- Second quarter earnings grew slightly, despite weak markets - Management narrows guidance toward lower end of prior range
LANCASTER, Pa., July 30 /PRNewswire-FirstCall/ -- Armstrong World
Industries, Inc. (NYSE: AWI) today reported second quarter 2008 net sales of
$926.8 million, up one percent, from $920.6 million in the same period for
2007. Excluding a $34 million, or four percent, benefit from foreign exchange
rates, sales decreased three percent. Reported operating income from
continuing operations increased to $96.7 million from $94.2 million in the
second quarter of 2007. Adjusted operating income from continuing operations
of $99.0 million increased slightly compared to $98.2 million on the same
basis.
Reported earnings from continuing operations were $52.4 million, or $0.91
per diluted share, compared to $52.7 million, or $0.93 per diluted share in
the second quarter of 2007. Adjusted earnings from continuing operations of
$53.6 million, or $0.93 per diluted share, compared to $55.2 million, or $0.98
per diluted share, on the same basis on 2007.
The Company uses adjusted income from operations in managing the business,
and believes the adjustments provide meaningful comparisons of operating
performance between periods. Adjusted income excludes the impact of
restructuring charges and related costs, and certain other gains and losses.
As detailed in the attached reconciliation to GAAP, these adjustments
increased operating income by $2.3 million in the second quarter of 2008 and
by $4.0 million in the second quarter of 2007.
Second quarter operating income was roughly flat year-over-year due to
several offsetting factors. Mid single digit volume declines related to
substantial declines in the U.S. residential housing markets and a moderate
slowdown in U.S. commercial construction markets were offset by reduced
manufacturing and SG&A expenses and by a strong performance from the WAVE
joint venture.
2nd Quarter Segment Highlights
Resilient Flooring net sales were $343.9 million in the second quarter of
2008 compared to $322.9 million in the same period of 2007. Excluding the
favorable impact of foreign exchange rates, net sales grew about two percent.
Global improvements in price and product mix and international volume growth
offset high-single digit domestic volume declines. Reported operating income
was $14.6 million compared to income of $20.9 million in the second quarter of
2007. Adjusted operating income of $15.4 million decreased from $20.6 million
calculated on the same basis in the prior year. Global raw material inflation
and lower volume in the Americas were only partially offset by price
realization and lower manufacturing costs.
Wood Flooring net sales of $168.8 million in the second quarter of 2008
declined 20 percent from $211.7 million in the prior year quarter as volume
declined with weak residential housing activity. Reported operating income in
the second quarter was $12.4 million compared to $21.7 million reported in the
second quarter of 2007. Adjusted operating income of $12.7 million decreased
from $21.7 million on the same basis in the prior year period because lower
sales volume more than offset reduced manufacturing and SG&A expenses.
Building Products net sales of $365.2 million in the second quarter of
2008 increased from $322.1 million in the prior year quarter. Excluding the
effects of favorable foreign exchange rates of $17 million, sales increased by
eight percent. Global price realization, international volume growth and
improved North American product mix offset volume North American declines.
Reported operating income increased to $70.9 million from $58.8 million in the
second quarter of 2007. Adjusted operating income of $71.9 million grew from
$58.0 million on the same basis in the prior year. Sales growth and higher
income from WAVE more than offset inflation in input costs.
Cabinets net sales in the second quarter of 2008 of $48.9 million
decreased 24 percent from $63.9 million in 2007 primarily due to lower volume
resulting from the declines in the U.S. housing market. Reported operating
income for the second quarter of $0.9 million was below income of $4.4 million
in the prior year primarily due to lower sales. There were no adjustments to
operating income in either period.
Unallocated corporate expense of $2.1 million in the second quarter of
2008 was below $11.6 million in the second quarter of 2007. Adjusted expense
of $1.9 million decreased from $6.4 million on the same basis in the prior
year primarily due to lower incentive compensation expenses.
