Q1 2025 Armstrong World Industries Inc Earnings Call
Thank you for standing by my name is Amy and I will be your conference operator for today at this time I would like to welcome everyone to the Q1 2025 Armstrong World Industries incorporated earnings call.
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Speaker Change: Star and the number one it is now my pleasure to turn the call over to the Risa Womble V. P of Investor Relations and corporate Communications you may begin.
Risa Womble: Thank you Amy and good morning, everyone on today's call them Big Crystal, our CEO and Chris <unk>, Our CFO will discuss Armstrong World Industries' first quarter 2025 results and rest of year outlook. We have provided a presentation to accompany these results.
Risa Womble: It is available on the investors section of the Armstrong World Industries website.
Risa Womble: Our discussion of operating and financial performance will include non-GAAP financial measures within the meaning of SEC regulation G.
Risa Womble: A reconciliation of these measures with the most directly comparable GAAP measure is included in the earnings press release and in the appendix of the presentation, both of which were issued this morning.
Risa Womble: During this call we will be making forward looking statements that represent the view, we have of our financial and operational performance as of today's date April 29th 2025.
Risa Womble: These statements involve risks and uncertainties that may differ materially from those implied or expected.
Risa Womble: We provide a detailed discussion of the risks and uncertainties in our SEC filings.
Risa Womble: <unk> in the 10-K filed earlier this year, we undertake no obligation to update any forward looking statement beyond what is required by applicable securities law.
Vic: Now I will turn the call to Vic.
Vic: Thank you Theresa and good morning, everyone and thank you for joining our call today to discuss our first quarter 2025 results and our expectations for the rest of the year.
Vic: Our first quarter was another quarter of record setting sales and adjusted EBITDA for Armstrong as we continue to execute our growth strategy well.
Vic: And improve our productivity and expand our capabilities into new market opportunities in the first quarter total company net sales increased 17% and adjusted EBITDA increased 16% with meaningful margin expansion in both of our segments and in fact, it was the best Q1 margin performance in <unk>.
Vic: <unk> segments since 2020.
Vic: These results were a clear demonstration of the strength of our business model the diversity of our end markets as well as the strong execution culture, we have here at Armstrong.
Vic: Delivering these financial results in an environment of elevated uncertainty requires focus and agility to adjust to changing operating conditions and customer needs.
And doing this while continuing to deliver industry, leading quality and service levels, our customers have come to expect.
Vic: The agility and commitment to execution by our teams was on full display in the quarter.
Vic: And as many of you have come to know this is a hallmark of the organization. We have here at Armstrong. So I wanted to take this opportunity and thank all of our employees for their tremendous efforts and their commitment to execution.
Vic: Now taking a closer look at the first quarter results and our mineral fiber segment net sales increased 2%, while EBITDA increased 7%.
Vic: Sales growth for the segment was driven by a 7% increase in average unit value or <unk>.
Vic: Versus the prior year, which included favorability in both like for like pricing and product mix.
Vic: This increase in <unk> more than offset lower sales volumes, primarily driven by weather and lower foot traffic in our home center channel and predominantly in the southeast where winter weather was particularly severe.
Vic: And the mineral fiber segment.
Vic: I am pleased with the EBITDA margin performance, which expanded 180 basis points to 43%.
Vic: This was the strongest first quarter margin performance since 2020, and our ninth consecutive quarter of year over year margin expansion.
Vic: Again, <unk> was a key driver of EBITDA growth and margin expansion in the quarter also notably in the quarter and a contributor to margin expansion was our manufacturing productivity. Despite the softer volumes.
Vic: This outcome reflects the multi year long term approach to investing in productivity that we practice here at Armstrong. This not only helps with our direct productivity, but it also enhances our consistency of our service and quality levels that distinguish us in the marketplace.
Vic: The key indicators, we track internally is what we call our perfect order measure that you've heard me mentioned in the past. This measure includes five areas of service and quality that represents a perfect order from order to entry order entry to customer receipts.
Vic: Again, representing what a perfect order looks like in the eyes of our customer.
Vic: This quarter. The measure was solidly ahead of our target and near historic highs.
Vic: This has been a passion of ours and in times like these with high levels of uncertainty and risk for supply chain disruption. This is and will continue to be a critical differentiator for Armstrong.
Vic: Overall I am pleased with the performance of the mineral fiber segment in the quarter, despite softer volume <unk>.
Vic: Delivering EBITDA growth margin expansion growth and manufacturing productivity, all while maintaining our high levels of quality and customer service.
Vic: Good.
Vic: Now turning to the architectural specialty segment.
Vic: Where our results in the quarter were particularly strong and broad based in both the organic and the inorganic sides of the business. This is clearly a demonstration of the advantage of having the broadest portfolio of solutions, where we continue to leverage our scale and specification strength to sell more products into more spaces and dry.
Vic: Our profitable top line growth.
Vic: For a decade now we have averaged 20% topline growth in this segment.
Vic: And with our strong start to the year, we expect to continue this pace of growth in 2025.
Vic: Organically the first quarter architectural specialty sales grew 11% from prior year's results.
Vic: And our 2024 acquisitions three form and Zaner contributed another 47 percentage points of sales growth.
Vic: Additionally, our order intake grew in the first quarter.
Vic: Notably, both our sales and order intake spanned a wide range of product types and broad based set of market verticals.
Vic: In addition to the transportation vertical we saw good project activity in office retail and education.
Vic: Because of our industry, leading product portfolio strong service levels, and mostly U S manufacturing footprint. We believe we are well positioned to continue to win.
Vic: Along with strong strong topline growth in the quarter I.
Vic: I am, particularly pleased with the strong adjusted EBITDA growth and margin expansion performance in this segment as well.
