Good day, ladies and gentlemen, and welcome to the Armstrong World Industries, Inc. First Quarter 2015 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. If anyone should require operator assistance, please press star then zero on your touchtone telephone. As a reminder, this call is being recorded. I would now like to introduce your host, Vice President, Treasury and Investor Relations, Tom Waters. Sir, please go ahead.
Thanks, Mallory, and good morning to everyone on the call. 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 Espe, our President and CEO; Dave Schulz, our CFO; Don Maier, CEO of our worldwide flooring 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 Schulz 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-Q filed this morning. Forward-looking statements speak only as of the date they are made. 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 will turn the call over to Matt.
Thanks, Tom, and good morning, everyone. On our call today, I'll provide a brief overview of our quarterly results, comment on market conditions, and our outlook for the year. I'll update you on our business separation efforts to date, and Dave will give you a more detailed discussion of the quarterly numbers and guidance. For the first quarter, reported sales of $551 million were down $39 million, or 6.5% from prior year. About half of the decline is attributable to foreign exchange movements. Adjusted EBITDA of $75 million was down $8 million, or 10% from prior year. As expected, much of the sales and EBITDA declines were driven by residential flooring in North America.
As we previewed our February call, we expect 2015 to be a year of transition in the Resilient Flooring business, with volumes still reduced from the losses we experienced in mid-2014 and profitability further suppressed as a result of our SG&A investments. We continue to make progress in go-to-market engagement with our distributors and other sales partners, and construction on the LVT plant here in Lancaster is on schedule. Commercial flooring sales were flat with the prior year. In ceilings, sales were flat year-over-year as volume declines in Europe and certain North American channels and regions were offset by continued price and mix gains in all regions. Overall, the year started slower than we expected in all of our businesses, with softness in the Northeast and other areas impacted by winter weather. Canada and Russia also started slowly.
We did see activity improve throughout the quarter and into April in both of our businesses, and we are maintaining the 2015 sales and EBITDA guidance we provided back in February. Turning now to the separation plan. We're making progress on a number of important work streams. The future board structures have also been progressing, and I'm pleased to announce that a decision has been reached on the position of Chairman of the Board for the new company. Larry McWilliams, who has served on our board since 2010 and is a member of our audit and management development and compensation committees, will chair the new Armstrong Flooring company board upon completion of the separation transaction. Larry was recently President and CEO of Keystone Foods, and prior to that, was at the Campbell Soup Company as president of their international operations, among other roles there.
Larry has been a great asset to Armstrong these past five years and has been a valued partner for me. He'll provide a steady hand through the separation and excellent strategic leadership to the newly independent company. Jim O'Connor will remain as Chairman of Armstrong World Industries, a role he's filled since 2007. Additional management and board composition progress has also been made, and we'll share these decisions at a later date. As part of our separation planning, we're currently evaluating the future capital structures of the two independent companies. We've more work to do, but our current thinking is that a modest debt load, say less than 2x EBITDA, will appropriately position the flooring company for success.
Armstrong World Industries, which in the future will be just the Building Products business, will have a strong EBITDA history and cash generation capabilities that should be able to support approximately $1 billion of leverage, which would likely be about 3x forward-looking EBITDA. We also envision that Armstrong World Industries will retain the majority of the U.S. pension plan obligations. Of course, the exact size and structure of debt and pension obligations will be determined prior to the separation and will be influenced by capital market conditions and other factors at that time. The last item related to the business separation I want to share with you is the reaction of our customers. Don, Vic, and I, along with the senior sales team, reached out to all of Armstrong's significant channel partners within hours of the February announcement. As expected, they had questions and concerns, which we believe we've addressed.
We'll continue to work hard to make sure the transaction is as seamless as possible in the marketplace. Thus far, we've seen no market resistance to the separation announcement. For the team here at Armstrong, priority number 1 is serving customers and delivering our 2015 operating plan. With that, let me turn the call over to Dave for a detailed review of the quarter and the guidance for the year. Dave?
