Good day, ladies and gentlemen, and welcome to the Armstrong Growth Industries Fourth Quarter twenty fifteen Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Tom Waters, Vice President, Treasurer and Investor Relations.
Please begin.
Thanks, Latoya. Good morning 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 today are Matt Espie, our President and CEO Dave Schultz, our CFO Don Meyer, CEO of our Worldwide Floor businesses and Vic Grizzle, CEO of our Worldwide Ceiling business. Hopefully, you have seen our press release this morning and both the release and the presentation Dave Schultz will reference during this call are posted on our website in the Investor Relations section.
I advise you that during this 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 K filed earlier this morning. Forward looking statements speak only as of the date they are made, and we undertake no obligation to update any forward looking statement 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'll turn the call over to Matt.
Thanks, Tom, and good morning to everyone on the call. Today, I want to briefly discuss our fourth quarter results, provide an overview of our market outlook for 2016 and discuss actions and expectations in light of the macro environment. Then finally, I'll update you on our separation process and then some key upcoming dates and activities. For the quarter, sales of $577,000,000 were down $10,000,000 or 2% due to weaker year on year foreign exchange rates. Adjusting for exchange rates sales were up 2% from the prior year with all the gains coming in The Americas.
The sales result is essentially in line with the guidance we issued last quarter. Adjusted EBITDA for the quarter of $76,000,000 compares to $81,000,000 last year and for the full year is at the top end of our guidance range. The ceilings business posted sales growth of 1% excluding the impact of exchange rates and had an adjusted EBITDA improvement of 2%. In The Americas, sales were up 2.5% with gains in volume, price and mix. EBITDA benefited from year on year price versus inflation gains remaining at historical levels as well as significant productivity gains and profits from WAVE, which were up almost 20% from last year.
SG and A costs were higher as we invested in go to market initiatives. In Europe, sales were flat on a comparable foreign exchange basis, but down 14% as reported. Europe had pockets of strength, particularly in The UK, but continued weakness in Russia and The Middle East. Continental Europe was flat in total, but with volatility from market to market. European profitability was up marginally year on year.
In the Pacific Rim, sales were down 4% excluding the impact of foreign exchange with particular weakness in China. Southeast Asia was up 20%. Australia and India were up low single digits. India finished a very strong year with sales up in the mid teens. India was our largest market for ceiling sales in the Pacific Rim in 2015.
Despite the sales decline, Pacific Rim adjusted EBITDA was up more than 50% to over $4,000,000 in the quarter. Flooring business saw sales growth of 3% excluding the impact of foreign exchange with strong volume gains being partially offset by price declines. Flooring adjusted EBITDA was up 9% in the quarter with the benefits of lower input costs offset by SG and A investments and startup costs at Lancaster and Somerset. For the quarter, the North American resilient business saw sales growth of 3% on a comparable dollar basis. But as expected, profitability was down as our SG and A investments in Lancaster startup costs continued in the quarter.
Our wood business grew sales by 3% in the quarter, excluding foreign exchange with volume gains offset by modest price reductions and slightly negative mix. I'm pleased to report that our Somerset plant is now producing the volume and breadth of product that we've been targeting, allowing us to grow engineered wood volumes by twenty percent versus last year. Adjusted EBITDA in the Wood segment was up $16,000,000 versus versus last year's loss of $4,000,000 Resilient sales of the Pacific Rim were up 5% on a comparable foreign exchange basis with a slight improvement in adjusted EBITDA. I now want to shift to our outlook for the 2016 operating environment. We expect ceilings market conditions in Europe and China to continue the challenging environment we experienced last year.
As a result of this, we're taking steps to adjust our cost position in these regions. We just announced that we'll be idling one of our Chinese plants until such time as market demand improves. We've reduced China SG and A headcount by 20% and increased our focus on the balance of the region. In Europe, we've made a change in leadership and also initiated SG and A reductions. Given the mixed regional performance we're experiencing in Continental Europe, we're redeploying sales and marketing resources within the region to focus on the best opportunities for growth.
We anticipate the Pacific Rim flooring specific market opportunity to be up low single digits in 2016. In The Americas, we feel more sanguine about the 2016 market opportunity and our ability to grow sales and profitability for both of our businesses. We continue to expect tailwinds from new construction activity and anticipate that commercial repair remodel activity will improve modestly in 2016. This backdrop coupled with sequential improvements we've seen in the past few quarters has us feeling more confident than at this time last year. We anticipate the commercial markets in The Americas will improve low single digits for the year.
