Attached files
| file | filename |
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| 8-K - FORM 8-K - ARMSTRONG WORLD INDUSTRIES INC | d808036d8k.htm |
| EX-99.2 - EX-99.2 - ARMSTRONG WORLD INDUSTRIES INC | d808036dex992.htm |
| EX-99.1 - EX-99.1 - ARMSTRONG WORLD INDUSTRIES INC | d808036dex991.htm |
 Armstrong
World Industries
Investor
Presentation
October 27, 2014
Exhibit 99.3 |
 2
Safe Harbor Statement
Our disclosures in this presentation, including without limitation, those relating to future financial
results guidance, and in our other public documents and comments contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act. 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, including, in this presentation, all statements and projections relating
to the building products “mid-cycle” outlook. 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. A more
detailed discussion of the risks and uncertainties that may affect our ability to achieve the
projected performance is included in the “Risk Factors” and “Management’s Discussion and Analysis” sections
of our recent reports on Forms 10-K and 10-Q filed with the SEC. As a result, our actual
results may differ materially from our expected results and from those expressed in our
forward-looking statements. 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. The information in this presentation is only
effective as of the date given, October 27, 2014, and is subject to change. Any
distribution of this presentation after October 27, 2014 is not intended and will not be construed as updating or confirming such
information.
In addition, we will be referring to “non-GAAP financial measures” within the meaning of
SEC Regulation G. A reconciliation of the differences between these measures
with the most directly comparable financial measures calculated in accordance with GAAP
are can be found in our SEC filings and on the Investor Relations section of our website at www.armstrong.com.
Armstrong competes globally in many diverse markets. References to "market" or
"share" data are simply estimations based on a combination of internal and
external sources and assumptions. They are intended only to assist discussion of the relative
performance of product segments and categories for marketing and related purposes. No conclusion has
been reached or should be reached regarding a "product market," a
"geographic market" or “market share,” as such terms may be used or defined for any
economic, legal or other purpose. |
 3
Basis of Presentation Explanation
•
When reporting our financial results within this presentation, we make several
adjustments. Management uses the non-GAAP measures below in managing the
business and believes the adjustments provide meaningful comparisons of
operating performance between periods. As reported results will be footnoted
throughout the presentation. •
We report in comparable dollars to remove
the effects of currency translation on the P&L.
The budgeted exchange rate for 2013 was
used for all currency translations in 2013 and
prior years. Guidance is presented using the
2014 budgeted exchange rate for the year.
•
We remove the impact of discrete expenses
and income. Examples include plant
closures, restructuring actions, and other
large unusual items.
•
Taxes for normalized Net Income and EPS
are calculated using a constant 39% for 2013
results and 2014 guidance, which are based
on the expected full year historical tax rate.
All
figures
throughout
the
presentation
are
in
$
millions
unless
otherwise
noted.
Figures
may
not
add
due to rounding.
Comparable
Dollars
Other
Adjustments
Net Sales
Yes
No
Gross Profit
Yes
Yes
SG&A Expense
Yes
Yes
Equity Earnings
Yes
Yes
Operating Income
Yes
Yes
Net Income
Yes
Yes
Cash Flow
No
No
Return on Capital
Yes
Yes
EBITDA
Yes
Yes
What Items Are Adjusted |
 4
Investment Highlights
Diversified $2.7 billion global building products company
with leading positions in most key markets and products
Driving value creation through:
–
Recovery in North America
•
U.S. Commercial is our most profitable business
with 35-45% margins
–
Growth in International Markets
•
Executing on emerging market investments and
recovery in developed markets
–
Leveraging innovation to drive profitable growth
•
Focus on design, environmental leadership, installation
and application enhancements
•
New product benefits to drive improved mix
Focused on creating shareholder value |
 Global Business
Overview |
 6
35
Manufacturing Facilities
in 8
Countries
30%
% of Sales from Innovative
New Products Introduced in
the Past 5 Years
8,600+
Team Members
Worldwide
Billion Worldwide
Sales
2.7
80%
North American Commercial
Distributors have been with
AWI for 20+
years
100+
Countries have Armstrong
Ceilings or Floors
Customer Relationships
Worldwide
9,000+
80 Billion
Square Feet of Installed
Commercial Space in the
U.S.