Thanks, Matt. Good morning to everyone on the call. In reviewing our first quarter results, I'll be referring to the slides available on our website, starting with Slide four, Key Metrics, as Tom Waters covered Slide two, and Slide three is simply an explanation regarding our standard basis of presentation. Sales of $565 million were down 3% versus 2014 on a comparable foreign exchange basis. Operating income, EBITDA, and EPS were down as well. Free cash flow for the quarter was a use of $42 million, improved from last year by $14 million. The first quarter is typically a use of cash period for Armstrong as receivables grow off a low year-end level and as we build inventories for increased summer activity. Net debt was down $74 million, driven by debt repayments. Return on invested capital was down due to lower profitability in the trailing 12 months.
Slide five details the adjustments we made to EBITDA and provides a reconciliation to our reported net income of $4 million in the quarter. As discussed in February, we are excluding the impact of our non-cash U.S. pension expense of $6 million and costs associated with the flooring separation process of $4 million from our adjusted numbers. In addition, we are excluding a gain on the sale of a closed facility in Australia and had some negative FX impact in the quarter. The majority of the improvement in the interest/other line relates to FX charges in 2014, and interest expense was slightly favorable. Our 2015 book tax rate of 84% was higher than last year due primarily to two issues. First, losses in foreign subsidiaries were slightly higher than last year. This, along with lower domestic pre-tax profit, resulted in a higher tax rate due to unbenefited foreign losses.
Second, we recognized a state net operating loss write-off of $3 million as a result of change in ownership under IRC Section 382. This was triggered by the asbestos trust sale of stock in February, resulting in a higher tax rate than the prior year quarter. Moving to Slide six, this illustrates our sales and adjusted EBITDA by segment for the quarter. I'll talk to the businesses on the next few slides, but want to note here that corporate expenses were slightly lower than last year. Slide seven provides additional color on the Building Products segment results. Ceiling sales were essentially flat on an equivalent foreign exchange basis, with price and mix gains offsetting volume declines.
I remind you that the first quarter of 2014 was a strong base period with sales up over 5% as we were not negatively impacted by weather to the same degree as some of our competitors. In the Americas, sales were down slightly with mid-single-digit volume declines, mostly offset by mix and price gains. The volume declines in the Americas were primarily in the retail channel and Canada. North American commercial sales were slightly softer than last year, but activity accelerated during the quarter, leaving us optimistic for the year. European sales were flat. As in the Americas, price and mix gains offset volume declines. The U.K. was up off a weak base in 2014, and Russia was up with price gains offsetting currency devaluation and share gains offsetting a very soft end market.
Sales were up in the Pacific Rim despite continued weakness in China, where high-end office projects continue to be challenged. India and Southeast Asia had very strong quarters. Despite mixed top-line results, Building Products grew EBITDA by $3 million. The improvement came in the Americas, where manufacturing productivity, price gains, and mix improvements more than offset lower volumes and a decreased year-over-year contribution from WAVE. Americas EBITDA margin improved 300 basis points from last year. WAVE's results were down due to some fourth quarter pull forward and the same sales factors impacting our ceilings business. As with ceiling tiles, we are optimistic that grid results will improve as the year progresses. EBITDA in Europe was down on increased manufacturing costs from the new plant in Russia. Pacific Rim profitability was relatively flat. Slide 8 illustrates our Resilient segment results.
Excluding the impact of foreign exchange, Resilient Flooring sales were down 3%, driven by residential products in the Americas. North American commercial and Pacific Rim sales were relatively flat. China sales were down, but India had mid-teens growth. Resilient profitability was down $6 million as year-on-year mix and price declined in residential products and the increased investment in SG&A that Matt mentioned. Page 9 lays out our Wood segment results. Wood sales were down $15 million as volume declined 17% from the first quarter of last year. This is a continuation of the share loss that we experienced starting in the third quarter of 2014. The volume declines were also impacted by inventory management in the big box channel. We did see significant improvement in Wood sales as the quarter progressed. Weakness in January and February was exacerbated by some buy-ahead activity in December.
Strength in March and into April reflects the nascent impact of our competitive pricing actions in the second half of the year, beginning to drive share recapture. We believe that this bodes well for the Wood business in the second half of 2015. Wood adjusted EBITDA was down $6 million to $2 million, driven by the volume decline and manufacturing cost issues around our investment in the Somerset, Kentucky, engineered wood plant. We believe these cost pressures will abate as the year progresses. Price and input costs were relatively flat year-on-year, while mix continues to be a positive factor. Slide 10 shows the building blocks of adjusted EBITDA from the first quarter of 2014 to our current results. Of note, price and mix more than offset inflationary headwinds, but volume continued to be a drag on earnings.
