Armstrong World Industries (AWI) Up 0.6% Since Last Earnings Report: Can It Continue?

A month has passed since the last earnings report for Armstrong World Industries (AWI). Shares rose about 0.6% in that time, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Armstrong World Industries headed for a recession? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the company’s most recent earnings report in order to better understand the important catalysts.

Armstrong World’s Top Revenues and Net Sales in the First Quarter, Year 24. View up

Strong results from Armstrong World Industries, Inc. for the first quarter of 2024, where earnings and net sales exceeded the Zacks Consensus Estimate and increased year-over-year.

The company’s growth trend was supported by solid contributions from its mineral fiber and architectural specialty segments. The growth can be attributed to growth in AUV, driven by favorable pricing and product mix. Contributions from recent acquisitions also contributed to the growth trend. This was reflected in record sales and growth in adjusted EBITDA while increasing adjusted EBITDA margin.

Additionally, the company is optimistic about the recently announced acquisition of 3form, LLC, which is expected to expand its portfolio in the architectural specialty segment and strengthen relationships with architects and designers. Thanks to consistent operational excellence and improving business trends, Armstrong World has updated its 2024 outlook despite uncertain economic conditions.

Inside the headlines

Armstrong World reported adjusted earnings per share of $1.38, which was 14.1% ahead of the Zacks Consensus Estimate of $1.21. The metric also increased 23.2% year-over-year, with earnings of $1.12 per share.

Net sales of $326.3 million also topped the consensus estimate of $317.8 million by 2.7% and increased 5.2% year-over-year. The positive result was supported by a favorable AUV of $20 million, partially offset by lower sales volume of $4 million.

For the quarter, Armstrong World’s operating income of $86.1 million increased 22.6% compared to $70.2 million in the prior-year quarter, primarily driven by the benefits of favorable AUV, increased capital gains of Joint Venture Worthington Armstrong and severance pay costs recorded in the previous year. Operating margin increased 380 basis points from the year-ago quarter to 26.4%.

Adjusted EBITDA increased 16% from the prior quarter to $111 million. Adjusted EBITDA margin increased 300 basis points from the year-ago quarter to 33.9%.

The story continues

Segment efficiency

Mineral fiber: Segment net sales increased 4.9% year-over-year to $239.6 million, driven by favorable growth in AUVs of $19 million, partially offset by $8 million in lower sales volume. The segment reported operating income of $79.2 million, an increase of 24.1% compared to $63.8 million reported in the same quarter last year. Operating margin increased 520 basis points from year-ago quarter levels to 33.1%. Adjusted EBITDA increased 17.6% from the prior quarter to $99 million. Adjusted EBITDA margin also increased 450 basis points to 41.2% in the quarter.

Architectural specializations: Net sales in this segment increased 6% year-over-year to $86.7 million, primarily driven by recent acquisitions and increased sales of custom metal designs. The segment reported operating income of $7.7 million, down 6.9% year-over-year. Adjusted EBITDA for the quarter was $12 million, indicating a consistent year-over-year growth rate. On a year-over-year basis, operating margin increased by 10 basis points, while adjusted EBITDA margin decreased by 20 basis points.

Financial

As of March 31, 2024, Armstrong World had cash and cash equivalents of $69.6 million compared to $70.8 million at the end of 2023. Net cash from operating activities was $26.4 million compared from USD 26.2 million in the same period a year earlier. Adjusted free cash flow was $43 million, compared to $30 million reported in the year-ago quarter.

During the reported quarter, the company repurchased 0.1 million shares of common stock for $15 million, net of commissions and taxes. As of March 31, 2024, there were 702 million shares outstanding under the current authorized share repurchase program.

Updated guidance for 2024

The company maintains a positive outlook on its growth strategy and cash flow generation this year, supported by solid first quarter results and strong plant execution, operational efficiency and cost savings initiatives.

Armstrong World now expects net sales of $1.395-1.435 billion (previously expected $1.335-1.375 billion), an increase of 8-11% from $1,295 million a year ago. Adjusted EBITDA is now forecast to be in the range of $465 million to $485 million, compared to the previously expected range of $450 million to $470 million, suggesting year-over-year growth of 8% to 13% from the reported $430 million.

The company now expects adjusted earnings per share to be in the range of $5.80 to $6.05 (previously expected to be $5.60 to $5.90), suggesting an increase of 9% to 14% from $5.32 for 2023. Adjusted free cash flow is now expected to be in the range of $285 million to $300 million (previously expected to be $275 million to $290 million), representing 8% to 14% year-over-year growth.

How have estimates changed since then?

It turns out that the estimate review has been trending downward over the past month.

VGM results

Right now, Armstrong World Industries has a Weak Growth Score of D, although it lags slightly behind its Momentum Score of F. However, the stock is rated C on the value side, ranking in the middle 20% for this investment strategy.

Overall, the stock has a Total VGM Score of D. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Armstrong World Industries carries a Zacks Rank #1 (Strong Buy). We expect an above-average rate of return on shares in the coming months.

Industry player performance

Armstrong World Industries belongs to the Zacks Building Products – Miscellaneous industry. Another stock in the same industry, Otis Worldwide (OTIS), has gained 3.7% over the past month. More than a month has passed since the company announced its results for the quarter ended March 2024.

In the most recent quarter, Otis Worldwide reported revenues of $3.44 billion, representing a year-over-year change of +2.7%. EPS of $0.88 for the same period compared to $0.80 a year ago.

Otis Worldwide is expected to report earnings per share of $1.03 for the current quarter, which would represent a year-over-year change of +12%. The Zacks Consensus Estimate has remained unchanged over the past 30 days.

The overall direction and magnitude of estimate revisions translates into a Zacks Rank #3 (Hold) for Otis Worldwide. The stock also has a VGM Rating of C.

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