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Armstrong World Industries (NYSE:AWI) Q3 2025 Earnings Call October 28, 2025 10:00 AM ET Company ParticipantsChris Calzaretta - CFOTheresa Womble - VP of Investor Relations and Corporate CommunicationsVic Grizzle - CEOConference Call ParticipantsAatish Shah - AnalystKeith Hughes - AnalystTomohiko Sano - AnalystZack Pacheco - AnalystPhilip Ng - AnalystBrian Biros - AnalystAdam Baumgarten - AnalystJohn Lovallo - AnalystRafe Jadrosich - AnalystSusan Maklari - AnalystOperatorLadies and gentlemen, thank you for ...

Armstrong World Industries (NYSE:AWI) Q3 2025 Earnings Call October 28, 2025 10:00 AM ET Company ParticipantsChris Calzaretta - CFOTheresa Womble - VP of Investor Relations and Corporate CommunicationsVic Grizzle - CEOConference Call ParticipantsAatish Shah - AnalystKeith Hughes - AnalystTomohiko Sano - AnalystZack Pacheco - AnalystPhilip Ng - AnalystBrian Biros - AnalystAdam Baumgarten - AnalystJohn Lovallo - AnalystRafe Jadrosich - AnalystSusan Maklari - AnalystOperatorLadies and gentlemen, thank you for ...

Financial Data and Key Metrics Changes - The company reported record-setting third quarter net sales and earnings results, achieving a year-over-year top-line growth of 10% [4][5] - Consolidated adjusted EBITDA increased by 6%, while adjusted net earnings per share rose by 13% [5][20] - Adjusted free cash flow grew by 22% year-to-date, driven by higher cash earnings and lower income tax payments [23] Business Line Data and Key Metrics Changes - In the Mineral Fiber segment, net sales increased by 6%, primarily due to strong average unit value (AUV) growth and positive sales volume contributions [8][17] - The Architectural Specialties segment saw a net sales increase of 18%, driven by acquisitions and solid organic growth [12][19] Market Data and Key Metrics Changes - The company expects full-year Mineral Fiber volume to be flat to down 1%, an improvement from previous expectations [26] - The Architectural Specialties segment is projected to grow approximately 29% for the full year, supported by robust contributions from recent acquisitions [26] Company Strategy and Development Direction - The company remains focused on operational efficiency, commercial execution, and growth initiatives to navigate a dynamic macroeconomic environment [6][29] - Investments in digital growth initiatives like ProjectWorks and Canopy are expected to drive volume and contribute to margin expansion [14][15] Management's Comments on Operating Environment and Future Outlook - Management noted that market conditions have stabilized, with no anticipated softening in discretionary renovation activity [29][77] - The office market is showing signs of recovery, with declining vacancy rates and increased demand for renovations [32][68] Other Important Information - The company announced a 10% increase in its quarterly dividend, marking the seventh consecutive annual increase since the inception of its dividend program [25] - The acquisition of Geometric, a Canadian wood ceiling manufacturer, is expected to enhance the company's product offerings and geographic diversification [13][87] Q&A Session Summary Question: Benefits from new products and their impact on AUV - Management highlighted strong performance in high-end product segments, confirming that innovation is driving growth in both Mineral Fiber and Architectural Specialties [38][39] Question: Outlook for Architectural Specialties margins - Management expects to maintain organic margins around 20% while continuing to focus on growth opportunities [41] Question: Explanation of EBITDA margin pressure - Management discussed timing-related cost headwinds, including higher incentive compensation and medical costs, and indicated these are not expected to persist [45][46] Question: Outlook for education, healthcare, and data centers - Management noted stable activity levels in education and healthcare, with robust opportunities in data centers [48] Question: Expectations for manufacturing costs and inflation - Management acknowledged inflationary pressures but emphasized ongoing productivity improvements to mitigate these costs [55] Question: Insights on the office market recovery - Management indicated early signs of recovery in the office market, with positive activity across multiple regions [68]

