Key Highlights

• Operating income from continuing operations of $93.6 million, down 14% from the 2012 period 

• Adjusted EBITDA from continuing operations of $124 million, down 9% from the 2012 period 

• Management executes $260 million share repurchase 

• Commencement of operations at heterogeneous flooring plant in China 

LANCASTER, Pa., October 28, 2013 --Armstrong World Industries, Inc. (NYSE: AWI), a global leader in the design and manufacture of floors and ceilings, today reported third quarter 2013 results.  

Consolidated net sales increased approximately $35 million, or 5%, compared to the prior year period.  The increase in sales was driven by higher volumes in residential businesses, primarily Wood Flooring.  On a consolidated level, price and mix were both positive.  Sales were also negatively impacted by approximately $7 million due to the sale of the Patriot wood flooring distribution business in the third quarter of 2012.

Despite the increase in sales, operating income and net income both declined due to increases in manufacturing and input costs driven by rising lumber costs, increased SG&A expenses to support emerging market and architectural specialties growth initiatives and higher labor costs associated with added crews at several solid wood plants to respond to increased demand.  The decline in net income and earnings per share were impacted by the release of foreign tax credit valuation allowances in the prior year.  

"Third quarter adjusted EBITDA results came in near the high end of our guidance range despite continued challenges in the wood business, as our global ceilings business achieved record quarterly adjusted EBITDA results," said Matt Espe, CEO.  "Commercial construction activity was mostly flat in the third quarter and sales came in slightly below our guidance range as we experienced weaker than expected global demand for our products."  

*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 9%, respectively, in the third quarter of 2013 when compared to the prior year period.  This decline was primarily due to increases in manufacturing and input costs, increased SG&A expenses to support emerging market and architectural specialties growth initiatives, and a lower pension credit when compared to the prior year, which were only partially offset by improved price and the margin impact from higher volumes.  Adjusted net income and earnings per share benefited from a reduction in the adjusted effective tax rate from 40% to 39%.  The increase in free cash flow was due to improvements in working capital, proceeds from the sale of assets, lower interest expense, and higher dividends from the WAVE joint venture, which were only partially offset by lower cash earnings and higher capital expenditures when compared to the prior year.

Net sales increased driven by improved price and mix and higher volumes in the Pacific Rim.  Operating income increased as result of improved price and mix performance and higher earnings from WAVE, which were only partially offset by increased SG&A expenses to support emerging market and architectural specialties growth initiatives.

Net sales were flat as favorable foreign exchange, improved mix and higher volumes were offset by unfavorable price.  Volume growth in the Americas was offset by lower volumes in Europe and Australia.  Operating income declined driven by lower price and unfavorable foreign exchange, which were only partially offset by lower manufacturing and input costs as higher productivity in the Americas and Europe more than offset plant start up costs in China.

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 independent distributors as gains in new residential construction drove increased demand from builders which negatively impacted mix.  Volumes also improved as a result of share gains and new product introductions with independent distributors and the home center channel.  Sales were also negatively impacted by approximately $7 million due to the sale of the Patriot wood flooring distribution business in the third quarter of 2012.

Despite the increase in sales, operating income declined due to increases in manufacturing and input costs driven by rising lumber costs, and higher labor costs as crews were added at several solid wood plants to respond to increased demand.

Corporate

Unallocated corporate expense of $18.2 million increased from $11.3 million in the prior year due to higher foreign and domestic pension expense, increased spending on outside professional services and higher expense associated with employee benefits when compared to the same period of 2012.  

Year to Date Results from continuing operations

Consolidated net sales increased approximately $53 million, or 2.6%, compared to the prior year period.  The increase in sales was driven by higher volumes in Wood Flooring and positive price and mix.  Sales were also 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 markets 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 comparison was also impacted by $7 million of severance charges in the Resilient Flooring business associated with cost reduction actions in Australia and Europe the Middle East and Africa ("EMEA") in 2013, a $7 million lower pension credit when compared to the same period of 2012 and by approximately $20 million of costs associated with the closure of our Mobile, AL facility in 2012.  

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

Market Outlook and 2013 Guidance ⁽¹⁾       

"We successfully executed a $260 million share repurchase during the third quarter," said Tom Mangas, Senior Vice President and CFO.  "This was a prudent and efficient deployment of the balance sheet that drives EPS accretion and creates value for our shareholders.  In terms of our outlook, we saw commercial construction activity flatten out in the US and Europe from the low-to-mid single digit growth we experienced in the second quarter, and as a result we are reducing the top end of our sales and adjusted EBITDA guidance for the full year."

Management now expects sales in the $2.70 to $2.74 billion range and full year adjusted EBITDA to be in the range of $370 to $390 million.  2013 adjusted EPS is expected to be $2.00 to $2.20 per diluted share and free cash flow is anticipated to be between $80 and $110 million.  

For the fourth quarter of 2013, sales are expected to be in the range of $645 to $685 million and adjusted EBITDA to be in the range of $70 to $90 million.  

⁽¹⁾ Sales guidance includes the impact of foreign exchange.  Guidance metrics, other than sales, are presented using 2013 budgeted foreign exchange rates.  Adjusted EPS guidance for 2013 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 quarterly report on Form 10-Q for the quarter ended September 30, 2013 that will be filed with the SEC today.

Armstrong World Industries, Inc. is a global leader in the design and manufacture of floors and ceilings.  In 2012, Armstrong's consolidated net sales from continuing operations totaled approximately $2.6 billion.  As of September 30, 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

AWI Reports Third Quarter 2013 Results

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Source: Armstrong World Industries, Inc.