end of our adjusted EPS* guidance of $1.18 by approximately 4%,” McCausland continued. “We hope to make up some ground before the end of the month. However, given the daily sales nature of our business and the limited visibility in the economy, we cannot accurately predict at this time where we will land for the quarter. If there are any material changes in our viewpoint, we will make an announcement at that time.

“On a positive note, we have continued to realize SAP benefits as expected during the quarter, and we have substantially completed our share repurchases. The impact of the share repurchases in the current quarter will be immaterial due the timing of the purchases and the pre-funding of the financing to take advantage of the attractive debt markets,” added McCausland. “And, despite the challenges we are facing and have been facing over the past few quarters in this economic environment, we continue to be 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.”

Organic growth disappointing

“Organic sales growth in our distribution segment has been disappointing,” McCausland said, speaking at the 2013 BB&T Capital Markets Commercial & Industrial Conference in Coral Gables, FL.

McCausland expects the U.S. economy to continue to pick up, particularly in manufacturing, energy and non-residential construction. “We have headwinds, there’s no question,” he said. “The strong dollar, government inaction, weakness in Europe and Asia are all contributing to the headwinds.”

But there are a lot of positive signs, as well, with U.S. manufacturing customers saying the outlook is bright. “We think our theory about a manufacturing renaissance and energy boom is right on target,” McCausland said, though it will be delayed for “we don’t know how long.”

McCausland said the company would be renewing its efforts in acquisitions, looking to expand its core business and product and service adjacencies, though the pace is slower than in the past. “Many companies are waiting to get back to even” before selling, he said. But there are several prospects in the pipeline already.

Airgas has completed 15 acquisitions so far in fiscal year 2013.

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