Financial Performance - Q3 2025 - Net sales reached $4252 million, a 10% increase compared to Q3 2024[9, 13] - Adjusted EBITDA was $148 million, up 6% year-over-year[9, 14] - Adjusted diluted EPS increased by 13% to $205[9, 15] - Adjusted free cash flow increased by 15% to $123 million[9, 16] Segment Performance - Q3 2025 - Mineral Fiber (MF) segment net sales grew by 6% to $274 million[9, 18] - Mineral Fiber adjusted EBITDA increased by 6% with a margin of 436%[9, 19] - Architectural Specialties (AS) segment net sales increased by 18% to $1512 million[9, 23] - Architectural Specialties organic sales grew by 6% with an adjusted EBITDA margin of 198%[11, 24] Year-to-Date 2025 Performance - Net sales increased by 14% to $1233 billion[9, 28] - Adjusted EBITDA increased by 15% to $431 million[9, 28] - Adjusted diluted net earnings per share increased by 21% to $580[9, 28] - Adjusted free cash flow increased by 22% to $259 million[9, 28] Full Year 2025 Guidance - Net sales are projected to be between $1623 billion and $1638 billion, representing a 12% to 13% year-over-year increase[36] - Adjusted EBITDA is expected to be between $553 million and $563 million, a 14% to 16% year-over-year increase[36] - Adjusted diluted EPS is projected to be between $745 and $755, an 18% to 20% year-over-year increase[36] - Adjusted free cash flow is expected to be between $342 million and $352 million, a 15% to 18% year-over-year increase[36]

Core Insights - Armstrong World Industries (AWI) reported quarterly earnings of $2.05 per share, exceeding the Zacks Consensus Estimate of $1.99 per share, and showing an increase from $1.81 per share a year ago, resulting in an earnings surprise of +3.02% [1] - The company achieved revenues of $425.2 million for the quarter ended September 2025, surpassing the Zacks Consensus Estimate by 0.97% and up from $386.6 million year-over-year [2] - Armstrong World Industries has consistently outperformed consensus EPS and revenue estimates over the last four quarters [2] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $1.51 on revenues of $393.33 million, while for the current fiscal year, the estimate is $7.27 on revenues of $1.62 billion [7] - The stock has gained approximately 43.4% since the beginning of the year, significantly outperforming the S&P 500's gain of 16.9% [3] Industry Context - The Building Products - Miscellaneous industry, to which Armstrong World Industries belongs, is currently ranked in the bottom 37% of over 250 Zacks industries, indicating potential challenges ahead [8] - The performance of Armstrong World Industries may be influenced by the overall outlook of the industry, as historical data shows that the top 50% of Zacks-ranked industries outperform the bottom 50% by more than 2 to 1 [8] Future Considerations - The sustainability of the stock's price movement will largely depend on management's commentary during the earnings call and any revisions to earnings estimates following the recent report [3][4] - The estimate revisions trend for Armstrong World Industries was mixed prior to the earnings release, resulting in a Zacks Rank 3 (Hold), suggesting the stock is expected to perform in line with the market in the near future [6]

