Airgas' Q3 Earnings Meet, Revs Miss

Zacks

Airgas Inc. (ARG) posted adjusted earnings of $1.18 a share in third-quarter fiscal 2014 (ended Dec 31, 2013), up 13% from $1.04 recorded in the year-ago quarter. The results were in line with the Zacks Consensus Estimate.

The results confirm the center of management's guidance of $1.15–$1.20 per share. Despite sluggish business conditions and continued economic uncertainty, the year-over-year rise in earnings was driven by the realization of SAP-related benefits.

Including a loss of 8 cents per share on the early extinguishment of the company’s 7.125% senior subordinated notes earnings came in at $1.10 per share in the reported quarter, up 5% from $1.05 per share a year ago.

Revenues

Revenues in the reported quarter rose 3% year over year to $1.24 billion from $1.21 billion a year ago. However, it missed the Zacks Consensus Estimate of $1.25 billion. Acquisitions aided sales gain by 2% while organic sales were up 1% with a 1% increase in gas and rent, and hardgoods were up 1%.

Cost and Margins

Costs of goods sold increased 1.3% year over year to $538 million. Gross profit rose to $705 million from $677 million in the year-ago quarter. Consequently, gross margin expanded 60 basis points (bps) to 56.7%.

Selling, distribution and administrative expenses amounted to $473 million, up 3% year over year. Adjusted operating income rose 12.5% to $154.9 million from $145.5 million in the year-ago quarter. Reduction in SAP implementation costs and the achievement of SAP-related benefits led to the net increase in operating margin in the reported quarter.

Financial Position

Cash, as of Dec 31, 2013, decreased to $62.2 million from $66.6 million as of Dec 31, 2012. Free cash flow was up 52% year over year to $333 million for the nine months ended Dec 31, 2013. Adjusted cash flow from operations for the period was $576 million, up 28% over the year ago period.

Long-term debt decreased to $1.70 billion as of Dec 31, 2013, from $1.71 billion as of Dec 31, 2012.

Outlook

Due to still challenging economic conditions along with the slow pace of acquisitions, Airgas believes that it will take longer than expected to achieve its financial 2016 goals that it laid down in Dec 2013. As a result, the company expects to take longer time than it expected to reach its annual sale target of $6.5 billion. The company, however, remains optimistic of attaining the 15% low-end of its fiscal 2016 operating margin goal.

The company expects earnings per share in the range of $1.18 to $1.23 for the fourth quarter of fiscal 2014 which reflects an increase of 4% to 9% over prior year earnings per share of $1.13 and an increase of 4% to 8% over prior year adjusted earnings per share of $1.14. The outlook for both earnings per share and adjusted earnings per share includes an estimated year-over-year increase of about 12 cents related to the SAP initiative.

For fiscal 2014, the company expects earnings per share, in the range of $4.69 to $4.74, representing an 8% to 9% year over year rise. Airgas forecasts adjusted earnings per share of $4.75 to $4.80, a 9% to 10% year over year increase. Fiscal 2014 guidance for both earnings per share and adjusted earnings per share includes an estimated year-over-year increase of roughly 65 cents related to the SAP initiative.

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 retains a Zacks Rank #3 (Hold).

Other chemical stocks worth a look include L'Air Liquide SA (AIQUY), Northern Technologies International Corp. (NTIC) and  PPG Industries Inc. (PPG).  While L'Air Liquide and Northern Technologies International hold a Zacks Rank #1 (Strong Buy), PPG Industries retains a Zacks Rank #2 (Buy).

Read the Full Research Report on ARG
Read the Full Research Report on NTIC
Read the Full Research Report on PPG
Read the Full Research Report on AIQUY


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