gasworld Business Intelligence provides you with the latest analysis of Airgas’ Q3 2015 earnings reports.

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Airgas headlines

  • Total reported sales at $1.38bn in CYQ3, again showed slower growth than recent peak at +1%. Sequentially up nearly +2% on prior quarter.
  • Flat organic growth, but combined with +1% contribution from acquisitions. Negative contribution of -1% from volumes, offset by similar positive impact from pricing.
  • Gases up +3% - similar to recent trend - largely offset by worsening decline in Hardgoods sales at -5%.
  • Reported Operating Income down -3% YoY, its weakest performance for several years.
  • Operating Margin showed seasonal improvement, but continued downward trend of recent quarters – margin pressure from weak organic sales in Distribution business.
  • Selling, Distribution & Administration costs up +3% YoY, including over 1% for acquisitions – remainder reflects inflation plus costs of new initiatives.
  • Free Cash Flow significantly up (+15%) on previous year.
  • EPS guidance for FY16 shows narrower increase of +1% to +3%, based on organic sales growth in low single digits.
  • Total Sales were up over +1% YoY in CYQ3, with acquisitions contributing around 1%, similar to or slightly down on recent. No impact from energy pass-through or currency, due to the business type and geographic concentration on US.
  • Organic underlying sales were flat YoY, its lowest performance since early 2014.
  • Organic growth performance driven by positive impact of prices, offset by similar negative impact of -1% in Volumes.
  • Continued sluggishness in key end markets of energy/chemicals, manufacturing and metal fabrication, but non-residential construction strong.

Airgas business sector activity 

  • Airgas’ Distribution segment accounts for around 90% of total sales, with the remainder in Other Operations. Within the Distribution segment, nearly 60% is represented by Gases/Rent - with the remaining 40% in Hardgoods - while Other Operations is largely gases.
  • Distribution Gases sales growth remained at +2% YoY in Q3, above the low of Q1, but below the trend rate of recent years.
  • Hardgoods also slipped back further, with a negative performance at -5% - weakness in core industrial end markets drove strategic line in safety products and Radnor private label business lower (-4% and -5% YoY respectively).
  • Other Operations Gases growth remained solid at +8%, despite being lower than recent double-digit growth due to the rebound from weakness in 2013/4.
  • Distribution Gases includes three strategic product groups (Bulk, Medical and Spec Gas) as well as traditional industrial gases. These account for 9%, 8%, 5% and 29%, respectively, of total company sales.
  • Bulk Gases have consistently shown the highest trend growth amongst Distribution Gases over recent quarters, and maintained its recent rate of +5%. Higher YoY volumes and prices.
  • Medical gases slipped back to a flat performance, which is its weakest for several years. YoY growth in hospitals and centres offset by lower homecare.
  • Spec Gases has bounced back further to +9% in Q3, its highest growth since mid-2013 – driven by large single customer activity – core solid.
  • Industrial gases growth appears to have remained modest in Q3, and close to its lowest rate for several years.
  • Other Operations includes one strategic product (CO2/Dry Ice), as well as ammonia and refrigerants, including CFCs. These account for 5% and 7%, respectively, of total company sales.
  • CO2 sales growth maintained solid YoY growth of +5%, again above the trend of recent years. Higher volumes and prices YoY.
  • Ammonia/refrigerants contined to show double digit YoY growth, albeit below the exceptional growth of recent quarters - driven by recovery after nearly two years of decline.

 

  • Seasonal swing in Other Operations profitability took this business to highest returns for three years, but Distribution margin only marginally reversed recent declining trend.
  • Capex spend over $114m in Q3, up +2% YoY.
  • Capex relative to Sales returning towards 8%, due to removing the Q2 impact of nearly $40m for an operating lease buyout, related to acquired Encompass Gas Group. However, this is Airgas’ highest rate for several years, due to major projects - although below most industry peers.
  • Major projects now running at around 5% of sales. Includes previously announced two new ASUs and liquid hydrogen plants.
  • Acquired three businesses with aggregate annual sales of $6m in last quarter – slower pace and scale than in previous period.

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