Most of the other items are similar to last year, but you can see the start of our SG&A investments in the flooring business, driving $3 million of higher year-on-year spend. Turning now to slide 11. You can see our free cash flow for the quarter versus last year. Cash earnings were lower, but essentially offset by reductions in capital spending and a lower use of cash on working capital in the quarter. The other contributor to cash flow was made up of a variety of items, the most significant of which was the recapture of VAT associated with our plant construction projects. Slide 12 shows our guidance for 2015. The ranges for sales and EBITDA for the full year are unchanged from the initial guidance we issued in February. EPS guidance is lowered by $0.05 as a result of the $3 million IRC Section 382 expense I mentioned earlier.
Slide 13 provides more details on guidance. Most numbers are unchanged, but we have reduced our cash tax expectation, $10 million, as we have additional inputs to our tax estimation process. We have also finalized our non-cash U.S. pension expense for the year at $25 million versus the range we provided last quarter. The last item I want to cover this morning is the $43 million of income from discontinued operations that you likely noticed in our 10-Q. This item represents the non-cash P&L recognition of a cash tax benefit that we realized in the 2010 to 2012 timeframe related to tax planning we did with respect to our investment in the European flooring business.
At that time, there was no income statement benefit, with the formal insolvency of the European flooring business, which occurred in March, we are now able to recognize the majority of this income through discontinued operations. This euro-denominated asset will remain on our balance sheet for several years and will revalue as the euro moves versus the dollar. As such, there may be future non-cash income or loss in discontinued operations going forward, but not nearly of this quarter's magnitude. With that, I'll turn it back over to Matt.
Thanks, Dave. Subsequent to our last call, I received questions on two topics that I'd like to address. First, several of you inquired as to whether we explored the possibility of a sale of the flooring business prior to the decision we made to separate the businesses. As we shared last quarter, we considered a wide range of strategic alternatives, we did not actively pursue a sale of the business because we believe in the potential for flooring to deliver superior returns for our shareholders as an independently traded company. We believe the separation of the businesses is the best path forward to maximize shareholder value, we're now focused on successfully executing the spin-off of the flooring business on a timely basis. Second, some of you have asked about my future role with the company in light of our announcing new CEOs for the flooring and AWI companies.
My immediate future involves executing our 2015 operating plan and, of course, delivering results. At the same time, I'm focused on leading the planned business separation and executing the creation of two industry-leading public companies with the people, processes, and resources to succeed in the future. Upon consummation of the separation, I plan to step away from Armstrong. I have no doubt that these businesses, with Jim and Larry as chairman and Vic and Don as CEOs, will build on the global investments and improvements that we've made during the past five years. I look forward to following their progress in the future. With that said, we'd be happy to take any questions.
Thank you. Ladies and gentlemen, if you have a question at this time, please press star then the one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Please limit yourself to one question. If you desire to ask additional questions after your question has been answered, please re-queue by pressing star one. One moment for questions. Our first question comes from the line of Steven Kim with Barclays. Your line is open. Please go ahead.
Thanks very much, guys. My first question really relates to the market share. If you could sort of talk about the situation really in all three of your businesses. In wood, for example, it seems a little curious in light of Lumber Liquidators' issues. We would have thought that maybe your channel partners would have been gaining share, and so we're wondering, are you really saying you think you're losing share within the channel partners or is it something else? In ceilings, one of your competitors had significantly better year-on-year results. Then in resilient, I think you indicated you thought the market was flat, and just given some of the other things we were hearing from commercial flooring, I'm just kind of curious as to if you could elaborate on that. Mostly about market shares across your businesses.
Sure. Thanks, Steven. Let me comment broadly. I think I'll pass over to Don to comment a little bit on wood and resilient, then Vic to comment on the ceilings activity. Just in terms of wood, We are focused on selectively recovering the share that we lost in the second half of last year, third and fourth quarter last year. I think we were very transparent in the fourth quarter last year with respect to the measures and actions we were taking. Pricing to selectively regain share, rebalancing and remixing the percentage of revenue among the channels, of course, innovating and launching new products. The cycle time and lag time effect of those actions then the recovery in our share is kind of what we're experiencing now.
I would point to the fact that while we had a somewhat soft start to the quarter, we had a very solid second half of the quarter and continue to have a very solid. Well, April was very solid as well. We believe we're beginning to see the fruits of those efforts. Don, I'll just ask you for further comment on that.