Architectural specialties, adjusted EBITDA increased 94%, including organic EBITA growth of 34%.
Vic: It is important to EBITDA margin for the segment expanded at both the organic and total segment level as we continue to improve our operating leverage and in fact this was the strongest first quarter.
Vic: Architectural specialties adjusted EBITA margin performance since 2020, and marks continued progress toward our goal of 20% EBITDA margin for this segment.
Vic: It's also worth noting in the quarter the solid performance of our 2024 acquisitions.
Vic: We are very pleased with how both three form and Zane or are performing and the mutual benefits. We are seeing developing as we increase our collaboration and knowledge sharing.
Vic: And frankly I'm not surprised at how well this is going given that both these companies come with highly professional and skilled management teams.
Vic: The right mindset to collaborate and innovate with Armstrong to accelerate their growth.
Vic: With three formed a collaboration across our sales teams has uncovered many opportunities to sell more products into more spaces. Given three forms unique ability to create translucent solutions that use light and texture to enhanced design opportunities for architects.
Vic: And in addition, we have worked together with their teams to increase three forms of operational efficiency and are already seeing benefits from these efforts and.
Vic: In <unk> as we noted last quarter, we significantly expanded our exterior metal design and fabrication capabilities and further deepened our presence in attractive adjacency that complements our existing interior metal business.
Vic: Our strong market reputation of Zaner gives us early access to large complex projects.
Vic: We expect this will enhance our visibility to more selling opportunities for the interior spaces of these large projects. In addition to the new business opportunities on the exterior.
Vic: And as we have stated we estimate that this exterior metal adjacency will add another $1 billion to the addressable market for our architectural specialties segment, bringing its total addressable market to more than $2 5 billion.
Vic: We're excited to expand our presence in this adjacency and to continue our above market growth rate for years to come.
Vic: Now before turning the call over to Chris Let me take a moment to.
Vic: To share how we're thinking about the market in light of the current and evolving tariff landscape.
Vic: As we all know this is a very fluid and uncertain set of dynamics that we will all have to navigate.
Vic: First it's worth repeating that our production and supply chain is predominantly U S based and the majority of our products sold into Canada, and Mexico are covered under the U S. MCA trade agreement.
Vic: In the limited areas, where we see a direct impact on our costs, we expect to mitigate those impacts through negotiations price actions and through supply chain adjustments within our U S footprint.
Vic: So for direct impacts of tariffs cured Armstrong the impact is both minder and manageable.
Vic: Beyond these minor impacts we do believe the indirect benefit.
Vic: Effects from high levels of uncertainty around these tariffs has the potential to dampen end market activity.
Vic: This of course is much more difficult to call given the varying impacts throughout the value chain.
Vic: For Armstrong the market impact is likely to come in the form of holding back and pausing on discretionary renovation work until there is more clarity on the way forward much like we have seen in prior periods of market disruption and uncertainty.
Vic: There may also be some disruptions in the construction supply chain that could impact project timelines.
Vic: That said in total we don't see a meaningful impact from disruption and new construction activity in 2025, given the lag time on new constructions.
Vic: Projects.
Vic: The ground level of bidding activity and the market remains supportive at this time as do the order rates through April and the sentiment from our customer survey work remains positive, but understandably cautious given the uncertainty.
Vic: Of course, we will remain vigilant as further disruptions from policy changes could create more project delays than we are seeing at the moment.
Vic: Given what we know and its expected impacts and with our controllable, namely pricing productivity and good cost management, we remain confident in our ability to navigate these conditions and therefore, we are reaffirming our full year guidance for 2025.
Vic: So with that let me pause there and turn it over to Chris for more on our financials.
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.
Chris: Beginning on slide six we summarize our first quarter mineral fiber segment results.
Chris: Fiber sales were up 2% in the quarter driven by favorable <unk> of 7%, partially offset by lower sales volumes.
Chris: The strong <unk> result was fairly balanced between like for like price and favorable mix.
Chris: Lower sales volumes were driven primarily by softer demand from our home center customers, who experienced lower store traffic due to a number of factors, including negative weather related impacts in certain markets.
Chris: We also had one less shipping day compared to the prior year quarter, which represents about one point of volume in the quarter.
Chris: Overall, the market, we experienced with consistent with the choppy conditions that we expected heading into 2025.
Chris: Mineral fiber segment adjusted EBITDA grew 7% despite softer volumes with adjusted EBITDA margin, expanding 180 basis points to 43% <unk>.
Chris: Adjusted EBITDA margin expansion was primarily driven by the benefit of AUC growth and manufacturing productivity gains despite lower volumes.
Chris: In addition, the segment margin benefited from lower SG&A expenses and favorability in input costs as compared to the prior year quarter. The.
Chris: The decrease in SG&A was primarily driven by deferred compensation plan gains.
Chris: Put cost inflation was more than offset by favorable inventory valuation timing impacts.
Chris: Similar to mineral fiber, we saw softer grid volume in our wave joint venture driving weaker equity earnings in the quarter.
Chris: Recall that we are also lapping a strong first quarter of 2024, which was the highest equity earnings quarter of 2024.
Chris: As Vic mentioned mineral fibers, adjusted EBITDA margin of 43% in the quarter was the best Q1 margin performance for this segment since 2020 and was a strong demonstration of our value creation drivers, including consistent AAV growth and manufacturing productivity gains despite uneven market conditions.
Chris: On slide seven we discuss our architectural specialties or <unk> segment results, where we highlight robust sales growth of 59%.
Chris: This growth was driven primarily by contributions from our recent acquisitions three Forman Zaner, both of which performed in line with expectations.
Chris: On an organic basis I'm also pleased to report that we have delivered double digit first quarter sales growth of 11% with strength in many product categories.
