L'Air Liquide S.A.

Michael Molinini - CEO Robert McLaughlin - CFO Peter McCausland - Executive Chairman Joseph Marczely - IR

Ryan Merkel - William Blair & Co. Mike Sison - KeyBanc Capital Markets Bob Koort - Goldman Sachs Vincent Andrews - Morgan Stanley Mike Harrison - Global Hunter Securities Christopher Perella - Bloomberg Intelligence David Silver - Morningstar Steve Schwartz - First Analysis Securities David Manthey - Robert W.

Baird & Co.

Thank you, Jane. 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 and 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 slide presentation.

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

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

I’ll now hand it over to Peter to begin our review.

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

As anticipated, business conditions remained sluggish during our first fiscal quarter of 2016. But they weren’t awful, given the fact that we’re dealing with the strength of the US dollar, low oil prices, Greece, China and about a million other things.

Earnings of $1.16 were directly in the middle of our guidance range. Lately we’ve been getting some questions about expenses and I’d like to make a few comments.

In areas where it makes sense and I’d say this applies to most areas of the country, we are limiting new hiring to critical customer facing and safety sensitive roles and we are not back filling positions vacant from retirements and departures. This has a mitigating impact on rising costs, but we are not implementing a companywide reduction in force.

We are tightly managing all expenses in our distribution segment, which accounts for 90% of our sales. We’ve limited our year-over-year increase in operating expense to 2%, excluding the impact of acquired businesses, despite a near double digit increase in healthcare cost.

We have a lean dispersed operating platform with over 1,200 operating facilities and approximately 17,000 employees, many of who are customer facing. Our average cost of employees is not that high, but the cost to terminate, restructure, then rehire and retrain when growth resumes is very high and does not make economic sense, especially at a time when our volumes are only modestly down.

I’ve been in this business a long time. True value is created by doing the right things for the long-term.

That means not cutting expenses to the point of sacrificing customer service, losing valuable associates or operating in an unsafe manner. As managers, we understand the need to balance the long-term with the short-term and we do that constantly and we’ve had pretty good success over the years.

Total return to shareholders has grown at an annual compounded rate of over 18% since we went public in 1986, placing us in the highest return companies in the S&P 500. We have done and will continue to do what is right for the shareholders and the company for the long-term.

We don’t know the future and we’ve proven that over the last couple of years with our forecast for the US economy, but we have a pretty good idea of the range of possibilities and we are confident that we can deal with the future, however it turns out. We have a great knowledge of our industry and our customer segments.

We have extensive experience through many business cycles. We have competed against companies with far greater resources over the last 33 years and today we are the market leader and largest packaged gas company in the world, in the largest and the most promising market in the world.

We have a proven track record of investing for the long-term, but we have demonstrated our capability to reduce expenses dramatically when necessary as in the recent great recession. We have managed to do this despite of a very volatile US economy over the last 10 years and at the same time, we have reduced the financial risk to our enterprise and returned capital to shareholders through dividends and share repurchases.

More importantly, we’ve reduced operational risk over this time by building a strong organization for the long-term that has the power to regenerate itself. Now back to the quarter.

As we have historically, during the first quarter of 2016, we continue to generate strong cash flow. Free cash flow was $120 million in Q1, up 15% year over year and adjusted cash flow from operations was $232 million, up 13% year over year.

The story of the development of Airgas is all about our significant and durable cash flow. We’ve used our significant cash flow to invest in our business, make acquisitions, pay dividends to our shareholders and repurchase shares.

On the strength of our strong, stable cash flow and credit ratings, we announced on May 28, a $500 million share repurchase program and through June we repurchased 1 million shares on the open market for $104 million. End markets of strengths like construction were offset by weakness in markets like energy, manufacturing and metal fabrication.

In general, the US refining complex is in good health. On the plus side, low natural gas continues to afford very low feedstock or input costs.

However, a high percentage of US chemical output needs to compete globally. So a strong US dollar and a slower global economy have become headwinds.

