Second quarter sales increased 6% over the prior year to $1.36 billion. Organic sales were up 4% over the prior year, with gas and rent up 3% and hardgoods up 6%. Acquisitions contributed sales growth of 2% in the quarter.
“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,” said Airgas President and Chief Executive Officer Michael L. Molinini. “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% over the prior year, with operating costs associated with acquired businesses representing approximately 2% 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%, down 30 basis points compared to the prior year and primarily reflecting a sales mix shift toward hardgoods.
Since the beginning of its fiscal year, Airgas 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,” said Airgas Executive Chairman Peter McCausland. “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.”
“Ninety-eight percent of our business is based right here in the world’s largest economy, and we believe the fundamentals for long-term growth in the U.S. economy, particularly in the manufacturing, construction and energy industries, will be favorable for years to come,” McCausland added. “Overall, we are seeing modestly strengthening business conditions and expect near-term continued improvement, despite softness in some sectors. Our guidance continues to assume acceleration in sales growth rates during the second half of the year, with the reduction in the high end of our range primarily reflecting mix pressure from outperformance in hardgoods, cost pressures related to supply disruptions, and a lower than previously expected year-over-year contribution from refrigerants.”