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Armstrong World Industries (AWI) Down 4.9% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Armstrong World Industries (AWI - Free Report) . Shares have lost about 4.9% 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's (AWI - Free Report) Q2 Earnings Beat, Revenues Miss

Armstrong World Industries, Inc. reported second-quarter 2019 results, wherein earnings surpassed the Zacks Consensus Estimate, while revenues missed the same.

The company reported adjusted earnings of $1.27 per share, surpassing the consensus estimate of $1.18 by 7.6%. Also, the reported figure increased 31% from 97 cents per share in the year-ago quarter.

Although its net sales of $272 million lagged analysts’ expectation of $279.7 million, the figure increased 9.4% year over year, driven by increased volumes in the Architectural Specialties segment and higher Mineral Fiber average unit value (“AUV”), backed by positive like-for-like pricing and favorable mix.

Operational Update

Gross profit increased 25% from a year ago to $103.4 million in the reported quarter. Selling, general and administrative (SG&A) expenses decreased 8.6% year over year.

Adjusted operating income increased 20.3% year over year to $89 million, mainly due to higher sales and lower manufacturing expenses. Moreover, adjusted EBITDA improved 13.7% year over year to $108 million. The improvements were mainly backed by strong Mineral Fiber AUV and higher volumes in the Architectural Specialties segment.

Segmental Performance

Mineral Fiber (accounting for 78.7% of net sales): The segment’s sales were up 3.6% on a year-over-year basis to $214.1 million, backed by 6% higher AUV.

Operating income grew 33.4% from the prior-year quarter, attributable to higher sales, lower SG&A expenses, partly offset by reduced equity earnings from WAVE. Adjusted EBITDA also grew 11.4% from the prior-year quarter to $96 million.

Architectural Specialties (21.3%): Net sales in the segment grew 38.1% year over year to $57.9 million, owing to increased market penetration. Acquisitions of Architectural Components Group, Plasterform and Steel Ceilings also added to the positives.

The segment’s operating profit improved 10.5% year over year, primarily on the back of higher sales volume, partially offset by more investments in selling and design capacities. Moreover, adjusted EBITDA of $12 million increased 38.7% from the year-ago level.

Notably, Unallocated Corporate expense of $1.7 million was down 19% year over year due to lower service costs associated with the U.S. pension plan.

Financials

As of Jun 30, 2019, Armstrong World had cash and cash equivalents of $250.3 million compared with $139 million in the comparable period of 2018.

Net cash provided by operations was $47 million in the first six months of 2019 compared with $89 million recorded in the comparable year-ago period.

The company’s free cash flow (on an adjusted basis) was $74 million during the first six months of 2019 compared with $72 million in the comparable prior-year period.

2019 Guidance Reiterated

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

Net sales growth is expected to be at the higher end of the guided range of 7-10%. Earlier, the company had mentioned that the growth is likely to be fueled by volume gains in Mineral Fiber, new products and sales initiatives, continued AUV expansion, organic growth of 15% in Architectural Specialties, along with acquisitions.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a flat path over the past two months.

VGM Scores

Currently, Armstrong World Industries has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Armstrong World Industries has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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