Armstrong World Industries, Inc. ( AWI Quick Quote AWI - Free Report) recently reported third-quarter 2020 results, wherein earnings and revenues beat the Zacks Consensus Estimate. However, the top and the bottom line declined on a year-over-year basis owing to coronavirus-hit market demand. Following the announcement, shares of the company dropped 3.2% during trading hours on Oct 27. Earnings & Revenue Discussion
Armstrong World reported adjusted earnings of $1.07 per share, beating the Zacks Consensus Estimate of 95 cents by 12.6%. However, the bottom line declined 22.5% from $1.38 reported in the year-ago quarter.
Net sales of $246.3 million beat the consensus mark of $231 million by 6.6%. However, the top line fell 11.1% year over year mainly due to lower volumes in both Mineral Fiber and Architectural Specialties segments due to COVID-19-hit market demand. Also, unfavorable Mineral Fiber AUV due to regional weakness in major metropolitan areas impacted by COVID-19 added to the woes. However, this was partially offset by positive sales impact of 2019 and 2020 acquisitions. Operational Update
Gross margin during the third quarter came in at 37%, which contracted 330 basis points from the year-ago period. Selling, general and administrative (SG&A) expenses, as a percentage of net sales, increased a whopping 170 bps year over year to 16.6%.
Adjusted EBITDA fell 19.3% from the prior-year quarter to $92 million, primarily due to lower sales volumes, unfavorable AUV and drop in WAVE earnings, partially offset by improved manufacturing productivity. Segmental Performance Mineral Fiber: The segment’s sales fell 14.3% on a year-over-year basis to $187.3 million due to lower volume and unfavorable AUV. Operating income also decreased 43.9% from the prior-year quarter, attributable to lower volumes, WAVE earnings and unfavorable AUV, partially offset by improved manufacturing productivity along with reduction in incentive compensation expenses. Adjusted EBITDA also declined 20.6% from the prior-year quarter to $79 million. Architectural Specialties: Net sales in the segment grew 0.9% year over year to $59 million owing to sales from the recently-acquired Turf Design and Moz Designs. However, this was offset by the pandemic-induced reduction in demand. The segment’s operating income and adjusted EBITDA decreased 21.6% and 8.7% from the year-ago level, respectively, owing to lower sales volume. Financials
As of Sep 30, 2020, Armstrong World had cash and cash equivalents of $138.8 million compared with $45.3 million at 2019-end. Net cash provided by operations during the third quarter came in at $69 million compared with $74 million in the prior-year period.
The company’s free cash flow (on an adjusted basis) came in at $46 million compared with $99 million in the year-ago quarter. 2020 Outlook
For 2020, the company expects operating income in the range of $244 million to $254 million. Meanwhile adjusted net income per diluted share is expected in the range of $3.5 to $3.7 per share. Adjusted free cash flow is anticipated in the range of $200 million to $210 million.
The company expects net sales for 2020 in the range of $920 to $935 million, while 2020 EBITDA is anticipated in the range of $320-$330 million. Zacks Rank & Key Picks
Armstrong World currently has a Zacks Rank #4 (Sell).
Some better-ranked stocks in the same space include Installed Building Products, Inc. ( IBP Quick Quote IBP - Free Report) , Owens Corning ( OC Quick Quote OC - Free Report) and Arcosa, Inc. ( ACA Quick Quote ACA - Free Report) . Installed Building Products and Owens Corning sport a Zacks Rank #1 (Strong Buy), while Arcosa carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Installed Building Products has a trailing four-quarter earnings surprise of 23.3%, on average. Owens Corning’s 2021 earnings are expected to surge 26.5%. Arcosa has a three-five-year earnings per share growth rate of 4.5%. Zacks’ 2020 Election Stock Report
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