Q3 2023 Armstrong World Industries Inc Earnings Call
Please wait the conference will begin shortly.
[music].
Good morning.
My name as Colby and I will be your conference operator today.
At this time I would like to welcome everyone to the Q3 2023 Armstrong World Industries Earnings Conference call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you'd like to ask a question. During this time simply press star followed by the number one telecom.
Keypad.
If you'd like to withdraw your question again press Star one.
You.
I'll now turn the call over to Theresa Womble, Vice President of Investor Relations and corporate communications.
They begin.
Thank you Coby and welcome everyone to our call. This morning.
On today's call Vic Grizzle, our CEO and Chris cows are better our CFO will discuss Armstrong World Industries' third quarter 2023 result.
And our rest of your outlook to accompany these remarks, we have provided a presentation that is available on the investors section of the Armstrong World Industries website.
Our discussion of operating and financial performance will include non-GAAP financial measures within the meaning of SEC Reg G. A reconciliation of these measures with the most directly comparable GAAP measures is included in the earnings press release and in the appendix of the presentation issued this morning.
They are available on our website.
During the call, we will be making forward looking statements.
These statements represent the view, we have the right financial and operational performance as of today's date October 24th 2023.
These statements involve risks and uncertainties that may differ materially from those expected or implied.
We provide a detailed discussion of the risks and uncertainties and our SEC filings, including the 10-Q filed earlier. This morning, we take no obligation to update any forward looking statement beyond what is required by applicable securities law.
And now I'll turn the call to Vic.
Thank you Theresa and good morning, everyone and thank you all for joining our call. This morning as most of you have seen in our press release. This morning, we delivered strong third quarter results, we generated strong sales and earnings growth, while still facing weak market conditions that dampened overall demand at both our mineral fiber and architectural specialties segments.
Our results were stronger in the quarter than we expected largely due to the fact that we did not experience a further deterioration of market activity as initially expected.
And due to the outstanding execution by our teams.
Now before we get into more of the details of these results I'd like to recognize the strong execution by our teams in the quarter and in fact throughout the entire year I. Appreciate the effort spent across the company to deliver the highest quality products with the best service levels in our industry. While also successfully Anthony implementing our.
Growth initiatives, so thanks to the entire Armstrong team.
For the quarter total company adjusted EBITDA increased 19% on a 7% increase in net sales total company adjusted EBITDA of $125 million marks the highest quarterly result in the history of our business with adjusted EBITDA margin expanding 380 basis points.
Both of our segments mineral fiber and architectural specialties reported record setting quarterly sales and earnings with robust margin expansion.
These results are truly emblematic of the resilience of our business with a strong market position a diverse set of end markets and effective growth initiatives.
All providing strength and stability to our sales and earnings even with one or two of our verticals are under pressure.
Now taking a closer look at our mineral fiber segment, we delivered 7% sales growth and 18% adjusted EBITDA growth.
As a strong sales results were largely due to better than expected sales volumes as the anticipated weaker economic backdrop in the second half of 2023 has not materialized.
The market, we experienced was more similar to what we had seen in the first half of 2023.
We also expected a more pronounced reversal in sales volumes in our home center or Big box channel.
Given the inventory build earlier in the year, while we did see lower third quarter sales volumes in this channel it was not at the level expected.
Our growth initiatives this quarter continued to gain momentum and contribute it contributed two points of mineral fiber volume growth in the quarter. Much of this was driven by our initiatives designed to drive more renovation activity with.
With a highlight in the quarter being our digital initiative canopy by Armstrong.
Third quarter sales through the <unk>.
Platform more than doubled from prior year levels and for the first time since the platform launched canopy was a positive contributor to EBITDA growth. This as an exciting milestone for this important growth initiative.
As a reminder, what we're driving for with the canopy platform as a cost effective way to access the 60% of the installed base of mineral fiber ceilings that need renovate but who as decision makers have limited access to knowhow and solutions to get it done.
Canopy offers these customers an easy to use platform and creates awareness on our broad assortment of products and solutions let's.
What's particularly encouraging thus far as how canopy is attracting a new and different set of customers to Armstrong.
As at the base of repeat customers continues to grow.