Yeah, no, I would echo Matt's comments. I think you were asking about the impact of Lumber Liquidators and really, in the quarter, a minimal impact, we think, as a result of the issues there. We'll let Lumber Liquidators speak for themselves. I will tell you that even prior to the "60 Minutes" segment, that due to a lot of product actions that we had taken on our laminate business, that we had seen a nice spike in that business. That has continued forward, and it's really hard to determine if that's been impacted by Lumber Liquidators. On Resilient, for our particular segments, which are really focused on education and healthcare, we are, I think, consistent to what we saw in the market as well as competitors that kind of deal in that space.
Good. Thank you. Then, Vic, comments on the ceilings share erosion.
Sure. Hey, Stephen. Yeah, on the flat sales for Armstrong, let me just say right up front here, we don't believe there's any change in market share here as a result of some of the comparisons that you're referring to. There's really some timing effects here. When you think about the base period comparison for Armstrong versus first quarter last year, if you recall, we had a pretty strong first quarter last year in spite of the tough weather conditions relative to some of our competitors. Really, the geographic footprint of our manufacturing operations really allowed us to serve our customers and maybe other customers better because of, again, that footprint. We had a stronger first-quarter base period that we're comping to.
We had a couple of large projects, I think we shared some of those with you in the first quarter last year that we're shipping. There's a little bit of timing of when some of the larger projects that we have in our plan this year. In fact, in the second and third quarter, we have more of our larger project shipping. I really attribute this to timing, really, in terms of what happened in our comp base period last year and what we're seeing now. I will add that, as I think Matt referred to, we had some acceleration of our order rates into March, and we've seen that continue into April. We remain confident that this isn't a major shift in share, but more of a timing.
Okay, great. Thank you very much, guys.
Thank you. Our next question comes from the line of Kathryn Thompson with Thompson Research Group. Your line is open. Please go ahead.
Hi. Thanks for taking my questions today. Tagging a little bit more, pulling string more on ceilings. Two-part question. What were the regional and end market differences in volumes on a percentage basis? To what extent have you seen a competition from a new European entrant that's tiptoeing into the U.S. market last year, do you see them as a real competitor in the market in your ceilings business? Thank you.
Yeah. Vic, I'll just let you handle that one.
Yeah. Hi, Kathryn. Yeah. Let me comment on the regional differences because the recovery that we're seeing in the U.S. commercial market is very uneven by region. I think that was referenced. The Northeast region in particular, which is, Kathryn, as I think you know, is one of our stronger areas in the U.S., was a very slow first quarter for that region relative to other regions, in fact. It was the slowest of all the regions. There was some regional differences here, and that could be explaining also some of the comp differences that you're seeing as well. Certainly, we were concerned about that early in the quarter. We've seen acceleration in that market bouncing back in March and April, and we're confident we're going to be on plan in that region as we continue into the second and third quarter.
A little bit of timing there again and the unevenness of the recovery showing up in those regional differences. The second question around the European competitors. Our European competitor, in particular, the one that you're referring to, is very active, and we're very aware of where they are. They have not made a meaningful impact on the overall results in the market. We're continuing to compete and do a better job serving our customers with our local supply base and our very strong distribution network. It remains on our radar screen. We're not taking them lightly, but there's been very little impact to the results so far.
Have your customers indicated, given an indication to you for their willingness to take on a new supplier? How difficult would it be for a new entrant?
Kathryn, no. The answer to that is no. No indication of that.
Okay. Thank you.
You're welcome.
Thank you. Our next question comes from the line of Nishu Sood from Deutsche Bank. Your line is open. Please go ahead.
Thanks. Wanted to follow up on some of these earlier questions. The trends that you mentioned improving from the first two months of the year into the second two months of the year. You've touched on some divisional specific factors. Vic, you were just mentioning the unevenness of the recovery and timing issue in Ceilings. Matt, you were mentioning in flooring that the benefit of your recent strategic pricing changes making a difference. It sounds like there could have been some broader market factors as well behind the broad improvements you saw as the year went on. I was just wondering if you could dig into that a little bit. Was that weather related, end market related, either in resi or commercial? Were there any broader factors that might have driven the improvement as the year has gone on?
