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Armstrong World (AWI) to Sell EMEA & Pacific Rim Businesses
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Shares of Armstrong World Industries, Inc. (AWI - Free Report) gained nearly 7% to close at $53.85 on Nov 20, after the company declared that it has signed a definitive agreement to divest its EMEA (Europe, the Middle East and Africa) and Pacific Rim businesses. This move will allow the company to focus on investments and resources on its core Americas ceilings and walls businesses.
About the Deal
Armstrong World has a joint venture (JV) with Worthington Industries, Inc. (WOR - Free Report) known as Worthington Armstrong Venture or WAVE, in which both hold a 50% interest. This 25 years old JV employs over 600 people and operates nine manufacturing locations in five countries to produce suspension system (grid) products. Per this deal, Armstrong World plans to sell its businesses in EMEA and the Pacific Rim of its WAVE venture as well as Armstrong France and WAVE France to Knauf International GmbH for an enterprise value of $330 million.
In the third quarter of 2017, net earnings of WAVE declined 25% year over year. The downturn was mainly due to higher input costs, particularly steel and increased investment in selling expenses. Furthermore, WAVE international business was challenging in the past due to concerns regarding European economy including Brexit.
Therefore, the divestment is expected to help Armstrong World to focus on investment and innovation in high end mineral fiber manufacturing along with expanding capabilities in Architectural Specialties. The company also stated that the exit from EMEA and the Pacific Rim is a significant step of an ongoing transformation plan.
The company’s current guidance for the EMEA and Pacific Rim businesses projects sales is at about $425 million 2017, with adjusted EBITDA of around $22 million.
The transaction is subject to regulatory approvals as well as other customary conditions, and expects to complete in mid-2018. Armstrong World anticipates to realize around $250 million of net cash following the close of the deal and return majority of the net proceeds to shareholders, in a manner and timing to be approved by its board of directors.
Outlook
Armstrong World expects revenues for 2019 will be over $1 billion and adjusted EBITDA margins to be more than 40%.
Share Price Performance
Armstrong World has outperformed the industry in a year. While the stock has gained around 30.3%, the industry recorded growth of 18.2%.
Patrick Industries has a long-term earnings growth rate of 10.6%. Its shares have been up 20.2% year to date.
United Rentals has a long-term earnings growth rate of 15.6%. So far this year, its shares have rallied 43.4%.
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Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
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Armstrong World (AWI) to Sell EMEA & Pacific Rim Businesses
Shares of Armstrong World Industries, Inc. (AWI - Free Report) gained nearly 7% to close at $53.85 on Nov 20, after the company declared that it has signed a definitive agreement to divest its EMEA (Europe, the Middle East and Africa) and Pacific Rim businesses. This move will allow the company to focus on investments and resources on its core Americas ceilings and walls businesses.
About the Deal
Armstrong World has a joint venture (JV) with Worthington Industries, Inc. (WOR - Free Report) known as Worthington Armstrong Venture or WAVE, in which both hold a 50% interest. This 25 years old JV employs over 600 people and operates nine manufacturing locations in five countries to produce suspension system (grid) products. Per this deal, Armstrong World plans to sell its businesses in EMEA and the Pacific Rim of its WAVE venture as well as Armstrong France and WAVE France to Knauf International GmbH for an enterprise value of $330 million.
In the third quarter of 2017, net earnings of WAVE declined 25% year over year. The downturn was mainly due to higher input costs, particularly steel and increased investment in selling expenses. Furthermore, WAVE international business was challenging in the past due to concerns regarding European economy including Brexit.
Armstrong World Industries Inc Price
Armstrong World Industries Inc Price | Armstrong World Industries Inc Quote
Therefore, the divestment is expected to help Armstrong World to focus on investment and innovation in high end mineral fiber manufacturing along with expanding capabilities in Architectural Specialties. The company also stated that the exit from EMEA and the Pacific Rim is a significant step of an ongoing transformation plan.
The company’s current guidance for the EMEA and Pacific Rim businesses projects sales is at about $425 million 2017, with adjusted EBITDA of around $22 million.
The transaction is subject to regulatory approvals as well as other customary conditions, and expects to complete in mid-2018. Armstrong World anticipates to realize around $250 million of net cash following the close of the deal and return majority of the net proceeds to shareholders, in a manner and timing to be approved by its board of directors.
Outlook
Armstrong World expects revenues for 2019 will be over $1 billion and adjusted EBITDA margins to be more than 40%.
Share Price Performance
Armstrong World has outperformed the industry in a year. While the stock has gained around 30.3%, the industry recorded growth of 18.2%.
Zacks Rank & Key Picks
Armstrong World holds a Zacks Rank #2 (Buy). Some other top-ranked stocks in the same sector include Patrick Industries, Inc. (PATK - Free Report) and United Rentals, Inc. (URI - Free Report) sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Patrick Industries has a long-term earnings growth rate of 10.6%. Its shares have been up 20.2% year to date.
United Rentals has a long-term earnings growth rate of 15.6%. So far this year, its shares have rallied 43.4%.
Zacks' Hidden Trades
While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
Click here for Zacks' secret trade>>