UPDATE 3-Airgas profit drops 25 percent as sales slip

* Ex-items, EPS 68 cents; Street view 67 cents

* Revenue falls 17 percent (Adds CEO comment; updates stock movement)

By Ernest Scheyder

NEW YORK, Oct 29 (Reuters) - Industrial gas distributor Airgas Inc (ARG.N) said on Thursday its quarterly profit fell 25 percent as cost-cutting failed to offset a steep drop in sales to the manufacturing sector.

The Radnor, Pennsylvania-based company has seen demand for its products -- especially gases used for welding in construction and other industries -- slip as the recession sharply curtailed building activity.

Airgas, which was added to the Standard & Poor's 500 index during the quarter, warned it remains in a "very challenging business environment."

Chief Executive Peter McCausland remains optimistic, though, that the company he founded in 1982 will emerge from the recession stronger.

"It's time like these that prompt customers to take a much broader view of their supply chain than they might take during the good times," he told Reuters. "I think this is a very severe recession, but I think we're coming out of it now."

"Difficult conditions were broad-based across our geographies and customer segments," Chief Executive Peter McCausland said in a statement. "Consistent with recent quarters, our manufacturing customers suffered the deepest declines."

Airgas also supplies oxygen and other gases to the medical sector and demand for those products has remained steady, the company said.

For its fiscal second quarter that ended on Sept. 30, the company posted net income of $54.5 million, or 65 cents per share, compared with $72.8 million, or 85 cents per share, a year earlier.

Excluding debt extinguishment and pension plan charges, Airgas posted profit of 68 cents per share. By that measure, analysts expected 67 cents, according to Thomson Reuters I/B/E/S estimates.

Revenue fell 17 percent to $962.3 million, shy of the $999.2 million analysts expected.

Cost of goods sold fell by 24 percent during the period. Much of the company's cost cuts came from culling operations that needed to be made more efficient and those costs are not likely to return, McCausland said.

Excluding one-time items, the company expects fiscal third- quarter earnings of 67 cents to 70 cents per share. Analysts expect 67 cents.

Airgas shares fell 7 cents to close at $46.02. The stock has traded between $26.29 and $51 in the past 52 weeks. (Reporting by Ernest Scheyder; editing by Lisa Von Ahn, John Wallace and Andre Grenon)