管理層發言
Hello, and thank you for standing by. My name is Paige, and I will be your conference operator today. At this time, I would like to welcome everyone to the Armstrong World Industries second quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' 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.
Thank you, and welcome, everyone, to our call this morning. On today's call, Mark A. Hershey, our CEO, and Christopher Calzaretta, our CFO, will discuss Armstrong World Industries' second quarter 2026 results and the 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 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 earnings press release and in the appendix of the presentation 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 as of today's date, July 28, 2026. These statements involve risks and uncertainties that may differ materially from those expected or implied. We provide a detailed discussion of risks and uncertainties in our SEC filings, including the 10-Q filed earlier this morning. We undertake no obligation to update any forward-looking statements beyond what is required by applicable securities law. With that, I will now turn the call over to Mark.
Good morning. Thank you for joining our call. Today, we reported second quarter results featuring record net sales and adjusted EBITDA, with solid contributions from both our Mineral Fiber and Architectural Specialties segments. On a total company basis, net sales increased 11% and adjusted EBITDA increased 8% versus the prior year, while adjusted diluted earnings per share increased 13%. These results were modestly ahead of our expectations and reflect strong execution despite continued flattish market conditions, which were similar to what we experienced in the first quarter. Our ability to achieve these results in a muted market environment is a testament to the focused execution of our teams and the power of the value-creation building blocks at Armstrong. These building blocks include earning consistent Mineral Fiber average unit value, or AUV, growth; driving operational productivity in our manufacturing plants; and delivering profitable growth in our expanding Architectural Specialties portfolio. Looking first at Mineral Fiber results, we posted an 8% increase in net sales driven by AUV growth of 6% and volume growth of 2%. Both price and mix contributed meaningfully to our AUV result this quarter, with mix performance driven by continued increased demand for products at the higher end of our portfolio, namely for our smooth white acoustical tiles, what we call our SWAT products. Our ability to meet evolving customer needs with innovative, high-value products that meet a range of functional and design requirements continues to be an Armstrong hallmark. Turning to Mineral Fiber volume, this quarter marked the fourth quarter out of the last five in which we generated volume growth, and represented the highest quarterly growth rate since early 2023. A combination of consistent commercial execution by our selling, marketing, service, and support teams and ongoing incremental benefits from our growth initiatives drove the healthy increase in volume. These sales results highlight the strength of our commercial organization and their longstanding relationships within our markets — relationships with distributors and other channel partners and, importantly, with the architects, designers, and contractors that specify and install our products. Those established relationships are supported directly by our broad market coverage and teams uniquely focused on ceiling solutions. Coupled with our proven track record for product quality and customer service, from seamless ordering to reliable delivery, we are well positioned to sustain success across variable market conditions. Mineral Fiber adjusted EBITDA performance was strong this quarter, with 7% year-over-year growth and an adjusted EBITDA margin approaching 45%, even as we continued our SG&A investments for growth and experienced some input cost inflation. Our manufacturing plants supported that performance by running well, with quality and perfect order fulfillment measures we discussed last quarter remaining at very strong levels. Consistent operational execution, coupled with focused productivity initiatives at the plant level, remain critical enablers of our impressive margin performance in Mineral Fiber. We are well positioned to achieve our full-year 2026 adjusted EBITDA margin guidance of approximately 44%, which would represent a record performance for this segment and the fourth consecutive year of Mineral Fiber margin expansion. Importantly, our Mineral Fiber results in the quarter were well supported by our growth initiatives, which remain squarely focused on delivering Mineral Fiber AUV along with volume growth ahead of market through leading innovation and differentiated services. These include our strengthening digital initiatives, namely our Kanopi online selling platform and PROJECTWORKS, our automated design service, along with our more recent product innovation focused on energy efficiency and data center solutions. Within the digital initiatives, both Kanopi and PROJECTWORKS continue to gain traction and deliver value for the company. Kanopi has continued to strategically evolve both in terms of the breadth of products available on the platform and the types of customers it serves. Put simply, the core premise of Kanopi is proving out — latent demand exists for a specific portion of the installed ceiling space, which can be reached by a tailored and efficient path to purchase. Kanopi offers a digital channel that is highly engaging and easy to use for this underserved part of the market. In addition to supporting small business owners, we are finding that companies with multiple facilities across a wide geography can use Kanopi to provide their locations or branches with a