) posted adjusted earnings of $1.25 a share in second-quarter
fiscal 2014 (ended Sep 30, 2013), up 19% from $1.05 earnings in
the year-ago quarter. The results marginally surpassed the Zacks
Consensus Estimate of $1.23.
The results confirm the center of management's guidance of
$1.23-$1.27 per share. Despite sluggish business conditions and
continued economic uncertainty, the year-over-year rise in
earnings was driven by the realization of SAP-related benefits, a
favorable impact from one additional selling day and favorable
change in state income tax law.
Including an income tax benefit of 2 cents per share, earnings
came in at $1.27 per share in the reported quarter. Earnings per
share in the prior-year quarter were $1.03, which included
restructuring and other special charges of 2 cents a share.
Revenues in the reported quarter grew 4% year over year to $1.28
billion, beating the Zacks Consensus Estimate of
$1.27 billion. Acquisitions aided sales growth by 2%, with
organic sales up 2% and a 4% increase in gas and rent, but was
partially offset by a 2% decline in hardgoods.
Cost and Margins
Costs of goods sold increased 1.2% year over year to $563
million. Gross profit rose 6.8% to $719 million from $673 million
in the year-ago quarter. Consequently, gross margin expanded 130
basis points (bps) to 56%.
Selling, distribution and administrative expenses amounted to
$474 million, up 4% year over year. Adjusted operating income
grew 16.2% to $168.8 million versus $145.2 million in the
Operating margin expanded 140 bps year over year to 13.2% due
to a reduction in SAP implementation costs, sales mix shift
toward gas and rent and the influence of one additional selling
day. Margins were also weighed down following the Environmental
Protection Agency's (EPA) unexpected ruling on R-22 production
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Sales increased 5.2% to $1,140 million compared with $1,083
million in the prior-year quarter. Sales of gas and rent
increased 7.7% year over year to $681 million. Hardgoods sales
also climbed 1.7% year over year to $458.2 million.
All Other Operations:
Total sales declined 3.6% to $150 million from $156 million in
the year-ago quarter. Sales of gas and rent decreased 3.2% year
over year to $149 million. Sales of hardgoods fell 43% year over
year to $1 million.
Cash, as of Sep 30, 2013, increased to $111 million from $86.4
million as of Mar 31, 2013. Free cash flow for the six-month
period went up 96% year over year to $238 million from $121
million as of Sep 30, 2012. Cash flow from operations for the
first half ended Sep 30, 2013 was $381 million versus $264
million in the earlier comparable period.
Long-term debt decreased to $1.6 billion at Sep 30, 2013 from
$2.3 billion at Mar 31, 2013. Debt-to-capitalization ratio
contracted 300 bps to 60% as of Sep 30, 2013, from 63% at Mar 31,
Management expects adjusted earnings per share (excluding
one-time items) for the third quarter of fiscal 2014 to increase
11%-15% year over year to $1.15-$1.20. For fiscal 2014, Airgas
lowered its earnings outlook to $4.85-$5.00 from its previous
band of $5.00 to $5.15, reflecting 11% to 15% annual growth.
Airgas' fiscal 2014 guidance is based on a reduction in
year-over-year organic sales growth rate assumptions. Strong cash
flow continues to be a benchmark for Airgas' business model. In
addition, focus on effective management of expenses and balancing
short-term cost containment with investment will drive long term
Airgas is also optimistic of the long-term prospects for the U.S.
manufacturing and energy industries, as well as non-residential
construction, unique value proposition and a less challenging
platform. However, it will continue to face challenges from
helium supply constraints and a larger-than-expected R-22 impact.
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 retains a Zacks Rank #3 (Hold). Other chemical
stocks worth a look include
L'Air Liquide SA
Air Products & Chemicals Inc.
Akzo Nobel NV
). All these hold a Zacks Rank #2 (Buy).