Armstrong World’s (NYSE:AWI) Q4: Strong Sales, Guides for Strong Full-Year Sales

Ceiling and wall solutions company Armstrong World Industries (NYSE:AWI) reported Q4 CY2024 results exceeding the market’s revenue expectations, with sales up 17.7% year on year to $367.7 million. The company’s full-year revenue guidance of $1.59 billion at the midpoint came in 3.3% above analysts’ estimates. Its non-GAAP profit of $1.50 per share was 8.3% above analysts’ consensus estimates.

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“These strong fourth-quarter results capped off another year of significant growth for Armstrong with record-setting sales and earnings, strong free cash flow generation, and two meaningful acquisitions to grow our Architectural Specialties capabilities,” said Vic Grizzle, President and CEO of Armstrong World Industries.

Company Overview

Started as a two-man shop dating back to the 1860s, Armstrong (NYSE:AWI) provides ceiling and wall products to commercial and residential spaces.

Building Materials

Traditionally, building materials companies have built competitive advantages with economies of scale, brand recognition, and strong relationships with builders and contractors. More recently, advances to address labor availability and job site productivity have spurred innovation. Additionally, companies in the space that can produce more energy-efficient materials have opportunities to take share. However, these companies are at the whim of construction volumes, which tend to be cyclical and can be impacted heavily by economic factors such as interest rates. Additionally, the costs of raw materials can be driven by a myriad of worldwide factors and greatly influence the profitability of building materials companies.

Sales Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Armstrong World’s sales grew at a mediocre 6.8% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a rough starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Armstrong World’s annualized revenue growth of 8.3% over the last two years is above its five-year trend, suggesting some bright spots.

This quarter, Armstrong World reported year-on-year revenue growth of 17.7%, and its $367.7 million of revenue exceeded Wall Street’s estimates by 4.4%.

Looking ahead, sell-side analysts expect revenue to grow 6.6% over the next 12 months, a slight deceleration versus the last two years. This projection doesn't excite us and indicates its products and services will face some demand challenges.

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Operating Margin

Armstrong World has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 24.8%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Armstrong World’s operating margin decreased by 1.3 percentage points over the last five years. This raises an eyebrow about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q4, Armstrong World generated an operating profit margin of 22.3%, up 1 percentage points year on year. The increase was encouraging, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Armstrong World’s unimpressive 5.9% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Armstrong World’s two-year annual EPS growth of 15.4% was great and topped its 8.3% two-year revenue growth.

In Q4, Armstrong World reported EPS at $1.50, up from $1.22 in the same quarter last year. This print beat analysts’ estimates by 8.3%. Over the next 12 months, Wall Street expects Armstrong World’s full-year EPS of $6.32 to grow 8.9%.

Key Takeaways from Armstrong World’s Q4 Results

We were impressed by how significantly Armstrong World blew past analysts’ revenue and EPS expectations this quarter. We were also glad its full-year revenue, EPS, and EBITDA guidance beat Wall Street’s estimates. Zooming out, we think this quarter featured some important positives. The stock traded up 3.5% to $150.90 immediately after reporting.

Armstrong World put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.