Why Is Armstrong World Industries (AWI) Down 14.1% Since Last Earnings Report?
It has been about a month since the last earnings report for Armstrong World Industries (AWI). Shares have lost about 14.1% 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 its most recent earnings report in order to get a better handle on the important drivers.
Armstrong World Q4 Earnings Miss, Gives 2023 Guidance
Armstrong World Industries, Inc. reported mixed results for fourth-quarter 2022, wherein the earnings surpassed the Zacks Consensus Estimate and declined on a year-over-year basis. On the contrary, net sales beat the consensus estimates and grew from prior year, on the back of pricing actions undertaken.
Vic Grizzle, president and CEO of Armstrong, said, “We expect the challenging market conditions we experienced in the fourth quarter to continue in 2023 and have incorporated into our outlook further deceleration in market demand in the second half of the year.”
Earnings & Revenue Discussion
Armstrong World reported adjusted earnings of $1.08 per share, which lagged the Zacks Consensus Estimate of $1.11 by 2.7% and declined 0.9% from $1.09 per share year over year.
Net sales of $304.5 million topped the consensus mark of $300.6 million by 1.3% and grew 7.8% year over year. The upside was driven by favorable Average Unit Value ("AUV"), partially offset by lower volumes. Improvements in Mineral Fiber AUV, driven by strong like-for-like pricing and a favorable sales mix, were partially offset by lower Mineral Fiber volume. Increased Architectural Specialties sales also contributed to the growth.
During the quarter, the company’s adjusted operating income of $71 million rose 9.2% from the prior-year quarter’s level of $65 million. Adjusted EBITDA also rose 4.6% from the prior-year quarter’s figure to $92 million.
Mineral Fiber: The segment’s sales increased 4.2% on a year-over-year basis to $207.2 million. Volume declined due to weakening market demand in the fourth quarter and a strong prior-year period. Operating income rose 1.8% from the prior-year quarter to $61.1 million. Adjusted EBITDA also increased by 2.1% from the prior-year quarter to $78 million.
Architectural Specialties: Net sales in the segment grew 17.5% year over year to $88.5 million, owing to broad-based growth across the product categories. The segment reported an operating income of $10.7 million versus an operating loss of $3.3 million reported a year ago. A $7 million margin benefit from increased sales and a $3 million reduction in intangible asset amortization aided the bottom line. There was also a $9 million decrease in acquisition-related charges, primarily due to a change in the fair value of acquisition-related contingent consideration. Adjusted EBITDA came in at $13 million, up 22.3% from the prior-year quarter.
Net sales totaled $1.23 billion, up 11.4% from $1.1 billion in 2021, on favorable AUV and higher volumes. Net sales in the Mineral Fiber increased 8.4% and Architectural Specialties rose 20% year over year. Adjusted earnings per share came in at $4.74, up 8.7% from $4.36 reported in the prior year.
Adjusted operating income grew 5.3% to $220 million from 2021 level. Adjusted EBITDA also rose 3.7% to $385 million from the prior year.
As of Dec 31, 2022, Armstrong World had cash and cash equivalents of $106 million compared with $98.1 million at 2021-end. Net cash provided by operations was $182.4 million in 2022 compared with $187.2 million in 2021.
Adjusted free cash flow came in at $91 million in fourth-quarter and $221 million, down from $45 million and $190 million reported in the year-ago period. In 2022, AWI repurchased 1.9 million shares of outstanding common stock for $165 million, excluding commissions. As of Dec 31, 2022, there was $349 million remaining under the current authorized share repurchase program (expires on Dec 31, 2023).
For 2023, the company expects weaker economic conditions, partially offset by benefits from the growth initiatives undertaken, ongoing productivity improvements, disciplined cost control and approximately $6 million of annualized cost savings.
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, reflecting 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 fresh estimates.
Currently, Armstrong World Industries has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 these revisions indicates a downward shift. It's no surprise Armstrong World Industries has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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