Additionally, overseas firms are also benefiting from much cheaper oil derived feedstock due to lower oil prices. In general US chemical firms are cautious over the short term, but still bullish on their general competitiveness longer term.

This is evidenced by the fact that there has been very little let up in the construction of new chemical facilities slated to come on stream in late 2016 through 2019. This past quarter our non-res construction segments show continued, albeit modest acceleration in activity.

Ultimately we expect those construction sales in many instances will be followed by strong operational sales. Fiscal year to date, we’ve acquired nine businesses with aggregate annual sales of $74 million.

We’re off to a good start this year and our pipeline looks good. We feel positive about achieving our goal of acquiring $100 million in sales during the year.

I continue to be a strong believer in the long term development of the US economy, driven by solid fundamentals and fantastic innovation and abundant and inexpensive energy. Our recent investments to improve our platform systems and our product and service offering have positioned Airgas for growth when the economy improves.

In the meantime, we’ll continue to work hard to provide customers with outstanding service to grow our position in the marketplace, to continue to closely manage expenses. Consistent with our demonstrated track record, we remain committed to delivering sustainable long term value to our shareholders.

For the remainder of fiscal 2016, we expect modest business conditions as described in our guidance, but I’m confident that growth will resume in the US economy and that Airgas will benefit more so because of our resilient focus on the long term and the actions we continue to take to make your company stronger. Now, Mike will provide a deeper dive.

Thank you, Peter. Please turn to slide three.

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 first quarter, our Strategic Accounts sales were up 3% compared to prior year, reflecting strength in non-residential construction, and our food, beverage and retail markets, with the latter being positively impacted by helium sales as we cotinine to win back business disrupted by the helium crunch in FY ’13.

In the first quarter, sales of Strategic Products increased 4% over the prior year, with Bulk Gases, CO2 and Dry Ice showing the most improvement driven by both price and volume. Safety Products and Medical sales were both up 2% and Specialty Gas sales were only up about 1% due to broad-based moderation in core Specialty Gas volumes.

Our Radnor private-label hardgood sales were flat year-over-year, outpacing our total hardgood organic sales, which declined slightly. Our expanded Airgas Total Access telesales business continues to perform very well.

We have now completed the migration of our remaining of legacy safety telesales business into our Airgas Total Access platform. Virtually all of our telesales reps are now selling the Total Suite of the Airgas product offering.

Total Access continues to grow, enhancing our customer touch and extending our reach to existing and potential customers historically underserved by traditional field sales coverage. On a comparable basis, during the quarter, Airgas Total Access sales again outpaced company averages, growing sales at 8% year-over-year.

Our recently enhanced e-business platform is enabling customers to interact and transact with Airgas through a robust suite of functionality and services. Digital sales in the quarter were up 20% over the prior year period as sales on the Airgas.com reached record levels.

Our new e-business capabilities are driving customers’ option at a rate of over 100,000 new locations annually. Sales in our distribution segment were challenged this quarter.

Strength we saw in non-res construction was offset by weakness in energy and chemicals, as well as weakness in manufacturing and metal fabrication. Within energy and chemicals, the larger rapid decline in the price of oil experienced in the March quarter and the sustained low price of oil today, continued to pressure our customers engaged in upstream activity.

While we saw continued strength in the manufacturing of transportation equipment, the slowing global economy and strong dollar had challenged our manufacturing customers who support the energy segment for export. On the positive side, non-residential construction, was led by general contractor activity.

After a relatively slow calendar 2014, our March 2015 quarter saw year-over-year growth in non-res construction of 5% and this quarter year-over-year growth reached 6%. Our new district manager structure is gaining momentum.

As the critical element of our strategy, our district managers are in place and establishing strong relationships with their customers. As you recall from our investor day in December, the district manager role is essential to our future success and has the ideal standard control, quick and agile, close to the customer, branches and sales reps closely managed and with full P&L accountability.