Chris: <unk> adjusted EBITDA grew 94% with a 17, 1% adjusted EBITDA margin.
Chris: This represents margin expansion of 310 basis points as higher acquisition related operating costs were more than offset by inorganic sales growth.
Chris: In addition, we benefited from better operational leverage on our cost base.
Chris: We are encouraged to see this adjusted EBITDA margin improvement and remain focused on delivering our goal of greater than 20% adjusted EBITDA margins for the segment.
Chris: We continue to closely monitor project timelines, particularly against the backdrop of elevated macro uncertainty.
Chris: Slide eight highlights our first quarter consolidated company metrics, we delivered double digit growth for both sales and earnings with adjusted EBITDA margins that compressed slightly versus the prior year.
Chris: Notably adjusted diluted earnings per share grew 20%.
Chris: Our total company adjusted EBITDA margin of 33, 6% marks a solid start to the year.
Chris: Incremental volume from recent acquisitions, and our growth initiatives, coupled with consistent AAV performance drove our adjusted EBITDA growth in the first quarter.
Chris: These benefits more than offset an increase in SG&A, which as noted earlier was driven by our recent acquisitions of <unk> data.
Excluding the impact of these acquisitions, we generated an organic adjusted EBITDA margin of 35, 6%, which represents a 170 basis points of margin expansion as compared to the first quarter of 2024.
Chris: Slide nine shows our year to date adjusted free cash flow performance versus the prior year.
Chris: The 10% increase in adjusted free cash flow was driven by higher cash earnings and dividends from our wave joint venture, which was partially offset by higher capital expenditures.
Chris: We remain confident in our ability to deliver strong adjusted free cash flow growth in 2025 to support all of our capital allocation priorities despite elevated macro uncertainty.
Chris: In the first quarter, we repurchased $22 million of shares and paid $13 million of dividends.
Chris: As of March 31, 2025, we have $640 million remaining under the existing share repurchase authorization.
Chris: With a healthy balance sheet that includes a low leverage and ample available liquidity, we are well positioned to execute and advance our strategy.
Chris: As we move to slide 10, you will see our full year guidance for 2025, which is unchanged for the four key metrics of total company net sales adjusted EBITDA adjusted diluted earnings per share and adjusted free cash flow.
Chris: We have made some modest adjustments to some of our assumptions given the current macroeconomic headwinds and this guidance now reflects the impacts of currently known tariffs.
Chris: This guidance now reflects softer market conditions in the second half of the year due to elevated uncertainty stemming from tariffs as such.
Chris: Such we are decreasing our mineral fiber sales volume expectations.
Chris: To flat to down in the low single digit range, but we expect that this headwinds to our net sales growth will be largely offset by greater than 6% mineral fiber <unk> growth as well as a slightly better outlook for total sales growth.
Chris: It's important to note that while there will be a headwind we do not believe tariffs as they stand today.
Chris: I have an outsized direct impact on our results.
Chris: The tariffs that's currently announced represent a manageable level of less than 3% impact to our total cost of goods sold.
Speaker Change: For wave the tariffs as announced have about a 5% impact on the joint Venture's total cost of goods sold.
Speaker Change: We believe we are well positioned to mitigate most of the impact from these tariffs in our guidance is reflective of those actions.
Speaker Change: Additionally, we have relatively limited exposure to foreign currency fluctuations, which positions us well to weather volatile market environments.
Speaker Change: We remain confident in our outlook and in our team's ability to drive manufacturing productivity and demonstrate rigorous cost management and drive overall efficiencies, while balancing investing for growth.
Speaker Change: We are well positioned to deliver solid results for the remainder of the year as we continued to demonstrate the resilience of our business model.
Speaker Change: Despite challenging market conditions.
Speaker Change: We remain committed to driving margin expansion and continuing to deploy cash to generate growth and create value for our shareholders.
Speaker Change: And now I'll turn it back to Vic before we take your questions.
Vic: Thanks, Chris.
Vic: One thing that we have been consistent with here at Armstrong is staying with the investments in our growth initiatives, even in times of uncertainty there.
Vic: The reason for this is our high level of conviction in our strategy and the confirmation from the traction we are realizing from our growth initiatives.
Vic: We kept our investments going in 2020 during the pandemic and again during the disruption that occurred in 2022, and we will again continue our investments in our growth initiatives in this current period of uncertainty.
Vic: The strength of our business model and our balance sheet allows us to do so.
Vic: We continue to be pleased with the reach and the contributions of canopy, our online selling platform. We've shared how it is helping to drive incremental sales volume for mineral fiber and grid products.
Vic: And we've also been adding many more of our architectural specialty products to the platform, including solutions from our recently acquired <unk> business.
Vic: Our project works platform, our advanced automated design service had strong results this quarter and added incremental sales volumes.
Vic: Using project works meaningfully increases the productivity of designers architects and contractors with designing and executing complex projects and achieving more efficient use of materials, resulting in less waste on the job site.
Vic: We continue to expand the capabilities of project works, both in terms of products and design optimization and more and more customers are using this service to enhance their own productivity and their pursuit of their own cost and quality goals.
Vic: And our innovation in particular around energy savings ceiling tiles is gaining traction in the market and confirming that companies are.
Vic: R&D looking for energy savings for both cost savings benefits and four achieving internal de carbonization goals.
Vic: Our phase changed material innovation, coupled with our acoustical performance is changing how architects and designers as well as building owners view the ceiling with energy saving attributes that bring enhanced functionality and reduced energy consumption in buildings.
Vic: Energy and how we can serve it is a key macro trends that will impact construction and industrial markets for years to come.
Vic: It is driven by the increasing need for resiliency and energy efficiency in buildings, the drive towards clean technology and the growth of artificial intelligence along with a pressure this puts on our nation's electrical grid systems.
