Armstrong World Industries Reports Fourth Quarter and Year End 2011 Results

LANCASTER, Pa., Feb. 27, 2012 /PRNewswire/ -- Armstrong World Industries, Inc. (NYSE: AWI), a global leader in the design and manufacture of floors, ceilings and cabinets, today reported fourth quarter and year end 2011 results and issued 2012 guidance.  

Key Highlights

• Fourth quarter operating income of $21.6 million, up more than $50 million over the 2010 period
• Fourth quarter adjusted EBITDA of $51 million, up 9% over the 2010 period
• Ongoing cost savings program target increased to $185 million
• Management announces construction of mineral fiber ceiling plant in Russia

Consolidated net sales increased approximately $9 million compared to the prior year period.  Excluding approximately $3 million of favorable foreign exchange impact for the quarter, sales increased approximately 1% compared to the prior year period.  On a consolidated level, volume declines were more than offset by favorable price and mix.  Volumes decreased in Worldwide Resilient Flooring, European Building Products and Cabinets, while volumes grew in Wood Flooring and Building Products Asia.  Volumes in Building Products Americas remained essentially flat.  

Operating income and net income both increased due to cost reduction actions, which resulted in lower SG&A expenses and manufacturing costs when compared to the same period last year.  Input cost inflation increased $8 million versus fourth quarter 2010, driven by a broad array of input items, including PVC, plasticizers, steel and Titanium Dioxide.  During the fourth quarter of 2011 price more than fully offset the impact of inflation.  2011 and 2010 fourth quarter results were impacted by approximately $4 million and $49 million, respectively, of impairment, restructuring, and severance and related costs.

"On an adjusted basis, total company EBITDA was up 9% from fourth quarter 2010 levels on relatively flat sales," said Matt Espe, President and CEO.  "We continue to operate in an unpredictable economic environment, yet in the fourth quarter still managed to grow sales in all geographies other than Europe.  Uncertainty in our end markets has continued to impact demand, and as a result, we saw lower volumes across most of our businesses. Despite this, we have been able to drive earnings growth through the execution of our cost savings plans, pricing ability and leverage of our LEAN investments.  We remain committed to growth and to making organic investments in the business.  As another example of that commitment, we are pleased to announce that our Board of Directors has approved the construction of a mineral fiber ceiling plant in Russia that is expected to be operational in 2015."  

*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 and adjusted EBITDA exclude the impact of foreign exchange, restructuring charges and related costs, impairments, and certain other gains and losses related to discrete unusual items.  Adjusted figures are reconciled to the most comparable GAAP measures in tables at the end of this release.    

Improvements in adjusted operating income and adjusted EBITDA were driven by reductions in SG&A expenses coupled with the impact of better pricing and reductions in manufacturing costs, which were partially offset by increased input costs and volume declines.  The increase in free cash flow was primarily due to the special dividend payment by WAVE, the company's fifty percent joint venture with Worthington Industries, and changes in working capital, partially offset by higher capital expenditures.

The increase in net sales was driven primarily by better price and mix.  Volumes were essentially flat in the Americas, declined in Europe, and grew in Asia.  Operating income increased as the benefits of price, SG&A savings and earnings from WAVE offset inflationary headwinds and increased manufacturing costs associated with labor mitigation and contract incentive costs at our Marietta, Macon, and Pensacola plants.  2010 results were impacted by approximately $16 million of severance and restructuring related costs.

Net sales decreased primarily due to lower volumes in Europe related to the restructuring of our European flooring business, which included the exit of the residential flooring business and simplification of our country and product offerings.  Excluding the impact of these actions, volumes in European markets were still down slightly when compared to the prior year.  Net sales in the Americas and Asia increased driven primarily by favorable mix in both geographies, and price in the Americas.      

The increased operating loss was due to higher raw material inflation and volume declines that were only partially offset by pricing and reductions in manufacturing costs and SG&A expenses.  2011 and 2010 results were impacted by approximately $3 million and $4 million, respectively, of severance and restructuring related costs.  

Net sales increased as higher volumes were partially offset by unfavorable mix and price.  Operating income increased due to favorable input costs when compared to the prior year, reduced SG&A and manufacturing costs and volume gains, which were partially offset by unfavorable price and mix.  Additionally, the 2010 period included approximately $5 million of fixed asset write downs and severance charges related to the closure of two manufacturing facilities, and approximately $22 million of non-cash impairment charges related to our Wood Flooring trademarks.    

Net sales decreased and operating loss increased as volume declines were only partially offset by mix.  

