Participants

Theresa Womble; Investor Relations; Armstrong World Industries Inc

Victor Grizzle; President, Chief Executive Officer, Director; Armstrong World Industries Inc

Chris Calzaretta Calzaretta; Chief Financial Officer; Armstong World industries

Susan Maklari

Keith Hughes

Adam Baumgarten

Jadrosich Rafe

Stephen Kim

Gary Chase

Kathryn Thompson

Fiona Shang

John Lovallo

Presentation

Operator

My name is Bailey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2024 for Armstrong World Industries Inc Earnings Call. (Operator Instructions.)
I would now like to turn the call over to Theresa Womble, Vice President of Investor Relations and Corporate Communications. You may begin.

Theresa Womble

Thank you, Bailey and welcome everyone to our call this morning. On today's call we have Vic Grizzle our CEO, and Chris Calzaretta our CFO, to discuss Armstrong World Industries third quarter results and rest of your outlook. We have provided a presentation to accompany these results that is available on the Investors section of our company website.
Our discussion of operating and financial performance will include non-GAAP financial measures within the meaning of SEC Regulation G. The reconciliation of these measures with the most directly comparable GAAP measures is included in the Earnings Press Release and in the appendix of the presentation issued this morning. Both are available on our Investor Relations website.
We will be making forward looking statements that represent the view we have about financial and operational performance as of today's date, October 29th, 2024. For these statements involve risks and uncertainties that may differ materially from those expected or implied. We do provide a detailed discussion of the risks and uncertainties in our SEC filings, including the 10-Q filed earlier this morning. We take no obligation to update any forward-looking statements beyond what is required by applicable securities law.
I will now turn the call over to Vic.

Victor Grizzle

Thank you, Theresa and good morning, everyone, and thank you for joining our call. As we reported today Armstrong delivered another quarter of strong results with record-setting third quarter sales and strong earnings growth enabling us to once again raise our earnings guidance for year 2024, similar to last quarter our teams executed well on all fronts, while still facing muted market conditions as well as managing through too impactful Hurricanes.
Our customers and the communities impacted by Hurricanes Helene and Milton, we extend our sincere (inaudible) for a quick recovery from the physical and economic damage from these storms and to our team at our Pensacola, Florida, Macon, Georgia facilities and our entire supply chain group. Thanks to you for successfully managing through these storms with minimal interruption to our operations and to our customers.
This is a clear example of our agility and dedication to customer service and operational excellence and proud of this effort and the work of our 3500 employees who exemplify this commitment to us to serving our customers every day, our third quarter results total company sales and adjusted EBITDA record-setting levels each increased 11% from prior year results, while adjusted diluted Earnings Per Share increased 13%.
These strong results were driven by contributions from our recent architectural specialty acquisition (inaudible) 3form and BOK Modern both of which are performing very well, along with solid AUV performance and specifically like-for-like price realization and our Mineral Fiber segment.
Strong manufacturing productivity gains and solid contributions from our WAVE joint venture also contributed nicely in the quarter. This collective performance was also modestly better than we had expected and contributed to the increase in our full year 2024 outlook, which Chris will talk more about shortly.
Our Mineral Fiber segment continued to perform well this quarter, even as market conditions remain mixed across our key verticals. Mineral Fiber net sales increased 3% on solid EUV performance, more than offsetting a modest decline in sales volumes.
Our commercial teams executed well in the quarter, achieving strong like-for-like price, along with some share gain in our retail channel. Together with a strong execution and contributions from our digital growth initiatives, Canopy and project works, we were able to largely offset overall market softness.
Mineral Fiber adjusted EBITDA rose 8% in the quarter, and adjusted EBITDA margin reached almost 44%, marking the seventh consecutive quarter year over year adjusted EBITDA margin expansion.
And this result also is the strongest third quarter margin performance reported since 2019. These results reflect our ongoing ability to deliver strong AUV performance, driven by consistent like-for-like pricing and productivity gains in our mineral fiber plants, while remaining focused on quality and service.
In the quarter, our plants delivered service levels ahead of our targets measures like our perfect order measure and fill rates were at elevated performance levels. These KPI.s measure performance in areas that are key to our industry leading value proposition to our customers, consistently providing our customers with high-quality, high-quality products and best in class service levels, help strengthen our market position and earn our pricing in the marketplace.
The contribution from our plants goes hand-in-hand with the work. Our commercial teams do to differentiate Armstrong and continues to be foundational to our competitive advantage. Our Architectural Specialties Segment also reported a strong quarter with net sales up 32%, accelerated by the inclusion of free form that we acquired in April of this year, along with contributions from BOK Modern, which we acquired in the second half of 2023.
On an organic basis, the segment generated net sales growth of 7% and as expected, this was a step up from our organic sales performance in the first half of the year. And was driven by solid performance across our broad portfolio and specifically activity in the transportation vertical to the large airport projects, we discussed these transportation projects were often large and multi-phased. Our teams are doing a great job managing the complexity with supply chain coordination, construction and service quality.
Being able to provide the level of service and coordination required to efficiently execute on these larger projects has become a differentiated advantage for Armstrong. Importantly, we are seeing more bidding activity turn into orders as projects begin to move forward. We mentioned being awarded a couple of Florida projects airport projects. On our last call this quarter, we were awarded six additional airport projects in various parts of the country. We continue to expect a federal funding for these projects to provide a multiyear opportunity for Armstrong.
The earnings performance of our Architectural Specialties Segment, with adjusted EBITDA increasing 27% and adjusted margins with 20% including with the impact of three four. It's worth noting that the AS organic EBITDA margins have expanded every quarter in 2024 demonstrating we are executing the right actions in our pursuit of our stated goal of at least 20% adjusted EBITDA margin for the seven on an annual basis, the overall market conditions are continuing to further stabilize, activity continues to be positive and education, healthcare and transportation, along with data centers.
While office activity appears to have stabilized with tenant improvement work slowly returning and parts of the country. Although a level of uncertainty remains, we are encouraged by what we are seeing across our verticals. As we have navigated these somewhat choppy and inconsistent demand conditions post COVID, the positive impact of our diverse set of end markets, the resilience of our business model and the consistent dependable execution of our organization has allowed us to deliver net sales and adjusted EBITDA growth every year since 2020.
Let me pause here to Chris and allows us to provide some additional details on our financial results.