Yeah, Nishu, thanks. Clearly, there are parts of the U.S. that had some significant weather issues early in the year, early in the quarter. I'm sure that weather played a part in the slow start out of the gates. There's a lot of things we're doing here. You have different contributing factors. Don's repositioning the wood business and recapturing share. Vic continuing down his strategic path. If I looked at the wood business, Resilient Flooring in total, and Ceilings, I would say the relative strength in our wood business as we exited the quarter and into April is a combination of maybe a little bit stronger market than we outlook.
They're certainly stronger than we were experiencing in the first quarter, combined with the rebound in volume attributed to the actions that Don and the team took late last year, kind of rolling through a little bit. If I look at the Resilient business, the commercial business in particular, that's probably a combination of timing of some projects, along with maybe a broad strengthening of the market, a little bit better than we anticipated in the short term. We'll have to see how that holds as we go through the year. In our Ceilings business, I think the first half was affected by weather, particularly in the Northeast. As Vic said, that's a historically strong part of the U.S. for us. That affect remodel as well as new business.
The relative strengthening we saw there in the second half of the quarter into April is probably maybe a little bit more robust market outlook than we anticipated. I think that's a summary. Don, anything to add to that?
No, I think you hit it spot on. For the quarter, the market kind of came in where we expected, but it was definitely back-end loaded, which is good to see as we carry ourselves into Q2.
Vic, anything-
I would say in the Northeast, the weather was a factor there. Certainly, the Boston area got hammered with snow, as we all know. That was very slow in January, February, and we saw it bounce back in March and April. The one thing about the weather-related impact, it's a delay, it's not a loss.
Right.
We're seeing those regions bounce back. A lot of that is weather in the Northeast in particular. The other thing to note also is that there's project timing in a very uneven recovery. Some of these regions will have large projects and then a lull before a large project. Some of this can be a little bit of noise on timing, and we also saw that in the Northeast. There's a couple of those factors, I think, that are impacting those numbers. Again, weather and timing are the two things.
Yeah. We're essentially unchanged in our view of the market that we provided earlier this year in February. We're not recasting our market outlook, certainly not at this point. With the cyclical, the long cycle nature of some of our businesses, it's a little difficult to get too wrapped up around the performance of one quarter versus another quarter. Both Don and Vic's businesses have a project dimension to them, and that project falls inside or outside the quarter that can change things dramatically. Listen, we're happy and pleased with the progress we made through the quarter. We're certainly happy and somewhat encouraged by what we've experienced in April. Just because of the nature of the timing of some of the stuff in our businesses, we're not taking this opportunity to sort of recast the market yet.
Thank you. Our next question comes from the line of Michael Wood with Macquarie. Your line is open. Please go ahead.
Hi, good afternoon. Matt, you've given guidance early on in your prepared remarks. The ceilings business can hold $1 billion in leverage and flooring can be under 2 times EBITDA. Since your leverage is less than $1 billion now, would you take actions to leverage up prior to the spin?
Thanks, Mike. We've provided at this point about all the guidance that we're prepared to provide as we think about the capital structure of the businesses. As we go through that, market conditions will dictate what we do. This will only be a contributor, but what we tried to do today, and I'll turn it over to Dave to add some additional color, but what we wanted to do today is share our current thinking. The commitment we made at the beginning of the year is, listen, as we go through the separation We hit upon subject areas that we feel that we need to be transparent with you on, we'll do that. A lot of work to do in the capital structure, but wanted to give you a sense of what we were thinking about as we sat here today.
That's absolutely right, Matt. Clearly, following up from our February announcement, we obviously talked with many of you, along with other investors that were interested in more details about the capital structure. As Matt mentioned, our goal today was to simply provide you with some of our initial thinking. Clearly, as we think about these two businesses going forward and thinking about their ability to handle a debt load, we wanted to make sure we provide you with at least our initial thoughts as we progress with the separation, and as we see how the market conditions develop. We'll keep you informed as to that thinking once those decisions are made.
Okay, thank you. Our next question comes from the line of Dennis McGill with Zelman & Associates. Your line is open. Please go ahead.
Hey, good morning. Thank you. Just want to dig into a little bit on the guidance for the flooring side or on EBITDA being down for the full year. I think at the midpoint, it's about $25 million, and about half of that is already felt in the first quarter. Can you maybe just talk through how the investment in the business is going to phase through the year and maybe how the rest of the year progresses relative to that guidance that kind of implies that maybe you'd be up by the end of the year, but just wanted to hear how you'd phrase it.
