Airgas Inc. (ARG) has priced its 3.25% senior notes due October 1, 2015 aggregating $250 million, offered under a shelf registration statement filed with the U.S. Securities and Exchange Commission.
 
Airgas is offering the 3.25% senior notes at 99.849% of face value. The proceeds from the offering, which closes on September 30, 2010, will be used to repay outstanding balances on its revolving credit facilities. The company’s long-term debt is rated BBB by Standard and Poor’s Corporation and Baa3 by Moody’s Investors Service.
 
During the quarter ended June 30, 2010, the company repurchased $25.0 million of its 7.125% senior subordinated notes maturing October 1, 2018, at an average price of 110.6% of the principal. The last notes issue was in March 2010, when the company issued $300 million of 2.85% senior notes due October 1, 2013. The proceeds were used to repay debt under the company’s senior credit facility with a syndicate of lenders.
 
For the quarter, the company incurred losses on the early extinguishment of debt of $2.9 million ($1.9 million after tax). The company incurred interest expenses of $13.3 million in the second quarter of 2010, lower than $18.4 million in the prior-year quarter. The overall decrease in interest expense primarily resulted from lower weighted-average interest rate related to the company’s variable rate debt instruments and lower average debt levels.
 
Airgas ended the first quarter fiscal 2011 with $1.7 billion in long-term debt compared with $1.5 billion as of March 31, 2010. Airgas’ debt-to-capitalization ratio as of June 30, 2010, was 48% compared with 45.7% as of March 31, 2010.
 
Airgas expects adjusted earnings per share, for the second quarter of fiscal 2011, to be in the range of 78 cents to 82 cents, translating into a year-over-year increase of 15% to 21% from $0.68 earned in the prior year quarter. The guided range includes 3 cents per share of incremental expense associated with its SAP implementation. The Zacks Consensus Estimate for second quarter 2011 is at 81 cents per share, at the higher end of the guidance range.
 
For fiscal year 2011, Airgas expects adjusted earnings per share in the range of $3.15 to $3.30, an increase of 18% to 23% from $2.68 in the prior year. This also accounts for a 10-cent per share of incremental expense associated with its SAP implementation. Both the second quarter and fiscal 2011 guidance ranges do not incorporate the impact of debt extinguishment or multi-employer pension plan withdrawal charges, or costs related to the unsolicited takeover attempt. For full year 2011, the Zacks Consensus Estimate is currently pegged at $3.26 per share, above the mid-point of the company’s guidance.
 
We believe Airgas’ dominant market position, growth opportunities, strong brand identity, size and scale advantage, extensive U.S. distribution network, product/service offering, diverse customer base and a multifaceted growth formula would stand the company in good stead in the years ahead. The company is, however, just beginning to see the impact from improving end-markets, as the manufacturing sector gradually but inevitably recovers and returns to growth. Further, the uncertainty regarding the Air Products & Chemicals Inc. (APD) takeover remains a definite overhang. We thus maintain a “Neutral” recommendation on Airgas, supported by a Zacks #3 Rank (short-term Hold rating).
 
Radnor, Pennsylvania-based Airgas Inc. through its subsidiaries is the largest U.S. distributor of industrial, medical and specialty gases and hardgoods, such as welding equipment and supplies. The company is also one of the largest distributors of safety products and the largest producer of nitrous oxide and dry ice in the U.S., and the largest liquid carbon dioxide producer in the Southeast, and a leading distributor of process chemicals, refrigerants and ammonia products. 
 
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AIRGAS INC (ARG): Free Stock Analysis Report
 
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