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Armstrong World's (AWI) Q4 Earnings Beat, Revenues Miss

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

The company reported adjusted earnings of $1.11 per share, surpassing the consensus estimate of 85 cents by 30.6%. Also, the reported figure reflected a whopping 40% year-over-year growth.

Although its net sales of $246.9 million lagged analysts’ expectation of $256 million by 3.5%, the figure increased 3.3% 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 decreased 11.7% year over year to $40 million in the quarter.

Adjusted EBITDA advanced 13.9% from the prior-year quarter to $90 million. The company recorded EBITDA growth in 39 out of the last 40 quarters, demonstrating the stability of business. EBITDA margins expanded 330 basis points (bps) in the quarter.

Adjusted operating income increased 11.5% year over year to $68 million, driven by higher sales, manufacturing productivity, and increased equity earnings from WAVE, which included a gain on the sale of European and Pacific Rim businesses.

Segmental Performance

Mineral Fiber (accounting for 79.9% of net sales): Backed by higher AUV, the segment’s sales were up 3.1% on a year-over-year basis to $197.2 million, partly offset by lower volume.

Operating income grew 20.9% from the prior-year quarter, attributable to higher sales, improved manufacturing productivity and lower SG&A expenses. Adjusted EBITDA also grew 15% from the prior-year quarter to $81 million, given higher AUV, productivity and WAVE.

Architectural Specialties (20.1%): Net sales in the segment grew 4.4% year over year to $49.7 million, courtesy of higher volumes owing to increased market penetration.

The segment’s operating profit declined 8.2% year over year due to additional investments in selling and design capacities and the integration of acquisitions, partially offset by the positive impact of higher sales volume. Moreover, adjusted EBITDA of $8 million increased 2.2% from the year-ago level.

Notably, unallocated corporate expense of $2.5 million was flat year over year.

2019 Highlights

Net sales grew 6% from a year ago to $1,038 million. Adjusted EBITDA advanced 14% to $403 million and adjusted EPS increased 31% to $4.78.

Financials

As of Dec 31, 2019, Armstrong World had cash and cash equivalents of $45.3 million compared with $335.7 million in the comparable period of 2018.

Net cash provided by operations was $182.7 million in 2019 compared with $203.2 million recorded in 2018.

The company’s free cash flow (on an adjusted basis) was $71 million during the quarter and $244 million in 2019 compared with $88 million and 236 million in the respective prior-year periods.

2020 Guidance

In 2020, Armstrong World expects to witness the same market conditions as were in 2019. It expects to increase sales in the high-single digit range, expand adjusted EBITDA margins and generate sector leading adjusted free cash flow of more than 25% of sales.

The company expects adjusted EBITDA between $435 and $445 million. Operating income is expected within $360-$370 million and adjusted EPS in the range of $5.20-$5.40. The Zacks Consensus Estimate for 2020 EPS is currently pegged at $5.13.

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 #2 (Buy).

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

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