Airgas, Inc. has reported a fiscal second quarter (2014) sales increase of 6% over the prior year, up to $1.36bn and with organic sales that were ‘slightly above’ the company’s expectations.
“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 CEO 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 stabilising. 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.”
Operating margin was 12.9%, down 30 basis points compared to the prior year and primarily reflecting a sales mix shift towards hardgoods.
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.
Year-to-date free cash flow was $147m, compared to $238m in the prior year, and adjusted cash from operations was $356m, compared to $397m in the prior year. Return on capital was 12.1% for the 12 months ended 30th September 2014, down 30 basis points compared to the prior year.
Acquisitions contributed sales growth of 2% in the quarter ended 30th September (2014). Since the beginning of its fiscal year, the company has acquired 12 businesses with aggregate annual sales of more than $43m.
For third quarter fiscal year 2015, Airgas assumes a year-over-year organic sales growth rate in the mid single digits. Though the company is focusing squarely on the ‘fundamentals’ of its business for the foreseeable future, it believes that the platform is in place for favourable long-term growth in the US for years to come.
Airgas Executive Chairman Peter McCausland explained, “We’re squarely focused on executing on the fundamentals of our business.”
“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 favourable for years to come,” McCausland continued. “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.”