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Edited Transcript of AWI earnings conference call or presentation 1-May-17 3:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Armstrong World Industries Inc Earnings Call

LANCASTER May 4, 2017 (Thomson StreetEvents) -- Edited Transcript of Armstrong World Industries Inc earnings conference call or presentation Monday, May 1, 2017 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian L. MacNeal

Armstrong World Industries, Inc. - CFO and SVP

* Kristy Olshan

* Victor D. Grizzle

Armstrong World Industries, Inc. - CEO, President and Director

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Conference Call Participants

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* Garik Simha Shmois

Longbow Research LLC - Senior Research Analyst

* James Richard Barrett

CL King & Associates, Inc., Research Division - MD

* Jason Aaron Marcus

JP Morgan Chase & Co, Research Division - Analyst

* John Lovallo

BofA Merrill Lynch, Research Division - VP

* Keith Brian Hughes

SunTrust Robinson Humphrey, Inc., Research Division - MD

* Kenneth Robinson Zener

KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst

* Michael Robert Wood

Nomura Securities Co. Ltd., Research Division - Senior Equity Research Analyst

* Nishu Sood

Deutsche Bank AG, Research Division - Director

* Robert C. Wetenhall

RBC Capital Markets, LLC, Research Division - Analyst

* Samuel Heiden Eisner

Goldman Sachs Group Inc., Research Division - VP

* Scott L. Rednor

Zelman & Associates LLC - VP of Research

* Stephen Kim

Evercore ISI, Research Division - Senior MD, Head of Housing Research Team and Fundamental Research Analyst

* Will Randow

Citigroup Inc, Research Division - Director

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Armstrong World Industries, Inc. Q1 2017 Earnings Conference Call. (Operator Instructions)

I would now like to turn the call over to Kristy Olshan, Director of Investor Relations. Please go ahead.

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Kristy Olshan, [2]

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Thank you, Ayla. Good morning, and welcome. Please note that members of the media have been invited to listen to this call, and the call is being broadcast live on our website at armstrongceilings.com. With me today are Vic Grizzle, our CEO; and Brian MacNeal, our CFO.

Hopefully, you have seen our press release this morning, and both the release and the presentation Brian MacNeal will reference during this call are posted on our website in the Investor Relations section.

I advise you that during this call, we will be making forward-looking statements that involve risks and uncertainties. Actual outcomes may differ materially from those expected or implied. For a more detailed discussion of the risks and uncertainties that may affect Armstrong World Industries, please review our SEC filings, including the 10-Q filed earlier this morning. Forward-looking statements speak only as of the date they are made. We undertake no obligation to update any forward-looking statements beyond what is required by applicable securities law.

In addition, our discussion of operating performance will include non-GAAP financial measures within the meaning of SEC Regulation G. A reconciliation of these measures with the most directly comparable GAAP measures is included in the press release and in the appendix of the presentation. Both are available on our website.

With that, I'll turn the call over to Vic.

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [3]

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Thanks, Kristy, and good morning, everyone. It's good to be with you today to discuss our strong first quarter.

Globally, we delivered nearly 10.5% top line growth on a constant-currency basis, with all regions contributing to this result, and gross margins globally expanded by 20 basis points in the first quarter.

I'll talk about the drivers of the strong sales results in just a moment, but first, I want to say that I'm very pleased with the strong top line performance. This change in trajectory is the direct result of our investments in innovation and the growth initiatives that we've been executing against, aided by improving market conditions.

Sales in our Americas segment were up nearly 10% in the first quarter on top of a strong 6% growth in the first quarter last year. Both volume and average unit value, or AUV as we refer to it, contributed to the sales growth, but strong volume growth was the primary driver. Volumes grew at the high end of the mid-single-digit range in the quarter over mid-single-digit volume growth in the prior year quarter.

Now within the Americas segment, our U.S. Commercial channel was the primary driver of the volume growth, partially driven by Tectum, our new acquisition, that we closed in January. Strong shipments in our Big Box channel more than offset continued softness in Latin America.

And additionally, our average unit value also improved, driving mid-single-digit growth over the prior year quarter, with contributions from both mix and positive like-for-like pricing. Sales growth at the high end of the product portfolio continues to outpace growth across the rest of our portfolio, with high-end products up single digits versus prior year quarter. I should say high single digits versus the prior year quarter, which is consistent with what we've been seeing.

Now most exciting for me is that our Total Acoustics products, which we launched in the fall of 2015, continue to be among the fastest-growing products in our portfolio, further demonstrating that our investments to drive organic growth through innovation are working. Also, gross margins expanded in the Americas by 50 basis points over the prior year quarter despite some inflationary headwinds and timing-related items that Brian will discuss in a moment.

Our international business also contributed nicely to our top line growth, delivering nearly 13% constant currency sales growth over the prior year quarter. This strong result was driven by improvement in our end markets and early traction from our growth initiatives. As we indicated in February, we believe we've hit bottom in most of our international markets. And we saw a nice pickup in activity in key markets like the U.K., Russia, India and in Australia. We also saw activity pick up across Continental Europe, and our backlogs are improving in markets like China and the Middle East.

Our growth initiatives are also contributing, with our architectural specialty products up double digits over the prior year across our international markets. And we also expanded adjusted EBITDA margins in our international business by 60 basis points over the prior year quarter, again, despite some inflationary headwinds and timing-related expenses.

I'd also like to briefly comment on our share repurchase activity in the quarter. We bought aggressively against our $150 million authorization in the first quarter, driven by the confidence we have in our future growth prospects. We bought back 1.2 million shares, bringing our total repurchases since its inception for the program to approximately 4% of our flow.

So with that, I'll turn the call over to Brian to discuss more detail of our financial performance in the quarter. Brian?

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [4]

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Thanks, Vic. Good morning to everyone on the call. Today, I'll be reviewing our first quarter results, but before we dive into the financials, as a friendly reminder, I'll be referring to the slides available on our website.

Slide 3 details our basis of presentation used throughout this discussion. The primary differences to our reported results are expenses related to the separation in the prior year and the noncash impact of our U.S. pension.

