L'Air Liquide S.A.

J. Barrett Strzelec - Director of Investor Relations and Corporate Communications Peter McCausland - Founder, Executive Chairman and Member of Executive Committee Michael L.

Molinini - Chief Executive Officer, President, Director and Member of Executive Committee Robert M. McLaughlin - Chief Financial Officer and Senior Vice President

Kevin W. McCarthy - BofA Merrill Lynch, Research Division Vincent Andrews - Morgan Stanley, Research Division Michael J.

Sison - KeyBanc Capital Markets Inc., Research Division Walter S. Liptak - Global Hunter Securities, LLC, Research Division David J.

Manthey - Robert W. Baird & Co.

Incorporated, Research Division Michael J. Harrison - First Analysis Securities Corporation, Research Division Ryan Merkel - William Blair & Company L.L.C., Research Division Neal P.

Sangani - Goldman Sachs Group Inc., Research Division Mark R. Gulley - BGC Partners, Inc., Research Division David L.

Begleiter - Deutsche Bank AG, Research Division Laurence Alexander - Jefferies LLC, Research Division Kwame C. Webb - Morningstar Inc., Research Division Donald Carson - Susquehanna Financial Group, LLLP, Research Division Holden Lewis - BB&T Capital Markets, Research Division

Thanks, Taylor. Good morning, and thank you for attending our first quarter earnings teleconference.

Joining me today are Executive Chairman, Peter McCausland; President and CEO, Mike Molinini; and Senior Vice President and CFO, Bob McLaughlin. Our earnings press release was made public this morning, and is available on our website, as are the teleconference slides.

To follow along, please go to airgas.com, click the Investor Relations shortcut at the bottom of the screen, and go to the Earnings Calls & Events page. During the course of our presentation, we will make reference to certain non-GAAP financial measures.

And unless otherwise noted, metrics referred to in today's discussion will be adjusted for the unusual items identified in our earnings materials. Reconciliations to the most comparable GAAP measures can be found in our earnings release and in the slide presentation.

This teleconference will contain forward-looking statements based on current expectations regarding important risk factors, which are identified in the earnings release and in our slide presentation. Actual results may differ materially from these statements, so we ask that you please note our Safe Harbor language.

We'll take questions after concluding our prepared remarks as time permits, and we plan to end the teleconference by 11:00 a.m. Eastern Time.

Now please turn to Slide 2. And I'll hand the call over to Peter to begin our review.

Thanks, Barry. Good morning, and thank you all for joining us.

Please turn to Slide 2. Our earnings were up 4% year-over-year to $1.18 per share, which was at the midpoint of our guidance range.

As anticipated, business conditions remained sluggish during the quarter. There were bright spots in certain sectors such as upstream energy, where sales increased 12% year-over-year.

Sales to transportation equipment manufacturers, including rail cars and trailers were up 5% year-over-year. Our beverage carbonation business, which is in our retail sector, was up 5% over the last year, and our retail segment overall benefited from the increase in helium availability.

Red-D-Arc's organic sales were up 10% this quarter, driven by increases in both welder and generator rentals, not only for construction, but for upstream activity as well. Our medical sales were up only 1% overall, but absent the drag from home care, the loss of home care, including some of Linde's -- Lincare's business or volumes over the course of the year since its acquisition by Linde, our medical business was up 4% over last year.

Sectors such as mining and heavy manufacturing that were significant headwinds in the prior year now appear to be stabilizing but are still very soft, with coal still a drag on a year-over-year basis. Geographically, our Great Lakes and Southwest regions posted 6% and 5% organic sales growth respectively this quarter, but organic sales in our mid-America region where coal mining is a significant portion of our business, and in our Northeast region, for example, were both slightly down this quarter.

I don't expect that we'll be in the habit of sharing this level of detail on a regular basis, but we thought these examples would provide some good color to help you understand the complexity of our business and how the sluggishness in the economy affects a business in our industry that truly reaches all segments and geographies across the U.S. So overall I'd say the general tone of the economy on balance is one of slight improvement.

I am encouraged by the fact that July sales are currently running relatively strong year-over-year. However, we remain cautious because we've seen strong months in quarters over the last couple of years, followed by weak ones.

The strong growth I noted in our welder business -- rental welder business this quarter and increasing requests for staging of materials for energy-related construction projects indicate to us that nonresidential construction activity should also increase as the year progresses, providing a lift to our construction and other key segments. As such, we are reiterating our guidance range of $5 to $5.20 per share for the year, representing 6% to 10% growth over last year's adjusted EPS of $4.72.