Sales Performance - Total consolidated net sales for Q3 2025 were $425.2 million, a 10.0% increase from $386.6 million in Q3 2024[153] - For the first nine months of 2025, total consolidated net sales reached $1,232.5 million, reflecting a 14.3% increase from $1,078.0 million in the same period of 2024[153] - The increase in Q3 2025 sales volumes contributed $24 million, with acquisitions of Zahner and 3form accounting for $16 million of net sales[143] - Average unit value (AUV) improvements added approximately $14 million to consolidated net sales in Q3 2025 and $43 million in the first nine months[145] - Architectural Specialties segment net sales rose by 17.6% to $151.2 million in Q3 2025, with operating income slightly increasing by 0.5% to $19.3 million[174] - Total segment net sales for Mineral Fiber increased by 6.2% to $274.0 million in Q3 2025, with operating income rising by 6.1% to $98.7 million[166] Operating Income and Expenses - Operating income for Q3 2025 was $117.2 million, up 5.3% from $111.3 million in Q3 2024[153] - SG&A expenses in Q3 2025 were $90.1 million, or 21.2% of net sales, up from $77.6 million, or 20.1% in Q3 2024, driven by acquisitions and increased compensation[157] - For the first nine months of 2025, SG&A expenses totaled $252.1 million, or 20.5% of net sales, compared to $223.1 million, or 20.7% in the same period of 2024, with a significant portion attributed to acquisitions[158] Cost of Goods Sold - Cost of goods sold as a percentage of net sales for Q3 2025 was 58.0%, compared to 57.6% in Q3 2024, primarily due to increased manufacturing costs[156] - Cost of goods sold for Mineral Fiber in Q3 2025 was $155 million, or 56.7% of net sales, compared to $147 million, or 56.8% in Q3 2024, with gross profit increasing by 6.5%[168] - For the first nine months of 2025, cost of goods sold was $460 million, or 58.5% of net sales, compared to $440 million, or 58.8% in the prior-year period, with gross profit increasing by 5.8%[169] Cash Flow and Financing - Operating activities generated $245.5 million in cash for the first nine months of 2025, compared to $180.2 million in the same period of 2024, primarily due to higher cash earnings[181] - Net cash used for financing activities was $252.0 million in the first nine months of 2025, compared to $115.7 million in the same period of 2024, mainly due to increased debt repayments[183] - The company has a $950.0 million variable rate senior credit facility, including a $500.0 million revolving credit facility and a $450.0 million Term Loan A, maturing in December 2027[185] - As of September 30, 2025, the total principal balance outstanding under the senior credit facility was $410.6 million under Term Loan A, with no balance under the revolving credit facility[186] - As of September 30, 2025, the company had $90.1 million in cash and cash equivalents, with $500 million available under the revolving credit facility[190] - The bi-lateral letter of credit facility has a limit of $25.0 million, with $7.7 million used as of September 30, 2025[190] - The company believes that cash on hand and generated from operations, along with borrowing capacity, will be adequate to meet near-term liquidity needs[190] Acquisitions and Partnerships - The company acquired Geometrik Manufacturing, Inc. in September 2025, enhancing its Architectural Specialties segment[131] - The company entered a strategic partnership with Overcast Innovations LLC, acquiring a 19.5% ownership interest to expand its product offerings[134] Financial Ratios and Compliance - The company is in compliance with financial covenants requiring a consolidated EBITDA to cash interest expense ratio of at least 3.0 to 1.0 and a funded indebtedness to EBITDA ratio of no more than 3.75 to 1.0[187] - Interest rate swaps are utilized to minimize earnings fluctuations, with notional amounts of $50.0 million and $25.0 million covering various periods through 2028[188] Equity Earnings - Equity earnings from unconsolidated subsidiaries were $28.0 million in Q3 2025, up from $25.2 million in Q3 2024, and $86.5 million for the first nine months of 2025, compared to $78.7 million in the same period of 2024[161] Interest Expense - Interest expense decreased to $8.2 million in Q3 2025 from $10.5 million in Q3 2024, and $25.3 million in the first nine months of 2025, down from $30.6 million in the same period of 2024, due to lower average debt balances[162] Manufacturing Operations - The company operated 21 manufacturing plants as of September 30, 2025, including 18 in the U.S. and three in Canada[135] Accounting and Market Risk - There have been no material changes to critical accounting estimates since the last annual report[191] - For market risk exposure details, refer to the Annual Report on Form 10-K for the year ended December 31, 2024[192]