Turning to Slide 4. Consolidated sales of $317 million grew double digits or 10.4% versus the prior year period on a comparable foreign exchange basis. Adjusted operating income increased 9%, while adjusted EBITDA increased 7% versus the prior year period. I'll discuss the drivers of the margin compression in a few slides, but timing-related expenses in both manufacturing and SG&A costs drove this result, which we consider to be temporary.

Adjusted earnings per share were up 8%, mostly due to higher cash earnings and a lower share count as a result of our share repurchase activity. Free cash flow improved by $12 million over the prior year period, due mainly to higher earnings, driven by higher volume and AUV. I'm pleased with this cash generation, especially in a seasonally weak quarter. Of note, free cash flow excludes cash used to fund acquisitions and payments related to the separation. Please refer to Slide 13 in the appendix for more details. Debt repayments and refinancing actions over the last 12 months reduced net debt by $21 million.

Turning now to Slide 5. Adjusted EBITDA increased almost 7%, driven predominantly from higher volumes in every reportable segment and solid AUV achievement. Globally, volumes expanded sequentially from the fourth quarter by over 1,000 basis points, delivering high single-digit volume growth over the prior year period. Positive like-for-like pricing and positive mix in the Americas led to this solid AUV achievement.

Higher manufacturing input and SG&A expenses had timing-related headwinds this quarter. Without these items totaling $6 million globally, adjusted EBIT margins -- EBITDA margins would have expanded by 110 basis points. I'll provide more details as we discuss each segment in the upcoming slides.

Slide 6 shows our change in free cash flow compared to the prior year period. Free cash flow improved by $12 million over the prior year period, driven mainly by higher cash earnings. Favorability in cash earnings and working capital were driven by the strong sales growth in all of our segments.

Turning now to our segments, on Slide 7. The Americas delivered the strongest quarterly sales growth we've seen in 6 years. Sales grew 9.4% on a comparable foreign exchange basis, as volume accelerated by 600 basis points sequentially from the fourth quarter. Volume grew at the high end -- the higher end of mid-single digits, lapping the prior year quarter with mid-single-digit volume growth. Our largest channel, U.S. Commercial, drove the majority of volume growth, as sales were up almost -- were up in almost 90% of our U.S. geographies.

Tectum contributed just over 2.5 points of Americas growth year-on-year, and I'm happy to report that the integration of Tectum is going well, as demonstrated by their double-digit growth versus their prior year period.

Inventory builds and year-ago shelf reset costs in Big Box channel helped to offset continued softness in Latin America. Of note, these inventory builds could pull some volume out of Q2 in the Big Box channel. I'm pleased with the acceleration in the high end our mineral fiber product range, which grew high single digits over the prior year period as a direct result of our investment in innovation. Continued mix improvement, along with another quarter of positive like-for-like pricing, drove solid AUV achievement.

I'm also pleased with our Architectural Specialties product line, aided by Tectum, which delivered another quarter of strong double-digit growth.

On a comparable cost basis, adjusted EBITDA increased 2.5%, which led the pressure on adjusted EBITDA margins, mainly due to the timing of certain expenses in cost of goods sold and SG&A. For example, in cost of goods sold, we had additional maintenance spend versus prior year, which will level out over the year. On the SG&A side, $3 million of incremental costs are also timing related. Last year, our 2016 long-term incentive plan was granted in Q2 due to our separation from floors. Thus, no expense was incurred in Q1. The 2017 grant occurred in Q1 this year.

Additionally, we continue to invest in selling capacity and capabilities to accelerate the top line. WAVE's equity earnings were flat year-on-year off of a very strong base period and the timing of steel input costs versus pricing. The WAVE business implemented a 5% price increase May 1.

I'm pleased with the fall-through rate on volume this quarter, as gross margins expanded by 50 basis points over the prior year period. Our AUV fall-through rate was positive this quarter but below our historic levels, driven mainly by channel mix and the timing of cost-reduction programs in the plant.

In summary, for the Americas, I'm very pleased with the sales growth, and excluding the $5 million of timing-related headwinds, adjusted EBITDA margins would have been flat versus prior year.

Moving to our EMEA segment, on Slide 8. Quarterly sales increased over 16% on a comparable foreign exchange basis, as nearly every market delivered sales growth compared to the prior year. In particular, Russia and the U.K. drove the favorableness in volume, and like-for-like pricing was positive for this segment.

Adjusted EBITDA margins expanded 200 basis points, as the margin impact of higher volumes and positive like-for-like pricing more than offset higher manufacturing and input costs associated with inventory and higher startup costs, resulting from the previously outlined sourcing strategy changes.

Moving to our Pacific Rim segment, on Slide 9. Quarterly sales increased by 4.8% on a comparable foreign exchange basis, driven by strength in India and Australia. Adjusted EBITDA declined, as outlined in our guidance, predominantly from the sourcing changes incurred with the idling of our Qingpu plant.

Slide 10 details our 2017 guidance, which is unchanged from what we communicated in February. Our strong, broad-based top line growth is very encouraging, given the tough comp period, especially in the Americas and the great start for Tectum. In terms of profitability, we remain focused on achieving our outlined adjusted EBITDA guidance, as this quarter's compression was temporary and mainly driven by the timing of expenses. We are confident in the levers available to all us to meet our targeted objectives and expect to improve margins sequentially as we progress throughout the year.

Also, as a reminder, our adjusted EPS guidance expects our average diluted share count to remain at 56 million shares, consistent with the diluted share count we reported at the end of 2016. However, as you know, given our stock price this quarter, we repurchased 1.2 million shares, representing a $50 million spend. This brings our total spend to $94 million and 2.3 million shares repurchased since inception of the program last August. As of the end of the quarter, we had $56 million remaining under our share repurchase authorization.

Our guidance currently presumes that there will be no change to the corporate tax reform that will impact 2017. However, this is clearly a focus of the new administration in Washington, with the announcement last week. If we were to see a reduction in the corporate tax rate to 15% or 20%, we anticipate we would see a $40 million to $50 million cash and expense benefit increasing our reported EPS by $0.70 to $0.90.

