Monday, May 05, 2008; Posted: 04:06 PM
Quarterly net earnings grew 47% to $64.2 million, or $0.76 per diluted share, compared to $43.7 million, or $0.54 per diluted share, in the prior year. Fourth quarter sales grew 27% from the prior year to $1.1 billion, with acquisitions contributing 19% of the growth. Total same-store sales increased 8% in the quarter, with hardgoods up 4% and gas and rent up 11%.
"Despite a slowing economy, our strategic product categories, which focus on the healthcare, research, environmental, and food and beverage markets, posted 11% organic growth in the quarter," said Airgas Chairman and Chief Executive Officer Peter McCausland. "Our energy and infrastructure construction customers remain strong. Rising export activity and strength in U.S. infrastructure projects are also helping many of our core industrial customers, offsetting the economic slowdown. We continue to grow profitably, as the operating margin in the quarter expanded to 12.1%, an improvement of 120 basis points over last year."
The Company made 18 acquisitions in fiscal 2008, adding more than $500 million in annualized revenue. In addition to the June 30, 2007 acquisition of Linde's U.S. packaged gas business, which added $346 million in annualized revenue from 130 locations across 18 states, there were 17 others that added more than $160 million. "These transactions helped us enhance our core business and extend our product lines, with acquisitions in packaged gases and welding products, safety products, ammonia, and refrigerants," said McCausland. "We have taken time to integrate them in a manner that effectively creates long-term value for our customers and our shareholders."
Sales in fiscal 2008 increased 25% to $4 billion, with same-store sales growth of 7%. Earnings for the year were $2.66 per diluted share compared to $1.92 per diluted share in the prior year. The current year includes a $0.03 one-time non-cash charge from the National Welders transaction and a $0.01 one-time tax benefit related to a change in state tax law. The prior year included a charge of $0.10 for the early extinguishment of debt and a $0.02 tax benefit related to a change in state tax law. Adjusting for these items, diluted earnings per share increased 34% to $2.68 in fiscal 2008.* The Company generated strong free cash flow of $225 million for the year, compared to $107 million last year.*
McCausland continued, "We expect earnings per diluted share of $3.24 to $3.40 in fiscal 2009. First-quarter expectations are $0.79 to $0.81 per diluted share. We are mindful of the state of the U.S. economy, but we believe Airgas is well-positioned to deliver strong earnings growth this year."
The Company will conduct an earnings teleconference at 11:00 a.m. Eastern Time on Tuesday, May 6. The teleconference will be available by calling (888) 726-2429. 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 under the "Company Information" heading on the Company's Internet site at www.airgas.com. A webcast of the teleconference will be available live and on demand through June 6 at http://www.shareholder.com/arg/medialist.cfm. A replay of the teleconference will be available through May 13. To listen, call (888) 203-1112 and enter passcode 8415413.
* See attached reconciliations of non-GAAP financial measures associated with Adjusted Net Earnings and Free Cash Flow calculations.
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 over 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.
Forward-Looking Statements
This press release may contain statements that are forward looking, as that term is defined by the Private Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules, regulations and releases. These statements include, but are not limited to, statements regarding: energy and infrastructure construction customers remaining strong; customers in medical, research, environmental, and food and beverage segments remaining strong; industrial customers benefiting from rising export activity and U.S. infrastructure projects; expectations for fiscal 2009 earnings per diluted share of $3.24 to $3.40 and first quarter earnings per diluted share of $0.79 to $0.81; and the belief that Airgas is well-positioned to deliver strong earnings growth in fiscal 2009. We intend that such forward-looking statements be subject to the safe harbors created thereby. All forward-looking statements are based on current expectations regarding important risk factors and should not be regarded as a representation by us or any other person that the results expressed therein will be achieved. Important factors that could cause actual results to differ materially from those contained in any forward-looking statement include: an economic downturn; customer acceptance of price increases; supply cost pressures; increased industry competition; our ability to successfully consummate and integrate acquisitions; adverse changes in customer buying patterns; significant fluctuations in interest rates; increases in energy costs and other operating expenses; the effect of catastrophic events; political and economic uncertainties associated with current world events; and other factors described in the Company's reports, including its Form 10-K dated March 31, 2007, subsequent Forms 10-Q, and other forms filed by the Company with the Securities and Exchange Commission.