Project works are automated design service also continues to gain traction and as strengthening our project project specifications with products at the high end of our portfolio <unk>.
Contributing to our strong <unk> performance.
The number of projects through this platform continues to grow and our win rate on these projects continues to be meaningfully higher than our overall average win rate.
Adding to both incremental volume and average unit value growth.
Now on that note our <unk> continues to be a highlight.
<unk> growth of 8% this quarter was driven by favorable pricing as well as positive mix.
We continue to innovate better ways to improve our service customers to earn our prices.
And a consistent mix contribution to AAV underscores our ongoing focus on delivering new product innovation, which fuels the product mix that we realized.
All of these factors strong AEP growth moderating inflation strong contribution from growth initiatives.
And improvement in earnings through our wave joint venture led to our mineral fiber adjusted EBITDA margin of nearly 42% in the quarter.
Well on its way back to 2019 levels.
Our architectural specialties segment also delivered a strong quarter with record setting sales and earnings adjusted EBITDA for the segment grew 30% versus the prior year third quarter and adjusted EBITDA margin exceeded 20%.
We delivered these results due to continued revenue growth along with better operating leverage.
I am proud of the work. This team is doing to get this business back to the 20% level and in particular with our <unk> plants for their strong operational performance. This quarter in terms of on time deliveries and low claims rates.
We're also pleased with the addition of both modern to our architectural specialties segment, which is included in our results for the first time this quarter.
This acquisition as adding more capabilities to Armstrong and as opening new opportunities for sales in new spaces.
In terms of overall market activity in the architectural specialty segment quoting activity continued to be positive however, less positive than we saw in the first half.
We also experienced some choppiness in the order activity with some new orders being delayed.
Although we're seeing some increase in delays of project awards, we have not experienced project cancellations, we continue to see strength in transportation, particularly in airports and large municipal projects like convention centers.
These are often larger projects and can be subject to delays given their complexity. So we're continually.
And carefully monitoring shifting schedules and overall project activity in this important segment.
Before turning the call over to Chris for some more financial details I wanted to take a moment to highlight an internal investment we brought online in the quarter.
Lets to expand our capacity and capabilities within our architectural specialties metal category.
Metal has been a growth area for us over the last several years and you've seen us active in acquisitions and unique metal with unique metal design and production capabilities, including our tourer and most in 2020 and most recently both modern.
One of our earlier acquisitions and metal was steel ceilings in Johnstown, Ohio back in 2018 that primarily produces our metal works product line today.
Most of our growth in metal overall in a centralized location of Johnstown, we've invested approximately $15 million over the last two years to expand the capability and capacity of this location.
These investments include new equipment that allow us to broaden our capabilities and to be more efficient.
With these investments we will significantly advance, our finishing capability and expect to be able to triple the production capacity of this site, while also significantly reducing lead times the.
The work, we've done there as well as through our acquisitions uniquely positions Armstrong, so when larger projects and overall higher value business in the metal category.
And frankly, the timing could not be better with the infrastructure Bill and the increase in transportation projects.
I'll come back in a moment for some more details, but Chris over to you for the financials. Thanks, Nick and good morning to everyone on the call as a reminder, throughout my remarks, I'll be referring to the slides available on our website and slide three which details our basis of presentation.
On slide six we discuss our quarterly mineral fiber segment results mineral fiber sales growth of 7% was driven by strong <unk>, partially offset by lower volumes.
Performance was driven by like for like pricing along with favorable mix.
A positive mix benefit in the quarter was driven by channel mix.
This strong AEP result marks another solid quarter of execution by our teams and we remain on track to deliver AAV growth for the full year above our historical average of 5%.
The decrease in mineral fiber volumes during the quarter was driven by overall softer market demand the impact of one less shipping day and lower sales volumes within our Latin American channel, partially offset by the incremental contribution from our growth initiatives.
While third quarter mineral fiber volumes were lower than prior year. They were well ahead of our expectations as Vic mentioned, the two drivers were better than expected market and timing within our home center customer channel.
Mineral fiber segment, adjusted EBITDA grew by $16 million or 18% to a record setting $105 million and adjusted EBITDA margin expanded by 380 basis points.