Millions of
Installations
Globally
Armstrong Highlights |
 Armstrong’s Global Manufacturing Footprint
AUSTRALIA
Braeside
Warren, AR
South Gate, CA
Pensacola, FL
Kankakee, IL
Somerset, KY
West Plains, MO
Jackson, MS
Vicksburg, MS
Millwood, MV
Hilliard, OH
St. Helens, OR
Lancaster, PA
Marietta, PA
Beech Creek, PA
Titusville, PA
Lancaster, PA
Stillwater, OK
Jackson, TN
Oneida, TN
Beverly, WV
USA
Montreal
CANADA
Team Valley
Stafford
UK
Rankwell
AUSTRIA
Pontarlier
FRANCE
Munster
Deimenhorst
Bietigheim
GERMANY
Wujiang
Shanghai
CHINA
#1
in ceilings in Europe
#1
in both floors and
ceilings in North America
#1
in ceilings in India
#1
in ceilings and
Top 3
in floors in China
#1
in both floors and
ceilings in Australia
7 |
 8
2013 Business Segment and End-Use Profile
Diversified revenue profile across products and end-use applications
45%
65%
45%
North
America
R&R in
Americas is
closer to 80%
$920
$535
$1,265
$2,720
20%
25%
10%
30%
5%
65%
35%
30%
5%
20%
Hardwood Flooring
Resilient Flooring
Ceilings
(Building Products)
Consolidated
Commercial renovation
Commercial new
Residential renovation
Residental new |
 9
EBITDA Performance
EBITDA growth in all businesses despite challenging macro environment
2010 EBITDA
2013 EBITDA
$370M
$310M
Worldwide Ceilings
Worldwide Resilient
Wood
2010
2013
2010
2013
2010
2013
Sales
$1.1B
$1.3B
10.7%
$1.0B
$920M
(9.7%)
$480M
$535M
11.2%
EBITDA as % of Sales
22%
26%
+ 360 bps
7%
10%
+ 370 bps
1%
3%
+ 220 bps
*Pension credit of $48 million in 2010 partially offset corporate expense, but net
pension expense of $3 million in 2013 provided no offset to corporate expense.
Worldwide Ceilings
Worldwide Resilient
Wood
Corporate*
81%
87%
22%
25%
2%
5%
(5%)
(17%) |
 10
Key Milestones –
Positive Momentum
Cost
Management
Initiatives
Capital
Market
Activity
Organic
Investment
Portfolio
Management
Management
2010
2011
2012
2013
2014
New CEO and CFO
Leverage recap
and $800M
special dividend
$500M special
dividend
Announced $150M
cost
out initiative
Cost out initiative
raised to
$165M and then
$185M
Cost out initiative
concluded > $200M
in 2012
Simplex ceilings
acquisition
(Architectural
Specialties)
Divestiture of
Cabinets and Patriot
flooring distribution
businesses
Announced organic
investment in emerging
markets –
began construction of 3
plants in China
New global
Ceilings CEO
New CFO and global Flooring CEO
Both internal promotions
Delivered over $40M in manufacturing
productivity in 2013 and through the first nine
months of 2014
Growth through focus on innovation, product
adjacency opportunities, design and
environmental leadership
Completion of Chinese facilities in 2013 and
Russian facility in early 2015
Announced North American LVT
manufacturing investment with expected
completion in 1H 2015
Armstrong repurchases
~5M shares ($260M)
Announced
construction of
Ceilings plant in
Russia |
 11
•
North American plants located in key
distribution areas
Over 20 plants in North America –
aids
in distribution, recycling of product and
customer relationships
•
Ability to capitalize on increased volume
Current plants are running at ~70%
capacity utilization; can support increase
in volume
A 10% increase in volume would require
an increase in production workforce by
2%
35% –
45% margins
•
Enormous base of existing installations
creates ability to leverage annuity stream
Positioned for a North American Commercial Recovery
Our most profitable market –
recovery drives strong earnings growth |
 12
•
Executing on emerging markets
growth investments
Three China plants up and running
China metal ceilings plant on-line by
2015
Closely monitoring conditions in Russia;
on the ground operations continue as
normal, plant scheduled to begin
shipping Q1 2015
•
Global manufacturing footprint we need
for the coming years is in place
Remain confident on benefits of growth
in key markets, but timing uncertain
•
We have remained agile to market
conditions
Ability to redeploy assets based on
regional opportunities
Positioned for Global Growth |
 13
•
Protect and grow
our
North American businesses
•
Invest and grow
in key international
and emerging markets
•
Optimize our portfolio
through
ongoing evaluation of strategic
opportunities by business, by
geography and across the company
•
Seek
adjacent
opportunities
to
expand
our product line and geographic reach
•
Build on our core competency
of
driving specifications in the architect
and designer communities while working
with our distribution partners to create
and enhance value
Armstrong’s Business Priorities |
 Armstrong
Ceilings
Overview |
 15
Global Ceilings Revenue and Product Mix
Commercially oriented business with diverse end-use applications
