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Airgas' Sales Beat in 3Q, EPS Misses

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Airgas Inc. posted adjusted earnings of $1.01 a share in third-quarter 2013 (ended December 31, 2012), up 7% from 97 cents earned in the year-ago quarter.

The results missed the Zacks Consensus Estimate of $1.08 as well as management guidance of $1.05 - $1.11 a share. Including restructuring charges and other one-time items, earnings per share in the quarter stood at $1.05 compared with 93 cents in the year-ago quarter.

Revenues in the reported quarter rose 5% year over year to $1,207.7 million and were ahead of the Zacks Consensus Estimate of $1,191 million. Organic growth in the quarter was 4%, with gas and rent growing 6%, offset by a 1% decline in hardgoods. Organic growth in the Distribution business segment was 2%, with gas and rent up 5% but hardgoods down 1%.
Cost and Margins
Costs of goods sold inched up 1% to $527 million in the quarter. Selling, distribution and administrative expenses amounted to $462.3 million, up 7% year over year.
Adjusted operating income was $145.5 million in the quarter versus $135.7 million in the year-ago quarter. Adjusted operating margin in the reported quarter was 12.1% compared with 11.8% in the prior-year quarter.
Financial Position
Cash, as of Dec 31, 2012, increased to $66.6 million from $47.9 million as of Sept 30, 2012. Free cash flow during the first nine months of fiscal 2013 went up to $219 million from $175 million in the comparable period last year.
Adjusted cash from operations for the first nine months of fiscal 2013 was $451 million versus $417 million in the prior-year period. During the third quarter, Airgas repurchased 2.47 million shares for a total amount of $222 million, reflecting an average price of $89.93 per share.
In the first three quarter of fiscal 2013, Airgas has acquired 15 businesses with aggregate annual revenues of more than $94 million.
Management expects adjusted earnings per share (excluding one-time items) for the fourth quarter of fiscal 2013 to increase 6% to 12% to a range of $1.18 to $1.24. The guidance takes into account an estimated year-over-year negative impact of 4 cents due to one less selling day in fourth quarter, a year-over-year decline of 1 cent from the impact of lower sales due to helium supply constraints, 2 cents impact of a higher tax rate and benefit of 4 cent to 6 cents of SAP implementation, net of costs.
For fiscal 2013, the company expects adjusted earnings per share (excluding one-time items) to increase 7% to 9% to the range of $4.40 to $4.46 from $4.11. The company had earlier stated a guidance of $4.45 to $4.60 per share.
The revised guidance factors in an estimated year-over-year negative impact of 7 cents from two less selling days in fiscal 2013, a negative 7 cents impact on sales due to helium supply constraints, and an estimated year-over-year decline of 2 cents related to higher tax rate, as well as approximately 16 to 18 cents of SAP implementation costs and depreciation expense, net of expected benefits.
The company is focusing on implementing SAP across its distribution channel and currently about 70% of the businesses are running on SAP. Airgas remains confident that SAP implementation will enable it to realize its full economic benefits and help it to serve its customers better. The company expects to achieve its projected $75 to $125 million in income benefits by the end of 2013.
Pennsylvania-based Airgas, through its subsidiaries, distributes industrial, medical and specialty gases as a well as hardgoods in the U.S. Airgas currently retains a short-term Zacks Rank #2 (Buy). Other stocks to consider in the same industry are Air Products & Chemicals Inc. (APD - Free Report) , Albemarle Corporation (ALB - Free Report) and Eastman Chemical Co. (EMN - Free Report) , which also hold Zacks Rank #2.

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