Driving this gain and margin expansion was AAV fall through to EBITDA and lower input costs.
While raw materials remain inflationary tailwind from energy and freight deflation provided a benefit as we lapped the prior year period that saw double digit input cost inflation.
Input costs. This quarter also benefited from favorable inventory valuation impacts related to timing of input costs flowing through the P&L.
Call. It in the first quarter of 2023, we had a $6 million headwind from unfavorable inventory valuations the positive impact in Q3 as part of a reversal of that headwind as input costs moderate.
SG&A in the quarter increased $3 million versus the prior year, primarily due to an increase in selling expense and an increase in incentive compensation, where we lapped the benefit in the prior year quarter.
As we outlook in our Q2 call the year over year gains from wave equity earnings was more modest as compared to the first half of the year.
The third quarter wave equity earnings gain was driven by lower steel costs and higher volumes, partially offset by lower AUC.
On slide seven we discuss our architectural specialties or <unk> segment results, which are highlighted by record setting sales and adjusted EBITDA of nearly $100 million and $20 million respectively.
Adjusted EBITDA margins expanded 370 basis points versus the prior year and above our minimum target of 20%.
While we continue to see solid organic growth in the quarter. We were also pleased to see recent acquisitions, notably both modern which we acquired in July contribute to our overall incremental sales growth.
Another bright spot for Aaas was improved operating leverage.
We continue to remain focused on leveraging SG&A as we grow the business, which as an important part of our path back to our minimum target of 20% EBITDA margins and.
And as always we closely monitor project delays, which can cause choppiness quarter to quarter.
Slide eight shows our third quarter consolidated company metrics were benefits from improved AAV higher volumes and lower input costs more than offset higher SG&A expense.
Consolidated adjusted EBITDA margin expanded 380 basis points with adjusted EBITDA up 19%.
Adjusted diluted earnings per share increased 18% versus the prior year and adjusted free cash flow increased $26 million or <unk>, 39% versus the prior year.
Slide nine highlights our year to date consolidated company metrics, where we grew adjusted EBITDA by 13% and expanded margins 220 basis points.
These results are driven by the continued execution by our teams despite market headwinds.
Adjusted diluted earnings per share increased 12% versus the prior year period, and adjusted free cash flow increased $65 million or.
Over 50% versus the prior year.
We're well on our way to doing what we said we would do this year, which is to expand margins and grow adjusted free cash flow in a down market.
Slide 10 shows our year to date adjusted free cash flow performance versus the prior year.
The increase was driven by working capital improvement and increase in wave dividends and higher cash earnings.
This was partially offset by higher capex and higher cash interests.
This year to date cash flow generation demonstrates our ability to consistently drive free cash flow growth, despite challenging conditions and to deploy that cash to generate returns for the company through our capital allocation priorities.
Our first capital allocation priority remains investing back into our business, where we see the highest returns.
Next we target strategic acquisitions that offer unique specifiable attributes and capabilities that leverage the strength of our businesses.
Third we seek to return excess cash to shareholders.
In the third quarter, we repurchased $40 million of shares and since the inception of our share repurchase program. In 2016, we have repurchased a total of $13 7 million shares for about $948 million.
After increasing our share repurchase authorization in July we ended the third quarter with $752 million remaining under the existing authorization.
And last week, we announced a 10% increase to our quarterly dividend displaying continued confidence in our ability to generate cash over the long term and further demonstrating our commitment to returning cash to shareholders.
Slide 11 shows our updated full year guidance.
We have improved our outlook for all key metrics based on our better than expected market.
We have narrowed the range for net sales and increased the midpoint slightly.
We have also increased the midpoint for adjusted EBITDA, adjusted diluted EPS and adjusted free cash flow.
Given our year to date performance and outlook for the fourth quarter. We now expect improved full year profitability for the company.
The changes in our assumptions are in the appendix of this presentation.
And now I'll turn it back to Vic for further comments before we take your questions.
Thanks, <unk> before we get to your question as I'd like to take a moment and provide some additional context on the overall market backdrop impacting both of our segments as I mentioned earlier in the back half of the year, we expected a lower level of economic activity to drive further deterioration of underlying market demand, namely on the renovation side and.
