Armstrong World Industries Reports Third Quarter 2018 Results

Key Highlights

• Net sales of $260.5 million, up 11% versus the prior year quarter
• Operating income of $81.3 million, up 10% versus the prior year quarter
• Architectural Specialties segment sales grew 37% and expanded margins
• Raises 2018 revenue and adjusted free cash flow guidance to +8% and +45%, respectively, versus the prior year; reaffirms adjusted EBITDA growth of >10% versus the prior year

LANCASTER, Pa., Oct. 30, 2018 (GLOBE NEWSWIRE) -- Armstrong World Industries, Inc. (NYSE:AWI), a leader in the design, innovation and manufacture of commercial and residential ceiling, wall and suspension system solutions, today reported financial results for the third quarter.     

Third Quarter Results from Continuing Operations

Consolidated net sales increased compared to the prior year quarter, driven by higher Mineral Fiber average unit values (“AUV”), in which both positive like for like pricing and positive mix contributed, as well as higher volumes in the Architectural Specialties segment.

Operating income increased over the prior year quarter, driven by positive Mineral Fiber AUV and volume growth in the Architectural Specialties segment, partially offset by accelerated depreciation related to the previously announced closure of our St. Helens plant and higher manufacturing and input costs.

Additional (non-GAAP*) Financial Metrics from Continuing Operations

* The Company uses the above non-GAAP adjusted measures in managing the business and believes the adjustments provide meaningful comparisons of operating performance between periods. Adjusted EBITDA, adjusted net income, and adjusted EPS exclude the impact of foreign exchange, restructuring and related costs, impairments, U.S. pension plan credit/expense, environmental insurance recoveries and expenses, and certain other gains and losses. The Company excludes U.S. pension plan impact in the non-GAAP results as it represents the actuarial net periodic benefit cost recorded, while for all periods presented, the Company was not required and did not make cash contributions to the U.S. Retirement Income Plan based on guidelines established by the Pension Benefit Guaranty Corporation. Adjusted free cash flow is defined as cash from operations and dividends received from the WAVE joint venture, less expenditures for property and equipment, and is adjusted to remove the impact of cash used or proceeds received for acquisitions and divestitures. Adjusted figures are reported using the budgeted exchange rate for 2018, and are reconciled to the most comparable GAAP measures in tables at the end of this release.   

Consolidated adjusted EBITDA improved 10% in the third quarter when compared to the prior year quarter, driven by volume growth in the Architectural Specialties segment, solid AUV fall-through to profit, and higher equity earnings from WAVE, which were partially offset by higher SG&A expenses and higher manufacturing and input costs. Adjusted earnings per share reflects a 25% adjusted tax rate in both 2018 and 2017. Adjusted free cash flow improvement was driven primarily by higher cash earnings and lower capital expenditures.

“Both of our segments delivered strong results, as Architectural Specialties continued its penetration into specialty ceilings and walls with 37% sales growth and expanded margins, while the Mineral Fiber segment delivered strong improvement in price and mix with sufficient price to cover inflation,” said Vic Grizzle, President and CEO of Armstrong.

Third Quarter Segment Highlights
In connection with the announced sale of the EMEA and Pacific Rim businesses, the EMEA and Pacific Rim segments have been excluded from results of continuing operations. As a result, the Company’s operating segments are as follows: Mineral Fiber, Architectural Specialties and Unallocated Corporate.

Mineral Fiber

Net sales grew primarily by AUV expansion versus the prior year quarter partially offset by lower volume.

Operating income decreased $1.3 million, driven mainly by accelerated depreciation related to the previously announced closure of our St. Helens plant, higher SG&A expenses, and higher manufacturing and input costs, partially offset by the margin impact of higher sales and higher equity earnings from WAVE.

Architectural Specialties

Net sales grew primarily by higher sales volume from increased market penetration and new construction activity.

