On Jun 14, we issued an updated research report on Armstrong World Industries, Inc.
(AWI - Free Report
) . The company’s results will be aided by strong repair and remodel activity, as well as the continuation of positive new building construction activity. Further, focus on restructuring activities, investment in new products and the Tectum acquisition is anticipated to drive growth.
Let’s illustrate these growth factors in detail.
Volumes to Boost Top Line
For 2018, Armstrong World projects net sales growth in the range of 5-7% aided by a modest upturn in volume, average unit value (AUV) improvement in Mineral Fiber segment and continued double-digit sales gains in the Architectural Specialties segment. Driven by sales gain, productivity improvements in plants and impact of announced restructuring activities aiding the bottom line, the company expects EBITDA improvement more than 10% for the year.
The company’s EPS guidance is in the range of $3.60-$3.82, reflecting year-over-year growth of 19-27%. The company’s results will also be aided by strong repair and remodel activity, as well as the continuation of positive new building construction activity.
Investment in Product Launches to Reap Benefits
The company has been strategically investing in new products, sales and support services, and advanced manufacturing capabilities. Armstrong World’s launch of Sustain, in the spring of 2017, was a major step in reinforcing its presence in the Mineral Fiber category.
Further, the introduction of Total Acoustics in 2016 has strengthened the company’s leadership position at the high-end of the Mineral Fiber segment. These launches have witnessed extraordinary rates of adoption by architects, and the company anticipates the penetration of these products to continue through 2018 and beyond.
Restructuring Efforts to Fuel Margins
In 2017, Armstrong World took steps to optimize manufacturing footprint and overall cost structure. In November, the company announced its intention to close the St. Helens plant and open a distribution center near Phoenix in order to provide better service to its West Coast customers.
It has also planned to restructure the G&A profile to serve an Americas-focused business. These actions will yield cost savings in the range of $15-$20 million by the end of 2019. Further, these will propel EBITDA growth in the second half of 2018 and the company anticipates delivering $400 million of adjusted EBITDA in 2019.
Acquisitions to Augment Growth
The company recently acquired the business and assets of Plasterform, Inc. The buyout bolstered Armstrong World’s interior accent capabilities.
In January 2017, the company concluded the buyout of Tectum, which accelerated its penetration into specialty ceilings and walls. Throughout the year, its team integrated Tectum into the Armstrong platform, and the results have exceeded expectations.
Now having fully integrated the business, the company can begin making modest capital investments to further enhance capabilities and profitability in this product line. Moreover, continued sales leverage and capital investments at Tectum will enable its Architectural Specialty business to expand margins in 2018 and beyond.
Share Price Performance
Armstrong World has outperformed its industry
with respect to price performance over the past year. The stock has appreciated around 42.7%, while the industry has recorded growth of 19.1%.
Zacks Rank & Other Stocks to Consider
Armstrong World carries a Zacks Rank #2 (Buy).
Patrick Industries has a long-term earnings growth rate of 12.7%. The stock has gained 19% in a year’s time.
United Rentals has a long-term earnings growth rate of 18.5%. The company’s shares have appreciated 56% during the past year.
Simpson Manufacturing has a long-term earnings growth rate of 5%. Its shares have rallied 52%, over the past year.
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