Going forward, as always, we will continue to look hard at expenses we control without sacrificing customer service or safety. We are continuing to methodically pursue process improvements and operating efficiencies in a number of key areas of our operating and administrative platforms.

As we continue to mature in our new SAP environment, we have a long runway of opportunities to improve both productivity and customer service. We are making steady progress on completing the investments in gases production assets that I described last quarter.

Our new plant, Minooka, Illinois is coming online this fall and completion of all other announced production facilities are on time and on budget. In spite of the weak economy, all of these areas are operating well and delivering encouraging results and will serve us well in both the current environment and especially as the economy improves.

As our guidance describes, we expect industrial activity to modestly improve this year. As we look forward, we continue to believe in the long-term growth prospects for the US and we remain committed to delivering long-term growth in value.

All Airgas associates have a clear, well understood mission on growing our topline by leveraging our extensive suite of products, services and customer value creators. As such, Airgas is well positioned to deliver market leading organic growth.

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 four for a review of our consolidated results for the first quarter.

Sales increased 3% year-over-year to $1.35 billion, reflecting a 1% contribution from acquisitions and 2% organic sales growth, with gas and rent up 5% and hardgoods down 3%. In aggregate, organic sales volumes were flat and pricing was up 2%.

Consistent with recent quarters, areas of strength, some of which were highlighted earlier in this call and noted in our earnings release, were offset by weakness in other areas. On a sequential basis, first quarter sales were up 4% on a daily basis compared to the fourth quarter, with strong growth in All Other Operations segment, which reflects normal seasonality as well as underlying strength in refrigerants, CO2 and dry ice, as well as a modest uptick in our distribution segment.

Gas and Rent represented approximately 65% of the sales mix in the quarter, up from both the prior year and the fourth quarter. Gross margin for the quarter was 55.8%, an increase of 20 basis points from the prior year.

Selling, distribution and administrative expenses increased 4% over the prior year, with operating cost associated with acquired businesses representing approximately 1% of that increase. The remaining 3% of the increase reflects normal inflation and rising healthcare costs, as well incremental costs to support the strong sales volume growth in our All Other Operations segments.

Operating income for the quarter was $153 million, down 2% from last year’s operating income and operating margins was 11.3%, down 50 basis points from last year, reflecting the impact of the increase in SD&A expenses in the current flat organic sales growth environment related to our distribution segment. Sequentially, operating income was up 3% and operating margins were flat.

EPS of $1.16 was down 2% compared to the prior year EPS of $1.18 and in the middle of our guidance range. 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-quarter calculation, was 11.8%, down 30 basis points from last year. Free cash flow for the quarter was $120 million, up 15% over the prior year and adjusted cash from operations was $232 million, up 13% over the prior year.

Total debt decreased by approximately $21 million year-over-year to approximately $2.4 billion at June 30. Our fixed flow debt ratio at the end of June was approximately 67.5% fixed, and our debt-to-EBITDA ratio was 2.5 in the middle of our target range of two to three.

Turning now to slide five, we’ll look at our segment results. Sales in the distribution segment were up 1% in the quarter over the prior year to $1.2 billion.

Organic sales in the distribution segment were flat, with pricing up 2% and volume down 2%. Distribution Gas and Rent organic sales were up 2%, with pricing up 3% and volume down 1%.

Distribution hardgoods organic sales were down 3%, with pricing up 1% and volume down 4%. My earlier comments related to consolidated sales in areas of strength being offset by weaknesses in other areas, applied to the distribution segment as well.

Gas and the Rent represented 60% of distribution sales in the first quarter, up 110 basis points compared to the prior year and up 60 basis points from the fourth quarter. Distribution gross margin was 56.4%, an increase of 40 basis points from the prior year, primarily reflecting the favorable sales mix shift towards gas and rent.

Distribution and administrative expenses, excluding the impact of operating costs associated with acquired businesses increased 2% over the prior year. Operating income in the distribution segment declined by 6% year-over-year to $132 million and operating margin declined 80 basis points to 11%, reflecting the impact of the increase in FD&A expenses in the current flat organic sales growth environment.

