RADNOR, PA - October 27, 2011 -- Airgas, Inc. (NYSE: ARG), the largest U.S. distributor of industrial, medical, and specialty gases, and related supplies, today reported record net earnings of $77.7 million, or $1.01 per diluted share, for its second quarter ended September 30, 2011. Excluding a $0.02 asset impairment charge, adjusted earnings per diluted share were a record $1.03*, an increase of 24% from $0.83* in the prior year. Prior year GAAP earnings per diluted share of $0.78 included legal and professional fees and other costs of $0.03** related to the unsolicited takeover attempt, multi-employer pension plan withdrawal charges of $0.01, and debt extinguishment charges of $0.01. Adjusted earnings per diluted share included SAP implementation costs and depreciation expense of $0.07 for the current quarter and $0.05 for the prior year quarter, and the current quarter reflected the benefit of the Company's two recently completed share repurchase programs, which more than offset the incremental SAP costs.
Second quarter sales were $1.19 billion, an increase of 12% over the prior year. Total same-store sales grew 10% in the quarter, with hardgoods up 14% and gas and rent up 7%. Acquisitions contributed sales growth of 2% in the quarter. Sequentially, sales increased 2% from the first quarter both in total and on a sales-per-day basis.
"We continue to see strength in the manufacturing-intensive regions of the U.S. and in our petrochemical and energy customers," said Airgas Chief Executive Officer Peter McCausland. "The relative outperformance in our hardgoods business on the strength of sales to large manufacturing customers and the mix shift within hardgoods to welding and automation equipment had a dilutive effect on our gross margin, but are generally indicative of sustained activity levels in the manufacturing economy. While this is cause for optimism, given the global economic uncertainty that unfolded during the quarter, we are paying close attention to our business trends and have proven in the past that we can quickly adjust our cost structure if warranted."
Adjusted operating margin* for the second quarter improved by 20 basis points to 12.2% from the prior year and included 70 basis points of impact from SAP implementation costs and depreciation expense. Prior year adjusted operating margin* of 12.0% included 60 basis points of impact from SAP implementation costs and depreciation expense. Distribution segment operating margin for the second quarter was 12.5%, a 70 basis point improvement over the prior year.
"Even with the burden of SAP implementation costs, the strength of our business in a period of modest economic growth is evident," McCausland said. "Our return on capital* increased by 140 basis points over last year to 12.3% as we continue to leverage our national footprint and industry-leading platform on higher sales volumes."
Year-to-date free cash flow* through the second quarter was $106 million, compared to $188 million in the prior year, and current-year adjusted cash from operations* was $257 million compared to $299 million in the prior year. The decrease in free cash flow from the prior year reflects an increase in capital expenditures and working capital to support sales growth.
During the fiscal 2011 fourth quarter, the Company completed a $300 million share repurchase program, repurchasing 4.78 million shares at an average price of $62.76. During the first quarter of fiscal 2012, the Company completed an additional $300 million share repurchase program, repurchasing 4.46 million shares at an average price of $67.19.
The Company expects adjusted earnings per diluted share* for the third quarter of fiscal 2012 to increase 19% to 23% from $0.80 in the prior year to $0.95 to $0.98, which includes $0.08 of SAP implementation costs and depreciation expense, compared to $0.02 in the prior year. The sequential decline from the second quarter in adjusted earnings per diluted share reflects normal seasonal declines in the All Other Operations business segment as well as the impact of holidays and two fewer selling days in the third quarter, partially offset by continued business growth in the Distribution segment.
For fiscal 2012, the Company expects adjusted earnings per diluted share* to increase 19% to 22% from $3.34 in fiscal 2011 to $3.97 to $4.07, which includes an anticipated $0.32 of SAP implementation costs and depreciation expense, compared to $0.14 in fiscal 2011.
All fiscal 2012 adjusted diluted EPS* guidance includes the benefit of the two recently completed share repurchase programs, which offsets incremental year-over-year SAP costs. The guidance excludes the impact of restructuring charges, which were $0.10 in the first quarter, and related costs, which were negligible in the second quarter and are expected to be $0.07 over the balance of the year. The restructuring charges arise from the consolidation of accounting and certain administrative functions of twelve regional distribution companies into four Business Support Centers. The guidance also excludes the impact of asset impairment charges, which were $0.02 in the second quarter, the net impact related to the unsolicited takeover attempt, and any multi-employer pension plan withdrawal charges.
