Q4 2023 Armstrong World Industries Inc Earnings Call
I would now like to walk them through the Womble VP of Investor Relations and corporate communications to begin the call Teresa over to you.
Operator: Thank you for standing by, and welcome to the Q4 and full year 2023 Armstrong World Industries earnings conference call. I would now like to welcome Teresa Womble, VP of Investor Relations, and Corporate Communications, to begin the call. Teresa, over to you.
Thank you for standing by and welcome to the Q4 and full year 2023 Armstrong World Industries Earnings Conference call I would now like to walk them Theresa Womble V P of Investor Relations.
Thank you and good morning to everyone on our call on today's call Vic Grizzle, our CEO and Chris <unk>, Our CFO will discuss Armstrong World industries fourth quarter and full year 2023 results and 2020 for outlook.
Theresa Womble: And corporate communications to begin the call Teresa over to you.
To accompany these remarks, we have provided a presentation that is available on the investors section of the Armstrong World Industries website.
Teresa Womble: Thank you and good morning to everyone on our call. On today's call, Vic Grizzle, our CEO, and Chris Calzareta, our CFO, will discuss Armstrong World Industries' fourth quarter and full year 2023 results and 2024 outlook. To accompany these remarks, we have provided a presentation that is available in 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 Regulation G. A reconciliation of these measures with the most directly comparable gap measures is included in the earnings press release and in the appendix of the presentation issued this morning. Both are available on the Investors section of the website. During this call, we will be making forward-looking statements that represent our view of our financial and operating performance as of today's date, February 20, 2024. These statements involve risks and uncertainties that may differ materially from those expected or implied.
Theresa Womble: Thank you and good morning to everyone on our call on today's call Vic Grizzle, our CEO and Chris cows are better our CFO will discuss Armstrong World industries fourth quarter and full year 'twenty two 'twenty three results and 2020 for outlook.
Our discussion of operating and financial performance will include non-GAAP financial measures within the meaning of SEC regulation 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, both are available on the investors section of the website.
Teresa: To accompany these remarks, we have provided a presentation that is available on the investors section of the Armstrong World Industries website.
Teresa: Our discussion of operating and financial performance will include non-GAAP financial measures within the meaning of SEC regulation G.
During this call we will be making forward looking statements that represent the view, we have of our financial and operating performance as of todays date February 20th 2024.
Teresa: 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.
These statements involve risks and uncertainties that may differ materially from those expected or implied.
Teresa: With our available on the investors section of the website.
We provide a detailed discussion of the risks and uncertainties in our SEC filings, which include the 10-K filed earlier. This morning, we undertake no obligation to update any forward looking statement beyond what is required by applicable securities law.
During this call we will be making forward looking statements that represent the view, we have of our financial and operating performance as of today's date.
Teresa: February 20th 2024.
Teresa: These statements involve risks and uncertainties that may differ materially from those expected or implied.
I will now turn the call to Vic.
Thank you Teresa and welcome everyone to our call today I'm delighted to have this opportunity to discuss our 2023 results and our expectations for 2024.
Teresa Womble: We provide a detailed discussion of the risks and uncertainties in our SEC filings, which include the 10-K filed earlier this morning. We undertake no obligation to update any forward-looking statement beyond what is required by applicable securities law. I will now turn the call to Vic.
Teresa: We provide a detailed discussion of the risks and uncertainties in our SEC filings, which include the 10-K filed earlier. This morning, we undertake no obligation to update any forward looking statement beyond what is required by applicable securities law.
For those of you who have been following us for a while I'm sure. You'll appreciate the sentiment of what a difference a year makes we began 2023 with a rather cautious view as many did with expectations of a negative market backdrop with high levels of uncertainty and in particular in the back half of the year.
Teresa: I will now turn the call to Vic.
Victor D. Grizzle: Thank you, Theresa, and welcome everyone to our call today. I'm delighted to have this opportunity to discuss our 2023 results and our expectations for 2024. For those of you who have been following us for a while, I'm sure you'll appreciate the sentiment of what a difference a year makes. We began 2023 with a rather cautious view, as many did, with expectations of a negative market backdrop with high levels of uncertainty, and in particular in the back half of the year. We're also coming off of 2022 results that were pressured by several factors like rapidly rising inflation, higher interest rates, and overall economic uncertainty. Despite these factors, and with softer office demand, the economy and our markets overall fared better than expected in 2023.
Victor D. Grizzle: Thank you Theresa and welcome everyone to our call today I'm delighted to have this opportunity to discuss our 2023 results and our expectations for 2024.
We're also coming off of 2022 results that were pressured by several factors like rapidly rising inflation higher interest rates and overall economic uncertainty.
Victor D. Grizzle: For those of you who've been following us for a while I'm sure. You'll appreciate the sentiment of what a difference a year makes we began 2023 with a rather cautious view as many did with expectations of a negative market backdrop with high levels of uncertainty and in particular in the back half of the year.
Despite these factors and with softer office demand the economy in our markets overall fared better than expected in 2023.
Better than expected markets, along with our teams consistent and steady execution helped deliver our strong results for both the quarter and the year.
Victor D. Grizzle: We're also coming off of 2022 results that were pressured by several factors like rapidly rising inflation higher interest rates and overall economic uncertainty.
On a total company basis for the full year.
We delivered record setting net sales of $1 3 billion.
Victor D. Grizzle: Despite these factors and with softer office demand the economy in our markets overall fared better than expected in 2023.
Which was a 5% increase from full year 2022 results our.
Our adjusted EBITDA grew 12% to $430 million, representing 200 basis points of improvement in our adjusted EBITDA margin.
Victor D. Grizzle: Better-than-expected markets, along with our team's consistent and steady execution, helped deliver our strong results for both the quarter and the year. On a total company basis for the full year, we delivered record-setting net sales of $1.3 billion, which was a 5% increase from full-year 2022 results. Our adjusted EBITDA grew 12% to $430 million, representing 200 basis points of improvement in our adjusted EBITDA margin. This result was also 7% greater than our prior record for adjustability, but of a $403 million set back in 2019.
Victor D. Grizzle: Better than expected markets, along with our teams consistent and steady execution helped deliver our strong results for both the quarter and the year.
This result was also 7% greater than our prior record.
Victor D. Grizzle: On a total company basis for the full year.
Adjusted EBITDA was $403 million setback in 2019.
Victor D. Grizzle: We delivered record setting net sales of $1 $3 billion, which was a 5% increase from full year 2022 results.
On an adjusted diluted EPS basis, we delivered growth of 12% and our adjusted free cash flow of $263 million grew 19% above prior year results.
Victor D. Grizzle: Our adjusted EBITDA grew 12% to $430 million, representing 200 basis points of improvement in our adjusted EBITDA margin.
We are pleased with these strong results as they represent an ongoing demonstration of Armstrong's resilient business model with its strong market position, our diverse and balanced set of end market verticals and attractive growth initiatives.
Victor D. Grizzle: This result was also 7% greater than our prior record.
Victor D. Grizzle: Adjusted EBITDA of 403 million set back in 2019.
Victor D. Grizzle: On an adjusted diluted EPS basis, we delivered growth of 12%, and our adjusted free cash flow of $263 million grew 19% above prior year results. We are pleased with these strong results as they represent an ongoing demonstration of Armstrong's resilient business model with its strong market position, a diverse and balanced set of in-market verticals, and attractive growth initiatives. These attributes allow the company to deliver revenue and earnings growth with margin expansion, even in soft market conditions. These results also reflect the work of more than 3,000 employees who are passionate about our mission and our customers, who drive our strategy, develop and execute quality and productivity projects in our plants and ensure we maintain our best-in-class service levels for our customers. We want to thank them for the great work that they do.
Victor D. Grizzle: On an adjusted diluted EPS basis, we delivered growth of 12% and our adjusted free cash flow of $263 million grew 19% above prior year results.
These attributes will allow the company to deliver revenue and earnings growth with margin expansion, even in soft market conditions.
Victor D. Grizzle: We are pleased with these strong results as they represent an ongoing demonstration of Armstrong's resilient business model with its strong market position and diverse and balanced set of end market verticals and attractive growth initiatives.
These results also reflect the work of more than 3000 employees, who are passionate about our mission and our customers who drive our strategy develop and execute the quality and the productivity projects in our plants and ensure we maintain our best in class service levels for our customers.
Victor D. Grizzle: These attributes alone allow the company to deliver revenue and earnings growth with margin expansion, even in soft market conditions.
We want to thank them for the great work that they do.
And our mineral fiber segment, our fourth quarter sales increased 2% on flat sales volume versus prior year, which was better than expected due to the better than expected market conditions and retail sales for.
Victor D. Grizzle: These results also reflect the work of more than 3000 employees, who are passionate about our mission and our customers who drive our strategy develop and execute the quality and the productivity projects in our plants and ensure we maintain our best in class service levels for our customers.
For the full year with strong <unk>.
And solid contributions from our wave joint venture our mineral fiber segment delivered 5% net sales growth and 10% adjusted EBITDA growth with almost 200 basis points of adjusted EBITDA margin expansion, reaching our margin for the full year adjust over 39%.
We want to thank them for the great work that they do.
Victor D. Grizzle: In our mineral fiber segment, our fourth-quarter sales increased 2% on flat sales volume versus the prior year, which is better than expected due to better than expected market conditions and retail sales. For the full year, with strong AUV and solid contributions from our wave joint venture, our mineral fiber segment delivered 5% net sales growth and 10% adjusted EPDOT growth with almost 200 basis points of adjusted EPDOT margin expansion, reaching a margin for the full year of just over 39 percent. Our plants also operated well in the quarter, as evidenced by strong quality and service levels, and for the full year, they had strong productivity results and safety performance.
Victor D. Grizzle: And our mineral fiber segment, our fourth quarter sales increased 2% on flat sales volume versus prior year, which was better than expected due to the better than expected market conditions and retail sales for.
Our plants also operated well in the quarter as evidenced by strong quality and service levels and for the full year had strong productivity results and safety performance.
Victor D. Grizzle: For the full year with stronger UV and solid contributions from our wave joint venture our mineral fiber segment delivered 5% net sales growth and 10% adjusted EBITDA growth with almost 200 basis points of adjusted EBITDA margin expansion, reaching our margin for the full year adjust over 39%.
Now before moving to architectural specialty specialties, I would like to call attention to the positive impact we're getting from our growth initiatives.
We estimate that these growth initiatives drove more than 1% to our mineral fiber volume growth for the full year and helped offset market weakness.
Victor D. Grizzle: <unk>.
Victor D. Grizzle: Our plants also operated well in the quarter as evidenced by strong quality and service levels and for the full year had strong productivity results and safety performance.
These initiatives include the digital selling platform canopy by Armstrong and the automated design platform project works as well as our healthy spaces initiatives.
Victor D. Grizzle: Now, before moving to architectural specialties, I'd like to call attention to the positive impact we're getting from our growth initiatives. We estimate that these growth initiatives drove more than 1% of our mineral fiber volume growth for the full year and helped offset market... These initiatives include the digital selling platform Canopy by Armstrong and the automated design platform Project Work, as well as our Healthy Spaces Initiative.
Victor D. Grizzle: Now before moving to architectural specialties I'd like to call attention to the positive impact we're getting from our growth initiatives.
Sales through the canopy platform continues to ramp and similar to the third quarter canopy was EBITDA positive in the fourth quarter.
Victor D. Grizzle: We estimate that these growth initiatives drove more than 1% to our mineral fiber volume growth for the full year and helped offset market weakness.
This cost effective selling platform is allowing us to access the 60% of the installed base for mineral fiber that has limited access to the Knowhow and solutions for renovating their ceilings.
Victor D. Grizzle: These initiatives include the digital selling platform canopy by Armstrong and the automated design platform project works as well as our healthy spaces initiatives.
The easy to use platform is creating more awareness of the many options for renovating with our large portfolio of solutions and is bringing a wide variety of new customers to Armstrong and our distribution partners.
Victor D. Grizzle: Sales through the Canopy platform continue to ramp, and similar to the third quarter, Canopy was EBITDA positive in the fourth quarter. This cost-effective selling platform is allowing us to access 60% of the installed base for mineral fiber that has limited access to the know-how and solutions for renovating their ceilings. The easy-to-use platform is creating more awareness of the many options for renovating with our large portfolio of solutions and is bringing a wide variety of new customers to Armstrong and our distribution partner.
