“There were bright spots in certain sectors, such as upstream energy, transportation, and retail, but on balance, underlying business conditions remained sluggish during the quarter, as anticipated,” said Airgas President and Chief Executive Officer Michael L. Molinini. “Strong growth in our rental welder business this quarter and increasing requests for staging of materials for energy-related construction projects indicate to us that non-residential construction activity should increase as the year progresses, providing a lift to our construction and other key end markets. In addition, sectors such as mining and heavy manufacturing that were significant headwinds in the prior year now appear to be stabilizing. As such, our guidance range continues to reflect our expectation for stronger sales growth in the back half of the fiscal year, while also reflecting that we’re early in our fiscal year and some uncertainty still exists.”
First quarter sales increased three percent over the prior year to $1.31 billion. Organic sales were up one percent over the prior year, with gas and rent flat and hardgoods up two percent. In the Distribution segment, organic sales were up two percent over the prior year, in line with the company’s expectations, with gas and rent up two percent and hardgoods up two percent. Acquisitions contributed sales growth of two pecent in the quarter on both a consolidated basis and in the Distribution segment.
Long-term growth prospects
“We continue to believe the long-term growth prospects for the U.S. manufacturing and energy industries are strong,” said Airgas Executive Chairman Peter McCausland. “In the near term, we’ll remain focused on the things we can control, including leveraging the SAP system, managing expenses, expanding our telesales business, enhancing our e-Business platform, and adjusting our regional management structures to help drive decision-making closer to our customers and increase our focus on sales growth. All of these areas will further enhance our competitive position to grow market share and to capitalize when sustained growth in the industrial economy resumes.”
Selling, distribution, and administrative expenses increased 4.5 percent over the prior year, with operating costs associated with acquired businesses representing approximately 1.5 percent of the increase. 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, also contributed to the increase.
Operating margin was 11.8 percent, down 40 basis points compared to the prior year and primarily reflecting the impact of the increase in selling, distribution, and administrative expenses, including the company’s continued investment in strategic long-term growth initiatives, in the current low organic sales growth environment.
Free cash flow* for the quarter was $104 million, up four percent over the prior year, and adjusted cash from operations* was $206 million, up 16 percent over the prior year. Improvements in accounts receivable collection and inventory turn metrics contributed to the company’s strong cash flow this quarter.
Return on capital* was 12.1 percent for the 12 months ended June 30, 2014, consistent with the prior year.
Since the beginning of its fiscal year, the company has acquired five businesses with aggregate annual sales of more than $32 million, including Houston-based Team Welding, Ltd. d/b/a Technical Alloy & Industrial Gas. The addition of Technical Alloy to Airgas’ Gulf Coast region further increases the company’s distribution density and enhances its capabilities in the metal fabrication segment, strengthening its competitive position in that rapidly growing area of the country.
Guidance
For the second quarter of fiscal year 2015, the company expects earnings per diluted share in the range of $1.27 to $1.32, representing an increase of 0 to four percent over prior year earnings per diluted share of $1.27 and an increase of two to six percent over prior year adjusted earnings per diluted share* of $1.25. Second quarter guidance assumes a year-over-year organic sales growth rate in the low single digits.
For the full fiscal year 2015, the company expects earnings per diluted share in the range of $5.00 to $5.20, representing an increase of 7 to 11 percent over prior year earnings per diluted share of $4.68 and an increase of 6 to 10 percent over prior year adjusted earnings per diluted share* of $4.72. Full year guidance includes a negative $0.11 to $0.16 per diluted share year-over-year impact from variable compensation reset following a below-budget year in fiscal 2014. The company currently expects the contribution from its refrigerants business to year-over-year earnings per diluted share growth in fiscal 2015 to be slightly favorable.
* See reconciliations and computations of non-GAAP adjusted earnings per diluted share guidance, adjusted cash from operations, free cash flow, and return on capital financial measures.
Airgas, Inc. (NYSE: ARG), through its subsidiaries, is one of the nation’s leading suppliers of industrial, medical and specialty gases, and hardgoods, such as welding equipment and related products. Airgas is a leading U.S. producer of atmospheric gases with 16 air separation plants, a leading producer of carbon dioxide, dry ice, and nitrous oxide, one of the largest U.S. suppliers of safety products, and a leading U.S. supplier of refrigerants, ammonia products, and process chemicals. More than 16,000 associates work in approximately 1,100 locations, including branches, retail stores, gas fill plants, specialty gas labs, production facilities and distribution centers. Airgas also markets its products and services through e-Business, catalog and telesales channels. Its national scale and strong local presence offer a competitive edge to its diversified customer base.
For more information, please visit www.airgas.com.