On a sequential basis, distribution segment operating margin declined 80 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, the sequential quarterly increase in stock-based compensation expense is offset by seasonality in our All Other Operations businesses.

All Other Operations reflect our CO2, dry ice, refrigerants, ammonia and nitrous oxide business units. Sales for All Other Operations were up 18% from the prior year, with organic sales up 16%, primarily driven by strong sales in our refrigerants, CO2 and dry ice businesses.

Sequentially, sales in All Other Operations were up 20% driven by the normal seasonality of the businesses that comprise that segment, as well as underlying strength in refrigerants, CO2 and dry ice. Gross margin for All Other Operations was 48.2%, a decrease of 110 basis points from the prior year, primarily driven by a sales mix shift towards our lower margin refrigerants.

Operating income in All Other Operations was $21 million, an increase of $6 million compared to the prior year and operating margin of 12.9% was up 180 basis points year-over-year, both driven primarily by strong sales in our CO2, dry ice and refrigerants businesses. Please turn to slide six, capital expenditures.

First quarter CapEx excluding operating lease buyouts was 8.7% of sales, reflecting continued investment in long-term revenue generating assets, including the two previously announced air separation units and our previously announced hydrogen production facility. The significant operating lease buyouts this quarter were related to leased properties related to the acquired Encompass Gas Group.

Excluding major projects and operating lease buyouts, CapEx as a percent of sales was approximately 5%. Now I’d like to discuss our guidance for the second quarter and full fiscal year.

Slide seven walks through the primary elements of our second quarter and updated full year guidance. The left hand column on this slide shows the year-over-year walk for the second quarter using fiscal 2015 second quarter EPS of $1.30 as a starting point.

Variable compensation reset is expected to be a headwind of zero to $0.02. Helium net cost pressure is expected to be a headwind of $0.02 to $0.01 and share repurchases completed in the first quarter are expected to contribute $0.01.

And the base business is expected to be down $0.01 at the low-end and up $0.05 at the high-end of the range. In aggregate, we are estimating EPS for the second quarter to be in the range of $1.28 to $1.33 or down 2% to up 2% over the prior year diluted EPS of $1.30 and reflecting organic sales growth in the low single digits.

The right hand column on this slide shows the year-over-year walk for our updated fiscal 2016 diluted EPS guidance. Variable compensation reset is now expected to be flat to a $0.09 headwind.

Helium net cost pressure is expected to be a $0.06 to $0.09 headwind and the share repurchases completed in the first quarter are expected to be a $0.03 benefit. And our base business is expected to contribute an incremental $0.011 to $0.032 representing 2% to 7% growth on organic sales growth in the low to mid-single digits.

In aggregate, we now expect diluted EPS for our fiscal 2016 to be in the range of $4.90 to $5.05 representing year-over-year growth of 1% to 4%. Second quarter and full year fiscal 2016 guidance does not include the impact of any additional share repurchases that may occur subsequent to June 30 under our current authorized share repurchase program.

Our previous FY-16 guidance range for EPS was $4.85 to $5.15. Thank you and now I’ll turn it back to Joe to begin our Q&A session.

Thank you, 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 and then get back in queue if you have additional inquiries. The operator will now give instructions for asking questions.

Thanks. I guess first, could you just help us understand the cadence of sales throughout quarter?

And then could you also possibly comment on what you’re seeing in July so far?

Ryan, relative to the cadence in the quarter we’re reporting on, it was basically fairly steady throughout each month, April through June. No significant upticks or downticks.

Relative to sales July month to date, similar for the first quarter in distribution with roughly flat year-over-year with gas outperforming hardgoods. Still seeing strong year-over-year improvement in our All Other Operations segment, but not quite the strength of the 16% that we reported in this quarter.

Okay. And then just to follow-up on non-res.

I am curious if you are seeing just better growth in maybe commercial and institutional versus maybe the infrastructure stuff or projects tied to oil and gas. Is that a little softer?

Just dive a little deeper into that if you could.

