Armstrong announces plans to split in two
Armstrong World Industries will no longer be as one, having announced a plan to spin off its Flooring business into a separate company.
The company's board of directors has approved a plan to create separate publicly traded companies out of the Flooring and Ceiling businesses, with the tax-free spinoff scheduled for completion in the first quarter of 2016.
The resulting companies, says Armstrong, will be better poised for leadership in their respective markets, benefiting from a more specialized strategy, streamlined operations and improved capital allocation.
"We are committed to taking decisive actions to deliver shareholder value, and separating our businesses at this time is the best way to accomplish that goal," said president and CEO Matthew Espe. "We expect both businesses to improve their industry-leading positions and maximize their strategic opportunities. There is little existing overlap between the businesses, and we expect the separation to create minimal incremental operating expenses and result in no disruption to our customers, distributors, and suppliers."
Once the separation is complete, Armstrong World Industries will be comprised of the Armstrong Building Products unit, which generated $1.3 billion in revenue in 2014. Plans for the company include capitalizing on recent investments and seeking further acquisition opportunities. It will staff approximately 3,400 employees and operate 22 manufacturing facilities in eight countries, with Armstrong Building Products CEO Vic Grizzle stepping in as CEO of the new Armstrong World Industries.
Meanwhile, Armstrong Flooring (which generated $1.2 billion in revenue last year) will continue cementing its position in the North American and Asian markets, as well as that of luxury vinyl tile. It will operate 17 manufacturing facilities in three countries and staff 3,600 team members. Current Armstrong Flooring Products CEO Don Maier will continue on in his role.
“This separation is a continuation of the company’s actions since emergence from bankruptcy to create long-term shareholder value," added Espe. "Since 2008, we have improved margins by dramatically reducing SG&A, divesting non-core and under-performing businesses, including the Cabinets and European flooring businesses, and investing in growth opportunities around the world. Over the same period, we have returned over $1.5 billion of capital to our shareholders through dividends and share repurchases. The time is right for this separation as these two businesses are well-positioned to deliver value as independent companies.”
Both businesses will remain headquartered in Lancaster, Pennsylvania, with minimal disruptions to existing staff, the company said.
Announcing breakup, Armstrong posts declines
While announcing the company would split into two businesses – one for flooring, one for ceilings – Armstrong World Industries reported declines in fourth quarter sales and earnings.
Net sales in the three months ended Dec. 31 were $587.3 million, down 4.5% from $614.8 million in the fourth quarter last year. Net income declined 54.7% to $10.6 million.
The declines in net income were driven partially by the margin impact of lower volumes and higher input costs, which were only partially offset by favorable price and mix, lower SG&A spending and improvements in productivity.
"We delivered fourth quarter and full year results within our guidance range when adjusting for the exit of our European Flooring business,” said Matt Espe, CEO. “Our worldwide ceilings business delivered yet another record quarterly and full year earnings result despite the slow pace of the recovery.”
Regarding the split, Espe said: “As we separately disclosed today, I’m also pleased to announce that our Board of Directors has unanimously approved a plan to separate Armstrong into two independent industry-leading public companies, which we believe will enhance the strategic, operational and financial flexibility of both businesses and create value for our shareholders."
For the full year, sales from continuing operations declined 0.5% to $2.5 billion. Operating income declined 10% to $239.1 million.
"We anticipate improving market conditions in the U.S. will support modest sales growth despite some anticipated pressure from foreign exchange in our international operations," said Dave Schulz, CFO. "While earnings are expected to be lower than 2014, the investments we are making will position our businesses to succeed as two independent industry-leading public companies and benefit 2016 and beyond."
Analysis: Walmart pay hike wins plaudits, and pans
On Thursday, in a move that could shape the minimum wage debate, Walmart announced it was raising the minimum wage of its employees to $10 per hour, which is significantly higher than the Federal minimum wage. The news has met with a mixed reaction.
Here's a sampling:
CNBC reports that Wall Street gives Walmart a big thumbs down for the news.
The Wall Street Journal says Walmart's action will have lasting repercussions for other retailers.
The Daily Beast says the news is nowhere near as good as headlines suggest.
Forbes says the motive behind Walmart's move could help determine minimum wage laws.
The National Retail Federation applauded the move, suggesting it shows there is no need for a hike in the Federal minimum wage.
Politico writes that Walmart's decision doesn't really affect that many of its worker.
[This article first appeared in HBSDealer's sister publication Chain Store Age.]