Armstrong World Industries, Inc.
) have dropped 3% since it reported an 11% year-over-year decline
in its third-quarter 2013 adjusted earnings to 87 cents per share
on Oct 28. Higher labor costs associated with added crews at
several solid wood plants to meet increased demand, and increased
manufacturing and input costs dragged down the profits despite a
rise in revenues. However, earnings were ahead of the Zacks
Consensus Estimate by a penny.
Including one time items, earnings decreased 24% to 84 cents per
share from the prior-year quarter's earnings of $1.24 a share.
Net sales increased 5% year over year to $730 million in the
reported quarter, but failed to match the Zacks Consensus
Estimate of $744 million. Higher volumes in residential
businesses, particularly Wood Flooring, and positive price and
mix led to year-over-year improvement. However, the sale of
the Patriot wood flooring distribution business in the third
quarter of 2012 had a negative impact of $7 million on sales in
Cost of sales increased 8% to $550 million in the reported
quarter. Gross profit declined 4% to $180 million from the
year-ago quarter. Gross margin contracted 220 basis points (bps)
year over year to 24.7% in the quarter.
Selling, general and administrative expenses increased 10% to
$103 million in the quarter in order to support emerging market
and architectural specialties growth initiatives. Adjusted
operating income decreased 14% to $96 million in the quarter from
$111 million in the prior-year quarter due to higher
manufacturing and input costs as well as higher SG&A
expenses. Operating margin contracted 280 bps year over year to
Net sales at the Building Products segment increased 3% to $335
million, aided by higher volumes and positive price and mix
performance. Adjusted operating profit for the segment increased
4% to $85 million from $82 million in the year-ago quarter.
Improved price and mix performance and higher earnings from WAVE
were somewhat offset by increased SG&A expenses to support
growth initiatives in emerging markets and architectural
The Resilient Flooring segment reported sales of $246 million,
flat year over year. Benefits from favorable foreign exchange,
improved mix and higher volumes were negated by unfavorable
price. Volume growth was witnessed in the Americas, but lower
volumes in Australia and Europe were a deterrent.
The segment's adjusted operating profit was $24 million, down
8% from $26 million in the year-ago quarter. Positive impact from
lower manufacturing and input costs were not enough to outweigh
the negative impact of unfavorable pricing, foreign exchange
manufacturing and plant start-up costs in China.
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Net sales in the reported quarter went up 21% year over year to
$148 million. The improvement was driven by strong volume growth
owing to favorable pricing, strong demand from independent
distributors as well as share gains and new product introductions
with independent distributors as well as the home center channel.
However, adjusted operating income plunged 79% to $3 million in
the reported quarter from $14 million in the prior-year quarter.
Cash and cash equivalents were $138 million as of Sep 30, 2013
compared with $299 million as of Sep 30, 2012. Cash flow used
from operating activities was $162 million in the reported
quarter compared with $141 million in the prior-year quarter.
Armstrong World repurchased shares for $260 million in the
Free cash flow was $95 million in the quarter, up from $78
million in the prior-year quarter. The improvement was attributed
to increase in working capital, proceeds from the sale of assets,
lower interest expense, and higher dividends from the WAVE joint
venture, which were offset by lower cash earnings and higher
Armstrong World trimmed its full-year 2013 sales guidance to the
range of $2.70 - $2.74 billion from the previous $2.7 - $2.8
billion. Thus, Armstrong World has lowered its forecast for
adjusted EBITDA to the band of $370 - $390 million from the
previous $370 - $400 million. The company has also reduced its
full-year adjusted EPS from the previous range of $2.00 - $2.20
to the new range of $2.15 - $2.45.
For the fourth quarter of 2013, Armstrong World expects sales to
be between $645 and $685 million and adjusted EBITDA in the range
of $70 - $90 million.
Pennsylvania-based Armstrong World is a leading global producer
of flooring products and ceiling systems for use in the
construction and renovation of residential, commercial and
institutional buildings. Armstrong also designs, manufactures and
sells kitchen and bathroom cabinets in the U.S.
Armstrong currently retains a short-term Zacks Rank #2 (Buy).
Other companies in the building and construction industry with
favorable Zacks Ranks are
Trex Co. Inc.
); each carrying a Zacks Rank #2 (Buy).
), delivered 160% improvement in its third quarter earnings to 13
cents per share, a penny ahead of the Zacks Consensus Estimate of