consistent and reliable means of refreshing their space with materials preapproved by their central design or procurement teams, reliably fulfilled through our trusted distribution network. As we have scaled and optimized Kanopi, we are increasingly pleased with its profitability performance. PROJECTWORKS also continues to deliver value by strengthening our project specifications and win rates, further differentiating our market position with our customers. Both quoted values and fulfilled projects processed through PROJECTWORKS continue to grow, supporting our AUV and sales volume. As we are frequently reminded by architects, designers, and contractors, ceilings are complex and are becoming more complicated as the design community pursues a broader range of visuals and integrated solutions. Particularly as demand for skilled installation labor remains constrained and project timelines remain compressed, PROJECTWORKS directly addresses the efficiency and accuracy needs of our customers. Similarly, our product innovation continues to center on the most immediate megatrends within the built environment, namely the demand for energy-efficient building solutions and the expansion of data center infrastructure. Innovations like our TEMPLOK energy-saving ceiling tiles and our expanded data center product portfolio deliver customer value, driving both AUV and volume growth. With our TEMPLOK offering, we remain focused on raising awareness of its multiple value propositions, from energy savings to thermal comfort for occupants to eligibility for tax incentives. To that end, we are expanding and scaling our go-to-market platform and supporting those resources with energy modeling capabilities, project case studies, and testimonials to influence building owners and energy savings companies that drive this decision-making. These efforts are helping to secure specifications and, in the process, build a pipeline with more project opportunities, which more than doubled since the end of the first quarter. These are encouraging and confidence-building signs for this important initiative and our commercial teams, reflecting not only our sales and marketing efforts but also the market need for more solutions to meet the rapidly expanding demand for energy-efficient buildings as electricity costs continue to rise and the focus on grid reliability increases. Similarly, as we discussed last quarter, the data center market represents another focus area for growth. While we have served data centers with ceiling products for years, mainly in the front-office portion of those facilities, we have expanded into structural grid containment offerings to capture more share within these projects. With a broader solution set for data centers, we are positioned to more effectively serve demand from hyperscalers, colocators, and enterprise customers. We are seeing healthy growth in both our project quoting and intake pipelines, with wins year to date in 2026 increasing more than 50% compared to last year. This is a growing vertical that we will continue to serve as it evolves, with both our ceiling tile acoustical grid solutions as we have in the past as well as with an expanded set of structural and containment solutions from our WAVE joint venture. For context, as we have noted in the past, it is important to remember that mineral fiber ceiling tile and standard grid applications in data centers represent a smaller percentage of project spend compared to typical commercial buildings, but this is a growing and addressable vertical for those solutions and for our expanded structural offerings that we expect to serve for years to come. Collectively, we are encouraged with how these initiatives are progressing, further differentiating Armstrong with customers and contributing incremental AUV as well as up to 150 basis points of above-market Mineral Fiber volume growth for the full year. Turning to Architectural Specialties, we posted strong top-line growth this quarter, driven by healthy organic sales growth of 9% stemming from broad-based demand across our portfolio. This performance, coupled with contributions from our recent acquisitions, lifted AS net sales 17% above prior year results. On the bottom line, we are also pleased with the adjusted EBITDA margin performance of the business, coming in above our full-year goal of 20% on both a total segment and an organic basis, and reflecting solid sequential improvement consistent with the expectations we shared last quarter. These results reflect improved SG&A leverage and solid execution in our AS plants, along with price actions and disciplined cost control as we work to address rising costs on certain substrates. Second quarter order intake for the segment was strong and continued at a double-digit rate, supporting our full-year outlook and giving us early visibility to our 2027 backlog. Like last quarter, our strong quoting and ordering activity levels were fueled by projects across a range of verticals, led by transportation and education. Looking specifically at transportation, we continue to serve and win more projects by leveraging our industry-leading portfolio of solutions. In addition to expanded intake at JFK, SFO, and LAX airports, we added new project wins this quarter at the San Antonio International Airport and with the Ohio Department of Transportation. Our success within the transportation vertical demonstrates the power of our broad portfolio, our deep technical expertise, and our dedicated project management, design assistance, and installation support service offerings. These are all intentionally designed to serve architects, contractors, and airport authorities as they navigate challenging specifications and phased construction schedules by reducing risk and improving project outcomes. With that, I will turn the call to Christopher to discuss our financial results in more detail.
