- Full Year Net Sales of $626.3 Million
- Full Year Net Loss of $58.5 Million and Adjusted Net Loss of
$37.9 Million
- Full Year Adjusted EBITDA of $24.4 Million
- Introduces Multi-year Strategic Roadmap Focused on Operational
Enhancements and Long-Term Growth and Profitability
Armstrong Flooring, Inc. (NYSE: AFI) (“Armstrong Flooring” or
the “Company”), a leader in the design and manufacture of
innovative flooring solutions, today reported financial results for
the fourth quarter and full year ended December 31, 2019.
Michel Vermette, President and Chief Executive Officer,
commented, “Fourth quarter results were softer year-over year, in
line with our expectations. Moving into 2020, we have begun to
execute our multi-year plan to expand, simplify and strengthen our
business to generate stronger performance and augment the
trajectory of our long-term profitability.”
Fourth Quarter and Full Year 2019
Results Compared with 2018 Results
Consolidated
Results
(Dollars in millions except per share
data)
Three Months Ended December
31,
Twelve Months Ended December
31,
2019
2018
Change
2019
2018
Change
Net sales
$141.3
$153.8
(8.1%)
$626.3
$728.2
(14.0%)
Operating (loss)
($21.0)
($16.6)
N/M
($61.1)
($17.4)
N/M
Net (loss)
($25.1)
($171.0)
N/M
($58.5)
($163.0)
N/M
Diluted (loss) per share
($1.14)
($6.57)
N/M
($2.42)
($6.27)
N/M
Adjusted EBITDA
($4.3)
$1.8
N/M
$24.4
$57.5
(57.5%)
Adjusted EBITDA margin
(3.1%)
1.2%
N/M
3.9%
7.9%
(400 bps)
Adjusted net (loss) income
($23.1)
($9.0)
N/M
($37.9)
$5.8
N/M
Adjusted diluted (loss) earnings per
share
($1.05)
($0.35)
N/M
($1.57)
$0.22
N/M
In the fourth quarter of 2019, net sales decreased 8.1% to
$141.3 million from $153.8 million in the fourth quarter of 2018,
including an adverse currency impact of 50 basis points. The
decrease in net sales was due to unfavorable mix, volume, and
price. Lower mix and volume in the fourth quarter of 2019 primarily
reflected share loss in some categories. Mix was driven by lower
relative LVT sales while price was impacted by competitive
pressures.
The net loss in the fourth quarter of 2019 was $25.1 million, or
diluted loss per share of $1.14, as compared to a net loss of
$171.0 million, or diluted loss per share of $6.57, in the prior
year quarter, which included a loss on disposal of discontinued
operations of $153.8 million. The fourth quarter 2019 included
pre-tax charges of $0.5 million primarily related to executive
transition and cost reduction expenses. Adjusted net loss was $23.1
million, or adjusted diluted loss per share of $1.05, as compared
to an adjusted net loss of $9.0 million, or adjusted diluted loss
per share of $0.35, in the prior year quarter.
Fourth quarter 2019 adjusted EBITDA was ($4.3) million, as
compared to $1.8 million in the prior year quarter. The decrease in
adjusted EBITDA was primarily attributable to lower net sales and
higher manufacturing costs, partially offset by benefits from
improved raw material sourcing.
For the full year 2019, net sales decreased 14.0% to $626.3
million as compared to $728.2 million in 2018. The decrease in net
sales was primarily driven by unfavorable volumes, reflecting
relative changes in distributor inventory levels compared to the
prior year due to significant customer purchases in 2018 ahead of
U.S. tariff increases.
Full year 2019 net loss was $58.5 million, or diluted loss per
share of $2.42, as compared to net loss of $163.0 million, or
diluted loss per share of $6.27, in the prior year. Adjusted net
loss was $37.9 million, or adjusted diluted loss per share of
$1.57, as compared to an adjusted net income of $5.8 million, or
adjusted diluted earnings per share of $0.22, in the prior
year.
Full year 2019 adjusted EBITDA was $24.4 million, as compared to
$57.5 million in the prior year. The decrease in adjusted EBITDA
was primarily attributable to lower net sales and increased input
cost inflation pressure, partially offset by improved
productivity.
In December 2019, the Company successfully completed the
replacement of its prior credit facility with a new $100 million
asset-based facility. At December 31, 2019, the Company had cash
and cash equivalents $27.1 million and long-term debt of $42.7
million.
While the Company is still completing its assessment of its
internal control over financial reporting as of December 31, 2019,
in its upcoming fiscal 2019 Annual Report on Form 10-K, it expects
to report a material weakness in internal control. The weakness
relates to information technology general controls around a
specific type of customer rebate program that we use. As of the
date of this release, there have been no misstatements identified
in the financial statements as a result of these internal control
deficiencies, and the Company expects to timely file its Form 10-K.
Remediation efforts have begun, but the material weakness will not
be considered remediated until the applicable controls operate for
a sufficient period of time and we conclude through testing that
the controls are operating effectively. We expect the remediation
to be completed by the end of fiscal 2020.