We’re seeing it across the board in non-res. A lot of supplement Gulf Coast of course having to do with downstream energy chemicals business.

We continue to see L&G terminals, natural gas pipelines, some power plants, water systems, stadia, bridges, highways. So it’s not really commercial, but hospitals we’re seeing some growth in new healthcare facilities.

So it’s pretty much across the board and it’s across the country. It’s stronger in the Gulf Coast of course with all the announcements of the major facility, some of which had been postponed or canceled.

But for every one that’s been postponed or canceled, there’s been new ones announced. So it’s a bright spot and we think we’re going to see continued improvement in non-res construction.

Very helpful. Okay, thanks.

Hey guys. Peter, when you think about the -- or Mike, whoever wants to sort of address this -- but when you think about the base business reducing the top end for fiscal 2016 from plus 10 to plus 7.

Any particular areas weakness that you are seeing that caused you to kind of take out the really high end of the range?

I’ll take a stab and then Mike can jump in. With low oil prices impacting customers who manufacture products that are used in the drilling industry and the strong dollar impacting manufacturers who export machinery and other things manufactured from metals, we are cautious about our big metal fab customers.

They are weak and their outlook isn’t great. The smaller metal fab customers seem to be doing okay because there is some underlying strength in the US economy, even though exporters are being disproportionally impacted by the strong dollar.

It’s mostly in manufacturing and metal fab where we are really cautious and we’re just going to have to see how the year develops. Mike, do you have …

Yeah, I was going to go pretty much in the same place, that the biggest difference now between now and when we originally put the plan together is the weakness in our larger manufacturing customers.

Got it. And then in terms of pricing, that’s certainly part of the equation when you think about the base business growth in 2016.

Do you feel pretty good about the leverage you are at and are there opportunities to, particularly with your strategic pricing initiatives, to gain a little bit more as the year unfolds?

Yes we are continuing to work on -- we are working on that all the time. So yes.

Yes. We are not expecting a drop off Mike of any significance.

Great. Thank you.

Thank you, good morning. Did you guys see and I know in the last quarter you had some weather issues and we’ve seen some other companies that have weather impacts.

Did you see any of that in the quarter?

We saw a little bit in Houston when they had the heavy rains and the floods. That was the one business unit that I would say was more impacted than others, but not Houston, Houston in Texas.

Let me just call it Texas.

Yeah, we got a lot of rain. I’m aware of that one unfortunately.

How about, can you talk a little bit about regionalized activity beyond that? There has been pockets ebbs and flows of different end markets, energy, metal manufacturing, etc.

Cold you give us a tour around the country of where you’ve seen strength or particular weakness outside of the Houston issue?

I think that the weakest area we’ve seen would be what we would call our central, which would be Oklahoma, Texas and New Mexico. Clearly a step down for them.

That’s the heart of the drilling belts. I think the north …

North central and the Midwest, Mike for manufacturing.

We’ve seen a step-down in the big manufacturers. Surprisingly we are seeing some improvement in the west and in the south and even in the -- what we would call our, the northeast part of our north division would be, is showing some improvement.

And I heard your comments on helium. I am not sure you made or I missed comments on refrigerants, but can you talk about what is going on in there and does this trade effort by the fluoro refrigerant industry mean much to you going forward?

Well, it could if they were -- you mean the anti-dumping suit?

That’s right.

Well, if they were successful, it would certainly have an impact. Now we are on both sides of that because we buy refrigerants for resale from the major manufacturers.

We also import some of the refrigerants and some of the blends directly from China. So we are not sitting here expecting that that’s the key to our success.

I think refrigerants used -- we had a very nice refrigerants business. It was really significantly hurt by the EPA allocation guidelines and I think now we are starting our climb back out of that, but we are certainly going to climb back a lot slower than we declined.

Got it. Thank you.

Thanks. Could you comment, you’re obviously well ahead of pace on your goal in terms of acquisitions and that follows a number of years where it seemed like a difficult environment.

