Operator: Thank you for standing by. My name is Marina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Armstrong World Industries Third Quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. I would now like to turn the conference over to Theresa Womble, Vice President, Investor Relations and Corporate Communications. Please go ahead.
Theresa Womble: Thank you, and welcome everyone to our call this morning. On today's call, Mark Hershey, our CEO, and Chris Calzaretta, our CFO, will discuss Armstrong World Industries' Q3 2026 results and rest of year outlook. We have provided a presentation to accompany these results that is available on the investors section of the Armstrong World Industries website. Our discussion of operating and financial performance includes 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 we issued this morning. Both are available on our investor relations website. During this call, we will be making forward-looking statements that represent the view we have of our financial and operational performance and our expectations as of today's date, 27 October 2026.
Theresa Womble: These statements involve risks and uncertainties that may differ materially from those expected or implied. We provide a detailed discussion of these risks and uncertainties in our SEC filings, including those related to market conditions, inflationary pressures, and tariffs. We undertake no obligation to update any forward-looking statement beyond what is required by applicable securities law. Now, I will turn the call over to Mark.
Mark Hershey: Thank you, Theresa. Good morning, everyone, and thank you for joining us. We delivered another solid quarter at Armstrong, demonstrating the resilience of our businesses and continued progress in our growth platforms. I was particularly impressed by how our people, across a broad range of roles and responsibilities, united to respond to a rapidly changing cost environment while continuing to serve our customers and advance our growth initiatives. In the quarter, we delivered record Q3 sales and double-digit growth in both adjusted EBITDA and adjusted diluted EPS. Net sales increased 12%, adjusted EBITDA increased 11%, and adjusted diluted EPS increased 10%. This is strong revenue growth against a largely flat overall market. Importantly, both of our operating segments contributed to that performance and expanded adjusted EBITDA margins year over year.
Mark Hershey: I believe these results demonstrate two things clearly: Our growth strategy is working, and the underlying value creation model that has distinguished Armstrong for many years remains firmly intact. Mineral Fiber delivered solid AUV and positive volume growth, while Architectural Specialties produced exceptional organic growth across a broad range of offerings and product categories. At the same time, input costs accelerated rapidly during the quarter, particularly freight and raw materials. We also saw timing-related mix pressure in Mineral Fiber, as can occur from time to time in some of our lower AUV channels. Together, those factors dampened the margin expansion we would otherwise have expected from this level of revenue growth. Accordingly, we responded to the recent cost headwinds with the same discipline that has served Armstrong well through previous inflationary cycles: enhanced productivity, swift spending controls, optimized transportation, and market-based pricing.
Mark Hershey: Some of those benefits take time to flow through, particularly in our custom project-based Architectural Specialties businesses. We expect the impact of these dynamics to moderate as timing-related mix pressure normalizes and our mitigating actions take fuller effect. Our updated guidance now reflects these impacts. Taken together, the quarter showcases the resilience of our businesses, underlying strength of demand, and the continued traction of our strategic growth initiatives as we enter the final quarter of the year. Turning first to Mineral Fiber. Net sales increased 7%. AUV was the primary contributor to growth, driven principally by price together with a positive volume contribution. Notably, this was our third consecutive quarter of Mineral Fiber volume growth and the fifth of the past six quarters. While demand for our higher value SWAT products remained healthy and again outpaced other product categories, volume was particularly strong in several of our lower AUV channels.
Mark Hershey: Most notably in Canada, where customers accelerated purchases ahead of anticipated tariff actions affecting grid pricing. Because we sell a complete ceiling system, that grid activity in Canada also pulled through additional Mineral Fiber volume. We benefited from that timing-related grid activity in the quarter, as well as from strong data center growth, to deliver a solid earnings performance, while at the same time responding appropriately to continued steel and tariff cost headwinds. Overall, we view the lower AUV channel strength in the quarter as a timing-related mix dynamic that reduced the margin benefit we would normally expect from this level of sales growth. That said, even with the unusual mix dynamic and the swift rise in freight and raw material costs, Mineral Fiber delivered 8% adjusted EBITDA growth and expanded adjusted EBITDA margin by 40 basis points to 44%. I want to emphasize that point.
Mark Hershey: In the face of the highest input cost inflation we have experienced since 2022, Mineral Fiber delivered a 44% adjusted EBITDA margin and expanded margin year-over-year. That is strong evidence of the durability of this business and the ability of our teams to respond to escalating inflation through productivity, cost controls, and other near-term mitigation actions. Our Mineral Fiber manufacturing teams were part of that effort and continued to execute well this quarter, setting an all-time record in plant reliability for the network and topping their record Q2 performance, while also keeping our perfect order fulfillment measure at high levels. Plant reliability, product quality, and dependable customer service are key enablers of our commercial performance and meaningful differentiators for Armstrong in the market as we strive to support our loyal distributor and contractor customers with exceptional quality and service.
Mark Hershey: Turning to Architectural Specialties, net sales increased 22%, including impressive organic growth of 16%, the highest quarterly organic growth rate in the segment's history. Growth was broad-based across the AS portfolio, supported by multiple consecutive quarters of healthy demand and strong project activity in transportation, healthcare, education, and other commercial applications. I continue to be encouraged by our quoting and order intake rates and by the ability of our commercial teams to drive penetration broadly across the Architectural Specialties categories. Order intake in the quarter again increased at a double-digit rate, reflecting recent strong bidding activity and providing a healthy foundation as we finish 2026 and move into 2027. Adjusted EBITDA in the segment increased 25%, and adjusted EBITDA margin expanded 60 basis points to 19.4%.
Mark Hershey: That is a strong result given the rapid acceleration of freight costs during the quarter, together with heightened aluminum and steel inflation and tariffs affecting portions of the AS portfolio. As a reminder, particularly with respect to our custom Architectural Specialties work, project pricing remains in place until quotes expire or price escalators take effect. This can create a mitigation lag when inflation and input cost pressures accelerate rapidly. Across the AS portfolio, as we have done across the enterprise, disciplined mitigation measures are in place to reflect the new cost environment, including pricing and cost control actions initiated earlier this year. These efforts help to support the record organic growth and margin expansion achieved this quarter. This performance gives us even greater confidence in the segment's earnings potential as our actions become more fully reflected in the economics of recently quoted and future projects.
