L'Air Liquide S.A.

Joe Marczely - IR Peter McCausland - Founder, Executive Chairman and Member of Executive Committee Mike Molinini - President and CEO Bob McLaughlin - SVP and CFO

Ryan Merkel - William Blair David Begleiter - Deutsche Bank Vincent Andrews - Morgan Stanley David Manthey - Robert W. Baird Mike Sison - KeyBanc Don Carson - Susquehanna Financial John Roberts - UBS Mike Harrison - First Analysis Kevin McCarthy - Bank of America Merrill Lynch Christopher Perrella - Bloomberg Intelligence Walter Liptak - Global Hunter Securities Laurence Alexander - Jefferies Charles Redding - BB&T Capital Markets David Silver - Morningstar

Good morning. This is Joe Marczely.

Unfortunately we were just notified that we're experiencing some difficulties with our website. We apologize and we're working to resolve the issue as quickly as possible.

I want to thank you for attending our third 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 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. Reconciliation 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 materially differ from these statements, so that we ask you please note our safe harbor language.

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

I will now hand the call over to Peter to begin our review.

Thanks Joe. I was just informed that you can access the conference and slides via the PR link on our website.

So you can try that. Thanks Joe.

Good morning and thanks all for joining us. I'll begin with Slide 2.

Overall, we're pleased with the performance this quarter. our earnings were in the middle of our guidance range at $1.23 per share, which represents an increase of 4% over the prior year.

Organic sales grew 6% year-over-year with gases up 5% and hardgoods up 6%. We had our second consecutive quarter of strong volume growth in hardgoods with volumes up 5%.

Gas and rents volumes were up 1% year-over-year. Distribution and organic sales -- organic gas and rent sales per day were up 1% sequentially.

Consolidated operating margin was 12.2%, down slightly from the prior year due to margin pressure in the all other Op segment, which Bob will discuss in detail a bit later. However, our distribution segment operating margin was consistent with our prior year 12.7%.

Looking at the broader economy, there is a lot of discussion and uncertainty about the effect of oil prices and the strong dollar on the industries that we serve and what that means for our business. We continue to closely monitor the situation for the potential impact to our customers and through the third quarter, we have not seen any significant headwinds and in fact energy and chemical segments were strong and we saw an improvement in our non-residential construction segment.

On balance we do expect low oil prices will be beneficial to Airgas over time, given our large and diversified customer base, excuse me, and the potential for manufacturing cost to drop, coupled with increased consumer purchasing power, this all should add to the catalyst for growth in other industries we serve. However in the near term, in light of the uncertainty created by the rapid and significant decline in oil and the strength of the dollar potentially pressuring manufacturing exports, we expect some level of capital spend deferment in certain sectors of our business.

We have modestly reduced our organic growth rate assumptions for the fourth quarter to a range of approximately 6% to 7% and as a result, we revised our fourth quarter guidance from $1.32 to $1.37 to a new range of $1.25 to $1.30. The revised guidance still represents a strong 9% to 13% year-over-year increase in earnings per share.

As I've highlighted before, 98% of our business is right here in the world's largest economy and we still believe the fundamentals for long term growth in the U.S. economy, particularly in manufacturing, construction and energy and chemical industries will be favorable for years to come.

Additionally, with approximately 98% of our revenues originating in the U.S., we do not have the same level of foreign currency exchange exposure that many of our peers are challenged with today. We have the best employees in the business with implementation of SAP behind us, expansion of total access telesales, rollout of our new e-Business platform and completion of our new district manager structure; we're well positioned to aggressively focus on growth.

I am very bullish on the long-term prospects for the U.S. economy and even more so on the long-term prospects Airgas.

Now I'll turn it over to Mike, who will give you a deeper dive.

Thank you, Peter. Please turn to Slide 3.

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. In the third quarter, our strategic account sales were up 7% compared to prior years, reflecting strength and energy in chemicals and the production of transportation equipment.

In the third quarter, sales of strategic products increased 4% over the prior year, with the bulk gas and safety products category showing the most improvement, driven by increased volumes. Medical gases and rent was up 2% as increases in hospitals and surgery centers were partially offset by weakness in the wholesale sales to home care distributors.

Specialty gas sales were up 3%, primarily driven by increases in core specialty gas price and volume. Sequentially CO2 and dry ice increased -- decreased 8%, a normal seasonality in that segment.

Our Radnor private label hardgoods sales were up 5% year-over-year, consistent with our total hardgoods organic sales. We remain focused on leveraging our infrastructure, managing expenses, expanding our telesales business, enhancing our eBusiness platform and developing our regional management structure to increase our focus on sales growth and drive decision making closer to our customers.

Our expanded total access telesales business continues to perform very well. Airgas Total Access revenues currently exceed 500 million on an annual basis.