Vic: These challenges are critical for all industries to address but particularly important for the construction of buildings has buildings consume nearly 40% of global energy and.
Vic: And in the U S. The built environment consumes nearly 75% of all electricity use.
Vic: About half of that energy usage is to heat and cool buildings.
Vic: Just this month, a leading standard for healthy and sustainable buildings. The LEED certification standards recognized a heightened need to deepen its focus on de carbonization and energy efficiency and have increased lead credits for energy savings in the latest version released.
Vic: We believe that our products can play an important role, enabling the industry to address this challenge.
Vic: Innovative products like our temp lock energy savings ceilings respond to the urgent need for energy efficiency and decarbonization with our ability to achieve up to 15% energy cost savings from heating and cooling buildings. These products can make a meaningful impact for both reducing the cost of operating commercial buildings and increasingly.
Vic: Carbonization within these buildings.
Vic: In addition, <unk> can reduce energy usage at peak times of day.
Vic: Thereby helping to lessen the strain on the U S electrical grid system.
Vic: Now with the explicit inclusion of phase change material as qualifying thermal storage technology for tax credits under the inflation reduction Act.
Vic: <unk> can be even more of a win win for building owners and operators through lower installation costs and lower energy operating costs.
Vic: Customers of <unk> may be eligible for tax credits of 40% to 50% dramatically improving the return on their investment.
Vic: With this tax credit temp lock is gaining recognition as a viable energy saving solution and we're seeing increased interest for winning specifications and are currently ramping up production.
Vic: These are exciting developments for us and we are continuing our innovation around the <unk>.
Vic: Platform with our multi generational approach to product development.
Vic: We look forward to providing more updates on our progress in the coming quarters.
Vic: And as important beyond our organic growth initiatives with our high confidence in our cash flow generation and the strength of our balance sheet. We remain active in our pursuit of inorganic growth opportunities as well to sustain the strong and consistent growth of our architectural specialties business.
Vic: So as we navigate these uncertain market conditions and plan for a softer back half of the year, mainly due to pausing of discretionary renovation work.
Vic: Our agility and commitment to execution with the help of a local supply chain structure as well as the diversity of our end markets will serve us well.
Vic: The dependable ability to deliver <unk> growth productivity gains and above market growth rates and our architectural specialties business will allow armstrong to outperform in conditions such as these and.
Vic: Because of our resilient business model, we are well positioned to be both prudent where appropriate and assertive where opportunities present themselves to optimize the value creation outcome for our shareholders.
Vic: With that we'll pause now and take your questions.
Vic: Thank you the floor is now open for questions. Just as a reminder, if you have dialed in I would like to ask a question. Please press star followed by the number one on your telephone keypad to enter the queue. If you would like to withdraw your question also press star and the number one.
Vic: If you are called upon to ask your question and our listening via loud speaker on your device. Please pickup your handset and ensure that your phone is on mute when answering the questions.
Vic: We do request for today's session that you. Please limit to one question and one follow up again star and the number one to enter the queue.
Speaker Change: Your first question comes from the line of Susan Mcclary with Goldman Sachs. Your line is now open.
Speaker Change: Good morning, everyone. This is Charles Perron in for Susan Thanks for taking my question and congrats on the strong quarter.
Speaker Change: Thank you good morning Charles.
Speaker Change: Good morning, just maybe first I wanted to talk about your expectations for volume deceleration in the back half of this year. It sounds from your commentary that orders and activity are holding strong through April so against that is the deceleration more signs of conservatism or any other signs of slowdown you're hearing when speaking with customers and how.
Speaker Change: Do you expect those to flow through across segment. Your two segments over the course of the year.
Speaker Change: Yes, it's a good question because we're kind of in the middle of this right 30 days outside of the announcement of much broader and larger tariffs. So we're kind of in the middle of this now so it's a good question.
Speaker Change: The sentiment from the customers and the reason why I mentioned the on the ground bidding activity.
Speaker Change: It does remain to be kind of intact and steady and not reflective of what we think the downstream impact of this uncertainty could have in the back half. So yes, I think in the current moment and what we're experiencing today is about what we would have expected before I think again the.
Speaker Change: The announcement of the size and the breadth of the tariffs that has maybe changed the sentiment.
Speaker Change: So.
Speaker Change: Our basis of this outlook for the for the back half of the year is really expert experiential and.
Speaker Change: In prior periods, where we have.
Speaker Change: Event based disruption in the marketplace. The first thing that goes to the sidelines is that discretionary work prop.
Speaker Change: Projects that aren't critical and that can wait.
Speaker Change: And customers are owners behind those projects move them to the sidelines and wait for a little bit more visibility and clarity.
Speaker Change: What we've experienced and that's kind of what we're modeling it here, even though we're not seeing it and feeling it today, we do expect that based on prior experiences. When we have this level of uncertainty for this length of time.
Speaker Change: The first thing Thats going to show up as is.
Speaker Change: As a softening in the discretionary.
Speaker Change: Project work, so and again, we've modeled our outlook for the back half based on that experience.
Speaker Change: Okay, that's super helpful.
Speaker Change: And maybe second talking about the mix impact in mineral fiber when you consider the pricing action that you look to put in place are you put in place the benefit from recent product introductions like 10, plus healthy spaces against the risks of a slowdown are you seeing are you seeing any signs of trade down in mix moving away from those new products and maybe.
Speaker Change: Also it would be helpful. If you could provide some context about what you see historically in mix.
Speaker Change: What happening during prior downturns.
Speaker Change: Yes, again, a good question because under these conditions you would expect maybe some of that trade down to happen. We have not seen that as you can see in our results in the first quarter, we had a positive product mix, which means that customers continue to trade up to our highest technology products our highest aesthetic.