The guidance range continues to reflect our expectation for stronger sales in the back half of the fiscal year, while also reflecting that we're early in our fiscal year, and some uncertainty still exists. Bob will review our guidance in more detail shortly.

Strong cash flow continues to be a hallmark of our business model, especially in slow growth periods. Free cash flow for the quarter increased 4% year-over-year to $104 million, and adjusted cash flow from operations increased 16% year-over-year to $206 million.

The landscape for M&A is encouraging, and I still feel that once the U.S. economy shows signs of more sustained improvement, we'll see more interest from potential sellers.

So far this year, we're off to a positive start. We've acquired 5 businesses, with aggregate annual sales of around $32 million, including Houston-based Technical Alloy and industrial gas.

The addition of Technical Alloy to Airgas' Gulf Coast region further increases our density and strengthens our competitive position in that rapidly growing area. Now I'll hand it off to Mike to provide a deeper look into our operations and review some of our key initiatives.

Thank you, Peter. Please turn to Slide 3.

I'll start with a brief update on refrigerants and helium. At this time, the industry continues to await a final ruling from the EPA on the pace and magnitude of the step-down in allowable production of R-22 during the calendar 2015 to 2019 time period, after which production of virgin R-22 must be 0.

It remains our belief that once the EPA issues its ruling, the industry will assess the implications and begin again the migration toward the use of reclaimed product. Although we can't predict the timing and speed of this transition, we remain very well positioned as the leading reclaimer and recycler of R-22 in the United States.

As Bob will cover shortly, our guidance reflects the expectation that the year-over-year refrigerants headwinds we experienced during the last several quarters are beginning to shift to a slight tailwind in the back half of the fiscal year. On the helium front, the supply chain is steadily improving, and we are just now getting into a position where we have the volumes to aggressively attempt to win back some of the customers we lost during the peak of the helium shortage.

We expect that our helium position will continue to gradually improve over the course of the year, as the new auction process begins to open up access to the federal helium reserves on the BLM pipeline to non-refiners like Airgas. Moving on, we continue to invest in our sales and marketing strategy, which is focused on tailoring our value proposition to the unique needs of each major customer segment.

Our strategic accounts program, which leverages the segment-driven approach presents us with tremendous cross-sale and better penetration opportunities in terms of product lines, services, location, and represents approximately 25% of total sales. In the first quarter, our strategic account sales were flat compared to prior year, reflecting the overall sluggish business conditions that Peter mentioned.

Strength in upstream, transportation and retail, including beverage carbonation, along with rental welders for construction and maintenance, was offset by continued softness in manufacturing and general construction, as well as difficult comps in downstream energy. In the first quarter, sales of Strategic Products increased 2% over the prior year, with bulk and specialty gas categories showing the most improvement on both price and volume.

Sequentially, CO2 and dry ice sales increased 13% on normal seasonality in those businesses. Our Radnor private label hardgoods sales were up 2% year-over-year, consistent with our total hardgoods organic sales.

As we look forward, we continue to believe the long-term growth prospects for the U.S. manufacturing and energy industries are strong.

In the near term we remain focused on the things we can control, including leveraging the SAP system, managing expenses, expanding our telesales business, enhancing our e-business platform and adjusting our regional management structures to help drive decision making closer to our customers, and increase our focus on sales growth. And with the SAP implementation in our rearview mirror, our associates are able to fully concentrate on growing our sales to new and existing customers.

All of these factors will further enhance our competitive position to grow market share and to capitalize when sustained growth in the industrial economy resumes. Thank you, and now I'll hand it off to Bob to review our financial results and guidance.

Thank you, Mike, and good morning, everyone. Please turn to Slide 4 for a review of our consolidated results.

Sales increased 3% year-over-year to $1.31 billion, reflecting a 2% contribution from acquisitions, and 1% organic sales growth, with gas and rent flat and hardgoods up 2%. In aggregate, organic sales volumes were down 1%, and pricing was up 2%.

Consistent with recent quarters, areas of strength, some of which Peter highlighted in his comments and we noted in our earnings release, were offset by weakness in other areas. On a sequential basis, first quarter sales were up nearly 3% on a daily basis compared to the fourth quarter, which as we highlighted in our last earnings call had been impacted by severe weather across much of the U.S.

Gas and rent represented approximately 63% of our sales mix in the quarter, down slightly from both the prior year and the fourth quarter. Gross margin for the quarter was 55.6%, an increase of 60 basis points from the prior year, reflecting margin expansion on price increases and surcharges related to power spikes in the fourth quarter, partially offset by supplier price and internal production cost increases, and a sales mix shift towards lower margin hardgoods.