This program continues to deliver strong organic growth. During the quarter Airgas Total Access sales grew at 13%, accounting for approximately 1% of our overall organic growth.

Our recently enhanced eBusiness platform is enabling customers to interact and transact with Airgas to a robust suite of functionality and services. As you may recall our initial goal is to drive adoption of this new digital channel by getting our existing customers to sign up and use the channel to self serve and answer many of the common questions they typically call us about.

Our initiatives to drive customer adoption are well underway with all previous airgas.com customers converted to the new system. In addition, from our over 1 million customers we have been adding over 8,000 new digital accounts per month and are on track at over 100,000 in the next year.

New platform has been licensed in August and is performing as planned. Currently over 1,000 order per day are being processed.

Our new district managers are in place and finding success working closely with customers. Our area Vice Presidents and District Managers have an increase focus on topline sales growth improvement fulfillment and transactional excellence in all aspects of our order to cash process.

During the quarter we demonstrated our commitment to strengthening our supply chain. In addition to our previously announced ASU in Calvert City, Kentucky.

We announced plans to build the neighboring hydrogen production facility at this location. The new state-of-the-art liquid hydrogen facility in Calvert City will be the first of its kind for Airgas and provide an opportunity for growth in a variety of industries we currently serve.

We also completed our new distribution facility in German Town, Wisconsin. This new 250,000 square foot facility expands our hardgood distribution capacity to customers in the Midwest, houses in Airgas Total Access call center as well as in administrative office.

Now let me provide a brief update on argon, helium and refrigerants. I mentioned on our last call that our argon supply had been challenged with multiple un-plan supplier outages resulting in shortages and customer allocations.

But that we had expected those issues to be resolved by calendar year end. Our field associates did a magnificent job managing their way through a very distracting period maintaining supply to all of our customers while dealing with competitors who were not affected by these shortages.

The product dislocation cost of the shortages was essentially offset with higher argon pricing and at this time supplies have returned to pre shortage levels and the allocation has been lifted. The supply chain for helium has continued to improve since our last update and at this time is stable.

While the market for helium is contracted from peak levels, we’re currently working hard to win back some of the customers lost during the supply disruption. Regarding our refrigerants business as you’re aware, the EPA posted its final 2015 to 2019 HCFC allocation rule in October detailing the phase out of R-22 and providing clarity for the future.

While this should be incrementally positive for reclaimers like Airgas, what remains unclear is how it will affect market dynamics in the near term as the market works off the excess R-22 inventory that has been built up throughout the supply chain. This quarter volumes of R-22 increased modestly in the prices of peer to stabilize but margins remain pressured.

Our fiscal third quarter is always a weak quarter for refrigerants and we will have a better understanding of what true demand is and potential market dynamics as we move through the pre-season buying in our fourth quarter. It remains our belief that the long-term dynamics will favor the migration toward the use of reclaimed product, and we remain very well positioned as the leading reclaimer and recycler of R-22 in the U.S.

As we look forward we continue to believe in the long term growth prospects through the U.S. As Peter mentioned there exist concerns among certain end users segments regarding oil prices and the strength of the U.S.

dollar. While we expect the near term uncertainty will persist, we expect low oil prices to be beneficial to Airgas over time.

Recent meetings with our field managers across the country confirm a clear focus on growing our top line by leveraging our extensive suite of product, services and customer value creators. And Airgas is well positioned to deliver market leading organic growth.

Thank you. And now I'll hand if 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 for the third quarter.

Sales increased 7% year-over-year to approximately $1.3 billion, reflecting a 1% contribution from acquisitions and 6% organic growth, with gas and rent up 5% and hardgoods up 6%. In aggregate, organic sales volumes were up 3%, and pricing was up 3%.

On a sequential basis, third quarter sales were down 2% from the first quarter, primarily driven by two fewer selling days and the normal seasonality in our all other operation segment. Gas and rent represented 53.3% of our sales mix in the quarter, down 30 basis points from the prior year and up 10 basis points sequentially.

Gross margin for the quarter was 55.8%, a decrease of 90 basis points from the prior year, reflecting a sales mix shift to lower-margin ammonia and refrigerant gas sales, cost pressure within ammonia and in our distribution segment a sales mix shift towards lower margin hardgoods and within hardgoods, the lower margin equipment. Selling, distribution and administrative expenses increased 5% over the prior year, with operating costs associated with acquired businesses representing approximately 1% of that increase.

The remaining 4% reflects normal expense inflation as well as expenses associated with long-term strategic growth initiatives, including our new e-Business platform and continued expansion of telesales. SG&A expense as a percent of gross profit decreased 20 basis points to 66.8%.

Operating income for the quarter was $163 million, up 5% from last year and operating margin was 12.2%, down 30 basis points from the prior year, primarily reflecting margin pressure in our all other operations segment, which I'll discuss in the next slide. Sequentially, operating income was down 7%, and operating margins were down 70 basis points.

