Armstrong World Industries Inc (AWI) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Armstrong World Industries first quarter 2011 earnings conference call. My name is Oneka, and I will be your operator for today. At this time, all participants are in listen-only mode. We will have a question-and-answer session towards the end of this conference. (Operator Instructions). As a reminder, this conference call is being recorded for replay purposes.

At this time, I would now like to turn the call over to Mr. Tom Waters, Vice President of Treasury and Investor Relations. Please proceed.

Thank you, Oneka. Good afternoon, everyone, and welcome.

Please note that members of the media have been invited to listen to this call, and the call is being broadcast live on our website at Armstrong.com.

With me this afternoon are Matt Espe, our President and CEO; Tom Mangas, our CFO; Frank Ready, the CEO of our Worldwide Flooring businesses; and Vic Grizzle, CEO of our Worldwide Ceiling businesses. Hopefully, you have seen our press release this morning, and both the release and the presentation Tom Mangas will reference during this call are posted on our website in the Investor Relations section.

In keeping with SEC requirements, I advise that during the call we will be making forward-looking statements that involve risks and uncertainties. Actual outcomes may differ materially from those expected or implied. For a more detailed discussion of the risks and uncertainties that may affect Armstrong, please review our SEC filings, including the 10-Q filed this morning. We undertake no obligation to update any forward-looking statements beyond what is required by applicable securities law. In addition, our discussion of operating performance will include non-GAAP financial measures within the meaning of SEC Regulation G. A reconciliation of these measures with the most directly comparable GAAP measures is included in the press release and in the appendix of the presentation. Both are available on our website.

With that, I will turn our call over to Matt.

Thanks, Tom. Good afternoon, everyone, and thanks for participating in our call today.

The first quarter of 2011 unfolded much as we expected in macroeconomic terms. This is reflected in our sales numbers, which were largely as anticipated and in the middle of our guidance range. Economic activity in the US and Western Europe remained stable but at historically low levels. Emerging markets continued to grow rapidly, albeit off a small base.

Despite these lukewarm market conditions, I'm pleased to report that our first quarter adjusted EBITDA of $93 million exceeded our target range of $72 million to $88 million and was up significantly from the $55 million reported in 2010. This result reflects lower SG&A manufacturing costs, as well as better than anticipated price and mix performance. While some of the savings that drove our outperformance are timing-related discretionary spending items that will come back in into the P&L later in the year, we're nevertheless pleased with the result and are also pleased to announce that we are raising and tightening our EBITDA guidance range for the year. Tom Mangas will walk you through the details when he reviews the numbers in a few minutes.

Our primary concern on a forward-looking basis is inflation, especially from oil-based inputs. In our guidance, you will see that we are raising outlook for year-on-year inflation. If material costs remain at current levels, additional pricing actions may be required to achieve our financial goals. Growing revenues has been a challenge in this environment, so our top line growth of 4% is encouraging.

This increase was achieved despite as-expected volume declines in our Wood Flooring and European Resilient Flooring businesses. In 2010, Wood sales benefited from the new Home Buyer Tax Credit. As such, year-on-year comparisons for the Wood business will be relatively difficult in the first half but will get easier as we move later into the year.

Regarding European Resilient Flooring, as you know, in late 2010 we exited the residential flooring business as well as several geographies in which we were uncompetitive. As a result, year-on-year revenues are hard to compare. However, in our remaining, more focused European Flooring business, we grew sales on our core products. Elsewhere, we achieved volume growth in all of our Ceilings geographies, Flooring in Asia, and in the Cabinets business. Global revenues also benefited from the year-on-year impact of the pricing actions we took in virtually all our business in 2010, as well as from continued mix gains, especially here in North America.

In these challenging times, a continued commitment to new product development is critical to our success. I'd like to take a moment to highlight some of our recent new product initiatives. We've spoken in the past about the success of our Alterna tiles and Luxe Planks. Alterna offers customers the appearance, durability, and feel of stone and ceramic tile without the drawbacks. This large-format, groutable tile is warmer and softer underfoot than ceramic and is easier to install and maintain.

DIY-friendly Luxe Planks also offer realistic looks in hardwood colors and textures. Luxe comes in authentic plank lengths and widths with beveled edges and ends. These new products are driving meaningful improvements to our bottom line. The average net selling price for our entire residential tile product category, which includes Alterna and Luxe, is up 50% since 2009.