Multi-year Strategic Roadmap
Following a comprehensive review of the business to improve the
direction of Armstrong Flooring and with the full support of its
Board of Directors, the Company has established a multi-year
strategic roadmap to transform and modernize its operations to
become a leaner, faster growing and more profitable business. The
roadmap encompasses three critical objectives, including the
expansion of sales through closer alignment with end customers, the
simplification of operations and product offerings to compete more
effectively, and the strengthening of its marketing capabilities,
merchandising, and branding to further build upon the Company’s
leadership position in the resilient flooring industry.
The Company has implemented a new operating model to more
effectively accomplish its three objectives under its multi-year
roadmap. The operating model is entirely centered on strengthening
the Company’s connection with end customers and repositioning its
culture for excellence by
- Placing the customer first by aligning services and products
through a more seamless value chain
- Leading the industry in product innovation in both branded and
private label opportunities
- Simplifying processes and operating complexity to become more
competitive and efficient
- Realigning the go-to-market model to reach all relevant
channels and customers
- Implementing system changes across the plant network to improve
operations, drive down costs and reignite organic growth
- Investing thoughtfully with a returns-focused mindset,
supported by an improved incentive structure
The Company is confident that these actions will allow it to
better navigate the rapidly expanding and evolving addressable
resilient flooring market, while reversing many years of
operational underperformance due to regression in multiple
channels, a slow-turning product portfolio, underutilized assets
and complex infrastructure.
The Company anticipates the benefits of its initiatives to be
realized over a multi-year period. The Company anticipates 2020 to
be a transitional year, with improvement in sales attributable to
better volume and price / mix, helping to produce a higher gross
profit margin. These improvements in 2020 will be offset by planned
SG&A investments that are being made to help drive long-term
growth. In addition, certain SG&A benefits in 2019 will not
repeat in 2020, therefore adjusted EBITDA dollars and margin are
expected to decrease significantly on a percentage basis in 2020
compared to 2019. Moving beyond 2020, the Company expects adjusted
EBITDA to increase each year as accretive initiatives and
investments drive meaningful benefits to results.
Mr. Vermette concluded, “We are pleased to unveil our strategic
roadmap to simultaneously address the challenges impacting our
business, while positioning ourselves to better serve all
addressable customers. I am confident that our company will become
more lean, agile and profitable with this customer-focused strategy
to transform and modernize the way we do business. While 2020 will
be a transitional year as we lay the foundation of our growth
pillars, we look forward to advancing our strategy and delivering
great value for our shareholders in the years ahead.”
Conference Call and Webcast
The Company will hold a live webcast and conference call to
review financial results, discuss its multi-year strategic roadmap
and conduct a question-and-answer session on Tuesday, March 3, 2020
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 13698199.
About Armstrong Flooring
Armstrong Flooring, Inc. (NYSE: AFI) is a global leader in the
design and manufacture of innovative flooring solutions.
Headquartered in Lancaster, Pennsylvania, the Company safely and
responsibly operates 8 manufacturing facilities globally, working
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
Consolidated Statements of
Operations
(Dollars in millions except
per share data)
(Unaudited)
Three months ended December
31,
Twelve months ended December
31,
2019
2018
2019
2018
Net sales
$
141.3
$
153.8
$
626.3
$
728.2
Cost of goods sold
126.1
128.8
541.0
585.0
Gross profit
15.2
25.0
85.3
143.2
Selling, general, and administrative
expense
36.2
41.6
146.4
160.6
Operating (loss)
(21.0
)
(16.6
)
(61.1)
(17.4)
Interest expense
1.7
1.9
4.4
4.8
Other expense
0.6
0.7
1.8
2.9
(Loss) from continuing operations before
income taxes
(23.3
)
(19.2
)
(67.3
)
(25.1)
Income tax expense (benefit)
4.6
(4.3
)
1.6
(6.0)
(Loss) from continuing operations
(27.9
)
(14.9
)
(68.9
)
(19.1)
(Loss) earnings from discontinued
operations
-
(2.3
)
-
9.9
Gain (loss) on disposal of discontinued
operations
2.8
(153.8
)
10.4
(153.8)
Net earnings (loss) from discontinued
operations
2.8
(156.1
)
10.4
(143.9)
Net (loss)
$
(25.1
)
$
(171.0
)
$
(58.5
)
$
(163.0)
Weighted average number of common shares
outstanding - Basic
21.9
26.0
24.1
26.0