Speaker Change: Product. So that's continued into the first quarter actually this is a dynamic that.
Speaker Change: Transcends downturns, we've seen this for well over a decade now this natural dynamic to mix up.
Speaker Change: I don't see that changing in the back half of this year, even with the downturn.
Speaker Change: We didn't see that in the great financial crisis, we didn't see that during the pandemic and those are much deeper downturn.
Speaker Change: Of course, so we don't expect an AAV mixed impact from from that dynamic that you're referencing.
Let me just add though when you look at the new technology that we're talking about with our.
Speaker Change: <unk> product for example.
Speaker Change: And some of the other technologies around low embodied carbon.
Speaker Change: These products come at a higher <unk>.
Speaker Change: And to the marketplace and so we believe as those transition and become more of a volume multiplier in our portfolio that there is upward lift on our <unk> performance over time. So so we believe this has been a trend that's been continuing for a number of years well over a decade, frankly, and we think that this.
Speaker Change: A trend that can continue as we innovate into that dynamic that the industry wants to mix up in all parts of the cycle.
Speaker Change: Again good question. Thank you.
Speaker Change: Thank you good luck.
Speaker Change: Thank you thanks.
Speaker Change: Your next question comes from the line of Gerrick Garik <unk> with loop capital markets. Your line is now open.
Jack: This is actually Jack to check on for Gary. Thanks for taking my question, David maybe to hone in on the mineral fiber.
Jack: Mineral fiber AUC again, just curious how much of the implied guidance range includes maybe a second price increase later this year versus kind of just what youre currently seeing and what you've already securities. Thanks.
David: Sure Hey, good morning, Yes, so yes, our guidance does incorporate kind of as we've stated in the past getting back to our normal cadence of two price increases a year. So yes, it is reflective of that and.
David: Just to maybe break it down a little bit further the guide in terms of the AAV does include positive mix and positive like for like pricing, so kind of given the backdrop of tariffs and.
David: Higher costs accordingly.
David: That.
David: Incorporates positive mix and is a little bit to you a little more price than Dan mix.
David: But overall expect again, a good solid performance in the year.
David: And for modeling purposes, a little bit little bit heavier in the back half than the front half getting back to your question on price increase in pricing.
David: Understood that makes sense and then maybe just any more color on current bidding environments across verticals any change to the office end market or what youre expecting to see thanks.
David: Sure let.
David: Let me add a little bit.
David: Or are there unusual on the bidding activity I think it's something obviously, a central we're right in the middle of.
David: Of the uncertainty getting underway here I've talked in the past about bidding activity.
David: In terms of the Dodge first time.
David: Tracker on bidding activity, it's really the earliest phase of projects launching and Thats, something we watch quarter to quarter.
David: And that particular measure softened in Q1.
David: As uncertainty was building and really no surprise, that's exactly what you would expect.
David: First time bids things that are in the early stages like that could take a pause and a wait and see mode and we didn't see D. C that end in Q1 and it softened at both the new and a large renovation.
David: And again just as a reminder, this dodge first time bidding activity has somewhere between a 12 to 24 months and sometimes even greater than that out before ceilings are needed. So this is something that we look at as a kind of high level.
David: Across the horizon type of indicator of activity that's out there.
David: Again in summary, this was kind of what we've been seeing.
David: Over the last seven or eight quarters.
David: Leading up to this quarter has been this choppy kind of quarter to quarter.
David: Sideways movement in this in this particular.
David: Bidding activity metric.
David: <unk>.
David: But what I mentioned in my prepared remarks is another bidding activity altitude. If you will it's really the ground level on the ground sub level project bidding type activity and what.
David: But this bidding activity really reflects is more down to ceiling projects and the interior projects bidding.
David: Level and then in Q1 this remains active and steady.
David: And what we saw was good activity across many verticals like data centers and transportation schools hospitals, even office Ti we saw good activity in the quarter and I think this is to your question. What we're seeing today is really.
David: Kind of a consistent sideway sideways motion on our bidding activity at the ground level, we're going to continue to keep an eye on the flow or the discretionary portion of that ground level business. Because we think that's what we're going to see as the first signal that the market is softening up based on this uncertainty.
David: So we will continue to track that closely and report out on that.
David: Okay.
Speaker Change: Your next question comes from the line of Keith Hughes with Truest. Your line is now open.
Speaker Change: Alright. Thank you have questions along the way with the steel tariffs coming in and we talked about the impact what you are offering to do them.
Speaker Change: From a pricing there.
Speaker Change: I'm, sorry, Keith would you say that last part again.
Keith Hughes: Yes. My question is on wave could you talk about the impact here with steel tariffs and what they are having to do on pricing.
Speaker Change: Yes, yes.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: And the wave business.
Speaker Change: Obviously, we use steel and aluminum for the structure.
Speaker Change: Grid structure of our sealing systems as.
Speaker Change: As a reminder, most of what we source in terms of steel aluminum comes from the U S and is locally sourced we do bring a small percentage.
Speaker Change: From external markets for I'll say strategic reasons, we do that so we can shift that volume as we need to.
Speaker Change: <unk> local sourcing here, but what we have seen and.
Speaker Change: The first round of tariffs that we saw back in 2018 with steel steel imports as at the local steel companies.
Speaker Change: To raise their prices and so we're seeing actually a kind of an indirect if you will a ripple effect impact from the steel tariffs on local steel prices and so we're having to to raise prices in the marketplace to help pass that on.
Speaker Change: We have two price increases already in the first quarter on the street to try to help us stay in front of.
Speaker Change: That that steel inflation, so a little bit less of an <unk> or a direct impact on tariffs in our fleet business and a little more of an indirect because of the market pricing coming up.
Speaker Change: Historically, one wave raises prices is there a margin drag until they catch up with the input.