The decrease is primarily driven by two fewer selling days and normal seasonal downturn in our all other operation segments. EPS of $1.23 was up 4% over prior year adjusted EPS.

There were approximately 76 million weighted average diluted shares outstanding for the quarter, an increase of 1% year-over-year. Return on capital, which is a trailing four quarters calculation, was 12.1%, down 30 basis points from last year.

Year-to-date free cash flow was $218 million compared to $333 million in the prior year and adjusted cash from operations was $538 million compared to $576 million in the prior year. The reduction in operating cash flow represents current year increases in working capital in support of sales growth in addition to the comparison of a particularly strong year in the prior year, which benefited from improvements in accounts receivable management following SAP convergence.

Free cash flow in the current year is further impacted by year-over-year increase in capital expenditures, reflecting investment in revenue-generating assets, including two air separation plants, our e-Business platform and a new hardgoods distribution center. Total debt decreased by approximately $124 million year-over-year to approximately $1.2 billion at December 31.

Our fixed float debt ratio at the end of December was approximately 68% fixed, and our debt-to-EBITDA ratio was 2.5, within our target range of 2 to 3. Turning now to Slide 5, we'll look at our segment results.

Sales in the distribution segment were up 7% in the current year versus the prior year to $1.2 billion. Organic sales in the distribution segment were up 5%, with both pricing up 3% and volume up 2%.

Distribution gas and rent organic sales were up 4%, with pricing up 4% and volumes flat year-over-year. Distribution hardgoods organic sales were up 6%, with pricing up 1% and volume up 5%.

This is the second consecutive quarter where hardgoods volumes were up 5%. Sequentially distribution sales were down 1%, driven by two fewer selling days.

On a daily basis, sales increased 2% sequentially. Gas and rent represented 59.3% of distribution sales in the third quarter down 60 basis points compared to the prior year and up 20 basis points from the second quarter.

Distribution gross margin was 56.5%, a decrease of 50 basis points from the prior year, primarily reflecting a sales mix shift towards lower-margin hardgoods and a sales mix shift within hardgoods towards lower margin equipment. Selling, distribution and administrative expenses excluding the impact of operating cost associated with acquired businesses increased 4% over the prior year.

SD&A expense as a percent of gross profit was 66.4%, down 20 basis points year-over-year. Operating income in the distribution segment increased by 6% year-over-year to a $152 million and operating margin was flat at 12.7%.

The increase in operating income was driven primarily by organic sales growth of 5% and margin expansion was challenged in the current quarter by the sales mix shift to hardgoods and within hardgoods to lower margin equipment sales. On a sequential basis, distribution segment operating margin decreased by 40 basis points, driven by lower sales on two fewer selling days.

All Other Operations reflect our CO2, dry ice, refrigerants, ammonia and nitrous oxide businesses. Sales for All Other Operations were up 12% from the prior year, with organic sales also up 12% primarily driven by increases in our ammonia and refrigerants businesses.

Sequentially sales in All Other Operations decreased by 6%, reflecting normal seasonality of the businesses that comprise that segment. Gross margin for All Other Operations was 46.6% a decrease of 450 basis points from the year, primarily driven by a sales mix shift towards lower margin ammonia and refrigerants and margin pressure in our ammonia businesses.

Operating income for All Other Operations was $11 million, a decrease to $2 million of compared to the prior year and operating margin of 7.8% was down 290 basis points year-over-year. The decrease in operating margin was driven by the sales mix shift to lower margin ammonia and refringents business and slight margin compression in CO2 and ammonia.

Please turn to Slide 6 capital expenditures. Year-to-date, CapEx represents 8.5% of sales, the increase in CapEx was primarily driven by our investments in revenue-generating assets, including two air separation plants, our e-Business platform and a new hardgoods distribution center.

Excluding major projects, CapEx as a percent of sales was 5%. Now I'd like to discuss our guidance for the remainder of the fiscal year.

Slide 7 walks through the primary elements of our fourth quarter and revised full year guidance. The first column shows the sequential walk for the fourth quarter using third quarter adjusted EPS of $1.23 as the starting point.

One additional selling day in the holiday impact partially offset by two less counter rent days as expected to contribute to $0.03. Normal seasonality in our All Other Operation segments is expected to be a slight headwind of $0.01 and the base business is expected to contribute $0.00 and $0.05, resulting in an EPS range of a $1.25 to a $1.30 up 2% to 6% sequentially.

The second column on the slide shows the year-over-year walk for the fourth quarter using fiscal 2014 fourth quarter adjusted EPS of $1.15 as the starting point. Variable compensation reset is expected to be a headwind of $0.03 to $0.04.