Mark Hershey: Recent acquisitions also contributed to revenue growth in the quarter. We remain focused on accelerating commercial adoption, realizing integration benefits, and using the Armstrong platform to help these businesses scale. The strategic rationale remains compelling. Each portfolio addition expands the range of materials and capabilities we can bring to a project, increases the number of specifications we can pursue, and allows us to capture more value by solving a broader set of customer needs. We continue to see a clear path toward our 20% Architectural Specialties adjusted EBITDA margin target as we further integrate and scale these recent acquisitions. The performance of Architectural Specialties this quarter also illustrates the broader evolution underway at Armstrong. We are increasingly bringing mineral fiber, metal, wood, felt, structural systems, and design capabilities together to help architects, designers, and contractors execute more complex projects. That breadth matters.
Mark Hershey: It allows us to engage earlier, compete for more specifications, and offer customers a more integrated solution from design through installation. Especially in a market where complexity, schedule certainty, and execution matter, our combination of portfolio breadth, technical expertise, project management, and service is increasingly differentiated within our industry. Our recently completed work at Seattle Tacoma International Airport's Terminal C showcases our expanding ability to bring complex, high design spaces to life. Working hand in hand with the architects over several years, our design team helped realize a striking timber-clad canopy and column structure inspired by Pacific Northwest forests, anchoring a four-story marketplace and grand staircase.
Mark Hershey: The tree at Terminal C, which is pictured on the cover page of our earnings presentation today, combines four distinct wood products with metal ceiling and Mineral Fiber solutions and demonstrates how our broad portfolio and collaborative design expertise uniquely position Armstrong to deliver on ambitious architectural visions. This is exactly the kind of opportunity our expanded portfolio is creating. We are not simply participating in more categories. We are helping customers solve more of the ceiling and wall scope through one trusted partner. With that, I will turn the call over to Chris for a closer look at our financial results and updated full year outlook.
Chris Calzaretta: Thanks, Mark, and good morning to everyone on the call. As a reminder, throughout my remarks, I will be referring to the slides available on our website, and please note that slide 3 details our basis of presentation. We begin on slide 6 with our Mineral Fiber segment results for the Q3. Mineral Fiber net sales increased 7% in the quarter, driven by AUV growth of 6% and an increase in volumes. The increase in AUV was primarily driven by favorable like-for-like pricing, along with a positive contribution from mix. The increase in volumes was driven by timing-related demand from our Canadian customers, as Mark discussed, as well as benefits from our growth initiatives. Mineral Fiber segment adjusted EBITDA grew by 8% in the quarter, with adjusted EBITDA margin expanding 40 basis points to 44%.
Chris Calzaretta: Adjusted EBITDA growth was primarily driven by the fall-through of AUV, although at a lower rate than expected due to the mixed impact of higher sales volumes to lower AUV channels. Additional items contributing to Mineral Fiber adjusted EBITDA growth in the quarter included a solid contribution from our WAVE joint venture, as well as lower Mineral Fiber SG&A expenses, primarily driven by higher incentive compensation expense in the prior year quarter. These benefits were partially offset by higher input costs, reflecting a sequential acceleration in freight and raw material inflation. While our pricing actions are designed to offset inflation over time, periods of rapid inflation can create timing lags between higher input costs and our full price realization. This dynamic was a factor during the quarter.
Chris Calzaretta: Despite elevated input cost inflation, the Mineral Fiber adjusted EBITDA margin of 44% represents the strongest Q3 adjusted EBITDA margin result in the segment since 2019. This level of financial performance, even in a challenging environment, underscores our Mineral Fiber value creation drivers, including AUV growth, annual productivity gains, and positive contributions from our WAVE joint venture, along with our disciplined focus on cost control. On slide 7, we discuss our Architectural Specialties, or AS, segment results, where we highlight net sales growth of 22%. This increase was driven by broad-based organic growth across most of our specialty product categories, along with contributions from the February acquisition of Eventscape and the 2025 acquisitions of Parallel and Geometrik. We are pleased with an organic growth rate of 16% in the quarter, which represents the highest quarterly organic growth rate on record.
Chris Calzaretta: AS segment adjusted EBITDA increased 25% versus the prior year, with adjusted EBITDA margin expanding 60 basis points to 19.4%, which includes the dilutive impact of our recent acquisitions. On an organic basis, we achieved a greater than 20% adjusted EBITDA margin, despite the negative impact of lower project margins related to elevated metal costs and freight. The improvement in adjusted EBITDA was primarily driven by a $12 million benefit from higher net sales, of which $3 million was inorganic. This benefit was partially offset by a $2 million increase in manufacturing costs, due primarily to our recent acquisitions, and a $3 million increase in SG&A expenses, of which approximately half was from our recent acquisitions. We are particularly pleased with the segment's $12 million sales benefit to adjusted EBITDA in the quarter, despite the impact of elevated metal costs.
Chris Calzaretta: On slide 8, we highlight our Q3 consolidated company metrics. Net sales grew 12% and adjusted EBITDA increased 11%. Additionally, adjusted diluted net earnings per share grew 10%. Incremental volume from both segments, solid AUV performance, and positive equity earnings from WAVE drove adjusted EBITDA growth in the quarter. These benefits were partially offset by higher input costs, primarily driven by freight and raw material inflation, in addition to higher manufacturing costs, which were largely driven by our recent acquisitions. SG&A expenses were essentially flat in the quarter as increased organic selling investments and an inorganic increase from our recent acquisitions were offset by higher incentive compensation expense in the prior year quarter. Excluding the impact of our recent acquisitions, total company organic adjusted EBITDA margin was 35.1%, representing 40 basis points of organic adjusted EBITDA margin expansion.
