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Why Is Armstrong World Industries (AWI) Up 3.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Armstrong World Industries (AWI). Shares have added about 3.1% in that time frame, underperforming 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 drivers.

Armstrong World Q3 Earnings & Sales Miss, View Down

Armstrong World Industries, Inc. reported lower-than-expected results for third-quarter 2022. Earnings and sales in the quarter missed the respective Zacks Consensus Estimate but increased year over year.

Chris Calzaretta, CFO of Armstrong, said, “While we saw strong Architectural Specialties segment sales and earnings growth in the third quarter and sequential improvement in Mineral Fiber’s price-over-inflation realization, we expect Mineral Fiber volumes to remain challenged into the fourth quarter.”

He further added, “Due to third quarter results and overall increased economic uncertainty, we are lowering our full-year 2022 financial outlook. Looking ahead, we will continue to diligently control our costs and make necessary adjustments while still supporting our long-term growth strategy.”

Earnings & Revenue Discussion

Armstrong World reported adjusted earnings of $1.36 per share, missing the Zacks Consensus Estimate of $1.47 by 7.5%. The bottom line rose 16.2% from $1.17 per share reported in the year-ago quarter.
 
Net sales of $325 million missed the consensus mark of $330 million by 1.7% but increased 11.2% year over year. The upside was led by higher volumes contributing $17 million and favorable Average Unit Value ("AUV") contributing $16 million.

Segmental Performance

Mineral Fiber segment’s sales increased 9% on a year-over-year basis to $233.7 million. It is mainly attributable to a favorable AUV and sales volumes contributing $16 million and $3 million, respectively.

Operating income improved 3.4% from the prior-year quarter’s levels to $70.8 million, thanks to a favorable AUV margin, a decrease in incentive compensation expense and higher sales volumes, partly offset by an increase in manufacturing costs, given higher raw material and energy inflation and an ERC benefit recorded in the prior-year period. Adjusted EBITDA also grew 3.1% from the prior-year quarter’s levels to $89 million.

Net sales in the Architectural Specialties segment rose 17.5% year over year to $91.3 million, owing to increased custom project sales and benefits from recent acquisitions.

The segment reported an operating income of $3.4 million, down 32% from $5 million in the prior year. Adjusted EBITDA came in at $16 million, up 19.7% from the prior-year quarter’s levels.

Operational Update

During the quarter, the company’s adjusted operating income of $83 million rose 9.2% from the prior-year quarter’s levels. Adjusted EBITDA also rose 6.1% from the prior-year quarter’s figure to $105 million.

Financials

As of Sep 30, 2022, Armstrong World had cash and cash equivalents of $86.8 million compared with $98.1 million at the 2021-end. The net cash provided by operations was $119.2 million during the first nine months of 2022 compared with $137.9 million in the prior-year period.

In the third quarter, the company’s free cash flow (adjusted basis) came in at $66 million, up from $58 million in the year-ago period.

2022 Guidance Updated

AWI anticipates net sales of $1,220-$1,235 million compared with $1,225-$1,245 million expected earlier. This reflects 10-12% growth versus an 11-13% increase expected earlier from a year ago. The company lowered its adjusted EBITDA projection to $385-$395 million versus $410-$420 million expected earlier.

AWI expects adjusted earnings per share in the range of $4.75-$4.85 versus $4.36-$5.10 projected earlier. Adjusted free cash flow is anticipated in the range of $210-220 million versus $215-$235 million of prior expectation.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

The consensus estimate has shifted -16.54% due to these changes.

VGM Scores

At this time, Armstrong World Industries has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Armstrong World Industries has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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