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A month has gone by since the last earnings report for Armstrong World Industries (AWI). Shares have added about 31.4% in that time frame, outperforming 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 the most recent earnings report in order to get a better handle on the important catalysts.
Armstrong World Q3 Earnings Beat Estimates, Fall Y/Y
Armstrong recently reported third-quarter 2020 results, wherein earnings and revenues beat the Zacks Consensus Estimate. However, the top and the bottom line declined on a year-over-year basis owing to coronavirus-hit market demand.
Earnings & Revenue Discussion
Armstrong World reported adjusted earnings of $1.07 per share, beating the Zacks Consensus Estimate of 95 cents by 12.6%. However, the bottom line declined 22.5% from $1.38 reported in the year-ago quarter.
Net sales of $246.3 million beat the consensus mark of $231 million by 6.6%. However, the top line fell 11.1% year over year mainly due to lower volumes in both Mineral Fiber and Architectural Specialties segments due to COVID-19-hit market demand. Also, unfavorable Mineral Fiber AUV due to regional weakness in major metropolitan areas impacted by COVID-19 added to the woes. However, this was partially offset by positive sales impact of 2019 and 2020 acquisitions.
Gross margin during the third quarter came in at 37%, which contracted 330 basis points from the year-ago period. Selling, general and administrative (SG&A) expenses, as a percentage of net sales, increased a whopping 170 bps year over year to 16.6%.
Adjusted EBITDA fell 19.3% from the prior-year quarter to $92 million, primarily due to lower sales volumes, unfavorable AUV and drop in WAVE earnings, partially offset by improved manufacturing productivity.
Mineral Fiber: The segment’s sales fell 14.3% on a year-over-year basis to $187.3 million due to lower volume and unfavorable AUV.
Operating income also decreased 43.9% from the prior-year quarter, attributable to lower volumes, WAVE earnings and unfavorable AUV, partially offset by improved manufacturing productivity along with reduction in incentive compensation expenses. Adjusted EBITDA also declined 20.6% from the prior-year quarter to $79 million.
Architectural Specialties: Net sales in the segment grew 0.9% year over year to $59 million owing to sales from the recently-acquired Turf Design and Moz Designs. However, this was offset by the pandemic-induced reduction in demand.
The segment’s operating income and adjusted EBITDA decreased 21.6% and 8.7% from the year-ago level, respectively, owing to lower sales volume.
As of Sep 30, 2020, Armstrong World had cash and cash equivalents of $138.8 million compared with $45.3 million at 2019-end. Net cash provided by operations during the third quarter came in at $69 million compared with $74 million in the prior-year period.
The company’s free cash flow (on an adjusted basis) came in at $46 million compared with $99 million in the year-ago quarter.
For 2020, the company expects operating income in the range of $244 million to $254 million. Meanwhile adjusted net income per diluted share is expected in the range of $3.5 to $3.7 per share. Adjusted free cash flow is anticipated in the range of $200 million to $210 million.
The company expects net sales for 2020 in the range of $920 to $935 million, while 2020 EBITDA is anticipated in the range of $320-$330 million.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -8.3% due to these changes.
At this time, Armstrong World Industries has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 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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