Any comments on what you think has changed that’s allowing you to be at this pace and do you think it’s possible that we’ll see a bit of a make whole following the past couple of years?

We could do better than $100 million, but it’s hard to predict them. I think what’s changed -- I don’t think there has been that much of a change.

Basically it’s driven by the personal preferences of the owners and it just so -- we’ve been cultivating independent distributors for years and it just so happened that the pipeline started to fill up nicely this year and I don’t know if it’s the sellers view of taxes or the economy or whatever drives it. But it’s gotten better and the priority acquisition was different than our normal acquisition.

That was a product line service extension for us. We were using that company and had a great relationship with them beforehand, before we bought it.

Our customers love that we have the capability and so when we -- that was a special opportunity. Vincent, I wouldn’t call it a dramatic increase in distributor acquisition activity.

It’s just a nice little uptick.

Okay and then maybe just as a follow up. How are you thinking about the price volume tradeoff sort of in the current environment?

It seems like your price was up a couple of percent. Your volume was down a couple of percent.

Is that just sort of random how that played out, which offsets in different parts of the businesses or is there something changing about the strategy?

There are a lot of input there, but some of our biggest customers are down and they pay lower prices than the smaller customers and that’s one of the virtues of this business and you get a little improvement in margin. A lot of that decline in hardgood sales was wire and other types of hardgoods used in production which have the lowest margins we have.

So it’s not just the hardgoods, but it’s the size of the customer that happens to be down now that are having a positive impact. But there are other inputs, continued strategic pricing efforts and private label share of total hardgoods which is higher margins.

So there is a lot of different things, but generally when our big customers go down, our margins tend to go up a little bit.

Shorter term price will outpace volume, but as we get to the back half of the year and particularly the fourth quarter we would expect volume to play a more significant balance piece.

Thanks. That was great.

Thanks very much.

Hi, good morning. Peter just was hoping to get a little bit more detail on the expense discussion that you led off the call with the.

So the SG&A numbers are heading in the wrong direction and that’s been a trend over the past few years as a percent of sales. You mentioned some actions you are taking to curb expenses, but definitely short of some broader action.

At what point do you take a look at where demand levels are trending and determine that you need to take some additional actions in order to rationalize the cost structure?

Well, we are looking at it every day and in my remarks today I tried to explain the process. Our expenses, with soft volume growth, expenses as a percentage of gross profit tends to climb, but it certainly isn’t out of hand and I think we’ve done a reasonably good job.

I’ve been in this business a long time and I certainly don’t know all the answers, but I’ve had the opportunity to watch our competitors, our large competitors cut the hell out of the packaged gas business every single time there’s a short business downturn. And today, we’re a $5 billion company and they’re small, very small or non-existent or much – and in one case much smaller than we are and so we’re very cautious.

We know that expenses today that might make our analysts happy could hurt the upside tomorrow, but I’m not telling you I know all the answers. I don’t and we review it every single management committee.

We’ve got certain companies where business is down more than others because of geographic concentrations of customer segments that are down and they are taking action to reduce cost. And again as I said in my opening remarks, if it gets really bad, we know what to do.

We’ve demonstrated that. We took tremendous amount of cost out during the great recession.

And that was the first time we ever had a down year in same-store sales was during the great recession. So this has been a very unusual time, but I think we’ve demonstrated our capability of doing that and I can assure you we’re looking at it all the time.

Maybe kind of a related question just on the -- SAP was supposed to give you a toolset to be able to reduce some of the back office costs. So if I could delve into the SG&A piece and look at maybe more the admin/back office costs, have those been declining over time or are we still kind of yet to leverage the opportunities there?

Well, not as much as we hope. The SAP had three main baskets of benefits.

What were they? Pricing, Total Access and admin cost, back office stuff.

We made the decision because of challenges during the implementation process and the need to standardize business processes post SAP in order to eliminate errors and what not, we made the decision to actually not only postpone some of those back office expense reductions, but we actually spent more money to make sure that we got it absolutely right. And we’ve made tremendous improvement as a result of that decision and the back office stuff will take place let’s say over the next 24 months, we’ll begin to see some expense reduction in that basket.