Assumption that extreme weather and power cost last year will not repeat is a benefit of $0.05. Refrigerants is expected to be a benefit of $0.01 and base business is expected to contribute $0.07 to $0.13.

In aggregate, we're estimating EPS for our fourth quarter to increase by 9% to 13% year-over-year to a range of $1.25 to $1.30 reflecting the above and organic sales growth of approximately 6% to 7%. The right hand of the slide shows the year-over-year walk for our revised fiscal 2015 EPS guidance range.

Variable compensation reset is now expected to be a headwind of $0.08 at the low end and $0.09 at the high end. Assumption that extreme weather and power cost in the fourth quarter of last year will not repeat is a benefit of $0.05.

We are currently projecting refrigerants to be a $0.02 headwind year-over-year. Acquisitions are expected to be a benefit of $0.03 year-over-year and our base business is expected to increase $0.25 to $0.31 representing a 5% to 7% increase.

In aggregate, we now expect EPS for fiscal 2015 to be in the range of $4.95 to $5, which represents year-over-year growth of 5% to 6%. Our previous fiscal 2015 guidance range for earnings per diluted share for our fourth quarter was a $1.32 to $1.37 and for the full year was $5 to $5.10.

The guidance revision primarily reflects a modest reduction in our fourth quarter sales growth assumptions as we expect some level of capital spend deferment in certain sub-segments of our customer base as a result of the uncertainty created by the rapid and significant decline in oil prices and the strength of the U.S. dollar potentially pressuring manufacturing exports.

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

Thanks Bob. That concludes our prepared remarks.

As we begin the Q&A portion of our call to allow as many participants as possible to ask questions, please limit yourself to one question and one brief follow-up, then get back in queue if you have further inquires. The operator will now give instructions for asking questions.

Thanks. I guess first on the improving construction growth commentary, could you just give us a bit more details.

I am wondering how much has growth picked up and then what types of projects and where are you seeing these projects.

Construction was up 5% year-over-year, which was a marked improvement of where we were in the second quarter. A lot of new projects have been starting and Golf Coast is certainly one area, but it's pretty much across the country.

And what we were suffering from was the wind down of the projects that have been going on for a few years and the delayed start up of the new projects and finally we started to see that kick in the last quarter and the outlook is pretty good.

Okay. That’s good -- good to hear.

And then secondly, when you say energy in chemical is strong, I am wondering if you could be more specific. What types of applications are you referring to and then how much strong are those segments versus the company average?

Energy and chemical overall was up 7% and it was broad-based including the strength that we've been seeing in our generator and ready arc business.

But the chemical industry is doing pretty well and although we saw upstream cut back, mid stream has stayed pretty strong and of course downstream has stayed pretty strong and I think our guys have done a good job penetrating some important accounts in the energy and chemical markets.

Okay. So just to follow-up, is the rentals of the generators and the welders is that for the pipeline I assume?

Most of our generator rental is related to artificial lift that occurs when after the wells are drilled, when they are being -- when product is being extracted from the well in areas where there is no power infrastructure. The generators are used to provide the powers, to run the pumps, to pump the product out of well into the pipeline.

Right. Okay, great thanks.

Thank you, Peter and Mike in terms of the -- what segments are you looking for CapEx deferments in relation to your comments about lowered Q4 guidance?

Well, for instance, the steel companies that make the pipe for drilling are in exactly expanding and may be some manufactures who are dependent on exports are starting to look at deferring capital projects until the currency situation stabilizes. It’s mostly just been anecdotal that we’ve picked up -- we don’t know for sure this rapid drop in oil prices and raising the dollar happened very, very quickly.

At our Analyst Day, I think the price of oil was at $73 or something like that and then it was down in the low $40 last week I guess, but all were going, we’re getting some anecdotes, we don’t know for sure, we’re trying to be cautious here.

Very good. And Peter just on pricing, what happens to your pricing power in this periods of declaiming oil prices?

Well, pricing in the high-end of the market or the large end of the market, the bulk is really driven off electricity prices because two-thirds of the input for atmospheric gases is electricity. Very little electricity is generated by oil.

It’s mostly coal and natural gas. It’s true that it’s easier to raise prices for bulk, when electric prices are going up and diesel cost to run the trucks are going up, there is no question about that.

But there are other elements that go into pricing as well. So I would say that over the long haul, very low oil prices and low diesel prices are probably a slight negative for pricing of bulk.

However, the real driver of bulk pricing is capacity utilization and that’s dependent on a lot of different things. As you move into package gases, the price of the actual gas in the container has less to do with your actual price yield from the customer because there is so much value-added and so many other inputs that it’s less meaningful.

Thank you very much.

Sure.