In Ceilings, just last week we announced the launch of a no-added-formaldehyde Optima tile. Armstrong currently offers a wide selection of acoustical ceilings that satisfy the stringent CDPH, or California Department of Public Health, standard method for the testing and evaluation of VOC emissions. And we're well on our way to being able to manufacture our complete North American ceilings product range in formaldehyde-free formations.

Even more exciting, we also announced last week that we're launching a new coating called Air Guard that actually removes aldehydes from interior spaces. Now to put this in context, we believe this is more than just a new product in our portfolio. This, in fact, is a significant evolutionary step for the ceiling tile. Initially, mineral fiber ceilings provided acoustical benefits as their primary attribute. Then, fire protection capability, and more recently, light-reflectance capability, which lowers energy and maintenance costs as additional features. Now the ceiling is capable of all of these attributes, as well as being able to make the indoor environment cleaner with the removal of harmful pollutants. We believe this is a game-changing product at the high end of ceilings applications, and we have patents pending to help us maintain a competitive advantage in this area. On future calls, I'll take the opportunity to highlight additional products that I feel demonstrate our continued commitment to new product development and innovation.

I'm also pleased to announce today that our Board of Directors has just approved the construction of a heterogeneous flooring plant to be constructed in China on the same plot of land where we just broke ground on the homogeneous flooring plant we announced last year. This plant will be operational in 2013. This brings to four the number of manufacturing facilities currently in progress -- the West Virginia mineral wool plant, the China ceilings plant, and the China heterogeneous and homogenous flooring plants. Construction of these facilities emphasizes our commitment to maintaining and growing our leading position in rapidly-growing emerging markets.

We've had a number of questions about our capital deployment manufacturing plans, but I want to take a minute to provide some metrics for our investors to better understand our strategy. The average Armstrong manufacturing facility is capable of producing products that generate about $100 million of revenue annually. The 3 Chinese plants we're constructing are somewhat smaller in terms of both capital investment and output. So in aggregate, we expect these facilities will provide product for over $200 million in annual sales. With incremental margins in the 25% to 35% range, we expect these investments to pay for themselves in 4 to 6 years, and more importantly, solidify our leading market positions in these important regions.

The plants currently being constructed are in rapidly-growing regions and are designed to produce product for their local markets. We anticipate this output will be absorbed by demand that occurs naturally over the next few years and demand that is cultivated by the additional 130-plus sales and marketing resources we're in the process of deploying in these markets. These new plants should have limited impact on the output and sales of our existing US and Western European manufacturing footprint. Keep in mind, the West Virginia mineral wool plant we're building is a vertical integration that will secure a supply of key raw material and provide cost savings but will not contribute meaningful additional revenue.

And finally, of note in the first quarter, unions representing employees at our Beverly, West Virginia, and Oneida, Tennessee, facilities ratified new three-year contracts. These contracts include changes that begin to address some of the legacy retirement and health-care costs that are critical to the long-term viability of these plants.

I'll now turn it over to Tom Mangas for a discussion of the financials and our segments, as well as additional color on the inflationary environment, our recent refinancing, and update on our outlook for 2011. Tom?

Thanks, Matt. Good afternoon, everybody, and thanks for participating in today's call.

In reviewing our first quarter results, I'll be referring to the slides available on our website, starting with slide 2, as Tom Waters already covered the material on slide 1. The highlight of this page is our adjusted EBITDA of $93 million. As Matt mentioned, this is well in excess of our 2010 results and above our guidance range. I'll address the drivers for the 530 basis points of EBITDA margin improvement in a moment when I review our EBITDA bridge.

Our adjusted earnings per share of $0.51 are more than double from the first quarter of 2010. And, as typical for us, we had a use of cash in the first quarter totaling $44 million. Slide 3 details the adjustments we make to EBITDA and provides a walk to reported net income. Our adjusted EBITDA of $93 million excludes $5 million of restructuring expense related to cost reductions and our European flooring operations, including the closure of the Holmsund, Sweden, manufacturing facility and expenses related to the closure of our Beaver Falls, Pennsylvania, ceiling plant.

