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Airgas Inc. (ARG - Analyst Report) reported third-quarter 2012 EPS of 97 cents compared with 80 cents in the year-earlier quarter. The quarter included an asset impairment charge of 10 cents. Results were, however, in line with the Zacks Consensus Estimate.

Total revenue in the reported quarter rose 12% year over year to $1.15 billion, and was above the Zacks Consensus Estimate of $1.14 billion. Sales from same stores were up 9%, with hardgoods gaining 14% and gases and rent growing 7%. Acquisitions contributed 3% to the sales growth.

Cost and Margins

Costs of goods sold increased to $520.8 million in the quarter from $458.2 million in the year-earlier quarter. Selling, distribution and administrative expenses amounted to $433.1 million, up from $387.9 million in the year-earlier quarter.

Operating income was $130.6 million in the quarter versus $108.4 million in the year-ago quarter. Adjusted operating margin in the third quarter was 11.7% and included an impact of 110 basis points from SAP implementation costs and depreciation expense.

Financial Position

Cash, as of December 31, 2011 amounted to $45.8 million, down from $57.2 million as of March 31, 2011. The decrease in free cash flow from the prior year reflects an increase in capital expenditures and working capital to support sales growth.

Adjusted cash from operations in the last nine months was $224.8 million versus $187.2 million in the prior-year period.

Outlook

Management expects adjusted earnings per diluted share for fourth quarter 2012 to increase 18% to 23% from 88 cents in the prior year to $1.04 to $1.08, including 8 cents of SAP implementation costs and depreciation expense, compared with 4 cents in the prior year, and also includes the benefit from share repurchases.

The sequential increase in adjusted earnings per diluted share primarily reflects the impact of two additional selling days, reduced third quarter holiday impact, and continued business growth in the Distribution segment.

For fiscal 2012, the company expects adjusted earnings per diluted share to increase 21% to 22% from $3.34 in fiscal 2011 to $4.03-$4.07, including an anticipated impact of 33 cents related to SAP implementation costs and depreciation expense, compared with 14 cents in fiscal 2011, and also includes the benefit from share repurchases.

Special gains and charges for fiscal 2012 are expected to come in at 17 cents compared with a net charge of 41 cents in fiscal 2011. All special gains and charges are excluded from the quarter and full year adjusted earnings guidance above.

Our Take

Based in Randor, Pennsylvania, Airgas, through its subsidiaries, distributes industrial, medical, and specialty gases, as well as hard goods in the United States. Airgas competes with Air Products & Chemicals Inc. (APD - Analyst Report) and American Air Liquide, Inc.

Currently, the company retains a Zacks #2 Rank, which translates into a short-term (1 to 3 months) Buy rating.

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