Consolidated statements of earnings, condensed consolidated balance sheets, consolidated statements of cash flows, and reconciliations of non-GAAP financial measures follow.
AIRGAS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Amounts in thousands, except per share data) (Unaudited) (Unaudited) --------------------- ----------- Three Months Ended Year Ended March 31, March 31, 2008 2007 2008 2007 ----------- --------- ----------- ----------- Net sales $1,086,597 $853,861 $4,017,024 $3,205,051 ----------- --------- ----------- ----------- Costs and expenses: Cost of products sold (excl. deprec.) 523,077 419,342 1,926,426 1,567,090 Selling, distribution and administrative expenses 383,842 303,163 1,424,677 1,149,166 Depreciation 46,235 36,595 175,802 138,818 Amortization 2,398 1,808 13,973 8,525 ----------- --------- ----------- ----------- Total costs and expenses 955,552 760,908 3,540,878 2,863,599 ----------- --------- ----------- ----------- Operating income 131,045 92,953 476,146 341,452 Interest expense, net (21,690) (17,107) (89,860) (60,180) Discount on securitization of trade receivables (b) (4,295) (3,137) (17,031) (13,630) Loss on debt extinguishment (c) - - - (12,099) Other income, net 570 242 1,507 1,601 ----------- --------- ----------- ----------- Earnings before income tax expense and minority interest 105,630 72,951 370,762 257,144 Income tax expense (41,417) (28,505) (144,184) (99,883) Minority interest in earnings of consolidated affiliate (d) - (711) (3,230) (2,845) ----------- --------- ----------- ----------- Net earnings $ 64,213 $ 43,735 $ 223,348 $ 154,416 =========== ========= =========== =========== Net earnings per common share (e): Basic earnings per share $ 0.78 $ 0.56 $ 2.74 $ 1.98 =========== ========= =========== =========== Diluted earnings per share $ 0.76 $ 0.54 $ 2.66 $ 1.92 =========== ========= =========== =========== Weighted average shares outstanding (e): Basic 82,476 78,579 81,402 78,025 Diluted 84,613 83,160 84,235 82,566 See attached Notes.
AIRGAS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands) (Unaudited) March 31, March 31, 2008 2007 ----------- ----------- ASSETS Cash $ 43,048 $ 25,931 Trade accounts receivable, net (b) 183,569 193,664 Inventories, net 330,732 250,308 Deferred income tax asset, net 22,258 31,004 Prepaid expenses and other current assets 59,107 48,592 ----------- ----------- TOTAL CURRENT ASSETS 638,714 549,499 Plant and equipment, net 2,194,870 1,865,418 Goodwill 969,059 832,162 Other intangible assets, net 148,998 62,935 Other non-current assets 27,620 23,443 ----------- ----------- TOTAL ASSETS $ 3,979,261 $ 3,333,457 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable, trade $ 185,111 $ 146,385 Accrued expenses and other current liabilities 280,880 241,275 Current portion of long-term debt 40,400 40,296 ----------- ----------- TOTAL CURRENT LIABILITIES 506,391 427,956 Long-term debt, excluding current portion 1,539,648 1,309,719 Deferred income tax liability, net 439,782 373,246 Other non-current liabilities 80,104 39,963 Minority interest in affiliate - 57,191 Stockholders' equity 1,413,336 1,125,382 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,979,261 $ 3,333,457 =========== =========== See attached Notes.
