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Armstrong World to Buy ACGI, Boost Wood Ceiling Portfolio

Zacks Equity Research

Armstrong World Industries, Inc. AWI has signed an agreement to buy Architectural Components Group, Inc. (“ACGI”), a leading custom wood ceilings and walls solution provider. Both the parties have not yet divulged the financial terms of the deal, which is expected to close in the first quarter of 2019.

Buyout Synergies

Located in Marshfield, MO, ACGI is a designer and manufacturer of custom architectural specialty wood ceiling and wall solutions, with annual revenues of about $35 million. The ACGI acquisition — the largest to date for Armstrong World — will give a boost to its prevailing wood ceiling and wall solutions.

Armstrong World follows a systematic inorganic strategy to enhance its portfolio. The company has been strategically investing in new products, sales and support services, as well as advanced manufacturing capabilities. This acquisition will increase its participation in the high-value Architectural Specialties segment.

The company’s latest acquisitions were of Steel Ceilings (SCI) in August 2018 and Plasterform in May 2018. The SCI acquisition bolstered Armstrong World's presence in the fields of architectural, radiant and security solutions. On the contrary, Plasterform has provided the company with manufacturing and selling capabilities for ultra-expressive, custom architectural cast ceilings, walls and other items. Plasterform's unique capabilities and process technology allow for intricate three-dimensional design options.

Thanks to these important additions, its Architectural Specialties segment has been performing pretty well over the last few quarters. In the last reported quarter, the segment’s sales increased 36.7% year over year, owing to higher market penetration and new construction activity, which in turn contributed to strong volume growth. Notably, the segment’s operating profit rose 46.8% year over year and adjusted EBITDA was also up 48.6% from the prior-year level.

Shares of Armstrong World have outperformed its industry in a year's time. Shares of the company have gained 12.3% in the past three months compared with its industry’s 2.2% growth. Although the company missed the Zacks Consensus Estimate in the trailing four quarters, it has been recording solid year-over-year improvement, buoyed by volume growth in the Architectural Specialties segment and higher average unit values or AUVs in the Mineral Fiber segment.



 

Zacks Rank & Key Picks

Armstrong World currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the Zacks Construction sector are Gibraltar Industries, Inc. ROCK, Gates Industrial Corporation PLC GTES and Lennox International, Inc. LII. While Gibraltar and Gates Industrial sport a Zacks Rank #1 (Strong Buy), Lennox carries a Zacks Rank #2 (Buy). You can also see the complete list of today’s Zacks #1 Rank stocks here.

Gibraltar, Gates Industrial and Lennox’s earnings for 2019 are expected to increase 17.2%, 9.7% and 31.2%, respectively.

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