Thanks. I just wanted to sort of get a sense of, you just answered part of the question which has to do with the near-term impact from oil, but you also mentioned that you’re expecting sort of some demand improvement over time from consumer engagement at lower oil prices, so maybe you could just talk about which parts of business that's going to flow into and what the timeframe is for that happening?

Because if I’m just trying to get a sense of this near-term uncertainty that you're seeing, how much of it should we think about as we look at our first half of fiscal '16 estimate versus how much that might get offsetting and when?

Well, I don’t know that we can tell you what the timing is, but a sustaining period of abundant and inexpensive energy is got to be good for the United States and we’ve a very diverse customer base. And so we expected it to be very beneficial for this country and for its economy in the long haul.

The drop in oil prices has been so rapid and the evidence we’ve collected as I said is just anecdotal. So we had no way of knowing when its impact is going to be right now.

We do know that in other periods of time where there has been a period, a prolonged period of low energy prices; the U.S. economy has performed very well.

And as I said, it was a very diverse customer base. We in many ways reflect -- although some of our products grow faster than GDP and others closer to GDP, in the long run, the U.S.

economy is the biggest driver of our performance.

There are some studies out from and the last time some of these things happened that showed in the immediate kind of a slow down, but a year later a strong acceleration. So I don’t think we’re talking about multiple years here.

We’re talking about a relatively -- the data -- the data from the last time at least that this happened would indicate that it was quarters not years.

Okay. And just as a follow up, you mentioned ammonia margin pressure number of times in your prepared remarks, could you just remind us what that -- what was causing that?

Ammonia prices are pretty volatile and when ammonia costs rise, because we’re a buyer and a distributor, it takes us time to catch up with our pricing with the speed with which ammonia cost raise. And in the fall, we're in one of those periods.

Ammonia costs were rising. We were raising prices, but it’s almost impossible to stay even.

So we were pressured. We’re at point now where ammonia prices have stopped rising.

And we’ve completed our actions and on the flip side when ammonia prices -- when ammonia cost decline, we tend to not reduce prices as quickly as they decline. So that's just the nature of that business and we’ve been in a pressured period and I think at this point we’ve worked our way through that.

Okay. Thanks very much.

Hi, good morning. Thank you.

Assuming that the impact near term from oil prices and as you just said Mike with the ammonia assuming that normalizes here, when you look at the -- the irritants that were impacting you in 2015, some of the organic helium refrigerants, the variable comp reset and that sort of thing, were those behind you, if you’re able to achieve mid single digit growth in fiscal '16, shouldn’t we’ll be looking at -- at least double-digit kind of EPS growth in that type of environment?

Yes.

Okay. Fair enough.

Second you touched on the diesel and I wanted to talk about the, the cost side of that equation, I know diesel wasn’t down as much as regular unleaded, but you’ve often said, you have the 16 to 17 largest fleet in the U.S., are you able to capture some of that benefit for the company in terms of lower cost and if so, could you help us quantify that?

Yeah, David its Bob, for the fourth, the drop has lagged in diesel versus oil as you mentioned, but we do expect to see some benefit in our fourth quarter. It's somewhat muted because we adjust our surcharges that we bill our customers so that has a muting effect, but at best insight that I have now it’s probably going to be a benefit of about $0.02 for our fourth quarter.

Got you. Okay, thanks very much.

Net of surcharges.

Okay. Understood.

Thank you.

Hey guys, Peter what are your thoughts on this near term -- lower oil, strong dollar as it relates to acquisition? Does it potentially may be spark interest from sellers or does it maybe delay some of the near-term potential?

I think that -- I think it will probably spark interest once you get over this initial period and the economy starts growing and -- because companies like to get a few good years of good numbers before they sell, but it’s there are a lot of different things that impact acquisitions including tax policy and demographics and stuff like that. But then nothing like a few good years of -- in the industrial gas business that have some of these guys say, well maybe it’s time for me to sell.

So I would expect I’m as I said pretty bullish on the U.S. economy.

Our outlook is pretty good and the other driver, the other thing I didn’t mentioned about pricing probably the single biggest input in the pricing whether it would be bulk or package or whatever is inflation and we haven’t had much of that in the last few years. These companies, like companies like ours and independent distributors performed very well and in an inflationary environment.

So I would think if you had a couple of good years of volume growth coupled with some inflation that that would probably trigger quite a bit of interest with distributors wanting to sell their businesses.

Okay. And then Mike, in the prior quarter, you had looked for base business same-store sales growth of 11% to 16%, you are 6% to 7% the delta of 5% to 6% seems to be related to this near-term lower oil prices.

How long do you think that could be a headwind as you head into '16?

Mike, I don’t think we had -- this is Bob, sales growth assumptions. I would say we’d love -- there weren’t ever that high, the 6% to 7% kind of revised range is probably in the neighborhood of a 1.5% below what we thought and that’s really driving the majority of our $0.07 decrease from the high-end and low-end of our fourth quarter guidance range.

