TRG | The Bottom Line – 2/14

In the midst of earnings season, we wanted to highlight a quasi-case study in handling guidance to the Street. TRG published a note this week highlighting Armstrong World (AWI) that touched on the company’s approach to guidance and the effect it had on the stock price from 2022 to 2024. One takeaways was that the directional changes to guidance seemed to have a larger impact to the stock price than the actual guidance number or how those numbers compared to historical ranges. AWI lowered guidance throughout 2022 and saw the stock down ~40%. The following 2 years saw guidance raised throughout the year and the stock up ~40% each year. Volumes across all 3 years ended down 1-2%, and EBITDA growth returned to the long-term range after 2022’s dip. So why the large stock swings when the longer term operating performance was expected? We believe the changes in guidance played a large role, highlighting that sentiment and momentum can be just as powerful as fundamentals when evaluating stocks. This earnings season we are paying close attention to guidance for 2025 across our coverage universe, keeping in mind a company’s historical operating performance, and keeping an eye on where there may be a disconnect between the two, offering longer term upside.