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Armstrong World's (AWI) Q3 Earnings Beat, Revenues Miss

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

The company reported adjusted earnings of $1.38 per share, surpassing the consensus estimate of $1.30 by 6.2%. Also, the reported figure increased 20.1% from $1.15 per share in the year-ago quarter.

Although its net sales of $277.1 million lagged analysts’ expectation of $289.5 million by 4.3%, the figure increased 6.4% year over year, driven by increased volumes in the Architectural Specialties segment and higher Mineral Fiber average unit value (“AUV”) on the back of positive like-for-like pricing and favorable mix.

Operational Update

Selling, general and administrative (SG&A) expenses increased 17% year over year.

Adjusted operating income increased 13.1% year over year to $95 million, mainly driven by positive Mineral Fiber AUV, volume growth in the Architectural Specialties segment and higher equity earnings from its WAVE joint venture. Adjusted EBITDA also improved 13.4% year over year to $114 million.

Segmental Performance

Mineral Fiber (accounting for 78.9% of net sales): The segment’s sales were up 2.7% on a year-over-year basis to $218.6 million, backed by higher AUV and volume.

Operating income grew 44.2% from the prior-year quarter, attributable to higher equity earnings from WAVE, increased sales and lower SG&A expenses. Adjusted EBITDA also grew 12.7% from the prior-year quarter to $99 million.

Architectural Specialties (21.1%): Net sales in the segment grew 22.6% year over year to $58.5 million, courtesy of higher volumes 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 2.7% 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 $14 million increased 18.1% from the year-ago level.

Notably, Unallocated Corporate expense of $1.8 million was flat year over year.

Financials

As of Sep 30, 2019, Armstrong World had cash and cash equivalents of $98 million compared with $337 million in the comparable period of 2018.

Net cash provided by operations was $74 million in the third quarter compared with $70 million recorded in the year-ago period.

The company’s free cash flow (on an adjusted basis) was $99 million during the quarter compared with $74 million in the prior-year period.

2019 Guidance

Given its robust pipeline and focus on actively expanding strategic capabilities, Armstrong World expects mergers and acquisitions activity to continue. The company also announced another acquisition recently, marking its fifth one in the last three years. It is to be noted that the company’s board approved a 14% increase in quarterly dividend. Encouragingly, it expects to continue the trend of increasing free cash flow at double digits.

Armstrong World has tightened its 2019 guidance. It now expects sales in the range of $1.04-$1.05 billion, indicating an annual growth of 7-8%, backed by volume gains in Architectural Specialties, AUV expansion in Mineral Fiber and acquisitions.

The company expects adjusted EBITDA between $400 and $405 million, suggesting 13-15% growth from a year ago.

Zacks Rank

Armstrong World, which shares space with Gibraltar Industries, Inc. (ROCK - Free Report) , Louisiana-Pacific Corporation (LPX - Free Report) and Owens Corning (OC - Free Report) in the Zacks Building Products - Miscellaneous industry, currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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