- Net Loss of ($7.8) Million
- Adjusted EBITDA of $8.9 Million
- Repurchased $4.9 Million of Stock Under New $50 Million Share
Repurchase Program
- Announces Definitive Asset Purchase Agreement for the Vinyl
Composition Tile (VCT) Business of Mannington Mills
Armstrong Flooring, Inc. (NYSE:AFI) (“Armstrong Flooring” or the
“Company”), North America’s largest producer of resilient and wood
flooring products, today reported financial results for the first
quarter ended March 31, 2017.
Don Maier, Chief Executive Officer, commented: “First quarter
2017 results were below prior year as expected as net sales and
adjusted EBITDA largely reflected the timing of load-in and
promotional activity in the prior year quarter. We made additional
progress with our innovation-based growth initiatives which helped
produce double-digit sales gains in LVT; additionally, we
experienced better performance in our commercial business. We are
excited by the planned acquisition of Mannington’s VCT assets,
which will enable us to increase sales in this attractive category
while improving our manufacturing capacity utilization. We remain
committed to driving product innovation across our portfolio,
targeting productivity initiatives and evaluating additional
M&A opportunities to grow adjusted EBITDA. The execution of our
previously announced organizational realignment is on track and
aligns our structure with customers while creating SG&A
efficiencies. Overall, we are confident in our ability to achieve
our strategic priorities and deliver our financial goals.”
First Quarter of 2017 Results Compared with First Quarter of
2016 Results
Consolidated Results
(Dollars in millions except per share data)
Three Months Ended March 31,
2017
2016
Change
Net sales $265.2 $284.4 (6.8%) Operating (loss) ($9.6) ($1.9) N/M
Net (loss) ($7.8) ($0.8) N/M Diluted (loss) per share ($0.28)
($0.03) N/M Adjusted EBITDA $8.9 $12.5 (29.1%) Adjusted
EBITDA margin 3.4% 4.4% (100) bps Adjusted net (loss) ($3.6) ($0.8)
N/M Adjusted diluted (loss) per share ($0.13) ($0.03) N/M
In the first quarter of 2017, net sales were $265.2 million as
compared to $284.4 million in the first quarter of 2016, primarily
a result of a decline in Wood segment net sales.
The first quarter 2017 net loss was ($7.8) million, or ($0.28)
per diluted share, as compared to ($0.8) million, or ($0.03) per
diluted share, in the prior year quarter. The decline was primarily
attributable to lower net sales, partially offset by manufacturing
costs. In addition, the Company incurred a one-time pre-tax charge
in the first quarter of 2017 of $4.6 million related to severance
expenses in both the Resilient and Wood segments. The severance
expense was related to the previously announced streamlining
efforts to combine the Company’s commercial and residential
go-to-market structures and related organization, which is expected
to achieve annualized SG&A savings of $6 million to $7 million.
Adjusted net loss was ($3.6) million, or ($0.13) per diluted share,
as compared to ($0.8) million, or ($0.03) per diluted share, in the
prior year quarter.
First quarter 2017 adjusted EBITDA was $8.9 million, as compared
to $12.5 million in the prior year quarter, with the decline
attributable to the impact of lower net sales which more than
offset lower manufacturing costs.
Resilient Flooring Segment
Three Months Ended March 31, (Dollars in
millions)
2017
2016
Change
Net sales $160.5 $163.9 (2.1%) Operating (loss) ($5.0) ($5.4) N/M
Adjusted EBITDA $7.7 $4.5 68.6% Adjusted EBITDA margin 4.8%
2.8% 200 bps
Net sales were $160.5 million as compared to $163.9 million in
the prior year period. Net sales declined primarily due to lower
price and volume from market pressures in legacy categories. This
was partially offset by a more favorable mix, mainly attributable
to LVT, which experienced double digit volume growth.
The operating loss was ($5.0) million in the quarter as compared
to ($5.4) million in the prior year quarter. Adjusted EBITDA was
$7.7 million as compared to $4.5 million in the prior year quarter,
with the improvement driven by improved manufacturing costs,
including lower costs related to the LVT manufacturing operations,
which more than offset the impact of lower year-on-year net
sales.
Wood Flooring Segment
Three Months Ended March 31, (Dollars in
millions)
2017
2016
Change
Net sales $104.7 $120.5 (13.1%) Operating income (loss) ($4.6) $3.5
N/M Adjusted EBITDA $1.2 $8.0 (84.5%) Adjusted EBITDA margin
1.2% 6.7% (550) bps
Net sales were $104.7 million as compared to $120.5 million in
the prior year quarter with the decline primarily driven by lower
volumes. First quarter 2016 experienced higher shipment levels to
support inventory requirements in a key strategic account as well
as other promotional activity which did not recur in the first
quarter of 2017. In addition, price was lower in response to
industry price pressure.