We took an incremental $5 million in charges for cost reduction initiatives for activities that we do not classify as restructuring but which we do not expect to reoccur. There was also $5 million of accelerated depreciation in the first quarter, primarily related to Beaver Falls, which obviously did not impact EBITDA but does impact adjusted operating income. As you'll recall in the first quarter of 2010, we had adjustments of $13 million related to CEO severance and the shutdown of our flight operations. Interest expense was higher in 2011 versus the prior year, due to our fourth quarter recapitalization and the costs associated with our term B repricing that I'll describe later. Finally, 2010 results were also significantly impacted by the accounting adjustments required for the Medicare subsidy elimination.

Now, moving to slide 4. This provides our sales and adjusted EBITDA by segment. Worldwide Building Products led sales and EBITDA growth in the quarter for the Company. Specifically, our global Building Products business grew sales 14% and adjusted EBITDA by $26 million. The sales gains were driven by higher volumes in all regions and price and mix improvement in North America and Europe. This led to sales growth of 14% in North America and 10% in Europe, when compared to the prior year. Sales in Asia increased 24% year-on-year. We continue to see modest improvement in North American commercial repair/remodel activity, and we have benefited from strength in certain regions where we enjoy large share positions, such as the Northeast. EBITDA benefited from the sales gains, as well as lower fixed manufacturing and SG&A expense and improved profitability at WAVE.

Wood Flooring and Cabinets experienced sales declines of 11% and 4%, respectively. As we have described before, these businesses sell almost entirely in the North American residential focused end markets. Matt already mentioned that Wood Flooring will face difficult year-on-year comparisons in the first half of 2011, as last year's results were aided by the new Home Buyer Tax Credit. Additionally, we believe pricing actions in 2010 pulled Wood sales into the first quarter, further exacerbating the year-over-year sales decline in the first quarter of 2011. Despite the sales decline, adjusted EBITDA for Wood Flooring rose by $4 million from $2 million in 2010. Lower SG&A and fixed manufacturing costs, along with better pricing, drove the gains, despite significant year-on-year lumber inflation. Cabinets had modestly better year-on-year volumes, but this volume came at slightly lower price and mix. Cabinets' adjusted EBITDA was slightly below break-even, a $3 million improvement from the first quarter of 2010, again, despite the lower sales performance.

Worldwide Resilient Flooring sales were flat versus the prior year. As mentioned, European Flooring sales were down 15%, due to our exit from unprofitable businesses and geographies. Our 4 core commercial product lines in Europe -- linoleum, homogeneous resilient, fiber-bonded, and Scala tiles -- all grew sales. North American Resilient volumes were down, but price and mix gains drove revenues up 6% year-on-year. Asian Flooring sales rose 7%, with strong growth in China and India offsetting weakness in Australia. Resilient Flooring EBITDA of $14 million compares to less than $3 million in the first quarter of 2010. Price, mix, and cost reductions were the key profit drivers. Importantly, European Resilient Flooring contributed over $3 million of this gain.

Unallocated corporate expense was an $8 million drag on quarterly EBITDA versus the prior year. This was due to the expected decline of our non-cash pension credit that we described at length last call.

Slide 5 shows the building blocks from the first quarter of 2010 adjusted EBITDA to our current results for the Company, leading to the 530 basis point improvement in EBITDA margin. First, price realization from our 2010 pricing actions and mix improvements more than offset input cost inflation. Our success at achieving price and mix improvements in excess of inflation and soft market conditions is a tribute to our sales teams, and we are grateful for the folks' actions. Second, continued SG&A and fixed manufacturing cost reductions contributed a combined $33 million in year-over-year improvement. Finally, WAVE drove the remainder of the improved results, as they've done a terrific job managing price and mix in a tough steel cost environment.

Inflation has been and continues to be our most significant challenge, and we have been calling this out consistently over the past year. In 2010, lumber was the primary driver of inflation. In the first quarter of 2011, petroleum-based feed stocks, TiO2, agricultural products like linseed oil, waste paper, and steel are impacting us most. Resilient Flooring, especially in Europe, is particularly hard hit.

To offset these pressures, we took pricing actions in 2010, and in 2011, we implemented the following price increases. In our Americas Resilient business, we took an increase of 4% to 6%, effective in February. In our European Resilient business, we took an increase of 5% to 7%, effective in January. Our Americas Ceiling business took an increase of 5% on ceiling tiles and an increase of 7% on grid, effective in February, and another 8% on grid, effective in April. In Europe, we announced a price increase of 5% for ceiling tiles, effective in March, and an increase of 8% for grid, effective in April. We also announced price increases of 5% in Asia for both ceiling tiles and grid, effective in March. Finally, we took a 2% to 3% increase in our Cabinets business, effective in February.