Sales by End-use Segment
Office
Retail
Education
Healthcare
Segment
% of Business
Office
30% -
40%
Retail
20% -
30%
Education
15% -
25%
Transportation /
Other
10% -
20%
Healthcare
5% -
15%
(1) Consists of wood, metal and other alternative material ceilings manufactured or
sourced by the company $780
$350
$135
2013 Sales by Geography
Americas
EMEA
Pacific Rim
85%
15%
Sales by Product Form
Mineral Fiber/Grid
Architectural
Specialties (1) |
 16
•
Seamless customer relationship –
customers buy an Armstrong ceiling system
•
ROIC >100%
•
Over $225 million in cash dividends
to
Armstrong
from
2011
to
2013
•
8 Manufacturing plants in 5 countries
•
Products and services help drive
specifications and deliver efficiency
to contractors
WAVE –
Armstrong/Worthington 22-Year JV
Integral to Armstrong Ceiling business success |
 Strategic Priorities
•
Go-to-market and fulfillment investments
Results 2010 –
2013
•
Americas EBITDA margin
+900 bps
•
>15% sales CAGR
•
Expanded capacity
•
>10% sales CAGR
(2011-2013)
•
•
Differentiated capability build-out
Margin expansion while
investing for growth
Strengthen our position in core markets
•
Position to benefit from commercial recovery
•
Expand margins and drive mix
Build a leadership position in key
emerging markets
Build a global leadership position in
Architectural Specialties
17
1
2
3 |
 18
Sales and margin growth despite market challenges
•
Sales up 7% despite flat global volumes
•
EBITDA margins up 350 bps –
price, mix, earnings from WAVE and cost improvement
Global Ceiling Sales and EBITDA
20%
22%
24%
26%
1,000
1,100
1,200
1,300
2010
2013
Global Ceiling Sales and EBITDA
Sales
EBITDA Margin |
 19
Regional Mix
Global improvements led by North America
•
~20% sales growth in UK,
Russia and Middle East
•
Offset by market contraction
in Continental Europe
•
Significant Russia plant
start-up investment began
in 2013
•
Sales +12% despite
lower volumes
•
EBITDA margin expands
900 bps –
price, mix,
manufacturing productivity,
WAVE earnings
•
Growth in India and
China offset Australia
market decline
•
Remains an investment
story to expand sales
and manufacturing
capacity for region |
 20
Architectural Specialties (AS) Overview
•
Specialty ceiling systems targeted at customer
need for a design-oriented aesthetic
•
Same customer as mineral fiber ceilings,
often combined on the same project
•
Many different materials and product forms
•
Lower volume, higher price, sometimes
involving custom design and engineering
What Is AS?
What Makes Armstrong Unique?
Easiest
To Do
Business
With
Global footprint
to support
global projects
Broadest portfolio of
on-trend specialty ceiling
solutions in the world
Consistently
high level
of quality
A “high
touch”
service
model
Enhancing our value to core customers in a differentiated way
|
 Investing in Our Global AS Footprint
Network provides advantaged local service and global leverage that aligns with how
our customers do business
Armstrong factory
Engineering office
Montreal,
Canada
Lancaster, US
Stafford, UK
Paris,
France
Moscow,
Russia
St. Gallen, Switz.
Dubai, UAE
Shanghai and
Beijing, China
Mumbai, India
Sydney, Australia
Guangzhou,
China (JV)
Capability and
capacity expansion
completed in 2013
Capability and capacity
expansion underway,
complete in 1Q14
New plant being built for Asia,
co-located with new mineral fiber plant
Stafford, UK
Wujiang, China
Rankweil, Austria
The top 200 global
architects estimate that
~50% of their revenues
come from outside their
home country
Montreal, Canada
21 |
 22
The AS Financial Equation
An attractive ROIC-accretive global growth
engine within the ceilings segment
Big Penetration
Opportunity
Attractive Stand-Alone
Economics
Total Ceilings
Portfolio Synergies
•
$2B
market
opportunity
•
Highly incremental –
fragmented regional
competition
•
High incremental
margins
•
Lower fixed asset
intensity = high ROIC
•
Unique multi-product
specifications
•
Customer loyalty
driver
•
“Pull-through”
effect
on core mineral fiber
ceilings |
 23
“Freedom Tower”
-
Conde Nast
Recently won the ceilings supply for
Conde Nast, an anchor tenant for this
iconic building, taking 25% of the floors
Why Armstrong:
•
Only company able to combine our
acoustical tile, Architectural Specialties
and grid solutions to effectively meet
customer’s challenging needs
•
Provided design services to enable a
unique visual
•
Ability to support a compressed
construction schedule
Case Study: One World Trade Center |
 24
•
Leverage global reach and scale
•
Win specification game
Multi-product offering …
1-stop shopping
Supported with design services
•
Remodel opportunity
•
Prepared for demand uptick
Global Ceilings Summary |