Instead market demand appears to have stabilized at this lower level in the back half of the year.
We continue to believe that the market weaknesses, mainly impacting discretionary spending on renovation and replacement activity and primarily in the office vertical.
Overall demand remains pressured by interest rate uncertainty low office leasing activity, which creates the churn leading to renovation events.
And broader over and overall economic uncertainty.
But as we've reported our business serves a wide range of vertical markets and project types.
Education with government funding support and healthcare were both positive in the quarter.
These are helping to offset continued office weakness in.
In addition, as we outlook earlier this year new construction starts from late 2021 and throughout 2022 contributed positively in the quarter.
In consideration of more recent data the data overall remains mix Dodge starts and bidding activity across many of the verticals has moved in and out of positive territory.
Good funding conditions remain for education health care and transportation.
And an office, although financial headwinds persist the demand side of office appears to be stabilizing with growth in office employment, continuing more back to office mandates and less sub leasing activity.
So even though our view on the market as modestly improved for 2023.
There does remain a healthy level of uncertainty and concerns on the macroeconomic level.
With that said our strong results against these weaker market conditions are demonstrating the strength and the resilience of our business model and the strategy being deployed.
And as outlined by Chris our business is generating strong cash flow that allows us to fund all our capital allocation priorities again in all parts of the cycle.
The strength and the resilience of our business as driven by the unique core attributes of our business and these include the strength of our market position in a uniquely attractive building product category, where scale service and innovation matter.
Supported by an industry, leading position with the A&D community that position positions us well to innovate and to win more specifications than the others.
The attributes of the strength of our business and in terms of the best in class distribution.
And we have the best best in class distribution partners, who are as passionate about the ceilings category as we are.
And lead the industry with their ability to consistently serve job sites.
The stabilizing factor of having a balanced diverse set of end markets that rarely all moves up or down at the same time and because of these strengths unique ability we have to deliver consistent <unk> growth and manufacturing productivity again, even in down cycles.
It's these attributes and building blocks of our business that differentiate us in our industry and give us the confidence that we can grow revenue and expand profit margins and all parts of the cycle.
So as we go forward, we will remain focused and committed to these core value drivers and to delivering profitable growth next year and beyond.
With those comments, we'll be happy to take your questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad will pause just for a moment to compile the Q&A roster.
Your first question comes from the line of Susan Mcclary from Goldman Sachs. Your line is open.
Thank you good morning, everyone and congrats on a great quarter.
Thank you Susan Susan Yeah. My first question is talking a bit about demand <expletive> in your comments you mentioned some some delays that youre seeing in some of the projects out there also the discretionary side, especially in off as that continues to stay weak I guess when you think about what is driving that what do you think needs to be.
Change in order to see as turned the corners, there and what are some of the things you are watching for.
Yes, I think overall.
I think the level of uncertainty remains in the marketplace, even though.
The uncertainty was driving a lot of the back half expectations for a softer economic conditions that didnt materialized I still think given the geopolitical issues and I think interest rates.
There's still some uncertainty around their overall impact on the economy and I think that gives especially the discretionary area of renovation work I still think there is some pause there and I think that has to clear up before we can kind of get back to business with this discretionary renovation activity on your.
Your first comment with regards to some of the delays.
Speaking really to the architectural specialty side of the business as.
As we've talked about many times on this call.
The architectural specialty business being so project intensive care.
Can have some ebbs and flows quarter to quarter.
And as we get larger and larger projects in our backlogs, namely These airport projects for example, a little bit of delay and some of those projects can really influence the quarter to quarter ebbs and flows and that's I think what we're seeing and.
And I was highlighting in terms of the overall activity in some of the project delays some of those can move our numbers quarter to quarter, but overall, we're so well positioned in that space, we're really excited about.
So transportation segment overall.
Okay.
Full color and.
As a follow up you saw a very nice lift in the architectural specialties margin this quarter.
Kind of getting on a quarterly basis closer to that longer term guide that you've given us.
Think about the sustainability of the improvement that you've seen and any thoughts on the path forward from here.
Yes, so as it were.
We're pleased but we're not surprised right. The team has been working very hard on the.
The right levers to pull to improve.
