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Armstrong World (AWI) Q1 Earnings Beat, Sales Miss Estimates

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Armstrong World Industries, Inc. (AWI - Free Report) reported first-quarter 2019 results, wherein earnings surpassed the Zacks Consensus Estimate, while revenues missed the same.

The company reported adjusted earnings of $1.10 per share, surpassing the consensus estimate of 95 cents by 15.8%. Also, the reported figure increased 24.3% from 88 cents per share in the year-ago quarter.

Although its net sales of $242.1 million lagged analysts’ expectation of $248.7 million, the said figure increased 6.5% year over year, driven by higher average unit values ("AUV") in the Mineral Fiber segment, owing to positive pricing and mix, as well as strong volume in the Architectural Specialties segment.

Armstrong World Industries, Inc. Price, Consensus and EPS Surprise

Operational Update

Cost of sales decreased 3.9% from the prior-year quarter to $150.7 million. Gross profit increased 29.1% from a year ago to $91.4 million in the reported quarter. Selling, general and administrative (SG&A) expenses increased 48.3% year over year.

Operating income increased 10.3% year over year to $54.7 million. Moreover, adjusted EBITDA improved 16.9% year over year to $92 million. Notably, adjusted EBITDA margin also increased 330 basis points to 38% during the quarter. The improvements were mainly backed by favorable AUV in the Mineral Fiber segment and volume growth in the Architectural Specialties segment.

Segment Performance

Mineral Fiber (accounting for 81.2% of net sales): The segment’s sales were up 3.1% on year-over-year basis to $196.7 million, backed by higher AUV, which increased 10%.

Operating income grew 8.9% from the prior-year quarter, attributable to higher sales and equity earnings from WAVE, partly offset by increased SG&A expenses and input costs. Adjusted EBITDA also increased 17.1% from the prior-year quarter to $82 million.

Architectural Specialties (18.8%): Net sales in the segment grew 24% year over year to $45.4 million, owing to increased market penetration and new construction activity that contributed to strong volume growth. Acquisitions of Architectural Components Group, Plasterform and Steel Ceilings also added to the positives.

The segment’s operating profit improved 10.8% year over year, primarily on the back of higher sales volume, partially offset by increased expenses from the recent acquisitions, and additional investments in selling and design capacities. Moreover, adjusted EBITDA of $10 million increased 14.5% from the year-ago level.

Notably, Unallocated Corporate expense of $2.1 million decreased 1.3% year over year, backed by lower service costs associated with the U.S. pension plan.

Financials

As of Mar 31, 2019, Armstrong World had cash and cash equivalents of $283.8 million compared with $126.9 million in the comparable period of 2018.

Net cash provided by operations was $14.7 million in first-quarter 2019 compared with $26 million recorded in the year-ago period.

At the end of the first quarter, the company had adjusted free cash flow of $18 million compared with $4 million in the comparable prior-year period.

2019 Guidance Reiterated

Armstrong World expects high-single digit sales growth in the year, backed by volume gains in Architectural Specialties, AUV expansion in Mineral Fiber and acquisitions.

Net sales are expected to grow in the range of 7-10% year over year. This improvement is expected to be fueled by volume gains in Mineral Fiber, new products and sales initiatives, continued AUV expansion, organic growth of 15% in Architectural Specialties, and acquisitions.

The company expects adjusted EBITDA to grow more than 10% from a year ago, backed by higher sales growth, ongoing productivity and earnings from WAVE.

Free cash flow is expected to grow more than 20% from year ago level.

Zacks Rank & Peer Releases

Armstrong World currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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