Early indications suggest we are achieving our historical price realization yields of 40% to 60% of our announced increases. Results typically vary, depending on the business, channel, and region. And as Matt mentioned, further increases may be necessary if input costs remain high. Manufacturing costs and SG&A reductions continue to provide critical benefits while we faced soft end markets and inflationary pressures. We spent time on our last call detailing our $150 million cost-out program. This program remains on track and will likely deliver better results in 2011 than we previously indicated, as we are having success accelerating our plans, as you can see in our first quarter results.

Slide 6 provides our results against free cash flow for the quarter. As mentioned before, we used $44 million of cash, compared to a use of $30 million in the prior year. Working capital and capital expenditures drove the increased usage. This is a typical pattern for us in the first quarter, as inventories and receivables grow from year-end lows. Some this negative variance to prior year was driven by our over delivery of free cash flow in the fourth quarter of 2010, which we highlighted in our previous call.

Slide 7 summarizes our guidance for 2011. Our macroeconomic outlook for 2011 is largely unchanged from our initial guidance. We continue to expect North America, Western Europe, and Australia to be relatively flat in 2011. We project new home starts in the US to be around 600,000, and that overall repair/remodel activity in North America will be close to 2010 levels, driven by modest improvement in commercial remodel activity, offset by a modest decline in residential activity. We expect emerging markets GDP to continue to grow in the high single-digit range.

As a result of this view, our sales guidance is unchanged from last quarter. Our new full-year adjusted EBITDA guidance range is now $375 million to $415 million. The EBITDA and operating income ranges have been raised by $15 million on the low side and $5 million on the high side. We are raising the midpoint of our guidance, due to our first quarter performance in price realization and cost reduction. We've also narrowed our EBITDA guidance range somewhat but maintain a reasonable range, due to the continued challenges from end markets and inflation. The free cash flow range is increased by $10 million on the low end, reflecting the new earnings guidance. The high end is unchanged.

Slide 8 provides the more detailed assumptions going into our earnings guidance and includes specifics on the second quarter. As you can see, inflation remains our biggest challenge. We now anticipate $40 million to $50 million of net input cost increases for the year. This is up $5 million from our original 2011 guidance, and as mentioned before, impacts our Resilient Flooring businesses. We expect improved manufacturing margins of 125 to 225 basis points in 2011, as a result of our manufacturing footprint rationalization program, lean productivity efforts, and through year-over-year price, mix, and procurement improvements. This is an increase of 25 basis points from our initial 2011 guidance of 100 to 200 basis points, primarily due to the acceleration of our cost reduction efforts that I mentioned.

We project second quarter sales of $740 million to $790 million, versus $734 million in 2010. We estimate second quarter adjusted EBITDA of $105 million to $120 million, compared to $88 million in the prior year. The 4 plants that Matt discussed will cost between $175 million to $200 million over the next several years. Since the majority of the spend on the new China heterogeneous plant will occur after 2011, we continue to expect to spend between $180 million and $200 million in capital in 2011. As indicated on our last call, this is up significantly versus 2010.

For the full year 2011, we intend to exclude from our adjusted EBITDA between $18 million and $27 million for restructuring and other adjustment items for cost reduction efforts that we've already announced but not completed. This is unchanged versus our previous guidance and includes $10 million that occurred in the first quarter. You'll find further reconciliations to GAAP measures for the first quarter in the appendix of this presentation for the total Company and the segments.

Finally, of note, in the first quarter, we successfully refinanced and repriced our $550 million term loan B. This action accomplished the following. First, we reduced our spread over LIBOR from 350 to 300 basis points. Second, we reduced the LIBOR floor from 150 to 100 basis points. Finally, we extended the maturity of the loan to March 2018. Subsequent to these actions, we entered into an interest rate swaps on $300 million of our floating rate term A and term B loans.

These swap agreements result in us paying a fixed rate of 5.45% on $300 million of debt and floating rates on the remaining balances. After this action, we have approximately 50% of our net debt fixed and 50% floating. This is a level we feel is appropriate for our current financial and industry situation. The net impact of these transactions will result in a slight increase in our interest expense in 2011 but not materially different from the $50 million we provided as guidance on our last call. Most importantly, we are now significantly less exposed to future interest rate increases.

