Armstrong World Industries Lags on Q1 Earnings - Analyst Blog

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Armstrong World Industries, Inc. ( AWI ) reported first-quarter 2014 adjusted earnings of 42 cents per share, which surged 99% from 21 cents in the year-ago quarter. Results benefited from lower interest expense due to the write-off of deferred financing costs. However, the reported figure lagged the Zacks Consensus Estimate of 45 cents.

However, including one-time items, earnings increased six times to 30 cents per share from the prior-year quarter figure of 5 cents.

Operational Update


Net sales rose 2% year over year to $634 million but lagged the Zacks Consensus Estimate of $644 million. Positive price and mix led to the year-over-year improvement.

Cost of sales inched up 0.3% year over year to $479.4 million. Gross profit rose to $155 million from $144.6 million in the year-ago quarter. Gross margin expanded 120 basis points (bps) year over year to 24.4%.

Selling, general and administrative (SG&A) expenses increased 4% year over year to $117 million, driven by higher spending on promotional activity. Adjusted operating income increased 2% year over year to $54 million due to rise in product price and reduced manufacturing costs driven by productivity improvements. Operating margin remained flat year over year at 8.5% in the reported quarter.

Segment Performance

Building Products: Net sales at the Building Products segment increased 5.3% to $308 million, aided by higher volumes, strength in architectural specialties and favorable product price. Adjusted operating profit for the segment was $58 million compared with $59 million in the year-ago quarter. Higher volumes, improved price and reduced manufacturing costs were offset by rise in input costs owing to adverse weather, unfavorable mix, increased SG&A expenses and plant start-up costs in Russia.

Resilient Flooring: The Resilient Flooring segment reported a decline in sales to $208 million, compared with $214.8 in the year-ago quarter due to lower volumes in the Americas, partially offset by improved mix. The segment reported adjusted operating profit of $10 million versus $12 million in the year-ago quarter.

Wood Flooring: Net sales in the reported quarter grew 3% year over year to $118 million. The improvement was driven by positive price and mix. The segment posted adjusted operating profit of $5 million, up fivefold from the prior-year quarter.

Financials

Armstrong World Industries reported cash and cash equivalents of $131 million as of Mar 31, 2014, down from $278 million as of Mar 31, 2013. The company recorded net cash usage in operating activities of $33 million in the first quarter of fiscal 2014, compared with $14 million in the year-ago comparable period.

Outlook

Armstrong World Industries reiterated its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) in the band of $400-$430 million for 2014. For the second quarter of 2014, the company expects sales to be between $710 and $750 million and adjusted EBITDA in the range of $90-$110 million.

Our View

The company will benefit from investments in emerging markets and Architectural Specialties. Positive price and mix, and growth in core commercial markets will also brighten the company's prospects. However, challenging market conditions in Europe and Australia remain concerns.  

PA-based Armstrong World Industries is a leading global producer of flooring products and ceiling systems for use in the construction and renovation of residential, commercial and institutional buildings. The company also designs, manufactures and sells kitchen and bathroom cabinets in the U.S.

At present, Armstrong World Industries has a Zacks Rank #4 (Sell). However, some better-ranked stocks in the sector include Simpson Manufacturing Co., Inc. ( SSD ), United Rentals, Inc. ( URI ) and The GEO Group, Inc. ( GEO ). All of these sport a  Zacks Rank #1 (Strong Buy).



ARMSTRONG WORLD (AWI): Free Stock Analysis Report

GEO GRP INC/THE (GEO): Free Stock Analysis Report

SIMPSON MFG INC (SSD): Free Stock Analysis Report

UTD RENTALS INC (URI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: AWI , GEO , SSD , URI

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