Armstrong World Industries Reports Fourth Quarter and Full Year 2015 Results

OREANDA-NEWS. Armstrong World Industries, Inc. (NYSE: AWI), a global leader in the design and manufacture of floors and ceilings systems, today reported fourth quarter and full year 2015 results.  

Fourth Quarter Results from continuing operations
(Amounts in millions except per share data)		Three Months Ended December 31,
		2015		2014		Change
Net sales		$577.4		$587.3		(1.7%)
Operating income		8.8		35.9		(75.5%)
Net income		(11.4)		10.6		Unfavorable
Diluted earnings per share		($0.21)		$0.19		Unfavorable

Excluding the unfavorable impact from foreign exchange of $22 million, consolidated net sales increased 2.1% compared to the prior year period driven by higher volumes and favorable mix. 

Operating income declined compared to the prior year period driven by costs associated with the previously announced separation of the flooring business, increased SG&A expense to support go-to-market initiatives in the Americas Resilient business, higher non-cash U.S. pension expense, higher manufacturing costs and unfavorable price and mix; which were only partially offset by lower input costs, higher earnings from the WAVE joint venture and the margin impact of higher volumes.  Net income was negatively impacted compared to the prior year period by non-cash foreign exchange rate losses on the translation of unhedged cross-currency intercompany loans denominated in Russian Rubles used to fund construction of a mineral fiber ceilings plant that was completed in the first quarter of 2015. 

"Volume improvement in the fourth quarter in both our U.S. flooring and ceilings businesses helped us to deliver full year adjusted EBITDA of $391 million, just over the high end of our guidance range," said Matt Espe, CEO.  "We also made significant progress towards the separation of our flooring and ceilings businesses, and I am pleased to report that we are now targeting April 1^st as the closing date for the transaction." 

Additional (non-GAAP*) Financial Metrics from continuing operations
(Amounts in millions except per share data)		Three Months Ended December 31,
		2015			2014		Change
Adjusted operating income		$44			$50		(13%)
Adjusted net income		$15			$23		(34%)
Adjusted diluted earnings per share		$0.27			$0.41		(34%)
Free cash flow		$4			$49		(93%)

(Amounts in millions)			Three Months Ended December 31,
			2015		2014		Change
Adjusted EBITDA
	Building Products		$78		$76		2%
	Resilient Flooring		7		21		(66%)
	Wood Flooring		12		(4)		Favorable
	Unallocated Corporate		(21)		(12)		(69%)
Consolidated Adjusted EBITDA			$76		$81		(6%)

*The Company uses the above non-GAAP adjusted measures, as well as other non-GAAP measures mentioned below, in managing the business and believes the adjustments provide meaningful comparisons of operating performance between periods. Adjusted operating income,  adjusted EBITDA, adjusted net income, and adjusted EPS exclude the impact of foreign exchange, restructuring charges and related costs, impairments, the non-cash impact of the U.S. pension plan, separation costs and certain other gains and losses.  Free cash flow is defined as cash from operations and dividends received from the WAVE joint venture, less expenditures for property and equipment, less restricted cash, and is adjusted to remove the impact of cash used or proceeds received for acquisitions and divestitures.  The company believes free cash flow is useful because it provides insight into the amount of cash that the Company has available for discretionary uses, after expenditures for capital commitments and adjustments for acquisitions/divestitures.  Adjusted figures are reported in comparable dollars using the budgeted exchange rate for 2015, and are reconciled to the most comparable GAAP measures in tables at the end of this release.   

Adjusted operating income and adjusted EBITDA decreased by 13% and 6%, respectively, in the fourth quarter of 2015 when compared to the prior year period.  The decrease in adjusted EBITDA was driven by increased SG&A expense to support go-to-market initiatives in the Americas Resilient business, higher manufacturing costs and unfavorable price and mix; which were only partially offset by lower input costs, higher earnings from the WAVE joint venture and the margin impact of higher volumes.  The decrease in adjusted EPS versus the prior year includes the non-cash foreign exchange impact on inter-company loans of $0.08 per share.  Adjusted earnings per share is calculated using a 39% adjusted tax rate in both periods.  The decrease in free cash flow was driven primarily by lower cash earnings which were only partially offset by improvements in working capital. 

Fourth Quarter Segment Highlights
Building Products
		Three Months Ended December 31,
		2015			2014		Change
Total segment net sales		$297.3			$310.9		(4.4%)
Operating income		$51.0			$55.4		(7.9)%

Excluding the unfavorable impact of foreign exchange of approximately $17 million, net sales increased in the fourth quarter by 1.1% as favorable price and mix in all regions offset the impact of lower volumes in EMEA and the Pacific Rim.  Excluding the unfavorable impact from foreign exchange of $2 million, net sales in the Americas were up 2.5% driven by higher volumes and favorable price and mix performance.  Operating income was negatively impacted in the fourth quarter of 2015 by cost reduction actions in EMEA and by our decision to idle one of our Building Products plants in China during 2016.  Increased SG&A expenses and the margin impact of lower volumes were more than offset by favorable price and mix performance, lower manufacturing and input costs and higher earnings from WAVE.

Resilient Flooring
		Three Months Ended December 31,
		2015			2014		Change
Total segment net sales		$164.5			$162.8		1.0%
Operating (loss) income		($1.2)			$15.6		Unfavorable

Excluding the unfavorable impact from foreign exchange of $4 million, net sales increased by 3.6% driven by volume growth in both the Americas and Pacific Rim and favorable mix performance, which was only partially offset by unfavorable price.  Operating income declined due to higher SG&A expenses primarily related to ongoing promotional spending to support go-to-market initiatives in the Americas, unfavorable price and mix and higher manufacturing costs, primarily due to LVT plant startup expenses, which were only partially offset by lower input costs and the margin impact of higher volumes. 

Wood Flooring
		Three Months Ended December 31,
		2015			2014		Change
Total segment net sales		$115.6			$113.6		1.8%
Operating income		$7.5			($19.4)		Favorable

Net sales increased as higher volumes more than offset the unfavorable impact from price and mix.  Operating income improved driven by lower input costs and the margin impact of higher volumes which more than offset higher manufacturing costs and increased SG&A expense.  The comparison was also impacted by a non-cash impairment charge of $10 million recorded in the fourth quarter of 2014 to reduce the carrying value of a Wood Flooring trademark to its estimated fair value and due to additional expenses recorded in the fourth quarter of 2014 associated with the closure of our engineered wood flooring plant in Kunshan China that was closed during the third quarter of 2014. 

Corporate
Unallocated corporate expense of $48.5 million increased from $15.7 million in the prior year primarily due to increased U.S. pension costs of $6 million and separation costs of $18 million.

Year to Date Results from continuing operations

Excluding the unfavorable impact from foreign exchange of $95 million, consolidated net sales were flat compared to the prior year as volume declines were offset by favorable price and mix.

Operating income declined by 22% driven primarily by costs associated with the previously announced separation and higher non-cash U.S. pension costs.  Adjusted EBITDA improved slightly over the prior year period as lower input costs, favorable price and mix offset higher SG&A expenses, the margin impact of lower volumes and increased manufacturing expenses.  The increase in free cash flow was driven by improvements in working capital and lower capital expenditures, which were only partially offset by lower cash earnings and dividends from the WAVE joint venture.