Corporate

Unallocated corporate expense of $15.4 million increased from $11.6 million in the prior year driven primarily by approximately $6 million lower pension credit compared to 2010.  2010 included approximately $2 million of severance and restructuring related costs.

Excluding approximately $61 million favorable impact from exchange rates, net sales increased by approximately 1% percent as volume declines were more than offset by price and mix gains.

Significant reductions in manufacturing costs and SG&A expenses, coupled with price and mix gains more than offset the impact of inflation in input costs, lower volumes, and a lower pension credit.

The reduction in free cash flow was primarily due to higher capital expenditures and interest expense, restructuring payments, and less improvement in working capital when compared to the prior year; which were only partially offset by increased cash earnings and a special dividend payment by WAVE.

Market Outlook and 2012 Guidance

We expect GDP to grow just over 2% in the U.S., slight positive growth in the U.K., and to decline slightly in the Eurozone.  This type of macro climate translates into a flat commercial opportunity in North America and a decline in Europe.  New home starts are anticipated to be approximately 700,000, with most of the growth coming from multifamily units.  We continue to expect relatively strong emerging market growth.

The company expects 2012 sales to be between $2.9 billion and $3.0 billion.  Adjusted EBITDA is forecasted to be in the range of $420 million to $460 million, compared to $377 million in 2011.  2012 adjusted EPS is expected to be $2.75 to $3.15 per diluted share, compared to $2.23 per diluted share in 2011.  Free cash flow is anticipated to be between $50 million and $100 million.  Cash taxes are expected to be between $10 million and $20 million, and an adjusted tax rate of 40% will be used when calculating adjusted earnings to facilitate comparability from period to period.    

"While we have begun to see some positive economic indicators in the late part of 2011, overall economic signs continue to be mixed," said Tom Mangas, Senior Vice President and CFO.  "We enter 2012 expecting minimal help from our end markets and are expecting to face inflationary headwinds, but believe we will continue to be able to price to recover inflation.  To compensate for ongoing weakness in our end markets, we continue to drive plans to deliver cost savings and have now taken our total cost savings program goal to $185 million, up from $165 million."

Additional forward looking non-GAAP metrics are available in the earnings call and investor presentations available on our web site at http://www.armstrong.com/ under the Investor Relations tab.  

Earnings Webcast

Management will conduct a discussion for shareholders during a live Internet broadcast beginning at 1:00 p.m. Eastern time today. This event will be broadcast live on the Company's Web site.  To access the call and accompanying slide presentation, go to www.armstrong.com and click "For Investors".  The replay of this event will also be available on the Company's Web site for up to one year after the date of the call.

Uncertainties Affecting Forward-Looking Statements

Our disclosures in this presentation and in our other public documents and comments contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Those statements provide our future expectations or forecasts and can be identified by our use of words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "outlook," and other words or phrases of similar meaning in connection with any discussion of future operating or financial performance.  Forward-looking statements, by their nature, address matters that are uncertain and involve risks because they relate to events and depend on circumstances that may or may not occur in the future.  A more detailed discussion of the risks and uncertainties that could cause our actual results to differ materially from those projected, anticipated or implied is included in the "Risk Factors" and "Management's Discussion and Analysis" sections of our recent reports on Forms 10-K and 10-Q filed with the U.S. Securities and Exchange Commission ("SEC").  As a result, our actual results may differ materially from our expected results and from those expressed in our forward-looking statements.  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 under applicable securities law.

About Armstrong and Additional Information

More details on the Company's performance can be found in its Form 10-K that will be filed with the SEC today.

Armstrong World Industries, Inc. is a global leader in the design and manufacture of floors, ceilings and cabinets.  In 2011, Armstrong's consolidated net sales totaled approximately $2.9 billion.  Based in Lancaster, Pa., at December 30, 2011 Armstrong operated 32 plants in eight countries and had approximately 9,100 employees worldwide.  For more information, visit http://www.armstrong.com/.

Supplemental Reconciliations of GAAP to non-GAAP Results (unaudited)
(Amounts in millions, except per share data)

To supplement its consolidated financial statements presented in accordance with accounting principles generally accepted in the United States (GAAP), the Company provides additional measures of performance adjusted to exclude the impact of foreign exchange, restructuring charges and related costs, impairments, and certain other 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.

Contact:

Investors:
Tom Waters
717-396-6354

Media:
Jennifer Johnson
866-321-6677

SOURCE Armstrong World Industries, Inc.