 Armstrong
Flooring
Overview |
 Global
Flooring Revenue Mix Balanced exposure to Residential and Commercial
recovery Commercial
40%
Residential
60%
Total Business
Remodel
70%
New
30%
Remodel
75%
New
25%
Commercial
Residential
Office 5% -
15%
Retail 15% -
25%
Education 20% -
30%
Healthcare 20% -
30%
Other 15% -
25%
Commercial Sales by End-Use Segment
26 |
 •
80%
of
sales
in
North
America
–
the
core
earnings
driver
of
the
business
•
Mix of Commercial and Residential in North America
•
Residential
is
a
North
American
business
–
business
outside
of
North
America is all Commercial
Geographic and Product Mix
2013 Sales by Geography
Total = $1.5B
2013 Sales by Product
27
Residential
~60%
Commercial
~40%
Americas
Commercial
$310
Americas
Residential
$870
EMEA $190
Pacific Rim
$85
Hardwood
36%
Res Tile
7%
Laminate/
Other 8%
Res
Sheet
10%
LVT
7%
Linoleum
Cml Sheet
17%
VCT
15% |
 •
Sales down 3% due to volume declines, product exits in Europe and divestiture of
the Patriot distribution business
•
EBITDA margins improve almost 300 bps despite volume declines and investments in
China Global Flooring Total Sales and EBITDA
Aggressively remixing portfolio to faster growth markets and products while
dramatically lowering costs Global Flooring Sales and EBITDA
28
4%
6%
8%
1,400
1,500
1,600
2010
2013
Sales
EBITDA Margin |
 29
Resilient Flooring
North American performance drives segment profit growth
•
Sales down only 2%
despite double digit
volume declines
•
Margins expand 675 bps
despite negative volume
leverage (manufacturing
productivity, mix and
price all improve)
•
Dramatic cost actions
have not been
sufficient with
European downturn
•
Structurally
challenged business
•
Sales flat; Weakness
in Australia, but China
sales +60%
•
EBITDA margins
impacted by plant /
commercial investment
in China and Australian
weakness
29
5%
10%
15%
20%
600
650
700
2010
2013
Americas
-5%
-4%
-3%
-2%
-1%
0%
150
250
350
2010
2013
EMEA
-5%
0%
5%
10%
15%
50
75
100
2010
2013
Pacific Rim |
 30
Wood –
A Cyclical Business
With the right strategy, Wood can deliver above cost of capital through cycle
•
Leadership share in North America; sales still ~ 40% off peak
•
At
trough
volumes
in
2011
and
2012,
EBITDA
margins
were
+10%
and
ROIC
was
+8%
•
Nearly $50M in commodity inflation in 2013; estimating another $30-$35M in
2014 •
New strategy to cap production, price for anticipated inflation and drive higher
mix resulted improved margins in first nine month of 2014
Wood Sales and EBITDA
30
0%
5%
10%
15%
400
500
600
2010
2011
2012
2013
Sept YTD
2014
Sales
EBITDA Margin |
 31
Our Strategy
Residential Flooring
Goals: Extend leadership
share and returns
Commercial Flooring
Goals: Restore wood attractiveness and
extend leadership share and margins in
resilient
Where To Play:
•
•
•
•
Where To Play:
•
•
•
Expand accessories and floor care solutions
Protect our leading share position in Sheet Vinyl
Significantly increase share in fast-growing LVT
Drive disproportionate sales and profit growth in
fast-growing emerging markets
Protect our leading share position in VCT in
North America
Dramatically increase share in fast-growing LVT
Win in the Healthcare, Education and Retail sectors |
 32
Retail Case Study –
Why Armstrong
Product Solutions •
Design Leadership •
Brand Recognition
•
LVT in all stores / BBT in most stores
•
Bamboo & striated visual
•
Environmental statement (bio-based tiles)
•
Local access, fast installation and easy to maintain
Partnership
Consultative •
Service •
Reliability
•
2012: Striations bio-based tile as a prototype
•
2013: Over 420 stores refurbished
•
2014: Planning over 460 locations (continued expansion 2015)
Sector: Refresh drives traffic –
likely source of pent up demand |
 33
•
Resilient flooring is a valuable franchise
with significant incremental margins
•
Executing our plan to restore Wood
structural attractiveness
•
Driving strong growth in emerging markets
•
Better utilizing our global footprint to lower
costs and speed innovation
•
Clear strategies to win
Armstrong Flooring –
Summary |
 Growth through
Innovation |
 35
•
Dynamic strategy driven by customer
needs
•
Deploying new product development, R&D,
and technical resources globally to the
highest value creation opportunities
Development of global and multi-
generational product platforms
Patent applications increased more than
5x since 2010
•
Differentiation that is valued by customers
= higher margins
•
Innovation is not limited to just new
products but extends to “how”
we do
business
Renewed Focus on Innovation
Innovation efforts accelerating
* Metric based on % of total sales for products introduced in the last five years.