So it's about a 1.5% in that neighborhood of what we’ve reduced our sales growth assumption. So, it’s still strong growth of 6% to 7%, just not at the 8.5% times range at the high 8.5% to 9% range at the high end.

Yeah I apologize. So 2016 was the EPS benefit, but thank you.

Thank you. Peter, I want to go back to your growth outlook, seems over the last year you had to cut guidance quite a bit or on numerous occasions, because of a slower than expected economic recovery in the U.S.

As you think about your 2018 objectives, what industrial production growth rate and inflation rate would you need to hit those objectives? And as the frequent guidance reductions is that simply due to slower than expected recovery or is there something in the business mix that’s changed?

Well I think Bob, what do we have like 3%?

Yeah, I would say the 8% compounded growth that we put out at the Investor Day was 1% plus from acquisitions and the balance organic and the organic growth was probably around 3% to 4% from the economy. And the balance was going to be taking more than our fair share of that growth based on all the things that we’ve done as well as price of 2% to 3%.

Okay. So, basically 2% growth rate is really -- is what’s causing you to miss your objectives then or to be behind the growth curve all right.

And then just to follow-up on diesel fuel, are you able to retain any of the decline or do you pass that long fairly quickly. So I think you must consume a fair bit of diesel fuel given your large fleet?

Right and in answering the question David, had had asked earlier, we think we’re going to have a net benefit of about $0.02 little over $2 million in our fourth quarter on a net basis. So that’s what we retained.

Okay. Thank you.

Good morning. Your larger supplier is raising prices relatively aggressively in the merchant gas market.

Is that good for you? Are you able to use that to help raise your price a little faster?

And I know they compete with you as well as supply you. So, maybe that also makes it easier for you to go for price out in the marketplace?

Well, we love it when other people raise prices and it’s nice to have a good price environment and the price environment has been pretty good even though growth has been slow. And I think it’s because there hasn’t been that much in terms of production capacity expansion.

And although the economy is not great, it hasn’t been really, really bad either. So, I think that -- but anyway we raised our prices based on what we see in the market with our customers and our cost and so we don’t try to track anybody, but it’s nice cover when other people are raising prices.

So, the market is -- the pricing in the market as I said has been pretty good and we expect at this level of economic activity and given the fact that capacity utilization is up that it probably stay okay for a while.

Thank you.

Hi good morning.

Good morning.

Good morning.

Mike, is the total access business breaking even at $500 million in annualized sales or is it closer to corporate average or operating margin or is it even accretive top rated margin at this point?

Accretive, probably pretty strongly accretive actually, it was a significant contributor in our initial SAP benefits and it has only continued to get stronger.

All right. And then in terms of the customers maybe deferring some other capital decisions, is it fair to say that some of the hardgoods automation equipment that’s been strong this quarter and has been for several quarters is that what’s getting paired back as you look at the next few quarters?

We didn’t -- we have not singled that out and I would say based on what we know about today, we have -- we’re not aware of those types of capital projects yet being pulled back, but those are very long cycle and they could be pulled back this afternoon. But general the concern we would have right now is less about that, because that’s really a pretty -- it’s growing very nicely, but it’s still a very small part of the total.

It’s really more the general equipment -- capital equipment that you would use in the field would be more of the concern on the pullback.

All right. Thanks very much.

Yes. Good morning.

Based on your sales growth of 6% organically half of which was from price, I guess I would have thought your operating margin would be a bit higher. Can you speak to the factors that may have contributed to the 30 basis point decline year-over-year?

I think you cited some mix effects there including ammonia. Does that explain it or were there perhaps other factors that work?

Probably best to look at Kevin it's on a segment basis. So if you look at our distribution segment basically the operating margin was flat on 5% organic sales growth.

And that was challenged I would have expected normally some expansion at that level of organic sales growth, but that was challenged on one hardgoods outpacing gas and rent. So, it’s the lower margin side of our business.

And then also within hardgoods, the strength in lower margin equipment outpaced the growth within hardgoods. So, those were kind of the challenges from an operating margin standpoint that hit us and also a little bit higher depreciation expenses we haven’t fully grown into some of our recent investments as far as being leveraged.

The drag on the consolidated then was all driven by the challenges in all other operation segments and albeit it had strong growth. That growth was in refrigerants and in ammonia.

And as Mike delineated the growth in ammonia was challenged by trend not being able to quite keep pace with the rapid price increases. So, that between refrigerants and ammonia that kind of for almost the entire increase in all other operations, but no contribution, no incremental contribution on the operating income line.

So that was the challenge there and as Mike said, the ammonia at least at the moment is behind us. So that should improve as we move forward.

Okay. Thank you for that color.

