LANCASTER, Pa., April 27, 2020 (GLOBE NEWSWIRE) -- Armstrong World Industries, Inc. (NYSE:AWI), a leader in the design, innovation and manufacture of commercial and residential ceiling, wall and suspension system solutions, today reported financial results for the first quarter of 2020.
COVID-19 Update
In response to the COVID-19 pandemic, AWI has taken numerous actions to support all of its stakeholders, while operating within CDC guidelines and maintaining a safe working environment for employees and business partners. Manufacturing operations have altered crewing; adjusted line speeds; reconfigured work and common areas; installed barriers to maintain recommended social distancing; and increased the frequency with which facilities are cleaned. Corporate and sales staffs are working remotely, and an extended emergency leave process has been instituted and made available for all employees. The Company remains focused on serving and supporting customers, particularly priority healthcare projects.
As demand slowed in April, AWI implemented appropriate measures to reduce production and manage inventory while maintaining service levels. The Company is also working closely with suppliers and distribution partners to ensure adequate raw material and finished goods inventory at appropriate locations. To date, there have been no significant interruptions in the supply chain. Overall, all of the Company’s responsive actions are being deployed and phased in a manner designed to maximize safety, minimize disruption and allow for timely and full scale reactivation when market and public health conditions improve.
AWI has also taken steps to address the financial implications of COVID-19, including restricting travel, reducing spending, suspending hiring, deferring non-essential and non-growth oriented capital investments, and temporarily suspending the Company’s share repurchase program. AWI is withdrawing and suspending 2020 financial guidance, but its regular quarterly dividend remains unchanged.
“While first quarter results came in broadly as expected, our focus has shifted to the impacts of COVID-19 and the safety and well-being of all of our stakeholders,” said Vic Grizzle, President and CEO of AWI. “Safety has always been a non-negotiable operating principle at Armstrong, and while COVID-19 presents significant challenges, our teams are delivering. Our employees have worked methodically, collaboratively and with great agility to adapt our processes to enable social distancing and to operate within CDC guidelines across our entire network. Staying closely connected with customers and employees remains a top priority, and teams in every part of our business are using digital tools to manage this transition as seamlessly as possible. I’m particularly proud of how our manufacturing teams have been able to prioritize and serve a surge in orders that support life-sustaining healthcare facility expansions and re-purposing spaces for medical use. Armstrong is a strong company with a 160 year history, an experienced leadership team, a strong balance sheet, and a deep set of core values. Armstrong has weathered crises in the past and we will weather this one as well.”
Net sales increased compared to the prior year quarter, driven by higher volumes in the Architectural Specialties segment as well as higher Mineral Fiber volume, partially offset by unfavorable Mineral Fiber AUV. The unfavorable AUV was driven by mix due to volume growth in Latin America and the Big Box channel which have lower AUV than the Mineral Fiber segment average.
Operating income increased over the prior year quarter, driven primarily by lower SG&A expenses, volume growth in the Architectural Specialties segment and manufacturing productivity. The decrease in SG&A expenses for the first quarter of 2020 as compared to the same period in 2019 was driven primarily by a $20 million decrease in legal and professional fees incurred in the first quarter of 2019.
Additional (non-GAAP*) Financial Metrics from Continuing Operations
The Company uses the above non-GAAP adjusted measures in managing the business and believes the adjustments provide meaningful comparisons of operating performance between periods. The Company also believes that the adjustments help users of our financial information understand the effect of those adjusted items on our selected reported results and provide useful alternative measurements of performance. See Supplemental Reconciliations of GAAP to non-GAAP results (below) for a breakdown of the adjustments and a reconciliation of the selected reported results to these non-GAAP measures.
Mineral Fiber net sales increased due to higher volume, partially offset by unfavorable AUV. The unfavorable AUV was driven by mix due to volume growth in Latin America and the Big Box channel which have lower AUV than the Mineral Fiber segment average.
Operating income increased in the first quarter of 2020 primarily due to a $20 million decrease in legal and professional fees associated with the 2019 litigation matter with Rockfon and a $4 million decrease in manufacturing costs. Also contributing to the increase in operating income was lower incentive and deferred compensation expenses partially offset by the negative impact of lower AUV driven by mix due to volume growth in Latin America and the Big Box channel.
Unallocated Corporate
Unallocated corporate expense of $1.5 million decreased from $2.1 million in the prior year quarter, primarily due to the absence of depreciation and amortization related to our idled mineral fiber plant in China.
Pension Plan Annuitization
During the first quarter of 2020, the Company entered into an agreement to transfer approximately $1 billion of outstanding retiree pension benefit obligations and administration related to approximately 10,000 retirees and beneficiaries under its U.S. Retirement Income Plan (“RIP”) to Athene Annuity and Life Company and Athene Annuity & Life Assurance Company of New York. As a result of the transaction, the Company recorded a non-cash expense of $374.4 million in the first quarter of 2020 as a component of non-operating expense to reflect a partial plan settlement charge. The Company did not make any cash contributions to the RIP as a result of the transaction.
Market Outlook and 2020 Guidance
“Given external uncertainty and the high levels of variability in our financial scenario modeling, we have withdrawn our financial guidance for 2020. We currently expect, however, to generate a free cash flow margin of 22-25% this fiscal year, consistent with the range of outcomes in our current 2020 models,” said Brian MacNeal, CFO of AWI. “With a strong balance sheet, ample liquidity, and no meaningful debt maturities until 2024, we are well positioned to navigate through the impact of COVID-19.”
About Armstrong and Additional Information
More details on the Company’s performance can be found in its quarterly report on Form 10-Q for the quarter ended March 31, 2020 that the Company expects to file with the SEC today.
Armstrong World Industries, Inc. (AWI) is a leader in the design and manufacture of innovative commercial and residential ceiling, wall and suspension system solutions in the Americas. With over $1 billion in revenue, AWI has approximately 2,500 employees and a manufacturing network of 12 active facilities. For more information, visit www.armstrongceilings.com.
Additional forward looking non-GAAP metrics are available on the Company’s website at www.armstrongceilings.com under the Investors tab. The website is not part of this release and references to our website address in this release are intended to be inactive textual references only.
