Armstrong to Sell Wood Flooring Segment to AIP for $100M
Armstrong Flooring, Inc. AFI has announced plans to sell its Wood Flooring segment to an affiliate of American Industrial Partners (“AIP”) for $100 million. The value of the transaction is nearly 7.2 times the segment’s trailing 12-month adjusted EBITDA. The deal is likely to be sealed by the end of 2018. In the last two trading sessions, the company’s shares have gained 9.4%. In fact, the stock has risen 18.2% in the past six months against the industry’s decline of 24.2%.
Armstrong’s flooring segment consists of six U.S. manufacturing facilities that serve the North American region. Net proceeds from sale are expected in the range of $85-$90 million. The company would gain flexibility and further invest in other attractive opportunities through these proceeds.
The move underscores its aim to maximize shareholder value and focus on lucrative resilient flooring. The company focuses on the rapid growing segments of the flooring industry including Luxury Vinyl Tile (LVT) and other resilient products like Vinyl Composition Tile and resilient sheet after vending its wood flooring segment.
The company believes demand for LVT and other resilient flooring products will grow and this is the right time to shift their given the changing outlook for the flooring market. Meanwhile, adjusted EBITDA for the resilient flooring segment is expected between $59 million and $63 million for 2018. The Wood Flooring segment will be classified as a discontinued operation from the beginning of fourth-quarter 2018.
Moreover, the company announced a cost optimization plan to improve its existing cost structure and eliminate all shared costs assigned to the resilient flooring segment. These efforts are expected to rake in savings of around $5-$6 million. However, a one-time charge related to severance expenses of $1-$2 million is apprehended in the fourth quarter.
The divesture and related cost optimization will benefit the company and help it focus on product innovation that would drive growth. With a pure-play resilient flooring company, the company is better positioned to continue growing adjusted EBITDA and margin from continuing operations.
Zacks Rank & Stocks to Consider
Armstrong carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the Construction sector are KBR, Inc. KBR, EMCOR Group, Inc. EME and Dycom Industries, Inc. DY, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
KBR surpassed earnings estimates in three of the past four quarters, the average positive surprise being 12.6%.
EMCOR Group’s expected earnings growth rate for the current year is 20%.
Dycom Industries surpassed earnings estimates in three of the past four quarters, the average positive surprise being 3.4%.
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