Airgas has released what will be its final full year financial results in a less-than traditional way. In anticipation of its looming merger with industrial gas corporation, Air Liquide, Airgas has not conducted a quarterly earnings conference call or issued financial guidance for the upcoming quarter. Instead, the US firm opted to release a lone 10-K filing report, last night.
In the report, Airgas informed net sales for the year ended 31st March, 2016, essentially remained flat compared to the previous fiscal year, sitting at $5.3bn. Overall, organic sales decreased 1% compared to the previous year, with gas and rent up 2% but hardgoods down 7%.
The company explained the reasons for the general depreciation and stated, “Organic sales continue to reflect the challenging industrial economy and in particular the pressure on sales to customers engaged in the energy and chemical and the manufacturing and metal fabrication sectors.”
“The sluggish US industrial economy, slowing global economy and strong dollar continue to challenge the company’s customers across these and other sectors.”
The corporation’s operating income was 10.9%, a decrease of 1.2% from the previous year, with the majority (0.7%) of that total loss attributed to the impending acquisition and approaching merger with Tier One giant, Air Liquide. The other 0.5% loss was as a result of “challenging economic conditions and the impact of rising operating costs in the current negative organic sales growth environment in the company’s Distribution business segment.”
Consolidated operating income dropped by 9% to $61m in fiscal 2016, with merging costs and other special charges of $36m accounting for over half of the decline, and the remaining decrease attributable to lower operating income in Airgas’s Distribution business unit.
Sales of strategic products in aggregate, which are defined as having long-term growth profiles relative to core industrial gas and welding product markets, also largely remained flat, showing a slight increase of 1%. These strategic products typically generate around 40% of Airgas’ total net sales and consist of safety products and bulk, medical and specialty gases and carbon dioxide (CO2) and dry ice.
Despite general sales in Airgas’ Distribution business decreasing by 1%, sales in its All Other Operations business unit actually increased by 13% with growth driven by its refrigerants and dry ice businesses. Also showing positive growth were Airgas’ consolidated gross profits, up 2% due to margin expansion on favourable sales mix.
Current and prior acquisitions likewise contributed to a sales growth, however small at 1%, but the selling, distributing and administrative (SD&A) costs associated with acquiring the businesses amounted to roughly $28m in incremental operating costs.
Analysing the acquisition
The Tier One player has picked up some added costs and special charges as well in the last financial year. Air Liquide’s impending acquisition of Airgas has been undoubtedly heralded as the biggest merger in recent years in the industrial gas industry, but has cost the US-based corporation $29m of merger-related costs in fiscal 2016, primarily consisting of legal, advisory and other professional fees.
Additionally, Airgas has incurred a $7m fine for violating the Hazardous Materials Transportation Act. One of the company’s wholly-owned subsidiaries, Airgas Doral, has issued a Plea Agreement to the US Attorney’s Office for the Southern District of Florida, after Airgas allowed an unsafe container of argon (Ar) gas to be shipped from one of its facilities in the US. It leaked, causing the unfortunate deaths of three dockhands. The trial, and full coverage, will be settled and reported, respectively, at the end of this month.
As Airgas did not release any comprehensive coverage of its own financials this year as previously outlined, spokespeople at the company did not give any comments on its recent figures.
gasworld Business Intelligence has spent the past year analysing the US market. According to the analysis, the resultant combined business on the gases & services side, which excludes the welding and safety equipment segment of Airgas’s business, will give Air Liquide/Airgas a 28% market share, assuming some divestment due to antitrust matters.
The emergent acquisition will result in Air Liquide becoming the largest company in the gases and services sector in the US, even after any potential divestments. The acquisition will supplement Air Liquide’s US operations perfectly, seeking to use Airgas’s leading market position in the US packaged gases business to complement its own large industries segment in the region.