Turning now to the separation process. We continue to meet all the important internal and external deadlines and are on track to complete the transaction on April 1. We've received approval to apply to lift the flooring company on the New York Stock Exchange and have reserved AFI as a ticker symbol. We expect to file our final Form 10 in the coming weeks and once we have SEC approval, we'll be in a position to execute. We'll be hosting a separation and business update meeting for investors on March 10, where Don and Vik will outline their views of the business, review their forward looking strategies and provide guidance for 2016.
The event will be webcast. We anticipate when issue trading will begin in late March followed by regular weighted trading in early April. At that time, holders on AWI shares will receive one share of AFI for every two shares of AWI. This has been a significant undertaking by all our corporate departments and the senior leadership team. I want to commend them for their efforts.
I also want to commend our operational teams who have not allowed this process to distract them from producing, innovating, selling and delivering a twenty fifteen EBITDA result at the high end of our initial guidance range. With that said, I'll turn it over to Dave for a more detailed review of our financial results, including a discussion of the full year 2015 results. Dave?
Thanks, Matt, and good morning, everyone. In reviewing our fourth quarter results, I'll be referring to the slides available on our website starting with Slide four, key metrics. As Tom already covered Slide two and Slide three is an explanation of our standard basis of presentation. Matt already discussed sales and EBITDA for the quarter, so I will note that EPS is down 34% impacted by $0.08 a share due to a $7,000,000 non cash charge and other income related to the revaluation of the intercompany loans we have in place to fund our Russian and Chinese investments. As you may remember, we had a larger charge related to these loans last quarter.
Net debt is down almost $100,000,000 for the last year as a result of our operational cash generation. Return on invested capital was down due to lower as reported profitability in the trailing twelve months, including higher non cash pension expense and separation costs. Slide five details the adjustments we have made to our results and provides a reconciliation to as reported net income. We continue to exclude the non cash pension expense associated with our main U. S.
Plan. We incurred $18,000,000 of separation related expenses in the quarter and I'll give you more details on those items at the end of my discussion. The $8,000,000 in cost reduction initiatives relates to the actions Matt discussed in China and Europe. Last year, we had a $10,000,000 impairment of the Bruce brand name. Taxes in the quarter were $1,000,000 on a small pre tax loss.
For the year, our effective tax rate was 57.5% as we continue to have significant unbenefited foreign losses and our pre tax earnings denominator was impacted by the separation costs and increased SG and A spending. Slide six provides an overview of our segment level results. I'll cover the business unit results on the next slides, but I will point out that corporate spending was up $9,000,000 versus last year. This was driven by several factors, including a $4,000,000 environmental charge related to our Macon, Georgia facility. Higher expense was also driven by the timing of IT spend and higher year on year incentive payments.
Page seven lays out the results for our ceilings business. Matt mentioned the positive volume, price and mix in The Americas, which was the key driver of global sales growth. European sales were flat with good pricing and mix performance offset by declining volumes and weak currencies, especially in Russia. The Pacific Rim was down due to China as sales throughout the rest of the region were up. Americas sales, input costs, manufacturing productivity and earnings from WAVE more than offset increased SG and A investments, primarily in The Americas and drove adjusted EBITDA higher by $2,000,000 Page eight addresses fourth quarter Resilience segment results.
Volume and mix gains in The Americas and higher sales in The Pacific Rim offset price declines in The Americas leading to a 4% increase in sales. We had particularly strong sales in the residential tile and commercial LVT categories. Adjusted EBITDA was down $14,000,000 as we continue to invest in our go to market initiatives and restore our presence at retail. Continued favorable input costs were offset by startup costs at our LVT plant. Page nine illustrates our Wood segment.
Mid single digit volume growth driven by engineered products was only partially offset by lower pricing and mix. Mix was lower in the quarter as we sold off a backlog of off goods and does not represent a deviation from our strategic focus on higher end products. While lumber costs stabilized in the quarter, we continued to see significant year on year favorability and we are pleased with the improved profitability in this segment. Slide 10 provides a bridge of the entire company's results for the quarter. Our year long theme of lower input costs being offset by SG and A investments continues.
Free cash flow for the quarter is presented on Slide 11 and you can see that lower cash earnings in the quarter including the impact of separation expenses drove cash flow down. Gains in working capital in the quarter were offset by the non recurrence of a one time foreign exchange hedge gain in 2014. Slide 12 provides a full year view of our key financial metrics. Sales are flat as volume declines in Wood and Ceilings Europe and price declines in Americas Flooring were offset by continued global price and mix gains in the Ceilings business, volume recovery in the North American Resilient and improved mix in the wood business. For the full year, profitability was flat as lower input costs were offset by our strategic SG and A investments and manufacturing expenses in Russia and Lancaster.