Lastly, regarding our liquidity, we're sitting comfortable in our leverage range of 2 to 3x. At the end of the quarter, we only had about $15 million drawn on our revolver. April was performing as expected and consistent with our annual guidance.

To close, we are pleased by our strong start to the year with the acceleration of both our sales and volume over the prior year period and gross margin expansion, demonstrating that our growth initiatives are gaining traction. Globally, we delivered double-digit sales growth and high single-digit volume growth, representing a change in the growth trajectory of our business. We are confident in the levers available to us to drive margin expansion and expect to see sequential improvement as we progress throughout the year.

With that, I'll turn it back to Vic.

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [5]

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Thanks, Brian. Before we get to your questions, I'd like to briefly summarize the 4 pillars of our growth strategy: Number one is to capture the organic growth as our end markets continue to improve; number two, sustain and accelerate our average unit value improvement through our innovation efforts; number three, to continue our penetration in the architectural specialty space; and number four and finally, pursuing inorganic growth opportunities through our enhanced M&A efforts. I'm pleased with how each of these 4 pillars contributed to the robust top line growth we experienced in the first quarter.

Let me just focus for a moment on our investments to drive innovation. Given the already high returns in our Americas business, we're investing here to drive future organic growth through the most innovative products and evolving capabilities, which will result in higher average unit values. This is part of a multi-year strategy that strengthens our position as the market leader and bringing new and exciting innovation to our customers while enhancing our costs and our service position. This strategy makes us different in the marketplace, and as a result, we should experience higher growth rates than the overall market.

The first initiative in this multi-year strategy was our Total Acoustics portfolio that we introduced in the fall of 2015. This has been one of the most successful product launches we've had in many years, and today, it is one of the fastest-growing parts of our portfolio. And we're excited to build on this success with the launch of a new line of products called Sustain. Our Sustain product family will be the first to be completely free of chemicals of concern, contributing to healthier environments for all people in spaces where they live, work, learn, play and heal. This is important to our customers, and we're proud to support and enable the growing trend towards designing and building healthy buildings, as these products will meet the industries most stringent sustainability standards. The initial launch of our Sustain portfolio will include not only ceiling tiles but also suspension systems and trims, and we plan to continue to broaden the portfolio to include the specialty ceiling choices that many of our customers now desire. The best part is that many of these Sustain products will also incorporate the Total Acoustics performance that our customers have quickly come to know and love.

I also want to take a moment to share some of our recent successes as we continue to drive penetration and share gains in Architectural Specialties. We grew double digits over a strong quarter in the prior year, and the integration of Tectum, our new acquisition, is going very well, with sales up double digits over the prior year quarter.

Now as architects push the boundaries of design, ceilings are becoming more complex, and our capabilities are evolving to meet those demands. We deliver the ceiling design and engineering expertise required by complex projects, from lighting and HVAC integration to wind load requirements. In fact, I'm pleased to announce today that we've been selected to provide ceiling solutions for the Metropolitan Transportation Authority's East Side Access megaproject, which will connect the Grand Central and new Long Island Rail Road terminals. This is currently the largest transportation infrastructure project under way in the United States and will showcase many of our high-end architectural specialty products. Armstrong was chosen for the broad product portfolio that we have, but more importantly, for our design services and construction expertise, a combination unmatched in the ceilings industry today.

So I hope you can see we are clearly focused on delivering growth above what the market gives us, and no company is in a better position to capture this opportunity than Armstrong. We're excited about these opportunities and the progress that we are making and for the strong start to 2017.

And with that, we'll be happy to take your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Bob Wetenhall of RBC Capital Markets.

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Robert C. Wetenhall, RBC Capital Markets, LLC, Research Division - Analyst [2]

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I just wanted to ask you, there's been rampant cost inflation in building products. One of your competitors recently reported about headwinds. I'm concerned about margin stability during the balance of the year if cost inflation runs rampant. And I just wanted to see, what kind of pricing actions can you take, particularly in North America, to offset that? Do you see margin compression due to cost inflation? Or do you think you can get price over cost in a favorable position?

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [3]

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Yes, Bob, we are seeing inflation, as Brian highlighted, in the first quarter. And as expected, I have to say, after a couple of years of deflation, we expected 2017 to be a year of inflation. And again, in the first quarter, we did see inflation in natural gas, wastepaper and even some of our freight channels. As Brian also mentioned, we did achieve positive like-for-like pricing in the quarter. In fact, we were able to cover the inflation we had in the first quarter with our price realization. So we continue to monitor and balance those 2 very carefully. And as inflation picks up, we will increase prices proportionately. And we'll execute the required realization to make sure that we don't get margin compression due to inflation. I'll just remind everybody, we have been successful in executing this approach for 10 years in a row now. And I really expect 2017 will continue that streak.

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Robert C. Wetenhall, RBC Capital Markets, LLC, Research Division - Analyst [4]

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Got it. That's helpful. And it's good to know you're optimistic about price over cost. If we could switch the page over to volumes. Could you help us walk through organic U.S. volumes? You obviously have the Tectum acquisition bringing in 2 or 3 points. There is some load-in as well in the commercial vertical. What are organic volumes trending? And can you talk about the mix of organic volumes? Is it more Architectural Specialties driving the growth? Or how should we think about product mix in the context of organic volumes? You do have some load-in that you highlighted in the first quarter. What's your expectation going forward, given kind of the moving pieces in the first quarter?

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [5]

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Yes, okay, let me put some light on that, if I could. We did have a load-in in terms of the Big Box channel, as you alluded to. And even with that -- and that tends to put pressure on the overall mix because of the products that go through that channel. But then even with that, we had positive mix in the quarter and really driven by the products at the high end of the portfolio. So our Total Acoustics product lines and similar products at the high end of the market continue to grow high single digits, and that's continuing to drive a positive mix and higher AUVs in the market. That's consistent that we've been talking about for many quarters now, and that continued in the first quarter. That's complemented, by the way, with the architectural specialty product growth that we've seen. Again, we had over 20% growth again in the quarter in architectural specialty products globally. And so that continues to be a source of growth for us. And then, of course, the Tectum acquisition, as you mentioned, was a nice source of growth, nearly 3 points of growth for us in North America in the quarter. So it's those things, and I think those are the pillars and the building blocks that are going to continue to drive a richer product mix in the marketplace as we go forward, which is the support for the higher AUVs and the value creation that we've experienced over the last several quarters. We believe that's going to continue throughout '17 for sure.