In closing, we are pleased with our first quarter results, and we are encouraged with our progress on pricing and cost take-out, which has enabled us to increase our 2011 EBITDA guidance, despite inflationary pressures. We are moving quickly to put in place the right investments to win over the long term, especially in emerging markets, and we can see already some of the investments starting to bear fruit, resulting in additional sales.

I will now turn it back to Matt.

Thanks, Tom.

In closing, I want to reiterate that we are pleased with our first quarter results and our updated view on the full year. We do remain wary of the macroeconomic environment here in North America and Western Europe and challenged by inflationary pressures, especially in oil-related inputs. But as you know, these are factors beyond our control. As for factors within our control, we're confident that we have the plans in place to execute the strategic and cost saving actions we've detailed in the past and to drive the EBITDA and return on invested capital results we've targeted.

With that said, I want to thank everyone for their time today, and now we'll be happy to take any questions you might have.

(Operator Instructions). Your first question comes from the line of Kathryn Thompson with Thompson Research Group. Please proceed.

Hi. Thank you for taking my questions today.

The first series of questions on the Building Products, or your Ceiling segment. In the past, you've previously said you expected low single-digit growth for non-res R&R for the year, domestically, and any growth beyond this for the Company was driven by international. Has this outlook changed, given your prepared comments about the different growth by geography? And how have these -- how has non-res R&R trended since the quarter-end, and are there certain segments that are performing better versus others?

Well, let me try to take some of those, and I'll hand them over to Vic Grizzle here in a second.

Just -- I think, Kathryn, we remain cautiously optimistic in the relative strength of the repair and remodel business versus, obviously, new construction. The demand that we're seeing here in North America is a little stronger than we anticipated, but I would tell you the inputting -- the incoming orders are kind of lumpy. So it's an uneven level of demand that we're seeing in terms of its increase. We continue to see relatively strong demand in our emerging markets, specifically China, Russia, India. We had some weather-related issues and macroeconomic-related headwinds in places like Australia, for instance.

So, I think the drivers remain the same. I think, generally speaking, here in North America, we're seeing somewhat stronger demand. It's almost entirely remodel, as you pointed out. We like where the order book sits right now, but I would tell you that the incoming demand is a little uneven.

Vic, anything to add?

I couldn't add anything to the summary.

That's kind of where we are.

Okay.

In your last quarter-end call, you talked a little bit about multi-family doing a little bit better, and that helping vinyl and, to some extent, Cabinets. How are we -- how's the update on multi-family trends in Q1?

Well, you know, I think we did see relative strength, you're right, in multi-family. That's going to come through in vinyl flooring and Frank's business. That's driving some of Frank's business, and it's -- the majority contributed to the relative revenue strength we saw in the Cabinets business.

It does apply a little downward pressure on margins, so that -- while we appreciate the volume, and we're playing the hand that's dealt in the marketplace, it does press margins down a little bit. I mean, we continue to see -- at some point, multi-family housing sort of dries up, and we hopefully then begin to see new housing starts above a 600,000 rate. But to be honest with you, we're not holding our breath right now.

Frank, anything to add, or?

No, I think that's right on.

And final question, if everything is -- on the cost savings standpoint is ahead of expectations and everything's coming along well, why not raise guidance greater than the Q1 bead, and what gives you pause on your conservative guidance?

Well, let me start by saying we like our progress on all fronts. I think our -- the commercial teams, in both the Flooring and Building Products business have executed extremely well in an environment that continues to be a challenge. The teams in emerging markets in Asia continue to do really well. And the Board continues to back the overall strategy, as evidenced by the investment that they're making. We're making very solid progress in building a more competitive cost structure in the Company. We like the progress in the SG&A initiatives. We like our progress in the operating cost reductions we've seen here in North America, particularly.

Kathryn, I think what -- the thing that's maybe tempering our enthusiasm a bit is we're very cautious about the outlook on inflation. That's going to be a challenge for the entire year. It's certainly $40 million to $50 million more than we expected coming into the year, as I think Tom and I both said. And again, this uneven flow of demand, I think, causes us to be a little bit more conservative than I'm sure you and others would like us to be. But we think that positioning the guidance where we have, both in sort of our revenue outlook and earnings outlook, allows us to manage the things that are in our control, and we think that that's kind of the responsible place to be right now.

Great. Thank you for taking my questions today.