Speaker Change: With what's happened on the inputs.
Speaker Change: Yes in 2018.
Speaker Change: That happens because of the steel tariffs went in if you remember during the first first administration.
Speaker Change: That happened very quickly and it took us a quarter or two to catch up.
Speaker Change: And 'twenty two.
Speaker Change: That did not happen we stayed ahead of.
Speaker Change: The prices are the inflation.
Speaker Change: And we didn't see the drag on our margins.
Speaker Change: So our plan here is where we are.
Speaker Change: Staying ahead of the inflation with our prices and trying to what we're trying to stay ahead of those those steel tariffs.
Speaker Change: Price increases so and I expect that we will continue to expand margins in that business throughout the year.
Keith Hughes: Keith maybe just one additional point on waves that we still expect equity earnings to grow mid single digits for the year.
Speaker Change: Final question on this.
Speaker Change: Specialty business, how much did price play a role in the reported numbers and what are you expecting on that for the rest of the year.
Speaker Change: Yes, I'd say minimal thats really the.
Speaker Change: The number of projects that we're winning and the size of the projects I think it's more on the volume side.
Speaker Change: That a meaningful price we are raising price.
Speaker Change: Various substrates.
Speaker Change: To stay ahead of any impact from tariffs.
Speaker Change: But for the most part the goodness in.
Speaker Change: The strong performance of that business has really been projects and win rates in projects.
Speaker Change: Writing that business.
Speaker Change: Alright. Thank you. The next call comes from the line of Phil Inc. With Jefferies. Your line is now open.
Speaker Change: Hey, guys congrats on another strong quarter.
Speaker Change: Quick question on the home Center home Center side of things you called out weather impacting the quarter and <unk> have you started seeing that normalize out I think what is cleared out a bit in March and April. So just curious to see what youre seeing on the home center side of things and how they've kind of manage that inventory I mean, it is lumpy from time to time.
Speaker Change: Yes that can be lumpy as you acknowledged.
Speaker Change: Yes, we have seen orders normalize, especially in those locations that were hardest hit by the.
Speaker Change: The severe weather so yes, that's getting back to its normal run rate.
Okay. So we should expect that drag you saw in <unk> from the home center to kind of flush out kind of a non event for <unk>.
Speaker Change: Yes, I think for the rest of the year I would just I wouldn't call. It <unk> just because.
Speaker Change: They can they can flex their inventories over a quarter as we reported on numerous times. So I would say for the year, we don't expect us to be anything different than what we see in the rest of the marketplace for the year. So this timing related impact should work its way through.
Speaker Change: Okay. That's helpful. And then Vic I think you kind of pointed out if I heard you correctly, maybe was aes or maybe it was a broader comment for new construction.
Speaker Change: Based on the backlog you have right now it sounds like Youre pretty confident it carries through 2005 and appreciating that <unk> business new construction. There is a longer lag do you have enough line of sight to give us some color on what youre seeing on 2026, if you are seeing bidding activity.
Speaker Change: Quoting activity for that channel, particularly go out to 'twenty six.
Speaker Change: What's the early look right now.
Speaker Change: Yes.
Speaker Change: The new construction side of the business and the equation is from the back half of 'twenty, three and 'twenty four positive new construction starts right. So those when you lag those out for when a ceiling is required for those new construction jobs.
Speaker Change: We think that Thats really going to hold for 2025, and if you spent all that money on those projects.
Speaker Change: By the time, you get to ceilings.
Speaker Change: Likely to finish that work and so that's kind of our assumptions going into that we don't see a big disruption on new construction coming through.
Speaker Change: As we lag it into 'twenty five.
Speaker Change: We have better line of sight, Phil to your question around project.
Speaker Change: The project nature business of the architectural specialties I can tell you.
Speaker Change: That we're closing good work for the back half of this.
Speaker Change: This year in 'twenty, five and of course into 'twenty, five 'twenty six and even into 'twenty seven some of these projects are larger and longer term. So we're starting to close work out into those but it would be really premature for me to two.
Speaker Change: Talk about that.
Speaker Change: The magnitude of that and what that could mean for us for 'twenty six but.
Speaker Change: Again, I would just point you back to the momentum. This business has created started in the back half of 'twenty. Four has continued into the first quarter of 'twenty five.
Speaker Change: The team is doing really well and closing work I think we're closing more work and I expect that momentum to continue.
Speaker Change: Thank you. Your next question comes from the line of Adam Bumgardner with Zelman. Your line is now open.
Adam Bumgardner: Hey, good morning, guys.
Adam Bumgardner: Just on the incremental price increase I know, it's typically been in February and August each year is that kind of the way to think about it this year as well and perhaps maybe a higher price increase than maybe what you've put through in February or kind of similar just curious how to think about that.
Adam Bumgardner: Okay.
I'd say its at this point on our normal twice a year pricing cadence I think the amount of the extent of that will really be dependent upon kind of how the overall tariff and in costs landscape unfolds. So we're going to continue to keep to keep an eye on that as always.
Adam Bumgardner: But for purposes of at.
Adam Bumgardner: At this point in time, and what we have somewhat of a line of sight to that.
Adam Bumgardner: That's how we're how we're thinking about it.
Again, as I commented on AAV, and our AUR growth for the year.
Adam Bumgardner: Again chipped more towards price with positive mix and again thats largely on us continuing to stay close and monitor monitoring the cost side of our business.
Adam Bumgardner: And then adjusting the price side accordingly.
Adam Bumgardner: Okay got it thanks.
Adam Bumgardner: And then just maybe on the education market not sure if you guys touched on that but.
Adam Bumgardner: Curious what youre seeing there I know the essar funding kind of rolled off to some degree or are you seeing any change in the trends you've been seeing over the last year or two.