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; please note that slide 3 details our basis of presentation. We begin on Slide 6 with our Mineral Fiber segment results for the second quarter. Mineral Fiber net sales increased 8% in the quarter, driven primarily by favorable AUV of 6% and an increase in volumes. AUV growth reflected both favorable like-for-like price and mix driven by continued demand at the high end of the product portfolio, while higher volumes were driven primarily by strong commercial execution and benefits from our growth initiatives. Adjusted EBITDA increased 7% with an adjusted EBITDA margin of 44.7%. Adjusted EBITDA growth was primarily driven by the fall-through of AUV, a margin benefit from higher sales volumes, and a positive contribution from our WAVE joint venture. These benefits were partially offset by higher input costs reflecting freight and raw material inflation, as well as increased SG&A expenses primarily driven by investments to support growth. We are pleased with the current quarter's Mineral Fiber adjusted EBITDA margin result of 44.7%, which was similar to 2019 levels. The modest margin compression was against a strong prior-year comp period with an adjusted EBITDA margin of 45.2%. The segment's core value-creation drivers of AUV growth, ongoing productivity gains, and WAVE equity earnings each contributed to another quarter of strong profitability. On Slide 7, we discuss our Architectural Specialties, or AS, segment results, where we highlight net sales growth of 17%. This increase was driven by broad-based organic growth across most of our specialty product categories, along with contributions from the February acquisition of Evenscape and the 2025 acquisitions of Paraline and Geometric. We are pleased with the organic growth rate of 9% in the quarter, especially as we lap a robust prior-year result of 15% organic growth in the segment. The broad-based nature of this growth reflects strong execution across the business and continued market penetration within our expanding specialty product portfolio. AS segment adjusted EBITDA increased 10% versus the prior year, with an adjusted EBITDA margin of 20.4%, a meaningful sequential improvement over the first quarter result, as we expected. With strong operating leverage in the business, the improvement in adjusted EBITDA was primarily driven by a $5 million benefit from higher organic net sales, which includes the impact of higher steel and aluminum costs, and $4 million related to our recent acquisitions. Partially offsetting these benefits was a $4 million increase in SG&A expenses, of which approximately half were driven by our recent acquisitions, as well as a $2 million increase in manufacturing costs, inclusive of a $2 million benefit from IEPA tariff refunds. On an organic basis, the AS segment achieved an adjusted EBITDA margin of 21.4%, which was essentially flat as compared to the prior-year quarter. This organic AS adjusted EBITDA margin result in the second quarter is a meaningful step up sequentially from the first quarter. Turning to our recent acquisitions, our integration efforts are progressing. As is typical for recent acquisitions, and as previously shared, these businesses will be dilutive to total AS segment adjusted EBITDA margin for the full year. We continue to realize the benefits of these acquisitions as we scale them onto the Armstrong platform. Our goal of a 20% or greater adjusted EBITDA margin on a full-year basis for the total AS segment remains unchanged. On Slide 8, we highlight our second quarter consolidated company metrics. Net sales grew 11% and adjusted EBITDA increased 8%. Incremental volume from both segments, strong AUV performance, and incremental equity earnings from WAVE drove adjusted EBITDA growth in the quarter. These benefits more than offset an increase in input costs driven by freight and raw material inflation, in addition to higher SG&A expenses which were primarily driven by investments to support growth as well as an inorganic increase from acquisitions. Adjusted diluted net earnings per share increased 13% driven by both higher adjusted net earnings and a lower share count resulting primarily from an increased pace of share repurchases. Excluding the impact of our recent acquisitions, total company organic adjusted EBITDA margin was 35.9%, representing strong profitability as we continue to invest back into the business for growth. Slide 9 summarizes our first half consolidated company metrics, which reflect 9% sales growth and 4% adjusted EBITDA growth. Adjusted EBITDA growth in the first half of 2026 was primarily driven by both incremental volume and the fall-through impact of strong Mineral Fiber AUV, as well as positive WAVE equity earnings. Slide 10 presents our year-to-date adjusted free cash flow performance versus the prior year. The 9% increase was driven primarily by higher cash earnings and dividends from our WAVE joint venture. We also present our year-to-date capital deployment where we have demonstrated the execution of our commitment to our capital allocation priorities which are investing back into the business, pursuing strategic acquisitions, and returning value to shareholders. And as you can see, we are executing on all of these fronts in 2026. In the second quarter we paid $15 million of dividends to our shareholders and repurchased $75 million of shares bringing our year-to-date dividends paid to $30 million and our year-to-date share repurchases to $135 million. Additionally, just last week, our board approved and we announced an increase to our existing share repurchase program, adding an additional $800 million of authorization and extending the program through 2029. This reflects the fundamental strength of, and our confidence in, our