The operating loss was ($4.6) million as compared to income of
$3.5 million in the prior year quarter. Adjusted EBITDA was $1.2
million as compared to $8.0 million in the prior year quarter,
attributable to the impact of lower net sales and higher lumber
costs, partially offset by manufacturing productivity gains.
Share Repurchase Program
In March 2017, the Company’s Board of Directors authorized a
share repurchase program of $50 million. The repurchase program is
aligned with the Company’s goal to increase the efficiency of its
capital structure over time while preserving sufficient liquidity
to invest in organic growth projects and other opportunities.
During the first quarter of 2017, the Company repurchased
approximately 267,000 shares at an aggregate value of $4.9
million.
Full Year 2017 Outlook
Based on current market conditions, the Company reaffirms its
full year 2017 outlook for adjusted EBITDA to be in the range of
$75 million to $85 million and capital expenditures to be in the
range of $45 million to $50 million. The full year 2017 outlook
does not include any impact from the planned acquisition of
Mannington’s VCT business.
Definitive Asset Purchase Agreement for the VCT Business of
Mannington Mills
On May 7, 2017, the Company signed a definitive asset purchase
agreement to acquire the VCT business of Mannington, a nationally
recognized hard surface flooring company, for a purchase price of
$36 million. In addition, Mannington would be eligible to receive
earn out payments based on volume retention metrics through
mid-2020. The Company intends to use its existing plant and
distribution networks to accommodate the increase in VCT volume to
drive top and bottom line benefits through increased scale and
capacity utilization. The transaction, which is subject to
customary closing conditions, is expected to close during the
second quarter of 2017 and to be funded through a combination of
cash and availability on the existing asset-based revolving credit
facility.
VCT is a significant category within the hard surface flooring
industry. VCT products are widely used in commercial end-markets,
especially in educational facilities and mass merchants, as it
offers durability and numerous design options at attractive
price-points.
Mr. Maier commented: “I am pleased to announce this transaction.
It gives us a good opportunity to increase revenue within the
well-structured VCT category which has historically generated
above-average profitability within our product portfolio. We expect
this transaction to be accretive to earnings in 2018 as we drive
profitability through improved capacity utilization and scale using
our existing facilities and distribution system. We have a strong
history and deep expertise in VCT which makes this acquisition
consistent with our strategy to support our legacy product lines
while simultaneously investing in innovation and new growth
initiatives to help us realize our medium-term goals.”
Conference Call and Webcast
The Company will host a live webcast and conference call to
review first quarter results on Monday, May 8, 2017 at 10:00 a.m.
ET. The live webcast and accompanying slide presentation will be
available in the Investors section of the Company’s website at
www.armstrongflooring.com. To participate in the call, please dial
877-407-0789 (domestic) or 201-689-8562 (international). A replay
of the conference call will be available for 90 days, by dialing
844-512-2921 (domestic) or 412-317-6671 (international) and
entering the passcode 13658921.
About Armstrong Flooring
Armstrong Flooring, Inc. (NYSE: AFI) is a global leader in the
design and manufacture of innovative flooring solutions that
inspire spaces where people live, work, learn, heal and play.
Headquartered in Lancaster, Pa., Armstrong Flooring is the #1
manufacturer of resilient and wood flooring products across North
America. The Company safely and responsibly operates 17
manufacturing facilities in three countries and employs
approximately 4,000 individuals, all working together to provide
the highest levels of service, quality and innovation to ensure it
remains as strong and vital as its 150-year heritage. Learn more at
www.armstrongflooring.com.
Forward Looking Statements
Disclosures in this release, including without limitation those
regarding our entry into a definitive agreement to purchase the VCT
business of Mannington Mills, the transactions contemplated thereby
and any financial expectations related thereto, 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,” “target,” “predict,” “may,” “will,” “would,”
“could,” “should,” “seek,” 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. As a result, our actual results may differ
materially from our expected results and from those expressed in
our forward looking statements. 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 our reports filed with the U.S. Securities and Exchange
Commission. 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.