"With the SAP implementation at Airgas Great Lakes in September exceeding our expectations and nearly $1 billion in annual revenues now running smoothly on SAP, we believe implementation risk associated with the remaining business units is significantly diminished," said McCausland. "SAP implementation costs are still expected to be heaviest in fiscal 2012 as we complete the conversions of our regional distribution companies over the next twelve months. We expect the combination of lower implementation costs and the ramp-up of SAP-related benefits to yield year-over-year earnings accretion of approximately 20 cents in fiscal 2013 above and beyond our base business performance. Given our favorable business trends and sharp operating focus, our future prospects are very attractive."
The Company will conduct an earnings teleconference at 10:00 a.m. Eastern Time on Thursday, October 27. The teleconference will be available by calling (888) 490-2763. The presentation materials (this press release, slides to be presented during the Company's teleconference and information about how to access a live and on-demand webcast of the teleconference) are available in the "Investor Information" section of the Company's website at www.airgas.com. A webcast of the teleconference will be available live and on demand through November 25 at http://investor.shareholder.com/arg/events.cfm. A replay of the teleconference will be available through November 4. To listen, call (888) 203-1112 and enter passcode 3848550.
* See attached reconciliations and calculations of the non-GAAP adjusted earnings per diluted share, adjusted operating margin, adjusted cash from operations, free cash flow, and return on capital.
** The legal and professional fees and other costs incurred were in response to Air Products' unsolicited takeover attempt.
About Airgas, Inc.
Airgas, Inc. (NYSE: ARG), through its subsidiaries, is the largest U.S. distributor of industrial, medical, and specialty gases, and hardgoods, such as welding equipment and supplies. Airgas is also one of the largest U.S. distributors of safety products, the largest U.S. producer of nitrous oxide and dry ice, the largest liquid carbon dioxide producer in the Southeast, and a leading distributor of process chemicals, refrigerants, and ammonia products. More than 14,000 employees work in approximately 1,100 locations, including branches, retail stores, gas fill plants, specialty gas labs, production facilities, and distribution centers. Airgas also distributes its products and services through eBusiness, catalog, and telesales channels. Its national scale and strong local presence offer a competitive edge to its diversified customer base. For more information, please visit www.airgas.com.
This press release contains statements that are forward looking, as that term is defined by the Private Securities Litigation Reform Act of 1995 or by the SEC in its rules, regulations and releases. These statements include, but are not limited to: expectations for adjusted earnings per diluted share to be in the range of $0.95 to $0.98 (which includes $0.08 of SAP implementation costs and depreciation expense, compared to $0.02 in the prior year) for the third quarter of fiscal 2012, and in the range of $3.97 to $4.07 (which includes $0.32 of SAP implementation costs and depreciation expense, compared to $0.14 in fiscal 2011) for fiscal year 2012; expectations for $0.07 per diluted share in costs related to the transition to Business Support Centers expected to be incurred over the balance of fiscal 2012; expectations regarding SAP implementation risk, and the timing and magnitude of SAP implementation costs to be incurred and benefits to be achieved; and expectations for our future prospects. Forward-looking statements also include any statement that is not based on historical fact, including statements containing the words "believes," "may," "plans," "will," "could," "should," "estimates," "continues," "anticipates," "intends," "expects," and similar expressions. We intend that such forward-looking statements be subject to the safe harbors created thereby. All forward-looking statements are based on current expectations regarding important risk factors and should not be regarded as a representation by us or any other person that the results expressed therein will be achieved. Airgas assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law. Important factors that could cause actual results to differ materially from those contained in any forward-looking statement include: adverse changes in customer buying patterns resulting from deterioration in current economic conditions; weakening in the operating and financial performance of our customers, which can negatively impact our sales and our ability to collect our accounts receivable; postponement of projects due to economic developments; customer acceptance of price increases; our ability to achieve anticipated acquisition synergies; supply cost pressures; increased industry competition; our ability to successfully identify, consummate, and integrate acquisitions; our continued ability to access credit markets on satisfactory terms; significant fluctuations in interest rates; increases in energy costs and other operating expenses eroding planned cost savings; higher than expected implementation costs of the SAP system; conversion problems related to the SAP system that disrupt our business and negatively impact customer relationships; higher than expected costs related to restructuring and Business Support Center transition; the impact of tightened credit markets on our customers; the impact of changes in tax and fiscal policies and laws; the potential for increased expenditures relating to compliance with environmental regulatory initiatives; the impact of new environmental, healthcare, tax, accounting, and other regulation; continued potential liability under the Multiemployer Pension Plan Amendments Act of 1980 with respect to our participation in or withdrawal from multi-employer pension plans for our union employees; the economic recovery in the U.S.; the effect of catastrophic events; political and economic uncertainties associated with current world events; and other factors described in the Company's reports, including its March 31, 2011 Form 10-K, subsequent Form 10-Q, and other forms filed by the Company with the SEC.