EPS was lower by $0.13 EPS was impacted $0.23 per share by $21,000,000 non cash revaluation of the loans we have in place to fund our Russian and Chinese investments. Free cash flow was up year on year, primarily due to lower capital expenditures. Slide 13 provides a view to sales and EBITDA for the year by segment. Resilient Flooring grew sales on the back of volume strength in LVT and VCT, but profitability was lower as we increased SG and A spending in this segment by over 30,000,000 Wood flooring sales declined as production issues in Somerset constrained output for the first three quarters of the year. Price was down modestly in the face of substantial declines in lumber costs.
Mix was positive. Adjusted EBITDA in the segment recovered almost 90% as only modest price concessions were needed in the face of lower lumber costs and mix gains fell to the bottom line. For the year, ceiling sales grew 1% as price and mix gains were partially offset by volume declines. Price gains, manufacturing productivity and lower input costs offset higher fixed costs driven by the Russia plant and higher SG and A spending globally. Full year corporate spending was up modestly largely due to the environmental reserve I mentioned earlier.
The full year total company bridge on Page 14 is very similar to the story for the quarter. Lower input costs largely offset a $53,000,000 increase in SG and A. $35,000,000 of the increased spending was in the flooring businesses. Page 15 illustrates the annual change in free cash flow. Lower cash earnings were offset by working capital improvements and lower capital spending as we concluded most of our international investment spending in 2014.
Wave dividends were down modestly year on year to fund several tactical acquisitions in 2015. Page 16 is an update on our separation expenses and cash flow. As you can see in 2015, we incurred $34,000,000 of expenses and spent $9,000,000 on capital to advance the separation. Both of those figures represent exactly half of the total cost we expect once the project is complete. Cash flow was skewed into 2016 as many of the 2015 expenses were accrued.
The expenses are primarily for consulting and legal advice as well as retention and severance payments. The capital spending is almost entirely IT related. We have made progress on financing arrangements for both companies and anticipate closing on a $1,050,000,000 credit agreement for AWI and a February asset backed loan for the flooring business contemporaneously with the completion of the spin. We have also reached a decision on The U. S.
Pension plan and anticipate transferring about $360,000,000 of pension liabilities to the flooring business. The assets to be transferred along with this liability will be determined based on our recent guidelines as of the separation date. Given the well funded nature of the current plan, we are confident that future flooring plan will not require cash contributions in the near term. Finally, it has been our practice to provide earnings guidance as part of our fourth quarter calls. However, given the separation and business update meetings that Matt mentioned would be held on March 10, we will not be providing 2016 guidance until that time.
With that, I'll turn the
call back to Matt. Thanks, Dave. As I reflect back on the last five years, I feel privileged to have served as CEO of a company with such a distinguished legacy, outstanding corporate culture and commitment to excellence. I'm proud of the steps we've taken to strengthen the company and to create the foundation for two successful independent entities. Over the past five years, we've upgraded the senior management team and reinvigorated the entire organization with our succession planning efforts.
We've exited underperforming businesses in Flooring Europe and cabinets, created an efficient capital structure and introduced lean principles to drive efficiency and working capital improvements. We've invested in important future growth engines in Russia, China, LBT and Architectural Specialties. And we've returned $1,500,000,000 to shareholders. So I leave here knowing that Armstrong World Industries and the future Armstrong flooring companies are in very capable hands. I look forward to watching these two businesses grow and flourish in the years to come.
So with that, thank you and we'll be happy to take your questions.
Thank The first question is from Mike Wood of Macquarie Security Group. Your line is open.
Hi, good morning. In light of the CDC update on lumber liquidators last night, which highlighted that increased cancer risk, perhaps it'd be useful for you to just update us on your internal processes and how you're different in your own Chinese major resilient flooring to just ease investors' fears about any risk to Armstrong Flooring?
Absolutely. Don, do you want to comment? Yes. Thanks, Mike. Really, we discussed this in detail in our Q3 earnings call and our position really remains unchanged since that discussion.
Really since this really broke back in, I guess it was last March, we expanded our already comprehensive testing program to to ensure that Armstrong products meet or exceed all applicable industry standards. Since June, we've received results on hundreds of independent raw core and core deconstruction tests. And based on these tests and our strict certification and specification requirements, we continue to remain confident that our laminate flooring products are safe and meet or exceed all applicable standards, just as they always have, Mike.
