- Net Sales of $308.5 Million
- Net Loss of $18.7 Million
- Adjusted EBITDA of $25.5 Million and Adjusted Net Income of
$5.3 Million
- Repurchased $25.6 Million of Stock Under Share Repurchase
Program
- Completed Previously-Announced Closing of Two Wood Flooring
Manufacturing Facilities in October
- Expanded Production of Luxury Vinyl Tile to a Repurposed
Existing Resilient Sheet Plant in October
- Confirms Adjusted EBITDA Outlook for Full Year 2017
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 third
quarter ended September 30, 2017.
Don Maier, Chief Executive Officer, commented, “Third quarter
2017 results were in line with our expectations, helped by
double-digit sales growth in Luxury Vinyl Tile (“LVT”) and the
ongoing integration of our recently acquired Vinyl Composition Tile
(“VCT”) assets. However, market pressures in our legacy product
portfolio remain, and we are aggressively working to improve our
competitive position. We maintained our focus on innovation-based
growth initiatives, including the extension of our Diamond 10®
Technology Coating onto wood products. Building on our continued
success in LVT, we repurposed a portion of our Stillwater, Oklahoma
resilient sheet plant to expand our domestic production of LVT. In
October, we completed the previously announced closing of two wood
flooring facilities, which we expect to improve our cost position
by $8 million to $10 million annually. Beyond these operational
enhancements, we continue to build value through our share
repurchase efforts, totaling $40 million year to date. While
challenging market conditions are expected to persist through year
end, we are reaffirming our adjusted EBITDA outlook for the full
year, and our commitment to achieving a 10% EBITDA margin by 2020
under a range of growth scenarios is unchanged.”
Third Quarter of 2017 Results Compared
with Third Quarter of 2016 Results
Consolidated
Results
(Dollars in millions except per share data) Three Months
Ended September 30,
2017
2016 Change Net sales
$308.5 $313.4 (1.6%) Operating (loss) income ($30.1) $16.2 NM Net
(loss) income ($18.7) $9.3 NM Diluted (loss) income per share
($0.70) $0.33 NM Adjusted EBITDA $25.5 $32.4 (21.4%)
Adjusted EBITDA margin 8.3% 10.3% (200) bps Adjusted net income
$5.3 $12.1 (56.3%) Adjusted diluted income per share $0.20 $0.43
(53.8%)
In the third quarter of 2017, net sales were $308.5 million as
compared to $313.4 million in the third quarter of 2016, primarily
as a result of a decline in net sales in the Wood Flooring
segment.
Third quarter 2017 net loss was $18.7 million, or loss per
diluted share of $0.70, as compared to net income of $9.3 million,
or earnings per diluted share of $0.33, in the prior year quarter.
In the third quarter of 2017, the Company incurred pre-tax costs
totaling $36.2 million, resulting from a non-cash impairment of
$12.5 million related to the Bruce® trademark and $23.7 million of
expense in connection with the previously announced closing of two
manufacturing facilities in its Wood Flooring segment. Adjusted net
income was $5.3 million, or $0.20 per diluted share, as compared to
$12.1 million, or $0.43 per diluted share, in the prior year
quarter.
Third quarter 2017 adjusted EBITDA was $25.5 million, as
compared to $32.4 million in the prior year quarter, with the
decline primarily attributable to the impact of lower Wood Flooring
segment net sales combined with increased raw material input cost
inflation, partly offset by lower SG&A.
Resilient Flooring
Segment
Three Months Ended September 30, (Dollars in millions)
2017 2016
Change Net sales $194.4 $190.2 2.2% Operating income
$8.5 $11.9 (28.6%) Adjusted EBITDA $21.2 $22.9 (7.4%)
Adjusted EBITDA margin 10.9% 12.1% (120) bps
Net sales were $194.4 million as compared to $190.2 million in
the prior year period. Net sales increased primarily due to
stronger volumes in LVT and VCT, which more than offset lower price
across most categories. The improvement in VCT sales was the result
of the recent acquisition of the VCT assets of Mannington Mills and
higher distributor inventory levels.
Operating income was $8.5 million in the quarter as compared to
$11.9 million in the prior year quarter. Adjusted EBITDA was $21.2
million as compared to $22.9 million in the prior year quarter,
primarily attributable to the decline in price, unfavorable mix and
higher input costs, which were partly offset by lower SG&A.
Wood Flooring
Segment
Three Months Ended September 30, (Dollars in millions)
2017 2016
Change Net sales $114.1 $123.2 (7.4%) Operating (loss)
income ($38.6) $4.3 NM Adjusted EBITDA $4.2 $9.4
(55.3%) Adjusted EBITDA margin 3.7% 7.6% (390) bps
Net sales were $114.1 million as compared to $123.2 million in
the prior year quarter with the decline driven by lower volumes,
primarily in solid wood. Volume was impacted in the strategic
retail customer channel, which is expected to continue through the
first half of 2018. Favorable mix offset a decline in price, which
was modestly lower in response to industry price pressure.
Operating loss was $38.6 million, compared to operating income
of $4.3 million in the prior year quarter. Operating income in the
third quarter 2017 included the previously mentioned pre-tax costs
of $36.2 million. Adjusted EBITDA was $4.2 million as compared to
$9.4 million in the prior year quarter, primarily attributable to
the impact of lower net sales and higher manufacturing costs.