Selling, distribution and administrative expenses increased 4.5% over the prior year, with operating costs associated with acquired businesses representing approximately 1.5% of that increase. The remaining 3% increase reflects normal inflation, as well as expenses associated with our investments in long-term strategic growth initiatives, including our e-business platform, continued expansion of our telesales business through Airgas Total Access, and regional management structural changes.

Operating income for the quarter was $155 million, down 1% from last year's operating income, and operating margin was 11.8%, down 40 basis points from last year, reflecting the impact of the increase in FD&A expenses, including our investment in long-term strategic growth initiatives in this current low organic sales growth environment. Sequentially, operating income was up 3% and operating margins were flat.

EPS of $1.18 was up 4% over the prior year. There were approximately 75.5 million weighted average diluted shares outstanding for the quarter, an increase of 1% year-over-year.

Return on capital, which is a trailing-4-quarters calculation, was consistent with last year at 12.1%. Free cash flow for the quarter was $104 million, up 4% over the prior year, and adjusted cash from operations was $206 million, up 16% over the prior year.

Improvements in accounts receivable collection and inventory turn metrics contributed to our strong cash flow in the quarter. Total debt decreased by approximately $77 million year-over-year, to approximately $2.5 billion at June 30.

Our fixed float debt ratio at the end of June was approximately 83% fixed, and our debt to EBITDA ratio was 2.6, within our targeted range of 2 to 3. Turning now to Slide 5, we'll look at our segment results.

Sales in the distribution segment were up 4% in the quarter versus the prior year to $1.2 billion. Organic sales in the distribution segment were up 2%, with pricing up 3% and volume down 1%.

Distribution gas and rent organic sales were up 2%, with pricing up 4% and volume down 2% year-over-year. Distribution hardgoods organic sales were up 2%, with pricing and volume each up 1%.

My earlier comments related to consolidated sales and areas of strength being offset by weaknesses in other areas, applied to the distribution segment as well. Gas and rent represented 58.9% of distribution sales in the first quarter, flat compared to the prior year, and down 90 basis points from the fourth quarter.

Distribution gross margin was 56%, an increase of 30 basis points from the prior year. Selling, distribution and administrative expenses, excluding the impact of operating costs associated with acquired business, increased 3.7% over the prior year.

The increase reflects normal inflation, as well as expenses associated with our investments in long-term strategic growth initiatives, including our e-business platform, continued expansion of our telesales business through Airgas Total Access and regional management structural changes, all of which will further enhance our competitive position to grow market share and to capitalize when sustained growth in the industrial economy resumes. Operating income in the distribution segment declined by 1% year-over-year to $140 million, and operating margin declined by 60 basis points to 11.8%, reflecting the impact of the increase in SD&A expenses, including our investments in long-term strategic growth initiatives in this current low organic sales growth environment.

On a sequential basis, distribution segment operating margin declined by 70 basis points, primarily driven by stock-based compensation expense, which is front-end loaded in our fiscal year due to the retiree eligible vesting provision. On a consolidated basis, this increase in stock-based compensation expense is offset by the seasonality in our all other operations businesses.

Our all operations businesses reflect our CO2, dry ice, refrigerants, ammonia and nitrous oxide business units. Sales for all other operations were down 7% from the prior year, with organic sales also down 7%.

As sales increases in our CO2, dry ice and ammonia businesses were more than offset by a decline in sales in our refrigerants business. Sequentially, sales in all other operations segment increased by 12%, primarily driven by the normal seasonality of the businesses that comprise this segment.

Gross margin for all other operations was 49.3%, an increase of 290 basis points in the prior year, primarily driven by a sales mix shift away from lower margin refrigerants and improvement in our ammonia and dry ice businesses. Operating income for all other operations was $15 million, a decrease of $3 million compared to the prior year, and operating margin was 11.1%, down 130 basis points year-over-year, both driven primarily by margin pressure in refrigerants.

Please turn to Slide 6, capital expenditures. First quarter CapEx represented 8.3% of sales.

The increase in CapEx was primarily driven by our investments in micro bulk, rental welders and generators for our growing Red-D-Arc business, the new ASUs in Kentucky and Illinois, and our new hardgoods distribution center in Wisconsin. Excluding major capital projects, CapEx as a percent of sales was 4.8%.

Now I'd like to discuss our guidance for the second quarter and full fiscal year. Slide 7% presents a walk through the primary elements of our second quarter guidance, using our first quarter EPS of $1.18 and fiscal 2014 second quarter adjusted EPS of $1.25 respectively as the starting points.