Thanks, Kathryn.

Your next question comes from the line of Rodney Nasir with KeyBanc Capital Markets. Please proceed.

Hi. Good afternoon, everyone.

Hi, Rodney.

Thank you for taking my call.

Just looking as the WAVE JV in the Buildings Products segment, looks like sales were up 30% year-over-year versus the tiles up 15%. For the WAVE, how much was driven by price versus mix and volume?

I can take that.

Go ahead, Vic.

Hi, Rodney. This is Vic.

With regards to WAVE, we did see stronger volume than in our Ceilings business. As you know, we've had very high inflation in the steel cost area, since November to now, and they've been out in front, driving their price increases. And with the outlook for steel prices to continue to go up early in the quarter, we saw a lot of advanced buying. And so we saw a stronger volume curve there, just purely driven by the price increase actions driving advanced buying in the market.

So a lot of it's volume. And there certainly was good success in getting the price, as well. So, it's a combination of those two.

Okay. Thank you.

And on the Ceilings business, again -- hypothetically, in a potential deflationary environment for the steel costs and other input costs on the Ceiling side into the back half of '11, do you think the ceilings industry is fundamentally stronger than it was in 2009 to maintain pricing with cost declining?

You know, I think--.

I was just going to say, it's tough to speculate on what the pricing environment's going to be. I mean, obviously demand and supply drive pricing in the industry. The -- if we see some softening in demand, and again, the relative strength we're seeing continues to be repair and remodel, replace and remodel, we would expect some pricing pressure. But it's still a function of the input cost. And I think as Tom mentioned, we've seen inflationary pressures -- in some cases I would say unprecedented, I mean TiO2, waste paper, other inputs. We expect to see continued inflationary pressure through the year and are really planning on a real change in that outlook as we go through the year, Rodney.

Anything to add?

Okay. All right. Thank you, guys.

Thanks, Rodney. Appreciate it.

Your next question comes from the line Bob Wetenhall with RBC Capital Markets. Please proceed.

Hi, good morning. Nice quarter.

I think you guys have a $6 million benefit on WAVE, and didn't you guys say that you're expecting $5 million to $10 million in incremental earnings from WAVE in 20 -- this year versus last year?

That's correct, yes.

So you're kind of like 60% of the way towards your objective; correct?

Yes, and again, driven by the volume pull forward that we think came out of the second quarter, and there is a timing effect of when some of those steel costs roll through the P&L. So yes, they had a great quarter, and we're sitting here scrutinizing what's the possibility for the next three quarters, but right now, we feel good with that guidance we've given. We don't think it's -- it's certainly not a number you take by -- multiply by four and say that's the new number for WAVE.

Are the -- I think you had a 22% margin in Building Products this quarter. Should we expect that high kind of 20%-plus level, or should we expect that to normalize through, due to the pull forward on the volume front?

Well, I think the volume was strong, but the cost take-out is strong. So I think we're -- I think we are at a point, starting to see that benefit from incremental volume in the cost take-out where we will be in the mid-20%s on an EBITDA margin on the year.

Yes, I would anticipate that we maintain that level.

Got it.

And just for modeling purposes, it's great color on the roll-out of the Chinese plants and the CapEx and revenues associated with that. Can you give us a little bit of timing, when you'll -- the sequence of the ramp for those facilities and the type of financial contribution you're looking at?

Why don't we -- Frank, do you want to comment broadly on homogeneous and then maybe hetero?

Yes. The homogeneous plant will come online late second quarter of 2012. The heterogeneous plant will come online mid-2013, and then obviously, there will be a ramp up of sales based on those start-ups that will go well into 2014 and 2015.

And then Vic, the new ceilings plant?

Yes. The second ceilings plant in China will be online in the first quarter of 2013, and we should have some pretty good contributions in that calendar year.

And when do we expect the mineral wool plant to be up?

It's on schedule to be up and operational first quarter 2012.

Got it.

And just one final question. The pricing you took in Ceiling sounds like it's offsetting most of the raw material inflation. Is that a fair assessment?

Yes.

Great. Nice quarter, guys. Thanks very much.

Thanks, Bob.

Your next question comes from the line of David MacGregor with Longbow Research. Please proceed.

Good afternoon, everyone.

Hi, David.

Good afternoon.

Could you just review for us market share performance by your various categories, just some quick thoughts there?