Yeah, I'm not sure that we've added a lot of color in how we're timing the SG&A investments. What we're talking about is thousands of retail displays that we're having produced and then placed in the store. There's going to be some lumpiness to how and when those displays get placed and how they get produced. That'll drive some of the SG&A spend. In terms of broader flooring, you've got timing of the expenses related to the LVT plant. We've commented a little bit on investments we've made in Somerset, Kentucky, to expand our engineered wood capacity out of that. We've got those investments. Dennis, it's going to be tough to be real clear about the quarterly drop of each of these things as we go forward. You're right.
A major headwind to the flooring profitability in 2015, as indicated, is investments we felt we needed to make to position this business to expand earnings significantly into 2016 and beyond. Dave.
I think you covered it, Matt. We've not provided any more details, clearly our focus here is improving our go-to-market capability through the expansion of some of our promotions and displays. We've talked about that in the past. We obviously began that work back in the back half of 2014, we anticipate that work will continue through at least the front half of 2015. We're very much focused on expanding our presence in the retail channel. We believe that this is the right long-term play for our business. We've indicated that this is somewhat of an investment year as we continue to increase our go-to-market capability, along with some of the innovations that we're bringing in for 2015.
I would comment that the response to the new display system and new retail support system has been extremely positive. There's been a lot of enthusiasm. I think the design, the flexibility, the response has been very encouraging. The uptake has been great. Don, any comment?
I'd just say we're right on track with where we thought on all of those elements very encouraged by the reaction from the market can't wait for those displays to start generating revenue for us.
Thank you.
Our next question comes from the line of Robert Wetenhall with RBC Capital Markets. Your line is open. Please go ahead.
Hi, this is actually Colin filling in for Bob. I have a question on the Resilient Flooring segment. In your Q, you indicated that you implemented price increases in the first quarter for select Resilient Flooring products. I was just wondering what % of the portfolio is affected and how the price increase has been received by the market so far.
That's really referring to an increase that we took in our VCT segment. That's an area where we have a strong leadership position. I would say that we are certainly seeing the benefits of that come through on the price line in that particular category.
Right, great. Thank you very much.
Our next question comes from the line of Michael Rehaut with J.P. Morgan. Your line is open. Please go ahead.
Thanks. Good morning, everyone.
Good morning.
Just to go back to, I guess, an earlier question about segment guidance from last quarter. I just want to make sure it's safe to presume that the ceiling guidance or the Building Products guidance as well as the total flooring guidance components of the overall company guidance, segment by segment guidance, those haven't changed at all as part of your reiteration?
Mike, it's David Schulz. That's correct. We have not adjusted the guidance that we provided from February to now relative to our segments and relative to the combined company. We mentioned earlier, the guidance that we did adjust was related to our tax position and also EPS related to that tax position.
Thank you. Our next question comes from Keith Hughes with SunTrust. Your line is open. Please go ahead.
Thank you. Just wanted to follow back up on the acceleration of business that you discussed. Can you give me kind of magnitude, specifically in ceilings in March and April, of how strong the business is, and is it units or pricing or both at this point?
Yeah, Keith, no. As you know, we don't usually give monthly guidance or outlook. What we were trying to do in an effort to be a little bit more transparent was just to give you a sense of how strong. We were very pleased. We saw a weak January and sort of the first half of February. The second half of February, we started to see a rebound. I'd say we kind of felt it first in flooring and then subsequently in ceilings. March, the relative strength of that continued. Clearly, we still had pressure on the quarter overall from a revenue perspective, but we liked the way we exited. Again, April, in both the flooring and ceilings, continues to be very strong.
I don't want to get into monthly guidance or insight beyond we had a stronger second half of the quarter than we would've thought coming into the quarter. That strength that we saw in March certainly seems to continue into April.
Thank you. Our next question comes from George Staphos of Bank of America. Your line is open. Please proceed.
Hi, this is actually Alex Wong sitting in for George. Thanks for all the details. On ceilings, can you provide us an update on kind of the pace of growth in architectural specialties and whether any potential M&A opportunities in that arena?