Namely the operating leverage and it's inside the plants.
It's the area outside of the plants, but as I called out in my prepared remarks, I'm really pleased with what our plants are doing to drive efficiencies and productivity.
The operating leverage that we're getting on the SG&A side. As also notable I think they are pulling all the right levers. They are executing again, we're very pleased with ask as we're not surprised with their execution and I think this as sustainable as we go forward, we're going to continue to work those levers around good productivity in the plants getting the operating leverage on our <unk>.
Vestments that we've been making over the last year or so in this business.
We believe we are well on our way back to that 20% minimum target.
Okay, alright, thanks for all the color and good luck.
You bet. Thank you.
Sure next question comes from the line of Garik <unk> from loop capital markets. Your line is open.
Oh, hi, thanks, Congrats congrats on.
Nice quarter I wanted to ask.
First with respect to the volumes in mineral fiber and I think you saw benefits at home seller.
I'm curious as to what drove that I think you were expecting.
Some destocking.
Seemed like that occurred but maybe if you could talk to sell in versus sell through in some of the underlying trends that you are hearing about there.
Okay, Yeah on the home center very specifically.
<unk>, which is our big box channel.
<unk>.
We often talk about how that ebbs and flows quarter to quarter right with their drawdown on inventory in their buildup of inventory.
And there was a pretty noticeable inventory build.
Around some new products that we were gearing the stores up for resetting of inventory around some of these new products that again, we were very open about that in the first half and there was some strong inventory build behind that.
And when you look at the point of sale data and they share their point of sale data with us.
Can see that the point of sale data was mimicking pretty much what we were seeing in the overall market.
And so this was a pretty good buy ahead of demand and that we expected that to be coming out and they expected more of that to be coming out in the back half as they got up and running in their stores.
So it didn't come out as fast I don't think any of us.
Expected the market conditions that we saw in the third quarter and we are seeing in the back half that might have slowed down some of their.
They are intentional drawdown, that's really for them I think probably to answer better than me, but overall, we did not see the drawdown in inventory at the same level we expected.
What where are we are out looking as that they still intend to do that and we expect that more of that to come out in the fourth quarter.
And youll see that in and sort of our fourth quarter.
Expectations.
So did I get to your question there.
Answer your question.
Okay. That's helpful. Thank you.
Then I just wanted to ask on did you called out for the <unk>.
About two points of volume growth.
To some of your growth initiatives.
Canopy and.
In particular.
Curious as to maybe how sustainable this type of growth.
You need to do 100 basis points per quarter, but.
Should we.
Expect.
Some noticeable volume growth from some of these initiatives on a go forward basis.
Well I think we outlook are we reported 2%.
Contribution to our volume growth in the quarter.
We have been talking about a 1% to 2% contribution. So I believe we're right in that range of what we expect on an ongoing basis in terms of contribution from from these initiatives.
I'd like to mention healthy spaces also contributed.
We had a terrific quarter and on a canopy platform that team is doing a terrific job turning it profitable.
But also in our healthy space initiative, we continue to have positive contribution.
From our healthy spaces initiatives and our overall activity to help stimulate more renovation events and this large installed base that <unk>.
Largely needs renovated.
We're trying to make.
Give them the catalysts and the reasons to do it in an easy way to get it done. So I think we're going to continue.
Continue to see one to two points of contribution from these growth initiatives going forward.
Got it thanks again.
Yes. Thank you.
Your next question comes from the line of Keith Hughes from Truest. Your line is open.
Thank you a question on the fourth quarter as kind of the implied guide or is that people that weakness as EBITDA at the midpoint can you talk about what what's going to be the makeup.
Good.
The fourth quarter, how it's going to trend.
Yes, Keith I'll take that as a distressed yes. If you look you can you can kind of see the implied fourth quarter volume.
That's really driven by relative to our previous expectations as a little better a little better market.
But also as Vic mentioned some of that retail home center volume that we expected to come out earlier. This year, we've got that pegged to come out in the fourth quarter.
Which is really contributing to that year over year volume decline in the fourth quarter.
And also if you look at.
