Airgas posts fiscal Q2 2012 net income of US$77.7M, up 17% year-over-year, revenues of US$1.19B, up 11%; results boosted by strong demand from petrochemical, energy customers

RADNOR, Pennsylvania , October 28, 2011 (press release) –
* Record adjusted diluted EPS* of $1.03, excluding a $0.02 special charge, up 24% over prior year
* Same-store sales up 10% over prior year
* Return on capital* of 12.3%, up 140 basis points over prior year
* Full-year adjusted diluted EPS* guidance raised to $3.97 to $4.07 from $3.90 to $4.05

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.

Guidance Update

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.


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