Chris Calzaretta: Slide 9 summarizes our year-to-date consolidated company results, which reflect 10% net sales growth and 7% adjusted EBITDA growth. Adjusted EBITDA growth in the first 9 months of 2026 was driven by both incremental volume and the fall-through impact of solid Mineral Fiber AUV, as well as positive WAVE equity earnings. Higher manufacturing costs were largely driven by our recent acquisitions and Q1 costs in the AS organic business. The increase in input costs was driven primarily by freight and raw material inflation. SG&A increased primarily due to continued investments to support growth, including higher people costs and the inorganic impact from recent acquisitions, partially offset by higher incentive compensation costs in the prior year period. Adjusted diluted net earnings per share grew 9%, driven primarily by higher net earnings and partially due to a lower share count resulting from increased share repurchases.
Chris Calzaretta: On slide 10, we present our year-to-date adjusted free cash flow performance versus the prior year. The 2% decrease was driven primarily by unfavorable timing-related working capital flows driven by accounts receivable, higher income tax payments in the current quarter, primarily due to the favorable timing of a portion of our Q3 federal tax payment in the prior year period, and higher capital expenditures. Partially offsetting these headwinds was a year-to-date increase in dividends from our WAVE joint venture. We remain confident in our ability to deliver solid double-digit adjusted free cash flow growth in 2026 to support all of our capital allocation priorities.
Chris Calzaretta: Turning to capital deployment, our year-to-date activity reflects continued execution on our capital allocation priorities, which are investing back into the business through CapEx, pursuing strategic acquisitions like the Q1 acquisition of Eventscape, and returning value to our shareholders through our dividend and share repurchases. Last week, we announced a 10% increase to our quarterly dividend, marking the eighth consecutive annual increase since the inception of our dividend program in 2018. This increase reflects our board of directors' continued confidence in our growth strategy and ability to generate adjusted free cash flow growth. Additionally, in the Q3, we paid $15 million of dividends to our shareholders and repurchased $75 million of shares, bringing our year-to-date dividends paid to $45 million and our year-to-date share repurchases to $210 million. As of 30 September 2026, we have over $1 billion remaining under the existing share repurchase authorization.
Chris Calzaretta: Our balance sheet is healthy. With low leverage and ample available liquidity, we remain well-positioned to execute on our strategy. Turning to slide 11, we present our updated 2026 guidance metrics. We now expect total company net sales growth of 10%-11%, up slightly from the previous range of 9%-11%. This increase is driven by the continued robust performance of our AS organic business, where we now expect net sales growth in the low teens range, up from our previous assumption of growth in the high single digits. Partially offsetting this increase are lower than expected contributions from our recent acquisitions as we continue to scale these businesses onto the Armstrong platform. This brings our full-year net sales outlook for the AS segment up to 18% to 19% growth, an increase from our previous outlook of 15%-17% growth.
Chris Calzaretta: For the Mineral Fiber segment, we have slightly lowered our full-year net sales growth assumption to approximately 6.5%, with about one point of volume growth and AUV growth of approximately 5.5%. We now expect more price due to higher inflation and softer mix versus our prior expectations. Additionally, we are modestly lowering the midpoint of our total company adjusted EBITDA guidance and now expect growth of 8%-10% for the full year, down from our prior guide of 9%-12%. This adjustment incorporates elevated input cost inflation and the ongoing impact of tariffs and reflects the timing of our mitigation actions across the business, as well as lower than expected contributions from our recent acquisitions in AS. In the Mineral Fiber segment, we now expect the full-year adjusted EBITDA margin result to be approximately flat to the prior year, largely reflecting the impact of mixed headwinds.
Chris Calzaretta: Recall that in Mineral Fiber, the 2025 adjusted EBITDA margin result of 43.5% was a record full-year result, surpassing the previous high watermark of 2019. Within the AS segment, we continue to expect full-year adjusted EBITDA margin expansion with an adjusted EBITDA margin of approximately 19%. On an organic basis, we continue to expect a full-year adjusted EBITDA margin of approximately 20%. We have also slightly lowered the midpoints of both our total company adjusted diluted net earnings per share and adjusted free cash flow guidance, given the decrease in our total company adjusted EBITDA guidance. We now expect total adjusted diluted net earnings per share growth in the range of 12%-13%, down from our prior guide of 12% to 15%, and now expect adjusted free cash flow growth of 10%-13%, compared to our prior guide of 10%-14%.
Chris Calzaretta: Please note that additional assumptions are available in the appendix of this presentation. Our updated full-year guidance reflects our current view of the business, and we remain well-positioned to deliver another year of profitable top-line growth. Now I'll turn it over to Mark for further commentary.
Mark Hershey: Thanks, Chris. The outlook Chris just summarized reflects the market conditions and on-the-ground sentiment we are seeing today. Broadly, underlying market conditions remain generally muted, consistent with what we described last quarter and have experienced more or less throughout 2026. As a reminder, we benefit from a broad mix of end markets and balanced exposure across new construction, renovation, and repair and replacement activity, providing resilience across changing market conditions such as those we are seeing today. We continue to see steady activity across a diverse range of verticals with strength in areas such as transportation, healthcare, and data centers. Within those verticals, we are encouraged by the trend we are seeing toward high-value experiential infrastructure for airports, stadiums, arenas, and other hospitality environments. Ongoing modernization, capacity investments, and a greater emphasis on the passenger and fan experience are driving more architecturally differentiated premium spaces.
Mark Hershey: This plays well across both Mineral Fiber and Architectural Specialties. Importantly, that can mean not just more square footage, but greater design intensity per square foot, with more emphasis on acoustics, aesthetics, and differentiated solutions. At the same time, we are closely monitoring elevated inflation, geopolitical uncertainty, and signs of more cautious sentiment across the industry. While on-the-ground sentiment and bidding activity remain stable, we are working closely with our customers, particularly our commercial distribution partners, to monitor for signs of project delays and capture opportunities as they emerge. In this type of environment, our strong relationships with distribution partners, architects, and contractors, together with continued investment in our growth platforms, remain critical to expanding our addressable market and driving growth ahead of the market.
