Airgas Hints at 4Q13 Guidance Miss (APD) (ARG) (AXLL) (EMN)

Shares of Airgas Inc. (ARG) tumbled 5% after the company hinted toward a lower-than-expected fourth quarter 2013 with earnings coming below the guidance of $1.18 to $1.24 per share. Disappointing organic sales growth in the Distribution segment so far in the quarter, ending March 31, 2013, is touted to be main reason for the guidance miss.

Earlier, during the third quarter conference call, Airgas had guided fourth quarter adjusted earnings per share to increase 6% to 12% annually to a range of $1.18 to $1.24. For fiscal 2013, the company had expected adjusted earnings per share to increase 7% to 9% to the range of $4.40 to $4.46 from $4.11.

Airgas elaborated that even though organic sales growth in January was in line with the low-single-digit growth factored in the fourth quarter guidance, it dipped to negative 2% in February. In total, quarter-to-date organic sales growth till February was flat year over year and around 2% to 3% lower than the guidance assumptions. The shortfalls were volume-related in both gases and hardgoods, such as welding gear.

So far in March, sales growth has not shown any considerable pickup from February. Given no major catalyst driving sales in the last few days of March, it seems evident that Airgas will lag the lower end of its adjusted EPS guidance of $1.18 by approximately 4%.

Airgas, however, continued to realize SAP benefits as expected during the quarter. It has substantially completed its $600 million share repurchase program. However, it will not have any impact on the current quarter’s results due the timing of the purchases and the pre-funding of the financing to take advantage of the attractive debt markets.

In the previous quarter, Airgas missed its guidance of $1.05 – $1.11 a share, posting adjusted earnings of $1.01, up 7% from 97 cents earned in the year-ago quarter. Revenues in the reported quarter rose 5% year over year to $1,207.7 million. Organic growth in the quarter was 4%, with gas and rent growing 6%, offset by a 1% decline in hardgoods. The Distribution business segment had reported an organic growth of 2% in the quarter.

The company is focusing on implementing SAP across its distribution channel and currently about 70% of the businesses are running on SAP. Airgas remains confident that SAP implementation will enable it to realize its full economic benefits and help it to serve its customers better. The company expects to achieve its projected $75 to $125 million in income benefits by the end of 2013.

Pennsylvania-based Airgas, through its subsidiaries, distributes industrial, medical and specialty gases as a well as hardgoods in the U.S. Airgas currently retains a short-term Zacks Rank #3 (Hold). Other stocks to consider in the same industry are Air Products & Chemicals Inc. (APD), Axiall Corporation (AXLL) and Eastman Chemical Co. (EMN), which hold Zacks Rank #2 (Buy) and are favorable options for investors.