In third-quarter 2014, Armstrong World reported adjusted earnings
of $0.83 per share, a 2% decline year over year, impacted by lower
volumes, higher SG&A expenses and input costs. Also, its net
sales fell 0.2% year over year to $728 million and came below
management's guidance range. The company slashed its adjusted
earnings per share outlook to the range of $2.00 $2.15. Soft demand
environment, fundamental challenges across its Resilient and Wood
Flooring businesses, pricing pressure and raw material inflation
continue to weigh on the company's performance. Thus, we are
reiterating our Underperform recommendation on Armstrong World with
a target price of $43.
Incorporated in 1891 and based in Pennsylvania, Armstrong World
Industries, Inc. (AWI) is a leading global producer of flooring
products and ceiling systems used primarily in the construction and
renovation of residential, commercial and institutional buildings.
The company designs, manufactures and sells flooring products
(mainly resilient and wood) and ceiling systems (mostly mineral
fiber, fiberglass and metal) across the globe.
As of Sep 30, 2014, the company operated 34 manufacturing plants
in 8 countries, including 20 plants located throughout the U.S. In
addition, through its joint venture with Worthington Industries,
Inc. Worthington Armstrong Venture (WAVE) the company has an
interest in eight additional plants located in six countries. These
plants are engaged in the production of suspension system (grid)
products for Armstrong's ceiling systems.
The major markets the company caters to are -
North American Residential The company's ceiling and wood
flooring products are used in new home construction and home
North American Commercial Ceilings and Resilient Flooring are
used in commercial and institutional buildings both for new
construction as well as renovation.
Outside of North America Most of the revenues generated outside
North America come from new constructions and renovations in the
commercial sector in Europe.
The company reports the performance of its business under the
following operating segments
Building Products (Approximately 48% of revenues in the third
quarter of fiscal 2014) produces suspended mineral fiber, soft
fiber and metal ceiling systems for use in commercial,
institutional and residential settings and its products are sold
worldwide. The segment also sources complementary ceiling
Resilient Flooring (Approximately 33%) produces and sources a
wide range of floor coverings mainly for homes, and commercial and
institutional buildings. The products are sold globally and the
portfolio includes vinyl sheet, vinyl tile and linoleum flooring.
In addition, the segment sources and sells laminate flooring
products, vinyl tile products, vinyl sheet products, adhesives, and
installation and maintenance materials and accessories. .
Wood Flooring (Approximately 19%) produces and sources wood
flooring products for use in new residential construction and
renovation. It also finds usage in some commercial applications in
stores, restaurants and high-end offices. The product offering
includes pre-finished solid and engineered wood floors in various
wood species and related accessories. The company derives almost
the entire Wood Flooring revenues from North America.
Unallocated Corporate includes assets, liabilities, income and
expenses that have not been allocated to the business units.
Balance sheet items classified as Unallocated Corporate are mainly
income tax related accounts, cash and cash equivalents, the
Armstrong brand name, the U.S. prepaid pension cost and long-term
debt. Expenses for the corporate departments and certain benefit
plans are allocated to the reportable segments based on known
metrics, such as specific activity, headcount or net sales. The
remaining items, which cannot be attributed to the reportable
segments without a high degree of generalization, are reported in
Armstrong World Industries, Inc. (AWI): Read the
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