Armstrong World Industries' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Armstrong World Industries, Inc. (AWI)

Q1 2012 Earnings Call

April 30, 2012 1:00 PM ET

Executives

Tom Waters – VP, Treasury and IR

Matt Espe – President and CEO

Tom Mangas – SVP and CFO

Frank Ready – EVP and CEO, Armstrong Floor Products

Analysts

Kathryn Thompson – Thompson Research Group

Robert Wetenhall – RBC

Rodny Nacier – KeyBanc Capital Markets

Mike Wood – Macquarie

Stephen Kim – Barclays Capital

John Baugh – Stifel, Nicolaus

Keith Hughes – SunTrust

Dennis McGill – Zelman & Associates

Jim Barrett – C.L. King & Associates

David MacGregor – Longbow Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 World Armstrong Industries Incorporated Earnings Conference Call. My name is Dominique, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Tom Waters, Vice President of Treasury and Investor Relations. Please go ahead, sir.

Tom Waters

Thank you, Dominique. 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 armstrong.com.

With me this afternoon are Matt Espe, our President and CEO, Tom Mangas, our CFO, Frank Ready, the CEO of our Worldwide Flooring business and Vic Grizzle, CEO of our Worldwide Ceilings business. Hopefully, you have seen our press release this morning, and both the release and the presentation that 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 date they are made. We undertake no obligation to update any forward-looking statement 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.

Matt Espe

Thanks, Tom. Good afternoon, everyone, and thanks for participating in our call today.

During the first quarter of 2012, we experienced many of the same uneven or lumpy results that have characterized the past 18 months, as global economies seek stability. Our sales for the quarter were $668 million, down 2.5% from the first quarter of 2011 and just below the low end of our guidance range of $670 million. Despite the soft sales, we delivered $82 million of adjusted EBITDA, right in the middle of our guidance, though down $10 million from a very strong first quarter of 2011.

EBITDA performance was helped by continued productivity improvements and ongoing SG&A expense management. Sales in January and February were relatively strong, especially in the North American residential flooring markets, continuing the strength we saw in the fourth quarter of 2011. An unexpected drop in demand, especially in North American commercial markets, and some temporary service issues in wood flooring impacted our March results.

The entire quarter saw weakness in Europe and U.S. commercial sectors tied to public spending, particularly K through 12 education. However, these trends were expected.

North American residential markets were positive in the first quarter. Our residential foreign volumes grew despite wood sales being down versus last year, due to our inability to ramp up solid wood production and time to meet to greater than expected demand. We’re adding crews to three of our solid manufacturing facilities and service levels will be restored in the second quarter. If not for these issues, wood sales would have been up in the quarter and for the year, we’ve increased our forecast for wood sales.

Residential Resilient Flooring had a solid quarter, as volumes were up and we continue to see excellent performance from our high-end Alterna and Luxe Plank products that have been driving both favorable mix and volume growth. When analyzing performance – when analyzing commercial performance in the first quarter, it’s important to keep in mind that we’re comparing against a very strong first quarter in 2011 when for instance, our North American ceilings business saw sales increase 14% versus 2010.

We also had pull ahead sales in Asia in the first quarter of 2011 in advance of an April price increase. For the first quarter of 2012, commercial sales were down in all of our geographies, especially in public sector-funded ed markets. Some of this weakness can be attributed to project delays in Asia and uneven regional activity in North America.

While March sales were concerning, our order balance and project outlook for May and June lead us to believe that March was something of an air pocket as opposed to a structural change in the market. In North America, we continue to see strength in certain commercial subsectors, such as privately-funded office tenant improvement.

As you’d expect, Europe overall remains weak. However, CIS, where ceiling sales grew 40% in the first quarter, remains an area of strength within Europe. The CIS and Middle East are pockets of market growth we are targeting in an otherwise very soft European environment.

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