Airgas, Inc. has today released its Fiscal 2016 second quarter (Q2) earnings, with the ‘challenging industrial economy’ reflected in flat organic sales compared to the prior year.
Total Q2 sales of $1.4bn were up 1% over the prior year, arguably demonstrating the resilience of its business during ‘difficult’ economic times.
This was certainly the view of Airgas President and CEO Michael L. Molinini, who commented, “Our results continue to reflect the challenging industrial economy with sales to customers in our energy and chemical, and manufacturing and metal fabrication end markets down year-over-year in the mid single digits.”
“However, our diversified end customer markets and continued strength in non-residential construction, together with tight expense management, helped to mitigate the impact of the sales declines in those end markets.”
“The quarterly results demonstrated the resilience of our business during difficult economic times. In addition, despite flat sales and earnings, cash flow remains strong, with year-to-date free cash flow up 15% over the prior period.”
Organic sales were flat compared to the prior year, with gas and rent up 3% and hardgoods down 5%. In the Distribution segment, organic sales were down 1% compared to the prior year, with gas and rent up 2% and hardgoods down 5%.
In the All Other Operations segment, organic sales were up 8%, primarily driven by increased sales in the refrigerants, carbon dioxide (CO2) and dry ice businesses.
Meanwhile, acquisitions contributed sales growth of 1% in the quarter on both a consolidated basis and in the Distribution segment, and 8% in the All Other Operations segment. From the beginning of its fiscal year through to October, Airgas has acquired 12 businesses with aggregate annual sales of approximately $80m.
Selling, distribution, and administrative expenses increased 3% over the prior year, with operating costs associated with acquired businesses accounting for approximately half of the increase. The balance of the increase primarily reflects the incremental costs to support strong organic sales growth in the All Other Operations segment.
Operating margin of 12.4% was down 50 basis points compared to the prior year, primarily reflecting the impact of the increase in selling, distribution, and administrative expenses in the current low organic sales growth environment related to its Distribution segment.
The challenging nature of the quarter and much of the year to date appears to transmit to Airgas’ outlook; the company’s guidance for the third quarter of fiscal year 2016 assumes a year-over-year organic sales growth rate of flat to -1%.
For the full fiscal year 2016, Airgas expects earnings per diluted share in the range of $4.90 to $5.00, reflecting a 1% to 3% increase over prior year earnings per diluted share. Full year guidance assumes a year-over-year organic sales growth rate in the low single digits.
Looking ahead, Airgas Executive Chairman Peter McCausland maintains the company’s confidence in the long-term prospects for the US economy and, in turn, the region’s gases business. He explained, “While we are encouraged by the continued strong levels of non-residential construction activity, our strong cash flow, the progress our new District Managers are making and acquisition activity, the overall weak industrial demand tempers our near-term optimism.”
“We continue to focus on expense management and are generally limiting our new hires and backfills to only critical customer-facing and safety sensitive roles. We have identified geographic and end market areas with significant slowdowns and are currently reducing headcount in those areas.”
“Long-term,” he continued, “we believe the fundamental growth prospects for the US economy are strong. The significant investments we have made and continue to make in our gas business position Airgas for industry leading growth.”
“Consistent with our demonstrated track record, we remain committed to delivering sustainable long-term value to our customers and shareholders.”