Consolidated statements of earnings, condensed consolidated balance sheets, consolidated statements of cash flows, and reconciliations of non-GAAP financial measures follow below.
Reconciliations of Non-GAAP Financial Measures (Unaudited)
Adjusted Earnings per Diluted Share and Earnings Guidance
Reconciliations and computations of adjusted earnings per diluted share and earnings guidance:
Guidance for adjusted earnings per diluted share excludes Business Support Center restructuring charges and related costs, asset impairment charges, any net impact related to the 2011 unsolicited takeover attempt, and any MEPP withdrawal charges.
The Company believes that adjusted earnings per diluted share provides investors meaningful insight into the Company's earnings performance without the impact of Business Support Center restructuring charges, asset impairment charges, costs and benefits related to Air Products' unsolicited takeover attempt, MEPP withdrawal charges, one-time interest penalty, and debt extinguishment charges. Non-GAAP numbers should be read in conjunction with GAAP financial measures, as non-GAAP metrics are merely a supplement to, and not a replacement for, GAAP financial measures. It should be noted as well that our adjusted earnings per diluted share metric may be different from adjusted earnings per diluted share metrics provided by other companies.
Adjusted Operating Margin
Reconciliations and computations of adjusted operating margin:
The Company believes the above adjusted operating margin computations help investors assess the Company's operating performance without the impact of Business Support Center restructuring charges, asset impairment charges, costs related to Air Products' unsolicited takeover attempt, and MEPP withdrawal charges. Non-GAAP numbers should be read in conjunction with GAAP financial measures, as non-GAAP metrics are merely a supplement to, and not a replacement for, GAAP financial measures. It should be noted as well that our adjusted operating margin computations may be different from the adjusted operating margin computations provided by other companies.
Return on Capital
Reconciliations and computations of return on capital:
The Company believes this return on capital computation helps investors assess how effectively the Company uses the capital invested in its operations. Non-GAAP numbers should be read in conjunction with GAAP financial measures, as non-GAAP metrics are merely a supplement to, and not a replacement for, GAAP financial measures. It should be noted as well that our return on capital computation may be different from the return on capital computations provided by other companies.
Free Cash Flow and Adjusted Cash from Operations
Reconciliations and computations of free cash flow and adjusted cash from operations:
The Company believes that free cash flow and adjusted cash from operations provide investors meaningful insight into the Company's ability to generate cash from operations without the impact of cash used related to Air Products' unsolicited takeover attempt and MEPP withdrawals, which is available for servicing debt obligations and for the execution of its business strategies, including acquisitions, the prepayment of debt, the payment of dividends, or to support other investing and financing activities. Non-GAAP numbers should be read in conjunction with GAAP financial measures, as non-GAAP metrics are merely a supplement to, and not a replacement for, GAAP financial measures. It should be noted as well that our free cash flow and adjusted cash from operations metrics may be different from free cash flow and adjusted cash from operations metrics provided by other companies.
Jay Worley (610) 902-6206
Barry Strzelec (610) 902-6256