May 8/15, 2017: Volume 31, Issue 24
By Ken Ryan
Armstrong Flooring has agreed to acquire the vinyl composition tile (VCT) business of Mannington Mills for a reported $36 million. The transaction is expected to close in the second quarter.
Armstrong Flooring said it intends to use its existing plant and distribution networks to accommodate the increase in VCT volume to drive top- and bottom-line benefits through increased scale and capacity utilization.
VCT products are widely used in commercial markets, particularly in educational facilities and mass merchants. In 2015, VCT represented 42.4% of the commercial resilient business in volume and 26.3% in sales (FCNews, June 20/27, 2016). While VCT is still the largest resilient segment in commercial, it has been impacted by the growth of LVT and now rigid-core products.
While acknowledging the market shift wrought by LVT, Don Maier, CEO of Armstrong Flooring, told FCNews that both products have a place in the commercial portfolio. “VCT offers durability and design options at an attractive price, and has been a mainstay in educational and mass retail buildings as well as other industries. At the same time, we recognize the growth of LVT and have made investments in recent years, such as the addition of an LVT line at our Lancaster plant to increase our domestic production capacity. In the first quarter of 2017, we experienced double-digit volume growth in LVT. This VCT investment is consistent with our strategy to improve our performance in all categories while simultaneously investing in innovation and new growth initiatives.”
Maier added that the acquisition gives Armstrong a good opportunity to increase revenue within the well-structured VCT category, which he said has historically generated above-average profitability within its product portfolio.
Armstrong expects to expand its VCT volume and make better use of the production capacity at its U.S. plants that manufacture VCT. “We expect our strong track record with VCT to make this a smooth transition,” Maier said.
For Mannington, which entered the VCT market in 1990 with production facilitated through its Salem, N.J., plant, the decision to sell the VCT business is in line with the company’s long-term growth strategy. According to Russell Grizzle, president and CEO of Mannington Mills, the move “opens up opportunities for us to invest in high-growth, high-profit markets and categories.”
The sale of its VCT business will result in a company-wide layoff of about 80 employees, Mannington confirmed. Keith Campbell, chairman of Mannington, told NJ.com that he knows the sale will impact the local community. “It’s a sad day overall because it affects people,” he said. “We know it affects not only our associates in Salem, but our Salem community.”
Armstrong distributors responded favorably to the acquisition. “I think this is a great opportunity for Armstrong and its wholesalers, including FlorStar, to expand their hard surface options and those of our customers,” said Scott Rozmus, CEO of FlorStar. “With the acquisition, we gain access to an expanded color palette as well as an additional product line. Such tools in turn help us provide more solutions for clients, which is always a good thing.”
John Sher, president of Adleta, an Armstrong distributor, called the acquisition “awesome,” noting that VCT still represents a major business segment. “Our sales team is excited. We also will do all we can to help our contractors transition their Mannington jobs. We want them to feel we appreciate this new business, not that they have to buy from us. We applaud Don Maier and his team for making this acquisition.”
Jeff Striegel, president of Elias Wilf, a Mannington distributor, believes that while VCT has been declining and losing share to alternate products for the better part of the last decade—and has reached the life cycle stage of a mature, non-growth category—the move gives Armstrong a stronghold position in the segment. “In a shrinking usage environment, it makes sense for one of the players to simply take a dominant position by squeezing out overcapacity. This allows for equilibrium to increase profitability, and while sales growth is limited profitability isn’t. Look at the continued decline of carpet, and simultaneously you have Mohawk and Shaw’s carpet side of the business operating at some of the highest profitability levels ever experienced within the industry. In the end, this is probably a great strategic move for both Armstrong and Mannington.”
Striegel noted that the impact on Elias Wilf’s business would be relatively small, as sales in VCT had been nearly cut in half over the past six years while profitability had been squeezed to the point where VCT wasn’t much of a contributor to the bottom line any longer. “Additionally, with the product benefits of LVT vs. VCT as it relates to cost, maintenance and aesthetics we anticipated further erosion in the years ahead. Quite frankly, the exponential growth of LVT and rigid core products for Mannington and Elias Wilf has already made replacing the VCT sales a non-issue.”