Airgas to Hike Product Prices

Zacks

Airgas, Inc. (ARG) has decided to raise product prices. The move comes in the wake of inflationary pressures on its products and operating costs and mounting distribution costs, driven by certain disruptions in the supply chain.

Accordingly, the company has decided to increase prices by 8%-10% on average on the bulk and packaged industrial, medical and specialty gases and by 10%-18% on helium and argon from October 1, 2012, or as the contract permits. In addition, it will continue with 3%-6% higher prices on welding hardgoods and safety products. Further, rental rates for cylinder and bulk tank will go up by 6%-12% from September 1 this year, or as the contract permits.

Airgas has also been investing significantly on its infrastructure as well as technologies to meet the demands of its customers. It has been taking steps in diversifying its businesses and reorganizing its operations. Recently, the company announced a reorganization plan, under which, it intends to divide its East region into two separate regions namely, the Northeast region and the East region.

The company has also proclaimed the acquisition of assets and operations of six businesses engaged in industrial gas and equipment supplies in a bid to complement and expand its operations. The acquisitions are expected to augment the packaged gas and hardgoods distributor portfolio and extend its geographical reach.

Acquisitions have been a major growth driver for Airgas since its inception. It has made over 400 acquisitions in its history. During fiscal 2012, Airgas acquired eight business operations with aggregate historical annual sales of nearly $106 million.

During the first quarter of fiscal 2013, Airgas posted adjusted earnings of $1.13 a share compared with $1.00 a share recorded in the year-ago quarter. The results missed the Zacks Consensus Estimate of $1.15. Revenues rose 8% year over year to $1,257.3 million, but missed the Zacks Consensus Estimate of $1,272 million.

The performance was negatively affected by lower helium supply chain resulting in a lower helium sales volume. It is expected that the decision to hike helium prices will be effective in addressing the supply chain disruptions moving ahead.

Pennsylvania-based Airgas, through its subsidiaries, distributes industrial, medical and specialty gases, as well as hard goods in the U.S. The company has approximately 1,100 locations, including branches, retail stores, gas fill plants, specialty gas labs, production facilities and distribution centers.

Airgas currently retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.

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