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Armstrong World Industries (AWI) |
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WIKI ANALYSIS
Armstrong World Industries (NYSE: AWI) manufactures resilient and wood flooring products as well as cabinets and other building products. The company earned $3.6 billion in 2007 total revenues. The company's resilient flooring products include vinyl flooring and ceramic tile while the wood flooring segment produces pre-finished solid and engineered hardwood floors. As a result of absestos liability lawsuits, Armstrong filed for bankruptcy in 2000.[1] In quarter 4 2006, after reorganization, Armstrong emerged from bankruptcy and and issued 56.4 million shares of public stock.[2]
In 2007, spending on new home construction fell 20%.[3] As a result, Armstrong's revenue growth slowed from 2.2% in 2006 to less than 1% in 2007.[4] On the other hand, timber prices fell 13% between 2006 and 2007, resulting in Armstrong's gross margin increasing from 6% in 2006 to 8% in 2007.[5][6] Likewise, the weak dollar gave Armstrong a $78.4 million revenue boost in 2007.[7] Armstrong competes with companies like American Biltrite (ABL), USG (USG) and Mohawk Industries (MHK)
Business Segments
Resilient Flooring (35%)
Resilient Flooring, which contributed 35% of Armstrong's 2007 total revenues, produces vinyl sheet, vinyl tile, laminate and ceramic tile flooring products. Resilient Flooring also manufactures automotive carpeting as wells as adhesives and other products designed to assist in the installation of its flooring products. The segment sells its products to wholesalers, large home centers, resellers, contractors and pre-manufactured housing companies.[9] The segment's products compete with similar products manufactured by companies like American Biltrite (ABL) and Mohawk Industries (MHK).
Wood Flooring (22)%
The Wood Flooring segment accounted for 22% of Armstrong's 2007 total revenues. The segment's products include pre-finished solid and engineered wood floors and related installation products and accessories.[10] Engineered wood floors consist of a plywood backing with a veneer of hardwood on top.[11] Wood Flooring's products come in several colors and species of wood and are sold to wholesale flooring distributors and large home centers under the Bruce, Hartco, Robbins, Timberland, Armstrong, HomerWood and Capella brand names.[12] Armstrong's Wood Flooring products compete with those produced by Mohawk Industries (MHK).
Building Products (36%)
Building Products generated 36% of Armstrong's 2007 total revenues. The segment manufactures mineral fiber, soft fiber and metal ceiling systems. The segment's products can be tailored to maximize certain qualities such as sound absorption, fire resistance and aesthetics. Armstrong manufactures ceiling products for both commercial and residential applications. Commercial products are sold mostly to contractors while residential products are sold to wholesalers, large home centers and resellers.[13] The company's Building Products compete against those manufactured by USG (USG).
Cabinets (7%)
The Cabinets segment generated 7% of Armstrong's total revenues in 2007. The segment manufactures cabinetry and the related hinges and accessories for bathrooms and kitchens. The segment's products are sold to homebuilders, remodelers and retail outlets under the Armstrong and Bruce names.[14]
Business Financials
Armstrong Total Revenues, Operating Income and Net Earnings[16][17] ($ in millions)
| Segment | 2007 | 2006 | 2005 |
| Resilient Flooring | 1,231 | 1,208 | 1,233 |
| Wood Flooring | 792 | 838 | 834 |
| Building Products | 1,292 | 1,150 | 1,048 |
| Cabinets | 235 | 231 | 213 |
| Total Revenues | 3,550 | 3,426 | 3,327 |
| Operating Income | 297 | 211 | 101 |
| Net Earnings | 145 | 1,358 | 111 |
Key Trends and Forces
Decreased spending on new home construction results in slowed revenue growth for Armstrong