0
10
20
30
40
2010
2011
2012
2013
Patent Activity
First Filed Utility Applications
0%
10%
20%
30%
2010
2011
2012
2013
New Product Sales* |
 Inspiring Great Spaces through Leadership in Product Innovation
Calla™
Now your interior space can have
the smoothest textured mineral fiber
ceiling panel available. A Calla
ceiling has the monolithic visual of
drywall with easy access to the
plenum. Calla is now available in
Colorations™, 14 standard colors or
custom painted colors. Create a
totally integrated system using
Colorations with 9/16" Suprafine®
suspension systems and Axiom®
trim. Calla also offers: sound
absorption (NRC) and sound
blocking (CAC), high light-
reflectance, 68% recycled content.
Architectural Remnants -
Architectural Salvage
Calla Colorations™
Colorfully integrated!
Now you don’t have to choose
between color and acoustics…
Colorations™
on smooth-
textured Calla™
ceiling panels offers
a choice of 13 standard or custom
painted
colors.
Colorations
also
enables a completely harmonized
look with coordinating colors
available for suspension systems
and trim. Collaboration and
partnership with Sherwin Williams
allows for thousands of made to
order custom paint colors
for a truly unique look.
Look
for
Colorations
standard
colors translated on SoundScapes®
Canopies, SoundScapes Shapes,
SoundScapes Systems Blades™,
and
Infusions®
Canopies.
FLIP™
is a hand-held spray
adhesive. This innovative flooring
spray adhesive allows contractors
and installers to turn a small room
in less time, returning the area to a
functional revenue-generating
space quicker.
FasTak™
& iset™
are factory
applied adhesive systems for
residential and commercial LVT
•
Immediate occupancy,
no wet glue
•
Fast & easy install, repair,
and replace
Architectural
Remnants
brings
back timeworn charm. It provides the
look of reclaimed wood flooring with
HYDRACORE™
PLUS,
giving
it
a
more substantial feel and the solid
sound of real hardwood.
VISIONGUARD®
protects the
surface of the floor from stains,
fading, and wear-through and makes
cleaning easy and stress-free.
Received recognition in Better
Homes & Gardens’
Kitchen + Bath
magazine as one of the 30 most
innovative products for 2014, and
was awarded “Best in Innovation”
at
Surfaces in 2014.
SoundScapes Shapes
Innovations in installation and design that inspire customers
36
™
™ |
 37
2003
2013
Ultima / Optima
Fissured / Cortega
Acoustics (NRC)
Light Reflect
Recycle Content
Anti Mold/Mildew
Warranty
0.70 / 0.90
0.90
86% / 71%
Yes
30 Years
Acoustics (NRC)
Light Reflect
Recycle Content
Anti Mold/Mildew
Warranty
0.55
0.81 / 0.82
41%
No
1 Year
Bubble size represent percent of category sales
Better products yield
better pricing
Mix Evolution -
Ceilings Americas
Innovation enables gains in price and mix
$0.00
$1.00
$2.00
37 |
 •
Sales CAGR ~5x volume
growth during this time period
•
Direct Margin $’s grew at a
CAGR of >33%
Mix Revolution -
Residential Floor Tile
Innovation
led
growth
driving
“mix
up”
within
the
category
and
improved
profitability
Alterna -
Allegheny Slate
–
Copper Mountain
Luxe with FasTak –
Groveland -
Natural
•
Growth driven by category expansion, product innovation and new
introductions:
•
Alterna, groutable engineered stone tile utilizes proprietary technology to
mimic the detail, texture and variation of natural stone
•
Luxury vinyl plank offerings such as Luxe, Natural Living, Natural
Personality
•
Present & Future Growth
•
Alterna features multiple sizes and wall installation
•
LVT domestic production enables Armstrong to expand offering and
increase speed to market
•
New
innovations
in
installation
(FasTak)
and
evolution
of
design
establish
Armstrong as the market leader
Standard residential tile
offering in 2008
From:
To:
