Armstrong World Industries, Inc. (
Q3 2011 Earnings Call
October 31, 2011 01:00 p.m. ET
Tom Waters – VP of Treasury and IR
Matt Espe – President and CEO
Tom Mangas – CFO
Vic Grizzle – CEO, Worldwide Ceiling Business
Frank Ready – CEO, Worldwide Floor Business
Bob Wetenhall – RBC
John – Barclays
Rodny Nacier – KeyBanc Capital Markets
Kathryn Thompson – Thompson Research Group
Keith Hughes – Suntrust Robinson Humphrey
Dennis McGill – Zelman & Associates
John Baugh – Stifel Nicolaus & Company
Jim Barrett – CL King & Associates
Jack Kasprzak – BB&T
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Good day ladies and gentlemen and welcome to the third quarter 2011 Armstrong World Industries Earnings Conference Call. My name is Derrick and I will be your operator for today.
At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.
I would now like to turn the conference over to Mr. Tom Waters, Vice President of Treasury and Investor Relations. Please proceed.
Thanks Derrick, good afternoon and welcome. Please note that members of the media have been invited to listen to this call and the call is being broadcast live on our website at www.armstrong.com.
With me this afternoon are Matt Espe, our President and CEO; Tom Mangas, our CFO; Frank Ready, the CEO of our Worldwide Floor Business; and Vic Grizzle, CEO of our Worldwide Ceiling Business.
Hopefully you have seen our press release this morning, and both the press release and the presentation Tom Mangas will reference during this call, are posted on our website in the Investor Relations section.
In keeping with SEC requirements I advise that during this call we will be making forward-looking statements that involve risks and uncertainties. Actual outcomes may differ materially from those expected or implied. For a more detailed discussion of the risks and uncertainties that may affect Armstrong, please review our SEC filings including the 10-Q filed this morning. Forward-looking statements speak only as of the days they are made. We undertake no obligation to update any forward-looking statements beyond what is required by applicable Securities Law.
In addition our discussion of operating performance will include non-GAAP financial measures within the meaning of SEC Regulation G. A reconciliation of these measures with the most directly comparable GAAP measures is included in the press release and in the appendix of the presentation. Both are available on our website.
With that, I will turn the call over to Matt.
Thanks Tom. Good afternoon everyone, and thanks for participating in our call this afternoon. Although markets in most developed economies continue to present headwinds for us we delivered solid bottom-line results in the third quarter, reflecting our continued focus on managing the items in our control and achieving greater savings faster than previously planned.
End market demand was clearly an area of concern coming out of the second quarter and while third quarter sales were disappointing relative to our expectations, there wasn’t an abrupt drop in sales or orders, rather markets continued to bounce along the bottom as recovery was further delayed. We had anticipated better demand in North American residential markets and improved sales versus last year when the new homebuyer tax credit pulled demand in the first half of 2010 but that didn’t materialize.
Sales in the third quarter of 2011 of $774 million were up $34 million or 5% from the same period of 2010 largely driven by changes in foreign exchange rates. Stripping out foreign exchange sales were up just over $5 million almost 1% including the exit of our European residential business.
Sales were below the low end of our guidance of $780 million due to the market factors I just mentioned. While we did see some volume improvement in our residentially exposed wood and cabinets businesses, we believe much of it were share gain rather than a rebound in overall demand.
Sales in the Americas were up driven by gains in ceilings cabinets and wood. European sales were roughly flat after adjusting for exited businesses and Pacific Rim sales were down slightly due to declines in Australia, our largest market in the region. China and India on the other hand continue to grow.
Globally, volumes are down 2% but after adjusting for the businesses we exited in Europe volumes were up slightly, price was up 2% matching inflation. Adjusted EBITDA for the third quarter of 2011 was a $124 million, up $12 million or 11% from 2010 and within our guidance range of a $115 million to $130 million despite lower sales.
Significant improvements continued to come from some of our more challenging businesses. The European flooring business achieved EBITDA of $4.6 million, an improvement of $2.4 million from 2010. I’ll speak more about this turnaround in a minute.
The cabinets business generated $2.2 million of EBITDA, up from a slight loss in 2010, and finally our wood flooring business EBITDA of over $20 million, an improvement of almost $19 million from last year despite only $7 million in additional sales.
Year-to-date, the wood business has seen adjusted EBITDA improve from $8 million in 2010 to $41 million in 2011, despite relatively flat sales. Our cost-down initiatives continued to help drive bottom-line performance. I’m pleased to say that we exceeded our expectations for the past quarter as projects were executed faster than anticipated. We now estimate a $100 million in cost savings will occur in 2011.