business model and its ability to consistently generate strong adjusted free cash flow. Turning to Slide 11, given our solid financial performance, we are raising our full-year guidance midpoints across all key metrics. We now expect total company net sales growth of 9% to 11%, up from the previous range of 8% to 10%. We have slightly raised our full-year Mineral Fiber net sales growth assumption to approximately 7% with about 1 point of volume growth driven by strong execution and benefits from growth initiatives, along with AUV growth of approximately 6%. In the AS segment, we are slightly raising our full-year net sales growth assumption to 15% to 17%. We are also increasing the midpoint of our total company adjusted EBITDA guidance and now expect growth of 9% to 12% for the full year, up from our prior guide of 8% to 12%. We continue to expect adjusted EBITDA margin expansion in both segments for the full year. In Mineral Fiber, we expect an adjusted EBITDA margin of approximately 44%. In AS, we expect an adjusted EBITDA margin of approximately 19%, and on an organic basis, we now expect an AS adjusted EBITDA margin of approximately 20%, which is a slight increase from our prior assumption. Additionally, we are increasing our guidance for adjusted diluted net earnings per share growth to a range of 12% to 15%, up from our prior guide of 10% to 14%. We are also increasing our guidance for adjusted free cash flow growth to a range of 10% to 14%, up from 9% to 14%. Please note that additional assumptions are available in the appendix of this presentation. We are pleased with our performance through the first half of the year and remain well positioned to continue to deliver profitable growth and create value for our shareholders. And now I will turn it over to Mark for further commentary.
Thanks, Christopher. As Chris shared, we are pleased with the results we have delivered so far in 2026, the consistent market conditions we are experiencing, and the momentum we are building with our growth initiatives. Looking forward to the second half of the year, we are hearing on-the-ground commentary from our customers regarding bidding activity and demand trends that is consistent with what we heard in the first quarter. Underlying market conditions have improved slightly from 2025, but they remain muted in part due to ongoing macroeconomic uncertainty. That said, within the verticals we serve there are clear pockets of strength in transportation, data centers, and health care. The diversity of our end-market verticals and project types, including new construction, major renovation, and repair and replacement, support the resilience of our business, as these areas rarely move all in the same direction at the same time. Our consistent ability to grow profitably goes beyond the diversity of our end markets and operational execution and our legacy position within the ceilings category. It is also driven by our proven track record of acquiring companies to strengthen and expand our Architectural Specialties portfolio of products and capabilities. With the Evenscape acquisition earlier this year, we have completed 15 AS acquisitions and expanded our addressable market well beyond the traditional ceiling plane in commercial buildings. To illustrate that point, I would like to call out a recent event that highlights how we are maximizing the power of our portfolio. Each June, architects and designers from around the world gather at theMART in Chicago for NeoCon, the leading event for the commercial interior design industry. We have participated for several years at this event through some of our AS brands, such as Turf and Arctura. This year, for the first time, we created an Armstrong-branded showroom showcasing the full range of both Mineral Fiber and AS ceilings, specialty wall, and architectural solutions. This space demonstrated how our industry-leading breadth of products supports the increasing complexity of modern design by balancing intricate aesthetics, multifunctional performance, and sustainability attributes. NeoCon provided an energizing platform for us to engage directly with thousands of architects and designers, reinforcing and, in some cases, introducing the Armstrong brand at the forefront of interior architectural solutions. From the beginning of our journey to expand into specialties, we believed our leadership in Mineral Fiber ceilings gave us a strong platform from which to expand and generate consistent profitable growth. With our leading portfolio and enhanced capabilities, we now compete for more specifications and win more projects in more spaces within every commercial building. I personally attended NeoCon this year together with dozens of leaders from across our enterprise to see the range of our offerings prominently on display and to celebrate several Best of NeoCon awards, including innovation and business impact awards for TEMPLOK. In the process, I also saw the power of our people coming together to unite, collaborate, and elevate how we show up for our customers and in the industry. It was an inspiring experience and one that the entire Armstrong organization can and should be proud of. With our talented organization energized, focused, and executing, and with our resilient business model and consistent growth strategy, we are well positioned for a strong second half of 2026 and to continue creating value for our shareholders. Underscoring that point, as Christopher noted and following the review and approval of our strategic plan last week, our board of directors approved an expansion and extension of our share repurchase program, reflecting both the consistency of our capital allocation priorities and continued confidence in our strategic direction. Now, the operator will begin the Q&A session.
