A month has gone by since the last earnings report for Armstrong World Industries (AWI). Shares have lost about 31.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Armstrong World Industries due for a breakout? 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 catalysts.
Armstrong World's (AWI) Q4 Earnings Beat, Revenues Miss
Armstrong World Industries, Inc. (AWI) reported fourth-quarter 2019 results, wherein earnings surpassed the Zacks Consensus Estimate, while revenues missed the same.
The company reported adjusted earnings of $1.11 per share, surpassing the consensus estimate of 85 cents by 30.6%. Also, the reported figure reflected a whopping 40% year-over-year growth.
Although its net sales of $246.9 million lagged analysts’ expectation of $256 million by 3.5%, the figure increased 3.3% year over year, driven by increased volumes in the Architectural Specialties segment, and higher Mineral Fiber average unit value (“AUV”) on the back of positive like-for-like pricing and favorable mix.
Selling, general and administrative (SG&A) expenses decreased 11.7% year over year to $40 million in the quarter.
Adjusted EBITDA advanced 13.9% from the prior-year quarter to $90 million. The company recorded EBITDA growth in 39 out of the last 40 quarters, demonstrating the stability of business. EBITDA margins expanded 330 bps in the quarter.
Adjusted operating income increased 11.5% year over year to $68 million, driven by higher sales, manufacturing productivity, and increased equity earnings from WAVE, which included a gain on the sale of European and Pacific Rim businesses.
Mineral Fiber (accounting for 79.9% of net sales): Backed by higher AUV, the segment’s sales were up 3.1% on a year-over-year basis to $197.2 million, partly offset by lower volume.
Operating income grew 20.9% from the prior-year quarter, attributable to higher sales, improved manufacturing productivity and lower SG&A expenses. Adjusted EBITDA also grew 15% from the prior-year quarter to $81 million, given higher AUV, productivity and WAVE.
Architectural Specialties (20.1%): Net sales in the segment grew 4.4% year over year to $49.7 million, courtesy of higher volumes owing to increased market penetration.
The segment’s operating profit declined 8.2% year over year due to additional investments in selling and design capacities and the integration of acquisitions, partially offset by the positive impact of higher sales volume. Moreover, adjusted EBITDA of $8 million increased 2.2% from the year-ago level.
Notably, unallocated corporate expense of $2.5 million was flat year over year.
Net sales grew 6% from a year ago to $1,038 million. Adjusted EBITDA advanced 14% to $403 million and adjusted EPS increased 31% to $4.78.
As of Dec 31, 2019, Armstrong World had cash and cash equivalents of $45.3 million compared with $335.7 million in the comparable period of 2018.
Net cash provided by operations was $182.7 million in 2019 compared with $203.2 million recorded in 2018.
The company’s free cash flow (on an adjusted basis) was $71 million during the quarter and $244 million in 2019 compared with $88 million and 236 million in the respective prior-year periods.
In 2020, Armstrong World expects to witness the same market conditions as were in 2019. It expects to increase sales in the high-single digit range, expand adjusted EBITDA margins and generate sector leading adjusted free cash flow of more than 25% of sales.
The company expects adjusted EBITDA between $435 and $445 million. Operating income is expected within $360-$370 million and adjusted EPS in the range of $5.20-$5.40. The Zacks Consensus Estimate for 2020 EPS is currently pegged at $5.13.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Armstrong World Industries has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, Armstrong World Industries has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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