LANCASTER, Pa., --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 2014 results.  

Excluding the unfavorable impact from foreign exchange of $12 million, consolidated net sales decreased 2.5% compared to the prior year period, driven by lower volumes across all businesses in the Americas, which more than offset the impact from favorable price and mix. 

Operating income and net income both declined compared to the prior year period, driven primarily by a non-cash impairment charge of $10 million to reduce the carrying value of a Wood Flooring trademark to its estimated fair value.  The declines in operating income and net income were also driven by the margin impact of lower volumes and higher input costs, which were only partially offset by favorable price and mix, lower SG&A spending and improvements in productivity. 

"We delivered fourth quarter and full year results within our guidance range when adjusting for the exit of our European Flooring business.  Our worldwide ceilings business delivered yet another record quarterly and full year earnings result despite the slow pace of the recovery," said Matt Espe, CEO.  "As we separately disclosed today, I'm also pleased to announce that our Board of Directors has unanimously approved a plan to separate Armstrong into two independent industry-leading public companies, which we believe will enhance the strategic, operational and financial flexibility of both businesses and create value for our shareholders."

*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, the non-cash impact of the U.S. pension plan, 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 2014, and are reconciled to the most comparable GAAP measures in tables at the end of this release.   

Adjusted operating income and adjusted EBITDA improved by 7% and 8%, respectively, in the fourth quarter of 2014 when compared to the prior year period.  The improvement in adjusted EBITDA was driven by favorable price and mix, lower SG&A spending and improvements in productivity which more than offset the margin impact of lower volumes and higher input costs.  Adjusted earnings per share is calculated using a 39% adjusted tax rate in both periods.  The improvement in free cash flow was driven by the cash settlement of a Ruble hedge related to the funding of our Russia plant construction project and higher cash earnings aided by our exit from the European flooring business when compared to the prior year period. 

Excluding the unfavorable impact of foreign exchange of approximately $10 million, net sales increased slightly over a very strong base period as sales in the fourth quarter of 2013 were up over 9%.  When looking at the net sales comparison for the fourth quarter of 2014 versus the fourth quarter of 2013, favorable price and mix offset the impact of lower volumes, primarily in the Americas.   Including the favorable impact from foreign exchange of approximately $1 million, operating income increased 5.7% in the fourth quarter of 2014, driven by favorable price and mix, reductions in SG&A expenses and lower manufacturing and input costs, as strong productivity in the Americas more than offset Russia plant construction expenses.  Combined, these factors more than offset the margin impact from lower volumes.  

Net sales increased slightly, driven by positive mix performance in the Americas and volume growth in the Pacific Rim, which more than offset lower volumes in the Americas.  Including the unfavorable impact from foreign exchange of approximately $1 million, operating income improved as strong productivity and favorable mix more than offset higher input costs and the margin impact of lower volumes.

Net sales declined as improvements in price and mix were more than offset by volume declines. 

Operating income declined primarily due the margin impact of lower volumes, increased manufacturing and input costs driven by higher year on year lumber costs and a slight increase in SG&A expense, which were only partially offset by positive price and mix.  The comparison was impacted by a non-cash impairment charge of $10 million recorded in the fourth quarter of 2014 in cost of goods sold to reduce the carrying value of a Wood Flooring trademark to its estimated fair value in connection with an annual impairment test.  Operating income was also lower due to additional expenses associated with the closure of the Kunshan, China engineered wood flooring plant.

Corporate

Unallocated corporate expense of $15.7 million decreased from $19.2 million in the prior year due to lower spending across corporate functions and lower incentive compensation accruals when compared to the prior year.    

Full Year Results from continuing operations

Excluding the unfavorable impact from foreign exchange of $19 million, consolidated net sales increased slightly compared to the prior year period as the favorable impact from price and mix offset volume declines. 

Operating income declined by 10% and adjusted EBITDA improved by 3% when compared to the prior year.  Despite higher SG&A, input costs and the negative margin impact of lower volumes, adjusted EBITDA increased driven by favorable price and mix, manufacturing productivity and higher earnings from WAVE.  Increased depreciation and amortization expense and additional severance, asset impairments and other charges associated with cost reduction actions, primarily in the Wood Flooring business and Pacific Rim, drove the decline in operating income when compared to the prior year period.  The reduction in free cash flow was attributable to changes in working capital, which was unusually favorable in 2013 and increased capital expenditures, which were partially offset by the cash settlement of a Ruble hedge related to the funding of our Russia plant construction project, higher cash earnings, increased dividends from the WAVE joint venture and lower interest expense.   

Market Outlook and 2015 Guidance ⁽¹⁾ 

The Company expects 2015 full year sales to be in the $2.53 to $2.63 billion range and adjusted EBITDA to be in the $350 to $390 million range.  Adjusted EPS is expected to be $2.05 to $2.45 per diluted share. 

"We anticipate improving market conditions in the U.S. will support modest sales growth despite some anticipated pressure from foreign exchange in our international operations," said Dave Schulz, CFO.  "While earnings are expected to be lower than 2014, the investments we are making will position our businesses to succeed as two independent industry-leading public companies and benefit 2016 and beyond."

⁽¹⁾ Sales guidance includes the impact of foreign exchange.  Guidance metrics, other than sales, are presented using 2015 budgeted foreign exchange rates.  Adjusted EPS guidance for 2015 is calculated based on an adjusted effective tax rate of 39%.

About Armstrong and Additional Information

More details on the Company's performance can be found in its annual report on Form 10-K for the year ended December 31, 2014 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 2014, Armstrong's consolidated net sales from continuing operations totaled approximately $2.5 billion.  As of December 31, 2014, Armstrong operated 31 plants in eight countries and had approximately 7,400 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, the non-cash impact of the U.S. pension plan and certain other gains and losses.  Adjusted figures are reported in comparable dollars using the budgeted exchange rate for 2014.  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