Taking charge

Michael L. Molinini

Airgas, Inc. has acquired complementary companies and operations with $160 million in annual sales so far in fiscal 2007, and it has more acquisitions on the way.

The company is at the top of its game, and it's putting its tough business practices to work as it looks to expand with further acquisitions and with moves into new markets, said Michael L. Molinini. Molinini is the executive vice president and chief operating officer of Airgas (www.airgas.com). He spoke in early January at the annual meeting of the American Welding Society's Welding Equipment Manufacturers Committee (www.aws.org/wemco) as one of the featured speakers, and he delivered a tough message: Airgas has established a leading position in the U.S. gas distribution market, and it's looking for added value from its suppliers to help it to protect that position.

Molinini ticked off the leading positions that Airgas has achieved:

• Airgas is the largest distributor of industrial, medical and specialty gases in the United States, with about 20 percent of the $9 billion U.S. market for packaged gas and welding hardgoods.
• The company reported sales of $1.6 billion for the first half of fiscal year 2007, a 13 percent increase over the previous year. That puts Airgas on track to report sales of more than $3.2 billion for fiscal 2007.
• The company has more than 1 million customers, and no one customer represents more than ¹⁄2 of a percent of its total sales.
• The company is the leading U.S. supplier of liquid CO₂ in the Southeast, the leading producer of dry ice, and the largest U.S. producer of nitrous oxide.
• Airgas is the market leader in its core market and in related markets. By focusing on multiple markets, the company has broad exposure to the U.S. economy and coinciding protection from economic downturns.

Airgas built its market-lead by making more than 350 acquisitions since the company was founded in 1982, and it has maintained its focus on its core products.

"Gas is our principal product," Molinini said. While mainly a distributor, Airgas also produces carbon dioxide, dry ice, nitrous oxide and specialty gases, and it operates 20 acetylene plants. For atmospheric gases, Airgas operates six air separation plants today, including three run by its National Welders joint venture. The number of air separation plants will grow to 14 after it completes the acquisition of the U.S. bulk gas business that Linde AG was forced to divest in its merger with BOC Group (the proposed acquisition currently is being reviewed by regulatory agencies). The Linde Bulk Gas Business to be acquired employs about 300 persons, and generated $154 million in revenues and $55 million in earnings before income taxes, depreciation and amortization (EBITDA) in the year ended December 31, 2005. Sales for Linde Bulk Gas were on track to increase by 10 percent in 2006.

To get gas products to customers, Airgas has developed a strong distribution structure with multiple channels, Molinini said. The company's distribution includes field sales, retail stores and strategic accounts that focus on market-leading sales for core and strategic products, and for new products that are designed to leverage Airgas's infrastructure and customer base.

Molinini said gas is and will remain Airgas' principal product, but that hardgoods — welding equipment, safety equipment, and welding and safety accessories — complement the gas products and are important to the company.

Airgas distributes its hardgoods through six major distribution centers that have nearly 900,000 square-feet of space under their combined roofs. Those distribution centers have inventories worth nearly $50 million, and their 400 employees pick more than 4.5 million line items each year. Those distribution centers are, in turn, supported by four buying centers that employ 125 persons. "If you haven't visited a distribution center or a buying center, and you want to be an Airgas supplier, you need to," Molinini said, adding that those centers represent the heart of the company's hardgoods distribution chain and provide support for all of the company's sales channels.

The sales channels themselves include more than 700 branches that the company operates with 1,000 field sales personnel and 3,000 delivery trucks. Those branches maintain a hardgoods inventory of more than $100 million across broad product lines, and also sustain strong local relationships, Molinini said.

As the company's principal customer-facing locations, the branches are designed to provide a high level of customer service, and Molinini said Airgas fosters an environment in which all of its people are encouraged "to perform heroic acts for their customers."

"We have a high level of customer service, from the first phone call to any error resolution that we might have, and we provide strong product/process support locally with professional back-up," he said.

Molinini gave an example of one of his company's best performing segments — Safety Products — and broke the segment down by the two sales channels that serve it: field sales and telemarketing sales. Airgas saw sales of about $400 million in fiscal 2006 from more than 30,000 safety products that provide head-to-toe protection, Molinini said. The company's field sales channel was responsible for 58 percent of the reported sales, while the telesales channel was responsible for the remaining 42 percent. However, both field sales and telesales increased 18 percent for the fiscal year over the previous year, he noted.

The company's skyrocketing sales in e-commerce totes up sales of more than $50 million a year to about 9,000 customers, Molinini said. He noted that medium- to large-sized customers are predominant in ecommerce, and that their average orders are about $1,700 per month.

The company's e-commerce site has seen growth rates of 40 percent, 43 percent and 69 percent in the past three years.

E-commerce is a business-to-business supply chain, he said, that is attractive for its 24/7 availability, and the ability that Airgas has to give its customers control over the development of individual catalogs that comprise the items they tend to order regularly. In addition, Molinini said Airgas is developing more on-line customer service features, such as on-line payment processes, and making material safety data sheets and certificates of analysis readily available. On-line business-to-business commerce is an "important and necessary capability to compete effectively," Molinini said.

"More people shop and do product research on line, and there are more competitive websites (available) every day," he said, adding that the Airgas.com Internet site receives more than 80,000 visitors each month from web-based search engines, and that more than 1,000 persons look up Airgas store locations on its web page each day.

Molinini said Airgas is firing on all cylinders, and that the company is working to increase its sales of both gases and hardgoods, and to increase its earnings before income taxes, depreciation and amortization.

"We're improving our operating efficiency, but not at the expense of customer service," he said, adding that he expects continued growth in 2007.

Hardgoods sales attract gas customers While its primary products are gases, Airgas Inc. continues to be excited about its sales of hardgoods, according to Michael L. Molinini, executive vice president and chief operating officer of Airgas. Hardgoods — including welding products, safety products, gas equipment, tools and hardware, janitorial equipment and supplies, and other products — contribute about 46 percent of the company's annual sales. Hardgoods facilitates the company's sales of gases, and they are easy and risk-free additions to its gas sales, Molinini said. Also, hardgood sales and services support the company's theme of being a one-stop place to shop for its customers. However, he also noted that many customers view hardgood brands and products as commodities, a view that tends to reduce margins on sales. "In many product families, selling the same brand as everyone else is a good thing — taking orders is easy," he said, adding though that margins on private branded hardgoods can be as much as 10 percent higher.