Armstrong World Industries Earnings Call Nuggets: Wood Business Capacity and European Outlook

Armstrong World Industries, Inc. (NYSE:AWI) recently reported its second quarter earnings and discussed the following topics in its earnings conference call.

Wood Business Capacity

Dennis McGill – Zelman & Associates: I guess, the first question is just, as it relates to capacity in the Wood business, can you maybe just update us on where capacity will stand now after this last crew you said was up and running and how to think about that over the course of the recovery and then just as it relates to those hires, can you just discuss a little bit about what you’re finding with respect to availability of labor out there, the quality of that labor, the ability to retain the labor after you have it, any kind of color you could put around that?

Matthew J. Espe – CEO: Let me frame it and then we’ll pass it over to Frank for more details. So, as the 400 plus new labor employees or new production employees come online, we expect to have the capacity necessary to drive service levels back to kind of our historical highs if you will, by the end of – certainly in the fourth quarter. So, we think that we’ll be able to manage capacity and we’ll be at an acceptable capacity – at least capacity standpoint and we would I think settle capacity utilization. In terms of labor, it has been a bit of a challenge. Certainly, early in the recruiting process, we had some challenges in a couple of our plants in terms of stability. That seems to be largely behind just availability of labor. It is tough in some of the places, just given the nature where our plants are, and we tend to be in most of the locations of wood plants, the largest single employer in the area, anyway, so we kind of soaked up a lot of the labor pool just to begin with. Again, we’ve seen very strong improvement in the trends in the labor productivity and the labor stability and we’re confident that we’ll be back at the appropriate and compelling service levels in the fourth quarter. Frank, anything to add to that?

Frank J. Ready – EVP and CEO, Armstrong Floor Products Worldwide: No, I think Matt summarized it well both on the capacity will be in full recovery position in fourth quarter and when anticipate we’ll be able to support demand going into 2014 at current market projections. So, other than that I think Matt covered it.

European Outlook

Michael Rehaut – JPMorgan: My question is with regards to Europe. I believe you mentioned at the end of your prepared remarks that the change in outlook is really driven by a change in forecasts across all the different countries in Europe and you kind of went through obviously the different ones. Just wanted to get a little more granular there but really in terms of if those forecast are consistent with what you are actually seeing in the field in terms of order trends and from your own sales force it is really more the ladder that’s driving your change in view rather than service and the forecast that you are subscribing to?

Matthew J. Espe – CEO: When we think about an outlook for a market it is a compilation of factors. We certainly consider external sources, (euro) construct being I think a source that we consult regularly. We also look hard at the third and fourth quarter outlooks from our sales force. We have a relatively strong enough share position in each of our businesses that we think that reflects the right market dynamics and we look at the loading in our backlog and order trends. So, it’s a compilation of those things Then secondly, we are somewhat affected by our relative position geographically in Europe. As you know, in our Building Products business we’re strong in the U.K. and in our Flooring business, we have relatively strong positions in Central Europe and in the Scandinavian countries. In addition to that, we have a very strong presence in Russia. In our Ceilings business not so much in our Flooring business and both of our businesses have – I would say, competitive and strong positions and expanding positions in the Middle East, which we include in our European results. As a Company, we have very limited exposure, what we would consider traditional Southern Europe. So, Italy, France and Spain, those numbers will change a little bit business-by-business. So, our outlook is a function of certainly external resources our sales force and grounded forecasting method that we have in both of our businesses and our geographic presence are waiting if you will by geography over time.

Thomas B. Mangas – SVP and CFO: Mike, Tom here. A couple of thoughts, first, we did see Europe coming weaker in the second quarter and that was Matt’s opening comment. So, it did come in weaker, even though, we had a pretty good quarter all in, our Flooring business had actual sales growth in the quarter, and our Ceiling business actually had 7% growth on a constant FX basis. So, the optics of the second quarter look pretty good, but it was weaker than we expected largely, because we had some big jobs shipped there. So, we’re not just looking at macro forecast, certainly, we had an experience in the second quarter that influences here and it triangulated well with euro construct. I mean, the U.K. projections are down a good 150 basis points. France is down about 300 basis points on growth rates for commercial forecast. So, both those factors are driving our forecast.