Victor D. Grizzle: Sales through the canopy platform continues to ramp and similar to the third quarter canopy was EBITDA positive in the fourth quarter.
Victor D. Grizzle: This cost effective selling platform is allowing us to access the 60% of the installed base for mineral fiber that has limited access to the Knowhow and solutions for renovating their ceilings.
Our project works automated design service continues to advance nicely as well.
This is a unique capability within our industry and is accelerating the speed and efficiency of customer project collaboration.
Victor D. Grizzle: The easy to use platform is creating more awareness of the many options for renovating with our large portfolio of solutions and is bringing a wide variety of new customers to Armstrong and our distribution partners.
Project works addresses the growing challenge architects and designers face and compressed completion cycles and higher number of projects to complete but the same number of architects on staff.
Victor D. Grizzle: Our Project Works automated design service continues to advance nicely as well. This is a unique capability within our industry and is accelerating the speed and efficiency of customer project collaboration. Project WORX addresses the growing challenge architects and designers face in compressed completion cycles and a higher number of projects to complete with the same number of architects on staff. In addition, Project WORX helps contractors, and ultimately the project owners, reduce costs by eliminating waste through optimization of the design and the bill of materials.
Victor D. Grizzle: Our project works automated design service continues to advance nicely as well.
In addition project works helps contractors and ultimately the project owners reduce costs by eliminating waste through optimization of the design and the bill of materials.
Victor D. Grizzle: This is a unique capability within our industry and is accelerating the speed and efficiency of customer project collaboration.
Victor D. Grizzle: Project works addresses the growing challenge architects and designers face and compressed completion cycles and higher number of projects to complete but the same number of architects on staff.
We're excited to get in front of more and more architects and designers and contractors and to expand the number of products that are incorporated on this platform.
We are clearly over the right target here and different differentiating what we bring to projects beyond just great products.
Victor D. Grizzle: In addition project works helps contractors and ultimately the project owners reduce costs by eliminating waste through optimization of the design and the bill of materials.
And finally, our healthy spaces product portfolio continues to outpace our overall mineral fiber growth as these products gained traction in sectors like education and office verticals outside the original intended health care spaces and.
Victor D. Grizzle: We're excited to get in front of more and more architects and designers and contractors and to expand the number of products that are incorporated on this platform. We are clearly over the right target here and differentiating what we bring to projects beyond just great products. And finally, our Healthy Spaces product portfolio continues to outpace our overall mineral fiber growth as these products gain traction in sectors like education and office verticals outside the original intended health care spaces. In 2023, sales of these products grew double digits and contributed to both volume and AUV growth. Overall, we remain pleased with the progress of our growth initiatives and the positive impact they are having on mineral fiber volume growth. Now turning to architectural specialties, we delivered 4% sales growth in the quarter and 5% sales growth for the year with contributions from recent acquisitions.
Victor D. Grizzle: We're excited to get in front of more and more architects and designers and contractors and to expand the number of products that are incorporated on this platform.
Victor D. Grizzle: We are clearly over the right target here and different differentiating what we bring to projects beyond just great products.
In 2023 sales of these products grew double digits and contributed to both volume and <unk> growth.
Victor D. Grizzle: And finally, our healthy spaces product portfolio continues to outpace our overall mineral fiber growth as these products gained traction in sectors like education and office verticals outside the original intended health care spaces. In 2023 sales of these products grew double digits and <unk>.
Overall, we remain pleased with the progress of our growth initiatives and a positive impact they are making on mineral fiber volume growth.
Now turning to architectural specialties, we delivered 4% sales growth in the quarter and 5% sales growth for the year with contributions from recent acquisitions.
We also continue to grow earnings for the segment and made progress toward improving profitability with adjusted EBITDA, increasing 27% versus the prior year with margin expansion of 330 basis points.
Attributed to both volume and <unk> growth.
Victor D. Grizzle: Overall, we remain pleased with the progress of our growth initiatives and the positive impact they are making on mineral fiber volume growth.
Victor D. Grizzle: Now turning to architectural specialties, we delivered 4% sales growth in the quarter and 5% sales growth for the year with contributions from recent acquisitions.
This marks the seventh time in the last eight quarters. At this segment has delivered period over period EBITDA margin expansion.
For the full year architectural specialties, EBITA margin expanded more than 200 basis points.
Victor D. Grizzle: We also continue to grow earnings for the segment and made progress toward improving profitability with adjusted EBITDA increasing 27% versus the prior year, with margin expansion of 330 basis points. This marks the seventh time in the last eight quarters that this segment has delivered period-over-period EPA DAW margin expansion. For the full year, Architectural Specialties' EPDOT margin expanded by more than 200 bases. With improved operating performance throughout 2023, we remain on our path to our target of 20% EBITDA margin for the architectural specialty segment. Further supporting the organic growth in this segment is encouraged by the quoting and bidding activity with airport projects across the country. Through the Bipartisan Infrastructure Law passed in 2021, approximately $15 billion in federal funds have been earmarked for airport infrastructure development, with $9 billion allocated through 2024. As we've mentioned, these are larger and more complex projects, typically with multiple product types sought by the architects and designers.
Victor D. Grizzle: We also continue to grow earnings for the segment and made progress toward improving profitability with adjusted EBITDA, increasing 27% versus the prior year with margin expansion of 330 basis points.
With improved operating performance throughout 2023, we remain on our path to our target of 20% EBITDA margin for the architectural specialties segment.
Victor D. Grizzle: This marks the seventh time in the last eight quarters. At this segment has delivered period over period EBITDA margin expansion.
Further supporting the organic growth in this segment, we remain encouraged by the quoting and bidding activity with airport projects across the country.
Victor D. Grizzle: For the full year architectural specialties, EBITA margin expanded more than 200 basis points.
Through the bipartisan infrastructure law passed in 2021, approximately $15 billion in federal funds has been earmarked for airport infrastructure development with 9 billion allocated through 2024.
Victor D. Grizzle: With improved operating performance throughout 2023, we remain on our path to our target of 20% EBITDA margin for the architectural specialties segment.
As we've mentioned these are larger and more complex projects typically with multiple product types sought by the architects and designers.
Victor D. Grizzle: Further supporting the organic growth in this segment, we remain encouraged by the quoting and bidding activity with airport projects across the country.
With the largest portfolio of mineral fiber and specialty ceiling and wall products, we are uniquely positioned to capture these opportunities.
The bipartisan infrastructure law passed in 2021, approximately $15 billion in federal funds has been earmarked for airport infrastructure development with 9 billion allocated through 2024.
And we expect the transportation vertical to provide a nice tailwind in the architectural specialty segment for the next several years to come.
Victor D. Grizzle: As we've mentioned these are larger and more complex projects typically with multiple product types sought by the architects and designers.
Now I'll pause and turn it over to Chris for some more detail on our financial results and our 2024 outlook, Chris Thanks, Vic 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.
Victor D. Grizzle: With the largest portfolio of mineral fiber and specialty ceiling and wall products, we are uniquely positioned to capture these opportunities. And we expect the transportation vertical to provide a nice tailwind in the architectural specialty segment for the next several years to come. Now I'll pause and turn it over to Chris for some more detail on our financial results and our 2024 outlook. Okay, Chris?
Victor D. Grizzle: With the largest portfolio of mineral fiber and specialty ceiling and wall products. We are uniquely positioned to capture these opportunities and we expect the transportation vertical to provide a nice tailwind in the architectural specialty segment for the next several years to come.
On slide six we discuss our fourth quarter mineral fiber segment results mineral fiber sales grew 2% in the quarter, primarily driven by AAV, which represents a combination of like for like pricing and mix.
Now I'll pause and turn it over to Chris for some more detail on our financial results and our 2024 outlook, Chris 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.
Chris Calzareta: 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 for the presentation. On slide six, we discuss our fourth quarter mineral fiber segment results. Mineral fiber sales grew 2% in the quarter, primarily driven by AUV, which represents a combination of like-for-like pricing and mix. In the quarter, AUV growth was driven by favorable like-for-like pricing, partially offset by unfavorable mix. We continue to deliver strong price realization in line with expectations, but mix was a headwind, largely due to mixed dynamics within our channels, which we believe are timing-related. AUV remains a core value driver for the mineral fiber segment, and despite mixed pressure in 2023, we delivered full-year AUV growth of 5%, which is in line with our historical average. Mineral fiber volumes were essentially flat in the quarter as contributions from our growth initiatives offset a softer market.
In the quarter <unk> growth was driven by favorable like for like pricing, partially offset by unfavorable mix. We continued to deliver strong price realization in line with expectations, but mix was a headwind largely due to mixed dynamics within our channels, which we believe are timing related.
Chris Cowsare: On slide six we discuss our fourth quarter mineral fiber segment results mineral fiber sales grew 2% in the quarter, primarily driven by AAV, which represents a combination of like for like pricing and mix.
<unk> remains a core value driver for the mineral fiber segment and despite mixed pressure in 2023, we delivered full year <unk> growth of 5%, which is in line with our historical average.
Chris Cowsare: In the quarter <unk> growth was driven by favorable like for like pricing, partially offset by unfavorable mix. We continued to deliver strong price realization in line with expectations, but mix was a headwind largely due to mixed dynamics within our channels, which we believe are timing related.
Mineral fiber volumes were essentially flat in the quarter as contributions from our growth initiatives offset a softer market.
While mineral fiber volumes were flat compared to the prior year. They were ahead of our guidance expectations as the market in the fourth quarter was broadly more resilient than we expected additional.
Chris Cowsare: <unk> remains a core value driver for the mineral fiber segment and despite mixed pressure in 2023, we delivered full year <unk> growth of 5%, which is in line with our historical average.
Additionally, sales volumes to retail customers were also better than expected.
Retail sales provided upside to our volume expectations. It also contributed to an <unk> headwind in the form of channel mix versus our outlook.
Chris Cowsare: Mineral fiber volumes were essentially flat in the quarter as contributions from our growth initiatives offset a softer market.
Chris Calzareta: While mineral fiber volumes were flat compared to the prior year, they were ahead of our guidance expectations as the market in the fourth quarter was broadly more resilient than we expected. Additionally, sales volumes to retail customers were also better than expected. While retail sales provided upside to our volume expectations, they also contributed to an AUV headwind in the form of channel mix versus our outlook. Mineral fiber segment adjusted EBITDA grew by $3 million, or 3%, and adjusted EBITDA margin expanded by 50 basis points in the fourth quarter.
Chris Cowsare: While mineral fiber volumes were flat compared to the prior year. They were ahead of our guidance expectations as the market in the fourth quarter was broadly more resilient than we expected.
Mineral fiber segment, adjusted EBITDA grew by $3 million or 3% and adjusted EBITDA margin expanded by 50 basis points in the fourth quarter.
Chris Cowsare: Additionally, sales volumes to retail customers were also better than expected, while retail sales provided upside to our volume expectations. It also contributed to an <unk> headwind in the form of channel mix versus our outlook.
The follow through of AAV and the contributions from wave equity earnings were the primary drivers for margin expansion versus the prior year period.
As expected manufacturing costs were higher than prior year due to the lapping of a strong prior year period, where we saw both outsized productivity and cost control gains. This was offset by lower input costs as raw materials remained inflationary, but were more than offset by energy and freight deflation.
Chris Cowsare: Mineral fiber segment, adjusted EBITDA grew by $3 million or 3% and adjusted EBITDA margin expanded by 50 basis points in the fourth quarter.
Chris Calzareta: The fall through of AUV and the contributions from wave equity earnings were the primary drivers for margin expansion versus the prior year period. As expected, manufacturing costs were higher than the prior year due to the lapping of a strong prior year period where we saw both outsized productivity and cost control gains. This was offset by lower input costs, as raw materials remained inflationary, but were more than offset by energy and freight deflation.
Chris Cowsare: Follow through of AAV and the contributions from wave equity earnings were the primary drivers for margin expansion versus the prior year period.
Input costs in the quarter also included a benefit from favorable inventory valuation impacts related to the timing of moderating input costs flowing through the P&L.
Chris Cowsare: As expected manufacturing costs were higher than prior year due to the lapping of a strong prior year period, where we saw both outsized productivity and cost control gains. This was offset by lower input costs as raw materials remained inflationary, but were more than offset by energy and freight deflation.
