Airgas reported Q1 Fiscal 2015 results today (Thursday) with sales increased 3% over the prior year to $1.31bn.

First quarter Organic sales were up 1% over the prior year, with gas and rent flat and hardgoods up 2%. In the Distribution segment, organic sales were up 2% over the prior year, in line with the Company’s expectations, with gas and rent up 2% and hardgoods up 2%. Acquisitions contributed sales growth of 2% in the quarter on both a consolidated basis and in the Distribution segment.

“There were bright spots in certain sectors, such as upstream energy, transportation, and retail, but on balance, underlying business conditions remained sluggish during the quarter, as anticipated,” said Airgas President and Chief Executive Officer Michael L. Molinini.

“Strong growth in our rental welder business this quarter and increasing requests for staging of materials for energy-related construction projects indicate to us that non-residential construction activity should increase as the year progresses, providing a lift to our construction and other key end markets. In addition, sectors such as mining and heavy manufacturing that were significant headwinds in the prior year now appear to be stabilising. As such, our guidance range continues to reflect our expectation for stronger sales growth in the back half of the fiscal year, while also reflecting that we’re early in our fiscal year and some uncertainty still exists.”

“We continue to believe the long-term growth prospects for the US manufacturing and energy industries are strong,” said Airgas Executive Chairman Peter McCausland. “In the near term, we’ll remain focused on the things we can control, including leveraging the SAP system, managing expenses, expanding our telesales business, enhancing our e-Business platform, and adjusting our regional management structures to help drive decision-making closer to our customers and increase our focus on sales growth. All of these areas will further enhance our competitive position to grow market share and to capitalise when sustained growth in the industrial economy resumes.”

Selling, distribution, and administrative expenses increased 4.5% over the prior year, with operating costs associated with acquired businesses representing approximately 1.5% of the increase. Normal expense inflation, as well as expenses associated with the Company’s investments in long-term strategic growth initiatives, including its e-Business platform and continued expansion of its telesales business through Airgas Total Access, also contributed to the increase.

Operating margin was 11.8%, down 40 basis points compared to the prior year and primarily reflecting the impact of the increase in selling, distribution, and administrative expenses, including the Company’s continued investment in strategic long-term growth initiatives, in the current low organic sales growth environment.

Free cash flow for the quarter was $104m, up 4% over the prior year, and adjusted cash from operations was $206m, up 16% over the prior year. Improvements in accounts receivable collection and inventory turn metrics contributed to the company’s strong cash flow this quarter.

Return on capital was 12.1% for the twelve months ended June 30, 2014, consistent with the prior year.

Since the beginning of its fiscal year, the company has acquired five businesses with aggregate annual sales of more than $32m, including Houston-based Team Welding, Ltd. d/b/a Technical Alloy & Industrial Gas. The addition of Technical Alloy to Airgas’ Gulf Coast region further increases the company’s distribution density and enhances its capabilities in the metal fabrication segment, strengthening its competitive position in that rapidly growing area of the country.