Shares of Armstrong World Industries, Inc. AWI are up around 3.7% since the company reported its third-quarter 2015 results on Oct 29. Armstrong World’s adjusted earnings per share declined 9% year over year to 80 cents but surpassed the Zacks Consensus Estimate of 72 cents.
Including one-time items, earnings per share slumped 35.7% to 54 cents from the prior-year quarter figure of 84 cents.
Operational Update
Net sales declined 3% on a year-over-year basis to $658.5 million and also missed the Zacks Consensus Estimate of $671 million. Barring the unfavorable impact from foreign exchange of $29 million, net sales increased 1.3% year over year driven by higher volumes and favorable price and mix performance.
Cost of sales went down 5.9% year over year to $480.6 million. Gross profit improved to $177.9 million from $168 million in the year-ago quarter. Consequently, gross margin increased 230 basis points (bps) year over year to 27%.
Selling, general and administrative (SG&A) expenses increased 8.9% year over year to $110 million. Adjusted operating income grew 5.4% year over year to $98 million. Operating margin also expanded 120 bps year over year to 15%.
Segment Performance
Building Products: Net sales at the Building Products segment decreased 4.5% to $335.9 million. Excluding the unfavorable currency impact, sales increased as favorable price and mix offset the impact of lower volumes, mainly in EMEA markets.
Adjusted operating profit for the segment was $91 million compared with $87 million in the year-ago quarter. Favorable price and mix performance, lower manufacturing and input costs and higher earnings from WAVE were partly offset by the impact of decreased volumes.
Resilient Flooring: The Resilient Flooring segment’s sales went up 1% year over year to $192 million from $190 in the year-ago quarter. Net sales increased due to strong volume growth in the Americas commercial business and Pacific Rim, which offset the impact of unfavorable price and mix. The segment’s adjusted operating profit remained flat year over year at $17 million.
Wood Flooring: Net sales in the reported quarter declined 4.7% year over year to $130.5 million due to price and volume declines resulting from engineered wood product availability challenges. The segment posted adjusted income of $11 million, which improved significantly from $6 million in the prior-year quarter driven by lower manufacturing and input costs.
Financials
Cash and cash equivalents were $250 million for the period of nine months ended Sep 30, 2015 compared with $150.8 million as of Sep 30, 2014. Armstrong World generated cash flow from operations of $144 million during the period of nine months ended Sep 30, 2015 compared with $111 million in the prior-year period.
Outlook
Armstrong World trimmed the upper end of 2015 sales guidance to the range of $2.4 billion to $2.45 billion from the prior outlook of $2.4 billion to $2.5 billion. The company, however, increased the lower end of its adjusted earnings per share outlook and expects it to be in the range of $2.15 to $2.35. The company also revised its adjusted EBITDA view in the range of $370 million to $390 million. Armstrong World is poised to benefit from lower input costs. However, foreign exchange headwinds remain a matter of concern.
Armstrong World currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the sector include Masco Corporation MAS, Gibraltar Industries, Inc. ROCK and Ply Gem Holdings, Inc PGEM. All these stocks carry a Zacks Rank #2 (Buy).
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