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Robert C. Wetenhall, RBC Capital Markets, LLC, Research Division - Analyst [6]

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Could you give some numbers around it specifically?

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [7]

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We don't break out the numbers by category, Bob. So -- but again, I think the fastest-growing part of the portfolio is that high end, at the high single digits, being driven by the new construction activity that we're seeing in the market today.

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Robert C. Wetenhall, RBC Capital Markets, LLC, Research Division - Analyst [8]

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Got it. And if I could just sneak one other in on EMEA. Really strong double-digit volume in the region. You're getting stronger price realization as well. What does it take in terms of line of sight to turn your profit in the region? It seems like you finally got some very strong demand engagement, and you're getting the pricing. And I'm trying to understand the step function you see as the CEO to get back into the black in that segment. You're #1 in the region. I thought you'd be there quicker. What are the steps we need to see to get to that progression?

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [9]

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Yes, thanks, Bob. I think the volume growth we saw in the EMEA region was very encouraging. Again, we're coming off low bases there. And so we're encouraged, but we're not out of the woods yet. The one headwind that we had in the EMEA region were some startup costs as we closed our Qingpu facility, and we moved considerable amount of volume out of China into the European plants to leverage those assets better, which is part of improving the profitability in those regions. We had some onetime startup costs that, I think, depressed some of that volume goodness. That will correct itself as we go through the year. But to fix the region and get to the profitability that we expect, we still have more structural cost actions to take to get there. And again, I think we're thinking about this in terms of no help from the market. But if we continue to get help from the market, and with these cost actions that we continue to take, we'll get there faster. So we're encouraged by the market activity.

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Robert C. Wetenhall, RBC Capital Markets, LLC, Research Division - Analyst [10]

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Any view of the size of those cost actions, just dollar-wise, to get you where you want to be?

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [11]

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Yes. We're not putting those out there just yet, Bob. So let's just leave it at that. Thanks for your questions.

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Operator [12]

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Our next question is from Garik Shmois with Longbow Research.

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Garik Simha Shmois, Longbow Research LLC - Senior Research Analyst [13]

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Just wondering if you could talk about the cadence of volume growth, as you expect, in the Americas through the rest of the year, understanding that you might see a little bit of a reversal in the second quarter with respect to timing of inventories in Big Boxes. But the way you see it now, what would be the risks, I guess, against volumes coming in at the upper end of your range, just given the strength in Q1? And it sounds like organic trends are in line to maybe a little bit better than you initially expected.

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [14]

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Yes, I would say the overall market is about what we expected and, I'd say, consistent with our outlook for the year. You have to take out a little bit of that lumpiness that you get in the Big Box channel. If you remember, the third quarter last year, we had this air pocket that was really created by some inventory correction in the Big Box channel. In the first quarter, we got a nice bump in the other direction. So normalizing that out through the year, we're trending toward the high end of our guidance range on top line. And after 1 quarter, I think it's too soon to call where we go from here. But again, we're encouraged by the start of the year. And I'd say the products at the high end of the market, our architectural specialty, growth in the backlog we see in that business, is consistent with what we do, what we are expecting for the whole year.

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Garik Simha Shmois, Longbow Research LLC - Senior Research Analyst [15]

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Okay. And as I think about the EBITDA margin expansion, as related in the full year guidance, against some of the items that pressured Q1 and the ramp from this point forward, recognizing that you're saying that price cost is favorable, you're getting pricing ahead of the inflation, what should the ramp look like as we look out through the balance of the year? Is incremental margins going to spike because of the volume leverage? Or are you anticipating additional, I guess, combination of price/cost?

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [16]

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Well, I think all of the levers are going to be in play as we continue to go throughout the remaining quarters of the year. I think the mix is going to continue to be there at the price over inflation. We're going to continue to monitor that very closely and manage accordingly to the inflation that we see. But again, I think, as Brian outlined very nicely, a lot of timing-related expenses depressed these levers in the first quarter, and those will again normalize and work their way through the system in the second and third quarter. So I think we're going to have -- and we're comfortable with the guidance right now as these things work their way out, and we continue to execute on the levers that are driving margin expansion and have been historically for this business.

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Operator [17]

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Our next question is from John Lovallo with Bank of America.

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John Lovallo, BofA Merrill Lynch, Research Division - VP [18]

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First question is, I guess, maybe just to put a finer point on the previous question. It seems like your outlook would imply something, call it, 75% to 80% incrementals in the Americas for the remainder of the year. I mean, can you just help us maybe bucket this a little bit better? I mean, how should we really be thinking about kind of the drivers here?

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [19]

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I'll let Brian take that. Brian?

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [20]

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Yes, sure, John. So we profiled that $6 million of this was globally related to timing, 5 of which is in the Americas specifically. Q3 is our biggest quarter from an EBITDA performance standpoint and, quite frankly, cash also. And so we see the items that we experienced in the Q1 over the course of the year are not headwinds for us. And so we'll continue to see improvements in that margin through the quarters. And Q3, especially given that it's the biggest quarter, we won't have some of these headwinds. The one I'd called out was the long-term incentive around the management plan. Year-over-year, that's actually a total cost down. And due to timing of when it was granted last year to this year, it hit us in Q1, where, a year ago, there was no expense for it in Q1.

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John Lovallo, BofA Merrill Lynch, Research Division - VP [21]

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Okay. And if I missed this, I apologize, but what were the productivity gains in the first quarter?

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [22]

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Yes, we didn't call out productivity gains specifically. We rarely do on the call. So we've had a lot of products moving, as we called out in Europe. It's one of the short-term timing items we identified. As we change sourcing out of Qingpu in China into our European business, we saw some start-up costs hit us in Europe. But we have got a nice pipeline of productivity initiatives in the plants to reduce the cost.