Understood. And on the hardwood side, I guess you got your operating margins over the past two quarters back to that level that you were before the input costs really had a hit. Going forward here, would you expect pricing to become more challenging in that segment and more range bound margins? Or do you still see upside from the repositioning that you've done?
Well, yes. So clearly, we've benefited over the course of the year with the reduced input costs and that has improved our performance for 2015. I think it would be advisable not to extend or extrapolate that forward into 2016. We've been able to hold on to a lot of that through our pricing discipline. But over the long term, you do see downward pressure as it relates to the sustained lower lumber costs.
Thank you. And we do ask that you limit yourself to one question and get back in queue for a follow-up. The next question is from Catherine Thompson of Thompson Research Group. Your line is open.
Thanks for taking my question today. On ceilings, the 2.5% sales increase in Americas, you had $4,000,000 contribution from price mix for the whole segment. How much of that $4,000,000 dollars was to The Americas? And then further breaking down, how much was price mix? And then just a follow-up from the previous question, if you could just remind us what percentage of sales, laminate sales are of your total flooring revenues?
Thank you.
Vic, you want to answer the first question and then Don can
Hi, Catharine. This is Vic. Yes, on The Americas in
the fourth
quarter, we had positive AUVs supported by price and mix and we also had positive volume that supported that 2% plus growth rate. As far as the split between the price and the mix, we don't normally provide that level of granularity. I will just say that it was nearly equally contributing from both price and mix in the quarter. And again, I want to emphasize also there's some nice volume growth that supported the 2.5%.
Catherine, this is Don Meyer. Our laminate business is fairly small. It's less than 5% of our total revenue.
Thank you. And the next question is from Matt McCall of BB and C Capital Markets. Your line is open.
Good morning. This is Ruben Garner in for Matt. So several one time items, both positive and negative in the flooring business this year. Can you and I know you're not giving guidance, but can you just talk about your general expectations for profitability in 2016 and maybe some of the moving parts going away? Just give us a quick recap.
Thank you.
Well, I think what we're going to do is we'll leave the 2016 guidance for Don's Investor Day. So we're not giving and again, that's a little change from our custom, but taking advantage of these guys having their individual sessions in a couple of weeks, we decided not to issue individual or collective guidance today. I don't know, Dave, if you want to comment on any of the one timers?
The one that I will comment on because we have discussed this in the past is the multi layer wood flooring. So we did provide you with a reconciliation of that impact during 2015. That was primarily triggered by our previous practice of importing engineered wood products from China from our manufacturing facility there. We have closed that facility, so our exposure to that multilayer wood flooring import duty going forward is minimized dramatically.
Thank you. And the next question is from Scott Ridnore of Zelman and Associates. Your line is open.
Hi, good morning. This question is for Vic or for Matt. On the SG and A side in ceilings, there was a $5,000,000 headwind for go to market initiatives. I was hoping you guys could further dive into that. And then is that something that we should think about reversing into 2016?
Sure. Thanks, Scott. Yes. This is Vic. That $5,000,000 had three components to it to provide the granularity there.
Number one, the timing of the expenses around the new launches that we talked about, our total acoustics launch in late third quarter, disproportionately fell into the fourth quarter. That was a good portion of it. We also made some partial partially some timing here around some investments in U. S. Commercial capacity to support those new product launches.
And then the final smaller component of it was some expenses related to our change in our European leadership. And those were the three major components that drove the 5,000,000 of incremental SG and A.
Thank you. And the next question is from Ken Zener of KeyBanc. Your line is open.
Good morning, gentlemen.
Good morning.
Following up on that last question, I think the higher SG and A in ceilings, as just to be clear, that's the $5,000,000 on Slide seven. If you could just go into that, like what that means for the acoustic launch or the commercial capacity that you're expanding and how that's impacting SG and A because I think people are sensitive to the fact that there's rising pressure that's offsetting your price mix. So if you could kind of go into that and explain why that's not related to any change in the industry structure, Vic or whoever that would be, certainly appreciate it, except that's kind of a lingering thought in people's mind. Thank you.
Sure.
Yes. Good question, Ken. Let me say this for clarity upfront too because maybe this is part of the question is, there is no price discounting in the SG and A line. We don't account for price discounts that way. It's above the line in our net sales number.
So let me clarify that point first. The investments in our U. S. Commercial capacity are incremental investments in key areas that are driving our specification leadership around these new total acoustic products that we talked about in the third quarter. It's also in support of our design capabilities around Architectural specialties, both at the high end of the market, the fastest growing part of the market and these resources are supporting those growth initiatives as we've talked about in the past.