-
$0.25
$0.50
$0.75
$1.00
$0
$50
$100
$150
2008
2013
$
Sales
ANSP
Residential Tile Growth
38 |
 Financial
Summary |
 40
•
Positioned to benefit from North American
commercial recovery
•
Capture growth in established international
and emerging markets
•
Maintain a flexible balance sheet
•
Generate significant free cash flow to fund
investments and return value to shareholders
Focused on Value Creation
ROIC is our key long-term financial metric |
 Adjusted EBITDA History
2006
2007
2008
2009
2010
2011
2012
2013
2014 Est.
Sales
$3.26B
$3.30B
$3.14B
$2.66B
$2.65B
$2.68B
$2.62B
$2.72B
$2.68 -
$2.72B
EBITDA
$400M
$433M
$401M
$310M
$310M
$376M
$402M
$371M
$355 -
$375M
EBITDA as % of
Sales
12.3%
13.1%
12.8%
11.6%
11.7%
14.0%
15.3%
13.6%
~13.5%
($430)
($195)
$105
$15
($50)
$215
A history of driving Price > Inflation
$370
$310
$400
Discrete cost-out program 2010
–
2012 drove over $200M of
savings in SG&A and
Manufacturing
$0
$100
$200
$300
$400
$500
$600
$700
$800
2006
Price / Mix
Volume
Input Costs
Mfg Cost
SG&A
WAVE
Pension Credit
2013
41 |
 42
Cash Flow History
Significant cash investments and returns to shareholders
•
Created and maintained an efficient balance sheet
•
Cash generation aided by low cash tax rate from Chapter 11 Net Operating Loss
(NOL) carry-forward
•
Prioritized investments in capital expenditures to drive global growth
•
Returned surplus cash via special dividends and share repurchase
$1,180
$135
Includes
$275M of
strategic
investments
$500
$1,000
$1,500
$2,000
$2,500
YE 2009
Borrowing
Cash Flow from
Business
Capex
Special
Dividends
Share
repurchase
YE 2013
$570
($655)
($260)
($1,300)
$600 |
 43
Well-positioned and efficient balance sheet
Balance Sheet –
9/30/14
Net Debt
$900M
LTM EBITDA
$370M
Leverage
2.4x
•
No significant maturities until 2018
•
Considerable covenant headroom
•
Recent ratings upgrade to BB
(positive) from S&P
•
Sufficient liquidity
•
Fully funded US pension plan;
no contributions in >20 years
Current Leverage
(65)
75
250
150
-100
100
300
500
Liquidity
LCs
Securitization
Revolver
Cash
$410M
0
250
500
2014
2015
2016
2017
2018
2019
2020
>2020
Maturity Schedule
Term Loans
Other |
 44
Path to Growth –
Adjusted EBITDA margin
High incremental margins on additional volume can drive increased margins in
“mid-cycle” 30%
20%
10%
0%
30%
20%
10%
0%
Ceilings
Resilient
Wood
Corp.
TOTAL
2013 Actual
Ceilings
Resilient
Wood
Corp.
TOTAL
“Mid-cycle”
Margin on Incremental
Volume
Ceilings
30% -
45%
Resilient
25% -
35%
Wood
25% -
30% |
 45
•
Free cash flow will increase as plant builds
wind down in early 2015
Partially offset by increased US
cash taxes as foreign tax credits
are consumed in 2014 and 2015
•
Prioritize use of capital
Capital expenditures to drive
organic growth
Return value to shareholders
(dividends and/or share repurchases)
Acquisitions
•
Target 2-3x net leverage on trailing
12-month EBITDA
Capital Deployment
Future
cash
distributions
likely
to
be
less
episodic
than
in
the
past |
 46
Investment Highlights
Diversified $2.7 billion global building products company
with leading positions in most key markets and products
Driving value creation through:
–
Recovery in North America
•
U.S. Commercial is our most profitable business
with 35-45% margins
–
Growth in International Markets
•
Executing on emerging market investments and
recovery in developed markets
–
Leveraging innovation to drive profitable growth
•
Focus on design, environmental leadership, installation
and application enhancements
•
New product benefits to drive improved mix
Focused on creating shareholder value |
 Financial
Overview
Appendix |
 48
$16
EBITDA
Bridge
–
Full
Year
2013
vs.
Prior
Year
($23)
($9)
$29
$6
$371
$402
$350
$370
$390
$410
$430
$450
$470
2012
Price / Mix
Volume
Input
Costs
Mfg Cost
SG&A
WAVE
Pension
Credit
Change in
D&A
2013
($49)
$(10)
$9 |
 49
EBITDA
Bridges
-
2014
Results
vs.