AIRGAS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited) Year Ended Year Ended March 31, March 31, 2008 2007 ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 223,348 $ 154,416 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 175,802 138,818 Amortization 13,973 8,525 Deferred income taxes 74,725 51,911 Loss on sales of plant and equipment 714 39 Minority interest 3,230 2,845 Stock-based compensation expense 16,629 15,445 Loss on debt extinguishment - 12,099 Changes in assets and liabilities, excluding effects of business acquisitions: Securitization of trade receivables 95,600 20,200 Trade receivables, net (23,308) (37,687) Inventories, net (37,079) (1,491) Prepaid expenses and other current assets 1,693 (23,326) Accounts payable, trade 8,053 (15,163) Accrued expenses and other current liabilities (749) 266 Other non-current assets (81) 1,809 Other non-current liabilities (2,624) (2,363) ----------- ------------ Net cash provided by operating activities 549,926 326,343 ----------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (267,378) (238,274) Proceeds from sales of plant and equipment 9,345 8,685 Business acquisitions and holdback settlements (480,096) (687,892) Other, net (1,316) (474) ----------- ------------ Net cash used in investing activities (739,445) (917,955) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from borrowings 1,162,452 1,577,967 Repayment of debt (953,749) (1,008,186) Purchase of treasury stock (17,010) - Financing costs - (5,103) Premium paid on call of senior subordinated notes - (10,267) Minority interest in earnings (711) (2,845) Tax benefit realized from the exercise of stock options 13,327 9,013 Stock issued for the employee stock purchase plan 14,091 11,951 Proceeds from the exercise of stock options 20,381 15,107 Dividends paid to stockholders (31,828) (21,980) Change in cash overdraft (317) 16,901 ----------- ------------ Net cash provided by financing activities 206,636 582,558 ----------- ------------ Change in cash $ 17,117 $ (9,054) Cash - Beginning of period 25,931 34,985 ----------- ------------ Cash - End of period $ 43,048 $ 25,931 =========== ============ See attached Notes.
Notes:
(a) During fiscal 2008, the Company purchased eighteen businesses, including fourteen associated with the distribution of packaged gases and related hardgoods products. The largest of these acquisitions was the June 30, 2007 acquisition of the U.S. packaged gas business of Linde AG for $310 million in cash. The operations acquired from Linde AG generated $346 million in revenues for the year ended December 31, 2006. A total of $162 million was paid for the remaining seventeen other acquisitions, which generate aggregate annual revenues of more than $160 million.
(b) The Company participates in a securitization agreement with three commercial banks to sell up to $360 million of qualified trade receivables. Net proceeds from the securitization were used to reduce borrowings under the Company's revolving credit facilities. The amount of outstanding receivables sold under the agreement was $360 million and $264 million at March 31, 2008 and 2007, respectively.
(c) On October 27, 2006, the Company redeemed its $225 million 9.125% senior subordinated notes (the "Notes") in full at a premium of 104.563% of the principal amount with proceeds from the Company's revolving credit line. In conjunction with the redemption of the Notes, the Company recognized a charge on the early extinguishment of debt of $12.1 million ($7.9 million after tax, or approximately $0.10 per diluted share) in October 2006. The charge included the redemption premium and the write-off of unamortized debt issuance costs.
(d) On July 3, 2007, the preferred stockholders of the National Welders joint venture exchanged their preferred stock for common stock of Airgas (the "NWS Exchange Transaction"). The Company issued 2.471 million shares of Airgas common stock to the preferred stockholders in exchange for all 3.2 million preferred shares of National Welders. The preferred shares of National Welders were reflected on the Company's Consolidated Balance Sheet as "Minority interest in affiliate." As part of the negotiated exchange, in addition to the shares of Airgas common stock the preferred shareholders had the option to acquire, the Company issued an additional 144 thousand Airgas shares (included in the 2.471 million shares) to the preferred shareholders, which resulted in a one-time net after-tax charge of $2.5 million, or $0.03 per diluted share.