Free cash flow of $78 million in the second quarter of 2008 compared to
$154 million in 2007. The second quarter of 2007 benefited from extraordinary
dividends from WAVE, a federal tax refund that was not repeated in 2008 and a
reduction of working capital.
Year-to-Date Results
For the six months ended June 30, 2008, net sales were $1,755.0 million
compared to $1,784.0 million in 2007. Excluding a $62 million favorable
impact from exchange rates, net sales decreased by five percent. Volume
declines offset improvement in both price and product mix.
Reported operating income for the first six months was $135.2 million
compared to operating income of $159.7 million for the same period in 2007.
Adjusted operating income of $145.2 million decreased 12 percent compared to
adjusted operating income of $164.3 million in the prior year period.
Operating income declined due to lower volumes and input cost inflation that
were only partially offset by price realization and increased manufacturing
productivity.
Reported earnings from continuing operations were $67.5 million, or $1.18
per diluted share, compared to $83.4 million, or $1.48 per diluted share in
the first half of 2007. Adjusted earnings from continuing operations of $73.6
million, or $1.29 per diluted share, compared to $86.3 million, or $1.52 per
diluted share, on the same basis on 2007.
Free cash flow for the first six months was a use of $15 million compared
to a positive cash flow of $149 million for 2007. 2008 included lower
earnings and an increased investment in working capital. In addition, 2007
benefited from increased dividends from WAVE and a federal tax refund that was
not repeated in 2008.
Outlook
Global macroeconomic forecasts indicate a challenging outlook for most key
markets in 2008. The outlook for Building Products' North American and
European commercial markets remains a low single digit decline and low single
digit growth, respectively. The outlook for the Flooring segment varies.
North American commercial floor markets are still expected to be flat, while
the outlook for North American residential floor markets has worsened, with
volume reductions of approximately 20 percent due to an anticipated 30 percent
to 35 percent decline in total U.S. housing starts and 10 percent to 15
percent less renovation activity. Despite significantly increased inflation,
on a consolidated basis, Armstrong still anticipates that improved pricing and
increased manufacturing productivity will essentially offset cost inflation.
Management narrowed the outlook for 2008 toward the lower end of the
previous range. Sales are expected to be between $3,500 million and $3,600
million. Adjusted operating income is forecast to be in the range of $260
million and $290 million, compared to $306 million in 2007. 2008 adjusted EPS
is expected to be $2.30-$2.60 per diluted share, compared to $2.79 per diluted
share in 2007. The 2008 tax rate is anticipated to be 44 percent to 45
percent. Free cash flow for the year is anticipated to be $175 million to
$200 million, unchanged from previous guidance. Net debt at the end the year
is expected to be between $60 million and $85 million.
Adjusted figures are reconciled to GAAP in tables at the end of this
release.
Earnings Conference Call
Management will conduct a discussion for shareholders during a live
Internet broadcast at 10:00 a.m. Eastern time today. This event will be
broadcast live on the Company's Web site, www.armstrong.com. From the
homepage, click "Investor Relations" to access the call and the accompanying
slide presentation. The replay of this event will be available on the
Company's Web site through August 14, 2008.
Forward Looking Statement
These materials contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act. Such statements provide
expectations or forecasts of future events. Our outcomes could differ
materially due to known and unknown risks and uncertainties, including: lower
construction activity reducing our market opportunities; availability and
costs for raw materials and energy; risks related to our international trade
and business; business combinations among competitors, suppliers and
customers; the loss of business with key customers; and other factors
disclosed in our recent reports on Forms 10-K, 10-Q and 8-K filed with the
SEC. We undertake no obligation to update any forward-looking statement.
