Consistent with its strategy of focusing on its core business, Armstrong World Industries, Inc. (AWI) has entered into an agreement to sell its cabinets business to private equity firm, American Industrial Partners, for $27 million.
Armstrong’s cabinets business is headquartered in The Colony, Texas and has a manufacturing facility in Thompsontown, Pennsylvania, which employs around 750 people. The business contributed $136 million or 5% of Armstrong World’s sales in 2011. In the first half of fiscal 2012, the segment generated $66.6 million in revenues.
The transaction, pursuant to customary closing conditions, is expected to be completed in the fourth quarter of 2012. The company intends to classify the business segment as discontinued operation starting in the third quarter of 2012. Sales from continuing operations in the third quarter will exclude approximately $40 million of sales from the cabinets segment. The company, however, expects no material change in profitability and cash flow from continuing operations.
For the third quarter of 2012, sales are expected to be between $740 and $780 million and adjusted EBITDA to be in the range of $120 to $140 million. The Zacks Consensus Estimate for EPS for the quarter currently stands at 90 cents and revenue at $753 million.
This news follows Armstrong World’s sale of its flooring sales and distribution business, Patriot Flooring Supply, Inc., to Belknap White Group earlier this month. Both Patriot Flooring and the cabinet business became a part of Armstrong in 1998 after it acquired Triangle Pacific, a leading manufacturer of hardwood flooring and kitchen/bathroom cabinets, for $1.15 billion. With the acquisition, the company made its foray into the cabinet business.
The rationale behind the company’s sale of Patriot Flooring business was its engagement in the distribution of hardwood and laminate flooring and thus not in sync with Armstrong’s business of making and marketing floors. Cabinet manufacturing is a highly fragmented industry with significant price competition and the market is dependent on new home construction and remodeling activity.
Declines in the residential housing markets have resulted in the segment incurring losses since 2008. Thus, with the divestment, the company can better focus on its profit-making segments.
Armstrong’s volumes are expected to be affected as global markets continue to struggle, particularly Europe. The company, however, continued to effectively manage its cost structure and adapt to the continued challenging market conditions. Following the Patriot and the cabinet business divestments, Armstrong can focus on its core business of manufacturing and marketing floors and ceilings and continue to grow in North America and globally.
Lancaster, Pennsylvania-based Armstrong World 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 used to design, manufacture and sell kitchen and bathroom cabinets in the U.S. Armstrong World competes with privately held Congoleum Corporation, Pergo AB and Shaw Industries, Inc. Currently, the shares retain a short-term Zacks #4 Rank (Sell).Read the Full Research Report on AWI
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