Second question if I may on cash flow, can you speak to your capital budget looking ahead to 2016, and whether that’s likely to trend up-down or remain flat and I then I guess similar question on the working capital side?

But we would expect it to come down from where we’re at this year. I think as we get through our ASU build-outs and our other major projects, we would expect that start to drift down more towards the 6% to 7% range.

I don’t think we’ll quite be there for FY'16, but certainly as you look out to FY'17. And as always, when you look at opportunities as they arrive and if it makes sense, we certainly would could go over that percent, but we certainly do not -- we see it coming down and certainly meaningfully as we exit out fiscal '16.

And for working capital?

Working capital, we're doing very well in working capital. It's really muted this year because of -- last year it was strong and last year it was strong really because FY'13 going back two years was so challenged as that was when we had somewhat of a buildup as expected from the SAP implementation.

Both in terms of a little stress in accounts receivable as well as building up our inventory to handle the expansion of sales through total access to include welding hardgoods beyond safety. So we've made good improvement on our working capital metrics this year.

They just don't come through because last year benefitted so much just because of the starting point in FY'13. So that will be a positive as we move forward into next year.

Got it. Thank you very much.

Good morning. Question on the SG&A line, when would you annualize all these growth initiatives, the district managers, the total access growth spending, when does that annualize either in the fourth quarter or next year?

I think it will be next year will not be the hurdles that were with us this year.

All right and -- okay, and then a question on the order book, I know you don't have a very far outlook, but has the slowdown in the pullback that anecdotal evidence from customers in the CapEx pullback actually occurred and hit the order flow yet? Or is that jus expectations from really the second half of the fourth quarter?

No, we haven't seen any slowdown. In fact as we said in the script, the non-res construction and chemicals and metal fab are strong and in fact I think equipment -- our equipment sales within hardgoods were up double-digits 12% last quarter and so we haven't seen it yet.

We have seen an uptick in January, but the uptick is kind of in line with our revised guidance, which as I mentioned was about a 1.5% lower than what our outlook was back in October. So we're seeing a slight uptick from where we exited the full year third quarter, but in line with our reduced revised guidance not where we had -- hope to be when we issued the guidance in October.

Okay. So just to clarify then, the revised guidance reflects a smaller than expected uptick in January here.

From the previous guidance that we issued in October, but I guess re-saying it for clarity, January came in, in line with what we had built into our revised guidance, which was somewhat lower than the previous guidance that was issued when we issued our third quarter results.

Okay. Thank you.

…our results, excuse me, second quarter results.

All right, thanks. Good morning.

Good morning.

At the Analyst Day you quantified the O&G business for us and I think you said it was about 3% to 5% of revs, is that right if you had a chance to delve further into your energy exposure and what…

Direct, see there is direct and then there is indirect. In the direct part, we have a pretty tight beat on and it's about 2% of the upstream and that would be what I would call upstream.

Okay, that's the piece that is most impacted by the drilling that's now cutting back. So that's direct.

Okay.

The indirect can touch a lot of different things and it's a lot of pieces and we don't have a good visibility on the indirect. What we talked about at the Investor Day was like $90 million $95 million, which was the upstream direct to companies that that's what they do to provide upstream services.

Okay. So what we we're talking about was energy slowing as in that direct that 2% and it's…

So, that's the most obvious, okay. That's the most obvious.

The less obvious is all of the potential indirect that might be dragged along. Peter’s comment about people that make pipe for the drillers, that -- we would put that in the indirect bucket not the direct bucket.

Or the manufacturing of drilling equipment.

Right the manufacture or the maintainer of drilling, that would be more of the indirect bucket.

Okay. So when we think about the first quarter guidance and the 1% reduction for the sales growth rate, suffice it to say the upstream energy and the indirect is going to be challenged beyond that quarter.

So it's probably prudent for us to think that that 1% or so reduction in growth beyond your fourth quarter?

But also don’t leave out the impact for our customers in the manufacturing sector that are big exporters. They're also challenged or facing challenges and how that's going to impact their overall business and how might that ripple to us, again that's also in this area of caution that we're trying protrude here.

Okay, I get that.

In the near term and what's difficult is all the other positives that Peter articulated in terms of all the other industries that are unrelated to oil upstream and just the consumer spending and appliances and anything else that would manufacture to produce our products, that our belief it should be positive, but the timing is difficult to pin down.

Okay. With that energy headwind when I deck into the operating leverage for this quarter is about 9%, I think at the Analyst Day you talked about little 20s, 21%, 22% operating leverage, but with this, this headwind from upstream energy in indirect, how should we be thinking about just that short-term operating leverage.

I think in terms of our fourth quarter guidance from an EBITDA not an operating -- from an EBITDA standpoint, it's in the mid 20s. So pretty strong fall through, which is driving the 9% to 13% increase in EPS up 6% to 7% sales growth.