About Armstrong and Additional Information
More details on the Company's performance can be found in its Form 10-Q,
filed with the SEC tomorrow. To supplement its consolidated financial
statements presented in accordance with accounting principles generally
accepted in the United States (GAAP), Armstrong provides additional measures
of performance adjusted to exclude foreign exchange and certain costs,
expenses, and gains and losses. The Company uses these adjusted performance
measures in managing the business, including communications with its Board of
Directors and employees, and believes that they provide users of this
financial information with meaningful comparisons of operating performance
between current results and results in prior periods. The Company believes
that these non-GAAP financial measures are appropriate to enhance
understanding of its past performance as well as prospects for its future
performance. A reconciliation of these adjustments to the most directly
comparable GAAP measures is included in this release and on our website.
These non-GAAP measures should not be considered in isolation or as a
substitute for the most comparable GAAP measures. Non-GAAP financial measures
utilized by the Company may not be comparable to non-GAAP financial measures
used by other companies.
Armstrong World Industries, Inc. is a global leader in the design and
manufacture of floors, ceilings and cabinets. In 2007, Armstrong's
consolidated net sales totaled approximately $3.5 billion. Based in Lancaster,
Pa., Armstrong operates 40 plants in 10 countries and has approximately 12,700
employees worldwide. For more information, visit www.armstrong.com.
FINANCIAL HIGHLIGHTS
Armstrong World Industries, Inc., and Subsidiaries
(amounts in millions, except for per-share amounts)
(unaudited)
ThreeThree Six Six
Months Months MonthsMonths
EndedEndedEnded Ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
Net sales $926.8 $920.6 $1,755.0 $1,784.0
Cost of goods sold 701.6 687.2 1,343.9 1,349.0
Selling, general and administrative
expenses 147.0 151.1 306.8 297.7
Restructuring charges, net - - 0.8 0.1
Equity (earnings) from joint ventures (18.5) (11.9)(31.7)(22.5)
Operating income96.794.2 135.2 159.7
Interest expense 7.814.3 16.2 30.8
Other non-operating expense 0.1 0.3 0.4 0.8
Other non-operating (income)(2.1) (5.0) (6.4) (8.0)
Chapter 11 reorganization costs, net - 0.1 - 0.1
Earnings from continuing operations
before income taxes90.984.5 125.0 136.0
Income tax expense 38.531.8 57.5 52.6
Earnings from continuing operations 52.452.7 67.5 83.4
(Loss) earnings from discontinued
operations, net of tax of $0.0, $0.0,
$0.4 and $0.3 - (1.1) 0.1 (5.8)
Net earnings $52.4 $51.6 $67.6 $77.6
Earnings per share of common stock,
continuing operations:
Basic $0.93 $0.94 $1.20 $1.49
Diluted $0.91 $0.93 $1.18 $1.48
(Loss) per share of common stock,
discontinued operations
Basic$-$(0.02) $- $(0.10)
Diluted $-$(0.02) $- $(0.10)
Net earnings per share of common
stock:
Basic $0.93 $0.92 $1.20 $1.39
Diluted $0.91 $0.91 $1.18 $1.38
Average number of common shares
outstanding:
Basic56.455.9 56.3 55.8
Diluted 57.356.5 57.2 56.4
SEGMENT RESULTS
Armstrong World Industries, Inc., and Subsidiaries
(amounts in millions) (unaudited)
ThreeThree Six Six
Months Months MonthsMonths
EndedEndedEnded Ended
June 30, June 30, June 30, June 30,