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [23]

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Thank you. I'll just add on to that as we go to the next question. We expanded gross margins. So the levers for margin expansion are there. The productivity question, I mean, clearly, with the onetimers and the manufacturing input costs, not input costs, but the manufacturing costs overall, with some inventory valuation adjustments and so forth, all of those things are going to work themselves out and, in the quarter, overshadowed the productivity gains in the plants. So again, when those work their way out, the productivity will continue to shine through.

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Operator [24]

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Our next question is from Will Randow of Citigroup.

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Will Randow, Citigroup Inc, Research Division - Director [25]

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In terms of -- I don't know if you can touch on this point, but capacity utilization in Russia, I know you guys were a little light there. Can you highlight some of the gains you potentially had as well as how you're feeling about European growth? I know you touched on it earlier, but the growth prospects for over the next 9 months.

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [26]

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Yes, and specific to Russia, we continue to see -- I'll just kind of back up here. If you remember, last year, we had a really tough first half in Russia. It was very slow, and then we had a pickup in the second half. I'd say what we saw in the first quarter and what we're continuing to see is a continuation of the second half. So really good volumes there. We're getting to capacity utilization on the first shift, which is allowing us to layer in a second shift to take advantage of the volume growth there. So we're going to continue to add volume, which adds the overall capacity as you -- or add crews as the volume increases so we can add overall capacity to serve that local market. Again, I would say what we saw in the first quarter in the EMEA region was fairly broad based, with strength in Continental Europe as well as the U.K., Russia. And we scored a nice big project in the Middle East. So I'd say fairly broad based. But again, the way I think about it is it's off of a very low base. And so these markets were pretty depressed over the last couple of years. And so again, we're not expecting a huge rebound in those markets, but we got a nice bounce off the bottom that showed up in the first quarter. So we're continuing to be optimistic about the plan that we've put forward for our EMEA region and for the full year.

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Will Randow, Citigroup Inc, Research Division - Director [27]

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And just as a follow-up to Bob's question on steel, what type of incremental dollar inflation are you looking at this year? And do you feel like you have that locked in from a pricing perspective maybe offsetting it?

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [28]

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Yes, I mean, steel prices are moving. So we're reacting to that. We had a steel -- or I'm sorry, a price increase on our grid product line in February. We went out again in May. We're currently on The Street again with another 5% increase. So we're continuing to price, again, against inflation to cover our inflation. So we'll see some quarter-to-quarter noise as steel lags versus price realization, but in the total year, we're going to continue to work to cover inflation with our price realization.

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [29]

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And then, Will, this is Brian. So one point of clarity there. You don't hear us call out steel as part of our input inflation. Given that we were a 50-50 JV with WAVE, it all comes through a net number in our equity earnings.

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Operator [30]

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Our next question is from Ken Zener with KeyBanc.

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Kenneth Robinson Zener, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [31]

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So unlike third quarter, there's clearly no air pocket right now. So Armstrong's got some swagger here. GMS reported good volumes. And so obviously, it just wasn't load-in just at the retailers this quarter. And given your tough comps that you have from last year, it's a 2-year stack basis, you're up very consistently and very high. As I recollect your historical volume information, the biggest volume gain that tends to be a big step-up is 7%, I think, in '02-ish, give or take. Given this very strong strength that we're seeing, in addition to all your product innovations, is there some way to think about your visibility extending? Obviously, on these large, new projects that you just mentioned one of them, that's something that's going to go out over the horizon. But generally, you've talked about 60 days visibility, but considering how strong the market is performing, do you actually have more visibility kind of into that beyond 60-day window into the distributors? Is there something unique that's happening? Because it's obviously a big move for Armstrong on the volume that you're extending beyond just 1, 2 quarters.

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [32]

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No, I'd say, specifically to your question, there's no more visibility into the distribution channel in particular. I'll go back to what I earlier said, which is that the big growth driver in the market today are these -- are more of the larger new construction projects. Now because they're large, they tend to be -- have a longer gestation period to them, their visibility is really good. It's still 25% to 30% of the overall market. So we have good visibility on those. We're tracking those. Our teams are executing very well on those. But the rest of the market, there's no improved visibility that I can speak to. Again, I think the way to understand the volume for Armstrong right now is the growth strategy at Armstrong is to sell into more spaces. We view the entire ceiling plane as our opportunity, not just the mineral fiber or the spaces where mineral fiber goes in today, but it's all ceiling spaces are our opportunity. And that's what's driving the growth for our Architectural Specialties. We're in more states and spaces now. We're in more boardrooms. We're in more of those specialty places where we weren't playing before. I think the Tectum acquisition is a great example of us getting into more spaces, where we know we've been in the classrooms, and we sell a lot of mineral fiber in the classrooms. But we weren't in the gymnasium or the swimming pool areas. We certainly weren't in the walls, the high-abuse areas. Now the Tectum product portfolio gives us an opportunity to play in those spaces where we weren't before. So it's -- there's some good market activity out there, and Armstrong is winning and doing a great job executing on those things. But Armstrong is also expanding into new spaces in ceilings where we haven't played before, expanding the target market and growing nicely into those spaces.

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Kenneth Robinson Zener, KeyBanc Capital Markets Inc., Research Division - Director and Equity Research Analyst [33]

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Yes, that's clear. I wonder, related to that, if you could talk about, perhaps, the investments. And I don't know if you could just generalize, like, CapEx into that area beyond the, obviously, the recent acquisition, that would separate you from peers in terms of how you're competing in that category, A. And then, slightly different, Brian, if you could kind of talk about, we know volume leverage is very good when you back out these SG&A components. How would you have us think about incrementals sequentially in North America, if possible?

