Armstrong World Industries Inc at Goldman Sachs Industrials & Materials Conference (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. And talk a little bit about when we think about ceilings in the course of a project, right, it's a relatively a percentage of that.

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : But talk about the functionality and what ceiling sort of bring to the building itself or the structure.

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. No, absolutely. Before we get into healthy spaces, why don't we just talk a little bit about the underlying activity that you're seeing in the business, some of the bidding that's coming through. Tell us what sort of is going on across your verticals and geographies?

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. What are some of the regional trends that you're seeing. One of the things that feels like it's coming a little bit clearer as we move through this pandemic is the geographic shift. Talk about what that means for Armstrong and what you're seeing perhaps in those sort of 7 core markets that we talk about, the New York and Boston versus some of the other cities?

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. And one of the questions I think we get a lot is how to think about how people will use offices or how people will use this space in a post-pandemic world? Talk about how you're thinking about that and what the opportunity set is for Armstrong within it?

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. No, absolutely. And when we think about your Mineral Fiber business specifically at your February Investor Day, you guided to growing the volumes in that business about 2%, 4% a year, which is really sort of in contrast to what we've seen, talk about what's driving that and what gives you that confidence to see that volume growth?

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. And so I guess that sort of brings us to some of your initiatives. You've got Kanopi out there.

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : It's one of your digital -- so talk a little bit about that and what you're doing to sort of embrace these end markets that were perhaps a bit and neglected, if you will, in the past?

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : You also launched Project Works, which is an automated design process, if you will. Talk a little bit about that and what that's allowing you to do and how it's expanding the business.

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : The other thing that you talked about was the ability to partner with some other companies out there. I mean we think about the ceilings. Obviously, there's electrical, there's lighting. There's other things that are going on within there. Talk about that opportunity set. And what would make an ideal partner for you? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MAY 11, 2022 / 4:10PM, AWI.N - Armstrong World Industries Inc at Goldman Sachs Industrials & Materials Conference (Virtual)

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : And one of the things when we do think about air quality and improving the air quality, it goes to schools a lot, right? Talk about the opportunity that Armstrong has there to capture some of that budget that's out there now to upgrade some of those schools.

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : Yes, which is good right? And you've got a couple of wins, you mentioned this project, Florida, I think you've obviously seen some success.

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. So it seems like they're starting to come in, which is good. Turning back to Mineral Fiber. You've gotten a lot of pricing, obviously, in the last year, which people perhaps take for granted because you have seeing pricing.

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : You do have a good track record there. But obviously, inflation has intensified. Talk about how you've been able to offset that? And maybe with that, how are you thinking about the stickiness of the pricing because it's been so above and beyond what you normally do see?

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. And it feels like people almost take for granted your pricing power, right?

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : It's -- you've done a lot to hold on to that, but it feels like in these environments, people like, well, we know they get price, but you've done a lot of work there. It's not easy.

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : I'm sure. I'm sure, they would. And then on Architectural Specialties, you've done a lot to integrate those recent acquisitions into the business. Talk about the success that you're seeing there.

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : And it's also helping your margin in that part of the business. You've targeted that 20% -- 20-plus percent rate. You saw a really nice step-up in the first quarter. Talk about that progression that's coming through there.

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : And you mentioned the double-digit growth that you're seeing in that business, it's really expanding rapidly. Is there the need to invest to continue to support that demand, especially as you do integrate some of these offerings right, and you think about the opportunity there?

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. You've done some M&A in that space. You took last year off from M&A, just sort of the timing of some things. But talk about the pipeline that you're seeing there and some of the targets that you're looking at?

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : And you've done that to some extent with the WAVE JV, right? Talk a little bit about what's made that relationship so successful for you and what you can sort of leverage from that.

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. No, absolutely, it is. We're almost out, but there's 2 other things I want to hit on. One is, obviously, we've seen you spending on SG&A to support a lot of these initiatives that you've talked about. When should we expect that to start to normalize? How do we think about the cadence there?

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : This business also is very cash generative. You guided to, I think it's $215 million to $235 million of free cash flow this year. We talked a little bit about M&A and Architectural Specialties, but talk a little bit about how you think about capital allocation and some of the other uses.

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : Yes, and you did about $30 million of buybacks in the first quarter, which is good. It's a good sign. Why don't we see if there's any questions in the audience question. No? No questions. I guess lastly, one of the things that we've heard a lot when you think on a broader macro perspective is how tight the construction labor market is? And it's definitely -- it seems like it's become a with all the housing activity that's going on now as well today. How does that impact your business. And you talked about the fact that there's a lot of bidding going on, but maybe not as much on the ground. How does that all sort of come together for Armstrong?

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : Yes. And I guess one last question, building on that is there's obviously a lot of macro crosscurrents happening right now. When you think about the recovery that you're seeing in some of your end markets. And yet, obviously, we've got a rising rate environment and the Fed trying to push in a different agenda in there. How do you think about that all coming together and what it could mean for the business?

Question: Susan Marie Maklari - Goldman Sachs Group, Inc., Research Division - Analyst : We don't need that -- but no, you did a great job during those periods. So, it's all good, yes.