Mark Hershey: Within our growth initiatives, our e-commerce platform, Kanopi, continues to demonstrate solid growth, with double-digit revenue and Mineral Fiber volume growth year to date and meaningful EBITDA improvement while increasingly extending its digital capabilities beyond Mineral Fiber into grid and Architectural Specialties. Similarly, PROJECTWORKS, our automated design platform, also continues to grow, adding incremental Mineral Fiber volume growth while also assisting designers and contractors in the design and pre-construction project phases, helping save time and money with complete, accurate, and dependable solutions, drawings, and bills of the material. In data centers, we are applying Armstrong's established strengths in specification, systems, technical support, and installation efficiency to an attractive growing vertical. As we shared last quarter, our broader solution set has positioned us to serve demand from hyperscalers, co-locators, and enterprise customers more effectively.
Mark Hershey: Our complete set of structural grid, containment, and integrated Mineral Fiber solutions can improve building efficiency and installation speed, and we are seeing encouraging signs of progress. Through the Q3, both our ceiling and DYNAMAX structural grid data center sales have exceeded our full-year revenue plans. We are also seeing increased applications for these solutions in mission-critical advanced manufacturing environments. A recent win at an advanced manufacturing research facility shows how our expanding go-to-market approach and our technical expertise are improving our access and win rate. By engaging early in the design and bid process, our close collaboration directly with the owner helped realign project requirements to use our recently introduced SKYLO walkable ceiling system. By validating performance with an on-site demonstration, we turned a specification gap into a confirmed order for our solution.
Mark Hershey: That project spans almost 500,000 square feet and represents a multimillion-dollar order, demonstrating our ability to win large, complex projects with our tailored solutions and approach. We will use this and other recent wins to strengthen Armstrong's position as a trusted, experienced partner and build references for similar customers. This is a highly competitive market, and our presence continues to expand. But the combination of strong market growth across this vertical, a broader portfolio, and growing customer engagement gives us confidence that data centers and other mission-critical buildings can become a consistent growth platform for us over time. We are also encouraged by the progress we are making with TEMPLOK energy-saving ceilings, particularly in specification activity.
Mark Hershey: Building on the pipeline growth we discussed last quarter, our specification teams and established sales relationships are helping us introduce TEMPLOK earlier in the design process and earn consideration on a growing range of projects. That is an important step in building demand for a new solution whose value proposition includes energy performance, occupant comfort, and building economics. Specification activity is an encouraging measure of progress. It reinforces our confidence that Armstrong's longstanding strengths with architects, designers, and contractors can help us build this new market by expanding the pipeline of projects in which TEMPLOK can be evaluated, selected, and ultimately converted into commercial demand. We are also seeing compelling real-world validations of our TEMPLOK technology. A recent case study at a pediatric therapy facility in Charlotte demonstrates how TEMPLOK ceilings are creating a quieter, cooler environment for the children and families the facility serves.
Mark Hershey: This is exactly what excites us about Templok. We are taking a familiar building surface and giving it an entirely new performance capability, creating tangible value for building owners and occupants. Overall, we remain encouraged by our growth initiatives. They are further differentiating Armstrong with customers, expanding the markets we can serve, and contributing tangible growth today, including up to 150 basis points of above-market Mineral Fiber volume growth for the full year. In closing, this was a quarter that demonstrated the durability of the Armstrong value creation model and the progress we are making against our growth strategy. We delivered record Q3 sales and margin expansion in both segments, even as input costs accelerated rapidly. We responded with urgency and discipline, and we are confident in the actions underway to address those pressures.
Mark Hershey: At the same time, we are strengthening our established businesses, expanding the Armstrong portfolio, and building growth platforms that increase the value we can deliver for customers. None of that happens without the commitment and hard work of our people. I want to thank our teams across Armstrong for the way they continue to serve our customers and respond to changing conditions. We move forward into Q4 and look ahead to 2027 with confidence, focused on delivering profitable growth and creating long-term value for our shareholders. With that operator, we are ready to take your questions.
Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Susan Maklari with Goldman Sachs. Your line is open. Please go ahead.
Susan Maklari: Thank you. Good morning, everyone.
Mark Hershey: Good morning, Susan.
Susan Maklari: Good morning, Mark. My first question is building on the last comments that you gave us on some of the projects and the initiatives that you have in there. I think it is encouraging to hear that the order intake in AS was up double digits given the macro pressures that we have seen. Can you talk about how you are communicating with your customers, the architects, the designer community, making sure that they really understand the initiatives that you have put through in the last couple of years, the value proposition of the products? With that, just how are you monitoring the channel and demand and any potential changes from the macro?
Mark Hershey: Great, Susan. Thank you very much. Yes, we are really pleased with the intake and also the consistency of the intake. We are compounding and stacking multiple quarters of double-digit intake. I think that is a testament to our teams and good commercial execution, but also to what you are talking about, which is awareness of the broader portfolio and the value proposition that comes with it. Last quarter, we talked about the NeoCon event in June. Frankly, that event and how we presented ourselves to the market was what we are trying to do with all of our customers, the architects, design community, for sure. We have also optimized our selling organization around that very purpose. We are going to market and equipping our commercial organization with the full range of that portfolio.
Mark Hershey: That puts them in a position with design experts and design professionals to have a conversation, to have a partnership and a relationship where we can share the complete breadth of the portfolio, and help them achieve their design intent. That is really what the breadth of the portfolio is all about, is giving the market options to meet their design objectives, regardless of what material or substrate or objective they are trying to accomplish. It could be aesthetics, it could be performative, it could be acoustics, it could be energy with Templok. We are really giving them that voice and that platform, that palette, as we talk about it, to be able to make their design choices. Then we are promoting it, frankly. You heard me mention in my remarks, the incredible project at SeaTac this quarter.
Mark Hershey: We will market those projects, we will keep them in front of the design community, and we will stay very close to that design community. Your point on kind of monitoring what is going on in the market, that happens with our commercial organization, with our A&D customers. It happens with our distribution partners. It happens with our contractor customers. That is where we glean all of our kind of market insights around bidding activity and on-the-ground activity. We are sharing projects, we are monitoring their activities, and we are supporting them in the process.
Susan Maklari: Okay. That is great color. Then maybe shifting to some of the channel dynamics that you mentioned in the quarter. Can you just talk to when you expect that to normalize? How we should think about any potential ramifications into the end of this year and maybe even into early 2027?
