Airgas (ARG) Q1 Earnings Up Y/Y, In Line with Estimates

Zacks

Airgas Inc. (ARG) posted earnings of $1.18 a share in first-quarter fiscal 2015 (ended Jun 30, 2014), up 4% from $1.14 reported in the year-ago quarter. Results came in line with the Zacks Consensus Estimate and in the middle of management's earnings guidance range of $1.15–$1.20 per share.

Revenues

Revenues in the reported quarter rose 3% year over year to $1.31 billion and came in line with the Zacks Consensus Estimate. Acquisitions aided sales growth of 2%, both on a consolidated basis and in the Distribution segment. Organic sales were up 1%, with results being flat in gas and rent, while hardgoods results were up 2%. Distribution segment’s organic sales in the quarter increased 2% year over year, with gas and rent, and hardgoods both up 2%.

 

Cost and Margins

Costs of goods sold went up 1.4% year over year to $583 million. Gross profit rose 3.7% to $730 million from $704 million in the year-ago quarter. Consequently, gross margin expanded 60 basis points (bps) to 55.6%.

Selling, distribution and administrative expenses amounted to $494.7 million, up 4.5% year over year because of increased costs associated with acquisition. Normal expense inflation, as well as expenses associated with Airgas’ 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 income dipped 1% to $155 million from $156.6 million in the year-ago quarter. Operating margin contracted 40 basis points to 11.8% in the quarter due to increase in selling, distribution and administrative expenses, including continued investment in strategic long-term growth initiatives, despite low organic sales growth.

Financial Position

As of Jun 30, 2014, cash and cash equivalents amounted to $77 million versus $69.6 million as of Mar 31, 2014. Adjusted cash flow from operations for the reported quarter was $206 million, a year-over-year increase of 16%. Free cash flow in the first quarter was $104 million, up 4% year over year. Long-term debt increased to $2 billion as of Jun 30, 2014, from $1.7 billion as of Mar 31, 2014.

Guidance

The company expects earnings per share in the range of $1.27 to $1.32 for the second quarter of fiscal 2015, which reflects an increase of 2% to 6% over prior-year earnings per share of $1.25. The company expects organic sales growth in low single digits for the quarter.

For fiscal 2015, the company reiterates earnings per share in the range of $5.00 to $5.20, representing a 6% to 10% year-over-year rise. The guidance includes an 11–16 cents per share of negative year-over-year impact from variable compensation reset following a below-budget year. Airgas currently expects its refrigerants business to make a slightly favorable contribution to its year-over-year earnings per share in fiscal 2015.

Airgas expects residential construction activity to increase in the near future driven by strong growth in rental welder business and increasing demand for staging of materials for energy-related construction projects. In addition, stability in mining and heavy manufacturing sectors will drive sales growth for the company.

Radnor, PA-based Airgas, through its subsidiaries, distributes industrial, medical and specialty gases as a well as hardgoods in the U.S. The company also markets its products and services through e-business, catalog and telesales channels.

Airgas currently carries a Zacks Rank #4 (Sell). Other chemical-diversified stocks worth a look include Marrone Bio Innovations, Inc. (MBII) sporting a Zacks Rank #1 (Strong Buy), and Ashland Inc. (ASH) and Celanese Corporation (CE) holding a Zacks Rank #2 (Buy).
 

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