SG&A increased $7 million versus the prior year, which was in line with our outlook.
This increase versus the prior year period was primarily due to higher current year incentive compensation combined with the lapping of a benefit in the prior year as well as higher promotional selling expenses in support of topline growth.
Chris Calzareta: Input costs in the quarter also included a benefit from favorable inventory valuation impacts related to the timing of moderating input costs flowing through the P&L. SG&A increased $7 million versus the prior year, which was in line with our outlook. This increase versus the prior year period was primarily due to higher current year incentive compensation combined with the lapping of a benefit in the prior year, as well as higher promotional selling expenses in support of top line growth. Our teams continue to maintain a disciplined approach to cost control on our discretionary spending as we navigate soft market conditions.
Chris Cowsare: Input costs in the quarter also included a benefit from favorable inventory valuation impacts related to the timing of moderating input costs flowing through the P&L.
Our teams continued to maintain a disciplined approach to cost control on our discretionary spending as we navigated soft market conditions.
Chris Cowsare: SG&A increased $7 million versus the prior year, which was in line with our outlook.
Wave equity earnings grew $4 million as compared to prior year with favorable EBITDA margins and slightly higher volumes.
Chris Cowsare: This increase versus the prior year period was primarily due to higher current year incentive compensation combined with the lapping of a benefit in the prior year as well as higher promotional selling expenses in support of topline growth.
<unk> were better than expected largely due to more supportive market conditions.
On slide seven we discuss our architectural specialties or <unk> segment results.
Chris Cowsare: Our teams continued to maintain a disciplined approach to cost control on our discretionary spending as we navigated soft market conditions.
Sales growth of 4% in the quarter was led by contributions from our recent acquisitions, which offset project related timing impacts.
Chris Calzareta: Wave equity earnings grew $4 million as compared to the prior year with favorable EBITDA margins and slightly higher volume. Volumes were better than expected, largely due to more supportive market conditions. On slide 7, we discuss our Architectural Specialties, or AS, segment results. Sales growth of 4% in the quarter was led by contributions from our recent acquisitions, which offset project-related timing impacts. As a reminder, AS revenue is more impacted by project timelines than mineral fiber, so quarters can tend to be lumpy, and project scheduling or delays can have outsized impacts quarter to quarter.
Chris Cowsare: Wave equity earnings grew $4 million as compared to prior year with favorable EBITDA margins and slightly higher volumes volumes were better than expected largely due to more supportive market conditions.
As a reminder, <unk> revenue is more impacted by project timelines and mineral fiber so quarters can tend to be lumpy and project scheduling or delays can have outsized impacts quarter to quarter.
On slide seven we discuss our architectural specialties segment results.
A highlight in the quarter for US was the segment's adjusted EBITDA margin of 18, 4%, which expanded to 330 basis points from the prior year period.
Chris Cowsare: Sales sales growth of 4% in the quarter was led by contributions from our recent acquisitions, which offset project related timing impacts.
This marks the third consecutive quarter with over 300 basis points of adjusted EBITDA margin expansion and resulted in a full year adjusted EBITDA margin of 18, 1% for the segment expanding over 200 basis points versus the prior year.
Chris Cowsare: As a reminder, <unk> revenue is more impacted by project timelines and mineral fiber so quarters can tend to be lumpy and project scheduling or delays can have outsized impacts quarter to quarter.
Chris Calzareta: A highlight in the quarter for AS was the segment's adjusted EBITDA margin of 18.4%, which expanded 330 basis points from the prior year period. This marks the third consecutive quarter with over 300 basis points of adjusted EBITDA margin expansion and resulted in a full year adjusted EBITDA margin of 18.1% for the segment, expanding over 200 basis points versus the prior year. As Vic noted earlier, we continue to be encouraged by this progress and remain well on our way to the 20% EBITDA margin level that we believe we can return to in this segment. Slide 8 shows our fourth-quarter consolidated total company metrics, where benefits from higher volumes, improved AUV, and higher wave equity earnings were partially offset by increased SG&A. Input costs and manufacturing largely offset each other.
Chris Cowsare: A highlight in the quarter for US was the segment's adjusted EBITDA margin of 18, 4%, which expanded to 330 basis points from the prior year period.
As Vic noted earlier, we continue to be encouraged by this progress and remain well on our way to the 20% EBITDA margin level that we believe we can return to in this segment.
Chris Cowsare: This marks the third consecutive quarter with over 300 basis points of adjusted EBITDA margin expansion and resulted in a full year adjusted EBITDA margin of 18, 1% for the segment expanding over 200 basis points versus the prior year.
Slide eight shows our fourth quarter consolidated total company metrics were benefits from higher volumes improved AAV and higher wave equity earnings were partially offset by increased SG&A.
Chris Cowsare: As Vic noted earlier, we continue to be encouraged by this progress and remain well on our way to the 20% EBITDA margin level that we believe we can return to in this segment.
Input costs and manufacturing largely offset each other.
Consolidated adjusted EBITDA margin expanded 130 basis points with adjusted EBITDA up 7% and adjusted diluted earnings per share up 13% versus the prior year period.
Chris Cowsare: Slide eight shows our fourth quarter consolidated total company metrics were benefits from higher volumes improved AAV and higher wave equity earnings were partially offset by increased SG&A.
Our 31, 4% adjusted EBITDA margin was the strongest fourth quarter result, since 2019, and we remain focused on continuing to drive adjusted EBITDA margin expansion.
Chris Cowsare: Input costs and manufacturing largely offset each other.
Chris Calzareta: Consolidated adjusted EBITDA margin expanded 130 basis points, with adjusted EBITDA up 7% and adjusted diluted earnings per share up 13% versus the prior year period. Our 31.4% adjusted EBITDA margin was the strongest fourth-quarter result since 2019, and we remain focused on continuing to drive adjusted EBITDA margin expansion. Slide nine highlights our full year consolidated company metrics. We grew adjusted EBITDA by 12% and expanded margins by 200 basis points. Adjusted diluted earnings per share also increased 12% versus the prior year period, and adjusted free cash flow increased $42 million, or 19%. I'm proud of the work that our teams have done throughout the year to deliver double-digit adjusted EBITDA growth, margin expansion, and double-digit adjusted free cash flow growth in a soft market.
Chris Cowsare: Consolidated adjusted EBITDA margin expanded 130 basis points with adjusted EBITDA up 7% and adjusted diluted earnings per share up 13% versus the prior year period.
Slide nine highlights our full year consolidated company metrics.
We grew adjusted EBITDA by 12% and expanded margins 200 basis points.
Chris Cowsare: Our 31, 4% adjusted EBITDA margin was the strongest fourth quarter result, since 2019, and we remain focused on continuing to drive adjusted EBITDA margin expansion.
Adjusted diluted earnings per share also increased 12% versus the prior year period, and adjusted free cash flow increased $42 million or.
Or 19%.
I'm proud of the work that our teams have done throughout the year to deliver double digit adjusted EBITDA growth margin expansion and double digit adjusted free cash flow growth in a soft market.
Chris Cowsare: Slide nine highlights our full year consolidated company metrics.
Chris Cowsare: We grew adjusted EBITDA by 12% and expanded margins 200 basis points.
Chris Cowsare: Adjusted diluted earnings per share also increased 12% versus the prior year period, and adjusted free cash flow increased $42 million or 19%.
Slide 10 shows our year to date adjusted free cash flow performance versus the prior year.
The 19% increase was driven primarily by working capital improvement and higher cash earnings partially offset by an increase in capital expenditures lower dividends from wave and higher cash interest.
Chris Cowsare: Sowed of the work that our teams have done throughout the year to deliver double digit adjusted EBITDA growth margin expansion and double digit adjusted free cash flow growth in a soft market.
Recall that in the fourth quarter of 2022, we received a $25 million special dividend from wave that did not repeat in 2023 excluding.
Chris Calzareta: Slide 10 shows our year-to-date adjusted free cash flow performance versus the prior year. The 19% increase was driven primarily by working capital improvement and higher cash earnings partially offset by an increase in capital expenditures, lower dividends from WAVE, and higher cash interest. Recall that in the fourth quarter of 2022, we received a $25 million special dividend from WAVE that did not repeat in 2023. Excluding that special dividend in the prior year, we grew adjusted free cash flow by a robust 34%. The ability to consistently drive free cash flow generation, even in a soft market, is one of the key strengths of Armstrong.
Chris Cowsare: Slide 10 shows our year to date adjusted free cash flow performance versus the prior year.
Chris Cowsare: The 19% increase was driven primarily by working capital improvement and higher cash earnings partially offset by an increase in capital expenditures lower dividends from wave and higher cash interest.
Excluding that special dividend in the prior year, we grew adjusted free cash flow by a robust 34%.
The ability to consistently drive free cash flow generation, even in a soft market is one of the key strengths of Armstrong.
Chris Cowsare: We called it in the fourth quarter of 2022, we received a $25 million special dividend from wave that did not repeat in 2023 excluding.
Key strength that fuels, a healthy balance sheet advances innovation and enables us to execute on all of our capital allocation priorities.
Chris Cowsare: That special dividend in the prior year, we grew adjusted free cash flow by a robust 34%.
These priorities remain unchanged as we first look to invest back into the business by way of productivity and growth projects, where we generate the highest returns.
Chris Cowsare: The ability to consistently drive free cash flow generation, even in a soft market is one of the key strengths of Armstrong.
Second we target acquisitions, and partnerships with differentiated and Specifiable products and solutions that strengthen our broad product portfolio and.
Chris Cowsare: Key strength that fuels, a healthy balance sheet advances innovation and enables us to execute on all of our capital allocation priorities.
And third we provide value to shareholders through a growing dividend and share repurchases.
These priorities remain unchanged as we first look to invest back into the business by way of productivity and growth projects, where we generate the highest returns.
And looking back on 2023, we delivered on all three in Q3, we noted the ongoing investment to expand our metal capacity and capabilities within our business to maximize returns and a growing category.
Chris Cowsare: Second we target acquisitions, and partnerships with differentiated and Specifiable products and solutions that strengthen our broad product portfolio and.
In July we completed the acquisition of both modern which is already providing incremental sales and EBITDA and in October we increased our dividend by 10% the fifth consecutive annual increase since dividend inception in 2018.
Chris Cowsare: And third we provide value to shareholders through a growing dividend and share repurchases.
Chris Cowsare: And looking back on 2023, we delivered on all three in Q3, we noted the ongoing investment to expand our metal capacity and capabilities within our business to maximize returns and a growing category.
And still we continue to repurchase shares throughout the year.
In the fourth quarter, we repurchased $35 million of shares and for the full year, we repurchased $132 million.
In July we completed the acquisition of both modern which is already providing incremental sales and EBITDA and in October we increased our dividend by 10% the fifth consecutive annual increase since dividend inception in 2018.
Since the inception of our share repurchase program in 2016, we have repurchased a total of $14 2 million shares for $983 million or approximately a quarter of our total shares outstanding at the since the end of 2015.
Chris Cowsare: And still we continue to repurchase shares throughout the year.
Chris Cowsare: In the fourth quarter, we repurchased $35 million of shares and for the full year, we repurchased $132 million.
As of the end of 2023, we have over $700 million remaining under the existing authorization.
Chris Cowsare: Since the inception of our share repurchase program in 2016, we have repurchased a total of $14 2 million shares for $983 million or approximately a quarter of our total shares outstanding at the since the end of 2015.
This disciplined and balanced approach to capital deployment continues to create value for our shareholders.
Slide 11 shows our full year 2024 guidance.
We expect to carry the momentum of solid execution and focus on margin expansion from 2023 into 2024.
Chris Cowsare: As of the end of 2023, we have over $700 million remaining under the existing authorization.
We expect total company net sales growth in the 3% to 6% range.
Chris Cowsare: This disciplined and balanced approach to capital deployment continues to create value for our shareholders.
We expect our growth initiatives to partially offset modestly lower market demand, resulting in mineral fiber volume down in the low single digit range.
Chris Cowsare: Slide 11 shows our full year 2024 guidance.
Chris Cowsare: We expect to carry the momentum of solid execution and focus on margin expansion from 2023 into 2024.
We expect mineral fiber AAV to be in line with our historical average of mid single digits, returning to a more balanced split of price and mix and contributing to EBITDA margin expansion.
Chris Cowsare: We expect total company net sales growth in the 3% to 6% range.
