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Armstrong World Industries (AWI) Up 0.2% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Armstrong World Industries (AWI). Shares have added about 0.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Armstrong World Industries due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Armstrong World Q1 Earnings Miss, Revenues Beat Estimates

Armstrong World Industries, Inc. recently reported first-quarter 2021 results, wherein earnings missed the Zacks Consensus Estimate but revenues beat the same. Earnings declined but revenues grew from the year ago level as contributions from acquisitions were offset by higher SG&A and acquisition-related expenses.

Brian MacNeal, CFO of Armstrong, said, “Through our growth initiatives, including Healthy Spaces and kanopi, and the year-on-year benefit of our 2020 acquisitions, we are maintaining our 2021 guidance and expect to grow sales 10% to 13%, adjusted EBITDA 9% to13%, to drive a free cash flow margin of 19% for the full fiscal year.”

Earnings & Revenue Discussion

Armstrong World reported adjusted earnings of 84 cents per share, missing the Zacks Consensus Estimate of 96 cents by 12.5%. The bottom line declined 23.4% from $1.10 per share reported in the year-ago quarter.

Net sales of $251.9 million beat the consensus mark of $246 million by 2.5%. The top line also grew 1.3% year over year. Favorable Average Unit Value (AUV) of $5 million was partially offset by lower volumes of $2 million. Adjusted revenues of $253 million increased 2% from a year ago, driven by contributions from acquisitions made in 2020. This was partly offset by COVID-driven volume reductions in the organic business.

Operational Update

Selling, general and administrative (SG&A) expenses, as a percentage of net sales, increased a whopping 760 basis points year over year to 21.6%.

Adjusted EBITDA fell 12% from the prior-year quarter to $85 million owing to COVID-related volume declines, continuing investments in growth initiatives and resumption of spending that was deferred when the pandemic hit. Unfavorable channel mix and an increase in SG&A expenses impacted adjusted EBITDA.

Segmental Performance

Mineral Fiber: The segment’s sales fell 4.6% on a year-over-year basis to $188.7 million due to lower volumes, thanks to decreased demand due to the COVID-19 pandemic, partially offset by favorable AUV.

Operating income also decreased 13.4% from the prior-year quarter to $60.6 million, attributable to lower volumes and higher SG&A. That said, higher WAVE earnings, the impact of favorable AUV and a reduction in manufacturing costs partially offset the same. Adjusted EBITDA also declined 10.1% from the prior-year quarter to $78 million.

Architectural Specialties: Net sales in the segment grew 23.9% year over year to $63.2 million owing to sales from the recently-acquired Turf Design, Moz Designs and Arktura, LLC. However, this was offset by the pandemic-induced reduction in demand.

The segment reported operating loss of $4.9 million against an income of $7.5 million a year ago. This downside was mainly due to lower sales, increase in acquisition-related expenses and amortization expense. Adjusted EBITDA decreased 28.9% from the year-ago level.

Financials

As of Mar 31, 2021, Armstrong World had cash and cash equivalents of $121.6 million compared with $146.9 million at 2020-end. Net cash provided by operations during the first quarter came in at $19.6 million compared with $25.7 million in the prior-year period.

The company’s free cash flow (on an adjusted basis) came in at $23 million compared with $36 million in the year-ago quarter.

2021 Guidance Reaffirmed

For 2021, it expects operating income in the range of $264-$276 million. Meanwhile, adjusted net income is projected in the band of $184-$193 million. Adjusted EBITDA is anticipated in the range of $360-$372 million. Also, the company expects net sales growth between 10% and 13% for 2021.

It expects adjusted earnings per share in the range of $3.80-$4.00. Adjusted free cash flow is anticipated in the range of $185-$205 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, Armstrong World Industries has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Armstrong World Industries has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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