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Armstrong World (AWI) Q3 Earnings Lag, Revenues Top Estimates

Armstrong World Industries, Inc. AWI recently reported third-quarter 2021 results, wherein its earnings missed the Zacks Consensus Estimate but revenues beat the same. Nonetheless, both the metrics grew on a year-over-year basis. Shares of the company slid 0.08% during the trading session on Oct 26, 2021.

Vic Grizzle, president and CEO of Armstrong, said, “Our employees executed well in the face of supply chain challenges and inflationary pressures to maintain our best-in-class service levels. Additionally, in the quarter we continued to advance our Healthy Spaces and digital growth initiatives, which positions us to deliver further growth as the pace of the non-residential construction market recovery accelerates in 2022.”

Earnings & Revenue Discussion

Armstrong World reported adjusted earnings of $1.17 per share, missing the Zacks Consensus Estimate of $1.28 per share by 8.6%. That said, the bottom line rose 9.3% from $1.07 reported in the year-ago quarter.

Net sales of $292.2 million surpassed the consensus mark by 0.02%. Also, the top line grew 18.6% year over year. This growth is majorly attributable to favorable Average Unit Value (AUV) of $26 million and incremental sales from the acquisitions of Turf, Moz and Arktura in 2020 (2020 Acquisitions) of $16 million.

Operational Update

During the third quarter, the company’s operating income came in at $72.1 million, almost in line with the previous-year quarter’s $72.3 million. Adjusted EBITDA rose 7.6% from the prior-year quarter to $99 million.

SG&A expenses, as a percentage of net sales, increased a whopping 468 basis points year over year to 21.3%.

Segmental Performance

Mineral Fiber: The segment’s sales surged 14.5% on a year-over-year basis to $214.5 million. It is mainly attributable to 1% higher sales volumes and a 14% increase in AUV.

Operating income rose 17.9% from the prior-year quarter to $68.5 million, attributable to higher WAVE earnings, the impact of favorable AUV and the benefit associated with the ERC. However, higher manufacturing costs and SG&A expenses related to increased discretionary spending partially offset the same. Adjusted EBITDA also increased 10% from the prior-year quarter to $86 million.

Architectural Specialties: Net sales in the segment grew 31.7% year over year to $77.7 million, owing to solid 2020 Acquisitions and higher organic sales volumes.

The segment reported operating income of $5 million, down 45.1% from $9.1 million registered a year ago. This downside was mainly driven by an $8 million increase in SG&A expenses related to the 2020 Acquisitions and the negative margin impact from custom project delays in an inflationary environment. The positive impact of incremental sales partially offset the same. Adjusted EBITDA came in at $13, up 1% from the prior-year quarter.

Financials

As of Sep 30, 2021, Armstrong World had cash and cash equivalents of $94.3 million compared with $146.9 million at 2020-end. Net cash provided by operations was $137.9 million during the first nine months of 2021 compared with $148.4 million in the prior-year period.

In the third quarter, the company’s free cash flow (adjusted basis) came in at $58 million, up from $46 million in the year-ago quarter.

Armstrong World Industries, Inc. Price, Consensus and EPS Surprise

Armstrong World Industries, Inc. price-consensus-eps-surprise-chart | Armstrong World Industries, Inc. Quote

2021 Guidance Updated

During the third-quarter 2021 earnings call, the company narrowed the full-year guidance and maintained its previous mid-point guidance. The company anticipates incremental net sales growth of 17% to 18% compared with 16-18% projected earlier. For 2021, the company expects net sales between $1,095 million and $1,105 million ($1,085-$1,105 million projected earlier).

For 2021, the company now expects adjusted EBITDA within $372-$378 million (versus $370-$380 million projected earlier). The company now expects adjusted earnings per share in the range of $4.25-$4.35, compared with the prior expectation of $4.20-$4.40. Adjusted free cash flow is now anticipated in the range of $198-$208 million versus $195-$210 million expected earlier.

Zacks Rank & Key Picks

Armstrong World currently has a Zacks Rank #4 (Sell).

Better-ranked stocks in the Zacks Construction sector include Acuity Brands, Inc. AYI, TopBuild Corp. BLD and Jacobs Engineering Group Inc. J, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Acuity Brands has a three five-year expected earnings per share growth rate of 10%.

TopBuild’s 2021 earnings are expected to surge 47.5%.

Jacobs has a trailing four-quarter earnings surprise of 201.8%, on average.


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