Airgas, Inc. ARG posted adjusted earnings of $1.15 a share in fourth-quarter fiscal 2015 (ended Mar 31, 2015), flat with the year-ago quarter. Results beat the Zacks Consensus Estimate by a penny and were within the company’s own guidance of $1.13–$1.16.
As announced earlier, Airgas’ fourth quarter experienced greater-than-anticipated declines in year-over-year sales growth rates in the Energy & Chemicals and Manufacturing customer segments, reflecting the impact of significant and rapid decline in oil prices and that of a strong dollar on manufacturers that export, as well as challenging weather conditions throughout much of the country.
Including state income tax benefits, earnings in the prior-year quarter stood at $1.17. There is no such adjustment in the reported quarter.
Revenues
Revenues in the reported quarter rose 2.7% year over year to $1.302 billion, falling short of the Zacks Consensus Estimate of $1.31 billion. Acquisitions contributed 1% to sales growth. Organic sales were up 2%, with gas and rent, and hardgoods each rising 2%.
Costs and Margins
Costs of goods sold went up 2% year over year to $583 million. Gross profits rose 3% to $719 million from $696 million in the year-ago quarter. Gross margin expanded 30 basis points (bps) to 55.2%.
Selling, distribution and administrative expenses amounted to $487 million, up 4% year over year because of increased costs associated with acquisitions. 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 declined 2% to $147 million from $150 million in the year-ago quarter. Operating margin contracted 50 bps to 11.3% in the quarter. The decline was mainly due to escalating operating costs and Airgas’ continued investments in strategic long-term growth initiatives in the current low organic sales growth environment.
Fiscal 2015 Performance
Airgas reported adjusted earnings per share of $4.85 in fiscal 2015, up 3% from $4.72 in the prior fiscal. Earnings were in line with the Zacks Consensus Estimate. Including one-time items, earnings stood at $4.68 in the prior fiscal while the current fiscal did not have any such adjustment. Revenues improved 4.6% year over year to $5.305 billion, missing the Zacks Consensus Estimate of $5.308 billion by a short margin.
Financial Position
As of Mar 31, 2015, Airgas’ cash and cash equivalents amounted to $50.7 million compared with $69.6 million as of Mar 31, 2014. Adjusted cash flow from operations for fiscal 2015 was $718 million, compared with $745 million in the prior year. Long-term debt increased to $1.75 billion as of Mar 31, 2015, from $1.71 billion as of Mar 31, 2014.
Free cash flow for fiscal 2015 was $309.5 million, down from the prior-year figure of $441 million, impacted by increase in capital expenditures, reflecting the company’s investment in revenue-generating assets, including two air separation plants, one e-Business platform and a new hardgoods distribution center.
Guidance
Airgas expects first-quarter fiscal 2016 earnings per share to lie in the range of $1.14 to $1.18, compared with prior-year earnings per diluted share of $1.18. The guidance includes a negative year-over-year impact of 3 cents per diluted share from near-term net cost pressure related to helium supply extension and diversification initiatives. The flat to slightly declining earnings per diluted share range also reflects the near-term challenging sales environment, based on expectation of year-over-year organic sales growth in the low-single digits.
For fiscal 2016, the company expects earnings per share in the range of $4.85 to $5.15, the mid-point representing a 3% increase over fiscal 2015 earnings. Full-year guidance includes a nil to 14 cents per share negative year-over-year impact from variable compensation reset, following a below-budget year, as well as 6 cents to 9 cents per diluted share negative year-over-year impact from near term net cost pressure related to helium supply extension and diversification initiatives. Full year guidance assumes year-over-year organic sales growth in the low- to mid-single digits.
Airgas plans to improve its sales through Total Access and new e-Business platforms. The company 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. However, high-debt levels, near-term uncertainty in the refrigerants business and contraction in the helium market pose as headwinds for the company.
Radnor, PA-based Airgas, through its subsidiaries, distributes industrial, medical and specialty gases as 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).
Stocks to consider in the chemical-diversified industry include Celanese Corporation CE, Cytec Industries Inc. CYT and LyondellBasell Industries N.V. LYB, each holding a Zacks Rank #2 (Buy).
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