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Armstrong World (AWI) Beats Q1 Earnings, Reiterates View

Shares of Armstrong World Industries, Inc. AWI rose over 2% and closed at $40.90, a day after the company posted its first-quarter 2016 results. Armstrong World’s adjusted earnings surged around 34.3% year over year to 47 cents per share in the quarter. Earnings also beat the Zacks Consensus Estimate by a penny.

Including one-time items, Armstrong World posted a loss of 21 cents per share. In the year-ago quarter, the company had reported earnings of 7 cents per share.

Operational Update

Net sales increased 3.7% on a year-over-year basis to $571.8 million and steered past the Zacks Consensus Estimate of $301 million. Barring the unfavorable foreign exchange impact of $11 million, net sales rose 5.8% year over year, buoyed by higher volumes in the Americas across both the ceilings and flooring businesses.

Cost of sales went up 4.4% year over year to $440 million. Gross profit improved to $131.5 million from $129.5 million in the year-ago quarter. Consequently, gross margin decreased 50 basis points (bps) year over year to 23%.

Selling, general and administrative (SG&A) expenses went up 1% year over year to $104 million. Adjusted operating income grew 15% year over year to $51 million. Operating margin expanded 90 bps year over year to 8.9%.

Segment Performance

Building Products: Net sales at the Building Products segment dropped 1.6% to $287.4 million. Excluding the unfavorable currency impact, sales increased as volume growth in the Americas and continued improvement in AUV were offset by volume declines in EMEA and the Pacific Rim. Adjusted operating profit at the segment was $54 million compared with $59 million in the year-ago quarter.

Resilient Flooring: The Resilient Flooring segment’s sales went up 4.5% year over year to $163.9 million from $156.8 in the year-ago quarter. Excluding the unfavorable currency impact, sales increased 6%, driven by volume growth in the Americas and continued improvement in AUV. The segment posted a loss of $4 million in the reported quarter against earnings of $4 million in the year-ago quarter.

Wood Flooring: Net sales in the reported quarter improved 17.4% year over year to $120.5 million, driven by higher volumes. The segment posted adjusted operating profit of $2 million, as against a loss of $2 million in the year-earlier quarter.

Financials

Armstrong World reported cash and cash equivalents of $149.8 million at the end of the first quarter of 2016, compared to $132 million in the prior-year quarter. The company used $65 million of cash in operating activities in the reported quarter compared with cash usage of $34 million in the year-ago quarter.

Outlook

Armstrong World reaffirmed its full-year 2016 guidance. The company anticipates that the Pacific Rim flooring specific market opportunity will grow in low single-digits in 2016. Armstrong World is also optimistic about the opportunities in the American market. The company expects that construction and commercial repair as well as remodel activities will improve moderately in 2016. The company remains focused on strong innovation in pipeline and customer relationships.

During the first quarter, the company completed its previously announced spin-off of its flooring business into an independent public company. Going forward, Armstrong World will continue to fortify its leadership position in key domestic and international markets by working on its recently completed investments in expanded sales and manufacturing capabilities.

Zacks Rank

Armstrong World currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the sector include Simpson Manufacturing Co., Inc. SSD, USG Corporation USG and GCP Applied Technologies Inc. GCP. While Simpson Manufacturing and USG Corporation sport a Zacks Rank #1 (Strong Buy), GCP Applied Technologies holds a Zacks Rank #2 (Buy).

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