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [34]

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Yes, so, Ken, clearly, you've called out the investment we've made in Tectum, right, in that architectural specialty space. In our SG&A, we referenced in the back half of last year, we continue to make an investment in the selling around both capabilities and capacity to help augment that Architectural Specialties growth and even our core business. So we are seeing in SG&A -- we didn't call it out as timing, but we are seeing in SG&A an investment in the Americas around that selling component, and that will continue into Q2 and start to wrap the investment we started last year in Qs 3 and 4. As we -- as you go to your second part of your question on volume leverage, of course, volume is the lifeblood of a plant, right? That's going to help drive productivity. We've got a nice pipeline, as I mentioned earlier, on productivity initiatives and cost-reduction initiatives in the plant, where we referenced on the maintenance earlier on the onetimers. As we pivot our investment out of international into the Americas, where a good 90% of our CapEx spend is going to be, we do have some gating between the quarters where we move some maintenance into Q1, which is about $1 million headwind in the quarter.

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Operator [35]

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Our next question is from Nishu Sood with Deutsche Bank.

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Nishu Sood, Deutsche Bank AG, Research Division - Director [36]

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The April commentary, I think, you mentioned that it was in line with your year guidance. And your year guidance is for low single-digit volume growth. That would seem like a deceleration from the high mid-single-digit volume growth that you mentioned in the Americas in the first quarter. Is that the correct way to think about it? Is that -- is there actual deceleration? Is that just the effect of the Big Box load-in? How should we think about the relative on 1Q versus April?

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [37]

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Yes. So, Nishu, great question. I wouldn't say we see it as a deceleration to the point you made around the retail Big Box inventory build. We are going to see a little bit of that inventory come out in the second quarter, as we execute against a successful marketing program there. And so April is consistent with how we see the full year and how we guide it.

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Nishu Sood, Deutsche Bank AG, Research Division - Director [38]

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So does that imply that the Big Box effect -- I'm still not clear on it. Does that imply that the Big Box effect is still to come in terms of volumes? I mean, how do we -- how are we supposed to understand then the slowdown in the numbers, if there is one, if I understood that correctly?

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [39]

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Now let me take a shot, because I don't think we're expecting a deceleration, nor are we seeing a deceleration. I think the way that we saw the lumpy load-in of the Big Box channel, I think what Brian was referencing is, that will even out throughout the year. And if you take that out, we're at the high end of our range. So there's going to be some puts and takes around the quarters as we go but, we're at the high end of our range, and we don't expect a deceleration. We do have pretty tough comps, I think, that we're working against in the second quarter again. So we might see a little bit of a normalization against a tough comp, but as far as the market activity, we're not seeing deceleration or expecting deceleration. I think our architectural specialty product category, the products at the high end of the market that are really spec-driven, that activity continues to be robust and as expected.

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Nishu Sood, Deutsche Bank AG, Research Division - Director [40]

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Got it. And on the expenses, the $5 million in timing, I just want to make sure I understood the issue there correctly. When you say that there were timing issues, does that mean that $5 million of expenses in the Americas that would have happened in 2, 3 or 4Q were unexpectedly brought forward to 1Q? Or does that mean that there were $5 million of expenses that were going to happen one way or the other at some stage in '17; they just happened to fall in 1Q?

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [41]

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Yes, I think, Nishu, the management compensation, what we call our long-term incentive plan, is a great example of the timing. So on an annual basis, that cost is actually lower than last year. However, given that last year, we were separate in the company, we didn't incur that expense until Q2. And so there was no expense related to our long-term incentive in Q1. This year, there is that expense. So it's just being all -- most of -- all of these timing-related expenses are -- happened in Q1, but on an annual basis, they're consistent with our expectations.

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Operator [42]

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Our next question is from Scott Rednor with Zelman.

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Scott L. Rednor, Zelman & Associates LLC - VP of Research [43]

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Quickly on the Americas bridge. I know you called out, obviously, some timing on the manufacturing side, but was there any favorability from the change in the sourcing model out of China? I thought that was supposed to be a tailwind to the Americas segment.

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [44]

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Yes, so we're just -- Scott, we're just getting ramped up in the Americas piece. As we talked previously, it's all going to be sourced out of our St. Helens plant. And so the timing of that hasn't realized itself in Q1 just yet.

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Scott L. Rednor, Zelman & Associates LLC - VP of Research [45]

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Okay, so no impact. And then just a further question on the price over cost side. You guys have obviously been proactive on the grid side, announcing a second increase this year. But why haven't you been more proactive announcing a second increase on the tile side if there is continued inflation in the system?

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [46]

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Well, we normally announce our price increases 6 weeks ahead of time. So just because we haven't announced it yet doesn't mean that it's not planned or anticipated. I'll remind you again, I think the price realization we're getting from our first price increase in February is covering inflation. So it's not like we're behind the curve, and we needed to go out and do something in May, like we did with our grid business. So again, I'd say stay tuned.

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [47]

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Yes, Scott, one piece I'd add to that. We've got a track record of 2 price increases a year in our tile business, usually February and August. So to Vic's point, that's coming here later in the year.

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Operator [48]

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Our next question is from Keith Hughes with SunTrust.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [49]

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First in the Americas, as you were going through the various pieces, you called out Latin America has been negative. Could you talk about how much of a negative that was in the quarter?

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [50]

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We don't break out, Keith, the specific regions, but it wasn't negative enough to offset the goodness that we saw in Big Box, for example. So I guess, it's a smaller region for us. It's a lower-margin region for us as the developing countries. But it continued to drift lower based on what we saw in the second half of last year and we pointed to last year. So it's a little bit of a continuation of that in the first quarter. Again, the Latin America market, I'll just add a little color to that because it's very similar to what we see in some of the other emerging markets. They're very project-intensive versus a flow business that comes from your R&R part of the market. There isn't a big R&R part of that market. So it's going to be lumpy quarter-to-quarter overall. But I think we've -- what we're outlining and expecting to have in Latin America is pretty flattish versus prior year.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [51]

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And as you look at Europe or EMEA, it had improved in the quarter a limited amount, given the revenue growth. Is that business going to continue to see a lot of ups and downs this year? Or I know you've been working out costs there. Is there a potential corner that could be turned? Where do you stand on the internal improvement of profitability in the EMEA?