Mark Hershey: Yeah, thanks for the question. On mix, generally, this is one of those episodes that does happen from time to time. We just saw relatively stronger volume performance in Mineral Fiber and concentration in our lower AUV channels. We have had this in the past. Occasionally, we have talked about this before. We refer to it sometimes as lumpier demand in some of those channels, and we saw that this quarter. What was really unusual this quarter, and it happened in this quarter, was this was a Canadian dynamic, as I mentioned in my remarks, and the triggering event for that dynamic was really tariffs. This was brought on, and really manifested itself in late summer when the 232 tariffs went into effect, and then Canada sort of retaliated in response. That put additional heightened tariffs onto grid flowing into Canada.
Mark Hershey: That triggered additional buying activity to get ahead of potential tariffs and surcharges. You had the pull-through of additional volume. So very interesting dynamic there in Canada. We had outsized, if you will, concentrated volume growth in that lower AUV channel. We view this as really very much a timing dynamic that will flow through, and we expect to moderate by the end of the year.
Susan Maklari: Okay. That is helpful. Thank you for all the color. Good luck with the quarter.
Mark Hershey: Thank you, Susan.
Operator: Your next question comes from the line of Tomohiko Sano with JP Morgan. Your line is open. Please go ahead.
Tomohiko Sano: Hi. Good morning, everyone.
Mark Hershey: Good morning, Tomohiko.
Tomohiko Sano: Thank you. Mark, you have noted intake has remained consistently strong. First, at a high level, are higher rates and higher costs impacting customer investment behavior? Are you seeing more project deferrals or spec changes? Where is that showing up in your orders and volumes by end market, please?
Mark Hershey: Well, I think that is always a consideration, Tomo. We are not seeing outsized or material changes affecting our intake this quarter. It is something we watch very closely. No, we think the project values continue to be high. I think one of the big-picture demand environment points that is worth calling out, which we continue to see while project counts and new start counts are somewhat muted other than maybe data centers, the value of new starts and the value of the bidding activity we are seeing continues to remain high. We still think there is high demand for a premium solution set, which really plays well to our strengths. It is always a competitive environment, and we are competing on our innovation and our service and quality. That has not dampened our intake.
Mark Hershey: I think that makes the intake even more impressive, is the consistency of it and the double-digit nature of it.
Tomohiko Sano: Thank you, Mark. Just one follow-up. Rather than the timing, price cost, I want to ask about the price stickiness. How have customers reacted to recent pricing actions and surcharges? Where are you seeing any pushback by channels or products? Does the competitive environment raise any concern about holding price?
Mark Hershey: Yeah. Thank you, Tomo. We take a very disciplined approach as we have for, frankly, decades. We have a very strong pricing center of excellence, an incredible team that manages our pricing activity. We talk about market-based pricing. We talk about pricing that is proportionate to the inflation and correlated to the inflation that we see in the backdrop. So on its face, some of the pricing numbers may seem dramatic, but they do correlate to what we are seeing in the market. It is that discipline, that responsible pricing that we are committed to maintain. I think, look, the analysis that we do, the data gathering that we do, the calibration to the rapid rise of inflation. Frankly, just to put it in perspective, this quarter was the most significant inflationary period that we have experienced since mid-2022.
Mark Hershey: The rate and pace of that inflation, and it is evident in the data, was simply dramatic through the period and especially so in areas like freight, which we talked about in our prepared remarks. So we prepare our pricing. We put pricing on the street that we believe is responsible and correlated, and that is where our credibility comes from, is that foundation.
Tomohiko Sano: Thank you very much, Mark.
Mark Hershey: Thank you, Tomo.
Operator: Your next question comes from the line of Adam Baumgarten with Vertical Research Partners. Your line is open. Please go ahead.
Adam Baumgarten: Hey, good morning, everyone. Just sticking on Mineral Fiber AUV, it seems like you are implying a similar about 6% AUV in Q4 as you saw in Q3. I guess, I think you sort of touched on this earlier, but are you assuming those mixed pressures continue to some degree into Q4 that you saw in Q3, then maybe as you exit the year, you get through it? That is my first question.
Chris Calzaretta: Yeah. Hey, good morning, Adam. So, just to unpack AUV progression, if you will. Outlooking a full year of 5.5%. What we are seeing there is a little bit stronger price than we previously expected due to the pressures that impacted us here in the third quarter and the continued pressure into the fourth quarter. But a little bit softer mix on the mix dynamics that we outlooked in our prepared remarks. So 5.5% for the full year. Still expecting positive mix, but a little bit stronger pricing, again, in response to the ongoing inflationary pressures.
Mark Hershey: Yeah, I'll just say on top of that, we got good price realization in the quarter. We're expecting good price realization again next quarter. There's no change in our confidence there around our ability to realize price. We've got this somewhat timing-related mix dynamic, and that's really what you're seeing play through.
Adam Baumgarten: Okay. Got it. Thanks. Then just maybe thinking about if we look into next year, just given all the inflation you've seen in your typical pricing cadence and sort of the Q1 and Q3, should we think that price realization, that part of the story that you have more control on, could be higher next year given all the inflation you're facing?
Mark Hershey: Yeah. We're still in the sort of design and construction phase, the modeling phase right now, Adam, for our 2027 budget. So we're not going to begin to try to guide our 2027 outlook. But I think it's fair to say that we are setting ourselves up to be in a strong position to continue to realize strong pricing in 2027 with the actions we've taken. Each of our businesses has had additional price increases in 2026 that are beyond our normal cadence. So beyond our normal February, August cadence. Mineral Fiber business just announced another price increase that's effective in November. The AS business had a price increase off cycle in June as well as November. The WAVE business had additional price increase in June as well as November.
Mark Hershey: When we make those kinds of decisions, they are, as I said before, correlated to what we're seeing in terms of input cost inflation and market dynamics. But we are considering the outlook and the inflationary environment we expect over the near and medium term.
Adam Baumgarten: Okay. Got it. Thanks. Best of luck.
Mark Hershey: Thank you.
Chris Calzaretta: Thanks, Adam.
Operator: Your next question comes from the line of Keith Hughes with Truist. Your line is open. Please go ahead.
Keith Hughes: Thank you. You talked a lot about cost pressure. I assume that is going to get a little worse in Q4 in Mineral Fiber. Is that correct? Would you expect maybe more sequential increases to come in Q1 2027?