分析師問答
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 1 to raise your hand. To withdraw your question, press star 1 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.
Thank you. Good morning, everyone, and thanks for taking the question.
Morning, Susan.
I want to start with the comment about the strength in the order rates that you are continuing to see coming through the business. Can you give us some more details on that, how you are thinking about it across the various verticals, and what that means for the second half of the year and then maybe even looking further out?
Happy to, Susan. Thanks for the question. My comment was focused specifically on AS intake where we have very clear visibility into projects and the pipeline. The double-digit intake again this quarter reinforces what we have seen over the last several quarters, which is now roughly our fourth consecutive quarter of double-digit intake in AS. That is supporting the pipeline and our outlook for the second half and, frankly, starting to give us some visibility into 2027 as well. That pipeline is broad-based; it reflects both new construction projects and renovation projects, and it is also across a wide range of verticals — particularly transportation, but also office, health care, and education. Importantly, it is across all of our categories within AS, whether that is metal, felt, or wood — it is broad-based. We are not over-concentrated in any one particular AS category. We track intake also on a trailing 12-month basis, and we believe it is very supportive of our outlook for the back half.
That is great and very helpful. And then my follow-up question: it is great to hear the traction that you saw at NeoCon this year with your Armstrong-branded showroom. Can you talk a bit more about some of the feedback that you got from clients and maybe even other people that toured the showroom and how we should think about that contributing to the business and being part of this longer-term growth initiative — what that means not just in terms of AS but also perhaps for Mineral Fiber and the volume flow there?
Thanks, Susan. It is an important point because it was not just a specialty showcase — the portfolio, when we talk about the power of the portfolio, we are talking about the collective enterprise Armstrong. We think of our enterprise as one business squarely focused on ceiling and wall solutions, and that is what we were trying to put on display at NeoCon this year. The number-one consistent theme we heard from the thousands of folks who went through our spaces was that they were impressed by the breadth and diversity of our offerings and capabilities, whether that is in materials or performance or aesthetics. We like to think of it as a palette for architects and designers to work from. That showcase was our strategy on display. AS has been built and developed over the years as a complement to the Mineral Fiber business, and the two of them work well together. We win more jobs and more spaces whenever we have Mineral Fiber and AS on a project, and that is what was showcased there. What you are seeing in our recent results and in these larger projects, like transportation, is reflective of that. You bring the portfolio and the power of it through our channels and our access to market, and that is how the two complement each other.
Thank you for all of that color, and good luck with the quarter.
Your next question comes from the line of Tomohiko Sano with JPMorgan. Your line is open. Please go ahead.
Hi. Good morning, everyone.
Good morning, Tomohiko.
Thank you. On Mineral Fiber, your fiscal year assumptions imply roughly 1% volume growth gross. Given volumes were up in both the first quarter and second quarter, would you expect volumes to accelerate, decelerate, or be flattish in the second half? And if you could give us more color on end-market channel inventories and market share perspectives in the back half, please.
Thank you, Tomohiko. We are outlooking a fairly consistent volume performance. As we talked earlier in the year, we were expecting a positive first half and a positive second half. I think we are well on track for that with the performance over the last two quarters and, frankly, four out of the last five quarters where we have demonstrated positive volume growth. That is our outlook for the back half — consistent volume growth across the portfolio, driven primarily by our commercial distribution channel which is where we are showing a lot of traction. The portfolio breadth and product strength, particularly at the high end like our SWAT portfolio, is playing well in the verticals that are in play, and we are serving that demand effectively. So consistent volume performance for the year is our priority and expectation.