Okay. Frank, you want to take the Floor?

Yes, I can provide you directional for Floor. Overall, we feel very, very good about the share performance. We feel like in each of the categories, commercially and residentially, we either held our own or actually grew slightly year-on-year when we compare our performance relative to what we think the market's doing. So, without giving specific numbers, we feel very good about where we ended the quarter, in large part driven by new products, some of which Matt highlighted and some that were introduced in 2010. We feel like that's given us positive momentum, not only in share, but also in mix.

Okay. And on the Ceilings?

Yes. In the first quarter, I think pretty much overall we've held our share. And again, maybe in certain segments within the high end part of the market, we might have picked up a little bit there. But it's hard to tell. But overall, I think we're growing in the higher end part of the market faster, and -- but I'd say overall, we're in great position.

Okay. Is it a very promotional environment right now in the ceiling tiles, or -- the Flooring, I think we all understand what's going on there, but on the Ceiling side?

What was the question?

Is it a promotional environment vis-a-vis maybe where we were six or nine months ago. Just wondering how the promotional environment is developing there.

Well, there's certainly more project activity, and the specification work continues to go well. Our new product launches continue to be well-received. So overall, I think it's a better promotional environment than what we saw 12 months ago.

Just to kind of coat-tail what Vic said, we continue to see the demand that we're experiencing in remodel and replacement shift to the high end. So we're very pleased with the mix that we're seeing in the remodel environment as a result of the TI and the (inaudible), and so that's driving mix. That's driving margin, as well. So we like that trend. We like -- and I think Vic's team is doing a great job of demand creation at the high end as well, so that's helping.

Good to hear.

Matt, how much longer will the European Resilient business be a drag on the P&L?

Well, as we've said, this year, we expect them to be at break-even. And we're confident, sitting here today, based on the outlook, that they'll achieve that and they'll return to profitability next year.

Okay.

Last question. You had talked about the Chinese plants, and you talked about what you thought in terms of revenue generation potential off those assets. If you think about Company-wide and the total portfolio of manufacturing assets you have, both in service today, as well as idled but not dismantled, what is the peak revenue generating capability of the asset base you have in place now?

I would hate to -- I'd hate to speculate on that. What I would go back and just say, if you look at $100 million per plant, on average, it's probably between $3 billion and $3.2 billion in revenue.

I would -- I would think it's -- with Mobile idled, but not shut down, the new Chinese plants coming on, I think we're at $4 million.

$4 billion?

$4 billion, yes.

Okay. Thanks very much, guys, and great quarter.

Your next question comes from the line of Dennis McGill with Zelman & Associates. Please proceed.

Hello, and thanks for taking my questions.

Matt, I just wanted to clarify your comments on North America, or the domestic market in Ceilings. Because in the press release, I think you guys noted strong volumes across all geographies, but your comments earlier in the Q&A made it sound a little bit more tepid and flattish here. So, can you kind of clarify those for me?

Well, revenue was up 14%. I mean, it's clearly -- we experienced stronger than expected demand. I guess what I was trying to say, Dennis, is, first of all, we're pleased with the performance. But what we're seeing is -- we're seeing big orders come through and some dry spots.

So again, what I was trying to convey is that while we're pleased with the 14% revenue growth and we're pleased with the execution of the team, we're not seeing an even, tidy flow of orders. And that gives us -- that just causes us to be a little bit conservative as we think about the balance of the year.

Okay. But domestic volumes in Ceilings was positive for the quarter?

Absolutely. Absolutely, no question about it.

Yes. We were in low single digit--.

Mid single-digits for volume for the total Americas Ceiling business. So, we felt good about overall volume performance, and we feel great about the pricing and mix that's come through. So, again, it's that volume consistency, is where Matt's hedging.

Right. Okay. And then the comments you made on Ceilings, I think you mentioned mid-20% EBITDA margins?

That's correct.

Or was that operating profit?

No, EBITDA.

Okay.

And then, can you help us with the big lift that we saw pre-WAVE first quarter of this year versus last, can you give us the big chunks there, as far as how much of that is net price versus cost, how much would be volume, and then how much would be cost take-out?