Chris Calzaretta Calzaretta

Thanks, Vic, and good morning to everyone on the call. As a reminder, throughout my remarks, I'll be referring to the slides available on our website which details our basis of presentation beginning, we discuss our third quarter Mineral Fiber segment results. Mineral Fiber sales were up 3% in the quarter, driven by favorable AUV of 4%, partially offset by modestly lower sales volumes. The increase in AUV. was driven by strong like for like pricing was flat mix on a very strong prior year comparison.
Market conditions continued to stabilize in the quarter and our initiatives, along with higher volumes in our retail channel, partially offset market softness. Mineral Fiber segment adjusted EBITDA grew by 8%, with adjusted EBITDA margin expanding 200 basis points to 44% percent despite modestly softer volumes.
Adjusted EBITDA margin expansion was primarily driven by the fall through of AUV gains from improved manufacturing productivity and how higher equity earnings from our WAVE joint venture manufacturing productivity in the quarter was ahead of our target and WAVE equity earnings were driven by favorable price cost, partially offset by lower volumes.
These benefits more than offset an increase in SG&A, which was driven primarily by higher incentive compensation. I'm pleased with our team executed in the quarter and their commitment to drive profitable Mineral Fiber growth with a focus on consistent margin expansion despite muted market conditions.
Our Architectural Specialties or AS segment results, robust sales growth of 32% in the quarter was driven primarily by an increase from our recent acquisitions of 3form and BOK Modern as well as organic sales growth, primarily driven by some larger transportation projects, including the acquisitions of reform, invoke third quarter total, a US adjusted EBITDA margin and was 20%, we expected to see the top line growth of the organic AS business accelerate and continue to expand margins in the back half of the year.
We're encouraged that our third quarter results reflect that and expect sequential top line improvement in the fourth quarter. We are on track to deliver to the approximately 18% adjusted EBITDA margin for the full year 2024 that we had outlooked for the total AS segment in April and July. We're also pleased with the performance of our recent 3form acquisition.
The integration plan is on track as we continue to leverage and scale the business on the Armstrong platform while delivering innovative solutions and best in class service levels to our customers. As Vik noted, were also encouraged by the positive momentum on the bidding activity and order intake as we close out 2024. And as we continued positive activity in the transportation vertical.
Our third quarter consolidated company metrics and which we delivered double-digit growth for sales and earnings, with adjusted EBITDA margins fairly consistent with the prior year. Notably, adjusted diluted net Earnings Per Share grew 13% for the drivers of third quarter.
Adjusted EBITDA growth are consistent with the first nine months of the year, our year to date consolidated company metrics which reflects double-digit sales and earnings growth with total company adjusted EBITDA margin expansion of 100 basis points.
2024 year to date performance was driven by our core value drivers, which are foundational to the profitability of our company. Incremental volume from acquisitions and growth initiatives, consistent strong AUV performance and healthy equity earnings contribution from WAVE drove our adjusted EBITDA growth for the year-to-date period.
These benefits more than offset the increase in SG&A, a significant portion of which was driven by recent acquisitions, our year-to-date adjusted free cash flow performance versus the prior year. The 9% increase was driven by higher cash earnings and lower capital expenditures, partially offset by unfavorable working capital changes. We expected and as noted on our last call, adjusted free cash flow generation accelerated in the third quarter with 17% growth versus the prior year. We saw continued strong cash earnings and positive contributions from working capital in the third quarter. We remain confident in delivering double digit adjusted free cash flow growth for the full year.
Our demonstrated ability to consistently deliver strong adjusted free cash flow allows us to support all of our capital allocation priorities. Recall that our capital allocation priorities are first to reinvest that back into the business where we see the highest returns, second, to execute strategic acquisitions and partnerships to create shareholder value. And third, to return cash to shareholders through dividends and share repurchases.
Just last week, we announced a 10% increase to our quarterly dividend, marking the sixth consecutive annual increase since the inception of our dividend program in 2018. This increase reflects our Board of Directors, continued confidence in our long-term growth strategy and evidences our ability to continue to return cash to shareholders.
In the third quarter, we repurchased $15 million of shares and paid $12 million of dividends. As of September 30th, 2024, we have $677 million remaining under the existing share repurchase authorization, with a healthy balance sheet and ample available liquidity. Our ability and intent to complete additional acquisitions remains unchanged, and we remain committed to advancing all of our capital allocation priorities.
Our updated full year 2024 for guidance with strong profitability in the third quarter and our improved profitability outlook for the remainder of the year, we are increasing our guidance for adjusted EBITDA and adjusted diluted net Earnings Per Share, as well as modestly increasing our guidance for adjusted free cash flow. We have also tightened the range on our full year sales outlook.
As market conditions stabilize, we continue to expect full year Mineral Fiber volume to be down about 1%.We also continue to expect full year Mineral Fiber AUV to be above our historic average. Our sales outlook for the full year is in the range of 10% to 11% growth, given solid third-quarter performance and improved full year profitability expectations, just an EBITDA growth for the full year in the 12% to 14% range, an increase from our prior expectations of 10% to 13% growth.
There are no material changes to our AS segment assumptions from our July outlook. For the full year, we expect adjusted free cash flow to grow 10% to 14% and expect adjusted diluted net Earnings Per Share to now grow at 16% to 17%, with about half of the increase in the EPS outlook, driven by a lower effective tax rate compared to the prior year.
Our focus on driving profitable growth in light of a challenging market environment remains unchanged, and we expect in 2024 will be our fourth consecutive year of net sales and earnings growth. The strong results we've delivered thus far, and our robust growth outlook for the full year gives us confidence that we will finish 2024 strong and entered 2025 with positive momentum.
And now I'll turn it back to that before we take your questions.

