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Armstrong World (AWI) Down 9.9% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Armstrong World Industries IncAWI . Shares have lost about 9.9% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Armstrong World Earnings Miss, Revenues Beat in Q1

Armstrong World posted adjusted earnings of $0.55 per share in first-quarter 2017, which increased 10% year over year. However, earnings missed the Zacks Consensus Estimate of $0.58.

Including one-time items, the company reported earnings per share of $0.56 compared with the loss per share of $0.18 in the prior year quarter.

Operational Update

Net sales increased 9.7% year over year to $315 million. Excluding the unfavorable impact from foreign exchange of $2 million, net sales increased 10.4% attributed to higher volumes in the Americas and Europe (including Russia), Middle East and Africa ("EMEA"). Average sales dollars per unit sold, or average unit value (AUV) achievement also increased.

Revenues beat the Zacks Consensus Estimate of $302 million. Cost of sales rose 6.4% year over year to $216 million. Gross profit improved 18% to $99 million in the quarter.

Selling, general and administrative (SG&A) expenses edged up 2% year over year to $54.6 million. Adjusted operating income improved 10% year over year to $57 million.

Segment Performance

Americas: Net sales at the Americas segment grew 9.8% year over year to $220 million. Adjusted operating income increased to $61 million in the quarter from $59 million in the prior-year quarter.

EMEA: The EMEA segment's sales increased 11.7% year over year to $66.6 million from $59.6 in the year-ago quarter. The company posted adjusted operating loss of $3 million compared to a loss of $4 million in the prior-year quarter.

Pacific Rim: Net sales in the reported quarter climbed 5% year over year to $29 million. Adjusted operating loss came in at $1 million, flat with the last quarter.

Financials

Armstrong World reported cash and cash equivalents of $81 million as of Mar 31, 2017, compared with $149.8 million as of Mar 31, 2016. The company recorded cash flow from operations of $10.6 million in the first quarter compared with an usage of $65 million in the prior year quarter.

In the quarter, Armstrong World repurchased 1.2 million shares for approximately $50 million.

Outlook

Armstrong World AWI reiterated 2017 guidance with sales growth of 5-7% (excluding an unfavorable impact of 1-3% from foreign currency) tied to 3-7% volume growth in North America and 0-4% international volumes growth, and 3-4% total AUV growth. Sales are consequently projected to be in the $1.29-$1.32 billion range and adjusted EBITDA to be in the $350-$360 million range, both up from 2016. 2017 adjusted EPS is estimated to line in the band of $2.60-$2.70 per diluted share and free cash flow is anticipated to be between $130 and $145 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to one lower.

Armstrong World Industries Inc Price and Consensus

Armstrong World Industries Inc Price and Consensus | Armstrong World Industries Inc Quote

VGM Scores

At this time, the stock has a poor Growth Score of 'F', however its momentum is doing a lot better with an 'A'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than value investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an inline return from the stock in the next few months.

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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 Nasdaq, Inc.


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

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