Shares of Armstrong World Industries, Inc. (AWI) dropped over 3% and closed at $48.73 yesterday, after the company trimmed its full year and third-quarter outlook. This was driven by escalating price pressure and competition in the wood business, challenges related to capacity utilization in the European flooring business and as consumers is shifting to LVT, away from traditional residential resilient products in North America.
The company lowered its sales guidance for full year to the $2.68 to $2.72 billion range from previous $2.7 to $2.8 billion. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were also cut to $355 to $375 million range from $370–$400 million.
Additionally for the third quarter, Armstrong World Industries now expects sales to be below the previously projected $740 to $780 million range. The company reiterated its previously announced adjusted EBITDA guidance range of $110–$130 million for the quarter.
A greater part of sales in the Europe, Middle East and Africa (EMEA) region of Armstrong World Industries relates to the commercial markets in sectors which depend on public spending. Continued softness in sectors, such as office, education and healthcare, impacted the Resilient Flooring businesses across the EMEA region in the second quarter.
The Resilient Flooring segment reported a 1.6% year-over-year decline in sales to $247 million, in the second quarter. The European Resilient Flooring business has been persistently reporting disappointing results due to continued pricing pressure, capacity utilization challenges and competition in the wood business. In order to deal with such challenges the company is assessing several strategic alternatives for this business
The company, however, remains optimistic about global ceilings and North American commercial flooring businesses and expects their performance to be in line with the prior guidance.
On Jul 25, the global producer of flooring products and ceiling systems reported 1% year-over-year decline in adjusted earnings to 60 cents per share in second-quarter 2014, impacted by lower sales volumes and rising lumber costs, which was partly offset by its favorable price and mix.
Additionally, most of the estimates for Armstrong World Industries moved southward, following the second-quarter results. In the past 60 days the Zacks Consensus Estimate for 2014 decreased 13.7% to $2.26 per share and for 2015 the same reduced 14% to $3.01 per share.
PA-based Armstrong World Industries is a leading global producer of flooring products and ceiling systems for use in the construction and renovation of residential, commercial and institutional buildings. The company also designs, manufactures and sells kitchen and bathroom cabinets in the U.S.
Armstrong World Industries, which has a Zacks Rank #4 (Sell), will report its third-quarter results on Oct 27.
However, some better-ranked stocks in the sector include PGT, Inc. (PGTI), UCP, Inc. (UCP) and Granite Construction Incorporated (GVA). While PGT, Inc. holds a Zacks Rank #1 (Strong Buy), UCP and Granite Construction carry a Zacks Rank #2 (Buy).
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