20082007 2008 2007
Net sales:
Resilient Flooring $343.9 $322.9$636.6$613.5
Wood Flooring 168.8 211.7 329.1 410.9
Building Products 365.2 322.1 696.3 636.0
Cabinets 48.963.9 93.0 123.6
Total Net Sales $926.8 $920.6 $1,755.0 $1,784.0
Operating income (loss):
Resilient Flooring$14.6 $20.9 $7.4 $31.7
Wood Flooring 12.421.7 14.9 30.1
Building Products 70.958.8 125.9 112.5
Cabinets0.9 4.4 (2.8) 5.3
Unallocated Corporate (2.1) (11.6)(10.2)(19.9)
Total Operating Income $96.7 $94.2$135.2$159.7
Selected Balance Sheet Information
(amounts in millions)
(unaudited)
June 30, December 31,
2008 2007
Assets:
Current assets $1,334.3$1,490.5
Property, plant and equipment, net994.0 1,012.8
Other noncurrent assets 2,132.1 2,136.1
Total assets $4,460.4$4,639.4
Liabilities and shareholders' equity:
Current liabilities $464.1 $486.8
Noncurrent liabilities 1,714.5 1,715.4
Shareholders' equity2,281.8 2,437.2
Total liabilities and shareholders'
equity$4,460.4$4,639.4
Selected Cash Flow Information
(amounts in millions) (unaudited)
Six Months Six Months
Ended Ended
June 30, June 30,
20082007
Net earnings $67.6 $77.6
Other adjustments to reconcile net earnings to net
cash provided by operating activities101.6 185.1
Changes in operating assets and liabilities, net (154.9) (99.1)
Net cash provided by operating activities 14.3 163.6
Net cash (used for) provided by investing activities (33.2) 16.2
Net cash (used for) financing activities (258.7) (104.2)
Effect of exchange rate changes on cash and cash
equivalents 3.5 7.1
Net (decrease) increase in cash and cash equivalents (274.1) 82.7
Cash and cash equivalents, beginning of year 514.3 263.8
Cash and cash equivalents, end of period $240.2 $346.5
Reconciliation to GAAP (unaudited)
Three Months Six Months
CONSOLIDATED EndedEnded
(amounts in millions) June 30, June 30,
20082007 20082007
Operating Income, Adjusted$99.0 $98.2$145.2 $164.3
Fresh-Start:
Change in depreciation and amortization 2.3 -4.7 -
Impact on hedging-related activity- (1.2) -(3.4)
Other Significant Items:
Cost reduction initiatives expenses - -5.4 0.1
Chapter 11 related post-emergence expenses-3.3 (1.3)5.7
Review of strategic alternatives -1.91.2 2.2
Operating Income, Reported$96.7 $94.2 $135.2 $159.7
RESILIENT FLOORING Three Months Six Months
Ended Ended
(amounts in millions)June 30, June 30,
20082007 20082007
Operating Income, Adjusted$15.4 $20.6 $9.1 $30.9
Fresh-Start:
Change in depreciation and amortization 0.8 - 1.7 -
Impact on hedging-related activity-(0.3)-(0.8)
Operating Income, Reported$14.6 $20.9 $7.4 $31.7
WOOD FLOORING Three MonthsSix Months
Ended Ended
(amounts in millions)June 30, June 30,
20082007 20082007
Operating Income, Adjusted$12.7 $21.7 $15.4 $30.1
Fresh-Start:
Change in depreciation and amortization 0.3 - 0.5 -
Operating Income, Reported$12.4 $21.7 $14.9 $30.1
BUILDING PRODUCTS Three Months Six Months
Ended Ended
(amounts in millions)June 30, June 30,
20082007 20082007
Operating Income, Adjusted$71.9 $58.0$128.0 $110.1
Fresh-Start:
Change in depreciation and amortization 1.0- 2.1 -
Impact on hedging-related activity- (0.9)- (2.6)
Other Significant Items:
Cost reduction initiatives expenses - 0.1 -0.2
Operating Income, Reported$70.9$58.8$125.9 $112.5
UNALLOCATED CORPORATE EXPENSE Three Months Six Months
EndedEnded
(amounts in millions)June 30, June 30,
2008 2007 2008 2007
Operating (Loss), Adjusted$(1.9) $(6.4) $(4.5)$(12.0)
