It has been about a month since the last earnings report for Armstrong World Industries (AWI). Shares have lost about 3.8% 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 Q1 Earnings & Revenues Top, Rise Y/Y
Armstrong World Industries, Inc. reported impressive results for first-quarter 2023, wherein earnings and net sales surpassed the Zacks Consensus Estimate and grew on a year-over-year basis. The upside was driven by double-digit sales and adjusted EBITDA growth in the Mineral Fiber segment.
Vic Grizzle, president and CEO of Armstrong, said, “The results we delivered in the first quarter of 2023, highlighted by robust Mineral Fiber segment volume growth of 9% and Mineral Fiber adjusted EBITDA margin expansion, are an important first step on the path to delivering sales and earnings growth for the full year. We remain laser-focused on our strategic initiatives to drive sustainable growth while managing our costs in the current uncertain macroeconomic environment.”
Earnings & Revenue Discussion
Armstrong World reported adjusted earnings of $1.12 per share, which topped the Zacks Consensus Estimate of $1.06 by 5.7% and grew 9.8% year over year from $1.02 per share.
Net sales of $310.2 million topped the consensus mark of $307 million by 0.9% and grew 9.8% year over year. The upside was driven by primarily higher volumes and favorable average unit value ("AUV").
During the quarter, the company’s operating income of $70.2 million rose 11.1% from the prior-year quarter’s level of $63.2 million. Adjusted EBITDA rose 9.5% from the prior-year quarter’s figure to $96 million.
Mineral Fiber: The segment’s sales increased 12.4% on a year-over-year basis to $228.4 million. Volume increased due to a recovery of sales volumes compared to a weaker prior-year period because of inventory level reductions at certain customers, and partially due to current-year inventory level increases at home center customers. Operating income rose 10.8% from the prior-year quarter to $63.8 million. Adjusted EBITDA increased 12.9% from the prior-year quarter to $84 million.
Architectural Specialties: Net sales in the segment grew 3% year over year to $81.8 million, owing to broad-based growth across most product categories, partially offset by lower metal product sales and the timing of custom project sales. The segment reported an operating income of $7.2 million, up 10.8% from the year-ago quarter’s reported value of $6.5 million. Adjusted EBITDA declined 10% to $12 million from the prior-year quarter.
As of Mar 31, 2023, Armstrong World had cash and cash equivalents of $96 million compared with $106 million at 2022-end. Net cash provided by operations was $26.2 million in first-quarter 2023 compared with $16.7 million in the year-ago quarter.
Adjusted free cash flow was $30 million in first-quarter 2023, up from $20 million reported in the year-ago quarter. during the reported quarter, AWI repurchased 0.4 million shares of common stock for $27 million, excluding commissions and taxes. As of Mar 31, 2023, shares worth $321.8 million remained under the current authorized share repurchase program (expires on Dec 31, 2023).
2023 Guidance Maintained
For 2023, the company continues to expect weak economic conditions and challenging macroeconomic environment. Yet, benefits from the growth initiatives undertaken, ongoing productivity improvements, disciplined cost control and solid adjusted free cash flow will certainly offset these headwinds to some extent.
AWI anticipates net sales within $1,260-$1,310 million, indicating a 2-6% increase from a year ago. Adjusted EBITDA is projected within $395-$420 million, suggesting a rise of 3-9% year over year. AWI expects adjusted earnings per share in the range of $4.80-$5.05, implying growth of 1-7% from 2022. Adjusted free cash flow is anticipated between $230 and $250 million (implying a 4-13% increase from the prior year).
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
The consensus estimate has shifted -5.27% due to these changes.
At this time, Armstrong World Industries has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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