Airgas Trumps Estimates in 4Q

Airgas Inc. ( ARG - Snapshot Report ) posted adjusted earnings of $1.11 a share in fourth-quarter of fiscal 2012 (ended March 31) as against 88 cents posted in the year-ago quarter, beating the Zacks Consensus Estimate of $1.07. For fiscal 2012, the company posted adjusted earnings of $4.11 per share, up from last year’s earnings of $3.35 and ahead of the Zacks Consensus Estimate of $4.05.

Earnings (as reported) increased 40.2% to $88 million (or $1.12 per share) in the quarter from $62.8 million, or 74 cents per share, last year. Reported earnings for fiscal 2012 also grew 25.2% to $313.4 million (or $4.00 per share) from $250.3 million, or $2.94 per share, in fiscal 2011.

Revenues

Total revenues in the reported quarter rose 13% year over year to $1.24 billion, and were above the Zacks Consensus Estimate of $1.22 billion. Same-stores sales were up 11%, with hardgoods gaining 15% and gases and rent growing 9%. Acquisitions contributed 2% to growth.

For fiscal 2012, revenues jumped 12% from last year to $4.75 billion, slightly ahead of the Zacks Consensus Estimate of $4.72 billion. The yearly growth was driven by a 10% increase in same-store sales, with a hardgoods and gas/rent jumping 14% and 7%, respectively. Acquisitions added 2% to top-line growth in the year.

Cost and Margins

Costs of goods sold increased to $572 million in the quarter from $504 million in the year-ago period. Selling, distribution and administrative expenses amounted to $448 million, up from $399 million last year.

Operating income was $145.8 million in the quarter versus $115.8 million in the year-ago quarter. Adjusted operating margin in the fourth quarter was 12.2%, consistent with the prior-year period. Adjusted operating income in the quarter included an impact of 90 basis points from SAP implementation costs and depreciation expense, whereas the figure was 50 basis points last year.

Financial Position

Cash, as of March 31, 2012, amounted to $44.6 million, down from $57.2 million as of March 31, 2011. Free cash flows at the end of the quarter went down to $86.9 million from $131.5 million last year. The decrease in free cash flows from the prior-year reflects an increase in capital expenditures and working capital to support sales growth.

Adjusted cash from operations at the end of the quarter was $175.9 million versus $198.3 million in the prior-year period.

Outlook

Management expects adjusted earnings per share for the first quarter of 2013 to increase 12% to 16% to $1.12 to $1.16 from $1 in the prior-year quarter. This includes 8 cents of SAP implementation costs and depreciation expense, which is same as the year-ago period.

For fiscal 2013, the company expects adjusted earnings per share to increase 14% to 18% to $4.70 to $4.85 from $4.11 in fiscal 2012, including an anticipated impact of 12 to 16 cents related to SAP implementation costs and depreciation expense, compared with 34 cents in fiscal 2012.

Our Take

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

We have a long-term Neutral recommendation on Airgas. The stock retains a Zacks #2 Rank, which translates into a short-term (1 to 3 months) Buy rating.