Kind of how we've how we've thought through and modeled some of the assumptions with with SG&A, there's a little bit of a heavier SG&A comp compared to the prior year due to some promotional spending that we have on some some new product launches as well as higher incentive comp, where we're lapping a softer base period, there due to some.
Benefits that were taken in the prior year period.
Just a couple of points of input there as I think about the fourth quarter. The other piece maybe to mention is on the app side, a little bit little bit softer finish.
Finish to the year due to anticipated project delays, which again can be can be choppy from time to time.
Okay, and then what about input costs in mineral fiber and that was a positive in this quarter. What do you think you can pull forward.
Yes, so better than expected freight and energy.
Costs, there so as to some deflation there raws were about as expected.
Say looking forward on a full year basis.
We're now outlook for total input costs about flattish so maybe some slight inflation there versus prior year in percentage terms with raw materials in that high single digit digit range.
Okay.
Thank you.
Youre welcome Thanks, Keith Thanks, Pete.
Your next question comes from the line of Phil <unk> from Jefferies. Your line is open.
Hey, Vivek.
Congrats on a really strong quarter.
And then the commentary on office was pretty constructive about at.
At least you are seeing some signs as to.
Turning to stabilize.
You gave us some great color in terms as bidding and quoting activity on Aaas any color on what youre seeing on those same kpis for your mineral fiber business should we assume that things are starting to stabilize as you can get back to trend line from a growth standpoint in 2024 or Theres still some risks rebased lower.
Overall bidding activity was.
Fairly consistent with what we saw in <unk> still slightly down from a year ago and then by vertical.
Then kind of moving quarter to quarter in and out of of positive negative territory. So not some big numbers, one way or the other.
I kind of look at those numbers as within the margins.
As directional.
So.
Renovation being still the drag on overall bidding activity with new construction being fairly fairly positive. So I don't know it just feels like fill that even the bidding activity.
Seems to be kind of bouncing along.
A new bottom here, if you will that feels fairly.
Sideways moving if you will so.
I think over that as overall for the business.
As kind of what I can see in the numbers.
And <expletive> can you remind us how big is your more discretionary rental piece in terms of overall volumes for mineral fibers.
Yes.
Well Reno as 70% of our business, 30% as in the new area and then of that Reno you can of that 70, you can split it half and half as you know.
Larger renovation projects versus more patch and match if you will type projects there as discretionary elements of both of those so certainly people who can wait.
As we talked about last year.
Our waiting and I think we continue to see some of that although as time goes and some of the uncertainty clears up for certain parts of the market such as such as healthcare and education were seeing some of those delayed projects come back into the marketplace. So it's going to continue to ebb and flow again.
It feels like there is some stabilization here in terms of the directional.
It's not getting better.
It didn't get worse.
I think again I think thats consistent within the overall.
Bidding and quoting activity that we're seeing.
Okay that makes perfect sense.
And then <expletive> I appreciate the great color you guys provided on some of the home center dynamic.
But I understand one of your competitors had operational issues on the mineral fiber set for a higher value product was that an opportunity for you to pick up some share during the quarter and how do you kind of see that transpiring over the course of the year.
Yes, we are aware of the issue Youre talking about and we did get calls we were able to help some of their customers out in the short term.
It wasn't material and it's not material in terms of any share.
Share shifts ago share moves in this industry.
Over time, so not material really in the quarter, nor do we expect this to be a continuing share move for the rest of the year.
Okay I appreciate the color. Thank you, yes, you bet.
Your next question comes from the line of ROTC <unk> from Bank of America. Your line is open.
Hi, good morning, Thanks for taking my question.
Just break out what the inventory revaluation impacts was in the third quarter and is there any impact anticipated for the fourth quarter guidance.
Hey, it's Chris Yes, yes.
Yes, we don't we don't.
Call out the inventory impact there in the quarter, but as I said in my prepared remarks, given the fact that.
As the costs in particular raw materials.
Have have moderated a bit as compared to their previous levels, you see the benefit of that flowing through the P&L.
By way of I would call inventory inventory valves. So we've picked up.
And recouped a bit of the headwind that we experienced earlier this year there as an assumed benefits.
In the fourth quarter, and we're going to be pretty close just shy of the full year.
Headwinds that we saw in the first half kind of coming close to offsetting within the year. So hopefully that adds a little bit of context.