I would use the EBITDA bridge that we provide on the total Company. That's going to be pretty representative of Ceilings, as well as the total Company. So, significant price, probably -- significant price offsetting equivalent amount of cost. The big positive from mix, the big positive from mix contributing on the Ceiling side, and then they're benefiting from all the corporate SG&A take-out and lean activities happening in our plants. We've shut down a metal ceiling facility last year, is one of the plants we've taken out, benefiting dramatically from our shutdown of Beaver Falls, which really is not so much in the first quarter, but on the year, contributing to those margin guidance that I gave you.

Okay.

And then, just a last question, with the raw material and price outlook as far as where we are for the last three quarters of the year, within that assumption, are you making any additional assumptions of increases within those costs, or are you kind of holding where we are today constant?

Relative to the outlook? No, I'd say we are kind of taking a snapshot of the macroeconomic today, looking at the forward curves on materials, and making an assumption that this, today's snapshot is the year, so we're not hedging that oil goes to 120 or 140 or something like that. We're kind of saying today's the reality, we don't know any better than that, and basing our outlook on that reality.

Okay. Great. Thanks again for all the color.

Thank you.

Thanks.

Your next question comes from the line of Keith Hughes with SunTrust. Please proceed.

Thank you. I have a couple questions.

In the quarter, price and mix up 25, and input cost purchase 17, kind of a positive 8 for the quarter. Is that what it's going to look like for the rest of the year? Are there going to be quarters where the raw materials jump up and are a higher -- a bigger hit? Assuming prices stay where they are right now.

I think that this is -- this performance -- we're hoping that our price offsets inflation in the future quarters, although we've got all the benefit of the pricing from last year kicking in. And as materials climb, it takes a little bit of time for them to roll through our P&L. So this is probably the least burdened quarter, relative to petroleum-based inputs. And so I do expect it won't be quite as good in the subsequent quarters as we saw in the first quarter.

Will the pricing actions you highlighted at the beginning of the call, will they kick in, primarily, third quarter of this year?

No. The bulk of them will be second quarter. We took most of them in January and February in the bigger regions. The smaller regions, later in the third quarter, beginning of fourth. We should expect to see them feather in, in April, May, and again, we've got to remember, we've only got about 50% yield and facing the significant headwind on those commodities which have ramped up significantly over the last four months.

And finally, within hardwood Flooring, we've seen what the countervailing duties are on imported, engineered wood from China, beginning an anti-dumping duty, most likely in the next couple of weeks. Have you observed any differences in behavior on pricing shipments since that information has come out?

Keith, at this point, no. I think everybody's waiting for the final determination later in the second quarter. So from our perspective, we haven't seen a lot change in terms of behavior or attitude.

I'd just remind you that only about 4% of the wood sales originate in China, of our wood sales.

All right. Thank you.

(Operator Instructions). Your next question comes from the line of Jim Barrett with CL King and Associates. Please proceed.

Hi, everyone.

Hi, Jim.

Matt, could you talk about the new product, the ceiling coating, is that -- I know you indicated it was a game-changer. I think you also indicated it was evolutionary. I'm just trying to understand, do you see it as a revolutionary product or as a evolutionary product, in terms of profitability and market share and sales?

Well, I think it's evolutionary. As we said, the way we're thinking about it, we're thinking about it in sort of multi-generational terms. So, what other value in the space can the ceiling technology provide? As we said, the original attributes were acoustic. We then saw light reflectancy. And we now actually see technology, or have coating technology, that allows the ceiling tile to absorb aldehydes, and it filters, basically performs a filtering function through the board. And the technology converts the aldehydes to inert material.

So it's just a step forward on a multi-generational basis in terms of the technology. We think this one -- the ceiling tile itself has a 10-year life span. So we're very excited about it. We see it as getting about a 20% premium in the marketplace.

I see. That's significant. Now, is this a product you're on the verge of introducing nationally?

It's in the market now.

Okay. Okay. Very good.

And the patent, no idea as to when that's likely to be awarded, the patents on it?

Yes. I don't know sitting here, but the patents are pending.

Okay. Thank you very much. I appreciate it.

You bet. Thanks, Jim.

At this time, there are no further questions. I would now like to turn the call back over to Mr. Matt Espe for closing remarks.

Thank you, operator.

I just wanted to thank everybody for your attention today. We're obviously very pleased with our progress in the quarter. We are, I think, doing a nice job managing the things in our control and are confident that we've got the plans in place to continue to drive performance through the year. Thank you very much.

Ladies and gentlemen, this concludes today's presentation. You may now disconnect. Thank you, and have a great day.