(e) The tables below present the computation of basic and diluted earnings per share:
Three Months Ended Year Ended March 31, March 31, (In thousands, except per share amounts) 2008 2007 2008 2007 ------- ------- -------- -------- Basic Earnings per Share Computation Numerator ------------------------------------ Net earnings $64,213 $43,735 $223,348 $154,416 ======= ======= ======== ======== Denominator ------------------------------------ Basic shares outstanding 82,476 78,579 81,402 78,025 ======= ======= ======== ======== Basic earnings per share $ 0.78 $ 0.56 $ 2.74 $ 1.98 ======= ======= ======== ========
Three Months Ended Year Ended March 31, March 31, (In thousands, except per share amounts) 2008 2007 (1) 2008 (2) 2007 (1) ------- -------- -------- -------- Diluted Earnings per Share Computation Numerator ----------------------------------- Net earnings $64,213 $ 43,735 $223,348 $154,416 Plus: Preferred stock dividends - 711 711 2,845 Plus: Income taxes on earnings of National Welders - 438 245 1,166 ------- -------- -------- -------- Net earnings assuming preferred stock conversion $64,213 $ 44,884 $224,304 $158,427 ======= ======== ======== ======== Denominator ----------------------------------- Basic shares outstanding 82,476 78,579 81,402 78,025 Incremental shares from assumed conversions: ----------------------------------- Stock options and options under the employee stock purchase plan 2,137 2,254 2,242 2,214 Preferred stock of National Welders - 2,327 591 2,327 ------- -------- -------- -------- Diluted shares outstanding 84,613 83,160 84,235 82,566 ======= ======== ======== ======== Diluted earnings per share $ 0.76 $ 0.54 $ 2.66 $ 1.92 ======= ======== ======== ========
(1) Prior to the July 3, 2007 NWS Exchange Transaction, the preferred stockholders of National Welders had the option to exchange their 3.2 million preferred shares of National Welders either for cash at a price of $17.78 per share or for approximately 2.3 million shares of Airgas common stock. If Airgas common stock had a market value of $24.45 per share or greater, exchange of the preferred stock was assumed because it provided greater value to the preferred stockholders. Based on the assumed exchange of the preferred stock for Airgas common stock, the 2.3 million shares were included in the diluted shares outstanding.
The National Welders preferred stockholders earned a 5% dividend, recognized as "Minority interest in earnings of consolidated affiliate." Upon the exchange of the preferred stock for Airgas common stock, the dividend would no longer be paid to the preferred stockholders, resulting in additional net earnings for Airgas. For the periods in which the exchange was assumed, the 5% preferred stock dividend was added back to net earnings in the diluted earnings per share computation.
For periods prior to the NWS Exchange Transaction, the earnings of National Welders for tax purposes were treated as a deemed dividend to Airgas, net of an 80% dividend exclusion. Upon the exchange of National Welders preferred stock for Airgas common stock, National Welders would become a wholly owned subsidiary of Airgas. As a wholly owned subsidiary, the net earnings of National Welders would not be subject to additional tax at the Airgas level. For the periods in which the exchange was assumed, the additional tax was added back to net earnings in the diluted earnings per share computation.
(2) The diluted earnings per share computation for the year ended March 31, 2008 includes the effect of the items described in (1) above, of which the exchange shares have been weighted to reflect the impact of the NWS Exchange Transaction.
(f) Business segment information for the Company's Distribution and All Other Operations segments is shown below:
(Unaudited) Three Months Ended March 31, 2008 -------------------------------------- (In thousands) Dist. All Elim. Total Other Ops. -------- -------- --------- ---------- Gas and rent $490,865 $200,102 $(46,197) $ 644,770 Hardgoods 413,056 31,132 (2,361) 441,827 -------- -------- --------- ---------- Total net sales 903,921 231,234 (48,558) 1,086,597 Cost of products sold, excluding deprec. expense 449,350 122,285 (48,558) 523,077 Selling, distribution and administrative expenses 306,690 77,152 - 383,842 Depreciation 33,851 12,384 - 46,235 Amortization 1,370 1,028 - 2,398 -------- -------- --------- ---------- Operating income $112,660 $ 18,385 $ - $ 131,045 ======== ======== ========= ========== (Unaudited) Three Months Ended March 31, 2007 -------------------------------------- (In thousands) Dist. All Elim. Total Other Ops. -------- -------- --------- ---------- Gas and rent $372,775 $129,886 $(18,749) $ 483,912 Hardgoods 346,657 24,876 (1,584) 369,949 -------- -------- --------- ---------- Total net sales 719,432 154,762 (20,333) 853,861 Cost of products sold, excluding deprec. expense 364,063 75,612 (20,333) 419,342 Selling, distribution and administrative expenses 249,631 53,532 - 303,163 Depreciation 28,711 7,884 - 36,595 Amortization 1,262 546 - 1,808 -------- -------- --------- ---------- Operating income $ 75,765 $ 17,188 $ - $ 92,953 ======== ======== ========= ========== (Unaudited) Year Ended March 31, 2008 ----------------------------------------- (In thousands) Dist. All Elim. Total Other Ops. ---------- -------- ---------- ---------- Gas and rent $1,807,663 $724,059 $(159,293) $2,372,429 Hardgoods 1,536,401 115,698 (7,504) 1,644,595 ---------- -------- ---------- ---------- Total net sales 3,344,064 839,757 (166,797) 4,017,024 Cost of products sold, excluding deprec. expense 1,672,181 421,042 (166,797) 1,926,426 Selling, distribution and administrative expenses 1,141,032 283,645 - 1,424,677 Depreciation 132,300 43,502 - 175,802 Amortization 10,451 3,522 - 13,973 ---------- -------- ---------- ---------- Operating income $ 388,100 $ 88,046 $ - $ 476,146 ========== ======== ========== ========== Year Ended March 31, 2007 ----------------------------------------- (In thousands) Dist. All Elim. Total Other Ops. ---------- -------- ---------- ---------- Gas and rent $1,399,186 $485,209 $ (60,934) $1,823,461 Hardgoods 1,292,628 94,462 (5,500) 1,381,590 ---------- -------- ---------- ---------- Total net sales 2,691,814 579,671 (66,434) 3,205,051 Cost of products sold, excluding deprec. expense 1,355,367 278,157 (66,434) 1,567,090 Selling, distribution and administrative expenses 953,858 195,308 - 1,149,166 Depreciation 109,455 29,363 - 138,818 Amortization 6,426 2,099 - 8,525 ---------- -------- ---------- ---------- Operating income $ 266,708 $ 74,744 $ - $ 341,452 ========== ======== ========== ==========
Reconciliations of Non-GAAP Financial Measures (Unaudited)
Adjusted Net Earnings:
Reconciliation and computation of adjusted net earnings:
Year Ended Year Ended March 31, 2008 March 31, 2007 (In thousands, except per share Diluted Diluted amounts) Dollars EPS Dollars EPS --------- ------- --------- ------- Net earnings $223,348 $ 2.66 $154,416 $ 1.92 Plus charge from the National Welders exchange transaction, net of tax 2,519 0.03 - - Plus charge for early extinguishment of debt, net of tax - - 7,865 0.10 Less tax benefit related to state tax law change (1,255) (0.01) (1,789) (0.02) ----------------- ----------------- Adjusted net earnings $224,612 $ 2.68 $160,492 $ 2.00 ================= ================= Net Earnings Per Share % Growth 34%
The Company believes this adjusted net earnings computation provides meaningful insight into earnings growth by adjusting for material unusual items. Non-GAAP numbers should be read in conjunction with the generally accepted accounting principles ("GAAP") financial measures, as non-GAAP metrics are merely a supplement to, and not a replacement for, GAAP financial measures. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies.
Free Cash Flow:
Reconciliations and computation of free cash flow:
Year Ended March 31, (Amounts in thousands) 2008 2007 (1) ---------- ---------- Net cash provided by operating activities $ 549,926 $ 326,343 Plus: Operating lease buyouts 979 9,509 Proceeds from sales of plant & equipment 9,345 8,685 Tax benefit realized from exercise of stock options 13,327 9,013 Stock issued for employee stock purchase plan 14,091 11,951 Less: Cash provided by the securitization of trade receivables (95,600) (20,200) Capital expenditures (267,378) (238,274) ---------- ---------- Free Cash Flow $ 224,690 $ 107,027 ========== ==========
(1) With the July 3, 2008 NWS Exchange Transaction (see Note d), our Free Cash Flow metric was modified to include the cash flows of National Welders in all periods for a more meaningful presentation.
Management believes that Free Cash Flow provides investors meaningful insight into the Company's ability to generate cash from operations, which is available for servicing debt obligations and for the execution of our business strategy, including acquisitions, the prepayment of debt, or to support other investing and financing activities. Non-GAAP numbers should be read in conjunction with the GAAP financial measures, as non-GAAP metrics are merely a supplement to, and not a replacement for, GAAP financial measures. It should be noted as well that our non-GAAP information may be different from the non-GAAP information provided by other companies.
SOURCE: Airgas, Inc.
Airgas, Inc. Investor Contact: Jay Worley, 610-902-6206 jay.worley@airgas.com or Media Contact: James Ely, 610-902-6010 jim.ely@airgas.com
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