If raw as moderate even further that could that could potentially drive some additional tailwind there, but that's the dynamic and how that and how that works. It's not a write off of inventory again, it's just the timing as inflation rolling through the income statement.
First half was $6 million.
The impact of a headwind.
The first quarter was $6 6 million.
Got it okay.
Helpful and then.
Then.
In the fourth quarter guidance.
Implies a deterioration in mineral.
<unk> volume growth versus <unk>.
2019 level.
Compared to the third quarter.
We're not losing a selling day.
Year over year as in the fourth quarter.
The guidance sort of implies actually worse year over year growth despite the easiest comp.
Does the guidance still assume deterioration in economic activity from here.
What are you seeing kind of <unk> com.
And just sort of what's implied in that in that guidance from from.
And demand outlook.
Yes, sure. So it assume some market that's down called net low single digit range, which is pretty consistent with what we've seen throughout the course of this year and then as Vic and I. Both mentioned it assumes that retail call. It home center volume coming out in the fourth quarter.
So thats really the top line and then.
As it pertains to EBITDA again, a little bit heavier SG&A as we're lapping a period, where we saw some some benefits on incentive comp last year higher incentive comp. This year, and then a little bit of promotional spend associated with with some new product launches, which drives that kind of that EBITDA EBITDA walk for you.
Great. Thank you very helpful.
Welcome.
Your next question comes from the line of Kathryn Thompson from Thompson Research Group. Your line is open.
Hey, Thanks for taking my question today.
One on the <unk>.
<unk> did a little bit better than expectation.
Understanding just want to get a little bit of a better understanding of.
The driver for that and in particular are there any new growth initiatives within the JV that are really finally contributing to the overall earnings.
Yes, very similar I think to our mineral fiber business Catherine.
The market backdrop, the volume was better than <unk>.
Expected I think that was a nice contributor, but theyre doing a nice job and continuing to manage their steel purchases in their steel inventory levels.
And the.
The pricing around that to make sure that we're driving margins back to where they they need to be that the team is doing a good job overall operationally.
Contributing to that so I think it's those building blocks.
Probably in an outsized way just a better market backdrop then.
That was initially expected.
Okay, and thanks for that and then.
I know you touched on this but just want a pull string a little bit more on this you talked about just a better end market mix.
Contributing to especially to mineral fiber.
<unk> are difficult given the current market conditions is it to do that and then also.
How do you how does one differentiate and nothing to say on that.
On the tower side, but just kind of a combination of what you are able to provide how is how is that contributing to overall a little bit better performance as it than just the broad market, which you've touched on.
Kevin as I understand your question.
Are you talking about.
I'm sorry go ahead.
Well really how easy or difficult is it to shift your end market mix.
Okay.
The end market mix.
Easy as that or is it just a draw like next fit end market just happened to be a pattern or is this more of a concerted effort on your end.
Well, we're present with the architects that are driving all of these end market specifications. So.
We can we can support the architects where they have the work and where they have the business.
And again Thats, a really important asset of ours as to have this presence at in the architectural community because their workload shifts based on the market activity and we're connected to them that they have been making sure that we're supporting on those types of projects. So I'd say, it's fairly easy for us to move with the market activity is growing.
Because of our presence in our strong seat as a table with the architects.
Okay, great. Thanks very much.
You bet.
Your next question comes from the line of John Lovallo from UBS. Your line is open.
Good morning, guys. Thank you for taking my questions as well I guess the first one you talked about maybe a little bit of Choppiness in the market some.
Stabilization in certain markets, but if we think about in the mineral fiber side, the 2% to 4% volume target through 2026 do you have any updated thoughts there on the ability to achieve that.
Well I think the building blocks are still there.
You are referring to the two 2% to 4% longer term.
Growth rate in mineral fiber remember the building blocks there we're a market recovery back to 2019 levels and then one to two points of contribution from our our growth initiatives.
Again, we still expect Theres nothing structurally changed to the point that we don't think we're going to get back to 2019 volume levels and as we reported in this quarter as we're getting some nice contribution.
So the high end of that 1% to two <unk>.
<unk> for our growth initiatives.
