Armstrong to Sell Wood Flooring Segment to AIP for $100M
Armstrong Flooring, Inc. AFI has
announced plans to sell its Wood Flooring segment to an affiliate
of American Industrial Partners (“AIPâ€) for $100 million. The value
of the transaction is nearly 7.2 times the segment’s trailing
12-month adjusted EBITDA. The deal is likely to be sealed by the
end of 2018. In the last two trading sessions, the company’s shares
have gained 9.4%. In fact, the stock has risen 18.2% in the past
six months against the industry’s decline of 24.2%.
Armstrong’s flooring segment consists of six U.S. manufacturing
facilities that serve the North American region. Net proceeds from
sale are expected in the range of $85-$90 million. The company
would gain flexibility and further invest in other attractive
opportunities through these proceeds.
The move underscores its aim to maximize shareholder value and
focus on lucrative resilient flooring. The company focuses on the
rapid growing segments of the flooring industry including Luxury
Vinyl Tile (LVT) and other resilient products like Vinyl
Composition Tile and resilient sheet after vending its wood
flooring segment.
The company believes demand for LVT and other resilient flooring
products will grow and this is the right time to shift their given
the changing outlook for the flooring market. Meanwhile, adjusted
EBITDA for the resilient flooring segment is expected between $59
million and $63 million for 2018. The Wood Flooring segment will be
classified as a discontinued operation from the beginning of
fourth-quarter 2018.
Moreover, the company announced a cost optimization plan to improve
its existing cost structure and eliminate all shared costs assigned
to the resilient flooring segment. These efforts are expected to
rake in savings of around $5-$6 million. However, a one-time charge
related to severance expenses of $1-$2 million is apprehended in
the fourth quarter.
The divesture and related cost optimization will benefit the
company and help it focus on product innovation that would drive
growth. With a pure-play resilient flooring company, the company is
better positioned to continue growing adjusted EBITDA and margin
from continuing operations.
Zacks Rank & Stocks to Consider
Armstrong carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the Construction sector are KBR, Inc.
KBR, EMCOR Group, Inc. EME and Dycom Industries, Inc. DY, each
carrying a Zacks Rank #2 (Buy). You can see the complete
list of today’s Zacks #1 Rank (Strong Buy) stocks
here.
KBR surpassed earnings estimates in three of the past four
quarters, the average positive surprise being 12.6%.
EMCOR Group’s expected earnings growth rate for the current year is
20%.
Dycom Industries surpassed earnings estimates in three of the past
four quarters, the average positive surprise being 3.4%.
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