But so far, very little of that was achieved, even though our overall SAP benefits exceeded the aggregate number we put out there.

I made a comment earlier in my remarks about how we are systematically and methodically working on process improvements. And what we don’t need to do is have some big reduction in force that reduces the customer service experience, even the administrative customer service experience for our over one million customers.

What we’re working on is we’re working on the process improvements that will eliminate the need for as many of those folks as we have now which we will – and it will not be a major – it will be a slow reduction over time as opposed to some big event. And in some cases, those programs are well underway for that to happen, but to Peter’s point, you won’t see one big change.

You’ll see it happening in small amounts on an ongoing basis. But we’re committed to delivering those and we know how we’re going to get them out as well.

All right, thanks for the color.

Good morning. A question on the pace of the share repurchases.

Is the first quarter repurchase pace the average over the course of the program? Is it going to ebb or flow?

Is it more opportunistic?

When it comes to repurchases, we don’t believe in just putting a big repurchase out there and not doing anything about it. We want to go and repurchase the shares within a reasonable period of time.

And we generally – because anything can happen, we generally don’t like to commit to any specific end date, but we have a demonstrated track record of completing the purchases within a reasonable period of time after the announcement. Now, within that period of time we try to be as opportunistic as possible and buy the shares at the lowest possible price.

So sometimes we’re in the market. Other times we take a rest and we bought a million shares I think in the quarter.

All right. And just to follow up on the SG&A, with it tracking I think at 3% in the first quarter excluding acquisitions, I think, Peter you said it was supposed to slow to 2% for the year.

How does that growth in SG&A slow over the course of the year?

Now, the 2% was on the distribution segment, which is 90% of our sales, excluding acquisitions, that was up 2% and part of our comment around tightly managing expenses. The 3%, the increase to 3% on the consolidated basis was the incremental cost to support the 16% sales growth in the All Other Operation segment.

And both consolidated and distribution had the headwind as we disclosed of about 1% of those respective increases were from acquisitions.

All right, thank you very much.

So I have a smaller question, then maybe a bigger one. First question is on your bulk gas sales.

So the plus 7% this quarter comes on top of a plus 5% 12 months ago, and I believe the comments were that there were some price and volume. So correct me if I am wrong, but there is no new facilities in that mix.

So maybe could you just comment on where the bulk volume came from? And then secondarily, whether the price increases you are seeing are more company-specific, certain customers or contracts, or it’s reflective of the broader market?

Thank you.

Okay. First of all, all of our bulk customers are under contract.

We have not commissioned any new air separation plants. However, many of our air separation plants have available capacity in them to sell to additional customers which is what we’re trying to do.

The split between volume and price is probably about half and half. Slightly more volume, but price is material.

And we continue to mine the market looking for opportunities. Having as many package gifts customer relationship says we do provides an ongoing pipeline of potential new bulk opportunities.

Okay. And I am going to apologize in advance, this question might be a little messy, but back in December you did set out your long-term targets for I think fiscal 2018.

And I will stipulate that the economic environment is less than what you had built in there. But also built in there are a number of Company directed initiatives, the district manager role, the SAP program, which you have discussed, telesales and enhanced e-commerce platform.

So as you look at things eight, nine months since that meeting, could you maybe talk about whether you guys are comfortable that the moving parts that you are controlling or you are responsible for are kind of on target for where you hoped they would be at this point and on target maybe to be where you want them to be in fiscal 2018? Thank you.

Well, let me just comment generally that when we set out those goals and described those programs, we did it with a lot of forethought that we laid out with transparency, our goals for making Airgas stronger. And in my view, my personal view, we’ve made tremendous progress.

There are times in this business when you really do a good job and strengthen your company, but the economic environment doesn’t make that particularly evident and this happens to be one of those times. We’ve been in slow periods before.

Our cash flow always stays strong. Our margins sag a little bit.