Adam Bumgardner: Yes.
Adam Bumgardner: Yeah, not materially we've been watching that very closely as well.
Adam Bumgardner: There was a lot of.
Adam Bumgardner: Bonds that were approved for education at the state level in November we were hopeful that that might fill in some of the gap from the escrow funds.
Adam Bumgardner: But what I can tell you what we saw in the first quarter is still good activity in the education sector. So.
Adam Bumgardner: We'll see how the summer season plays out.
Adam Bumgardner: That's really where you see the bulk of the education K through 12 action anyway.
Adam Bumgardner: So.
Adam Bumgardner: It will be very watchful of that but so far we've not seen a falloff in education activity.
Adam Bumgardner: Okay.
Speaker Change: Thank you. The next question comes from the line of Ralph Jed restrict.
Speaker Change: With Bank of America. Your line is now open.
Speaker Change: Hi, good morning, Thanks for taking my questions.
Speaker Change: Last.
Speaker Change: Last month.
Speaker Change: You said you were expecting I think inflation cost inflation for the year in the low single digit range can you just give an update of what you're expecting now and then the difference between energy and freight.
Speaker Change: <unk> freight and raw materials.
Speaker Change: Sure sure good morning, Greg, Yes, so just to size our inflation assumptions for the year, we expect.
Speaker Change: Rates to be relatively flat for the year.
Speaker Change: Raw materials.
Speaker Change: <unk> to be inflationary.
Speaker Change: In that mid single digit percentage range versus prior year.
Speaker Change: And then energy between 10% to 15% inflationary and that's really kind of driven by volatility in the natural gas market. So what that puts you at is from a total input cost perspective, but not mid single digit range of inflation for full year versus prior year.
Speaker Change: So again, just a reminder, within that within that energy bucket, it's about pretty evenly split between electricity and natural gas.
Speaker Change: But.
Speaker Change: From a raw material perspective, this does kind of dial in a little bit of an uptick in some of our some of our raw is that that'll be slightly impacted by tariffs.
Speaker Change: Tariffs tariff impacts so mid single digit inflation for the year as a percentage versus prior year.
Speaker Change: Okay got it that's helpful and then the higher price realization. Your guide is whats offsetting that.
Speaker Change: Yes, I mean, we think about this.
Speaker Change: More broadly than just the pricing component, which certainly is.
Speaker Change: As Vic mentioned in his prepared remarks, our mitigation and way to to continue to.
Offset but we also are focused on continuing to drive productivity. We've had a really strong track record of being able to demonstrate manufacturing productivity in our plants, we expect that to continue as well as the focus on ongoing disciplined and rigorous cost control and cost management. So I think all three of those.
Speaker Change: Components coupled together.
Speaker Change: It's really what gives us.
Speaker Change: The levers if you will to continue to to grow and expand margins here and that's how we're thinking about operating the business given given these dynamic times.
Speaker Change: Okay. That's helpful.
Speaker Change: On the <unk> side, the organic growth, obviously M&A contribution, but the organic growth is really strong in the first quarter here.
Speaker Change: How do you think about.
Speaker Change: What the implied organic growth is for the remainder of the year and how does that compare to the market what's the market share.
Speaker Change: That you are seeing or your growth relative to the market.
Speaker Change: Youre anticipating.
Speaker Change: Yes, so for.
Speaker Change: Implied in the guide for the year on the organic side of.
Speaker Change: It's a softer back half than the front half of the year, but really what's at play there is lapping a really strong back half of 2024, So as Vic mentioned and I mentioned in our remarks about keeping a watchful eye on overall projects projects project delays et cetera that.
Speaker Change: Certainly be be at play.
Speaker Change: But again, we have a little bit of a timing dynamic given just the strength of the back half last year relative to the expected strength in the back half of this year and I would say, we're continuing to do well in.
Speaker Change: In the us and the us business.
Speaker Change: And are very pleased with the double digit topline growth that we saw organically here in the quarter, So really really pleased with that business and its performance.
Speaker Change: Thank you again, if you would like to ask a question. Please press star and the number one to enter the queue. Your next question comes from the line of John Lovallo. Your line is now open.
John Lovallo: Good morning, guys. Thanks for taking my questions.
John Lovallo: First one is on mineral fiber <unk> incrementals there.
John Lovallo: <unk>, which is consistent with last quarter, but it's below historical levels I was under the impression that this may have been driven by a little bit more mix versus price in AAV, but that doesn't seem like it's the case. So curious what's driving that and would you expect this to kind of normalize higher as we move through the year.
John Lovallo: Yes, yes.
John Lovallo: So yes, that's largely.
John Lovallo: Talking about the impact the EBITDA impact on on <unk> in the quarter.
John Lovallo: Really timing in nature, we can see this from time to time and can get some some quarterly noise. If you will around how projects ship, which can influence the overall basket of products and how that falls to the bottom line. So when I when I take a look at our overall expectation for the year.
John Lovallo: We do believe that our incremental there on EBITDA.
John Lovallo: We'll return to kind of be in line with our historical fall through rate there, but from time to time, you get a little bit of quarterly noise and Thats, what we saw here in Q1.
Speaker Change: Okay, Gotcha, and then manufacturing costs have been a headwind to Aaas suggested EBITDA for a few quarters now curious, what's what's kind of driving that headwind.
John Lovallo: That to subside as we move through the year.
John Lovallo: Yes, I'd say largely when you look at Eas segment again with the inorganic growth that we've seen.
John Lovallo: The manufacturing costs are stepped up in connection with the acquisition of two businesses that we saw in 2024, that's largely the.
John Lovallo: Call it the manufacturing cost increase that we've seen.
John Lovallo: In that segment.
John Lovallo: Okay. Thank you guys.
John Lovallo: Hey, guys.