Chris Cowsare: We expect our growth initiatives to partially offset modestly lower market demand, resulting in mineral fiber volume down in the low single digit range.
We also expect manufacturing productivity and normalizing levels of inflation in 2024 and.
And paired with continued efforts for <unk> to penetrate a fragmented market and expand margins. We expect total company adjusted EBITDA growth in the 5% to 9% range.
Chris Cowsare: We expect mineral fiber AAV to be in line with our historical average of mid single digits, returning to a more balanced split of price and mix and contributing to EBITDA margin expansion.
We expect adjusted diluted EPS and adjusted free cash flow to grow at a rate similar to adjusted EBITDA.
Chris Cowsare: We also expect manufacturing productivity and normalizing levels of inflation in 2024 and paired with continued efforts for aes to penetrate a fragmented market and expand margins. We expect total company adjusted EBITDA growth in the 5% to 9% range.
Please note that additional assumptions are in the appendix of this presentation.
We anticipate 2024 to be similar to 2023, albeit with less market uncertainty our teams remain laser focused on delivering profitable growth.
Chris Cowsare: We expect adjusted diluted EPS and adjusted free cash flow to grow at a rate similar to adjusted EBITDA.
Margin expansion and adjusted free cash flow growth, despite modestly softer market conditions I.
I am excited to further this momentum as we continue to execute our strategy and create value for our shareholders.
Chris Cowsare: Please note that additional assumptions are in the appendix of this presentation.
We anticipate 2024 to be similar to 2023, albeit with less market uncertainty. Our teams remain laser focused on delivering profitable growth margin expansion and adjusted free cash flow growth, despite modestly softer market conditions I.
And now I'll turn it back to Vic for further comments before we take your questions.
Thanks, Chris and before we get to your questions I'd like to take a moment to share a few highlights from armstrong's proven ability to consistently and steadily invest back in our business and innovation through all parts of the cycle.
Chris Cowsare: I am excited to further this momentum as we continue to execute our strategy and create value for our shareholders.
In January we announced a new partnership with Mckinstry, and innovative leading construction and energy services company to tackle another challenging aspect of commercial construction today, the waste and inefficiency in that and the installation of systems devices and components needed to meet today's tenant requirements.
Chris Cowsare: And now I'll turn it back to Vic for further comments before we take your questions.
Victor D. Grizzle: Thanks, Chris and before we get to your questions I'd like to take a moment to share a few highlights from armstrong's proven ability to consistently and steadily invest back in our business and innovation through all parts of the cycle.
With an equity investment and overcast innovations in early stage and chemistry venture.
Victor D. Grizzle: In January we announced a new partnership with Mckinstry, and innovative leading construction and energy services company to tackle another challenging aspect of commercial construction today, the waste and inefficiency in that and the installation of systems devices and components needed to meet today's tenant requirements.
We're co developing plug and play systems that streamline this increasingly complex process.
This represents an integrated approach that goes well beyond ceiling tiles.
Overcast works with architects to integrate Hvac's lighting audiovisual components sensors, and other sealant equipment into factory manufactured architectural sealing solutions.
Victor D. Grizzle: With an equity investment and overcast innovations and early stage I can street venture.
Victor D. Grizzle: We're co developing plug and play systems that streamline this increasingly complex process.
The partnership and investment are expected to accelerate overcast growth through access to Armstrong portfolio of sealing solutions and go to market platform by.
Victor D. Grizzle: This represents an integrated approach that goes well beyond ceiling tiles.
Victor D. Grizzle: Overcast works with architects to integrate Hvac's lighting audiovisual components sensors and other.
By bringing together industry, leading Armstrong ceiling systems with overcast pioneering integrated modular ceiling design, we can offer unique and sustainable solutions.
Victor D. Grizzle: Equipment into factory manufactured architectural sealing solutions.
Another area of focus has been innovation in our healthy spaces initiative has evolved over time to include the energy efficiency and overall thermal comfort of commercial buildings as.
Victor D. Grizzle: The partnership and investment are expected to accelerate overcast growth through access to Armstrong's portfolio sealing solutions and go to market platform by.
Victor D. Grizzle: By bringing together industry, leading Armstrong ceiling systems with overcast pioneering integrated modular ceiling design, we can offer unique and sustainable solutions.
As you May know buildings are responsible for nearly 40% of global energy consumption and in the U S alone. This energy consumption represents nearly 75% of all electricity used and 35% of the nation's carbon emissions.
Victor D. Grizzle: Another area of focus has been innovation in our healthy spaces initiative has evolved over time to include the energy efficiency and overall thermal comfort of commercial buildings as.
<unk> AUM.
Over 50% of that energy consumption is used to heat and cool buildings.
Victor D. Grizzle: As you May know buildings are responsible for nearly 40% of global energy consumption and in the U S alone. This energy consumption represents nearly 75% of all electricity used and 35% of the nation's carbon emissions.
As part of our research and development efforts, we have focused on how ceilings can play a significant role in creating healthier and more sustainable spaces and enable energy efficiency for more sustainable buildings and ultimately accelerate the efforts of building owners and operators to achieve their net zero energy aspirations.
Victor D. Grizzle: <unk> <unk>.
Victor D. Grizzle: Over 50% of that energy consumption is used to heat and cool buildings.
As we announced in December Armstrong has acquired the technology to integrate phase changed material or PCM into our ceiling tiles to improve their thermal mass and thereby reduce the energy consumption of commercial buildings by as much as 15%.
Victor D. Grizzle: As part of our research and development efforts, we have focused on how ceilings can play a significant role in creating healthier and more sustainable spaces and enable energy efficiency for more sustainable buildings and ultimately accelerate the efforts of building owners and operators to achieve their net zero energy aspirations.
This performance is enabled by the heat absorption and release properties of PCM that can shorten the heating and cooling cycles to save energy.
Victor D. Grizzle: As we announced in December Armstrong has acquired the technology to integrate phase changed material or PCM into our ceiling tiles to improve their thermal mass and thereby reduce the energy consumption of commercial buildings by as much as 15%.
This technology enabled us to introduce ultimate templates, the first of its kind and the first of what we expect to become a broader portfolio of energy saving ceiling tiles.
Ultimate temp lock brings the same smooth white look the same superior acoustical performance that our customers enjoy today.
Victor D. Grizzle: This performance is enabled by the heat absorption and release properties of PCM that can shorten the heating and cooling cycles to save energy. This technology enabled us to introduce ultimate template. The first of its kind and the first of what we expect to become a broader portfolio of energy saving.
But now in a package that also saves energy.
This is the first ceiling tile that will pay for itself over time.
Our first customer for this new energy savings sealing solution is the U S Department of energy as part of an ongoing government study of new innovative technologies that offer energy efficiency and de carbonization benefits.
Victor D. Grizzle: Feeling tiles.
Victor D. Grizzle: Ultimate template brings the same smooth white look the same superior acoustical performance that our customers enjoy today.
Victor D. Grizzle: But now in a package that also saves energy.
Needless to say this is an exciting innovation for the entire sealing category and a brand new way for building owners and operators to reduce energy costs and to make their buildings more sustainable.
Victor D. Grizzle: This is the first ceiling tile that will pay for itself over time.
Victor D. Grizzle: Our first customer for this new energy savings sealing solution is the U S Department of energy as part of an ongoing government study of new innovative technologies.
Our ongoing focus on innovation is a key element of our strategy that provides a unique value proposition to all of our customers.
Victor D. Grizzle: Offer energy efficiency and de carbonization benefits.
Our innovation continues to add value and new attributes to the ceiling category, making ceilings more relevant and valuable to architects and designers and building owners.
Victor D. Grizzle: Needless to say this is an exciting innovation for the entire sealing category and a brand new way for building owners and operators to reduce energy costs and to make their buildings more sustainable.
And it ultimately positions Armstrong well to consistently grow the <unk> of our products and enhance our overall competitive advantage.
Victor D. Grizzle: Our ongoing focus on innovation is a key element of our strategy that provides a unique value proposition to all of our customers.
And finally to wrap despite expecting a modestly softer demand year ahead.
Our innovation continues to add value and new attributes to the ceiling category, making ceilings more relevant and valuable to architects and designers and building owners.
We are carrying some good momentum into 2024.
We demonstrated our unique resilience in 2023 by delivering profitable growth in a challenging market and with modestly softer market conditions. In 2024, we expect to do more of the same.
Victor D. Grizzle: And it ultimately positions Armstrong well to consistently grow the <unk> of our products and enhance our overall competitive advantage.
The resilience of this business has been a hallmark for many years.
Victor D. Grizzle: And finally to wrap despite expecting a modestly softer demand year ahead.
And since the 2020 pandemic, we have generated sales and earnings growth each year, even though the commercial construction markets have not fully recovered.
Victor D. Grizzle: We are carrying some good momentum into 2024, we demonstrated our unique resilience in 2023 by delivering profitable growth in a challenging market and with modestly softer market conditions. In 2024, we expect to do more of the same.
This growth enables our ability to consistently invest back in the business to drive innovation into the market.
And fuel future growth.
Victor D. Grizzle: The resilience of this business has been a hallmark for many years and since the 2020 pandemic, we have generated sales and earnings growth each year, even though the commercial construction markets have not fully recovered.
All of this in addition to providing direct returns to our shareholders through dividends and share repurchases.
Then even during weaker economic times.
So with that we'll stop here and be happy to take your questions.
Victor D. Grizzle: This growth enables our ability to consistently invest back in the business to drive innovation into the market and fuel future growth.
Okay.
The floor is now open for your questions to ask a question at this time simply press the star followed by the number one on your telephone keypad.
Victor D. Grizzle: This in addition to providing direct returns to our shareholders through dividends.
We ask that you please limit yourself to one question and one follow up question.
Victor D. Grizzle: And share repurchases.
Victor D. Grizzle: Again, even during weaker economic times.
We will now take a moment to compile a roster.
Speaker Change: So with that we'll stop here and be happy to take your questions.
Speaker Change: Okay.
Speaker Change: The floor is now open for your questions to ask a question at this time simply press the star followed by the number one on your telephone keypad.
Our first question comes from the line of Garik <unk> with loop capital markets. Please go ahead.
Oh, hi, thanks, and congrats on the quarter.
Speaker Change: We ask that you please limit yourself to one question and one follow up question.
Hoping you could speak a little bit as to what you saw.
So far.
Speaker Change: We will now take a moment to compile our roster.
First quarter, we're hearing from other companies.
Weather.
A little bit of a headwind offshore growth.
Speaker Change: Our first question comes from the line of Garik <unk> with loop capital markets. Please go ahead.
Can you maybe speak to how you expect.
For the year progressed, both for sales and margins anything to take into account there.
Garik: Oh, hi, thanks, and congrats on the quarter.
Okay.
Garik: Hoping you could speak a little bit as to what you're seeing so far.
Yes, Eric.
On the direct part of your question, we have not seen.
First quarter, we've been hearing from other companies.
Any measurable impact on weather on the business in the in the first six weeks of the year here so far.
Garik: Weather.
Garik: Little bit of a headwind not sure if that's impacting you and then maybe speak to how you expect.
So let me let me answer that directly.
For the year to progress both for sales and margins anything to take into account there.
What we're seeing in the marketplace and what we expect to see star.
Start back with the third quarter of last year, we saw a market that again was better than what we were expecting and then in the fourth quarter, we saw a very similar market condition.
Garik: Okay.
Speaker Change: Yes, Gary.
Speaker Change: On the direct part of your question, we have not seen.
Speaker Change: Any measurable impact on weather on the business in the in the first six weeks of the year here so far.
And that we saw in the third quarter. So as we outlook the halves of the year in 2024, we kind of expect that the first and second quarter or first half of this year to be fairly similar to what we saw in the back half it seems to be just kind of at this level.
So let me let me answer that directly.
Speaker Change: What we're seeing in the marketplace and what we expect to see.
Speaker Change: Start back with the third quarter of last year.
Speaker Change: We saw a market that again was better than what we were expecting and then in the fourth quarter. We saw a very similar market condition than that we saw in the third quarter. So as we outlook the halves of the year in 2024, we kind of expect that the first and second quarter. The first half of this year to be fairly soon.
Just progressing along at this level in the back half is where we have more uncertainty again with the lag effect of our business and the lag effect of higher interest rates.