Thank you. And the next question is from Bob Whittendall of RBC Capital Markets. Your line is open.
Hey, thanks for taking the question. And Matt, good luck on what you do after Armstrong. It's been a fun run and you did a great job with the company. Just wanted to ask in ceilings, kind of said low single digit growth and I'm trying to think about this and any help would be appreciated. I'm not looking for guidance.
Between North America, EMEA and Pacific Rim, what are your expectations for volume trends? And I think you guys had mentioned there was some negative pricing action at the low end of the product category that showed up in the second quarter. And one of your competitors actually reported earlier and said ceiling tile pricing was accelerating year over year.
How do we think about
North American pricing environment both for entry level and more architecturally Spectile? Thanks a lot and good luck.
Okay. Two parts here. Let me take the first part, Bob, on terms of our the way we're looking at the market overall. I think the way, Matt, Dave described in their opening comments is with EMEA in Asia, we saw tough market conditions in both of those regions in 2015 and we think that's going to continue. And that's really driven by the emerging market portions of those regions.
The Middle East is very soft. Russia continues to be very soft based on the very public issues going on there. And then in Asia, China being a very, very soft market as the government cracks down on office and office commercial commercial office development there. So we think that's going to continue through 2016 and that's the remarks that I think Matt and Dave described for you. In North America, I mean as we've been talking about in the last couple of calls, we've seen sequential improvements in really the new office construction segment as that as we saw the growth in late twenty thirteen and 2013 and 2014 in new construction starts, and as you remember in this business ceilings are the kind of the final thing to go into a new construction build out.
As those new starts lag out, we started to see new construction business start to show up in our numbers in the second half of twenty fifteen. So we saw that in fourth quarter, that sequential improvement. And based on the new construction starts that continued into early parts late parts of 2014 and early parts of 2015, our expectation is that those new construction, new business activity continues into 2016. And that leads us to the outlook that again Matt and Dave described which is low single digit growth really being driven by that new office new construction and the office segment in particular. That's your first question.
Your second question was around the pricing environment. And again, I'll point to our third quarter performance and then again our fourth quarter performance in pricing. We had again positive net AUVs in both of the quarters. Again, in any quarter or in any part of this market, we have pieces of business that are Armstrong advantaged where we get the specification and they're a unique solution to Armstrong and those are less price sensitive. And then there's parts of the market that are less advantaged and are more price sensitive.
And those are the ones where we have to be competitive and we fight every day on those pieces of business. This environment has not changed and it continues to be that way. It was that way in the third quarter. It was that way in the fourth quarter. And we continued and we'll expect that to continue going forward.
So I think we're continuing to focus on making sure that we're driving price over inflation. And I will just call your attention to in 2015, our margin dollar contribution from pricing above inflation was up over 50%. So in a more talked about pricing environment, we continue to be successful in driving good price over inflation and margin expansion through the period.
Thank you. The next question is from James Armstrong of Vertical Research Partners. Your line is
Just as we go into the first quarter, you talked about costs coming down in Wood Flooring. Do you see any further price erosion in the wood flooring segment as lumber remains down? Or are you really able to keep those keep that pricing and seeing a more steady price environment in wood flooring?
James, this is Don. I'll try to address that without getting too far in front of my skis here. What we are seeing is a leveling off in the lumber prices and we've obviously been able to hold quite a bit of our price in the wood business over the course of 2015. Our experience is that over time the lumber costs eventually translate into lower wood flooring prices. We remain committed to maintaining our price discipline that we put in place, while staying very competitive in the marketplace.
Thank you. The next question is from Nishu Sood of Deutsche Bank. Your line is open.
Thank you. I wanted to ask about the resilient flooring division. The go to market expenses and the higher SG and A costs that are associated with that, That's something you've talked about pretty clearly from the time that the businesses were intended to be separated. It's seen a real acceleration though, just in terms of the pace, the $14,000,000 drag compares to $7,000,000 or $8,000,000 in the last couple of quarters. So just wanted to get a sense of the flow of that.
What has driven that? And how should we expect that to carry forward as we head into 2016?
Thanks Nishu. And in fact, I think you saw a lot of the investments at the recent Surfaces trade show as we toured the booth. Stepping back on our Q4 results, our volume on the resilient business and mix gains were just partially offset by price declines leading to the 4% increase in sales. In particular, we really saw strong sales in the residential tile and the LVT segment, which are key strategically to us. Our EBITDA was down as our SG and A investments exceeded our product mix gains.