PY
($12)
($9)
($25)
($17)
$3
$11
EBITDA Bridge Sept YTD 2014 vs. PY
EBITDA Bridge Q3 2014 vs. PY
$300
$297
$200
$220
$240
$260
$280
$300
$320
$340
$360
2013
Price/Mix
Volume
Input Costs
Mfg Cost
SG&A
WAVE
Pension
Expense
Change in
D&A
2014
($26)
$46
$13
$15
$1
$2
$117
$122
$0
$20
$40
$60
$80
$100
$120
$140
$160
2013
Price/Mix
Volume
Input Costs
Mfg Cost
SG&A
WAVE
Pension
Expense
Change
in D&A
2014
($3)
($1)
$2
($2) |
 50
2014 Estimate Range
(1)
2013
(2)
Variance
Net Sales
(3)
2,680
to
2,720
2,700
(1%)
to
1%
Operating Income
(4)
230
to
245
257
(11%)
to
(5%)
EBITDA
355
to
375
366
(3%)
to
2%
Earnings Per Share
(5)
$2.00
to
$2.15
$1.98
1%
to
9%
Free Cash Flow
0
to
40
68
(100%)
to
(41%)
(1)
Guidance is presented using 2014 budgeted foreign exchange rates
(2)
2013 results are presented using 2014 budgeted foreign exchange rates
(3)
2014 and 2013 net sales include the impact of foreign exchange
(4)
As
reported
Operating
Income:
$205
-
$220
million
in
2014
and
$239
million
2013
(5)
As
reported
earnings
per
share:
$1.40
-
$1.55
in
2014
and
$1.71
in
2013
Key Metrics –
Guidance 2014 |
 51
2014 Financial Outlook
$30 -
$40 million vs. 2013
Adjusted Gross Margin 0 to 30 bps vs. 2013
Raw Material & Energy Inflation
Manufacturing
Productivity* Earnings
from WAVE Cash Taxes/ETR*
Q4
Capital Spending
Exclusions from EBITDA*
(1)
Net sales include foreign exchange impact
(2)
As reported ETR of 49% for 2014
* Changed from July Outlook
SG&A
16.5% to 17.0% of sales
$0 -
$5 million vs. 2013
$15 -
$25 million; Adjusted long-term ETR of ~39%
(2)
Sales
(1)
$610–
$650 million; EBITDA $55 –
$75 million
$195 -
$215 million
$25 -
$30 million |
 52
2013
2012
V
EBITDA–
Adjusted
$371
$402
($31)
Depreciation and Amortization
(109)
(100)
(9)
Operating
Income
–
Adjusted
$262
$302
($40)
Foreign Exchange Movements
(5)
-
(5)
Cost Reduction Initiatives
(18)
(13)
(5)
Accelerated Depreciation and Impairments (not included above)
-
(12)
12
Impairment
-
(6)
6
Operating
Income
–
As
Reported
$239
$271
($32)
Interest (Expense) Income
(67)
(51)
(16)
EBT
$172
$220
($48)
Tax (Expense) Benefit
(71)
(76)
5
Net Income
$101
$144
($43)
Full Year -
Adjusted EBITDA to Reported Net Income |
 Management Team |
 54
Matthew J. Espe, Chief Executive Officer and
President In July 2010, Matthew J. Espe was appointed CEO of
Armstrong World Industries, Inc., in Lancaster, Pennsylvania.
Matt brings 30 years of experience in sales, marketing, distribution and
management with global manufacturing businesses to Armstrong. In his
previous role at Ricoh Americas Corporation, a subsidiary of Ricoh Company,
Ltd., he served as chairman and CEO. Prior, he was chairman and CEO of IKON Office Solutions, Inc.,
a $4 billion office equipment distributor and services provider with 24,000
employees. Ricoh acquired IKON in 2008. Before joining IKON in 2002, Matt
was president and CEO of GE Lighting. In a career that spanned 22 years there,
he managed multiple business units as well as functions including sales,
marketing, distribution and manufacturing.
Along
with
a
wealth
of
experience,
he
also
brings
a
finely-tuned
global
perspective,
having
led
businesses in Europe, Asia and North America.
Matt is a former director of Unisys Corporation and Graphic Packaging, Inc. He
currently serves on the advisory board
at
the
College
of
Business
and
Economics
at
the
University
of
Idaho
and
on
the
advisory
council
for
Drexel
University's Lebow College of Business, Center for Corporate Governance.
Additionally, Matt is a member of the National Association of Corporate
Directors (NACD) and the Wall Street Journal CEO Council. He graduated from
the University of Idaho with a bachelor's degree in marketing, and received his
MBA from Whittier College. David S. Schulz is senior vice president and CFO
of Armstrong World Industries, Inc., in Lancaster, Pennsylvania.
Mr. Schulz joined Armstrong in 2011 as vice president, finance for Armstrong
Building Products. Prior, he served as CFO of Procter & Gamble
Company’s Americas snacks division, and from 2008 to 2009 as
the
finance
director
for
the
Coffee
business
unit
of
the
J.M.
Smucker
Co.
following
the
merger
of
P&G’s Folgers Coffee Co. with Smucker. His experience covers a wide range
of finance leadership positions encompassing operational finance, planning
and analysis, mergers and acquisitions, and financial reporting. Well known
as a strong business partner, Mr. Schulz actively engages with other
functions to drive improvement. Prior to joining Procter & Gamble, Mr.
Schulz was an officer in the United States Marine Corps.