The left hand column on this slide shows a sequential walk for the second quarter, in which the base business accounts for the entirety of the 8% to 12% increase in EPS. This strong sequential increase in part reflects our July price increase.

The middle column of the slide shows the year-over-year walk for the second quarter using fiscal 2014 second quarter adjusted EPS of $1.25 as the starting point. Variable compensation reset is expected to be a headwind of $0.02.

Acquisitions closed in fiscal 2014 are expected to contribute $0.01, and the base business is expected to contribute between $0.03 and $0.08, reflecting a growth of between 2% and 6%. In aggregate, we're estimating EPS for our second quarter to be in the range of $1.27 to $1.32, representing year-over-year growth of 2% to 6% over prior year adjusted EPS of $1.25 and reflecting organic sales growth in the low single digits.

Our fiscal year 2015 EPS guidance range and the associated walk components are unchanged from when we introduced them during our last earnings call, as shown in the right-hand column of the slide. Variable compensation reset following a below-budget year is expected to be an $0.11 to $0.15 headwind.

Refrigerants is expected to be a $0.03 to $0.04 tailwind year-over-year. Acquisitions closed in fiscal 2014 are expected to contribute $0.03.

And on a year-over-year basis, our base business growth is expected to contribute an incremental $0.33 to $0.57, representing 7% to 12% growth on organic sales growth in the 4% to 6% range. In aggregate, we continue to expect EPS for our fiscal 2015 to be in the range of $5 to $5.20, which represents year-over-year growth of 6% to 10%.

Thank you, and now I'll turn it back to Barry to begin our question-and-answer session.

Thanks, Bob. That concludes our prepared remarks.

[Operator Instructions]

Peter, your hardgoods business picked up a little bit in the quarter, and I was wondering if you could comment on 2 things. I guess first, give us a sense if you would on the monthly sales pattern, and how that flowed through the quarter.

And then second, how much in your judgment might have been weather catch-up versus a more durable underlying inflection that we might be seeing in that business?

Well, the weather certainly impacted our business. I have a hard time pinning any particular result to the weather over the course of a quarter, though.

And our hardgoods business, in general, has picked up, but we've had some big customers who are way down. So it's basically up very slightly, I think.

Was that a fair assessment, Mike?

Yes. And if you look under the covers, you should see that the big drag on our hardgoods business has been the filler metals, the welding wire and things like that, particularly at very large heavy manufacturers.

Equipment has been doing pretty well and has continued to strengthen through the quarter.

Just as a follow-up. Perhaps, you could comment on July.

I think, Peter, you made a reference to some strength in the month of July. Any color on numbers there?

And what you're on seeing hardgoods versus gas and rent thus far in recent weeks?

Kevin, this is Bob. The strength that we're seeing in July is both in -- on a year-over-year basis is both in gas and hardgoods.

So that's another good sign that it wasn't weather-driven in the past quarter. So the strength has been -- it's early in the month to tell, but it's -- mid-single digits of what we're seeing.

But as Peter cautioned, that could change week to week. But so far, it looks relatively strong.

Can you just sort of frame the helium situation for us in terms of -- you said you've got the supply back to a level where you can go after some of the lost business. And the I know the results have been hurt, both by that higher cost and by the reduction in volume.

But can you give us a sense over the next year or 2 what the opportunity is in terms of sales and earnings to go back after? And how much you think you've -- how much you've lost in the last year or so?

Well, we know how much we lost. But the question -- what's not clear is what's the new normal in the helium world.

There is a -- there are users who -- when they could get -- could not get a reliable supply, in the case of retailers, stopped offering the product for sale. There are customers in the industrial segment who switched to alternatives rather than deal with the uncertainty.

So at this stage of the game, we are trying to get our arms around how much of that business is likely to ever come back. My personal opinion would be that the ability to get back to levels that we were before this 2-year problem is not likely.

So just as a follow-up then, does that -- how is that going to impact the overall supply and demand balance for helium as more supply comes online? It sounds like you're basically articulating demand as potentially lower.

Well, yes, but the supply chain for helium is in the middle of a major shift. U.S.

reserves continue to dwindle. Reserves in other parts of the world are being developed.

So it's not easy to connect the dots that would indicate that additional -- recovering of global supplies don't necessarily translate into low prices.

In terms of acquisitions, Peter, 5 small ones. Are there any more meaningful sized ones going forward?

Or do you sort of see the acquisition landscape in terms of these smaller ones every single quarter?

No, there's quite a few large ones in the country, and we've given you the breakout of them in the past. And it's just -- the question is, when and if they're going to sell, put them up for sale.

In most cases, in the vast majority of cases, we get a shot at it. And we're talking to some of those large ones now.