And this was really driven on a number of areas, but significant investments in our go to market initiatives to really restore our presence at retail. And on the manufacturing side, our input costs were offset by the startup costs related to the LVT plant. So I'd like to share a lot more with you on March 10, but that's really what happened in the quarter.
Thank you. And the next question is from Keith Hughes of SunTrust. Your line is open.
Kind of building on that last question on SG and A within resilience, that had kind of been characterized early in the year spending for 2015 that would kind of fall away. Is that still the view that at least some of the spending will not be repeated in 2016?
Yes. Again, Keith, we'd like to hold off until March 10, but in general terms some of that spending will continue on. We're encouraged by the growth and the strategy that we've put in place and where it makes sense to do that. On the LVT plant startup, we will continue to ramp that plant up over the course of 2016. And so that will continue to have additional costs associated with it.
We see really the LVT plant having meaningful impact on our EBITDA performance as we exit 2016.
Thank you. The next question is from Stephen Kim of Barclays. Your line is open.
Hi, guys. It's John Coyle filling in for Steve. Just want to stay on resilient. In the slide deck, it indicated that you saw like a 3% decline in price mix with mix actually being up. So with price down mid single digits in the category, can you talk about maybe specifically what resilient flooring type saw the most pricing pressure?
And was this just broad based or was it specific to one competitor that may be trying to regain market share that they lost earlier in the year? Thanks.
Yes, John, I don't think we disclosed down to that segment level. I can tell you that where we are really focusing our energies are in driving our LVT product that is where the market is seeing the most growth opportunities. And it's also where we're seeing a nice mix improvement in our products. And some of our more traditional and longer legacy lines are where we're seeing the pressure.
Thank you. The next question is from Michael Rehaut of JPMorgan. Your line is open.
Good morning. It's Jason Marcus in for Mike. My question is around Wave. So Wave saw a pretty strong increase in earnings in the quarter and the margins expanded pretty nicely. So just wanted to see if
you could talk a little
bit more about the trends that you're seeing there in terms of grid pricing and what the main drivers for margin expansion were in Wave and kind of how you're thinking about that going into 2016?
Yes. There was two major drivers of the increase in Wave and the margins and also the EBITDA generation. One was an acquisition. It was a small tuck in acquisition that the Wave joint venture did. It's a backward integration of a supplier to one of our components that added some nice meaningful EBITDA and margin overall.
And then as you know lower steel prices in the industry contributed as well as those fled through the P and L. Those are really the two big drivers of the fourth quarter comparison over fourth quarter.
Thank you. The next question is from George Staphos of Bank of America. Your line is open.
Hi, it's actually Alex Wong standing in for George. Thanks for taking the question. In ceilings, at least some capacity additions have been announced in North America recently. Have you had any conversations with your distributors given the strong attachment rate nature of the industry? And then related to that, does this present any hurdles for the price mix lever that has been a nice source of earnings in recent periods?
So let me kind of recharacterize the announcement around the investment of capacity by one of our competitors in the marketplace. We talked about this a little bit on the last call. But just again to reframe, the investment is relatively a small investment in the overall capacity of The U. S. Market and somewhere in the neighborhood of 3% to 5% once the capacity is fully utilized.
So I think that's an important contextual understanding to have about the investment. But with any new competitor or entrant into the marketplace, we at Armstrong are taking it very serious and we are treating the competitive threat as an opportunity for us to accentuate the features and benefits of our products and our capabilities versus this new competitor. And so we continue to be very effective at that and we're going to continue that going forward as well.
Thank you. The next question is from Will Randell of Citigroup. Your line is open.
Hey, good morning guys. And I was just curious on two points. One is, it appears like there might have been an underinvestment in the flooring business and potentially the ceilings business. I know you think you're not losing share, but do you think there's a secular shift in ceilings? I hope not, but could you characterize that a bit better in terms of volume growth and what you're doing to make sure that the ceilings business continues to grow with the market?
Let me go first.
Yes,
go ahead. Sure. Hey, Will. Yes, let me just be very direct. We don't see a secular shift in the ceilings business, and as a way to explain why the repair and renovation part of the market has not rebounded like everybody had expected.
So we've done lots of market research and testing to evaluate this point. And at this point, our data doesn't point to any secular shift or structural change in the industry. So I wanted to be very clear and direct on that. And the other part of the question? Yes.
