Airgas, Inc. has today reported sales and earnings results for its third quarter ended 31st December 2013, financials which reflect lethargic business conditions and the realisation of previous operational targets.
Highlights included organic sales growth of 1% over the prior year, distribution segment organic sales rising 2% over the prior year, and year-to-date free cash flow of $333m – up 52% over the previous year.
Results for the quarter reflected a previously announced loss on the early extinguishment of debt.
Michael L. Molinini, Airgas President and CEO, said of the company’s performance, “Consistent with our expectation for continued sluggish business conditions during the quarter, our earnings results were at the midpoint of our guidance range.”
“We are pleased to have achieved our long-standing target of reaching a run-rate of more than $75m in SAP-enabled operating income benefits by the end of calendar year 2013. Delivering on that commitment made to shareholders more than three years ago is a remarkable achievement for which all Airgas associates are to be commended.”
“We look forward to continuing to leverage SAP’s capabilities and the benefits of having a unified platform across our distribution operations to improve the way we manage our business on both the top and bottom lines for many years to come,” he added.
Third quarter sales were $1.24bn, an increase of 3% over the prior year, while organic sales in the quarter were up 1% over the prior year – with gas and rent up 1% and hardgoods up 1%.
Acquisitions contributed sales growth of 2% in the quarter. Since the beginning of its fiscal year, the company has acquired nine businesses with aggregate annual sales of approximately $70m, including The Encompass Gas Group, Inc., headquartered in Rockford, Illinois.
Distribution segment organic sales in the quarter were up 2% over prior year, with gas and rent up 3% and hardgoods up 1%.
Operating margin was 12.5%, up 30 basis points over the prior year operating margin of 12.2% and up 40 basis points compared to prior year adjusted operating margin* of 12.1%, which excluded a net benefit related to lower than previously estimated restructuring charges in the prior year.
“There are bright spots within certain sectors, but overall choppiness in the industrial economy continues to frustrate us,” Molinini added. “As uncertainty persists, we will remain focused on the things that we can control, including leveraging the SAP system, managing expenses, expanding our telesales business, and enhancing our e-Business platform, and are ready to capitalise when sustained growth in the industrial economy resumes.”
The increase in cash flows was primarily driven by the lower required investment in working capital in the current year compared to the prior year.
Looking ahead, Airgas has issued revised fiscal 2014 guidance and noted a resurgence in the US industrial economy that is remains long-awaited.
Airgas Executive Chairman Peter McCausland explained, “While we still expect a sequential seasonal uptick in our fiscal fourth quarter, our sales outlook has softened in light of weaker-than-expected activity levels in January, in part due to the extremely cold weather in large parts of the country.”
“Despite our tempered outlook for the fourth quarter, our resulting revised fiscal year 2014 guidance represents 9% to 10% growth in adjusted earnings per diluted share and strong execution on strategic initiatives in a challenging environment.”
“The US industrial economy has not improved in the past year to the extent that we and many others had expected when we introduced our fiscal 2016 financial goals at our investor day in December 2012,” McCausland continued. “As a result, and combined with the slow pace of acquisitions, it will take longer than expected to reach the goal of $6.5bn in annual sales. If the long-awaited resurgence in the US industrial economy were to gain real strength in the near-term, however, we could make up some of the lost ground.”
“At this time, we are optimistic that the 15% low-end of our fiscal 2016 operating margin goal is still within reach.”