Home improvement activity is booming, which is one more reason why the second quarter results and outlook shared today by Armstrong Flooring (AFI 14.47, -2.81, -16.3%) are all the more disappointing for the company's investors. That disappointment is manifesting itself in shares of AFI, which are down 16% in the early going.
Armstrong Flooring is North America's largest producer of resilient and wood flooring products, yet demand in both segments was down versus the second quarter a year ago. The company said as much in its earnings press release and acknowledged that its second quarter results were disappointing and fell short of the company's own expectations.
Lower volume and price related to market pressures in legacy categories triggered a 3.6% decline in net sales for its Resilient Flooring segment to $187.8 million despite double-digit growth in the LVT category. Lower volume, primarily in solid wood, due to lower promotional activity and inventory adjustments at key strategic accounts fueled a 15.1% decline in net sales for its Wood Flooring segment to $109.5 million.
On a consolidated basis, net sales of $297.3 million were down 8.1% from the same period a year ago and below analysts' average expectation. The downturn in sales combined with a higher cost of goods sold as percentage of net sales led to a 130 basis points decline in the company's operating margin to 3.3%.
On an adjusted basis, Armstrong Flooring's EBITDA declined 22.9% to $25.1 million. Its net income, meanwhile, dropped 44.5% to $7.2 million, or $0.26 per diluted share, which was well short of analysts' average expectation.
The company expects its challenges to persist through year end and will be closing two manufacturing facilities in its Wood Flooring segment in response to the challenges.
The difficult conditions prompted Armstrong Flooring to cut its FY17 outlook for adjusted EBITDA from a range of $75 million to $85 million to a range of $60 million to $70 million. Its Mannington VCT acquisition is not expected to have any material impact to adjusted EBITDA for the full year 2017, yet Armstrong Flooring said that acquisition is on track to be accretive to earnings in 2018.
The latter earnings note, however, has been small consolation in the wake of the larger disappointment related to Armstrong Flooring's second quarter performance and 2017 outlook.