There's more competition for these than there has been in the past, with both Praxair and MATHESON bidding aggressively because they don't have the network that we do, and they're trying to put it together. The good thing is, we don't have to buy anybody because we're everywhere, and -- but overall I'd say that activity will pick up as the economy picks up and that we'll get our fair share.

Great.And then for Mike. In terms of your outlook for organic sales growth for '15.

You're starting off with the first and second in the low single digits would sort of imply the second half is going to be high single digits. Given the start to the year, and clearly hardgoods improving is great.

Do you think there's enough there to get that click of a ramp as we head into the third and fourth quarter?

Again, our visibility is relatively limited. Okay.

But given that, at this moment, we do. And a significant piece of that is the outlook -- is the results and the outlook that we get through our Red-D-Arc, our rental welder generator business that has probably the best visibility into the non-res construction segment.

The information that they're getting, the requests by customers to begin staging materials for large jobs has -- seems to have gotten quite a bit firmer. So if that was to change, well then I would be wrong.

But that's underlying some of the increased -- the belief for increasing activity as the year goes on.

Also, Mike had some favorable comps, particularly in the fourth quarter due to the severe weather. That would be a help, and the other thing that we highlighted is, with the significant headwinds that we had in some major sectors, mining, and heavy equipment, appear to be stabilizing.

So even if they just stay the course, it's going to be a year-over-year help in the back half of the year.

Just as a follow-on to the last question on the Red-D-Arc visibility. I wonder if you can provide some details about which sectors you're getting that visibility.

Is it non-res, or is it some of the sectors that you pointed out like upstream energy and rail car?

Yes, the Red-D-Arc generators. In the midstream and upstream section, the primary product line for Red-D-Arc is generators.

In the non-res construction, it's generators and more of the rental welders. So its really the -- it's both the construction projects and continued strengthening and additional demand that the midstream guys are telling us that they're going to need as the year progresses.

Okay, great. Thanks for that visibility.

And then I want to ask about -- maybe this is the nit, but pricing was a little bit lower, sequentially -- the growth rate was lower. Is there anything to read into that or is there something seasonal to the pricing?

No, I don't -- there's nothing to read into that.

First off, on the growth rate here. It seems that the markets clearly aren't growing very rapidly.

Hopefully they're accelerating. But with your gross profit margin being higher despite negative mix, is it possible you're losing share, and if not, why is that?

I'm trying to figure out why the gross margin was able to rise in spite of the fact that the mix shifted the other way?

The only thing I'll toss out on that is that if you look at the -- and I'm just talking hardgoods now as an example. We're posting some very strong gains in our telesales, Total Access segment, which typically is going to be targeting customers that are much smaller than the very, very large.

I mean the margin delta between the Total Access kind of customer and the strategic account kind of customer for both gases and hardgoods is pretty dramatic. If you look at the areas where our volumes are down the most, particularly in hardgoods, it's very large manufacturers that are buying large quantities of filler metals at typically very low prices.

Okay. And then, just adding on to that in terms of the share gain or loss situation.

I mean, given that you're -- it seems like you're gaining some traction in Total Access, and you got some other initiatives where you seemingly are gaining share, but yet your volumes are off slightly in a market where it seems like most others are slightly higher at least. Maybe there's a mix issue there in terms of geos or end markets, but is there anything that you can point to that would lead to that?

Well, I would -- let me just say that the -- you shouldn't underestimate the importance of us having SAP in the rearview mirror. Because if you look at our -- we benchmark our hardgoods purchases with our key suppliers compared to what everybody else does.

And we are back to the -- we are back to where we needed to be. So when I said earlier that our hardgoods sales, particularly machines continued to gain strength as the quarter went on, I'm not sure all of that was the economy as opposed to what's being back -- focused on being the selling machine that we were before embarked on the SAP project.

Mike, can we get an update on, just kind of the timing or maybe the cadence of these growth investments, and the eventual benefits. Kind of -- when do we expect to get to a point where we start to see you breaking more or less even on the margin front and maybe then start to actually leverage them and show better margin?

Well, on Total Access, the investment has fundamentally been made. And it is beyond breakeven at this point, and it was a significant portion of our SAP benefits that you started to see last year.

And that continues. So we are getting the benefit of that, and we will continue to get the benefit of that.

We also said that the other big one we were investing in was our e-business platform and the e-business platform -- there's -- in order to get real value out of the e-business platform, 2 things have to happen first. First, you have to build it.

And that work is pretty much complete. And most of our legacy customers have been -- over the last 2 months, have been migrated to the new system, and it seems to be working fine and taking care their needs and in very short order you'll be seeing a general release to the general public of the new site.

