Armstrong has released its third quarter 2014 results. Operating income from continuing operations fell 26% over the 2013 period to $69 million, and adjusted EBITDA from continuing operations dipped slightly by 4% to $117 million.

Consolidated net sales of $728.3 million decreased slightly compared to the prior year period, driven by lower volumes in Europe, and in resilient and wood flooring in the Americas, which more than offset the impact from favorable price and mix, the company said.

Operating income and net income both declined compared to the prior year period, driven primarily by approximately $12 million of fixed asset impairment charges in the European flooring business and $7 million for severance and other charges associated with the closures of a resilient flooring plant in Thomastown, Australia, and engineered wood flooring plant in Kunshan, China. The declines in operating income and net income were also driven by the margin impact of lower volumes, higher SG&A expenses and higher input costs, which were only partially offset by favorable price and mix and higher earnings from the WAVE joint venture.

“While earnings met our expectations, sales came in below our previous guidance range, driven by a number of factors that negatively impacted volumes in the third quarter,” said Matt Espe, CEO. “Although the macroeconomic environment weakened slightly versus our previous outlook, primarily in U.S. residential and Europe, softer market conditions only partially contributed to the volume declines, as we saw industry-wide capacity utilization challenges resulting in increased competitive price pressure in our European flooring business, for which we continue to evaluate strategic alternatives. We also experienced a faster than anticipated category shift by consumers away from traditional vinyl products that negatively impacted our North American residential resilient business, as well as intensifying competitive price pressure in our wood business.”

Adjusted operating income and adjusted EBITDA declined by 8% to $87 million and 4% to $117 million respectively in the third quarter of 2014 when compared to the prior year period. The decline in adjusted EBITDA was driven by the margin impact of lower volumes, higher SG&A expenses and higher input costs, which were only partially offset by favorable price and mix and higher earnings from the WAVE joint venture.

Increased depreciation and amortization expense drove the decline in adjusted operating income when compared to the prior year period. Adjusted earnings per share is calculated using a 39% adjusted tax rate in both periods, but the comparison was impacted by the company’s $260 million share repurchase in the third quarter of 2013. The reduction in free cash flow was due to the impact of a multi-employer pension payment associated with the divestiture of the cabinets business, changes in working capital and lower cash earnings, which were only partially offset by increased dividends from the WAVE joint venture and lower interest expense when compared to the prior year period.

Building and flooring products. Building products net sales increased 4.8% to $351.7 million as mix, price and volume all improved over the prior year. Operating income of $86.6 million was essentially flat in the third quarter of 2014 as improved price and mix and higher earnings from WAVE were offset by higher manufacturing costs, primarily due to Russia plant construction expenses, and higher SG&A expense.

Net sales of resilient flooring ($239.6 million) declined 2.7% due to lower volumes in the Americas and Europe which were only partially offset by positive contributions from mix.  Operating income declined by $1.7 million from $22.5 million in 2013, driven by the margin impact of lower volumes, higher SG&A expense and unfavorable mix and price. The comparison was also impacted by approximately $3 million of severance and other charges related to the closure of the Thomastown, Australia, facility and approximately $12 million of fixed asset impairment charges for the European flooring business in the third quarter of 2014.

For wood flooring, net sales declined 7.4% to $137 million as improvements in price and mix were more than offset by volume declines. Operating income of $2 million also declined by 23.1% primarily due the margin impact of lower volumes and higher SG&A expense, but gross profit still improved over the prior year period driven by favorable price and mix, the company added. However, results were impacted by approximately $4 million of severance and other charges associated with the closure of the engineered wood flooring plant in Kunshan, China.

Corporate. Unallocated corporate expense of $17.9 million decreased from $18.2 million in the prior year. Looking at year to date results from continuing operations, consolidated net sales increased approximately $14 million, or 1%, to $2.07 billion, compared to the prior year period. The increase in sales was driven by improved price and mix which more than offset volume declines.

Operating income declined by 14% to $179.3 million and adjusted EBITDA improved by 1% to $300 million in the first nine months of 2014 when compared to the prior year period.  Despite higher SG&A, input costs and the negative margin impact of lower volumes, adjusted EBITDA increased driven by favorable price and mix, manufacturing productivity and higher earnings from WAVE.

Increased depreciation and amortization expense and additional severance, fixed asset impairments and other charges associated with cost reduction actions in the Pacific Rim and EMEA drove the decline in operating income when compared to the prior year period. An 81% reduction in free cash flow to $14 million was attributable to changes in working capital, primarily inventories due to higher raw material costs, the impact of a multi-employer pension payment associated with the divestiture of the cabinets business, increased capital expenditures and lower cash earnings, which were only partially offset by increased dividends from the WAVE joint venture and lower interest expense.

2014 outlook. “As previously announced, we now expect sales to be in the range of $2.68 [billion] to $2.72 [billion] and adjusted EBITDA to be in the range of $355 million to $375 million for 2014,” said Dave Schulz, CFO.

The company now expects 2014 adjusted EPS to be $2 to $2.15 per diluted share and free cash flow to be between $0 and $40 million for the full year.