Airgas Beats Zacks, Hikes Guidance - Analyst Blog

Airgas Inc. (ARG) delivered an adjusted EPS of 80 cents in its third quarter fiscal 2011 ended December 31, 2010, reflecting a growth of 23% from 65 cents in the year-ago quarter and edging past the Zacks Consensus Estimate by a penny. EPS in the quarter was also at the high end of Airgas' third quarter earnings guidance range of 76 cents to 80 cents per share ascribed to solid revenue growth and effective cost management.

The adjusted EPS for the quarter under review excluded the per share effect of the following items - legal and professional fees and other costs related to an unsolicited takeover attempt by Air Products & Chemicals Inc. (APD) (13 cents) and a one-time interest penalty of 2 cents per diluted share related to the late removal of a restrictive legend on the company's 7.125% senior subordinated notes. The prior year quarter's adjusted EPS excluded a debt extinguishment charge of 5 cents per share and multi-employer pension plan withdrawal charges of 4 cent per share. Including these items, EPS in the quarter, on a GAAP basis, stood at 658 cents in the third quarter of fiscal 2011 compared with 56 cents in the year-ago quarter.

Revenues

Total revenue in the quarter went up by 9% year over year to $1,034.5 million. Same-store sales increased 9% in the quarter, with hard goods up 11% and gas and rent up 7%.

Operational Update

As a percentage of revenue, cost of products sold increased 40 basis points to 44.3% and selling, general and administrative expenses dipped 170 basis points to 37.5%. Consequently, gross margin dipped 40 basis points to 55.7% and adjusted operating margin improved 160 basis points year over year to 12.2%.

Financial Update

Airgas had cash and cash equivalents of $35.0 million as of December 31, 2010, down from $53.3 million as of September 30, 2010. Net cash from operating activities was an inflow of $88.4 million from operating activities in the first nine months of fiscal 2011 compared with a $411.7 million in the comparable year-ago period. Free cash flow till date was $255.4 million compared with $289.3 million in the comparable year-ago period.

Adjusted debt at the end of the reported quarter stood at $1.62 billion compared with $1.68 billion as of September 30, 2010.

Guidance

Management guides the fourth quarter fiscal 2011 EPS in the range of 82 cents to 86 cents per share, reflecting a year-over-year growth in the range of 19% to 25% from the year-ago EPS of 69 cents. The projection includes 4 cents per share of incremental expense associated with its SAP implementation.

For full year 2011, management projects EPS in the range of $3.28 to $3.32, up from the previous expectation of $3.22 to $3.320. The current guidance depicts a growth in the range of 220% to 24% over $2.68 in fiscal 2010.  The guidance includes 10 cents per share of expense associated with its SAP implementation. The company states that it is on track to beat its calendar 2012 earnings goal of at least $4.20 per share.

Based in Randor, Pennsylvania, Airgas, through its subsidiaries, distributes industrial, medical, and specialty gases, as well as hard goods in the United States. We currently have a Zacks #2 Rank (short-term Buy recommendation) on the stock. Airgas competes with Air Products and L'Air Liquide SA (AIQUY)

 
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