Second thing that has to happen is you have to increase adoption. So if they're not using it, since a lot of the benefits that come from this new system are reduced internal operating expenses, as customers self serve in a lot of areas, you have to get adoption.

And the organization is prepared and has goals for the next 12 months to drive adoption. So the cost to build it is probably in the later stages.

The cost -- we will be entering the period of driving adoption, and as we -- the more and more adoption we achieve, the better the results are going to be. But it's probably another 6 to 12 months away from where you actually start to feel it.

All right. And then on the hardgoods side, you mentioned there are some big customers that are way down.

Is it fair to assume that that's in the mining and heavy equipment industry, and it's mostly market-related, or are there some other reasons that they're not investing right now in capital equipments?

Defense. I would put defense in that category, too.

Just a question on the heavy equipment manufacturers. It's nice to hear that they're stabilizing, but I wondering, as it relates to your outlook, are you expecting that group of customers to actually start to improve and show positive sales results, or is flat kind of the outlook there?

Flat.

Flat, okay.

Expecting an improvement in this fiscal year.

Okay. And as it relates to price in the July 1 price increase, are you thinking you net kind of 2%, or could it be a bit higher?

Well, the overall price increase for last fiscal year blended between hardgoods and gas was 3% in our distribution segment. And now, we are in our third and second pass using our strategic approach.

So, likely going to be a little softer than 3, but it's hard to pin it with that level of precision, given that we just did it. But I would suspect it'll be less than the 3%.

Blended between hardgoods and gases.

Right. So that kind of implies, you think volume could be kind of flat, maybe up a little bit in this next fiscal quarter?

Yes.

Yes.

It's actually Neal Sangani on for Bob. A question on the non-res outlook.

I'm curious as to how broad a recovery you're looking for, for the rest of the fiscal year to get to your numbers. Are these some of the more visible energy and chemical projects on the Gulf Coast?

Or do you need something more broad nationally, offices, strip malls, et cetera?

No, this is -- energy and power, I would say. If I had to put it in a couple of words.

Pipelines, energy and power.

And then on the ...

There are no -- we don't do much too in office buildings or strip malls. Ours tends to be, not commercial, but more industrial and infrastructure type things.

And I would agree with Mike, but I would expand it. Some power stations, pipelines, some bridges and things like that.

So it's not strictly energy, but energy is by far the -- energy and petrochemicals are, by far, the largest component of it.

And then what's the typical lead time you see on your rental welders relative to some of the other gas products that go into non-res?

Sure. Our sales cycle for -- sales is usually very, very short.

Rental welders, they're projecting typically, or staging things 90 days out.

A couple of questions. Peter, one of the end-use markets for manufacturing is railcar.

I'm wondering whether or not the opportunity for retrofitting or building new railcars for oil and ethanol, those kinds of things. Would that be big enough to be noticeable in terms of your results?

Well, depending -- you mean, you're talking about the proposed legislation for retrofitting cars? Yes, it certainly could be.

I mean, it's a big segment for us, and it's one of ones, I think, that Mike cited as being up year-over-year nicely. And that's the kind of infrastructure thing that's been missing in this country for a long time, and that we've all been waiting for and -- so, yes, we're looking forward to that.

I can't give you an exact impact on same-store sales, but we do supply some of the major railcar manufacturer and maintenance companies.

I think the bigger challenge with something like that is if there was legislation that accelerated the rebuild or retrofitting, where the capacity to do that would have to be. There would have to be new capacity added because the existing manufacturing capacity is pretty well tapped out.

Okay. And then with Lincare's acquisition by Linde, can you quantify how much of that is hurting same-store growth in the gas operations area?

And how long will it last?

Well, it impacted us a couple of percentage points on our medical segment same-store sales. It'll -- until we lap it, it will continue to impact us.

The home care market, in general, is going through a tremendous restructuring, if you will, as smaller players disappear and larger players get bigger. Some of them fill their own, some of them have their -- have it -- in the case of Lincare, Linde had a division that filled medical cylinders, so there was some incremental obvious synergies that they wanted to take advantage of with existing fill facilities.

So I think the first round has been pretty well played out, but I would -- I don't think the home care shakeout is -- completed its shakeout.

Peter, and Mike, as the synergy in power and petchem business ramps up, should you win a disproportionate share of this business, given your capabilities and breadth of offerings?

Well, I would be very disappointed if we didn't. We've been building out our construction capabilities for 3 or 4 years.

And we have the complete package. We have Red-D-Arc, we have on-site services.

