Armstrong World Industries, Inc. AWI has been rallying of late. The company is witnessing a solid growth trend in both the Mineral Fiber and Architectural Specialties segments.
Also, the company’s recently announced acquisition of 3form, LLC, which is expected to expand the portfolio of its Architectural Specialties segment and enhance its relationships with architects and designers, bodes well.
A Look at Q1 Earnings & Margins Performance
The company recently reported its first-quarter 2024 results, wherein earnings per share (EPS) and net sales topped the Zacks Consensus Estimate and increased on a year-over-year basis. The growth was attributable to the increase in average unit value (AUV), driven by favorable pricing and mix, and contribution from recent acquisitions.
Armstrong World’s adjusted EPS grew 23.2% year over year on 5.2% higher net sales. A favorable AUV of $20 million and a $3 million contribution from BOK Modern, LLC buyout (in July 2023) added to the growth.
Operating margin expanded 380 basis points (bps), and adjusted EBITDA margin rose 300 bps from the year-ago quarter. Despite being hurt by softness in the home center channel, high costs and expenses as well as project delays, AWI’s margins benefited from favorable AUV and an increase in equity earnings from the Worthington Armstrong Joint Venture.
Propelling 2024 Guidance
Backed by its consistent operational excellence, cost-saving initiatives and improving business trends, Armstrong World raised its 2024 outlook.
Armstrong World now anticipates net sales to be within $1.395-$1.435 billion versus the prior expected $1.335-$1.375 billion. This indicates an 8-11% increase from the year-ago figure of $1,295 million.
Adjusted EBITDA is now projected to be between $465 million and $485 million, up from the prior expected range of $450-$470 million. The updated guidance suggests a rise of 8-13% year over year from the reported figure of $430 million.
The company currently now expects its adjusted EPS to be within $5.80-$6.05 compared with prior expectations of $5.60-$5.90. This reflects growth of 9-14% from the 2023 reported figure of $5.32.
Segment-wise, for Mineral Fiber, it expects net sales to grow 2-15% year over year and adjusted EBITDA margin to be more than 40%. For Architectural Specialties, AWI raised net sales growth expectations significantly to 21-24% year over year from 6-9% expected earlier and adjusted EBITDA margin to be nearly 18%.
Shares of global producer of ceiling systems have outperformed the Zacks Building Products – Miscellaneous industry and S&P 500 in the past six months period. The stock has gained 40.9% compared with the industry’s 31.9% rise and S&P 500 index’s 17.7% growth in the said period.
Image Source: Zacks Investment Research
The consensus estimate for 2024 EPS moved up to $5.89 from $5.85 in the past seven days. This reflects 10.7% year-over-year growth on 9.3% growth in net sales.
The company also has a solid earnings surprise history. Its EPS surpassed the consensus estimates in the trailing four quarters, with an average of 15.2%. In the next five years, the company is likely to generate 11.3% earnings growth.
These positive trends signify bullish analysts’ sentiments, indicating robust fundamentals and the expectation of continued outperformance in the near term.
Definite Fundamentals
Armstrong World remains focused on digitalization initiatives and technology enhancement. The company is continuously investing in Healthy Spaces and digital initiatives and is optimistic about its contribution to its growth. The company’s cost-savings initiatives enabled it to control increased selling expenses, rising incentive compensation and other related high costs, and stabilized the selling, general and administrative expenses compared with the previous year. The company expects to achieve positive EBITDA in 2024 on the back of its digital initiatives, along with other growth initiatives.
Armstrong World has been strategically investing in new products, sales and support services and advanced manufacturing capabilities. Its recent investments in new product development within metal, wood and Tectum are supporting the company’s performance.
This apart, the company prioritizes its excess funds to invest in right fit companies to expand its business and product portfolio. The company has acquired nine companies to expand its capabilities in the Architectural Specialties segment in the past seven years.
Recently, it acquired all the issued and outstanding membership interests in 3form. Based in Salt Lake City, UT, 3form is a designer and manufacturer of architectural resin and glass products used for specialty walls, partitions and ceilings, with three U.S.-based production and design facilities.
AWI has a solid balance sheet position and liquidity to meet uncertain environment. Moreover, the company has returned more than $1 billion via dividends and share repurchases since 2016 through 2023. During the first quarter, Armstrong World repurchased 0.1 million shares for $15 million, excluding commissions and taxes.
On Oct 18, 2023, the company announced a hike of 10.2% in its quarterly cash dividend to 28 cents per share from 25.4 cents. This marked the company’s fifth consecutive year of cash dividend increments since December 2018.
Zacks Rank & Other Stocks to Consider
Presently, Armstrong World carries a Zacks Rank #2 (Buy).
Investors interested in some other top-ranked stocks can consider Frontdoor, Inc. FTDR, Quanex Building Products Corp. NX and Arcosa, Inc. ACA.
Frontdoor: Based in Memphis, TN, the company provides home service plans in the United States. The firm is benefiting from impressive customer retention rates. Thanks to the robust awareness of the Frontdoor brand, it has been shifting its attention toward capitalizing on customer demand.
Frontdoor’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average being 286.8%. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Quanex Building Products: This Houston, TX-based company provides components for the fenestration industry worldwide.
Quanex’s earnings surpassed the Zacks Consensus Estimate in the trailing two quarters, the average being 41.9%. It currently sports a Zacks Rank #1.
Arcosa: This Dallas, TX-based company provides infrastructure-related products and solutions. The company remains focused on its long-term vision to lessen the complexity of Arcosa’s overall portfolio and shift its business mix toward less cyclical, higher-margin growth opportunities that leverage core strengths and drive long-term shareholder value creation.
Arcosa’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average being 43.9%. It currently carries a Zacks Rank #2.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