As previously announced, in August 2017 the Company initiated
steps to consolidate its Wood Flooring manufacturing network
through the planned closing of a solid wood plant and an engineered
wood plant, which was completed in October. This decision was made
primarily to rationalize the plant network in response to
challenging demand and to take advantage of significant
productivity benefits realized in the Wood Flooring segment during
the past several years. In connection with the plant closures, the
Company expects to incur one-time, pre-tax cash expenditures in
2017 totaling $3 million to $5 million, of which $2.7 million of
cash expenditures were recognized in the third quarter of 2017.
Annual pre-tax savings from these actions are expected to be in the
range of $8 million to $10 million.
Share Repurchase Program
During the third quarter of 2017, the Company repurchased
approximately 1.7 million shares at an aggregate value of $25.6
million under its share repurchase program. Since inception of the
share repurchase program in March 2017, the Company has repurchased
approximately 2.5 million shares at an aggregate value of $40.0
million.
Full Year 2017 Outlook
For the full year 2017 the Company continues to expect adjusted
EBITDA to be in the range of $60 million to $70 million. The
Company expects capital expenditures to be in the range of $40
million to $45 million, as compared to a prior approximation of $45
million.
Conference Call and Webcast
The Company will host a live webcast and conference call to
review third quarter results on Monday, November 6, 2017 at 11:00
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 13671614.
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 SM.
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 15
manufacturing facilities in three countries and employs
approximately 3,700 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 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 Nine months ended
September 30, September 30, 2017
2016 2017 2016 Net sales $ 308.5
$ 313.4 $ 871.0 $ 921.5 Cost of goods sold 276.8 243.4 735.1
736.4 Gross profit 31.7 70.0 135.9 185.1 Selling, general, and
administrative expense 49.3 53.8 153.2 157.0 Intangible asset
impairment 12.5 -- 12.5 -- Operating (loss) income (30.1) 16.2
(29.8) 28.1 Interest expense 0.8 0.6 2.0 1.3 Other expense 0.1 0.3
0.1 2.1 (Loss) Income from continuing operations before income
taxes (31.0 ) 15.3 (31.9 ) 24.7 Income tax (benefit) expense (12.3
) 6.0 (10.8 ) 10.9 (Loss) Income from continuing operations (18.7 )
9.3 (21.1 ) 13.8 Net gain from discontinued operations --
-- -- 1.7 Net (loss)
income $ (18.7 ) $ 9.3 $ (21.1 ) $ 15.5 Weighted average
number of common shares outstanding - Basic 26.8
27.9 27.5 27.8 Basic earnings
(loss) per share of common stock $ (0.70 ) $ 0.33 $ (0.76 )
$ 0.56 Weighted average number of common shares outstanding -
Diluted 26.8 28.3 27.5
28.1 Diluted earnings (loss) per share of common stock $
(0.70 ) $ 0.33 $ (0.76 ) $ 0.55
Condensed Consolidated Balance
Sheet
(Unaudited)
(Dollars in millions)
September 30, December 31, 2017
2016 Assets Current Assets: Cash $ 43.6 $ 30.6
Accounts and notes receivable, net 85.1 76.0 Inventories, net 264.5
272.1 Income tax receivable 4.3 2.4 Prepaid expenses and other
current assets 21.5 23.8 Total current assets 419.0 404.9
Property, plant, and equipment, net 421.1 445.2 Prepaid pension
costs 0.1 0.2 Intangible assets, net 62.1 42.6 Deferred income
taxes 5.8 4.5 Other non-current assets 6.9 7.0
Total
assets $ 915.0 $ 904.4
Liabilities and Stockholders’
Equity Current liabilities: Accounts payable and accrued
expenses $ 156.5 $ 163.0 Income taxes payable 0.9 0.4 Total current
liabilities 157.4 163.4 Long-term debt 96.1 21.2 Postretirement
benefit liabilities 72.1 75.5 Pension benefit liabilities 4.0 1.6
Other long-term liabilities 9.7 9.1 Noncurrent income taxes payable
0.5 1.7 Deferred income taxes 6.2 8.4
Total
liabilities 346.0 280.9
Total stockholders’ equity
569.0 623.5
Total liabilities and
stockholders’ equity $ 915.0 $ 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 September 30, 2017
2016 Total
Resilient
Wood Total
Resilient
Wood Net Income ($ 18.7 )
$ 9.3 Interest Expense 0.8 0.6 Other Expense
0.1 0.3 Taxes
(12.3 )
6.0 Operating Income (Loss) (30.1
) 8.5 (38.6 ) 16.2 11.9
4.3 Depreciation and amortization 35.8 10.7 25.1 11.9 8.3
3.6 Intangible asset impairment 12.5 -- 12.5 -- -- -- Expense
related to plant closures, cost reductions, acquisition, and
multilayered wood flooring duties 5.1 0.1 5.0 2.1 1.0 1.1 U.S.
pension expense 2.2 1.8 0.4 2.2 1.8 0.4
Adjusted
EBITDA $ 25.5
$ 21.2
$ 4.2
$ 32.4
$ 22.9
$ 9.4
Three Months Ended September 30, 2017
2016 $ million
Per diluted share $ million
Per diluted share Net
Income ($18.7 ) ($0.70 ) $
9.3 $ 0.33 Expenses related to plant closures
(including accelerated depreciation), cost reductions, acquisition,
and multilayered wood flooring duties 23.8 2.1 Intangible asset
impairment 12.5 -- U.S. pension expense 2.2 2.2 Other Expense 0.1
0.3 Tax impact of adjustments at statutory rate
(14.7 ) (1.7
) Adjusted Net Income $
5.3 $
0.20 12.1
$ 0.43
Columns may not foot due to rounding.
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version on businesswire.com: http://www.businesswire.com/news/home/20171106005254/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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