Thank you. Follow-up on recent acquisitions, including Evenscape. What is the strategic power of bringing these businesses into the Armstrong platform — commercial pull-through or spec-in with architects and designers and channel access? Could you talk about key synergy levers and integration KPIs if you could? Thank you.
Yes. I will expand that to companies like Zahner as well, which have unique design capabilities. They have access to projects and access at the design-assistance stage of a project that is earlier than our traditional access to projects. One of our key KPIs as we integrate them is focusing on the transfer function that can happen between those businesses and the rest of our portfolio when they have early access — giving insights into project activity, making connections with designers, and introducing the broader part of the portfolio. As I mentioned about NeoCon, we aim to open up the rest of the portfolio as a solution set for that designer at an earlier stage, and we are seeing that. For example, in this past quarter we highlighted a fairly prominent project where first awareness came from Zahner, which had a toehold on an interior metal application ahead of the rest of our portfolio. As a result of that toehold, we were able to pull through five other solution sets including mineral fiber, grid solutions, and other parts of the AS portfolio. That is an advantage of Zahner being early, and we see the same advantage in what Evenscape does with their design capabilities. We are going to harness the power of that access and transfer it into the rest of the portfolio to win more share.
The only thing I would add is, on the metrics side, we have robust business-case financials that we put together as part of our investment decisions. We continue to monitor those on a monthly basis and evaluate performance against those business-case financials as part of the integration metrics Mark mentioned.
Thank you.
Your next question comes from the line of Adam Baumgarten with Vertical Research Partners. Your line is open. Please go ahead.
Hey, guys. Good morning.
Good morning.
You highlighted some of the higher-end or SWAT products as being strong. Is that consistent across all the end markets where you are seeing strength — that the high end is outperforming?
Yes, that is a fair point. We are seeing it consistently across our markets and across our verticals. The aesthetics and performance in those products are attractive across the board, so it is not isolated to any one market or vertical.
Okay, great. And then in the back half, do you expect any additional IEPA refunds?
No. We are not expecting any additional IEPA refunds in the back half.
Okay, great. Thanks. Best of luck.
Your next question comes from the line of Keith Hughes with Truist. Your line is open. Please go ahead.
Thank you. Question — you talk more about data centers on this call than we have heard in a while with some growing backlogs. Can you talk specifically what products work best in data centers? Is it just grid or is it Mineral Fiber? Is there a specific mineral fiber you sell into that occupancy?
Sure, Keith. It is not just grid. We think about data centers as having front-of-house and back-of-house. Front-of-house — the office and support spaces — have used tile and grid for a long time, and that will continue. Those tile applications could be our SWAT products or mid-tier products supported by traditional acoustical grid. In the back-of-house, where compute infrastructure resides, you see more variation and demand for heavier-duty, structural solutions rather than traditional acoustical grid. From our WAVE venture we have launched structural grid solutions, such as the DYNAMAX-branded line of structural grid products and various containment solutions. When there is a tile application in the back-of-house, it is often a tile with an air-management attribute, such as a gasketed tile, and that application can be served by a variety of our mineral fiber products or by our DATAZONE tailored product offering created specifically for data center applications, which carries a slightly higher AUV. It is varied across projects and largely depends on the specifier and the owner.
Is there any interest in TEMPLOK given that cooling those facilities is a major deal for them?
There is interest. Our commercial teams have been introducing TEMPLOK to data center applications and selling a bundled solution where TEMPLOK is one component. We believe there is an application for it there. TEMPLOK carries multiple value propositions — energy savings, thermal dynamics, and potential tax incentives — and we are pitching that value proposition into data centers.
Okay, thank you.
Your next question comes from the line of Rafe Jadrosich with Bank of America. Your line is open. Please go ahead.
Hi. Good morning. Thanks for taking my question. I was wondering if you could talk a little bit more about the drivers to the revenue guidance increases. How much came from just the second quarter being better versus the second half? And if you could give some specifics on are you seeing better end-market trends? Are you gaining more share? And then what is driving that?
Thanks for the question. I will start and then hand it to Christopher. The overarching message is the increase in our guide is largely a result of the second quarter performance. We are seeing a consistent back half to what we expected, so carrying forward we expect market conditions to be consistent with what we have seen in the first half. We expect our commercial execution and our growth initiatives to continue to perform and deliver that outcome.