Basic (loss) per share of common stock
$
(1.14
)
$
(6.57
)
$
(2.42
)
$
(6.27)
Weighted average number of common shares
outstanding - Diluted
21.9
26.0
24.1
26.0
Diluted (loss) per share of common
stock
$
(1.14
)
$
(6.57
)
$
(2.42
)
$
(6.27)
Consolidated Balance
Sheet
(Dollars in millions)
Assets
December 31, 2019
December 31, 2018
Current Assets:
Cash
$
27.1
$
173.8
Accounts and notes receivable, net
36.1
39.0
Inventories, net
111.6
139.5
Other current assets
10.7
18.6
Total current assets
185.5
370.9
Property, plant, and equipment, net
277.2
296.1
Other non-current assets
39.5
41.2
Total assets
$
502.2
$
708.2
Liabilities and Stockholders’
Equity
Current liabilities:
Accounts payable and accrued expenses
$
104.4
$
141.4
Short-term debt and current installments
of long-term debt
0.2
28.7
Other current liabilities
-
0.5
Total current liabilities
104.6
170.6
Long-term debt
42.5
70.6
Postretirement benefit liabilities
59.7
55.7
Pension benefit liabilities
16.0
11.3
Other long-term liabilities
11.1
9.0
Total liabilities
233.9
317.2
Total stockholders’ equity
268.3
391.0
Total liabilities and stockholders’
equity
$
502.2
$
708.2
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
Company’s 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. 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 its non-GAAP results
for periods prior to completion of the sale of the Company’s wood
flooring business. These adjustments represent the elimination of
certain shared costs that were formerly allocated to the divested
wood flooring segment and are intended to reflect, on a pro forma
basis, the retroactive elimination of these costs in accordance
with the Company’s ongoing cost optimization program which, when
combined with certain payments under the Transition Services
Agreement entered into with the purchaser, are expected to offset
the impact of substantially all of these costs. 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 December 31,
2019
2018
Net (loss)
($25.1)
($171.0)
Net (income) loss from discontinued
operations
(2.8)
156.1
Interest expense
1.7
1.9
Other expense
0.6
0.7
Taxes
4.6
(4.3)
Operating (loss)
(21.0)
(16.6)
Depreciation and amortization
15.5
11.2
Expenses related to inventory
write-downs
--
--
Expenses related to merchandizing
write-downs
(0.1)
--
Expenses related to executive
transition
0.4
--
Expenses related to cost reduction
initiatives, special projects, and plant closures
0.1
1.5
U.S. pension expense
0.7
0.9
Pro forma adjustment for corporate
expense
--
4.8
Adjusted EBITDA
($4.3)
$1.8
Three Months Ended December
31,
2019
2018
$
million
Per
diluted share
$
million
Per
diluted share
Net income (loss)
($25.1)
($1.14)
($171.0
)
($6.57)
Expenses related to executive
transition
0.4
--
Expenses related to merchandising
write-downs
(0.1)
--
Expenses related to cost reduction
initiatives, special projects, and plant closures, including
accelerated depreciation
4.8
1.5
Pro forma adjustment for corporate
expense
--
4.8
U.S. pension expense
0.7
0.9
Other expense
0.6
0.7
Tax impact of adjustments at statutory
rate
(1.6)
(2.0
)
Net (income) loss from discontinued
operations
(2.8)
156.1
Adjusted net (loss)
($23.1)
($1.05)
($9.0
)
($0.35)
Twelve Months Ended December
31,
2019
2018
Net (loss)
($ 58.5
)
($163.0
)
Net (earnings) loss from discontinued
operations
(10.4
)
143.9
Interest expense
4.4
4.8
Other expense
1.8
2.9
Taxes
1.6
(6.0
)
Operating (loss)
(61.1
)
(17.4
)
Depreciation and amortization
50.7
44.7
Expenses related to executive
transition
7.4
--
Expenses related to inventory
write-downs
13.6
--
Expenses related to merchandising
write-downs
5.9
--
Expenses related to cost reduction
initiatives, special projects, and plant closures
5.2
7.5
U.S. pension expense
2.7
3.8
Pro forma adjustment for corporate
expense
--
19.0
Adjusted EBITDA
$ 24.4
$57.5
Twelve Months Ended December
31,
2019
2018
$
million
Per
diluted share
$
million
Per
diluted share
Net (loss)
($58.5)
($2.42)
($163.0)
($6.27)
Expenses related to executive
transition
7.4
--
Expenses related to inventory
write-downs
13.6
--
Expenses related to merchandising
write-downs
5.9
--
Expenses related to cost reduction
initiatives, strategic projects and plant closures, including
accelerated depreciation
9.8
7.5
Pro forma adjustment for corporate
expense
-
19.0
U.S. pension expense
2.7
3.8
Other (income) & expense
1.8
2.9
Tax impact of adjustments at statutory
rate
(10.3)
(8.3)
Net loss (earnings) from discontinued
operations
(10.4)
143.9
Adjusted Net (Loss) Income
($37.9)
($1.57)
$5.8
$0.22
Rows and columns may not foot due to rounding.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200303005287/en/
Investors: Doug Bingham SVP, Chief Financial Officer
717-672-9300 IR@armstrongflooring.com
Media: Alison van Harskamp Director, Corporate Communications
717-672-7545 aficorporatecommunications@armstrongflooring.com
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