I think maybe just a quick comment on the deferral of some of the investments in the flooring business. Just since that was done on my watch, let me take that one. We made conscious decisions with the generally weak overall macro environment the last three to five years to defer certain investments in the flooring business. And so we did that in anticipation of a volume recovery with a broader strengthening in the marketplace. That recovery didn't occur as robustly as we anticipated.
And I think we're far from being alone in that outlook. But last year, under Don's leadership, we went to the Board and asked for a fairly significant investment in the go to market structure and collateral around the go to market structure for primarily our small independent retailers in the form of displays, new displays, new designs of the displays. As I think we were regularly updated everybody last year, we said some 5,000 new displays in 2015. And so consider that a significant refresh of that part of our business and that investment. And I would say that the business is beginning to see some return on those.
It's early days, but we certainly expect that to continue into 2016. So I would consider that a significant catch up, at least that portion of the investment, a significant catch up on expenses that we deferred over the last three to five years.
And Don, I don't know if
you have anything to add? Yes. No, I think you hit it right down the center of the fairway. We're really pleased with the progress we've made on rejuvenating our retail business. As Matt articulated, we have a very focused and integrated effort in creating consumer demand, better supporting our retailers and our distribution partners to that regard.
And I'd say their feedback and the results we're beginning to see frankly are exceeding our expectations at this time. Obviously, we have a lot more work to do, but encouraged by what we've seen thus far.
Thank you. And the next question is from Jim Barrett of CL King. Your line is open.
Good morning, everyone.
Good morning.
Don, as it relates to the 5,000 new displays at retail, can you give us some sense as to the installation as to what percentage of the independent volume is now being served by these displays? And even directionally, what level of sales pickup would you expect to justify the time and the investment in that? Yes, I'll give you a little bit of color. I'm not probably going to share all of the details, but I think what we discussed in Q3 was that we plan to have all 5,000 of our LVT displays deployed by the end of the year. And we got that completed in the fourth quarter.
That's being synchronized with the launch of our new Vivero LVT product. And so having these displays in place, we've seen a nice increase in our existing product sales and we really look forward to that propelling our new Vivera line. It's frankly just a little bit too early to give you any sort of read on that at this point in time. But suffice to say we're pleased with our investments here and continue to have significant demand and pull from our retailers and distributors.
Thank you. And the next question is from Brandon Rolle of Longbow Research. Your line is
open. Hi.
This is Brandon Rollais on for David MacGregor. I had one question relating to the market share trends in hardwood. Could you update us on your share trends in hardwood throughout the year for 2015? Thank you.
Yes. Hi, it's Dave Schultz. So just in terms of our overall share position, obviously, on engineered wood, we saw sizable growth in that market opportunity. We do have a leading position on the solid wood side of the business. We did see considerable volume growth, particularly in the fourth quarter as it relates to solid wood.
Again, we're willing to give up some of the volume at the lower end of that business in order to focus on the higher end to mix up our overall sales and impact of the margin.
Thank you. The next question is from Justin Bergner of Gabelli and Company. Your line is open.
Good morning and thank you for taking my question today.
I
was curious in regards to the earlier comment about some of the tailwind from input costs not continuing or potentially becoming a headwind in 2016. Is there any sort of, I guess, clarity could provide us in terms of how much of a headwind we might expect versus the positive $68,000,000 contribution from lower input cost to your EBITDA bridge in 2015 versus 2014?
Well, this is Don. Being able to predict what the wood prices are going to do is very difficult. But I would say that we feel like we've seen those prices stabilize a bit on us versus what we've seen in the past several years. And while we're seeing, I would say, kind of normal course of business pricing pressure in the market over the long term, we tend to see the kind of swing that we've seen in input costs drive pressure on the pricing. We're going to continue really to focus on our pricing discipline.
And as we need to, we'll respond to stay competitive in the marketplace.
Thank you.
The piece I think I had mentioned earlier was I think to model a continuation of the trend that we saw in 2015 would probably be aggressive.
Thank you. And the next question is from Ken Zener of KeyBanc. Your line is open.
Hello, again. Just thinking back two years ago when you guys had your last Analyst Day, Mike, Dave, I know you guys kind of talked about housing recovering at that point and then there was some noise in the channel. At that point, you guys kind of started talking about seasonality in the business. So in regards to Americas and Ceiling, I mean, are you guys seeing normal seasonal sequential trends in that business in terms of what your dealers are talking about? Just so we can put that the growth rate kind of in a little better cadence quarter to quarter?
Thank you.