Maybe unpacking the top-line change a little more: at the midpoint the increase is about $20 million. About two-thirds of that is driven by AS performance and about one-third from Mineral Fiber, largely due to second-quarter performance versus our expectations. Adjusted EBITDA flow-through is pressured a little by investments in SG&A and freight inflation noted in my prepared remarks.
Great, that is really helpful. Following up on SG&A, how much of the increase is driven by higher incentive comp just because you are beating internal plans, or is it opportunistic investment? Can you talk about whether any of it has to do with the expansion at NeoCon? Trying to get an understanding of what is changing there.
On SG&A performance in the quarter, in Mineral Fiber the increase was driven by investments to support growth across selling and innovation, and an increase in incentive compensation. In AS, about half of the SG&A increase was driven by our recent acquisitions while the remainder was driven by investments in selling resources to support scaling those businesses. On a full-year basis, we expect leverage on the SG&A line and SG&A margin around 20%, which is in line with our initial expectations for the company. We continue to aim for a sub-20% SG&A margin at the total company level, but recognize that acquisitions could initially pressure that while we integrate and deliver against the business cases.
I would add that the SG&A investments are squarely tailored to the growth initiatives we discussed — commercial selling support for the energy savings initiative, data center sales, and some R&D to support both initiatives.
That is very helpful. Thank you.
Your next question comes from the line of Brian Biros with Thompson Research Group. Your line is open. Please go ahead.
Hey. Good morning. Thank you for taking my question today.
Good morning, Brian.
You talked about the strength of the higher end of your portfolio in your prepared remarks and earlier in the call. Do you view that dynamic as short term — maybe another quarter or two — or more like a multi-year trend that you can continue to benefit from? How are you thinking about that?
Thanks for the question, Brian. That trend continued in the quarter. We noted 12 consecutive quarters previously where the high end of our Mineral Fiber portfolio outperformed the lower end; this past quarter was the thirteenth consecutive quarter. This has been running for a couple of years and we expect it to continue. It is consistent with the dynamics around bidding and starts activity, where projects can be down but project values are up. We think this reflects a flight to quality in commercial spaces and plays well to our portfolio breadth strategy and the high end of the Mineral Fiber product category.
Got it. Follow-up: you mentioned data center products offering structural grid and containment. Can you talk more about the sales process for those products today? Do those get specified in? Do you work with the GC, or with the hyperscaler directly? More details on the go-to-market would be appreciated.
Good question. The data center go-to-market is different than traditional commercial building construction because of the varied influencers. Hyperscalers as owners set their specifications and will use architects and general contractors, but they often have outsized influence on design decisions. Colocators and enterprise sponsors have slightly different dynamics; some look more like traditional architect-led, spec-led motions. We are investing to provide a more diversified go-to-market approach so we can go direct to owners, colocators, and hyperscalers and offer tailored, bundled solutions across our expanded product set. We also leverage our strong national accounts program and long-standing relationships with many of the companies sponsoring data centers. That mixed approach is necessary given how data centers are designed.
Your next question comes from the line of Stephen Kim with Evercore ISI. Your line is open. Please go ahead.
Thanks very much, guys. Appreciate all the color so far. I wanted to lean in on the new products a little bit. In particular, I'm curious whether the success and focus on the various new product initiatives is increasing your indexing to new construction versus repair and replacement. How do you think about that going forward? Also, last time I asked about the lifespan of some of these newer products, and I want to double-click — should we expect replacement cycles for some of these products to be shorter than some of your historical products due to things like gasket dryness or phase-change material cycles?
Thanks, Stephen. We do not feel we are over-indexing to either new construction or repair and replacement. We are continuing to innovate, and this is the next chapter of innovation around the ceiling platform. Historically there have been step changes in fire, seismic, acoustical, and structural performance, and we are adding new dimensions now. We believe these innovations play in both new construction and renovation applications, just as previous innovations have. We have not changed product lifespan expectations or warranty approaches; we continue to warrant these products consistently with our historical standards. We stand behind these products for their expected life just as we have with our prior products.
Got it. Second question relates to WAVE. You're expecting some strengthening results there. Can you provide more color as to the strength you are seeing? Should we think about momentum that is likely to carry beyond this year or is there lumpiness in the contribution?
WAVE is still on track for our outlook to mid-single-digit equity earnings growth. We're pleased with their performance, which correlates well with our Mineral Fiber performance, and they continue to innovate and bring new products to market. We expect their contribution to step up in the second half as price-cost benefits offset rising steel exposure.
