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
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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.Read the rest of this transcript for free on seekingalpha.com