We have supply chain services. We train -- we can train welders right on the site and certify them.

We've invested in a lot of portable gas handling equipment designed for construction sites and we have contracts with all the major -- not all of them, but many, many of the major construction companies. And we've learned, over the last couple of years, how to be responsive to these companies.

They're very demanding. And the outlook for our non-res construction business, I think, is pretty good.

And, Peter, on the same tack. Is pricing on these types of projects similar or will you get a little bit of premium for your -- what you just walked through?

Well, these are competitively-bid contracts, often. And just because you have a national contract with someone doesn't mean that you're guaranteed every piece of business.

You've got to be competitive. So -- but what we're finding is we can add value in ways that other gas companies haven't -- aren't able to or haven't offered.

And that has a definite impact on the pricing of our gases and hardgoods and ancillary services. So it's good business, and we're very well-positioned to take advantage of it.

Just a quick question. The telesales and e-commerce channels, roughly how much sales do each of them generate now, and how many employees do they have?

Telesales is -- telesales has got 100 or so legacy Safety Telesales people. And on the order of 200 Total Access people.

And I'm guessing all in through a telesales channel, we're probably in the $400 million-ish dollar range. I mean I'm swagging here, okay.

But just to give -- and some of that is legacy safety only and probably 2/3 of it is welding, safety and gases. And the other question, you had an eBusiness question?

How much?

Just in terms really on e-commerce, what it'd roughly scale at.

E-commerce, the amount of our sales that are transacted via e-commerce today is on the order of 3%. Very, very low compared to typical, serious e-commerce providers.

Lot of upside there.

And as you've been ramping up your e-commerce effort, have you been seeing the savings that you sketched out at your Investor Day, or has there been any [indiscernible] customer?

We're only now - the new site is built. The new site has been in test with some of the larger, more sophisticated legacy customers that are using it.

And the new system, very shortly, will be released to the masses, to the general public of our 1 million customers to begin using it. And it's not until we drive the adoption for customers that don't use it today to begin using it that we begin to see the savings.

Now in the near-term, meaning the next year, our goal would be that we would go from 3% of our sales running through the e-channel to probably on the order of maybe 10% of our sales going through the e-channel. And if we were to do that, the benefits would be meaningful.

But I think at one point you had sketched out like a savings per transaction. I mean, has that changed?

Have you seen any leakage? Have you been testing it with your larger customers?

Or is that still [indiscernible].

The things we said the last time, those assumptions haven't changed. But in order for us to drive a meaningful total, our target is to drive -- to increase our throughput, so that we go from 3% of our sales through that sales channel to about 10% of our sales through the channel.

And then just as you think about your cylinder fleet, is there an incremental volume recovery that you can serve without having to ramp up your cylinder purchases? Or will the CapEx of sales line move up as the cycle picks up?

Well, if you look at the detail underlying our cylinder purchases, most of our cylinder purchases are related to CryoBio, specialty liquid cryogenic cans, micro bulk tanks, bulk tanks, things like that. There's not all that much CapEx that's going into the standard, high-pressure, and acetylene cylinders.

We work much harder today at utilizing the fleets that we have. But if these specialty applications and people converting from one mode to the other and growing and moving into micro bulk, that's generating -- or is requiring most of the cylinder bulk tank spend.

But as the economy picks up, you tend to see a shift in our CapEx towards cylinders and bulk tanks and maybe fewer special projects. But -- so it depends on how much of a pickup.

I mean, we can go from negative GDP to 2% GDP, and we're not going to see that much. But if we get any kind of decent recovery, then at some point, we're going to start seeing more cylinders.

For example, right now we have plenty of helium cylinders that we are ready to redeploy.

I really wanted to know, as you think about the potential for lightly-refined crude to be potentially exported from this country, how are your customers thinking about their CapEx investment for petrochemicals refining? And how are you thinking about the investments you've made to serve that customer base?

Well, exporting these lightly-refined crudes, which I guess, just began -- the first shipments -- is good for the U.S. energy businesses, and we think that those businesses are going to do very, very well for the next few decades, and it's going -- there's going to be -- they're already starting -- has started an energy renaissance in this country.

And it's good for us because the facilities is to gather, refine, store, transport these kinds of fuels are -- we don't have that many of them in the United States, they're going to have to be built-out. These export facilities, some are under construction right now.

It's good business for us while they're under construction, and it's good business for us ongoing. So overall, we believe that the energy and manufacturing Renaissance story is still intact in the United States, that it's going to be the best economy over the next 5 to 10 years.

But I guess if anything, we underestimated the impact of the recession and the subsequent credit bubble and the economy has been very, very slow. After the recession, it came -- it bounced back.

