Why Is Armstrong World Industries (AWI) Up 10.6% Since Last Earnings Report?

It has been about a month since the last earnings report for Armstrong World Industries (AWI). Shares have added about 10.6% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Armstrong World (AWI) Q3 Earnings Lag, Revenues Top Estimates

Armstrong World Industries, Inc.  recently reported third-quarter 2021 results, wherein its earnings missed the Zacks Consensus Estimate but revenues beat the same. Nonetheless, both the metrics grew on a year-over-year basis.

Vic Grizzle, president and CEO of Armstrong, said, “Our employees executed well in the face of supply chain challenges and inflationary pressures to maintain our best-in-class service levels. Additionally, in the quarter we continued to advance our Healthy Spaces and digital growth initiatives, which positions us to deliver further growth as the pace of the non-residential construction market recovery accelerates in 2022.”

Earnings & Revenue Discussion

Armstrong World reported adjusted earnings of $1.17 per share, missing the Zacks Consensus Estimate of $1.28 per share by 8.6%. That said, the bottom line rose 9.3% from $1.07 reported in the year-ago quarter.

Net sales of $292.2 million surpassed the consensus mark by 0.02%. Also, the top line grew 18.6% year over year. This growth is majorly attributable to favorable Average Unit Value (AUV) of $26 million and incremental sales from the acquisitions of Turf, Moz and Arktura in 2020 (2020 Acquisitions) of $16 million.

Operational Update

During the third quarter, the company’s operating income came in at $72.1 million, almost in line with the previous-year quarter’s $72.3 million. Adjusted EBITDA rose 7.6% from the prior-year quarter to $99 million.

SG&A expenses, as a percentage of net sales, increased a whopping 468 basis points year over year to 21.3%.

Segmental Performance

Mineral Fiber: The segment’s sales surged 14.5% on a year-over-year basis to $214.5 million. It is mainly attributable to 1% higher sales volumes and a 14% increase in AUV.

Operating income rose 17.9% from the prior-year quarter to $68.5 million, attributable to higher WAVE earnings, the impact of favorable AUV and the benefit associated with the ERC. However, higher manufacturing costs and SG&A expenses related to increased discretionary spending partially offset the same. Adjusted EBITDA also increased 10% from the prior-year quarter to $86 million.

Architectural Specialties: Net sales in the segment grew 31.7% year over year to $77.7 million, owing to solid 2020 Acquisitions and higher organic sales volumes.

The segment reported operating income of $5 million, down 45.1% from $9.1 million registered a year ago. This downside was mainly driven by an $8 million increase in SG&A expenses related to the 2020 Acquisitions and the negative margin impact from custom project delays in an inflationary environment. The positive impact of incremental sales partially offset the same. Adjusted EBITDA came in at $13, up 1% from the prior-year quarter.

Financials

As of Sep 30, 2021, Armstrong World had cash and cash equivalents of $94.3 million compared with $146.9 million at 2020-end. Net cash provided by operations was $137.9 million during the first nine months of 2021 compared with $148.4 million in the prior-year period.

In the third quarter, the company’s free cash flow (adjusted basis) came in at $58 million, up from $46 million in the year-ago quarter.

2021 Guidance Updated

During the third-quarter 2021 earnings call, the company narrowed the full-year guidance and maintained its previous mid-point guidance. The company anticipates incremental net sales growth of 17% to 18% compared with 16-18% projected earlier. For 2021, the company expects net sales between $1,095 million and $1,105 million ($1,085-$1,105 million projected earlier).

For 2021, the company now expects adjusted EBITDA within $372-$378 million (versus $370-$380 million projected earlier). The company now expects adjusted earnings per share in the range of $4.25-$4.35, compared with the prior expectation of $4.20-$4.40. Adjusted free cash flow is now anticipated in the range of $198-$208 million versus $195-$210 million expected earlier.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 17.78% due to these changes.

VGM Scores

At this time, Armstrong World Industries has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. 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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