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Armstrong World (AWI) Gains From Inorganic Moves Amid Weakness

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Armstrong World Industries, Inc. (AWI - Free Report) has been benefiting from investment in new products as well as acquisitions. So far this year, shares of Armstrong World have gained 41.9% compared with the Zacks Building Products – Miscellaneous industry’s 19.3% rise.

However, the company is witnessing coronavirus-led weakness and soft volumes in the Mineral Fiber segment, which remains a concern.

Major Growth Drivers

Acquisitions: Armstrong World’s growth strategy is largely dependent on acquisitions that expand access to additional markets. The company follows a systematic strategy for portfolio diversification. In December 2020, Armstrong World acquired Arktura, LLC, a designer and fabricator of ceilings, walls, partitions and facades. All these acquisitions collectively drove the company’s acquisition net revenues by 24% during first-quarter 2021.

On Aug 24, 2020, the company announced the acquisition of Moz Designs, Inc., a Northern California-based designer and fabricator of custom architectural metal ceilings, walls, dividers and column covers for interior and exterior applications. On Jun 28, 2020, Armstrong World announced the acquisition of Turf Design, Inc., a Chicago, IL-based commercial interiors design house and maker of custom felt ceiling as well as wall solutions.

Strategic Investment in Digitalization: Armstrong World has remained focused on its digitalization initiative. During 2020, the company introduced a new digital platform, Kanopi. Utilizing artificial intelligence and machine learning, Kanopi provides early access and enhanced visibility to a large part of the market that the company was previously unable to track efficiently. The Projectworks and Kanopi are unparalleled digital platforms in the ceiling space that provide access and solutions to opportunities that were previously unreachable.

Investments on New Products: Armstrong World has been tactically investing in new products, sales and support services since its separation from the flooring business in 2016. It launched 35 products in 2020, reflecting a 50% increase from its normal pace of activity. In November 2020, it launched the AirAssure family of ceiling tiles. AirAssure is designed to reduce air leaks through the ceiling plane by up to four times over standard ceilings. Also in November, the company paired the patented Vidashield ultraviolet air purification system with Armstrong ceiling panels to provide cleaner and safer air in pretty much any commercial space.

Furthermore, the company stated that there are other innovative products in the pipeline that are going to be added to the 24/7 Defend family in the near term.

 

Concerns

During first-quarter 2021, although the company’s adjusted sales grew 2%, adjusted earnings declined 23.4% from a year ago. The dismal performance was primarily caused by negative impacts of coronavirus pandemic. Also, the company witnessed COVID-19-induced volume reductions in the organic business.

Moreover, volumes in the Mineral Fiber segment have been soft over the last few quarters. Segmental sales for first-quarter 2021 fell 4.6% year over year due to lower volumes. Operating income also decreased 13.4% from the prior-year quarter, attributable to lower volumes and higher SG&A.    However, higher WAVE earnings, the impact of favorable AUV and a reduction in manufacturing costs partially offset the plunge.

Zacks Rank & Key Picks

Currently, Armstrong World carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same industry include Owens Corning (OC - Free Report) , TopBuild Corp. (BLD - Free Report) and United Rentals, Inc. (URI - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Owens Corning’s, TopBuild’s and United Rentals’ earnings for 2021 are expected to rise 51.4%, 37.8% and 20.5%, respectively.

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