My thoughts and we're not in a position to change that outlook at this point as it may get pushed out some depending on when the market recovery.
It becomes part of that equation, but all the building blocks John is still there for us to get back to a 2% to 4% mineral fiber growth level.
Okay. That's helpful. And then when we think about canopy in the higher win rate that you're experiencing there.
What do you think as driving that.
I guess a couple of questions. How sustainable do you think it is who are you competing against and as it really just that underserved if a market where there's as longer term runway.
Yes, no I think on the canopy platform, we're demonstrating that there is an underserved customer out there that doesn't know where to go to get their ceiling tiles renovated.
And frankly, I think it's very expensive to do they are finding out that it's not that hard to do we're giving them a place to go and to transact.
And so.
And the type of customers that are coming to this site and buying from us.
Are not typical Armstrong customers. These are customers that don't know Armstrong for the most part and don't know where to go to get ceiling tiles.
And we're creating as cost effective way to reach out.
Educate them make them aware and help them get this done in a very easy way.
The easy button, if you will as.
As the canopy.
By Armstrong platform, you referenced to the win rate as more with our project works My comments around project works, we're adding value here to these these designs that architects are developing we're helping them to iterate more productively that can do this in a matter of days versus weeks.
And we're strengthening our ability to to the west.
Strengthen the specification, if you will and thats improving our win rate on projects as they go through the channels from the gcs to the contractors.
All the way down through distribution. So that was my references were adding value here.
Driving incremental both volume and <unk> growth through this value added service and our traction in the A&D community as continuing to grow. So we're in the early innings of this but we're really encouraged by the Incrementals <unk>.
As such an automated design tool.
Understood. Thank you very much.
Thank you John .
Your final question comes from the line of Adam Baumgarten from Zelman and Associates. Your line is open.
Hey, good morning, everyone just.
Just curious on the volume trends across the product suite mineral fiber throughout the quarter anywhere of as particularly strong or weak across either high or low end or kind of mid range tape products and then just on mix within the segment was that a more impactful positive this quarter versus maybe the prior few quarters.
Yes, it's a good question our product mix continues to be positive.
The growth at the higher end of the market continues to.
To be greater than at the lower end of the market.
Again renovation activity people want to put in the newest stuff when they renovate so theres a natural draw at the higher end of our portfolio.
And the rate of innovation and new product introduction is at its highest level and where that innovation as getting pulled in specced by the architects and then that continues to help drive a richer mix at the higher end of the portfolio that's been going on for a number of years.
It's materializing also in this year.
And as we've seen in past downturns and garden variety type recessions as.
We continue to grow at the high end faster than the low end and therefore this supports growing your <unk>, even in a down market in a down cycle.
And Thats I think thats on full display here in <unk>.
'twenty three.
Got it okay. Thanks, and then just if we think about just the volume growth or the modest volume declines in the quarter. How do you think that stacks up versus maybe the industry and do you think you gained share in the quarter or kind of just grew with the market.
Sure.
Well I think the market is down low single digits as we were talking about consistent with what we've seen the rest I think the difference as our growth initiatives.
And if you.
Really carefully our growth initiatives.
We are about growing the size of the pie by accelerating the rate of renovation, creating more renovation events that are just kind of latent sitting there.
So I think we're.
We're ahead.
And we're able to capture more of that renovation here in the short term as we create it.
So I would just put it in that bucket in terms of where the growth is coming from offsetting some of the market weakness that we see.
Okay got it thanks best of luck.
Thank you.
There are no further questions I'll now turn the call back over to Vic Grizzle, President and CEO for closing remarks.
Thank you I just to close real quickly here, we're very pleased obviously with our results in the third quarter I think we're particularly pleased that we could demonstrate the resilience and the strength of our business model.
<unk> more garden variety like downturn.
That we're experiencing in 2023.
It's a testament to all of our employees that are working very hard and diligently on executing our strategy and again, we're very pleased with being able to demonstrate that and to finish the year strong to have a full year to to demonstrate the resilience and strength of our business. Thank you all for joining this morning in our call. Thank you for your questions.
This concludes today's conference call you may now disconnect.
Please wait the conference will begin shortly.
Yes.
Sure.
Yeah.