Armstrong Reports Lower Operating Income in 1Q

Lancaster, PA, April 29--Armstrong Holdings reported first quarter 2005 net sales of $840.7 million that were 0.5% lower than first quarter net sales of $845.0 million in 2004. Excluding the effects of favorable foreign exchange rates of $14.9 million, consolidated net sales decreased by 2.2%. First quarter 2005 operating income of $7.7 million compared to $40.8 million in the first quarter of 2004. The decline in operating income was primarily due to higher raw material and energy costs of approximately $19 million, higher selling, general and administrative ("SG&A") expenses and increased charges for cost reduction initiatives. Resilient Flooring net sales were $284.9 million in the first quarter of 2005 and $304.1 million in the first quarter of 2004. Excluding the favorable impact of foreign exchange rates, net sales declined 7.7%. The decrease was primarily due to lower sales of all product categories in the Americas, primarily laminate and residential vinyl products. An operating loss of $9.6 million in the quarter compared to operating income in the first quarter of 2004 of $15.0 million. This decrease was primarily attributable to the impact of the sales volume decline, increased costs to purchase PVC resins, charges for cost reduction initiatives and higher SG&A expenses for increased selling and advertising activity. Wood Flooring net sales of $190.1 million in the first quarter of 2005 decreased 3.7% from $197.4 million in the prior year. This decrease was primarily driven by a 9% volume decline in solid wood floors partially offset by an 18% volume increase in engineered hardwood floors and price increases implemented for selected products. Operating income of $8.8 million in the first quarter of 2005 compared to $10.3 million in the first quarter of 2004. The decline in operating income was primarily attributable to lower net sales, higher manufacturing costs and increased SG&A expenses, partially offset by reduced raw material costs. Textiles and Sports Flooring net sales in the first quarter of 2005 increased to $62.9 million from $62.3 million. Excluding the effects of favorable foreign exchange rates of $4.1 million, sales were down 5.3% due to lower volume and pricing in carpet flooring products. An operating loss of $5.9 million in 2005 compared to an operating loss in 2004 of $1.9 million. The increased operating loss was caused by the impact of lower net sales, increased SG&A expenses (for new products and severance costs) and higher raw material costs. Building Products net sales of $253.6 million in the first quarter of 2005 increased from $230.0 million in the prior year. Excluding the effects of favorable foreign exchange rates of $6.1 million, sales increased by 7.4%, primarily due to price increases and sales of higher priced products combined with a 1% volume increase in the U.S. commercial markets. Operating income increased to $35.3 million from operating income of $27.9 million in the first quarter of 2004. Increased selling prices covered a majority of the inflationary cost pressures of wage and salary increases and increased raw material, energy, and transportation costs. Operating income benefited from sales volume gains, sales of higher priced products, increased equity earnings from our WAVE joint venture and lower comparative spending on cost reduction initiatives. Cabinets net sales in the first quarter of 2005 of $49.2 million decreased from $51.2 million in 2004. Net sales decreased primarily due to lower volume in certain geographic markets and overall customer service issues. The reductions in volume were partially offset by increased sales prices. An operating loss of $5.9 million in 2005 compared to operating income of $0.6 million in the prior year. The decline was due to the impact of higher SG&A expenses (particularly consulting costs, employee compensation and selling- related expenses), costs incurred to shut down the Morristown, Tennessee plant.