Overall slower economic activity, that's expected, we see that that could potentially hit the discretionary part of our business and we might see some softer market conditions and softer volumes in the back half of the year.
Speaker Change: Or to what we saw in the back half it seems to be just kind of at this level.
Speaker Change: Progressing along at this level in the back half is where we have more uncertainty again with the lag effect of our business and the lag effect of higher interest rates.
That's our current outlook again, theres some theres some uncertainty with regards to exactly what we're going to see.
And as Chris mentioned in his prepared remarks, we don't see the same kind of.
Speaker Change: Overall slower economic activity, that's expected, we see that that could potentially hit the discretionary part of our business and we might see some softer market conditions and softer volumes in the back half of the year.
Variation and the potential outcomes as we did going into 'twenty three but still there is some uncertainty about what is the overall economic activity going to look like so kind of a first half kind of as we've been saying recently in recent quarters, maybe a little bit modestly softer conditions in the back half.
Speaker Change: That's our current outlook again, theres some theres some uncertainty with regards to exactly what we're going to see.
And as Chris mentioned in his prepared remarks, we don't see the same kind of.
Okay.
Thanks for that I wanted to follow up on capital allocation.
Speaker Change: Variation and the potential outcomes as we did going into 'twenty three but still there is some uncertainty about what is the overall economic activity going to look like.
Given your strong free cash flow position balance sheet in good shape.
Thoughtful and prior.
Speaker Change: So kind of a first half kind of as we've been saying.
Priorities, maybe speak to the M&A environment as well.
Speaker Change: <unk> recently in recent quarters, maybe a little bit modestly softer conditions in the back half.
Okay.
Yeah, Hey, Eric It's Chris I'll take that and then <unk>.
Speaker Change: Okay.
Wanted to add on a little bit on the M&A side, Yes, I mean, our approach to capital allocation priorities remain remained unchanged I mean, we invest back into the business first where we see a lot of our highest returns and then second seek to grow by way of inorganic growth to create shareholder value and returning cash to shareholders.
Speaker Change: Thanks for that I wanted to follow up on capital allocation, just given your strong free cash flow position balance sheet.
Speaker Change: Shape.
Speaker Change: Paul Fund priorities.
Q2 <unk>.
Speaker Change: The environment as well.
Speaker Change: Yeah, Hey, Eric It's Chris I'll take that and then.
Used to be.
Our last priority, our third priority and.
Chris Cowsare: Thank you wanted to add on a little bit on the M&A side, Yes, I mean, our approach to capital allocation priorities remain remained unchanged I mean, we invest back into the business first where we see a lot of our highest returns and then second seek to grow by way of inorganic growth to create shareholder value and returning cash to shareholders.
We continue to flex with with share repurchases and as we've gone through our strategic planning and long term planning for the business we believe that.
Value creation, there and following those disciplined capital allocation priority steps they remained unchanged.
Unchanged.
Chris Cowsare: Continues to be our last priority, our third priority and.
I believe that they are the best way to continue to deploy capital for for the company.
Chris Cowsare: We continue to flex with with share repurchases and as we've gone through our strategic planning and long term planning for the business. We believe that there is.
And to Chris's point, our second priority is the use of free cash flow to bolt on acquisitions.
That add capabilities to the Armstrong platform.
Chris Cowsare: Value creation, there and.
Chris Cowsare: Following those set disciplined capital allocation priority steps.
To accelerate what we're trying to go in this especially in this fragmented specialties category, we still believe theres lots of opportunity. There. We continue to pursue those opportunities I would say, we're very active our pipeline is very active and fluid.
Chris Cowsare: It remained unchanged.
Chris Cowsare: Believe that they are the best way to continue to deploy capital for for the company.
Chris Cowsare: And to Chris's point, our second priority is the use of free cash flow to bolt on acquisitions that add capabilities to the Armstrong platform.
I think a lot of.
The questions that we get around how interest rates and so forth may be affecting our pipeline.
Chris Cowsare: To accelerate what we're trying to go in this especially in this fragmented specialties category, we still believe theres lots of opportunity. There. We continue to pursue those opportunities I would say, we're very active our pipeline is very active and fluid.
Again, a lot of these companies that we're working with or trying to get closer to are not in a sale process and so we're not affected really by interest rates or the interest rate environment.
So we continue to build these relationships with targeted companies that we think would add a lot of value by being on the Armstrong platform.
Chris Cowsare: I think a lot of the questions that we get around how interest rates and so forth may be affecting our pipeline.
And we will continue to build those third party relationships with those that we think we don't need to own the assets and we can use our capital else place. So we remain active we still believe that theres a good set of opportunities for us to go faster in the specialty segment through these acquisitions.
Chris Cowsare: Again, a lot of these companies that we're working with or trying to get closer to are not in a sale process and so we're not affected really by interest rates or the interest rate environment.
Chris Cowsare: So we continue to build these relationships with targeted companies that we think would add a lot of value by being on the Armstrong platform.
And we will continue to build in.
Build that pipeline and hopefully get some of those across the finish line.
Chris Cowsare: And we'll continue to build those third party relationships with those that we think we don't need to own the assets and we can use our capital L. Space. So we remain active we still believe that theres a good set of opportunities for us to go faster in the specialty segment through these acquisitions.
Okay.
Makes sense, Thanks, again I'll pass it on.
Alright. Thank you. Thank you.
Our next question comes from the line of Philip <unk> with Jefferies. Please go ahead.
Hey, guys.
Strong finish to the year so congrats on the team.
Chris Cowsare: And we'll continue to build and build.
So vik.
Chris Cowsare: Build that pipeline and hopefully get some of those across the finish line.
Good to hear that demand is off to a pretty solid start in the first half any color on how orders and bidding activity have trended lately, particularly in some of the more challenged end markets like office and retail are you starting to see those.
Speaker Change: Makes sense, Thanks, again I'll pass it on.
Speaker Change: Alright. Thank you. Thank you.
Speaker Change: Our next question comes from the line of Philip <unk> with Jefferies. Please go ahead.
Activity or bottom out here and you commented about how the back half could be a little more weaker.
Philip: Hey, guys.
Philip: Ill finish to the year so congrats on the team.
Is that informed by your customers or are you just kind of baking in some conservatism.
Philip: So.
Philip: Good to hear that.
Philip: <unk> is off to a pretty solid start in the first half any color on how orders and bidding activity have trended lately, particularly in some of the more challenged end markets like office and retail are you starting to see those to act.
Yes, so first of all Philip on the.
On the bidding activity in the fourth quarter bidding activity was positive.
And it was kind of choppy all throughout the last year as we reported in 2023.
Philip: Activity, Eric bottom out here and you commented about how the back half could be a little more weaker.
I would say overall bidding activity for the year was it was.
Philip: Is that informed by your customers or are you just kind of baking in some conservatism.
Was stable.
With the Q4 again being positive.
Eric: Yes, so first of all Philip on the.
Interesting enough as much as office gets talked about I think it's worth noting that the office build bidding activity was positive and 2023 in both the number of projects and the value of projects.
Eric: On the bidding activity fourth quarter bidding activity was positive.
Eric: <unk>.
Kind of choppy all throughout the last year as we reported in 2023.
And we think this is another signal of this sector in particular stabilizing.
Eric: I would say overall bidding activity for the year was was was stable.
Along with some of the other things that we talked about in our third quarter with leasing volumes.
Eric: With the Q4 again being positive.
Eric: Interesting enough as much as office gets talked about I think it's worth noting that the office build bidding activity was positive and 2023 in both the number of projects and the value of projects. We think this is another signal of this sector in particular stabilizing.
Increasing.
<unk> thousand 14% in the quarter.
The supply at the high end continues to get tighter both in the class a and AA at a plus.
Part of the marketplace.
Back to office mandates are 90% of the Fortune 100 employees or are now back in the office an average of three days a week. So there is lots of signs that are pointing to.
Eric: Along with some of the other things that we talked about our third quarter with leasing volumes.
Eric: Increasing.
Our stable office market in particular, and then that's again complemented by some additional strength that we're seeing in education.
Eric: <unk> thousand 14% in the quarter.
Eric: The supply at the high end continues to get tighter both in the class a and AA at a plus.
And in the retail in particular.
Eric: Part of the marketplace.
Eric: Back to office mandates or 90% of the Fortune 100 employees or are now back in the office on average of three days a week. So there is lots of signs that are pointing to.
Again, I would say overall built where the market that where we.
Our experience in the back half of last year.
Is what we're seeing so far and again its very early in the year, but that's what we expect to see.
Eric: Our stable office market in particular, and then that's again complemented by some additional strength that we're seeing in education.
In the first half of this year in the back half into the second part of your question Phil I think.
This is both informed by our customers who have less visibility in their backlogs into the back half of the year.
Eric: And in the retail in particular.
Eric: Again, I would say overall felt were.
Although it's a different than it was at the beginning of 'twenty three where there was a lot more concern about the back half of the year.
Eric: The market that we're.
We're experiencing in the back half of last year.
Eric: Is what we're seeing so far and again its very early in the year, but that's what we expect to see.
There is still it's still informed by our customers who have.
Eric: The first half of this year in the back half into the second part of your question Phil I think.
Less less comfort I think in their backlogs for the back half of the year and again Thats, where some of the indicators lagged would say that's where some of the weakness could could show up again a lot of this is probably more on the discretionary side. So we'll have to get closer to the back half to see exactly what.
Eric: This was both informed by our customers who have less visibility in their backlogs into the back half of the year.
Eric: Although it's a different than it was at the beginning of 'twenty three where there was a lot more concern about the back half of the year.
What happens on the discretionary side of this which again we have.
Eric: There is still it's still informed by our customers who have.
A lot less visibility on some of that smaller discretionary project work.
Eric: Less less comfort I think in their backlogs for the back half of the year and again, that's where some of the indicators lagged would say that's where some of the weakness could could show up again a lot of this is probably more on the discretionary side. So we'll have to get closer to the back half to see exactly what.
Okay, that's incredible color Vic.
And then for your <unk> business, you're guiding to call it 6% to 9% growth in 2024, I believe roughly about two points of M&A, but nonetheless, that's a pretty strong growth. So I'm, just curious where you're seeing some strength from end market standpoint, you certainly called out infrastructure and transportation being a big part of that any way to kind of help us parse out how.
Eric: What happens on the discretionary side of this which again we have.
Eric: A lot less visibility on some of that smaller discretionary project work.
Speaker Change: Okay, that's incredible color Vic.
Big is that piece of the business for us.
Victor D. Grizzle: And then for your <unk> business, you're guiding to call it 6% to 9% growth in 2024, I believe roughly about two points of M&A, but nonetheless, that's pretty strong growth. So I'm, just curious where you're seeing some strength from an end market standpoint, you certainly called out infrastructure and transportation being a big part of that any way to kind of help us parse out how.
What I would point to fill is the on the new construction side. If you recall in the back half of 2022, we had pretty good new construction positive new construction starts.
Should benefit from that.
In 2024 continue to benefit from a lack of those new construction projects coming through.
Victor D. Grizzle: Big is that piece of the business for us.
I think in the larger alteration projects office in education again were positive and I believe we're going to continue to see some.
Victor D. Grizzle: What I would point to fill is the on the new.
Victor D. Grizzle: Struction side, if you recall in the back half of 2022, we had pretty good new construction positive new construction starts we should benefit from that.
Some of that benefit in both office and education, and you mentioned transportation, it's a relatively small from a square footage standpoint segment, but it has big dollar opportunities when it comes to the architectural specialty segment.
And 2024 continue to benefit from the lack of those new construction projects coming through.
Victor D. Grizzle: I think in the larger alteration projects office in education again were positive and I believe we're going to continue to see some.
We remained very.
Busy with our bidding activity there, we expect transportation to be a meaningful contributor to the overall architectural specialty segment growth in 'twenty, four and as I outlined I think beyond.
Victor D. Grizzle: Some of that benefit in both office and education, and you mentioned transportation, it's a relatively small from a square footage standpoint segment, but it has big dollar opportunities when it comes to the architectural specialty segment.
Okay. Thank you guys really appreciate it.
You bet. Thank you.
Okay.
Our next question comes from the line of Jon <unk> with UBS. Please go ahead.
Victor D. Grizzle: We remain very.
Victor D. Grizzle: Busy with our bidding activity, there and we expect transportation to be a meaningful contributor to the overall architectural specialty segment growth in 'twenty, four and as I outlook I think beyond.