Chris Calzaretta: Yeah. Hey, Keith. Sequentially heading into Q4 for sure, we believe that the inflationary pressure is still elevated, especially on the freight side. Fuel continues to pressure this area, with diesel pricing above $6 a gallon. So certainly on the Mineral Fiber side there on freight. On the AS side, continued pressure on the freight front as well as continued pressure on metal costs heading into Q4. That being said, the pricing algorithm and our ability to continue to realize price has not changed for the business. Sometimes, we get caught up in a bit of a lag effect, and are able to catch up in subsequent quarters as our pricing is fully realized. Again, it is a temporary impact that we saw here certainly in Q3 as it pertained to the impact on the margin in both segments.
Chris Calzaretta: No change in our algorithm and the value creation driver of AUV and pricing for the company.
Keith Hughes: Okay. Just switching to AS real quick again on cost, it does not seem like it is facing as much cost pressure. Is that correct, or is that something hidden in the numbers?
Chris Calzaretta: Yeah, we are still facing the cost pressures there again on the metal cost and freight front. Then again, responding to those accordingly through our actions and the pricing cadence that Mark Hershey mentioned previously. So it is still a pressure point for us there in that segment.
Mark Hershey: Maybe one thing to add there too, Keith Hughes, is, and I agree, Chris Calzaretta, is the pricing for AS is different. I think that lag effect that Chris Calzaretta is talking about, it is important to point out. In AS, we price largely the bulk of the portfolio on a project basis. So that lag effect is very natural because we are putting quotes out on the street that have a duration to them that is longer than, let us say, a Mineral Fiber sale, a standard SKU basis, right? So there is a lag effect there. It is why we use escalators, it is why we use quote expirations. But that lag effect for custom projects, for example, is sort of inherent to the nature of that project business, and it moves through. But the actions we have taken, and they go beyond pricing.
Mark Hershey: But the actions we have taken across the enterprise, and particularly in AS, give us that confidence to see improvements. We are outlooking margin improvement in Q4, both year-on-year and sequentially in AS, as a result of those actions. So we are confident in where that is headed.
Keith Hughes: Okay. Thank you.
Operator: Your next question comes from the line of Garik Shmois with D.A. Davidson. Your line is open. Please go ahead.
Garik Shmois: Oh, hi. Thanks. I was wondering if you could quantify at all the pull-forward effect from the shipments in Canada and what you are assuming for, I guess, the expected destocking in Q4.
Chris Calzaretta: Yeah. Garik, it is a bit of a timing-related dynamic. I can tell you that as we are continuing to look forward to our overall volume for the year in Mineral Fiber, we are still outlooking that 1 point volume growth for the year, with continued volume growth in Q4. Just remember that we are comping a bit of a soft volume quarter in Q4 of last year. But again, there is a timing dynamic here, but have not certainly sized precisely what that is.
Garik Shmois: Okay. That is fair. Follow-up question is just on SG&A and Mineral Fiber. You had, I guess, lower incentive comp, and it drove a lower SG&A in the quarter. I was just wondering if you could help us think through what underlying SG&A inflation is in that segment and any additional levers that you have to keep controlling costs.
Chris Calzaretta: Yeah. No, thanks for the question. So, on performance in the quarter, SG&A performance in the quarter at the total company level, we were essentially flat versus the prior year. Let me unpack kind of both segments, Garik, here, to provide a little bit more color on each. Mineral Fiber was favorable by $3 million, and that was precisely what you had noted there, the higher compensation expense in Q3 of last year. It is at a more normalized level here in the current year quarter. On the AS side of the business, we had higher SG&A of about $3 million, where half of that increase was organic, where we continue to invest for growth, and the other half was inorganically related primarily on the acquisition of Eventscape. We are taking a very disciplined approach to SG&A costs in light of the broader cost pressure on the business.
Chris Calzaretta: We have been focusing on discretionary cost controls, in response to answer your question. I would say overall, I am pleased with our SG&A margin of approximately 19% in the quarter. We are really driving for that, and I have mentioned this before, sub 20% SG&A as a percentage of sales for the full year as we finish 2026. Again, what remains important to us is the rate and pace of spend, and that continues to be a focus given the inflationary backdrop that we have been talking about this morning.
Garik Shmois: Okay. Thank you very much.
Operator: Your next question comes from the line of Rafe Jadrosich with BofA. Your line is open. Please go ahead.
Rafe Jadrosich: Hi, good morning. Thanks for taking my questions.
Chris Calzaretta: Good morning, Rafe.
Rafe Jadrosich: Can you just provide us with an update for the inflation outlook for the year and the key components? I think you were previously expecting mid-single digit. What are you now expecting?
Chris Calzaretta: Yep. So good morning, Rafe. On total input costs for the full year, we are at the higher end of mid-single digits. That change is largely driven by higher freight, which is about 20% inflationary, compared to the prior year. Energy is still in that low single-digit range. Raw is still in that low single-digit range. Sequentially, as we head into Q4, a little more pressure expected as we finish the year. Just to highlight again, how we have responded to these inflationary pressures with the price increase in November, as well as the other cost control actions.
Rafe Jadrosich: Got it. That is really helpful. On the AS segment, looking at the inorganic side, I think earlier this year you had highlighted some lower margins related to investments, and then this quarter again. You mentioned that it is coming in a little bit lower than expected. Can you just give some specifics on what is happening there? What is coming in lower than expectations? How do we think about that run rate on investment on the inorganic side, what continues into next year versus what is one time?
Mark Hershey: Rafe, thank you. Happy to take that. I think if I step back from the three recent acquisitions, I think it is still fair to characterize them as all still in the early stages of integration. We are still working them onto our platform. We are certainly encouraged by the demand, the orders, the backlog we are developing across the business. The commercial reception to all three of them has been very positive. Customer feedback has been positive, allowing us to capture more specifications, get into design early. So the strategic rationale behind all three is proving out. I would say that two of those three are performing about as we had expected, both the top and bottom line. The smaller of the three, the Parallel business, is the one that is not meeting our expectations and ramping, frankly, more slowly than we had expected. Again, it is not on the commercial side.
