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WIKI ANALYSIS
Airgas and its competitors are supplied by the major gas producers such as Air Products and Chemicals (APD), L'aire Liquide or Linde, repacking industrial gases in high-pressure cylinders as required by end-customer specifications. Airgas' main revenue source comes from the sale of gases such as nitrogen, oxygen, argon, helium, hydrogen and gases for welding, such as acetylene, propylene and propane, carbon dioxide, and nitrous oxide. Additional tie-in revenue comes from renting of cylinders for gas storage as well as related safety materials. By the company's own estimates, about 80% of revenues come from the primary gas delivery business.[1]
In March of 2007, Airgas announced the intent to acquire Linde AG's US gas production operations, giving it the ability to produce its own gases as necessary. This business is relatively small, constituting less than 15% of the company's revenues.[2]
This industry is extremely regional, as significant fixed costs are associated with packaging and delivering the gas. As a result, it is dominated by local distributors catering to a specific area. Airgas is the largest competitor with the segment, and has grown its revenues via acquisitions, totaling 350 companies since the company's inception in 1986. In FY2007, the Airgas completed 13 acquisitions with annual sales of approximately $336 million.[3]
Business Overview
The company reports under two main business units
- Distribution - This unit earns most of Airgas' revenue, and is the primary provider of value of Airgas customers. Airgas has over 1 million clients[4] ranging from metal fabricators to packagers of carbonated soda. Airgas' larger size than most regional competitors gives it an advantage on the supply side as well as the sell side, negotiating better contracts than competitors due to scale, as well as concentrating administrative activities, enabling branch locations to focus on sales and services.
- All Other Operations - All other operations primarily consist of gas producing operations within the company. The Gas Operations Division produces and distributes carbon dioxide, dry ice, nitrous oxide, anhydrous ammonia, and specialty gases. Airgas Merchant Gases produces oxygen, nitrogen, and argon, most of which is sold internally within the company to the Distribution business unit. National Welders is a producer and distributor of industrial, medical and specialty gases, as well as the related packaging and saftey products.
Financial Overview
Revenues, Growth, and Margin
Revenues at Airgas have grown consistently year on year from 2005 to 2007, growing 20% and 17% in 2006 and 2007, respectively. Operating Income has growth even more, at 33% and 27%.[5] This is due to increased margins per dollar of revenue, caused by effective management of pricing and rental rates of gas and packing cylinders, as well as cost decreases from administrative overhead due to the centralized administrative business model[6]
| Metrics | 2005 | 2006 | 2007 |
| Net Sales | 2,367,782 | 2,829,610 | 3,205,051 |
| Operating Income | 202,454 | 268,758 | 341,452 |
| Sales Growth | - | 20% | 13% |
| Operating Income Growth | - | 33% | 27% |
With respect to the main two business units at Airgas, approximately 82% of revenues was earned by the Distribution business unit, almost equally divided between Gas sales/packaging rentals, and the value-added services consisting of safety supplies and the like, collectively labeled "Hardgoods". While "All Other Operations" currently constitute a small (<20%) contribution to total revenues, Airgas is currently investing in expanding its gas production facilities in new regions in the Midwest (Indiana and Kentucky) scheduled for early 2009[8], which will change the contribution in the mix for the future.
Geographic Analysis
Trends/Forces
The Success of Integration and the associated Management challenges are hurdles to Airgas' success
Cost of energy
Domestic Market cyclicality and the potential of recession are challenges for Airgas' revenue and margin growth
"US manufactures have become very competitive after the culling out they experienced during the recessionary environment in 1998-2004, which was exacerbated by an overvalued dollar." [10]
Competitors
Market Share
References
- ↑ Airgas FY2007 10-K "DISTRIBUTION" pg.3
- ↑ Airgas FY2007 10-K "Airgas Merchant Gases" pg.6
- ↑ Airgas FY2007 10-K "Acquisitions" pg.22
- ↑ Air Gas December 31, 2007 Q3FY2008 Earnings Call Transcript
- ↑ Airgas FY 2007 10-K "SELECTED FINANCIAL DATA. " pg.16
- ↑ Airgas Q3FY2008 Earnings Call Transcript
- ↑ Airgas FY 2007 10-K "SELECTED FINANCIAL DATA. " pg.16
- ↑ Airgas Q3FY2008 Earnings Call Transcript
- ↑ Airgas FY 2007 10-K "Notes to Consolidated Financial Statements" F-49
- ↑ Air Gas December 31, 2007 Q3FY2008 Earnings Call Transcript
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