Good morning, guys. Thank you for taking my questions as well.
The first one is just on the comps in the first half and.
In mineral fiber in particular, I mean, a little bit tricky with let's say a plus nine in the first quarter.
Speaker Change: Okay. Thank you guys really appreciate it.
Speaker Change: You bet. Thank you.
Okay.
Speaker Change: Our next question comes from the line of John <unk> with UBS. Please go ahead.
I think on a volume load and then a minus 7% in the second quarter, how should we sort of think about those as we move into the first half of this year and then along the same along similar lines input cost inflation and there's a lot of moving pieces with synergy and other.
John: Good morning, guys. Thank you for taking my questions as well.
John: The first one is just on the comps in the first half.
John: In mineral fiber in particular, I mean, there's a little bit tricky with let's take a plus nine in the first quarter.
Items Hello, how are you kind of thinking about that through the year.
Hey, John It's Chris Thanks for the question Yeah on the volumes mineral fiber so looking at first half second half.
John: On a volume load and then a minus 7% in the second quarter, how should we sort of think about those as we move into the first half of this year and then along the same along similar lines input cost inflation and there's a lot of moving pieces with energy and other items Hello, how are you kind of thinking about that through the year.
Blitz.
We're guiding to mineral fiber volume being down in that low single digit range with a little more softness in the back half than the front half and that really mirrors. The remarks that Vic made about the overall market and Youre right.
John: Hey, John It's Chris Thanks for the question Yeah on the volumes in mineral fiber so looking at first half second half.
First quarter, we're lapping a really strong comp of the first quarter of 'twenty, three where we saw some of that inventory build in retail.
Blitz.
Chris Cowsare: We're guiding to mineral fiber volume being down in that low single digit range with a little more softness in the back half than the front half and that really mirrors. The remarks that Vic made about about the overall market and Youre right.
A little bit of softness in Q1 and then.
Kind of just the opposite in Q2.
The comp that you pointed out, but I would overall say back half a little bit softer on the volume side than the than the first part of the year.
Chris Cowsare: First quarter, we're lapping a really strong comp of the first quarter of 'twenty, three where we saw some of that inventory build in retail.
On input costs Youre right were basically outlook ing.
For full year total input cost inflation.
Chris Cowsare: A little bit of softness in Q1 and then.
To be inflationary in the low single digit ranges range on a percentage basis and kind of break that out a little bit raw materials, we expect those to be inflationary low single digits freight to be slightly inflationary and then.
Chris Cowsare: Kind of just the opposite in Q2 to the comp that you pointed out, but I would overall say back half a little bit softer on the volume side then.
Chris Cowsare: The first part of the year.
Deflation in the area of energy driven primarily by by Nat gas.
Chris Cowsare: On input costs Youre right were basically outlook ing.
Chris Cowsare: For full year total input cost inflation to be inflationary in the low single digit ranges range on a percentage basis and kind of break that out a little bit raw materials, we expect those to be inflationary low single digits freight to be slightly inflationary and then deflation in the area of energy driven.
So again total total input cost inflationary in that low single digit range for for 2004.
That's really helpful. Okay, and then maybe just taking a step back to your Investor day targets, you guys outlined 2% to 4% mineral fiber growth through 2024, the expectation is for it to be down low single digits as we progress through this year, how should we sort of think about the drivers of the improvement in mineral fiber volume and <unk>.
Chris Cowsare: Primarily by by Nat gas.
Chris Cowsare: So again total total input cost inflationary in that low single digit range for for 2004.
As you see the cadence over the next couple of years as possible.
Speaker Change: That's really helpful. Okay, and then maybe just taking a step back to your Investor day targets, you guys outlined 2% to 4% mineral fiber growth through 2024, the expectation is for it to be down low single digits as we progress through this year, how should we sort of think about the drivers of the improvement in mineral fiber volume and maybe as you.
Yeah.
Yes, John let me take that I think that when.
When we think about those of course.
The world kind of changed in 2022, right after that Investor day.
The conference, but when you look back at the building blocks of that guidance and we sit here today and look at those building blocks that they haven't changed.
Speaker Change: See the cadence over the next couple of years are possible.
Are the same building blocks I think we've got to get to the stabilization of the market.
Speaker Change: Yeah.
Speaker Change: Yes, John let me take that I think that when.
Speaker Change: When we think about those of course, the world kind of changed in 2022, right after that Investor day.
We did we did outlook one of the building blocks is a recovering commercial construction market.
So as we.
Speaker Change: The conference, but when you look back at the building blocks of that guidance and we sit here today and look at those building blocks. They haven't changed they really are the same building blocks I think we've got to get to the stabilization of the market.
Get on the other side of 24 and move into a more positive backdrop for commercial construction with lower interest rates and so forth.
I think then we start to see the materials Asian of one of the one of the main building blocks, there, which is the overall recovery of the commercial construction.
Speaker Change: We did we did outlook one of the building blocks is a recovering commercial construction market and so as we.
Place again, and then our growth initiatives on top of that.
And then acquisitions are coming along the way we think the building blocks are still there for <unk>.
Speaker Change: Get on the other side of 24 and move into a more positive backdrop for commercial construction with lower interest rates and so forth.
Positive mineral fiber volume growth, what's your specific question, but the other building blocks for overall profitable growth for the company.
Speaker Change: I think then we start to see the materials nation, one of them, but one of the main building blocks, there, which is the overall recovery of the commercial instruction.
Got it thank you guys.
Okay. Thank you thanks John.
Speaker Change: Marketplace again, and then our growth initiatives on top of that.
Okay.
Our next question comes from the line of Susan <unk> with Goldman Sachs. Please go ahead.
Speaker Change: And then acquisitions are coming along the way we think the building blocks are still therefore.
Thank you good morning, everyone and congrats on a good quarter.
Speaker Change: Positive mineral fiber volume growth, which is your so your specific question, but the other building blocks for overall profitable growth for the company.
Thank you Susan.
My first question is thinking about your guide for mineral fiber volumes to be down low single digits can you give us some sense of how much of that is driven by the underlying market and the conditions that you've talked to you relative to some of those organic initiatives and the benefits that are starting to come through from those.
Speaker Change: Got it thank you guys.
Speaker Change: Okay. Thank you thanks John.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Susan <unk> with Goldman Sachs. Please go ahead.
Susan: Thank you good morning, everyone and congrats on a good quarter.
Susan: Thank you Susan.
Okay, Susan yes.
Susan: First question is thinking about your guide for mineral fiber volumes to be down low single digits can you give us some sense of how much of that is driven by the underlying market and the conditions that you've talked to relative to some of those organic initiatives and the benefits that are starting to come through from those.
The volume I think the way to think about the volume builds.
This is we have an overall I think softer.
Level of economic activity that is going to impact the overall business and across all of the verticals will be subject to lower levels of activity.
Susan: Okay.
So that's kind of the backdrop, we're going to partially offset some of that with our growth initiatives like we did in 'twenty three we feel really good about the progress and the traction we're getting there.
Susan: Okay.
Susan: Yes.
Susan: The volume I think the way to think about the volume build.
Susan: This is we have an overall I think softer.
The other thing that is going to come out.
Level of economic activity that is going to impact the overall business and I can across all of the verticals will be subject to lower levels of activity.
Is some of this retail inventory build that we talked about all through 2023, and we were expecting some of that to come out in 'twenty four didn't come out and so we're factoring that also and.
Susan: So that's kind of the backdrop, we're going to partially offset some of that with our growth initiatives like we did in 'twenty three we feel really good about the progress and the traction we're getting there.
Coming out in 24, so you've got you've got a couple of puts and takes there.
It's not all market softness again, we're out looking a modestly a modestly softer overall economic backdrop.
Susan: The other thing that is going to come out.
Susan: Is some of this retail inventory build that we talked about all through 2023, and we were expecting some of that to come out in 'twenty four didn't come out and so we're factoring that also and.
And again, partially offset with our growth initiatives and then a little bit of headwind from some of this inventory coming back out of the system in 'twenty four.
Susan: Coming out and 24, so you've got you've got a couple of puts and takes there.
Does that help yes.
That is helpful. I mean, we're trying to understand it sounds like a lot of your organic initiatives have been gaining some nice momentum over the last couple of quarters and just how to think about the continued benefit of that over the coming quarters, and where that can go relative to a softer market.
Susan: It's not all market softness again, we're out looking a modestly a modestly softer overall economic backdrop.
And again, partially offset with our growth initiatives and then a little bit of headwind from some of this inventory coming back out of the system in 'twenty four.
Yes.
Yes, yes.
Expect that to continue that traction there to continue in 'twenty four for sure yeah. Okay. That's helpful and then.
Susan: Does that help yes.
Speaker Change: That is helpful. I mean, we're trying to understand it sounds like a lot of your organic initiatives have been gaining some nice momentum over the last couple of quarters and just how to think about the continued benefit of that over the coming quarters, and where that can go relative to a softer market.
Then turning to the architectural specialties margins, you're obviously continuing to make some really nice progress there getting close to that 20% as you think about the setup for this year. How are you thinking about the ability to actually get to that 20% are really within striking distance of it and what are maybe some of the puts and takes that could.
Speaker Change: Yeah.
Speaker Change: Yes, yes, we expect that to continue that traction there to continue in 'twenty four for sure yeah. Okay. That's helpful. And then turning to the architectural specialties margins, you're obviously continuing to make some really nice progress there getting close to that 20% as you think about the setup for this year how are you.
Come through in terms of the margin in that segment.
Yes, we're really within striking distance right I mean, the path that we're on is very encouraging in terms of getting the operating leverage that that we needed to see from the capital investments, we're making in the business as.
Speaker Change: About the ability to actually get to that 20% are really within striking distance of it and what are maybe some of the puts and takes that could come through in terms of the margin in that segment.
As well as some of the SG&A that we were investing ahead of growth a couple of years back. So we're on that we're on the.
Hey, good path there to get the operating leverage there and then our pricing initiatives to we're doing a good job in making sure that we're pricing projects. The right way, we're getting some of the acquisitions on our pricing platform.
Speaker Change: Yes, we're really within striking distance right I mean, the path that we're on is very encouraging in terms of getting the operating leverage that that we needed to see from the capital investments, we're making in the business as.
So those things that we're doing and we demonstrated for two years in a row now that's what we have to continue to do and 2024 and.
Speaker Change: As well as some of the SG&A that we were investing ahead of growth a couple of years back. So we're on that we're on the.
We won't make any short term bad decisions.
Speaker Change: Hey, good path there to get the operating leverage there and then our pricing initiatives to we're doing a good job in making sure that we're pricing projects. The right way, we're getting some of the acquisitions on our pricing platform.
<unk>.
To artificially get there.
That's the discipline that we're using some of these large airport projects that we talk about one of the things that we did in <unk> and 'twenty three is.
Speaker Change: So those things that we're doing and we demonstrated for two years in a row now that's what we have to continue to do and 2024 and.
And late 'twenty, two as we invested in some additional resources to create multi functional teams to go after some of these larger complex projects and that's that's an important flex that we that we were able to take so that we can better position ourselves for winning some of these large airport projects. If we see opportunities to do that we're going to continue to.
Speaker Change: We won't make any short term bad decisions.
Speaker Change: To artificially get there.
Speaker Change: That's the discipline that we are using some of these large airport projects that we talk about one of the things that we did in <unk> and 'twenty three is.
To do the right thing in the short term.
Speaker Change: And late 'twenty, two as we invested in some additional resources to create multi functional teams to go after some of these larger complex projects and Thats that is an important flex that we that we were able to take so that we can better position ourselves for winning some of these large airport projects. If we see opportunities to do that we're going to continue to.
For our business over the long term, but we're in striking distance and we're pushing to get there.
Really like the path that we're on.
And Susan maybe just to call out to and build on that a little bit is.
In the appendix, we have the adjusted EBITDA margin assumptions for both mineral fiber mineral fiber in AF and we're out looking about 19% EBITDA margin for asking about 40 for mineral fiber.
Speaker Change: To do the right thing in the short term.
Speaker Change: For our business over the long term, but we're in striking distance and we're pushing to get there.
Okay.
Well. Thank you both for the color and good luck with everything.
Speaker Change: Really like the path that we're on.
Thank you.