So Ken, I think there's two parts to your question. One is the seasonality of the business. And I can say that we're not seeing any difference really in the seasonality of the business from quarter to quarter or anything in the construction cycle that is shifting or moving around. As far as the overall demand and the fundamentals that are driving the demand in the marketplace, Those fundamentals are still, I would say uneven and choppy, which is driving a very uneven recovery as we've talked about, both on the news side as well as the R and R side. The news side as we talked about is pretty robust on the office side, but on the healthcare and education, we're not seeing as robust of the fundamentals driving demand there.
And similar in the R and R, there's lacking fundamentals that are keeping that from being a very robust part of the overall market demand. So I would say, again, there's we're still experiencing a choppiness and an unevenness across The U. S. In terms of the recovery in both the new segment as well as the R and R segment.
Thank you. And the next question is from Scott Ridnore of Zelman and Associates. Your line is open.
Just one quick follow-up on ceilings. Relative to the $9,000,000 of EBITDA improvement for all of 2015, how much of that was Americas? And with the actions you announced today, should the international
majority of that was The Americas, clearly. And then the actions that we are taking to address the lower market expectations for both Europe and Asia should and I expect them fully to contribute to EBITDA and margin generation in 2016.
Thank you. And the next question
is from Hey Scott, it's Dave Schall. So just to make sure that we provide you with the right information on that. We saw the continuation of some of the EBITDA issues we've had in the international markets. So I would say that the growth in The Americas was offset then by some of the losses that we had in our international markets. And as Vic mentioned, we've taken some specific actions to address that in Q4 of twenty fifteen.
But I did want to clarify that. So when you take a look at the year over year increase in our ceilings division, it's The Americas offset by the international markets at this point.
Thank you. And the next question is from Stephen Kim of Barclays. Your line is open.
Hey, guys. Just wanted to follow-up. I mean, following the plant closure in China in ceilings, being that that region's probably been the most invested in here over the last five years for long term growth initiatives. Has your long term view on the region changed any? I mean, obviously, your view for the next twelve months is pretty clear, but how are you thinking about China looking out over the next five years relative to maybe where you were three, four years ago when a lot of these investments were being made?
If I could just real quick, like maybe clarify and then hand it over to Vic to give you our views. But just, Stephen, we didn't say we were closing the plant, we're idling the plant, which is significantly different in terms of how you manage a plant. So there'll be a maintenance presence. The plant will be able to come up and online in relatively short order when demand returns. So I'm glad you asked the question.
We're not closing it by any means. We're just idling it and sort of until we see the market recovery.
And I think that's indicative of how we think about the reasons, frankly. So really when if you take a look back or step back and look at the entire region, we actually had double digit growth in all the other parts of Asia Pacific region in the fourth quarter. So China continues to be the tough spot for us. We did build these plants in China to support our Asia business. They're not just China only plants.
But the recession and the retreat in the office segment in particular in China has given us pause and given us the opportunity to idle a plant to save costs in the meantime until the market does come back. So we do expect it to come back. This market still has tremendous potential in it. As they adopt the acoustical solution for education, healthcare, we still believe that they will be adopting this technology and there's no disruptive technology out there to replace it. So longer term, we're still optimistic about this market.
Thank you. The next question is from Keith Hughes of SunTrust. Your line is open.
Thank you. On capital spending, $40,000,000 came down about $50 something million in 'fifteen million versus 'fourteen million dollars At least directionally, would that be for the two units? Is that going to continue to trend down at 'sixteen and 'seventeen?
Hey, Keith, it's Dave Schultz. So we're not going to provide that guidance. We'll wait until the March 10 meeting where we'll provide you more specifics about our capital plans for 2016. It is you'll be able to see this in the 10 K, but the reduction in capital spend in 2015 versus 2014 was about the same across both businesses. And again, that's the capital spending that we had on the ceilings business in Russia.
And then obviously, we had some spending in the flooring business, including the first phases of the project bolt or the LVT plant.
Thank you. And the last question comes from Justin Bergner of Citibelli and Company. Your line is open.
Thank you for taking my follow-up. In regards to the asset backed facility for Armstrong Flooring, why did you opt to go with an asset backed facility versus standard revolver?
Yes. Hi, it's Dave Schultz again. So we looked at various financing options for an independent Armstrong flooring business and we felt that the asset backed loan given the effective collateral we have on the flooring business was a cheaper way for us to go. So that will be a two twenty five million dollars revolver that will be an asset backed revolver.
Thank you.
Okay. Well, thank you very much for your interest and support in the past five and a half years. And I just want to say that being the CEO of this company has been a pleasure and a privilege. I look forward to watching both Don and Vic lead both of their businesses for in months and years to come. So thank you very much.
Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.