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Armstrong World Industries (AWI) Down 1.4% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Armstrong World Industries (AWI - Free Report) . Shares have lost about 1.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Armstrong World Industries 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 Q2 Earnings & Revenues Top Estimates

Armstrong World Industries, Inc. recently reported second-quarter 2021 results, wherein its top and bottom line not only surpassed the Zacks Consensus Estimate but also improved from the year-ago period.

Vic Grizzle, president and CEO of Armstrong, said, “While the recovery remains uneven and choppy, our actions and investments in support of our digital initiatives, Healthy Spaces products and Architectural Specialties portfolio have enhanced our growth potential. The momentum in our business fuels our confidence to increase our full-year 2021 guidance.”

Earnings & Revenue Discussion

Armstrong World reported adjusted earnings of $1.16 per share, beating the Zacks Consensus Estimate of $1.01 per share by 14.9%. The bottom line rose 61.1% from 72 cents reported in the year-ago quarter.

Net sales of $280 million beat the consensus mark of $261 million by 7.4%. The top line also grew 37.8% year over year. This growth is majorly attributable to higher Mineral Fiber sales volumes, additional sales from the acquisition of Turf, Moz and Arktura in 2020 (2020 Acquisitions) and favorable Average Unit Value (AUV).

During the second quarter, the company’s operating income increased 25.5% year over year to $78.3. Adjusted EBITDA rose 44.9% from the prior-year quarter to $100 million.

SG&A expenses, as a percentage of net sales, increased a whopping 518 basis points year over year to 21.4%.

Segmental Performance

Mineral Fiber: The segment’s sales surged 31.8% on a year-over-year basis to $208.1 million. It is mainly attributable to higher sales volumes and a 10% increase in AUV. Also, favorable pricing and improved sales mix driven by regional improvements in major areas aided the company.

Operating income rose 58.1% from the prior-year quarter to $72.1 million, attributable to higher WAVE earnings, the impact of favorable AUV and higher sales volume. However, higher SG&A expenses related to an increase in discretionary spending partially offset the same. Adjusted EBITDA also increased 44% from the prior-year quarter to $90 million.

Architectural Specialties: Net sales in the segment grew 58.7% year over year to $71.9 million owing to solid 2020 Acquisitions and higher organic sales volumes.

The segment reported operating income of $7.4 million, 72.1% up from $4.3 million registered a year ago. This upside was mainly driven by the positive impact of higher sales volumes and a $10-million decrease in the fair value of contingent consideration related to Turf and Moz. The same was partially offset by a $6-million rise in amortization expenses and a $4-million increase in acquisition charges, both related to 2020 Acquisitions. Adjusted EBITDA increased 48% from the year-ago level to $10 million.

Financials

As of Jun 30, 2021, Armstrong World had cash and cash equivalents of $119 million compared with $146.9 million at 2020-end. Net cash provided by operations was $81.9 million in the past six months compared with $78.7 million in the prior-year period.

In the second quarter, the company’s free cash flow (on an adjusted basis) came in at $64 million compared with $63 million in the year-ago quarter.

2021 Guidance Raised

For 2021, the company now expects operating income in the range of $267-$277 million compared with $264-$276 million expected earlier. Meanwhile, adjusted net income is now projected in the range of $190-$198 million versus $184-$193 million anticipated earlier. Adjusted EBITDA is now anticipated within $370-$380 million ($360-$372 million projected earlier). Also, the company now expects net sales growth between 16% and 18% for 2021 compared with 10-13% projected earlier.

The company now expects adjusted diluted earnings per share in the range of $4.20-$4.40. This compares favorably with the prior expectation of $3.80-$4.00. Adjusted free cash flow is now anticipated in the range of $195-$210 million versus $185-$205 million expected earlier.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 9.63% due to these changes.

VGM Scores

Currently, Armstrong World Industries has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Armstrong World Industries has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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