Operating income increased due to the positive impact of higher sales volume partially offset by slightly higher SG&A expenses.

Unallocated Corporate

Unallocated corporate expense of $1.7 million decreased from $6.9 million of expense in the prior year quarter, primarily due to lower costs associated with the U.S. pension plan.

Year to Date Results from Continuing Operations

Net sales increased driven mainly by volume growth in the Architectural Specialties segment and higher AUVs in the Mineral Fiber segment, in which both positive mix and positive like for like pricing contributed.

Operating income declined over the prior year period, driven mainly by $14.1 million of accelerated depreciation related to the previously announced closure of our St. Helens plant.

Market Outlook and 2018 Guidance

“We are increasing our full year guidance for revenue growth to 8%-9%, while reaffirming greater than 10% adjusted EBITDA growth as we continue to drive price realization in an inflationary environment,” said Brian MacNeal, CFO. “We are also increasing our adjusted free cash flow guidance to a range of 43% to 50% growth with a midpoint of $215 million.”

Earnings Webcast

Management will host a live Internet broadcast beginning at 11:00 a.m. Eastern time today, to discuss third quarter results. This event will be broadcast live on the Company's website. To access the call and accompanying slide presentation, go to www.armstrongceilings.com and click Investors. The replay of this event will also be available on the Company's website for up to one year after the date of the call.

Uncertainties Affecting Forward-Looking Statements

Disclosures in this release, including without limitation, those relating to future financial results, market conditions and guidance, and in our other public documents and comments, contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements provide our future expectations or forecasts and can be identified by our use of words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “outlook,” “target,” “predict,” “may,” “will,” “would,” “could,” “should,” “seek,” and other words or phrases of similar meaning in connection with any discussion of future operating or financial performance. Forward-looking statements, by their nature, address matters that are uncertain and involve risks because they relate to events and depend on circumstances that may or may not occur in the future. As a result, our actual results may differ materially from our expected results and from those expressed in our forward-looking statements. A more detailed discussion of the risks and uncertainties that could cause our actual results to differ materially from those projected, anticipated or implied is included in the “Risk Factors” and “Management’s Discussion and Analysis” section of our report on Forms 10-K and 10-Q filed with the U.S. Securities and Exchange Commission (“SEC”). 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 under applicable securities law.

About Armstrong and Additional Information

More details on the Company’s performance can be found in its quarterly report on Form 10-Q for the quarter ended September 30, 2018 that the Company expects to file with the SEC today.

Armstrong World Industries, Inc. (AWI) is a global leader in the design, innovation and manufacture of commercial and residential ceiling, wall and suspension system solutions. For more information, visit www.armstrongceilings.com.

Additional forward looking non-GAAP metrics are available on the Company’s website at www.armstrongceilings.com under the Investors tab. The website is not part of this release and references to our website address in this release are intended to be inactive textual references only.

As Reported Financial Highlights

FINANCIAL HIGHLIGHTS
Armstrong World Industries, Inc. and Subsidiaries
(Amounts in millions, except for per-share amounts, quarterly data is unaudited)

SEGMENT RESULTS
Armstrong World Industries, Inc. and Subsidiaries
(Amounts in millions)
(Unaudited)

Selected Balance Sheet Information
(Amounts in millions)

Selected Cash Flow Information
(Amounts in millions)
(Unaudited)

Supplemental Reconciliations of GAAP to non-GAAP Results (unaudited)
(Amounts in millions, except per share data)

