Armstrong World Industries Reports Second Quarter 2015 Results
July 30, 2015
Armstrong World Industries, Inc. reported the company’s second quarter 2015 results.
Excluding the unfavorable impact from foreign exchange of $24 million, consolidated net sales decreased 0.4% compared to the prior year period, driven by lower volumes primarily in the Wood business and Building Products in EMEA, which more than offset the impact from favorable price and mix.
Operating income declined compared to the prior year period driven by higher non-cash U.S. pension expense, costs associated with the previously announced separation project and the margin impact of lower volumes; which were only partially offset by lower input costs, favorable price and mix and improvements in productivity.
Higher SG&A expense, primarily to support go-to-market initiatives in the Americas Resilient business, also negatively impacted operating income. Net income improved driven by the favorable impact from transactional foreign exchange.
"The majority of the sales decline in the second quarter was caused by foreign exchange movements," said Matt Espe, CEO. "Despite the muted top line performance in the first half of the year impacted by foreign exchange headwinds and market related softness, we're maintaining our adjusted EBITDA and adjusted EPS guidance for the full year 2015, which remain unchanged at the midpoint."
Net sales increased driven by strong volume growth in the Americas commercial business, which was only partially offset by unfavorable price and mix. Volume improvement in the Americas commercial business was partially aided by favorable market share shifts as a result of competitive product availability issues and our service proposition relative to competition.
Operating income improved as productivity, lower input costs and the margin impact of higher volumes more than offset increased SG&A expenses to support go-to-market initiatives in the Americas and the unfavorable impact from price and mix.
Net sales decreased driven by volume declines caused by market share shifts as a result of prior year price and mix optimization actions, inventory adjustments at home centers, and engineered wood product availability challenges.
Operating income improved driven by lower manufacturing and input costs which more than offset the margin impact of lower volumes, unfavorable price and mix and a slight increase in SG&A expense. The comparison was also impacted by $4 million of expense recorded in the second quarter of 2015 resulting from new duty rates assigned to separate rate importers of multilayered hardwood flooring from China by the U.S. Department of Commerce in connection with its second annual administrative review of its 2010 anti-dumping and countervailing duty orders.
The comparison was also impacted by $4 million of idle equipment impairment charges and $3 million of severance and other charges associated with the closure of our engineered wood flooring plant in Kunshan China that were recorded in the second quarter of 2014.
Unallocated corporate expense of $26.8 million increased from $19.4 million in the prior year due to increased U.S. pension costs of $7 million and separation costs of $5 million, which more than offset expense reductions across corporate functions.
Excluding the unfavorable impact from foreign exchange of $43 million, consolidated net sales decreased compared to the prior year period as volume declines were only partially offset by favorable price and mix.
Operating income declined by 16% driven primarily by higher non-cash U.S. pension costs and costs associated with the previously announced separation project. Adjusted EBITDA was essentially unchanged when compared to the prior year period as lower manufacturing and input costs and favorable price and mix offset the margin impact of lower volumes, higher SG&A expenses and lower earnings from WAVE.
The increase in free cash flow was driven by improvements in working capital and lower capital expenditures, which were only partially offset by lower cash earnings and dividends from the WAVE joint venture.
"Primarily due to foreign exchange headwinds and restrained market activity in Europe and U.S. repair and remodel, we now expect full year sales to be in the $2.4 to $2.5 billion range," said Dave Schulz, CFO.
The Company is reiterating and narrowing its expected ranges for full year 2015 adjusted EBITDA and adjusted earnings per share, and now expects adjusted EBITDA to be in the $355 to $385 million range and adjusted EPS to be in the range of $2.05 to $2.35 per diluted share.
Sales guidance includes the impact of foreign exchange. Guidance metrics, other than sales, are presented using 2015 budgeted foreign exchange rates. Adjusted EPS guidance for 2015 is calculated based on an adjusted effective tax rate of 39%.
For more information, visit armstrong.com/flooring.