He earned his bachelor’s degree in finance from Villanova University in 1987
and a master’s degree in management from the U.S. Naval Postgraduate
School in 1993. David S. Schulz, Senior Vice President and
Chief Financial Officer |
 55
Don Maier, Executive Vice President,
CEO Armstrong Floor Products Worldwide
Victor Grizzle,
Executive Vice President, CEO Armstrong Building Products
Victor
“Vic”
Grizzle
is
executive
vice
president
and
CEO,
Armstrong
Building
Products,
in
Lancaster,
Pennsylvania.
Mr. Grizzle has 23 years of experience in process improvement, sales, marketing
and global business leadership. He comes to Armstrong from Valmont
Industries, a $2 billion global leader of infrastructure support structures for
utility, telecom and lighting markets, and manufacturer of mechanized irrigation
equipment for large scale farming, where
he
was
group
president
of
Global
Structures,
Coatings
and
Tubing
since
2005.
Prior
to
Valmont,
Mr.
Grizzle
was president of the commercial power division of EaglePicher Corporation, a $700
million diversified manufacturer and marketer of advanced technology and
industrial products for space, defense, automotive, filtration,
pharmaceutical, environmental and commercial applications. Before that, he spent
16 years at General Electric Corporation.
Mr. Grizzle graduated from California Polytechnic University with a Bachelor of
Science in Mechanical Engineering.
Don Maier is the EVP & CEO of Armstrong Floor Products. He joined
Armstrong in January 2010 and was most recently the senior vice president,
Global Operations. Don came to Armstrong from TPG Capital Advisors, the
global buyout group of TPG, a private investment firm. Prior, he held a
steady progression of roles at Hillenbrand Industries, beginning in 1987 as a
manufacturing and product engineer for subsidiary Batesville Casket Company, and
later moving from product development and marketing leadership roles to vice
president, Manufacturing and Operations. In 2002, he became vice president,
Strategy and Business Development, for a larger Hillenbrand subsidiary,
Hill-Rom, a $1.5 billion leading global producer of health care equipment,
technology and workflow IT systems. In 2003, he became vice president and
general manager, and in 2005 he was named senior vice president –
North America. In that role, he had P&L responsibility for a $1.4 billion
business with a $325 million operating budget and $90 million capital
budget. Don is a member of the board of directors of the National Association
of Manufacturers. He holds a bachelor’s degree in Industrial Systems
Engineering from The Ohio State University in Columbus, Ohio, and an MBA,
with a concentration in Marketing, from Xavier University in Cincinnati, Ohio. |
 56
Thomas J. Waters, Vice President Treasury & Investor Relations
Thomas J. Waters is Vice President, Treasury and Investor
Relations of Armstrong World Industries, Inc. Mr. Waters
joined
Armstrong
in
1998
as
Manager,
Capital
Markets.
Since
then
he
has
held
the
positions
of Director of Investor Relations, General Manager of Finance and IT for Building
Products Europe, General Manager Financial Planning and Analysis for North
American Floor Products. He was named Treasurer
in
2008,
and
added
investor
relations
responsibilities
in
2010.
Prior to Armstrong, Mr. Waters worked for American Airlines in Dallas, TX in both
Treasury and Operational Finance roles.
Mr. Waters earned a BA from Binghamton University, and a MBA from the Walter A.
Haas School of Business at the University of California, Berkeley.
Kristy Olshan is Investor Relations Manager of Armstrong World Industries, Inc.,
in Lancaster, Pennsylvania.
Mrs. Olshan became Investor Relations Manager in December of 2010 and has
responsibility for managing all external investor communications. Mrs.
Olshan joined Armstrong in November of 2008 as External Reporting Manager.
Prior to Armstrong, Mrs. Olshan spent over 5 years in public accounting as
an auditor and advisor to clients in the construction engineering, banking,
utility, and manufacturing industries with a focus on SEC reporting and
Sarbanes-Oxley compliance. Mrs. Olshan is also a Certified Public
Accountant and member of the AICPA. She previously served on the board
as Treasurer of the York Hospital Auxiliary, a Wellspan affiliated non-profit
organization. Mrs. Olshan earned a bachelor of science
with dual degrees in Business Administration and Accounting, and an MBA from
York College of Pennsylvania. Kristy Olshan, Investor
Relations Manager |
 57
Investor Relations Contact Information
Kristy Olshan, CPA, MBA
Investor Relations Manager
Armstrong World Industries
2500 Columbia Avenue
Lancaster, PA
17604
P: 717-396-6354
F: 717-396-6128
E: ksolshan@armstrong.com
Thomas J. Waters
VP, Treasury and Investor Relations
Armstrong World Industries
2500 Columbia Avenue
Lancaster, PA
17604
P: (717) 396-6354
F: (717) 396-6136
E: tjwaters@armstrong.com |