Well, before Vic jumps in there, we wouldn't comment on any potential M&A opportunities on an earnings call. It's a platform that we're very interested in. It's a platform we're committed to, and we are investing around the world to build it out. We think it is a competitive differentiator for us. Anyway, with that, Vic, over to you.
Yeah, we're very pleased with where we are with architectural specialties as a platform. Again, very excited about the market's response to our broader participation in that segment. We continue to invest in this area and look for opportunities in this area. Our sales rates are on plan, and they're running at ahead of your overall broader market. As you know, this is a big penetration opportunity for us, so we're pleased with where we are with our sales run rate in that business at this time.
Our next question comes from Will Randall with Citigroup. Your line is open. Please go ahead.
Hey, good morning, and thanks for taking my questions.
Good morning.
In regards to trying to monetize value in the flooring business, it's been, pardon if I say, the thorn in your side for the past couple of years on the wood flooring side in particular. Can you talk about your thought process in not trying to think about a sale process?
Well, I didn't say we didn't think about a sales process. I said we didn't conduct one. What we did do was evaluate several options, and we modeled each of the option as it related to shareholder value and thoughtful consideration with the Board with some, I'd say, best-in-class financial advice, and decided that the best path forward was a separation that allowed both of our businesses to proceed on a pure play basis. We felt that that allowed for the most efficient capital structure, the most strategic alignment, and gave both businesses the optionality to succeed in their respective industries. The comments I wanted to make at the end of my prepared remarks were directly, there seemed to be a sense that somehow there was a process run and a failed process, and I just want to be very clear that no process was run.
That in fact, what we had done is while considering every option, we concluded and the Board decided to move forward with the separation. We felt we were somewhat transparent on that in February, but based on the nature of the questions we received, we concluded we weren't, we wanted to be as clear as we could in this call.
Thank you. Our next question comes from the line of John Baugh with Stifel. Your line is open. Please go ahead.
Thank you. Thanks for taking my questions. I was wondering on ceilings, if we could speak maybe a little higher level. We've had a tremendous mix in pricing in the last few years. Volumes have been sluggish. It would appear with commercial construction picking up, albeit with a lag, slightly a better economy, we may see volumes start to come back. I was wondering whether if that happens, we might, though, see the mix and price tailwinds subside and that would replace that, or how that may play out in the future.
I got it.
Hey, John. Yeah, this is Vic Grizzle. Yeah, we're very pleased with the operating leverage that we got in the first quarter on soft volume or weaker volumes to our comp base period. It was helped by price and mix. We also had some really good efficiencies in our operations. We controlled our costs well. Overall, I'm very pleased with that. The price and mix, again, the market is moving to a higher value product. They're demanding a better visual. They're demanding more acoustics and higher performance around those platforms. The market is moving in that direction, and that's where we're leading with our innovation and our new product introductions to make sure that we're serving that market.
When the market comes back, as we're referring to, as it recovers, we don't anticipate a change in that market trend, and that's going to continue to help us with that, the overall mix. The price, again, price comes from us serving customers and providing a higher level of service that justifies higher prices. We're going to continue to invest in those service enhancements and value creation for our customers to allow us to do that. We're not anticipating price and mix subsiding as we go forward, as it's a part of a measure of our value creation in the customer base.
Thank you. Our next question comes from the line of Jim Barrett with C.L. King & Associates. Your line is open. Please go ahead.
Good morning, everyone.
Good morning.
This question is for either Matt or Don. For the wood flooring business to regain the operating margins achieved in 2011 and 2012, will that be more a function of realizing further pricing and mix gains, or more a function of growing volume or improving manufacturing efficiencies? Could you give us some sense as to what it's going to take to get there?
Just to frame it, then we'll let Don comment. The answer, I guess, to some extent, is all of the above. What we really need in the wood flooring business is balanced execution. We need to make sure that we have the right volume coming through the plants. We need to continue to position new products in the market to get the right mix. I think channel balance is an important element of the strategy. We think we have an opportunity to regain share, particularly in the independent retail channel. A lot of what Don and his team and the investments we've made are geared towards that end. As always, we need to make sure that our plants run efficiently. We have to have the right loading and the right cost structure in the plants.
Mix, again, has a great deal to do with that as well. The answer is a little bit of all of it.
