Airgas Misses Q4 and FY14 Earnings Ests - Analyst Blog

Airgas Inc. ARG posted adjusted earnings of $1.15 a share in fourth-quarter fiscal 2014 (ended Mar 31, 2014), up 1% from $1.14 reported in the year-ago quarter. Results fell short of the Zacks Consensus Estimate of $1.19 as well as the management's earnings guidance of $1.18–$1.23 per share.

The net impact of severe weather in the United States was 2 cents more than expected, while the negative year-over-year impact on earnings related to Airgas' refrigerants business was 3 cents greater than what was factored in the guidance. However, despite sluggish business conditions and continued economic uncertainty, the year-over-year rise in earnings was driven by the realization of SAP-related benefits and share repurchases completed in the second half of fiscal 2013.

Including state income tax benefits of 2 cents in the reported quarter and restructuring charges in the prior-year quarter of 1 cent, earnings were $1.17 per share in the reported quarter, up 4% from $1.13 per share a year ago.

Revenues

Revenues in the reported quarter edged up 0.4% year over year to $1.27 billion from $1.26 billion a year ago. However, it marginally missed the Zacks Consensus Estimate of $1.29 billion. Acquisitions aided sales gain by 1%, while organic sales were down 1% with a 1% decrease in gas and rent, and hardgoods down 2%. Distribution segment's organic sales in the quarter increased 1% year over year, with gas and rent up 2% and hardgoods down 2%.

Cost and Margins

Costs of goods sold decreased 1% year over year to $571 million. Gross profit rose 1% to $696 million from $688 million in the year-ago quarter. Consequently, gross margin expanded 40 basis points (bps) to 54.9%.

Selling, distribution and administrative expenses amounted to $468 million, up 2% year over year. Benefit from reduction in SAP implementation costs was more than offset by rising healthcare costs and higher operating expenses due to inclement weather, as well as by expenses associated with Airgas' expansion of its telesales business through Airgas Total Access, a strategic pricing initiative, and enhancement of its e-Business platform.

Adjusted operating income dipped 2% to $150 million from $154 million in the year-ago quarter. Adjusted operating margin contracted 40 basis points to 11.8% in the quarter. Reduction in SAP implementation costs and the achievement of SAP-related benefits helped margins but were offset by the impact of low organic sales growth and the R-22 pricing in its refrigerants business following the EPA's unexpected ruling in late Mar 2013.

Fiscal 2014 Performance

Airgas reported adjusted earnings per share of $4.72 in fiscal 2014, up 9% from $4.35 in the prior year. Earnings were within the company's guided range of $4.69 to $4.74, but fell short of the Zacks Consensus Estimate of $4.76. The favorable year-over-year impact of share repurchases completed in the second half of fiscal 2013 was partially offset by the negative year-over-year impact related to its refrigerants business, which posted record results in fiscal 2013. Including one-time items, earnings stood at $4.68 in fiscal 2014 compared with $4.35 in the prior fiscal.

Revenues rose 2% to $5.07 billion from $4.96 billion in fiscal 2013. Revenues fell short of the Zacks Consensus Estimate of $5.097 billion. Organic sales were flat year over year, with gas and rent up 1% and hardgoods down 2%, while acquisitions contributed 2% of sales growth of.

Financial Position

Cash, as of fiscal 2014 end was at $69 million, down from $86 million as of fiscal 2013 end. Adjusted cash flow from operations for the reported fiscal was a record $776 million, a year-over-year increase of 29%. Free cash flow in fiscal 2014 also marked a record of $441 million, up 48% year over year. Long-term debt decreased to $1.70 billion as of Mar 31, 2014, from $2.3 billion as of March 31, 2013.

Airgas' board of directors increased the quarterly cash dividend by 15% to 55 cents per share from 48 cents per share. The increased dividend will be paid on Jun 30, 2014 to shareholders of record as of Jun 13, 2014.

Outlook

The company expects earnings per share in the range of $1.15 to $1.20 for the first quarter of fiscal 2015, which reflects an increase of 1% to 5% over prior-year earnings per share of $1.14. The company expects organic sales growth in low single digits for the quarter.

For fiscal 2015, the company expects earnings per share in the range of $5.00 to $5.20, representing a 6% to 10% year-over-year rise. The guidance includes an 11–16 cents per share negative year-over-year impact from variable compensation reset following a below-budget year. Airgas currently expects its refrigerants business to make a slightly favorable contribution to its year-over-year earnings per share growth in fiscal 2015.

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 carries a Zacks Rank #3 (Hold). Other chemical-diversified stocks worth a look include Compass Minerals International Inc. CMP sporting a Zacks Rank #1 (Strong Buy), and L'Air Liquide SA (AIQUY) and Cabot Corporation CBT holding a Zacks Rank #2 (Buy).