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Armstrong (AWI) Rides on Acquisitions, Headwinds Remain

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On Jun 23, we issued an updated research report on Armstrong World Industries, Inc. (AWI - Free Report) . The company is set to benefit from acquisitions, improvement in average unit value (AUV), broad-based recovery in non-residential markets and innovation in product pipeline. However, uneven repair and remodel activity remains a concern.

Armstrong World was recently selected to provide ceiling solutions for the Metropolitan Transportation Authority's East Side Access megaproject, the largest transportation construction project underway in the U.S. It will connect the Long Island Rail Road (LIRR) to a new concourse underneath Grand Central Terminal.  This marks the third win for the company in a series of large transportation projects in Manhattan.

Armstrong World projects adjusted earnings per share in the range of $2.60–$2.70 per share for 2017. Adjusted EBITDA will be in the $350–$360 million range and sales in the $1.29–$1.32 billion range, both up from 2016 levels. This will be driven by low to mid-single digit volume growth in the Americas, with international volumes improving as markets like the Middle East and China recover from a lower base. Volume growth will stem from repair and remodel as well as new construction activity. The Americas should benefit from continued improvement in AUV, driven by the mix up trend within the industry along with good pricing realization and volume growth.

The company’s acquisition of Tectum, manufacturer of acoustical ceiling, wall and structural solutions for commercial building applications is a perfect fit with its strategy to expand into adjacencies and accelerate presence in the high-growth category of architectural specialties which grew in double digits in 2016. The buyout will enable Armstrong World to expand its leading portfolio of durable, sustainable and acoustical solutions.

The company’s Total Acoustics products, which were launched in the fall of 2015, continue to be among the fastest-growing products in portfolio. Building on the success of Total Acoustics, the company has added some of the popular Architectural Specialty product families, Metalworks and Woodworks, to the Total Acoustics line.

The company focuses on improving sales dollars per unit sold, or AUV, as a measure that accounts for the varying assortment of products and geographic mix impacting revenues. The company drives AUV achievement through innovation and providing new product enhancements with market-leading features and attributes. These new products drive AUV through both better mix and better like-for-like pricing. In the Americas, there has been a broad-based recovery in non-residential markets with growth in both new construction and broader-based R&R activity with nearly all U.S. territories showing positive volume growth.

However, the underlying fundamentals for repair and remodel (R&R) activity remain uneven as demand is projected to be limited. This is likely to result in choppy R&R activity from quarter to quarter. Moreover, emerging markets will be impacted by lower commodity prices.

Also, Brexit will impact business investment and delay project funding. The company has already experienced some project delays in the region which will disturb growth.

Armstrong World falls under the Zacks categorized Building & Construction Product – Miscellaneous sub industry. Some other notable companies in the same industry include NCI Building Systems, Inc. , Masco Corporation (MAS - Free Report) and Patrick Industries, Inc. (PATK - Free Report) .

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