Mark Hershey: It is on more of the operational side and us being able to get the operating leverage, the throughput, and sort of the operational excellence up to our expectations to get the fall through we want out of that business. That is what has been slower than expected. But the other two are largely on track, and we do expect this to improve. It has been improving every quarter. We do expect this to improve in the near term.
Rafe Jadrosich: Thank you.
Operator: Your next question comes from the line of Stephen Kim with Evercore ISI. Your line is open. Please go ahead.
Stephen Kim: Yeah, thanks very much, guys. There has been a lot of talk about the costs and the sort of the mitigating actions, but I would have to say that on balance, aside from the slight miss in Q3, your Q4 outlook is pretty much in line with where we are looking, with a little bit worse in Mineral Fiber, but offset by a little bit better in AS. With that in mind, I just wanted to look at the Mineral Fiber a little bit more. You talked about the mix. You had good price, actual like for like price, but mix was weaker, and you attributed that to the Canadian sales. But if we look at the Canadian sales in Q3, I am sorry, if you look at your sales overall in Mineral Fiber in Q3, you did not materially beat our expectations.
Stephen Kim: It seems like, sure, certainly some stronger sales in Canada could have been in effect, but it did seem like maybe there was something that was a little bit, maybe some lower sales in higher AUV channels. But you talked about a lot of good things related to some of your higher AUV products. I am just trying to understand, was there something that happened in Q3 outside of Canada, more like with some softness in your higher AUV channels or products or customer mix or something that you can talk to? It looks like you are expecting this to go away, to be mitigated in Q4. I just wanted to clarify, what happened in Q3 aside from Canada? If you could provide some of that color. Thanks.
Mark Hershey: Sure, Stephen. Happy to provide some color. I think what made the quarter unusual from our point of view is that for the most part, all of our lower AUV channels showed relative strength this period. Our strongest, highest AUV channel was slightly softer than we expected, but not materially. It was the outperform and the concentration in not just Canada, but all of our lower AUV channels all at one time. It was that combination. And the slighter softer performance in our US commercial, if you will, again, not material, but relative to the outsized growth we saw in the other channels. That combination is what created the mix impact, and they just sort of all lined up that same way. We do not view that as correlated at all to the strength of, let's say, our ability to mix up the Mineral Fiber category.
Mark Hershey: And that is why I mentioned in my remarks, again, this quarter, we saw the high end of our portfolio from a product standpoint. The growth in our SWAT category outpaced the lower end of our portfolio. This is more about the channels and markets in terms of where the distribution of the Mineral Fiber volume was happening, and less so about good product strength or support for the innovation that is behind our Mineral Fiber SWAT products.
Stephen Kim: Got you. That does help a lot. Thanks for that. If I could look at the AS side of the business. You had mentioned that the pricing actions take a little bit longer to come through, which makes perfect sense. You got custom project-based products with a longer cycle timing. So that all makes sense. You mentioned that there is a price increase that went through in June and November. It looks like your guidance for the AS business envisions your incremental margin, which is sort of inclusive of price and a bunch of things. It is sort of bouncing back, it looks like, in Q4 based on what your full year guidance is calling for. You had made a comment earlier that you expect this lag effect or whatever to moderate by year end.
Stephen Kim: Your guidance seems to imply that the incremental margin will rebound in Q4, so that it will actually not be that much of a headwind really throughout the quarter as a whole, not just sort of getting there by year end. I just wanted to see if you could clarify that for us. Are you, in fact, looking for this lagged effect of price to be basically not really much of an issue in Q4? Or should we be thinking about it differently?
Mark Hershey: I think Chris and I will both take that one. First, I want to clarify one comment, which is the moderate by the end of the year was a comment I made attributable to the Canadian mix dynamic. So that is first clarification. We are going to continue to expect to see, as Chris said earlier, some of this continuing inflation and pressure in AS. But we are expecting margin improvements sequentially into Q4. So I think you are interpreting that correctly, and we are set up for that margin expansion. Just to frame that. We will continue to see because of the nature of the AS portfolio, you should think of that custom portfolio as a blend of short, mid, and longer duration project timelines. So that will move through steadily. But we think our actions are well-positioning us to offset that as it moves through.
Mark Hershey: That is what we are focused on as we study the backlog and its composition.
Chris Calzaretta: That is contributing, Steven, to the margin expansion and the sequential margin improvement that you are highlighting at the total segment level sequentially Q3 into Q4.
Stephen Kim: Great. Thanks, guys.
Mark Hershey: Thank you.
Chris Calzaretta: Thank you.
Operator: Your next question comes from John Lovallo with UBS. Your line is open. Please go ahead.
John Lovallo: Good morning, guys. My first question is just on the WAVE equity earnings up about $4 million year-over-year in Q3, but the Q4 outlook seems to be more flattish. Is that steel timing? I know you put a price increase in October or November, but do you anticipate additional pricing actions being needed in Q1?
Chris Calzaretta: Yeah, John, thanks. Strong performance in WAVE in the quarter. You noted the equity earnings contribution of $4 million to the Mineral Fiber segment. WAVE benefited from higher volume in the quarter with strength in the commercial business and also Canada. As Mark mentioned in his remarks, that strength in Canada, also on the WAVE side, was ahead of some anticipated tariffs, so timing there. The other thing to note also is that data centers were also a contributor to WAVE's top line growth in the quarter, and we are really pleased with the momentum there. So a little bit of some timing there that will likely come back in Q4 on WAVE volume specific to the Canadian dynamic.
Mark Hershey: We are expecting to continue to see steel and input inflation there, but we think we are well-positioned. As I said before, the pricing actions we are taking this year, we do so with our longer-term outlook in mind, but we are not ready to yet guide in terms of what we are expecting to price early in 2027.
John Lovallo: Okay. Yeah, understood. Then correct me if I am wrong here, but it looked like acquisitions were about a $2 million drag in Q3. If that is right, is that integration costs that are going to go away, or are these just acquired margins below plan?
Mark Hershey: Yeah, I think it is fair to say it is a combination of both of those, John.
John Lovallo: Okay. Understood. Thank you, guys.
