LANCASTER, Pa., February 24, 2014 - Armstrong World Industries, Inc. (NYSE: AWI), a global leader in the design and manufacture of floors and ceilings, today reported fourth quarter and full year 2013 results.  

Consolidated net sales increased approximately $49 million, or 8%, compared to the prior year period.  The increase in sales was driven by higher volumes and pricing in Wood Flooring and higher volumes across all geographies in Building Products, with pricing, volume and mix all positive at a consolidated level.  

Despite the increase in sales, operating income declined due to increases in manufacturing and input costs driven by rising lumber prices and plant start up costs in Russia.  Additionally, SG&A expenses increased to support emerging market and architectural specialties growth initiatives.  The comparison was also impacted by approximately $8 million associated with cost reduction actions in the Resilient Flooring businesses in Europe and Australia.  

Net income and earnings per share were positively impacted by a reduction in income tax expense driven by increased tax credit benefits when compared to the prior year period.  Earnings per share also benefited from the Company's $260 million share repurchase in the third quarter of 2013.

"Fourth quarter sales results were in the middle of our guidance range, while weaker than expected global flooring sales and continued lumber inflation resulted in adjusted EBITDA near the low end of our guidance range," said Matt Espe, CEO.  "Despite this softness, both our global resilient flooring and ceilings businesses achieved the highest fourth quarter adjusted EBITDA results since emergence."  

*The Company uses the above non-GAAP adjusted measures, as well as other non-GAAP measures mentioned below, in managing the business and believes the adjustments provide meaningful comparisons of operating performance between periods.  Adjusted operating income,  adjusted EBITDA, adjusted net income, and adjusted EPS exclude the impact of foreign exchange, restructuring charges and related costs, impairments, and certain other nonrecurring gains and losses.  Free cash flow is defined as cash from operations and dividends received from the WAVE joint venture, less expenditures for property and equipment, less restricted cash, and is adjusted to remove the impact of cash used or proceeds received for acquisitions and divestitures.  The Company believes 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/divestitures.  Adjusted figures are reported in comparable dollars using the budgeted exchange rate for 2013, and are reconciled to the most comparable GAAP measures in tables at the end of this release.    

Adjusted operating income and adjusted EBITDA declined by 13% and 3%, respectively, in the fourth quarter of 2013, when compared to the prior year period.  This decline resulted primarily from increases in manufacturing and input costs driven by rising lumber costs and plant start up costs in Russia, increased SG&A expenses to support emerging market and architectural specialties growth initiatives, and a lower pension credit when compared to the prior year period, which were only partially offset by pricing and the margin impact from higher volumes.  Adjusted net income and earnings per share were impacted by a reduction in the adjusted effective tax rate from 40% to 39%.  Adjusted earnings per share were also impacted by the Company's $260 million share repurchase in the third quarter of 2013.  The decrease in free cash flow resulted primarily from lower cash earnings and working capital contributions, which were only partially offset by lower interest expense and lower prepaid expenses when compared to the prior year period.

Net sales increased driven by improved volumes in all geographies, better price realization and favorable mix.  Despite the increase in sales, operating income was mostly flat as the margin impact of higher volumes, improved price and higher earnings from WAVE were offset by increased SG&A expenses to support emerging market and architectural specialties growth initiatives and increases in manufacturing and input costs driven by rising raw materials and plant start up costs in Russia.

Net sales declined driven primarily by lower volumes in the Americas, which were only partially offset by improvements in mix.  Operating income declined driven by approximately $8 million of charges associated with cost reduction actions in Europe and Australia and the margin impact of lower volumes, which were only partially offset by lower manufacturing and input costs.  

Net sales improved driven by strong volume growth, which was aided by favorable price realization from pricing actions taken earlier in the year.  The higher volumes were driven by strong demand from the home center channel and independent distributors.  Gains in new residential construction drove increased demand from builders, which negatively impacted mix.  

Despite the increase in sales, operating income declined due to increases in manufacturing and input costs driven by rising lumber costs, which were only partially offset by improvements in price and the margin impact of higher volumes.

Corporate

Unallocated corporate expense of $19.9 million increased from $16.7 million in the prior year period due to higher global pension expense and higher expense associated with employee benefits.  

Year to Date Results from continuing operations

Consolidated net sales increased by $101 million, or 4%, as price, volume and mix were all positive at a consolidated level.  Increases in both volumes and price within Wood Flooring were the primary drivers of the increase in sales.  Sales were negatively impacted by approximately $26 million due to the sale of the Patriot wood flooring distribution business in the third quarter of 2012.

Despite the increase in sales, significant lumber inflation and costs to support emerging market growth initiatives resulted in both operating income and adjusted EBITDA declining due to increases in manufacturing and input costs and higher SG&A expenses.  The operating income comparison was also impacted by $16 million of charges in the Resilient Flooring business associated with cost reduction actions in Europe and Australia in 2013, approximately$13 million of global pension expense when compared to the same period of 2012, and by approximately $21 million of costs associated with the closure of our Mobile, AL facility in 2012.  

The decline in free cash flow was primarily due to lower cash earnings and higher capital expenditures, which were only partially offset by improvements in working capital and lower cash interest expense when compared to the prior year.

Market Outlook and 2014 Guidance (1)       

For 2014, the Company expects U.S. GDP to be in the range of 2.5% to 3.0% which translates into a flat to slightly up commercial opportunity, with continued weakness in education and, to a lesser extent, healthcare.  The Company expects residential repair and remodel activity to be up slightly and new residential construction to continue to improve, with new home starts expected to be approximately 1.1 million in 2014.  The Company expects growth in Europe to be driven mostly by emerging markets in Eastern Europe and the Middle East, which should disproportionally benefit the ceilings business.  The Company expects modest growth in the Pacific Rim, with continued challenging market conditions in Australia.  

"Given the lag between starts and when our products get installed in the cycle, we're cautiously optimistic that current macroeconomic trends should translate into modest growth in our core commercial markets in 2014, despite continued challenging conditions throughout most of Europe," said Dave Schulz, Senior Vice President and CFO. "We continue to remain focused on delivering against the investments we've made in emerging markets and leveraging those to drive differentiated growth in those markets."

The Company expects 2014 full year sales to be in the $2.8 to $2.9 billion range and adjusted EBITDA to be in the $400 to $430 million range, both up from 2013.  2014 adjusted EPS is expected to be $2.55 to $2.80 per diluted share, and free cash flow is anticipated to be between $60 and $100 million.

For the first quarter of 2014, sales are expected to be between $625 and $665 million and adjusted EBITDA to be in the range of $75 to $90 million.    

 (1) Sales guidance includes the impact of foreign exchange.  Guidance metrics, other than sales, are presented using 2014 budgeted foreign exchange rates.  Adjusted EPS guidance for 2014 is calculated based on an adjusted effective tax rate of 39%.

More details on the Company's performance can be found in its annual report on Form 10-K for the year ended December 31, 2013 that the Company expects to file with the SEC today.

Armstrong World Industries, Inc. is a global leader in the design and manufacture of floors and ceilings.  In 2013, Armstrong's consolidated net sales from continuing operations totaled approximately $2.7 billion.  As of December 31, 2013, Armstrong operated 35 plants in eight countries and had approximately 8,700 employees worldwide.  

Additional forward looking non-GAAP metrics are available on the Company's web site at http://www.armstrong.com/ under the Investor Relations 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.

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, and certain other gains and losses.  Adjusted figures are reported in comparable dollars using the budgeted exchange rate for 2013.  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.

Source: Armstrong World Industries