LANCASTER, PA - Armstrong World Industries, Inc. /quotes/zigman/436783/quotes/nls/awi AWI +2.88% , a global leader in the design and manufacture of floors, ceilings, and cabinets, today reported first quarter 2012 results.

 

Consolidated net sales decreased as improved pricing and favorable product mix were unable to offset volume declines. Volumes declined across all businesses and geographies, particularly in Europe.

The decline in operating income was driven by lower volumes and input cost inflation, a lower pension credit, and lower earnings from the WAVE joint venture, which were only partially offset by favorable price and reduced SG&A expense. Input cost inflation increased by approximately $7 million versus first quarter 2011, driven by an array of items. First quarter 2012 operating income was also impacted by approximately $15 million of accelerated depreciation and impairment charges associated with the closure of the previously idled Mobile, AL Building Products facility. Net income increased primarily due to lower income tax expense when compared to the prior year.

"First quarter sales came in slightly below our expectations due primarily to weaker demand in North American commercial markets late in the quarter and temporary service issues in our Wood business," said Matt Espe, President and CEO. "Despite soft sales we delivered adjusted EBITDA of $82 million, which was in the middle of our guidance range. End-market demand recovery remains spotty and inconsistent in some markets, especially Europe. We do, however, continue to feel good about our opportunity in residential markets, especially for residential renovation activity as improving consumer confidence drives demand in the second half of 2012."

Declines in adjusted operating income and EBITDA were driven by lower volumes and input cost inflation, a lower pension credit, and lower earnings from WAVE, which were only partially offset by favorable price and reduced manufacturing and SG&A expense. Adjusted net income and earnings per share also benefited from a reduction in the expected rate from 42% to 40%. The reduction in free cash flow was primarily due to increases in capital expenditures partially offset by higher after tax cash earnings.

Significant Q1 2012 actions

Declared a special cash dividend of $8.55 per share (approximately $500 million), which was partially funded by an additional $250 million of borrowing through an expansion of the existing credit facility. The dividend was paid on April 10, 2012 to shareholders of record as of April 3, 2012. Credit ratings were reaffirmed after the payment of the special dividend.

Entered into interest rate swaps with notional amounts of $250 million in order to fix a portion of interest rate expense in connection with the expansion of the credit facility.

Completed construction of the West Virginia mineral wool plant.

Announced the closure of the previously idled Mobile, AL Building Products facility.

Building Products

Net sales decreased as favorable pricing and mix only partially offset volume declines in all geographies. Operating income decreased as the first quarter of 2012 was impacted by approximately $15 million of accelerated depreciation and impairment charges associated with the closure of the previously idled Mobile, AL facility and approximately $4 million of previously announced costs associated with the end of the lockout at the Marietta, PA plant. Price improvements and reductions in SG&A expenses were unable to offset lower volumes, lower earnings from WAVE, and the costs described above.

Resilient Flooring

Net sales decreased as favorable mix was unable to offset volume declines across all geographies.

Operating income increased as reduced manufacturing costs and SG&A expenses more than offset the impact of lower volumes and raw material inflation. The 2011 operating loss included approximately $8.2 million of charges in the European Resilient flooring business related to severance and restructuring related activities.

Wood Flooring

Net sales decreased as volumes, price and mix were unfavorable compared to the prior year. Lower sales to Big Box customers were only partially offset by higher sales to independent retail customers. Shipments were negatively impacted as orders outpaced production capacity. To address the shipment backlog, we are adding back additional crewing and staffing at three plants. If not for capacity constraints, sales year on year would have improved. Operating income decreased primarily due to the margin impact of lower volumes.

Cabinets

Net sales decreased as mix improvements only partially offset volume declines. Operating loss increased as higher input costs and lower volumes were only partially offset by favorable mix.

Corporate

Unallocated corporate expense of $13.8 million in the first quarter of 2012 increased from $10.8 million in the prior year primarily due to a $3.5 million lower pension credit.

Market Outlook and Guidance

"We are reaffirming our full year sales guidance of $2.9 to $3.0 billion, and now expect to be at the lower end of that range," said Tom Mangas, Senior Vice President and CFO. "We are also reaffirming our EBITDA guidance of $420 to $460 million, which we expect to achieve even if sales are at the lower end of our full year guidance. Second quarter sales and EBITDA are expected to be in the range of $740 to $780 million and $105 to $125 million, respectively."

Additional forward looking non-GAAP metrics are available in the earnings call and investor presentations available on the web site at http://www.armstrong.com/ under the Investor Relations tab.

Earnings Webcast

Management will conduct a discussion for shareholders during a live Internet broadcast beginning at 1:00 p.m. Eastern time today. This event will be broadcast live on the Company's Web site. To access the call and accompanying slide presentation, go to www.armstrong.com . and click "For Investors". The replay of this event will also be available on the Company's Web site for up to one year after the date of the call.

About Armstrong and Additional Information

More details on the Company's performance can be found in its quarterly report on Form 10-Q for the quarter ended March 31, 2012 that will be filed with the SEC today.

Armstrong World Industries, Inc. is a global leader in the design and manufacture of floors, ceilings and cabinets. In 2011, Armstrong's consolidated net sales totaled approximately $2.9 billion. As of March 31, 2012, Armstrong operated 32 plants in eight countries and had approximately 9,100 employees worldwide. For more information, visit http://www.armstrong.com/ .

Source: Armstrong World Industries

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