I would say Matt covered it, Jim. This is Don. I think the key piece here is certainly all of our channels and segments are important to us, we really want to rebalance our mix to a much heavier mix towards retail. That's where we've been spending a lot of time on our effort with our distributors as well as our retail customers, to focus on getting back into a higher mix with them. That's combined with a lot of product actions as well to drive a higher product mix. If we can drive product mix and customer mix along with the other items that Matt mentioned, that's what will get our margins back to where we need to be.
Yeah. Obviously, it probably doesn't need to be said, but a slight market recovery, a little tailwind, and volume from market wouldn't hurt us either.
Thank you.
We have a follow-up question from the line of Keith Hughes with SunTrust. Your line is open. Please go ahead.
Yes. A question on hardwoods. We've seen some of the species, some of your inputs to the species prices are falling off pretty notably in the last 30, 45 days. Just give any kind of comments. Is that kind of widespread through the industry? Moving forward, do you think you'll be able to hang on to those lower inputs as we go through the rest of the year?
Yeah. Sequentially, Keith, we've seen some improvement or reduction in lumber inflation. We can only assume that is widespread, that it's a traded commodity with tons of visibility. We're experiencing it. I think you can assume our competition and other consumers of those species of lumber are experiencing it as well. Year-over-year, it's not significant, but it's nice to see some sequential improvement. Obviously, we're going to work very hard to maintain as much of that as we can. Again, the things that Don and his team are doing will help that. Eventually, we expect that we'll anticipate if we have significant reduction in lumber cost, that competitive pressures will come to bear, and we'll see some compression in those prices.
It's very difficult at this point with the cycle and the level of volume that we're seeing to kind of outlook exactly when and where we'd feel that. If we see significant reductions in raw material, we should anticipate a little price pressure behind that. Don?
Yeah. No, I would say, we do see a nice sequential improvement that's encouraging after a fairly significant rise over the past year and a half, in the commodity. Having said that, as you know, and as we talked just a bit ago about the price compression that we've had or the margin compression that we've had, we've got a long way to go, I think, to get back to where we really need to be as far as the price of the commodity juxtaposed with what we can get in the market. I'm hopeful that we can make up some of the ground that was lost over the past year or so.
Thank you.
Thank you. Our last follow-up question comes from Michael Rehaut with J.P. Morgan. Your line is open. Please go ahead.
Thanks. I know it might be a little premature, and obviously, you've probably said all you could say in terms of some of the separation-related topics. I guess I want to try anyway, give it a shot. On the corporate expense Any kind of feeling for the $65 million-$70 million of EBITDA or roughly $80 million, I think, of core corporate expense, how that would change for the standalone company and any kind of thoughts around what the flooring company would incur on that level?
Mike, you sort of answered your own question at the beginning. It's a little early for us to provide more clarity there. We have said that we believe there are some synergies, but we've got a lot of work to do to see how those costs flow and the details of the separation. There's lots of factors. There's tons of work going on right now that will lead to that answer. It's a little premature at this point to provide a lot more clarity. Dave, I'll hand it over to you.
Mike, good morning. It's Dave Schulz . We did say in our last call that if you take a look at the current corporate segment, we believe as you split that out into the two standalone companies, that there would be minimal changes to the operating expense profile. Clearly, as Matt mentioned, we're still working through the details, both from an organizational structure perspective, plus some of the other services that will be required and what is the expense profile for each. I would say that as we've continued that work, we're standing by what we said back in February. Right now, there's still work to do, but we would anticipate a minimal change in the overall operating expense profile from AWI today as we split out the two companies.
Thank you. I am showing no further questions. I would now like to turn the call back to Matt Espe for any further remarks.
Thank you very much. Just a couple remarks. We are encouraged by the second half of the first quarter and what we're seeing so far in April. It'd be great to see that continue. We are working hard here on the necessary work with respect to the separation. Don and Vic and their teams are focused almost entirely on serving their customers, competing hard in challenging markets, and delivering operating results that we commit to. On a closing note, I'm very happy to be able to share with you the fact that Larry has been appointed the Chairman Designate of our flooring business. Larry will bring a tremendous amount of positive and constructive energy and enthusiasm to the organization. We're thrilled to have Jim O'Connor stay on as the Chairman of Armstrong World Industries. We have two strong chairmen. We've got a very aligned board structure.
I think we're making meaningful progress on the separation path, and very pleased to have those announcements made today. Thank you very much, everybody. We appreciate all your attention.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.