A Member of Pat McKeough’s Inner Circle recently asked for his advice on a company that designs and manufactures commercial and residential ceiling, wall and suspension systems.
Despite the booming housing market, Pat sees other stocks as better buys for right now.
Armstrong World Industries Inc. (Symbol AWI on New York; www.armstrongceilings.com), is a leader in the design and manufacture of innovative commercial and residential ceiling, wall and suspension systems. The company has 2,500 employees working from 14 facilities in the U.S. and Canada.
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On December 15, 2020, Armstrong completed the acquisition of Arktura LLC, a Los Angeles-based maker of architectural specialty metal ceilings, and felt walls, partitions and facades.
Armstrong paid $91 million in cash up front. It will also make another $24 million in deferred cash payments and pay $6 million in Armstrong stock—both will come over five years. Arktura had 2019 revenue of $37 million.
The two companies plan to create Arkura Ventures LLC, which will incubate new products and solutions for engineering and construction customers.
The acquisition was Armstrong’s third of 2020 and its eighth since spinning off Armstrong Flooring Inc. (symbol AFI on New York) in 2016.
Overall revenue fell 27.6%, from $1.23 billion in 2016 to $893.6 million in 2017. That decline reflects the spin-off of Armstrong Flooring in 2016. Revenue then rose 9.1% in 2018 to $975.3 million, and then a further 6.4% in 2019 to $1.04 billion. However, revenue fell to $936.9 million in 2020 as the COVID-19 pandemic hurt the business of some customers resulting in a drop in orders for Armstrong.
The company’s earnings rose strongly between 2016 and 2019, up 89.6% from $127.8 million, or $2.29 a share, to $242.3 million, or $4.88. As the pandemic took hold, earnings then fell 30.1% in 2020, to $169.3 million, or $3.98.
In the quarter ended March 31, 2021, Armstrong’s revenue decreased 11.1%, to $246.3 million from $277.1 million a year earlier. Excluding one-time items, the company earned $49 million during the latest quarter. That was down 27.9% from $68 million, or $1.38 a share. Per-share earnings fell 22.5%, to $1.07 from $1.38 on fewer shares outstanding.
Armstrong continues to experience lower sales volumes across both of its operating segments. It has also seen decreased product demand in major urban areas. How soon its markets will bounce back from their pandemic slowdown is uncertain. As well, it’s unclear whether the continuation of remote working—expected at some level—will hurt product demand from offices.
Recommendation in Pat’s Inner Circle: Armstrong World Industries Inc. is not recommended.
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