Mark Hershey: Thank you.
Chris Calzaretta: Thanks.
Operator: Your next question comes from the line of Phil Ng with Jefferies. Your line is open. Please go ahead.
Philip Ng: Hey, guys. Interest rates have obviously gone up. Mark, can you remind us what part of your business was perhaps a little more sensitive to rates? It sounds like quoting and bidding activity has remained pretty steady, but any incremental color that you could share from what you're hearing from distributors and customers at large?
Mark Hershey: Yeah. Phil, it's something we're watching very closely. The on-the-ground sentiment does not suggest that we're seeing a material change in the steadiness of that bidding activity. So not yet. We see maybe some elongation in the cycle time between, let's say, bidding and awards and orders, but not yet to a meaningful level that has tripped our radar of concern. Not yet. But that is something we watch very closely. Bidding activity has stayed steady. Contractor backlogs have remained solid, and work is continuing to progress. So that's what we're watching.
Philip Ng: Okay. Mark, any color on which part of your portfolio is perhaps more sensitive to rates in general?
Mark Hershey: I wouldn't distinguish the two, Phil. I think it's an observation I'd make broadly about our portfolio. We don't think of them as we go to market. We don't think of them in terms of projects as two separate businesses. We're helping on a singular construction project. So that project is either going to happen or not, or be delayed or not. Project activity generally, which would support both businesses, because we go to market as an integrated offering, would be consistent and the same.
Philip Ng: Okay, super. From an M&A standpoint, maybe even organic investment, just given how you go to market strategies perhaps is changing and evolving, particularly with AS, some of the strength you're seeing in structural grid as well. Any white space that stands out in terms of M&A from a portfolio standpoint? With the momentum you're seeing in data centers and I think even manufacturing, do you have enough capacity on the structural grid? Is that an area that you need to deploy more CapEx to kind of grow that business?
Mark Hershey: Yeah. Thanks, Phil. Well, first on the M&A question, the way we think about it is adding differentiated capabilities. So we're not constraining ourselves by, let's say, white space, as you're talking about it. We're looking to, as we've done, continue to add capabilities that distinguish us in the market. They could be design capabilities, they could be manufacturing capabilities, or to your point, they could allow us to access the market incrementally through a different channel and go-to-market capabilities. So we look at all of those fronts in terms of the demand and the customers that we're trying to reach. But no real pivot there. That's been consistent with how we've thought about M&A for some time. Yes, on the data center front, we could see additional capital investments. We'll take those as we always do in the normal course.
Mark Hershey: But we are really pleased with the intake and the growth of data centers. So at the WAVE joint venture level, investing for that growth and capacity, we are doing that today, quite frankly. And some of the investments we have made this past year have positioned us really well to capture this growth, and we will continue to do that as we see that market continue to grow.
Philip Ng: Okay. All right. Thank you for the color.
Mark Hershey: Thank you, Phil.
Operator: Your next question comes from the line of Brian Biros with TRG. Your line is open. Please go ahead.
Brian Biros: Hey, good morning. Thanks for taking my questions. I will try to be quick here. On Architectural Specialties, organic growth, great acceleration, higher than the past few quarters. You have talked about great double-digit order intake for the past few quarters. I think you have mentioned visibility into next year. Can you maybe frame up how much of that growth here is winning maybe a greater number of projects versus winning the same share of projects but having more of your products involved that you kind of crossed out of the portfolio. It feels like probably a mix of both maybe, but just a reminder of how that is kind of trended as you have enhanced the portfolio offerings in the AS segment would be appreciated.
Mark Hershey: Yeah. Thank you, Brian. We do not track it that way, just to say it. But directionally, I think your point is valid. Especially when, for a number of quarters now, we look at Dodge data, for example, when project count numbers are down, but project values and bidding values are up. I think there is something to your point, and I think that reinforces our strategy, quite frankly. We are winning more on every job, and that is absolutely what we are trying to do. I do not think that is outsized or disproportionate in any way. We have talked to transportation for a number of quarters, which is a vertical that continues to be strong for us. We are continuing to win at an outsized rate there, I believe. When we win projects like that, we are winning more share of that wallet or that project opportunity.
Mark Hershey: Penetrating a project is absolutely part of the strategy, but I think it is still both, quite frankly. AS is growing at a rate that is obviously, clearly above market growth rates. So we are earning and penetrating categories at, I would say, at both a project count basis and a total value basis.
Brian Biros: Understood. Appreciate it. Then just with cost pressures, and then there is the pricing lag that you probably will eventually get, but there is a time between there. You also have the 3%, roughly per year, I think, productivity gains you typically point to help offset and kind of drive margins when you can. Can you kind of talk about what actions are currently included in that productivity category, and if there is anything new compared to what you might have been doing a few years ago. Thank you.
Mark Hershey: Yeah. Brian, thanks for making the point because I think it is a hallmark of the company and it is a hallmark of the business, the consistency to generate that roughly 3% productivity. We saw that again this quarter. Frankly, the teams sprung into action to try to accelerate some of those productivity actions. You see that in the plants. That has been the hallmark of the business for a really time, where we have operational excellence. We are finding ways to reduce downtime, ways to reduce scrap, really drive our service level performance. When I talk about a statistic like plant reliability, that directly yields productivity in the plants because our outputs and our scrap are both optimized when we are performing at that level. You see it in the manufacturing fabric of this company for a really long time.
Mark Hershey: What we are starting to see is an extension of that offsetting, pushing back inflation to extend more broadly at an enterprise level. It is not just the Mineral Fiber business. The AS operations teams do this very effectively as well, and that mindset extends all the way to SG&A. Unequivocally, there is no change in the importance of that value creation driver to the business. Productivity is very important to us, and it was there right behind the scenes this quarter.
Operator: There are no further questions at this time. I will now turn the call over to Mark Hershey for closing remarks.
Mark Hershey: Well, thank you, everybody, for joining us today and for the questions. We appreciate all of the interest and your support of Armstrong. Have a great day.
Operator: This concludes today's call. Thank you all for joining. You may now disconnect. This event has now concluded. Access the Armstrong World Industries, Incorporated IR website for more information. This line will now disconnect.