Speaker Change: Susan maybe just to call out to and build on that a little bit is.
Our next question comes from the line of Keith Hughes with <unk>. Please go ahead.
In the appendix, we have the adjusted EBITDA margin assumptions for both mineral fiber mineral fiber in AF and we're out looking about 19% EBITDA margin for about 40 for mineral fiber.
Your line is open. Please go ahead.
Thanks on the go.
Susan: Okay. That's helpful. Thank you both for the color and good luck with everything.
<unk> for architectural specialties whats the revenue guide, what's the breakout between organic and acquisition.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of key pews with truth. Please go ahead.
Yes, it really I'd say within the <unk>.
<unk> segment, we're guiding 6% to 9% on the top line with I'd say really minor contribution from inorganic on that it's real it's really the market and continued market penetration, that's driving our growth and expected growth in 'twenty four.
Your line is open. Please go ahead.
Key Pews: Thanks on the guide for architectural specialties, what's the revenue guide, what's the breakout between organic and acquisitions.
Okay and one other question you talked about there was an inventory adjustment amount in the fourth quarter, how much was that and what segment will that show up.
Key Pews: Okay.
Key Pews: Yes, it really I'd say within the.
Key Pews: <unk> segment, we're guiding 6% to 9% on the top line with I'd say really minor contribution from inorganic on that it's real it's really the market and continued market penetration, that's driving our growth and expected growth in 'twenty four.
Okay.
On the you're referring to inventory valve.
Yes.
Yes. It was it was small.
It was small we if you remember back in 2023.
<unk> had in the first quarter, a pretty sizeable Val impact and.
Key Pews: Okay and one other question you talked about there was an inventory adjustment amount in the fourth quarter, how much was that what segment that that drove it.
And in the fourth quarter. It was it was.
Much smaller amount about half of the input cost line on the bridge was valid related.
On the you're referring to inventory valves.
Key Pews: Yes.
In Q4.
Speaker Change: Yes. It was it was small.
Okay, great. Thank you.
Youre welcome Thanks Jade.
Speaker Change: It was small we if you remember back in 2023.
Our next question comes from the line of Rafa Jodrell sits with the Bank of America. Please go ahead.
Speaker Change: Had in the first quarter, a pretty sizeable Val impact and.
Speaker Change: And in the fourth quarter. It was it was.
Yeah.
Speaker Change: Smaller amount about half of the input cost line on the bridge was VAT related.
Hi, Good morning, it's Rafe thanks for taking my question.
First I just wanted to clarify on the mineral fiber revenue guidance.
Speaker Change: Q4.
Speaker Change: Okay, great. Thank you.
Speaker Change: Youre welcome Thanks Jade.
What are you assuming for share gains performance relative to the market in 'twenty four and then it sounds like there was a mix headwind in 'twenty three and Vic you just mentioned to an earlier question that there is some expectation of retail Destocking and 24 do you expect the mix sort of headwinds to reverse in 'twenty.
Speaker Change: Our next question comes from the line of Rafa Jodrell sits with the Bank of America. Please go ahead.
Speaker Change: Okay.
Rafe Jason Jadrosich: Hi, Good morning, it's Rafe thanks for taking my question.
Rafe Jason Jadrosich: So I just wanted to clarify on the mineral fiber revenue guidance.
<unk>.
Is there anything thats changed.
Rafe Jason Jadrosich: What are you assuming for share gains performance relative to the market in 'twenty four and then it sounds like there was a mix headwind in 'twenty three and Vic you just mentioned to an earlier question that there is some expectation of retail Destocking and 24 do you expect the mix sort of headwinds to reverse in 'twenty.
Your overall mix going forward.
Yes, I think mix is going to be a positive contributor in <unk>.
24 for a lot of the same reasons why it was a headwind in <unk> and 'twenty three which is this channel imbalance between the retail channel and some of our higher <unk>.
Channels.
Rafe Jason Jadrosich: Four.
So yeah.
Rafe Jason Jadrosich: Is there anything thats changed.
Yes, I think we expect some of that inventory to come out of the retail channel, which again brings it more back into the balance of our higher Adv, which allows then the product mix, which is ultimately the driver of our mix as a company is the product mix.
Rafe Jason Jadrosich: Your overall mix going forward.
Victor D. Grizzle: Yes, so I think mix is going to be a positive contributor in <unk>.
Victor D. Grizzle: <unk> 24 for a lot of the same reasons why it was a headwind in <unk> and 'twenty three which is this channel imbalance between the retail channel and some of our higher <unk>.
Is able to shine through and contribute when the channels or better in balance and hopefully that that makes sense, but that's one of the drivers of this business is seven.
Victor D. Grizzle: Channels.
Victor D. Grizzle: So yes.
Yes, I think we expect some of that inventory to come out of the retail channel, which again brings it more back into the balance of our higher Adv, which allows then the product mix, which is ultimately the driver of our mix as a company is the product mix.
70% of our business is renovation work.
And when architects and designers and building owners renovate they don't put the old stuff back and they put new stuff back in so.
So it naturally wants to mix up to higher value higher performing products. That's happened for over a decade, and we expect that to happen for the next decade that this natural industry dynamic is going to continue and that's what we'll begin to shine through in 'twenty four again once these these channels.
Victor D. Grizzle: Is able to shine through and contribute when the channels or better in balance and hopefully that makes sense, but that's one of the drivers of this business is.
Victor D. Grizzle: 70% of our business is renovation work.
Victor D. Grizzle: And when architects and designers and building owners renovate they don't put the old stuff back and they put new stuff back in so.
To come back into their proportional balance.
So it naturally wants to mix up to higher value higher performing products. That's happened for over a decade, and we expect that to happen for the next decade that this natural industry dynamic is going to continue and that's what we'll begin to shine through in 'twenty four again once these these channels.
And then just on the.
The share gain assumption for <unk> 'twenty four.
Yes, we're not assuming any share gain in our assumption again, where we're driving category expansion with our initiatives and we're getting our our share proportional share of that expansion. So.
Victor D. Grizzle: To come back into their proportional balance.
The growth dynamics for us really around what the market's doing offset by our positive contribution from growth initiatives.
Victor D. Grizzle: And then just on the share gain assumption for 'twenty four.
Speaker Change: Yes, we're not assuming any share gain in our assumption again.
And then just on the mineral fiber.
Speaker Change: We're driving category expansion with our initiatives and we're getting our our share proportional share of that expansion. So.
Margin assumptions can you just because natural gas prices have moved so much have come down. So much can you talk about the assumptions embedded in your guidance what is sort of a tailwind from energy in 'twenty four and then can you talk about the strategy around hedging going forward like what's what's rolling off there.
Speaker Change: The growth dynamics for us really around what the market's doing offset by our positive contribution from growth initiatives.
Speaker Change: And then just on the mineral fiber Maher.
Where are you resetting.
Chris sure, Yes, so sure remember about 30% of our mineral fiber inputs are tied to raw materials, 10% rate, 10% energy. So as I shared earlier raw materials, we're expecting inflation in the low single digit range.
Speaker Change: Margin assumptions can you just because natural gas prices have moved so much have come down. So much can you talk about the assumptions embedded in your guidance what is sort of a tailwind from energy in 'twenty four and then can you talk about the strategy around hedging going forward like what's what's rolling off there and where were you.
Rates again to be slightly inflationary low single digits, and then really a tailwind on deflation largely driven by Nat gas and as we model that we look at a bunch of different inputs to that obviously the nymex forward curve.
Speaker Change: Resetting.
Speaker Change: Chris sure, Yes, so sure I remember about 30% of our mineral fiber inputs are tied to raw materials, 10% freight 10% energy. So as I shared earlier raw materials, we're expecting inflation in the low single digit range.
Kind of shapes and influences that but again.
Looking back at recent history with Nat gas, it's really hard to call and hard to hard to peg, but we do have Nat gas is a deflationary item in in 'twenty, four and Thats really driving that inventory that energy category.
Speaker Change: <unk> again to be slightly inflationary low single digits, and then really a tailwind on deflation largely driven by Nat gas and as we model that we look at a bunch of different inputs to that obviously, the nymex forward curve kind.
I'd say from a hedged position perspective, we have a little bit carried over into 2024 really immaterial when I think about it and to a much lesser extent than we had in terms of price locks in 'twenty three.
Speaker Change: Kind of shapes and influences that but again.
Speaker Change: Looking back at recent history with Nat gas, it's really hard to call and hard to hard to peg, but we do have Nat gas is a deflationary item in in 'twenty, four and Thats really driving that inventory that energy category.
That said going forward.
Don't expect as much of a volatile Nat gas environment as we saw.
In 2002, and 23, so not looking to really hedge or do any price locking longer longer term.
Speaker Change: I'd say from a hedged position perspective, we have a little bit carried over into 2024 really immaterial when I think about it and to a much lesser extent than we had.
Thank you very helpful.
Youre welcome.
Speaker Change: In terms of price locks in 'twenty, three kind of that said going forward.
Our next question comes from the line of Stephen Kim with Evercore ISI. Please go ahead.
Speaker Change: Don't expect as much of a volatile Nat gas environment as we saw in 'twenty two 'twenty three so not looking to really hedge or do any price locking longer longer term.
Yes, thanks, very much guys I appreciate all the color so far.
Wanted to just talk a little bit about the inventory drawdown at the home centers, it's been discussed a bit already but.
Speaker Change: Thank you very helpful.
It looks like you didn't see it show up last year Youre expecting it again in 2024, which was wondering if you could give us a sense for why it didn't show up as you expected over the last couple of quarters and are you expecting this to materialize in the first quarter or some other time later in 2024 in your planning.
Youre welcome.
Speaker Change: Our next question comes from the line of Stephen Kim with Evercore ISI. Please go ahead.
Stephen Kim: Yes, thanks, very much guys I appreciate all the color so far.
Stephen Kim: Wanted to just talk a little bit about the inventory drawdown at the home centers, it's been discussed a bit already but.
No I think.
This is really hard as you know Steve for us to control or let alone and predict it for sure let alone control it but.
Stephen Kim: It looks like you didn't see it show up last year Youre expecting it again in 2024, we're just wondering if you could give us a sense for why it didn't show up as you expected over the last couple of quarters and are you expecting this to materialize in the first quarter or some other time later in 2024 in your planning.
What we expect as we've just kind of sprinkled throughout the year that they'll come to some <unk>.
Normalization around their inventories why why do you sold centers is a good question, it's a different answer for for different.
Speaker Change: No I think.
Speaker Change: This is really hard as you know Steve for us to controller.
Home centers.
But there is timing in which they are re merchandising.
Speaker Change: Lump and predict it for sure let alone control it but.
Speaker Change: What we expect as we've just kind of sprinkled throughout the year that they will come to some nor.
They are their shelves around ceilings for example, so that that can drive a different behavior around inventory build across their stores and.
Speaker Change: A normalization or rather inventories why why these home centers is a good question, it's a different answer for different.
And again, we see that.
On the other side too when they draw them down in anticipation of our merchandising change.
Speaker Change: Home centers.
Speaker Change: But there is timing in which they are re merchandising.
So it's kind of in line with what we see periodically with these these home centers, sometimes they're out of phase with one another and it's a little quieter and sometimes they are in phase one and we feel it and we have to talk about it a little bit more but its really timing related and they do come to some normalization over time in their inventory channels.
Speaker Change: There their shelves around ceilings for example, so that that can drive a different behavior around inventory build across their their stores and again, we see that.
Speaker Change: On the other side too when they draw them down in anticipation of our merchandising change. So it's kind of in line with what we see periodically with these these home centers, sometimes they're out of phase with one another and it's a little quieter and sometimes they are in phase one and we feel it and we have to talk about it a little bit more but it's.
<unk>.
With our good service and they're able to do that so again, we've kind of we're not we're not loading it into the first quarter, we don't expect that.
We expect that probably to just normalize over.
The transition it from quarter to quarter throughout the year.
Speaker Change: It really timing related than they do come to some normalization.
Okay. That's helpful. I appreciate that.
Speaker Change: Over time in their inventory channels.
And then Vic you earlier talked about your investment in multifunctional teams.
Speaker Change: Our good service and they're able to do that so again, we've kind of we're not we're not loading it into the first quarter, we don't expect that.
They are required to really go after the more complex longer larger project.
And in a better way and you've attributed the success of that or those investments and the subsequent success to some of the great things that we've been seeing in or expect.