Fresh-Start:
Change in depreciation and amortization 0.2- 0.4 -
Other Significant Items:
Cost reduction initiatives expenses - 5.4
Chapter 11 related post-emergence expenses- 3.3 (1.3)5.7
Review of strategic alternatives - 1.9 1.2 2.2
Operating (Loss), Reported$(2.1) $(11.6) $(10.2) (19.9)
Reconciliation to GAAP (unaudited)
Earnings from Continuing Operations
CONSOLIDATED
(amounts in millions) Three Months Ended June 30,
2008 2007
Per Per
TotalShareTotal Share
Earnings, Adjusted$53.6$0.93$55.2 $0.98
Fresh-Start (net of tax):
Change in depreciation and amortization 1.3 0.02- -
Impact on hedging-related activity-- (0.8) (0.01)
Other Significant Items (net of tax):
Chapter 11 related post-emergence expenses-- 2.10.04
Review of strategic alternatives -- 1.20.02
Tax rate - reported to adjusted(0.1) -- -
Earnings, Reported$52.4$0.91$52.7 $0.93
Reconciliation to GAAP (unaudited)
Earnings from Continuing Operations
CONSOLIDATED
(amounts in millions)Six Months Ended June 30,
2008 2007
Per Per
Total ShareTotal Share
Earnings, Adjusted $73.6 $1.29$86.3 $1.52
Fresh-Start (net of tax):
Change in depreciation and amortization 2.60.05- -
Impact on hedging-related activity - - (2.1) (0.04)
Other Significant Items (net of tax):
Cost reduction initiatives expenses 2.90.05 0.1 -
Chapter 11 related post-emergence expenses (0.7) (0.01) 3.5 0.06
Review of strategic alternatives 0.70.01 1.4 0.02
Tax rate - reported to adjusted 0.60.01- -
Earnings, Reported $67.5 $1.18$83.4 $1.48
Reconciliation to GAAP (unaudited)
2008 Estimate vs 2007 Actual
CONSOLIDATED Twelve Months Ended
(amounts in millions) December 31,
2008 Est 2008 Est
Low High 2007 Act
Operating Income, Adjusted $260.0$290.0 $305.7
Fresh-Start:
Change in depreciation and amortization9.3 9.32.7
Impact on hedging-related activity - - (5.8)
Other Significant Items:
Cost reduction initiatives expenses5.4 5.40.2
Environmental accrual- -1.1
Gain on insurance settlement - - (5.0)
Chapter 11 related post-emergence expenses(1.3) (1.3) 7.1
Review of strategic alternatives 1.2 1.28.7
Operating Income, Reported $245.4$275.4 $296.7
Reconciliation to GAAP (unaudited)
Earnings from Continuing Operations
2008 Estimate vs 2007 Actual
CONSOLIDATED
(amounts in millions) Twelve Months Ended December 31,
2008 Estimate 2008 Estimate
Low High 2007
Per PerPer
Total Share Total Share Total Share
Earnings, Adjusted$131.8 $2.30 $148.9 $2.60 $158.1 $2.79
Fresh-Start (net of tax):
Change in depreciation and
amortization5.1 0.09 5.2 0.09 1.6 0.03
Impact on hedging-related
activity - - - - (3.4) (0.05)
Other Significant Items (net
of tax):
Cost reduction initiatives
expenses3.0 0.05 3.0 0.05 0.1 -
Environmental accrual - - - - 0.6 0.01
Gain on insurance settlement - - - - (2.9) (0.05)
Chapter 11 related post-
emergence expenses (0.7) (0.01) (0.7) (0.01)4.2 0.07
Review of strategic
alternatives0.7 0.01 0.7 0.01 5.1 0.09
Earnings, Reported$123.7 $2.16 $140.7 $2.46 $152.8 $2.69
Reconciliation of Free Cash Flow
Three Months Ended Six Months Ended
June 30, June 30
2008 2007 2008 2007
NET CASH FROM OPERATIONS $96 $157$14$164
Plus/(minus): Net Cash from Investing(19) 36(33) 16
Add back/(subtract):
Emergence related payments -14 3 22
Divestiture - (53) - (53)
Acquisitions 1 - 1 -
Free Cash Flow $78 $154 $(15) $149
Note: May not add due to rounding
SOURCE Armstrong World Industries, Inc.
