After Q3 earnings and revenues missed market expectations, shares of construction product company Armstrong World Industries (AWI 52.45, -1.10 -2.1%) trade firmly lower. One good point of news out of the report was the FY17 guidance, which was increased due solely to the insurance event in October, and not related to business measures.
For those who may not be familiar, AWI is a ceiling construction material manufacturer. It mainly produces fiber and metal ceiling products, as well as acoustical ceiling, wall and structural solutions. Most recently on April 1, 2016, AWI completed the separation of its legacy flooring business that now operates as Armstrong Flooring, Inc., an independent, publicly-traded company.
With that being said, AWI’s earnings of $0.86 per share and revenues of $351.9 million both fell below market expectations. Sales were up 5.0% versus a year ago and excluding the favorable impact from foreign exchange of $5 million, consolidated adjusted net sales increased 3.7% compared to the prior year quarter, driven by higher volumes internationally and higher average unit values in which both positive mix and positive like for like pricing contributed.
Breaking it down a bit, total segment net sales from the Americas on an as reported basis were up about 3.5% to $233.8 million in Q3 driven by mid-single digit AUV expansion with contributions from both positive mix and positive like for like pricing offsetting lower core volumes versus the prior year quarter. Additionally, the U.S. Commercial channel saw positive volume growth, driven primarily by the Tectum acquisition. Continued double digit growth in Architectural Specialties partially offset volume declines in the overall segment.
Europe, Middle East and Africa also saw revenue growth on an as reported bases – of 3.1% -- but excluding the favorable impact of foreign exchange of approximately $3 million, adjusted net sales in EMEA were down about 1.0%, driven by lower sales in predominantly the UK and unfavorable AUV.
In the Pacific Rim, total segment net sales were up 19.9% to $41.6 million. Excluding the favorable impact of foreign exchange of approximately $1 million, adjusted net sales in the Pacific Rim increased 17.5%, driven by higher sales across the region particularly in China. On an as reported basis, operating loss increased, driven by an accelerated depreciation charge related to the closure of the previously idled QingPu, China plant and the margin impact of unfavorable AUV, which was partially offset by the margin impact of higher volumes.
In terms of guidance, AWI increased their 2017 adjusted EBITDA guidance due solely to the subsequent event disclosed in their 10-Q relating to an environmental insurance settlement in October of $20 million. Net of the additional costs associated with this settlement, the company now expects their adjusted EBITDA to grow 15-18% and range between $365-375 million. Excluding the net impact of this settlement, their guidance range remains unchanged. Adjusted EPS guidance is increasing to $2.80-2.90 per diluted share, also reflecting the net benefit of the environmental insurance settlement in October. Prior guidance expected FY17 EPS of $2.65-2.75. There was no mention of FY17 revenue guidance in the press release, but prior guidance – from the July 31 presentation slides – hold that FY17 revenue are expected between $1.305-1.34 billion.
On a final note, the AWI Board of Directors authorized an expansion of the company's existing stock repurchase program under which it may repurchase up to an additional $250 million of its outstanding common stock. This additional repurchase authorization extends through October of 2020.