Speaker Change: We expect that probably to just normalize over.
Speaker Change: The transitioning from quarter to quarter throughout the year.
Speaker Change: Okay. That's helpful. I appreciate that.
But you then I think to raise question you said that you did not think that you sort of gain share youre not like gaining share and I just wanted to make sure that I'm.
Speaker Change: And then Vic you earlier talked about your investment in multifunctional teams.
Speaker Change: They are required to really go after the more complex longer larger project.
Understanding was that a remark around mineral fiber.
Speaker Change: And in a better way and you've attributed the success of that or those investments and the subsequent success to some of the great things that we've been seeing in arc spec.
Because maybe you can help us understand if you didn't take share.
These sales.
Our products that go into these more complex projects. They obviously previously were coming from somewhere right.
Speaker Change: But you then I think to raise question you said that you did not think that you sort of gain share youre not like gaining share and I just wanted to make sure that I'm understanding was that a remark around mineral fiber.
How have these multi functional teams did you put together actually changed the way those projects are serviced which has.
Speaker Change: Because maybe you can help us understand if you didn't take share.
And you are to your benefit if you could just help us understand that a little bit better.
Speaker Change: These sales.
Yes, it's David to be clear rates question was around mineral fiber assumption around share gain in our mineral fiber.
Speaker Change: Products that go into these more complex projects. They obviously previously were coming from somewhere right.
Speaker Change: How are these multi functional teams did you put together actually changed the way those projects are serviced which has you know.
So just to be clear my answer was to raise question was around we're not baking any share gain in our mineral fiber volume assumptions.
Like like we never do we that's not how we build our mineral fiber volume plants. So just to be clear that my answer was around mineral fiber volume to your point, it's very different in architectural specialties. We are penetrating this segment, we are taking share.
Speaker Change: And you are to your benefit if you could just help us understand that a little bit better.
Speaker Change: Yes, it's David to be clear rates question was around mineral fiber assumption around share gain in our mineral fiber.
David: So just to be clear my answer to raise question was around we're not baking any share gain in our mineral fiber volume assumptions.
This segment, we have been for a number of years now at these multifunctional teams are just allowing us to leverage the entire portfolio that Armstrong brings to these projects. There is no other company in the ceilings categories that can offer the breadth of portfolio and now with our project works design platform.
Like like we never do we that's not how we build our mineral fiber volume plants. So just to be clear that my answer was around mineral fiber volume to your point, it's very different in architectural specialties. We are penetrating this segment, we are taking share.
Lots of things that we can bring and it really requires a multi functional team to bring all of those.
David: This segment, we have been for a number of years now at these multi functional teams are just allowing us to leverage the entire portfolio that Armstrong brings to these projects. There is no other company in the ceilings categories that can offer the breadth of portfolio and now with our project works design platform. There is lots of <unk>.
Attributes to bear on these these large complex projects. So it's part of our competitive advantage that we're creating.
But it's also the point of leverage for the unique attributes Armstrong can bring to these large projects. So we're really we're pleased with.
David: Things that we can bring and it really requires a multi functional team to bring all of those <unk>.
The traction these teams are getting <unk>.
And the effect, it's having on our win rates and airport projects large projects overall.
David: Attributes to bear on these these large complex projects. So it's part of our competitive advantage that we're creating.
Yeah, that's encouraging I appreciate it thanks very much.
You bet. Thank you. Thank you.
David: But it's also the point of leverage for the unique attributes Armstrong can bring to these large projects. So we're really we're pleased with.
Our next question comes from the line of Kathryn Thompson with Thompson Research Group. Please go ahead.
David: The traction these teams are getting and the effect, it's having on our win rates and airport projects large projects overall.
Hi, Thank you for taking my questions today, just a clarification on volumes you gave some color on quoting activity because you do the same in terms of cancellations.
Yeah, and that's encouraging appreciate it thanks very much.
Have you seen any change in uptake or or or.
Speaker Change: You bet. Thank you. Thank you.
Speaker Change: Our next question comes from the line of Kathryn Thompson with Thompson Research Group. Please go ahead.
Stacy since you've seen in the previous quarter.
Yes, Catherine I think on the.
Kathryn Ingram Thompson: Hi, Thank you for taking my questions today, just a clarification on volume gains.
On the volume side in mineral fiber.
We've been watching the cancellations and these projects have been delayed or put on hold but we have not seen a lot of cancellations and I would say that has.
Kathryn Ingram Thompson: Some color on quoting activity, but could you do the same in terms of cancellation.
Kathryn Ingram Thompson: Have you seen any change in uptake or.
Continued throughout 2023 and.
Kathryn Ingram Thompson: Stacey <unk> seen in that from the previous quarter.
And in fact in Q4, when we look at we thought the market would soften a bit in Q4.
Stacey: Yes, Catherine I think on the.
Stacey: On the volume side in mineral fiber.
What we really saw was some of these projects that were on hold.
Stacey: We've been watching the cancellations and these projects have been delayed or put on hold but we've not seen a lot of cancellations and I would say that has continued throughout 2023.
Or in that discretionary bucket.
Filled in some some of the gaps.
And Q4 that kept the market kind of at a very stable level from Q3 to Q4, So I think I think.
Stacey: And in fact in Q4, when we look at we thought the market would.
Stacey: Soften a bit into in Q4.
To that point of not a lot of cancelled projects keeps them in the wings when they're on hold so that that can be pulled forward or pulled into the system.
Stacey: What we really saw was some of these projects that were on hold.
Stacey: Or in that discretionary bucket.
As there is capacity and willingness to do so.
Stacey: <unk> filled in some some of the gaps.
And also just a clarification did Q4.
Stacey: And Q4 that kept the market kind of at a very stable level from Q3 to Q4, So I think I think so.
See any benefit from the timing of that.
Box.
Stacey: To that point of not a lot of cancelled projects keeps them in the wings when they're on hold so that they can be pulled forward or pulled into the system.
A factor and.
For certain quarters early in 2024.
Well there was a little strength in the retail channel that drove some of that mix that we talked about earlier.
Stacey: As there is capacity and willingness to do so.
Stacey: And also just a clarification did Q4.
Again that relative strength.
As relative to the other channels, so I wouldn't say I wouldn't put a lot of.
Stacey: See any benefit from the timing of that.
Activity in the channel, but relatively it was stronger than some of the other higher <unk> channels that drove that mix so not a lot of additional.
Stacey: No.
Stacey: A factor and <unk>.
Stacey: Second quarters early in 2024.
Stacey: Well there was a little strength in the retail channel that drove some of that mix that we talked about earlier.
Inventory build if you will in the quarter that for us to point to to say that that was that was a.
A big driver of the overall improvement.
Stacey: Again that relative strength.
Stacey: Relative to the other channels, so I wouldn't say I wouldn't put a lot of.
Okay, and then finally on reign.
Could you outline some of the factors tracking here, our projections for 2024 with wave and how much of that.
Stacey: Activity in the channel, but relatively it was stronger than some of the other higher <unk> channels that drove that mix so not a lot of additional.
<unk> is driven by core market growth versus just other fundamental changes aren't glick initiatives and Wayne. Thank you very much.
Stacey: Inventory build if you will in the quarter for us to point to to say that that was that was.
Stacey: A big driver of the overall improvement.
Yes, Catherine I think the way to think about the way business in the way we're modeling the way business is very similar to the overall market conditions that.
Speaker Change: Okay, and then finally on rave.
Speaker Change: Could you outline some of the factors tracking to your projections for 2024 with wave and how much of that.
Our mineral fiber business sees right, we do sell grid and ceiling tiles as a package through our distribution.
Speaker Change: Is driven by core market growth versus just other fundamental changes in our growth initiatives.
So the overall market backdrop and market assumption is is virtually the same for our grid business. So I think you can factor the volume side of that what could be a little bit different in that business is the pricing ahead of of <unk>.
Speaker Change: Thank you very much.
Speaker Change: Yes, Catherine I think the way to think about the way business in the way we're modeling the way business is very similar to the overall market conditions that.
Speaker Change: Our mineral fiber business sees right, we do sell grid and ceiling tiles as a package through our distribution.
Steel inflation is something that our team does really well to watch what's happening with steel commodities.
Speaker Change: So the overall market backdrop and market assumption is virtually the same for our grid business. So I think you can factor the volume side of that what could be a little bit different in that business is the pricing ahead of of steel inflation is something that our team does really well to watch whats.
And so that can move.
That can move their sales and of course their margins.
Based on how well they do and they have a really strong track record of doing a great job of staying ahead of it.
Steel inflation to protect their margins.
Kind of how we've modeled it going forward is that theyre going to continue to stay ahead of inflation with their price initiatives and the volumes that will experience very similar to what we're expecting on the mineral fiber volume side.
Speaker Change: What's happening with steel commodities.
Speaker Change: And so that can move.
Speaker Change: That can move because their sales and of course their margins based on how well they do and they have a really strong track record of doing a great job of staying ahead of steel.
Okay. Thank you very much.
You bet. Thank you.
Our final question comes from the line of Adam Baumgarten with Zelman. Please go ahead.
Speaker Change: Steel inflation to protect their margins.
Speaker Change: Kind of how we've modeled it going forward is that theyre going to continue to stay ahead of inflation with their price initiatives and the volumes that will experience a very similar to what we're expecting on the mineral fiber volume site.
Hey, good morning, just.
Just a question on mineral fiber volumes, if we look at the back half of 'twenty three how do you think your volumes performed versus the broader market and then also were there any notable market share shifts within any channels last year.
Speaker Change: Alright, Thank you very much.
Speaker Change: You bet. Thank you.
Speaker Change: Our final question comes from the line of Adam Baumgarten with Zelman. Please go ahead.
Well I think our growth initiatives really contributing in the back half as we talked about Adam I think.
The market was down low single digits.
Adam Michael Baumgarten: Hey, good morning, just.
Adam Michael Baumgarten: Just a question on mineral fiber volumes, if we look at the back half of 'twenty three how do you think your volumes performed versus the broader market and then also were there any notable market share shifts within any channels last year.
Which was better than what we less worse, if you will than we expected right in the back half.
<unk>.
We certainly offset.
<unk>.
A good portion of that market softness with our growth initiatives.
Adam Michael Baumgarten: Well I think our growth initiatives really contributing in the back half as we talked about Adam I think.
And so I think that's that's what we expect to continue going into 2024.
Adam Michael Baumgarten: The market was down low single digits.
Okay got it and then just just on the <unk> guidance.
Adam Michael Baumgarten: Which was better than what we less worse, if you will than we expected right in the back half.
Does that assume that typical two price increases throughout the year.
And.
Adam Michael Baumgarten: I think we certainly offset.
In mineral fiber.
Yes, we're getting back to our normal cadence of twice a year price increases and again remember AAV as both price like for like pricing that comes from these two price increases youre referencing but also the mix component of that so which we talked about earlier on the call that we expect mix to be a positive contributor to <unk>.
A good portion of that market softness with our growth initiatives.
Adam Michael Baumgarten: And so I think that's that's what we expect to continue going into 2024.
Speaker Change: Okay got it and then just on the AAV guidance.
Speaker Change: Does that assume that typical two price increases throughout the year in.
This year.
Speaker Change: In mineral fiber.
Okay got it thanks best of luck.
Speaker Change: Yes, we're getting back to our normal cadence of twice a year price increases and again remember AAV as both price like for like pricing that comes from these two price increases you're referencing but also the mix component of that so which we talked about earlier on the call that we expect mix to be a positive contributor to <unk>.
You bet. Thank you.
I would now like to turn the call over to big Grizzle for closing remarks.
Thank you and thank you all for joining and thank you for your questions today were very proud of the team's results. This quarter, obviously and we look forward to updating you again in April on our progress. Thank you and have a nice day.
Speaker Change: <unk> this year.
Speaker Change: Okay got it thanks best of luck.
Speaker Change: You bet. Thank you.
Speaker Change: I would now like to turn the call over to Vic Grizzle for closing remarks.
Victor D. Grizzle: Thank you and thank you all for joining and thank you for your questions today were very proud of the team's results. This quarter, obviously and we look forward to updating you again in April on our progress. Thank you and have a nice day.
Speaker Change: This concludes today's call you may now Goodbye Max.
Speaker Change: Please wait the conference will begin shortly.
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