Your next question comes from the line of Brian Bureaus with Thompson Research Group. Your line is now open.
Brian Bureaus: Hey, good morning. Thank you for taking my questions I guess on the on the sales guidance for architectural specialties. It looks like it's a slight raise there I guess.
Brian Bureaus: And it goes against the general uncertainty in the market and I know you talked about a few trends there throughout the call, but just curious if you could expand on what is behind the raise there for the guidance.
Speaker Change: <unk> timing or better acquisition cross selling or something else, what's driving that.
Yes, I'd say, there is a little bit of what.
Speaker Change: Nick had mentioned earlier around project the overall visibility to projects there in that side of the business.
Speaker Change: More clearer line of sight do too.
Speaker Change: Our backlogs and you also have a bit of that project.
Speaker Change: Call it.
Speaker Change: Timeline, which is once a project gets it started its from the time of breaking ground to ceiling ship and it can be in that 12 to 24 month range. So we feel.
Speaker Change: That that line of sight gives us.
Speaker Change: Confidence around our ability to.
Speaker Change: Call that topline growth increase slight increase in aaas, but tempered with that too is a little bit of the uncertainty and cloudiness around what potential project delays could could look like so overall, it's the it's the backlog and a line of sight that we have that that gives us confidence in the uptick in the <unk>.
Speaker Change: Topline growth expectation for for Aaas, albeit balanced with that potential uncertainty that's out there.
Speaker Change: And Brian Let me address what Chris has said is exactly right.
Speaker Change: I'll just add that the other component that's a little different in architectural specialties is the market penetration growth dimension of that business. Remember this is doing much better than the overall market is doing.
Speaker Change: And Thats something that we can continue to do even if the market softens in the back half.
Speaker Change: So that's the other I think growth dimension that we have here a growth driver that we have here that's different than say in our mineral fiber business.
Speaker Change: Understood and then on I guess on the updated mineral fiber volume guidance are there any specific verticals that you would expect to see maybe a quicker or more severe pullback based on your historical reference or is that more of a broad based view that everything would discretionary type spending would pull back.
Speaker Change: In line with everything thank you.
Speaker Change: Yes, yes, I understand the question.
Speaker Change: Going back to an answer I gave earlier around the discretionary portion of the.
Speaker Change: The renovation work is where we're going to see the softness in the back half hour experience here has been it's really vertical agnostic.
Speaker Change: If it's a discretionary projects whether it's in education health care office. It is subject to a wait and see when there is a high degree of uncertainty. So I wouldn't say one one particular vertical is going to stand out over the other I think we're going to see across the verticals the.
Speaker Change: The discretionary work again, I think that's where we're going to see the softness in the back half.
Speaker Change: Thank you and our final question comes from the line of Stephen Kim with Evercore ISI. Your line is now open.
Stephen Kim: Yes, Thanks, a lot Vic I just wanted to follow up on that last point there.
Stephen Kim: Discretionary projects do we see any kind of would be expect to see any kind of SUV or margin impact.
Stephen Kim: If you do see a.
Stephen Kim: The decline in discretionary first.
Stephen Kim: And I'm also kind of wondering whether or not you might see or anticipate you might see maybe smaller customers, having more of a sort of.
Stephen Kim: A disproportionate impact from the <unk>.
Stephen Kim: Sentiment impacts.
Stephen Kim: Impacts you were referring to earlier and similarly, they like could that have on your margin impact worth calling out.
Stephen Kim: Yes.
Stephen Kim: <unk>.
Stephen Kim: This discretionary business flow business as we refer to it Stephen as you know is is where we have the least amount of visibility.
Stephen Kim: It is concentrated more with the installed base and kind of mirrors more of the installed base, which still has a lot of older more.
Stephen Kim: I'd say lower <unk> type products, so if theres any AAV impact it would be a lift on AAV or a help to <unk> because of the mix improvement.
Stephen Kim: By not having some of the lower <unk> in it.
Stephen Kim: Whether it's material or not I think that's another question, but directionally to get at your question I think if there is an AAV impact from that discretionary spend or the lack of the discretionary spend I think.
Stephen Kim: It might show up there I think these are smaller projects not smaller customers I would think about it that way because even larger customers might forego or put on hold smaller projects and again I would say, it's the same dynamic I think if anything there might be.
Stephen Kim: Less lower AAV products in the mix and would be an upward.
Stephen Kim: <unk> to the overall mix.
Stephen Kim: Does that help.
Speaker Change: Yeah, absolutely that was exactly my question I appreciate that.
Speaker Change: And then second question relates to be again, staying on <unk> impacts the home center softness I'm wondering does that also have.
Speaker Change: Some sort of an <unk> effect in other words it was maybe a little benefited by the home center softness this quarter as well.
Speaker Change: Yes, yes, definitely as we've talked about that's our our lower AAV channel, we have a very low or a small group of products that we sell through that channel and they tend to be at the lower <unk>. So yes, there was a little bit of a help in the quarter on the mix side from the lack of volume in that retail.
Speaker Change: Channel.
Okay, great. Thanks very much.
Speaker Change: You bet.
Speaker Change: There are no further questions at this time, so I would like to turn the call back over to Mr. Vic Grizzle.
Speaker Change: Well. Thank you all for joining our call today and for your questions.
Speaker Change: I think as you can hear in our discussion today.
Speaker Change: We have a resilient business model and we have a proven ability to execute on our controllable.
Speaker Change: That gives us confidence to navigate these choppy and uncertain market conditions.
Speaker Change: So we're ready to employees to execute.
Speaker Change: Even in softer market conditions that we're forecasting for the back half of this year. Thank you again for joining our call today.
Speaker Change: This concludes today's conference call you may now disconnect.
Speaker Change: Okay.