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» Armstrong World Industries' Discusses Q2 2011 Results - Earnings Call Transcript
Hopefully you have seen our press release this morning, and both the 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 date 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. Matt Espe Thanks, Tom. Good afternoon, everyone, and thanks for participating in our call this afternoon. The second quarter of 2012 exhibited many of the same themes as the first quarter. The European economies continue to struggle and market demand was below our already pessimistic assumption. North American commercial markets performed below our expectations while new residential construction was up, albeit off a very low base and Asia was a mix bag. Given this macroeconomic backdrop, Armstrong's performance in the quarter was largely as you would expect. Sales of $710 million were down $39 million, or 5% from 2011 with the overwhelming majority of the drop coming in Europe. European sales performance was exacerbated by the euro currency weakness. Excluding the impact of foreign exchange, sales were down $22 million or 3% with more than all the difference in foreign exchange coming from the Euro. Sales were below the low end of the guidance range of $740 million, driven primarily by the issues in Europe, softness in U.S. commercial markets and severe inventory reductions at one of our big box customers, all versus our expectation.
Year-to-date sales are $1,378 billion, down $56 million or 4% from 2011. As with the quarter, the sales decline is primarily driven by the euro zone and exacerbated by currency. On a comparable foreign exchange basis, sales were down 2%.Despite the top line challenges, we were able to deliver adjusted EBITDA of $110 million, up $2 million from the second quarter of 2011, and within our guidance range of $105 to $120 million. EBITDA performance was helped by continued productivity improvements and ongoing SG&A expense management. I am pleased to announce that we now expect to achieve $200 million from our cost savings program by the end of 2012. This is up from our most recent estimate from $185 million and the original target of $150 million. The additional savings will come from both, SG&A and manufacturing productivity. Given the prominence, Europe has been receiving in the headlines, I wanted to help you contextualize the region for Armstrong. Europe for Armstrong for reporting purposes includes a Middle East as well as Africa, and 2011 this region represented about 20% of our sales and 7% of adjusted EBITDA with more than all of the EBITDA coming from ceilings business. Italy and Spain represented about 7% of our European sale. Obviously, these are large economies that are going through difficult times and our sales to those countries are down more 20% year-on-year, but Italy and Spain are only a fraction of the European story for Armstrong. The Middle East, Africa and emerging Eastern European countries, including Russia produced almost 25% of the regional revenue and provide some offset to struggling Western European market. For instance, our sales to Russia were up 30% year-to-date. As we have mentioned in the past, our ceilings business in Europe is broadly spread across the region and significant sales to Russia and Middle East, thus ceiling sales for the quarter were only down 2% versus 2011 on a comparable foreign exchange basis. Read the rest of this transcript for free on seekingalpha.com