Armstrong World (AWI) Up 9.5% Since Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Armstrong World Industries, Inc. AWI. Shares have added about 9.5% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is AWI due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Armstrong World Q1 Earnings & Sales Miss Estimates
Armstrong World posted adjusted earnings of 79 cents per share in first-quarter 2018 compared with 74 cents reported in the prior-year quarter. Earnings missed the Zacks Consensus Estimate of 83 cents.
Including one-time items, the company reported earnings per share of 76 cents compared with 65 cents recorded in the prior-year quarter.
Operational Update
Net sales increased 3% year over year to $227 million, driven by higher Architectural Specialties volumes and higher Mineral Fiber AUV. Nevertheless, revenues missed the Zacks Consensus Estimate of $232 million.
Cost of sales climbed 10.6% year over year to $156.5 million. Gross profit declined 9.6% to $70.8 million in the reported quarter. Selling, general and administrative (SG&A) expenses dipped 4.6% year over year to $37.5 million.
Adjusted operating income decreased 14.6% year over year to $33 million due to higher depreciation, and elevated manufacturing and input costs. However, these factors were offset by positive AUV, volume growth in Architectural Specialties and SG&A savings. Adjusted EBITDA improved 5% year over year to $79 million, driven by volume growth in Architectural Specialties, solid AUV fall-through to profit, and lower SG&A expenses.
Segment Performance
Mineral Fiber: Net sales at the segment inched up 0.5% year over year to $191 million. Operating income slipped 21% to $43.7 million in the first quarter from $55.5 million reported in the prior-year quarter.
Architectural Specialties: The segment’s sales climbed 22% year over year to $37 million from $30 million witnessed in the year-ago quarter. The segment’s operating profit surged 73% year over year to $8.3 million from the prior-year quarter.
Financials
Armstrong World reported cash and cash equivalents of $127 million at the end of the first quarter compared with $81 million at the end of the prior-year quarter. The company recorded cash flow from operations of $26 million in the reported quarter compared with $11 million recorded in the year-earlier quarter.
Guidance
For 2018, Armstrong World reaffirmed its net sales growth outlook at 5-7%, greater than 10% adjusted EBITDA growth and free cash flow growth of 20-30%. The company raised EPS guidance to $3.60-$3.82, or 19-27% growth year over year, as a result of $70 million of share repurchases in the first quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter.
Armstrong World Industries, Inc. Price and Consensus
Armstrong World Industries, Inc. Price and Consensus | Armstrong World Industries, Inc. Quote
VGM Scores
At this time, AWI has a nice Growth Score of B, though it is lagging a lot on the momentum front with a D. However, the stock was also allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks style scores indicate that the company's stock is suitable for value and growth investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise AWI has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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