So decent fall through at the EBITDA line relatives to those growth kind of little bit historically where we've been in the mid 20s for EBITDA.

Okay. Thank you.

Good morning. Just a quick one as you think about the pricing dynamics that are developing in the merchant business, are there any regions where you think you will be better for you to add incremental merchant capacity faster than the longer term rule of thumb that you've given us of your plan every or so?

Well we just look at it opportunistically. We're not interested in covering the world with production facilities, but certainly the capacity utilization of the existing plants in a particular geography is one data point that we look at when we consider building a plant.

Our density of customers in a market is really important. Our base load and whether or not we can get a pipeline to fray part of the capital cost, these are all data points.

So I guess the direct answer is that that's one of the factors that we consider and at the end of the day, if we can buy it an equal or better cost, we would probably buy it and not build our production capability.

But do you have any regions right now where are you specifically seeing the things that are probably getting tight over the next couple of years.

Yes. There are few and we said that we would probably one or two ASUs out of every three years or something like that.

So I would suspect that that's the way it unfold.

But we don’t know what our current supplier's plans are to add capacity in these markets, so generally as we see ourselves getting tight or the market getting tight, we will begin dialoguing with our current incumbents about trying to buy more and those kind of discussions go on all the time.

Thank you.

Sure.

Hi, gentlemen. Just a quick clarification on currency, Is it fair to assume that current guidance essentially seems no change in current pricing on the dollar?

Well, we don’t have much exposure as it relates to foreign currency in terms of our reported financial results. We haven’t factored in specific correlation between further strengthening of the dollar and manufacturing exports and how that may impact our customers or manufactures of that sort if that was your question?

Yes, yeah that’s fair. And then really quickly on the private label business, I guess hardgoods is up 5% kind of where do you see this business in three years and kind of general speaking, what portion of revenue could this business ultimately represent?

Well, our private label business is comprises a portion of our hardgood offering. I’m not sure what the percentage of the total is now, but I would not expect it to be dramatically different as a percentage of total revenue going forward then it is now.

We continue to grow it. We always preferentially want to try to sell the private label and to believe we could continue to outpace the overall hardgood growth by a little bit is probably fair, but I don’t think the impact is going to be huge to the overall mix of branded versus private branded over the next couple of years.

Great, thanks.

And maybe for a little more color on the foreign exchange question, just give some context, the impact of the quarter we just reported on was about a penny of foreign exchange hit, just to give some sense of magnitude.

Got it. Okay.

Great, thanks.

Yeah, hi thank you. I wanted to ask a question about your comments about your total access program and may be related to the business mix within your distribution segment?

Year-to-date your hardgoods growth is ahead of your gas and rent growth and that’s kind of counter to the trends of the last couple of fiscal years. And I’m wondering is there something about, the medium, the telesales medium that may be lends itself more to the hardgoods side of your offering as opposed to your gas and rent and is that structural or is that something that you’ve noticed or you haven’t noticed.

So how does the telesales, the growth in the telesales aspect effect, the business mix within your distribution segment? Thank you.

Okay, well first we need to go backwards a little bit and if you look at our -- historically if you go back a long way in Airgas, hardgoods and particularly equipment within hardgoods have been a good indicator on the future of the gases growth. With hardgoods being a leading indicator and particularly with equipment being a very important leading indicator for the future of gases growth because they always -- history would say that they lead gas growth.

So if you go back far enough, you’ll see periods when gases outpace hardgoods. You’ll see periods where hardgoods outpace gases.

So that’s not a new phenomenon related to total access. However with that said, our initial successes with migrating customers to the telesales -- existing Airgas customers to the telesales channel is in many cases with the smaller customers, they’re already gas customers of ours, but we do not have their hardgood business.

So when you’re growing your -- when you’re targeting the smaller customers to a telesales channel, initially your hardgoods growth outpaces your gases growth. And we’ve seen that with the existing Airgas customers that we migrated to that channel.

On the other hand, our total access channel is doing a very nice job of converting competitive customers to become Airgas customers and the blend of gases sales and hardgood sales on the new customers that we acquire through that channel mirror our distribution gas hardgoods mix very closely.

Thank you for that color. And I apologize if somebody, if Bob talked about this, but I noticed that your sequential interest expense fell by almost $5 million.

And again apologies if I am making you repeat yourself, but could you just remind me what the composition of that decline is and whether that is going to be the new kind of sustained level of quarterly interest expense going forward.

Yes, it is the new sustained -- in the prior quarter, we pre-funded an inventory that was coming up and in the current quarter, early in the current quarter or late last quarter, we repaid paid that back with commercial paper, lower commercial paper rate, so it is a good base to build from moving forward.

Thank you very much.

Again, thank you all for joining us today and we'll be available all day for follow-ups. Thank you.