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [52]

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We're making good progress on the cost profile there. As you remember, last year, we improved the cost profile there of $5 million, and we're working a similar plan this year. So we've got more work to do there. Clearly, we're not where we need to be. We did have some onetime kind of headwinds to start up the supply of Asia volume from our European plants that kind of depressed some of the margin fall-through, which will correct itself. But I think the markets, again, we're not thinking that the markets are healed and recovered and going to bounce significantly off of the lows that we saw last year. We do expect a portfolio effect of Russia continuing to do well. Again, we've closed some pretty good-sized projects in the Middle East. We think it's going to be helpful this year. And Continental Europe and the U.K. are going to be in the low single-digit area. So not robust but an improvement over prior year periods.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [53]

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Okay. Just one definitional question. You mentioned the poor flow-through -- or not flow-through, of the AUV in the Americas, channel mix was one issue, margin mix. There was another I just missed. What was the second issue on that?

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [54]

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Yes, Keith, it was the higher maintenance costs. We called out about $1 million there.

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Keith Brian Hughes, SunTrust Robinson Humphrey, Inc., Research Division - MD [55]

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Is that plant maintenance cost or...

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [56]

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Correct.

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Operator [57]

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Our next question is from Jason Marcus with JPMorgan.

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Jason Aaron Marcus, JP Morgan Chase & Co, Research Division - Analyst [58]

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The first question, just going back to the volume growth in the Americas for a second. Just wanted to get a sense of, on a relative basis, as you look across the United States on a relative geography, if there was any major differences in the growth rate.

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [59]

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That's a good question. Actually, 90% of the sales territories in the Americas were positive sales growth. So it was pretty broad-based, and we were encouraged by that.

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Jason Aaron Marcus, JP Morgan Chase & Co, Research Division - Analyst [60]

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Okay, great. And then just more broadly, as you look across your footprint from a competitive dynamic, just wanted to get a sense as to what you're seeing from some of your competitors and how you felt your overall share position was in the quarter.

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [61]

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Well, as I said many times, you can't really measure share quarter-to-quarter in this business. In fact, over long periods of time, share does not move dramatically in the core mineral fiber business. So I still believe that to be true in the first quarter as well. So I wouldn't overread that. What I would point you to, though, again is where Armstrong is moving and playing is in new spaces. And we're really growing heavily in those new spaces, and that's really fueling additional growth to the high end part of the market where we continue to see high single-digit growth levels. So again, we're very encouraged with the focus and the impact that our growth platforms are having.

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Operator [62]

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Our next question is from Stephen Kim with Evercore ISI.

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Stephen Kim, Evercore ISI, Research Division - Senior MD, Head of Housing Research Team and Fundamental Research Analyst [63]

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I wanted to see if I could get a little bit more color on the end market strength that you're seeing in the Americas. Were there particular segments or verticals that you would call out as driving that? And then also, can you give us a sense for how your average ticket, I don't know if that's the right word or not, but in general, like if you have a project, the total amount that you ship, a value that you ship, have those trends been increasing recently? If you could just give us some sense of that.

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [64]

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Sure. First of all, office continues to be the strongest of all the segments out there. New construction, in particular, in office is where we're seeing a lot of the activity from the Dodge starts from a couple of years coming through. Health care and education activity did continue to improve in the quarter, as outlooked, as we saw the starts to improve in the second half of last year. Education, in particular, is encouraging with some of the activity that we're seeing there. I think with home prices boosting tax revenues, with the bond approvals that we saw in the last election, there's really some good activity there in education. But really, again, office is the big driver in the volume that we experienced in the first quarter. Relative to the ticket size, and we -- I know what you mean, Stephen, so when you ship to large projects like new construction, the ticket sizes tend to be bigger, right? So if there are large volumes, then they tend to be around a group of products. Your R&R tends to be in smaller chunks, right, so smaller tickets. And a lot of our distribution partners take care of that. We still ship in a lot of times full truckloads to our distributors, and they break down and sell. But so if there's any shift in the ticket size, it's the growth in the new construction, the larger projects that come with new construction, that would shift out a little bit. But I have to say, from a meaningful impact to how we run our plants or how we run our supply chain, there's really no meaningful impact in the shift.

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [65]

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Steven, this is Brian. One piece I'd add there, to drill in a little, is as we continue to expand our Architectural Specialties business and drive that penetration, we are seeing those opportunities to enhance growth through inclusion of architectural specialty-type products. So for a project where it traditionally may have been just our core mineral fiber business, we're now able to add on architectural products around metals and woods in the statement areas that drive that project ticket price up.

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Stephen Kim, Evercore ISI, Research Division - Senior MD, Head of Housing Research Team and Fundamental Research Analyst [66]

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Yes, absolutely. Second question relates to some of the consolidation that we've been witnessing on the distribution side. I was curious as to if you could give us some sense as to how you think that represents either a benefit or a challenge that you're preparing for, for your company, given your presence, given your presence, particularly your strength with your services business or your services division within your company, just whether or not you think that, that's something that is a trend that you're eyeing that you think is important or not and why?

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [67]

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Well, the consolidation trend you're referring to has been happening for several years now, 3 years at least. And it's been with known parties who have very good relationships with Armstrong. We have great relationships with them. And I would say, over the last 3 years, we've been working very closely with them on the consolidation, and it's gone very well. I think both -- for the 2 large companies that you're referring to potentially, it's obviously been very successful for them. They've done very well. And I would say our relationship with these 2 companies has only gotten stronger in the process. So we continue to work very closely with our partners as they continue to consolidate. And so that it's a good formula for both of our companies because our relationships are incredibly strong.

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Stephen Kim, Evercore ISI, Research Division - Senior MD, Head of Housing Research Team and Fundamental Research Analyst [68]

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Great. And then just lastly, WAVE, for the last 2 quarters, has had lower -- pretty low incremental margins, I think, if I'm calculating this right. Was just kind of curious as to was there anything that happened in, like, 1Q that you would call out that would have driven that incremental to be relatively low? I know you have adjusted for your consolidated results, but not -- I haven't heard you speak specifically to WAVE, I didn't think.