Financial Performance - Third-quarter 2025 net sales increased by 10.0% to $425.2 million compared to $386.6 million in the prior year[4] - Operating income rose by 5.3% to $117.2 million, with an operating income margin of 27.6%, down from 28.8%[4] - Net earnings increased by 12.2% to $86.3 million, with diluted net earnings per share rising by 13.1% to $1.98[4] - Architectural Specialties net sales grew by 17.6% to $151.2 million, driven by $16 million from acquisitions and $7 million in organic sales growth[11] - Mineral Fiber net sales increased by 6.2% to $274.0 million, supported by favorable Average Unit Value (AUV) and improved sales volumes[9] - Net sales for Q3 2025 reached $425.2 million, a 10% increase from $386.6 million in Q3 2024[24] - Operating income for Q3 2025 was $117.2 million, compared to $111.3 million in Q3 2024, representing a 5% increase[24] - The Mineral Fiber segment reported net sales of $274 million in Q3 2025, up from $258 million in Q3 2024, a 6% increase[35] - Architectural Specialties segment net sales increased to $151.2 million in Q3 2025 from $128.6 million in Q3 2024, a growth of 17.6%[26] Cash Flow and Guidance - Year-to-date cash flow from operating activities increased by 36% to $65 million, with adjusted free cash flow up by 22%[5] - The company raised its full-year 2025 guidance, expecting net sales between $1,623 million and $1,638 million, representing a growth of 12% to 13%[17] - Adjusted EBITDA for 2025 is projected to be between $553 million and $563 million, indicating a growth of 14% to 16%[17] - Adjusted Free Cash Flow for the nine months ended September 30, 2025, was $259 million, compared to $212 million in 2024, marking a 22% increase[39] - The company expects adjusted EBITDA for the year ending December 31, 2025, to be between $553 million and $563 million[45] - Adjusted Free Cash Flow guidance for the year ending December 31, 2025, is estimated to be between $342 million and $352 million[50] Shareholder Returns - The company repurchased 0.1 million shares for $27 million during the third quarter, with $583 million remaining under the share repurchase program[15] - Adjusted diluted EPS for the three months ended September 30, 2025, was $2.05, reflecting a 13.3% increase from $1.81 in 2024[41] Assets and Liabilities - Total assets as of September 30, 2025, were $1,893.4 million, compared to $1,842.7 million at the end of 2024, reflecting a 2.8% increase[28] - Cash and cash equivalents at the end of Q3 2025 were $90.1 million, up from $73.7 million at the end of Q3 2024, a 22% increase[30] - Net cash provided by operating activities for the nine months ended September 30, 2025, was $246 million, up from $180 million in 2024[39] Earnings Overview - Gross profit for the nine months ended September 30, 2025, was $504.2 million, up from $437.7 million in the same period of 2024, reflecting a 15% increase[24] - Net earnings for the nine months ended September 30, 2025, were $243.2 million, a 20% increase from $202.7 million in the same period of 2024[30] - Adjusted EBITDA for Q3 2025 was $148 million, compared to $139 million in Q3 2024, indicating a 6% increase[33] - Adjusted EBITDA for the nine months ended September 30, 2025, reached $86 million, a 46% increase compared to $59 million in 2024[37] Operating Metrics - The average number of diluted common shares outstanding decreased slightly from 44.0 million in 2024 to 43.7 million in 2025[24] - The operating income margin for the three months ended September 30, 2025, was 12.8%, compared to 14.9% in the same period of 2024[37] - The company reported an operating loss of $1 million for the three months ended September 30, 2025, consistent with the same period in 2024[38]

Group 1 - Crude oil prices increased by 5% following a significant move by Trump [1] - Armstrong World Industries (AWI) is trading around $200.84, close to its buy point from a flat base pattern [1] - Armstrong World Industries has a Composite Rating of 96 out of 99 and ranks 63 out of 197 in its industry group [1] Group 2 - Armstrong World Industries is showing renewed technical strength, having met the 80-plus Relative Strength Rating benchmark [4] - Griffon Stock has also seen an increase in its Relative Strength Rating, jumping to 88 [4]