On the steel cost front, markets continue to face inflationary headwinds. In the quarter we saw higher steel flowing through the P&L, which pressured margins ahead of our announced pricing actions in August, along with the ramp-up of some data center initiatives. Turning to the back half, we expect a step-up in equity earnings contribution as those price-cost benefits offset rising steel cost exposure.
Thanks very much, guys.
Your next question comes from the line of John Lovallo with UBS. Your line is open. Please go ahead.
Good morning, guys. Thanks for taking my questions. First, within Mineral Fiber the home center channel was strong again this quarter, up about 9% year over year similar to the first quarter. How much of this was driven by stronger discretionary or flow business? If so, what was the impact on Mineral Fiber volume and AUV in the quarter?
I will start and Christopher can comment. Our flow business in the quarter was fairly consistent with what we discussed in Q1. Flow — smaller R&R work — continued to be a stable source of volume for us in the quarter and reflects some confidence and willingness by customers to use discretionary spend, which supports our volume. We triangulate visibility to that channel based on home centers, Kanopi activity, and on-the-ground activity, so while that channel can be lumpy, we saw nothing atypical in Q2.
Nothing to call out in terms of atypical activity, John. That channel can be lumpy and we saw a little of that here in Q2, but overall it was consistent.
Gotcha. And considering the $800 million step-up in the share buyback authorization, would you consider a large share repurchase such as an accelerated share repurchase (ASR)? Is that something on your radar?
Let me put the repurchase program into context. We just completed our annual strategic planning cycle and had a robust review and approval of our strategic plan by the board. Following that, the board supported this authorization, which is a reflection of confidence in our strategic plan, cash flow generation from the plan, and our strategic direction. This is an authorization and does not signal a change in our capital allocation priorities. We will be opportunistic as we have been — you saw that in Q2 — and over the life of the program we'll continue to balance investing back into the business, pursuing M&A, and returning capital to shareholders. No change in approach.
Okay. Thank you, guys.
Your next question comes from the line of Philip Ng with Jefferies. Your line is open. Please go ahead.
Hey, guys. Congrats on a strong quarter. Christopher, a housekeeping question first: can you give us an update on how you are thinking about inflation for your major buckets? If I heard you correctly, you are not expecting IEPA refunds in the back half. Anything to call out related to changes and news around Section 301 or tariffs?
Yes. You're correct — we are not expecting additional tariff refunds. Breaking down input costs: freight is about 10% of COGS, energy about 10%, and raw materials about 35%. In the quarter we experienced higher-than-expected freight inflation due to pressure on carrier rates driven by labor shortages and industry consolidation. Raw material inflation came in a little better than expected but was not a major mover in the quarter. On a full-year basis, we expect energy inflation to be in the low-single-digit range, freight inflation in the mid-teens range for the full year due to tight capacity and carrier dynamics, and raw materials in the low-single-digit range. All-in, input costs are expected to be inflationary in the mid-single-digit range for the full year.
Was there any big movement from what you gave last quarter?
On the total input line, no material change since last quarter, though the pieces shifted, most notably the freight pressure for the back half.
One last question for Mark: with momentum in transportation and data centers and broader product investments, are you winning on product differentiation in transportation and data centers? Is the offering very different in data centers?
Yes. We are winning in transportation through differentiation, and we are scaling awareness in data centers that Armstrong can be a meaningful, value-add player in that space. The data center offering is broader and different in some parts, particularly back-of-house structural and containment solutions, so the competitive set is more fragmented there. We believe we have product differentiation in those offerings and are investing to raise awareness.
That is really helpful. Thanks.
There are no further questions at this time. I will now turn the call back to Mark A. Hershey for closing remarks.
Thanks everybody for joining the call today and for the questions. We appreciate it. We are pleased with our solid quarter and a good opportunity for me to thank our teams for that performance. As we reflect on the quarter, we are proud of outperforming the market in a dynamic environment. We have inflationary pressures as we discussed today, ongoing uncertainty, and not a lot of market stimulus or tailwinds behind us, but we had really good execution and that is what we will stay focused on to continue to create value. Thank you for your time today and we will talk to you soon.
And this will conclude our call today. Thank you all for joining. You may now disconnect.