But then it's been down slightly for the last 24 months. And hopefully now, we're seeing some signs, modest -- albeit modest signs of a pickup and that things will continue.

And I think the energy business and the part that you mentioned is just 1 of many different influences that could be meaningful going forward.

So would that mean that maybe in the next 5 years, you need to increase investments serving those customers? Or would that mean that you'd really be sort of looking to just fill existing capacity even -- well, 5 years down the road?

In our business, you don't look at -- well, maybe in the -- in our production business, yes, we could be. That and other improvements in the economy could cause us to increase capacity.

But we have a national platform of, with 1,200 locations, and we have production facilities, and tens -- more than 10 million cylinders, and God knows how many bulk tanks. We have this platform that has a lot of capacity, and we think we have a lot of leverage to an improving economy.

So we think that as the economy gets healthy here that we're doing to do very well because we've already built out our capabilities.

Question on your outlook for organic sales growth for the year. You're still talking 4% to 6%.

Obviously that's going to pick up in the second half. What's your price versus volume split on that?

Because obviously this quarter was much more oriented towards price.

I think overall, as we mentioned earlier, probably for the full year, in the neighborhood of 3% blended between gas and hardgoods, with gas higher.

And then as you exit the year, clearly you're going to have to have much higher volume growth. Where do you think operating margins can get to?

And obviously -- have you rethought your -- obviously -- I'm sure you've lowered your 15% 2016 target. Would you care to share that new target with us?

Well, we gave in the guidance the targeted operating income was 12.7% to 13%, and we just closed the quarter at 11.8%. So, quite a bit of expansion as we go through the year.

And then finally, you announced some pretty aggressive price increases for July 1. You've talked a lot about sluggish end markets.

So how -- what success do you expect in getting 5% to 15% gas as price increases when volume is this weak? And, any comments on how the whole SAP process is helping out on implementation of those price increases?

Well, first of all the -- there was a question earlier about the actual yield on the price increase, and the actual yield is in the range of -- is expected within the range 3% or maybe slightly less than 3%, blended between gases and hardgoods. So you have to be careful about quantifying what might be in a press release for what the actual yield is going to be.

So that would be my first comment. Second comment is in our strategic pricing approach, which is the one we use now wherein SAP feeds data -- SAP-driven data feeds a system which will help compare like customers buying like products, in like markets of like sizes, to determine median pricing, average pricing, upper quartile, bottom quartile.

We use data like that supplied by SAP to calculate or to propose individual increases by product, by customer. And it's not 1 product, 1 percentage across-the-board anymore.

It's driven by individual products, and where that product is priced, compared to other metrics that we are able to gather for the markets that those customers are in. So yes, the SAP data is integral in our ability to be able to do this and to do this in a timely manner.

Just wanted to get a little bit more flavor. You gave a little bit of color about sort of where you felt you were with Total Access in the eBusiness.

But I guess, separating out or not worrying about the specific initiatives, just looking at your total SG&A growth driver spend. Listening to what you said, would you say that your incremental spend at this point is kind of peaking, and as you go forward you would expect that the incremental spend in any given period to begin to taper off versus where it's been?

Or as you sort of wind up some of these things, you have some other things, and so you should sort of assume that the incremental spend that we've been experiencing is likely to persist for some period of time? Just trying to get a sense of when do you think that total initiative spend peaks?

That's a good question. Because there's a 3rd piece that we haven't talked about so far, and that was the rightsizing of some of our regions and restructuring the field to get a layer of management closer to our customers to improve our speed and decision-making closer to the customer.

And I would have to say on balance that, we are in the home stretch on all these initiatives. And that although we may not be totally finished, the majority of what we were going to do has been finished, and I'm -- and I can be surprised this afternoon, but I am envisioning a period of stability on the horizon.

Plus, we geared up extra expense to make sure that our SAP conversion and the bumps that we hit -- believe me, our bumps weren't bad compared to most SAP conversions. We did a very good job, but we did have bumps like anyone, and we geared up and put in some functional capabilities to get us over those bumps, working on the whole order to cash process, and standardizing on best practices, and software fixes, and additional training.

And as we go through the course of this year, that's going to come down and we're going to see improvement there. So that combined with the fact that most of the spending for the buildout of these other capabilities is behind us, I think, bodes well for our expenses.

And it's something that I'm watching very carefully, as is everyone else in this company. And I am very confident that we have a handle on that, and that that's going to improve as we go through the year.

Thanks, Taylor. And thank you all for joining us today.

We will be available all day for follow-up questions. Thanks again.