Our returns sag a little bit, but we continue to work hard to become a better company. And I think, Mike you ought to talk a little bit about the specific programs that we mentioned.

Yeah. To make this a short discussion, think of it this way that we are really three legs of the stool that had to contribute for us to get to that level of return that was in our investor day.

One of the legs was continuing to make $100 million a year of acquisitions. And I think we still feel -- we are on pace.

We feel comfortable about that, so I think that’s solid. The second one was we had a block of cost reductions, operational efficiency type cost reductions in there, which are directly related to the process improvements and the approach we are taking of that and I think you don’t see under the covers of that, but I think we feel pretty comfortable that we have a beat on the programs and how it is we are going to go about doing that.

And then the third leg is, we needed topline sales growth which was a combination of volume and price to which we would maintain a tight cost control on the platform that we had built that had the capacity embedded. And I think you are starting to see the cost as we lapse under the investments that we made to build out the Total Access Group and to build out our e-business group.

The distribution group’s OpEx is up 2%. The issue is the topline -- pricing continues to be, to strengthen.

The district managers are all in place and the cost to invest in that is now also lapping. So now it’s all about the topline organic growth which is the last piece and that’s the piece, the timing of which we have trouble predicting that.

So other than that timing piece, all of the other pieces we are feeling really, really good about.

Got you. Okay, thank you very much for that.

Good morning gentlemen. I am sorry if I missed this in the prepared remarks, but regarding CO2 and dry ice, you make a comment in your slide deck about higher outage surcharges.

And I'm just wondering, given the strong performance of that part of the business, is that something that we need to adjust or account for in coming quarters? Was it big enough to be a stand out?

No. It pretty well balances the additional expense.

So I wouldn’t pay a lot of attention to -- I wouldn’t worry about that in your modelling.

It’s a fact of life in the CO2 business. We’ve got lots of sources and some of them have a habit of going up and down and you have to haul in product.

Okay, very good. Thank you.

Thank you, good morning. This is a, what have you done for me lately question.

But when you look at the distribution segment specifically and gross margins being up 40 basis points year over year. With the gas mix up -- Gas & Rent up 110 basis points, private label was flat.

But you noted the mix of small customers and positive pricing. I am just wondering why gross margins perhaps weren't up more.

And maybe if you can just talk about what the offset is within that segment.

I think some of it is relative to the mix within the product line, so some lower margin gases as it relates to that.

Bulk was up.

Bulk was up.

Much higher than cylinders.

Yeah, so there is mix within the Gas & Rent and hardgoods and in both cases and Peter is right, the bulk out performance in bulk is a lower margin on the gross profit, but also larger volumes. So there is nothing really significant, Dave underneath the covers.

It’s really kind of mix within that that is maybe less -- producing less of an increase than perhaps you modeled or expected.

Okay. And second, what product categories has seen the most success under the Total Access platform?

I think you said that Total Access is still growing faster than the overall corporate average. Why would safety and admin be so flat in that type of environment?

Total Access is -- if you look at the growth of 8% is, on existing customers it’s primarily -- it’s more heavily weighted towards hardgoods than it is to gases. And on newly acquired customers about, just under half of those customers are buying gases.

So that is a wide blend of what it is we are selling through that program. So I haven’t looked -- I don’t have that level of precision at this moment about how much of it is private label versus how of it is branded, versus -- yeah, I don’t have another layer of level down below that.

Okay. I noted that you had indicated that you'd transitioned your legacy safety business to Total Access.

And just given the new platform and the energy around that effort, I would have thought you would see faster growth there. Just wondering in general what categories are driving the majority of that growth?

We don’t have any …

We did deliver 8% growth when the core business delivered nothing. So we kind of felt that 8% was doing pretty well with our Total Access business.

Even this legacy safety and that lower our growth rate, right?

A little bit.

Okay. We’ll follow up.

Thank you.

Again, we thank you all for joining us today and we will be available all day with any follow-up questions you may have. Thank you.