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [69]

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Yes, let me comment on that because the volumes have been terrific there. They're tracking right along with those. Obviously, you don't see their sales in our numbers, but their volumes have been very good. This just comes down to the timing of the steel price increases and how it's filtering into our system versus the price realization. So again, I think, quarter-to-quarter, you might see a little bit of noise between the lag and the price realization as that works its way out for the whole year. So that is what you're seeing, is a little bit of that steel inflation compressing the margins slightly.

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Operator [70]

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Our next question is from Jim Barrett with CL King & Associates.

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James Richard Barrett, CL King & Associates, Inc., Research Division - MD [71]

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Brian, this may be a question for you. Assuming the shares stay at the current price level and your guidance for this year in terms of share count, is the overall objective to maintain the share count? Or given the state of your balance sheet and cash flows, is the objective to reduce the total share count over a period of time?

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [72]

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Yes, Jim, it's a good question. We've got a 2-year program, $150 million authorization for share repurchase. You saw the $50 million hit in Q1. We continue to be opportunistic in the marketplace, and we're very mindful and watchful of the balance of that spend versus some of the M&A activity we have in the pipeline. So it's not a set program. It's more opportunistic in and out of each quarter.

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James Richard Barrett, CL King & Associates, Inc., Research Division - MD [73]

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And as a follow-up to that, given at least some possibility of significantly lower corporate taxes, which you highlighted, would that factor into your thinking as well in terms of buying back stock? Or would that be a nonfactor?

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [74]

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No, it's related, but I wouldn't say it's a direct factor. Obviously, as we -- if we were to experience a nice reduction in the tax, then that'll generate, as I profiled, a good bit of cash for us, since we're almost a full Fed payer. And we would put that into our pool of capital allocation priorities and file that accordingly.

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Operator [75]

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Our next question is from Mike Wood with Nomura.

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Michael Robert Wood, Nomura Securities Co. Ltd., Research Division - Senior Equity Research Analyst [76]

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I had a question first on the Sustain, the new product that you're rolling out. Just what are your thoughts in terms of that market opportunity relative to your higher-end acoustics? Is it more niche? Or does it have potential broad appeal? And where is that relative to your acoustics price point?

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [77]

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Yes, it's a great question and thanks for the question because this is an exciting platform of really capability that goes across the entire portfolio eventually, because, I mean, pick a commercial building that doesn't want it to be healthy, to be formaldehyde-free, for example, which these products will be formaldehyde-free. So we're going to get started. I think, initially, here, it's going to be spec'ed by architects who really care about this and owners who really care about this, which is growing in numbers. But I think, long term, this has potential to go across the entire portfolio. And ultimately, we want all of our products to be free of chemicals of concern. So we're very excited about this leadership position we're in, in the marketplace, and we're going to continue, like I said, to expand it across our other products.

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Michael Robert Wood, Nomura Securities Co. Ltd., Research Division - Senior Equity Research Analyst [78]

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Great. And second question, you mentioned structural changes still needed in EMEA internationally just to get profits up to where you want. Should that be gradual? Or will we see big announcements in terms of changes structurally to improve profits overseas?

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [79]

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Well, I think the way to think about this is in the context of we're the #1 leader and the #1 shareholder and leader in the EMEA region. And the balancing act that we have to walk here is the structural changes without damaging our customer relationships and our distribution partnerships. So that's the balancing act that we're going to continue to walk very closely, so that we don't give up our leadership position or disappoint our customers in the process. And -- but I wouldn't rule out major structural changes that require announcement, but the ones that we've been taking so far have been very successful, have been iterative and nondisruptive to the overall business.

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Operator [80]

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And our next question comes from Samuel Eisner with Goldman Sachs.

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Samuel Heiden Eisner, Goldman Sachs Group Inc., Research Division - VP [81]

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Just a quick question on the management compensation. You commented before that it's going to be down year-on-year. Can you provide an estimate of what you anticipate that to be, please?

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [82]

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Sam, we've not given that clarity on exactly what that looks like. You'll see our proxy issued later today, and you could see what 2016 looks like. But we've not gone specifically into what that number is. I can tell you what the impact was in the quarter, in the SG&A was $2 million.

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Samuel Heiden Eisner, Goldman Sachs Group Inc., Research Division - VP [83]

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Got it. But to confirm, you guys are -- embedded in your 3 50 midpoint of EBITDA, you're expecting executive or management compensation to be down year-on-year.

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [84]

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Slightly down year-on-year, yes.

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Samuel Heiden Eisner, Goldman Sachs Group Inc., Research Division - VP [85]

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That's helpful. And then just if I look at the volume growth within the quarter, if I think that Tectum in the Americas segment was about $1 million or $2 million of the $9 million, that leaves about $7 million remaining for kind of the base business. Is there a way to quantify how much of that was strictly just Big Box inventory building?

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Brian L. MacNeal, Armstrong World Industries, Inc. - CFO and SVP [86]

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No, we don't, as we've mentioned before -- and Vic, on this call, too, we don't drive into the different channels within each of the segments. So we haven't quantified that. But if you look over our history, our retail business runs somewhere between 7% to 10% of our sales. So it depends on the quarter.

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Operator [87]

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And I'm showing no further questions. I will now like to turn the call back over to Vic Grizzle, CEO, for any further remarks.

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Victor D. Grizzle, Armstrong World Industries, Inc. - CEO, President and Director [88]

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Yes. Rightly so, a lot of questions around the margin compression in the quarter. We're very mindful of that. But the levers, as we look at the business, the levers for margin expansion are still present and they're unchanged. Our ability to deliver like-for-like pricing to cover inflation is still there. Our mix is up and the trade up in a market that's pulling through higher-margin products is still there. The productivity and efficiencies in our plants, we have a strong pipeline of projects that give us confidence in the rest of the year those shining through. So we get the questions, and I understand a lot of the questions around that, but we're excited about the top line. This is a change in trajectory for our business, and we're excited for our company and our customers that the growth initiatives the team's been working on are starting to show some good traction. And so we're very encouraged and excited about the opportunity. And really, I think, we're off to a great start in 2017. Thank you very much.

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Operator [89]

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Ladies and gentlemen, thank you for participating in today's conference. You may all disconnect. Everyone, have a great day.