Armstrong Flooring, Inc. and
Subsidiaries
Condensed Consolidated Statements of
Operations
(Unaudited)
(Dollars in millions except per share
data)
Three Months Ended March
31,
2017 2016 Net sales $ 265.2 $ 284.4 Cost of
goods sold 218.1 234.5 Gross profit 47.1 49.9 Selling, general and
administrative expenses 56.7 51.8 Operating (loss) (9.6 ) (1.9 )
Interest expense 0.5 -- Other (income) expense (0.2 ) 0.1 (Loss)
from continuing operations before income taxes (9.9 ) (2.0 ) Income
tax (benefit) expense (2.1 ) 0.5 (Loss) from continuing operations
(7.8 ) (2.5 ) Net gain from discontinued operations --
1.7 Net (loss) $ (7.8 ) $ (0.8 ) Weighted
average number of common shares outstanding - Basic 28.0 27.7 Basic
loss per share of common stock $ (0.28 ) (0.03 ) Weighted average
number of common shares outstanding - Diluted 28.0 27.7 Diluted
loss per share of common stock $ (0.28 ) (0.03 )
Condensed Consolidated Balance
Sheet
(Unaudited)
(Dollars in millions except par
value)
March 31,
2017
December 31,
2016
Assets Current Assets: Cash $ 33.3 $ 30.6 Accounts and notes
receivable 91.4 76.0 Inventories, net 287.4 272.1 Income tax
receivable 7.7 2.4 Prepaid expenses and other current assets
19.5 23.8 Total current assets 439.3 404.9 Property, plant,
and equipment, net 440.6 445.2 Prepaid pension costs 0.6 0.2
Intangible assets, net 42.8 42.6 Deferred income taxes 4.6 4.5
Other non-current assets 7.1 7.0
Total assets
$ 935.0 $ 904.4
Liabilities and Stockholders’ Equity Current
liabilities: Accounts payable and accrued expenses $ 147.8 $ 163.0
Income taxes payable 0.4 0.4 Total current
liabilities 148.2 163.4 Long-term debt 73.2 21.2 Postretirement
benefit liabilities 74.4 75.5 Pension benefit liabilities 1.5 1.6
Other long-term liabilities 9.4 9.1 Noncurrent income taxes payable
1.2 1.7 Deferred income taxes 14.2 8.4
Total
liabilities 322.1 280.9
Total stockholders’ equity
612.9 623.5
Total liabilities and stockholders’
equity $ 935.0 $ 904.4
Supplemental Reconciliations of GAAP to
non-GAAP Results (unaudited)
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 restructuring charges
and related costs, impairments, the non-cash impact of the U.S.
pension plan, and certain other gains and losses. Free cash flow is
defined as net cash from operating activities less purchases of
property, plant and equipment plus proceeds from the sale of
property, plant and equipment. The Company uses these adjusted
performance measures in managing the business, including in
communications with its Board of Directors and employees, and
believes that they can provide users of this financial information
with meaningful comparisons of operating performance between
current and prior periods. In addition, the Company has applied pro
forma adjustments to the non-GAAP results for periods prior to the
Company’s separation from its former parent. For periods ending
prior to April 1, 2016, the pro forma adjustments represent
estimated incremental expenses that would have been incurred had
the separation occurred on January 1, 2015 with equivalent
outstanding borrowings; for the first quarter of 2016, the pro
forma adjustment removes expenses allocated to the Company by its
former parent that are not indicative of the estimated expenses the
Company would incur post-separation. The Company believes that
these non-GAAP financial measures are appropriate to enhance
understanding of its past performance, as well as its prospects for
future performance. A reconciliation of these non-GAAP financial
measures to the most directly comparable GAAP measures is included
in this release and on the Company’s 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. The Company does not provide
financial guidance for forecasted net income since certain items
that impact net income are outside of our control and cannot be
reasonably predicted. Therefore, the Company is unable to provide a
reconciliation of its Adjusted EBITDA guidance to net income, the
most comparable financial measure calculated in accordance with
GAAP.
(Dollars in millions except per share data)
Three Months Ended March 31, 2017 2016
Total Resilient Wood
Total Resilient Wood Net
Loss ($ 7.8) ($ 0.8) Net gain from discontinued
operations — (1.7) Interest Expense 0.5 — Other (Income) &
Expense (0.2) 0.1 Taxes
(2.1) 0.5
Operating Loss (9.6) (5.0) (4.6)
(1.9) (5.4) 3.5 Depreciation and amortization
11.6 8.2 3.4 11.4 8.2 3.2 Reorganization expense and multilayered
wood flooring duties 4.7 2.7 2.0 0.3 (0.1) 0.4 U.S. pension expense
2.3 1.9 0.4 2.2 1.8 0.4 Adjustment for corporate expense
— — — 0.5
— 0.5 Adjusted EBITDA $
8.9 $ 7.7 $ 1.2
$12.5 $ 4.5
$8.0 Three Months Ended March 31,
2017 2016 $ million Per diluted share
$ million Per diluted share Net Loss ($
7.8) ($0.28) ($ 0.8) ($0.03)
Reorganization expense and multilayered wood flooring duties 4.7
0.3 U.S. pension expense 2.3 2.2 Adjustment for corporate expense —
0.5 Pro forma adjustment for interest expense — (0.5) Other
(Income) Expense (0.2) 0.1 Tax impact of adjustments at statutory
rate (2.6) (1.0) Net gain from discontinued operations
— (1.7) Adjusted Net Income
($ 3.6) ($0.13) ($
0.8) ($0.03)
Columns may not foot due to rounding.
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version on businesswire.com: http://www.businesswire.com/news/home/20170508005307/en/
Armstrong Flooring, Inc.Investors:Douglas Bingham,
717-672-9300VP, Treasury and Investor
RelationsIR@armstrongflooring.comorMedia:Steve Trapnell,
717-672-7218Corporate Communications
Manageraficorporatecommunications@armstrongflooring.com
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