When spending on new home construction drops, so does spending on construction equipment and supplies resulting in slowed revenue growth for Armstrong. On the other hand, when spending on new home construction increases, spending on construction supplies increases resulting in faster revenue growth for Armstrong. Between April 2007 and April 2008, total construction spending fell 4%, with a 20% decrease in residential construction spending.[18] As a result of the decrease in new home construction spending, Armstrong's revenue growth in the United States decreased from 2.2% in 2006 to less than 1% in 2007.[19]
Decreases in lumber prices increase Armstrong's operating margins
The price of lumber can change for reasons such as a shortage of supply or demand from other industries. When the price of lumber increases, Armstrong's operating margins decrease. On the other hand, when the price of lumber decreases, Armstrong's operating margins increase. Between 2006 and 2007 the average random lengths composite price of lumber fell 13% from $325.63 to $283.29 per 1000 board feet.[20] As a result of the decrease in lumber prices, Armstrong's operating margins increased from 6% in 2006 to 8% in 2007.[21]
The weak dollar boosts Armstrong's international revenues
Because Armstrong reports its earnings in USD but 32% of its total revenues outside of the United States in 2007, exchange rates affect its revenues. When the dollar depreciates, any transactions recorded in foreign currencies will convert to more dollars and increased revenues for Armstrong. On the other hand, when the dollar appreciates, the opposite is true, meaning that a strong dollar decreases the value of Armstrong's international sales. Between June 18, 2007 and June 18, 2008 the U.S. dollar depreciated in relation to the euro, the Canadian dollar, and the Mexican peso.[23][24][25] The decrease in the dollar's value boosted Armstrong's revenues by $78.4 million in 2007.[26]
Key Competitors
- American Biltrite (ABL) manufactures adhesive tapes, protective films and fashion jewelry as well as rubber and tile flooring products. The company's rubber and tile flooring products compete with those produced by Armstrong.[27]
- Mohawk Industries (MHK) manufactures floor coverings including laminate, tile, carpet and hardwood flooring. The companies flooring products compete directly with those produced by Armstrong.[28]
- USG (USG) manufactures building products such as drywall and ceiling systems. The company's ceiling systems compete with those manufactured by Armstrong.[29]
Armstrong and Key Competitors 2007 ($ in millions)
| Company | Total Revenue | Net Income | Net Profit Margin |
| Armstrong | 3,550 | 145 | 4.1% |
| American Biltrite (ABL) | 421 | (2) | -0.5% |
| Mohawk Industries (MHK) | 7,586 | 707 | 9.3% |
| USG (USG) | 5,202 | 76 | 1.5% |
References
- ↑ Armstrong World Industries Emerges from Bankruptcy
- ↑ Armstrong World Industries Emerges from Bankruptcy
- ↑ Value of Construction Put in Place - Seasonally Adjusted Annual Rate
- ↑ AWI 2007 10-K: Nature of Operations, pg 80-81
- ↑ NAHB: FRAMING LUMBER PRICES
- ↑ AWI 2007 10-K: Selected Financial Data, pg 20
- ↑ AWI 2007 10-K: Management’s Discussion and Analysis of Financial Condition and Results of Operations, pg 33
- ↑ AWI 2007 10-K: Nature of Operations, pg 80-81
- ↑ AWI 2007 10-K: Business, pg 6
- ↑ AWI 2007 10-K: Business, pg 6
- ↑ About.com: The Basics of Engineered Wood Flooring
- ↑ AWI 2007 10-K: Business, pg 6
- ↑ AWI 2007 10-K: Business, pg 6
- ↑ AWI 2007 10-K: Business, pg 6
- ↑ AWI 2007 10-K: Nature of Operations, pg 80-81
- ↑ AWI 2007 10-K: Nature of Operations, pg 80-81
- ↑ AWI 2007 10-K: Selected Financial Data, pg 20
- ↑ Value of Construction Put in Place - Seasonally Adjusted Annual Rate
- ↑ AWI 2007 10-K: Nature of Operations, pg 80-81
- ↑ NAHB: FRAMING LUMBER PRICES
- ↑ AWI 2007 10-K: Selected Financial Data, pg 20
- ↑ EUR to USD Exchange Rates
- ↑ EUR-USD Exchange Rates
- ↑ USD-CAD Exchange Rates
- ↑ Search for Mexican Peso to US Dollar
- ↑ AWI 2007 10-K: Management’s Discussion and Analysis of Financial Condition and Results of Operations, pg 33
- ↑ Google Finance: ABL
- ↑ Google Finance: MHK
- ↑ Google Finance: USG
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