Airgas, Inc. today reported sales and earnings results for its fourth quarter and fiscal year ended March 31, 2013, which reflected the impact of continued economic uncertainty and moderation in business conditions on its diversified customer base.
Results for the quarter also reflected the realisation of SAP-related benefits, net of implementation costs incurred, as planned.
“In my view, fiscal 2013 was a very good year for Airgas. We achieved record adjusted EPS of $4.35, 6% over last year and only 7% below the low end of the initial guidance we issued back in May 2012, despite the fact that economic conditions deteriorated as the year progressed, with Non-Tech Industrial Production coming in below our original expectations. In addition, our free cash flow increased by 14% over last year,” said Airgas Executive Chairman Peter McCausland.
“We also completed the implementation of SAP in the rest of our regional Distribution businesses, realised the first tranche of SAP-related benefits as planned for the year, completed the $600m share repurchase program announced in October, and acquired 18 businesses with aggregate annual sales of more than $95m. These achievements are significant milestones in the development of our company and help position us for sustainable long-term growth.”
Fourth quarter earnings per diluted share were $1.13, up 1% over prior year earnings per diluted share of $1.12. Excluding a $0.01 restructuring charge, adjusted earnings per diluted share were $1.14, an increase of 3% over prior year adjusted earnings per diluted share of $1.11. Results included SAP-related benefits, net of implementation costs and depreciation expense, of $0.04 per diluted share in the current year quarter compared to $0.09 of expense in the prior year quarter.
“As we announced on March 21st, organic sales growth in our Distribution segment was flat through February, and absent a strong finish in March, we were likely to miss the low end of our fourth quarter adjusted EPS guidance of $1.18 by approximately 4%, and that is essentially what happened,” said McCausland.
Fourth quarter sales were $1.26bn, an increase of 2% over the prior year. Organic sales in the quarter were flat compared to prior year, with gas and rent up 4% and hardgoods down 5%. Acquisitions contributed sales growth of 2% in the quarter.
Operating margin was 12.1% and 11.7% in the current and prior year quarters, respectively. Adjusted operating margin was 12.2% in both the current and prior year quarters.
For the full year, earnings per diluted share were $4.35, an increase of 9% over prior year earnings per diluted share of $4.00. Adjusted earnings per diluted share* were also $4.35, an increase of 6% over prior year adjusted earnings per diluted share* of $4.11. Results included SAP implementation costs and depreciation expense, net of benefits realised, of $0.18 per diluted share in the current year compared to $0.34 of expense in the prior year.
Full year sales increased 4% over the prior year to $4.96bn. Organic sales increased 3% over the prior year, with gas and rent up 5% and hardgoods up 1%, while acquisitions contributed 1% sales growth for the year.
“The more than 15,000 Airgas associates that make up the best team in the business are to be commended for their hard work and focus on operating safely and serving our customers day-in and day-out under difficult conditions,” said Airgas President and Chief Executive Officer Michael L. Molinini.
“While uncertainty is likely to persist for our customers in the near term, we remain very optimistic about the long-term prospects for the US manufacturing and energy industries, as well as non-residential construction, and our ability to leverage our unique value proposition and unrivaled platform, and we will continue to invest in our industry-leading position to drive growth.”
Free cash flow for the year was $298m, compared to $262m in the prior year, and adjusted cash from operations was $604m for the year, compared to $593m in the prior year. During the fourth quarter, the company completed the remainder of its previously-announced $600m share repurchase program, repurchasing 3.82 million shares on the open market for $378m, reflecting an average price of $98.89. During the third quarter, the company had repurchased 2.47 million shares on the open market for $222m, reflecting an average price of $89.93 per share.
Return on capital was 12.3% for the twelve months ended March 31, 2013, a decrease of 20 basis points from the prior year.
“Our fiscal 2014 outlook assumes the continuation of current slow business conditions for at least the first half of the year, followed by slight improvement, resulting in low-to-mid single digit organic sales growth for the full year, with gas and rent outpacing hardgoods. We have been investing and will continue to invest to position Airgas for long-term growth. But we’re going to keep a sharp eye on expenses this year and won’t hesitate to take further action if the economy continues to weaken and our sales volumes don’t recover,” said McCausland.
“We’re also facing a challenging and unpredictable year ahead for our refrigerants business. The Environmental Protection Agency recently issued a ruling allowing for an increase in the production of R-22 in calendar year 2013 rather than reaffirming the further reductions that much of the industry had been expecting. Fortunately, compliance with the Montreal Protocol almost certainly requires a significant step-down in R-22 production in calendar year 2015, reinforcing our position as an industry leader in the reclamation and distribution of recycled refrigerant products. As a result of this one-year hurdle, our fiscal 2014 guidance includes an estimated $0.05 to $0.10 per share year-over-year negative impact from refrigerants, as prices and sales volumes of R-22 have both come under pressure following the EPA’s ruling.”
“We expect to achieve a minimum of $75m in run-rate operating income benefits related to the SAP initiative by the end of calendar year 2013, consistent with our long-standing target,” said Molinini. “In light of the difficult business conditions we are facing in the near term, combined with the extension of post SAP conversion support and training costs through the first half of fiscal 2014, which we highlighted on our last earnings call, our EPS guidance assumes a contribution from SAP benefits, net of expenses, at the low end of our previously-announced range of $0.45 to $0.55 in fiscal 2014. Our experience with SAP thus far reinforces our expectation that, as highlighted at our December analyst meeting, this initiative will enhance our earnings power over time as we leverage its capabilities in concert with the execution of our strategic growth initiatives.”
For the first quarter of fiscal year 2014, the company expects earnings per diluted share to increase 1% to 6% from adjusted earnings per diluted share* of $1.13 in the prior year to a range of $1.14 to $1.20, which includes an estimated year-over-year increase of approximately $0.16 related to the SAP initiative, reflecting an estimated $0.06 of net benefit in the fiscal 2014 first quarter compared to $0.10 of expense in the fiscal 2013 first quarter. Guidance also reflects year-over-year negative impacts to earnings per share related to variable compensation reset following a below-budget year and a challenging and unpredictable refrigerants market, and a year-over-year benefit to earnings per share related to the company’s recently completed share repurchase program.
For the full fiscal year 2014, the Company expects earnings per diluted share to increase 15% to 23% from $4.35 in the fiscal 2013 to a range of $5.00 to $5.35, which includes an estimated year-over-year increase of approximately $0.63 related to the SAP initiative, reflecting an estimated $0.45 of net benefit in fiscal 2014 compared to $0.18 of net expense in fiscal 2013. Guidance also reflects year-over-year negative impacts to earnings per share related to variable compensation reset following a below-budget year and a challenging and unpredictable refrigerants market, and a year-over-year benefit to earnings per share related to the Company’s recently completed share repurchase program, one additional selling day in fiscal 2014, and the incremental contribution from acquisitions closed during fiscal 2013.