To supplement its consolidated financial statements presented in accordance with accounting principles generally accepted in the United States (“GAAP”), the Company provides additional measures of performance adjusted to exclude the impact of foreign exchange, restructuring charges and related costs, impairments, U.S. pension plan income/expense, separation costs and certain other gains and losses. The Company excludes U.S. pension income/expense in the non-GAAP results as it represents the actuarial net periodic benefit credit/cost recorded as a component of operating income and for all periods presented, the Company was not required and did not make cash contributions to the U.S. Retirement Income Plan based on guidelines established by the Pension Benefit Guaranty Corporation, nor does the Company expect to make cash contributions to the plan in 2018. Adjusted free cash flow is defined as cash from operations and dividends received from the WAVE joint venture, less expenditures for property and equipment, and is adjusted to remove the impact of cash used or proceeds received for acquisitions and divestitures. The Company believes adjusted free cash flow is useful because it provides insight into the amount of cash that the Company has available for discretionary uses, after expenditures for capital commitments and adjustments for acquisitions and divestitures. Adjusted figures are reported in comparable dollars using the budgeted exchange rate for 2018. The Company uses these adjusted performance measures in managing the business, including communications with its Board of Directors and employees, and believes that they provide users of this financial information with meaningful comparisons of operating performance between current results and results in prior periods. The Company believes that these non-GAAP financial measures are appropriate to enhance understanding of its past performance, as well as prospects for its future performance. A reconciliation of these adjustments to the most directly comparable GAAP measures is included in this release and on the Company’s website. These non-GAAP measures should not be considered in isolation or as a substitute for the most comparable GAAP measures. Non-GAAP financial measures utilized by the Company may not be comparable to non-GAAP financial measures used by other companies.

In the following charts, numbers may not sum due to rounding.

Consolidated Results From Continuing Operations – Adjusted EBITDA

(1) U.S. pension expense represents the actuarial net periodic benefit cost expected to be recorded as a component of earnings from continuing operations. For all periods presented, we were not required and did not make cash contributions to our U.S. Retirement Income Plan based on guidelines established by the Pension Benefit Guaranty Corporation.

Mineral Fiber

Architectural Specialties

Unallocated Corporate

Adjustment to 2017 Results

(1) This new accounting standard, which was effective January 1, 2018, requires all components of our supplemental pension and post-retirement benefit plans, excluding service costs, to be recorded below operating income/EBITDA. These changes also apply to the Mineral Fiber segment.

Adjusted Free Cash Flow

Consolidated Results From Continuing Operations – Adjusted Diluted Earnings Per Share

(1) U.S. pension (credit) expense represents the actuarial net periodic pension (credit) cost recorded as a component of earnings from continuing operations. For all periods presented, we were not required and did not make cash contributions to our U.S. Retirement Income Plan based on guidelines established by the Pension Benefit Guaranty Corporation.
(2) Based on ~52 million diluted shares outstanding for the three months ended Sept 30, 2018, ~53 million diluted shares for the nine months ended Sept 30, 2018, and ~54 million diluted shares outstanding for the three and nine months ended Sept 30, 2017.  

Updated Adjusted EBITDA Guidance

(1) U.S. pension (credit) expense represents the actuarial net periodic pension (credit) cost recorded as a component of earnings from continuing operations. For all periods presented, we were not required and did not make cash contributions to our U.S. Retirement Income Plan based on guidelines established by the Pension Benefit Guaranty Corporation.

Updated Adjusted Diluted Earnings Per Share (EPS) Guidance

(1) Adjusted EPS guidance for 2018 is calculated based on an adjusted effective tax rate of 25% and based on ~52 million of diluted shares outstanding.
(2) U.S. pension (credit) expense represents the actuarial net periodic pension (credit) cost recorded as a component of earnings from continuing operations. For all periods presented, we were not required and did not make cash contributions to our U.S. Retirement Income Plan based on guidelines established by the Pension Benefit Guaranty Corporation.

Updated Adjusted Free Cash Flow Guidance

(1) Excludes $35 million WAVE dividend received in third quarter of 2018 related to cash proceeds from anticipated sale of EMEA and Pacific Rim businesses.

?Contacts
Investors: Thomas Waters, twaters@armstrongceilings.com or (717) 396-6354
Media: Jennifer Johnson, jenniferjohnson@armstrongceilings.com or (866) 321-6677