Victor Grizzle

Thanks, Chris summarized, we are well positioned for another record year of double digit top and bottom line growth in 2024. We have momentum that we expect to carry forward into 2025. And I'm extremely proud of the accomplishments so far this year. Our product innovation remains focused on important attributes and solutions that are responding to current and future market needs.
Products like our Templok Energy Saving Ceiling products and our Low Embodied Carbon Ceilings, with these products, we are directly addressing large macro trends that we believe will be important in driving our business for many years to come.
And our recent updates, we have discussed the significant role buildings play and both energy use and carbon emissions with buildings contributing about 40% of all carbon emissions generated annually in the US. Within this, about 40% of energy consumed by commercial buildings is related to heating and cooling. These trends that are driving the need for greater energy efficiency within these buildings.
No one driver is the rapid expansion of data centers and the increasing adoption of AI technologies, both of which are pressuring the US electrical grid. According to the Electric Power Research Institute, data centers are projected to consume nearly 9% of the nation's electricity by 2030.
That's up from 4% and '22 as a I am becoming more integrated into everyday technology. Energy consumption is and will continue to increase considerably. For example, you may have seen the stats that simple chat GPT. query uses 10 times the energy of a typical Internet search. Meanwhile, building owners aiming to decarbonize to achieve both energy and emissions savings are adding to the strain on the electrical grid as they look to shift from natural gas to electric heating systems.
The aging electrical power grid will struggle to keep up with this unprecedented increase in energy demand, raising serious concerns about the reliability and see sustainability of electricity supply, so addressing the energy demands of buildings is a critical area of focus in order to lower the strain on the grid, while redirecting energy to support newer applications like data centers and AI.
We believe Armstrong has an important role to play here, our Templok Energy Saving Ceiling products provide up to 15% reduction in energy usage for heating and cooling of buildings, which is a significant cost savings for building operators. These products contribute to lowering the buildings carbon emissions while maintaining thermal comfort for occupants, and they are the first ceilings on the market that pay for themselves over time.
Further, heating and cooling of buildings is also a main driver of peak electricity demand that has forced utility providers to build expensive grid capacity to handle these speakers, spikes in usage.Templok thermal storage can be leveraged during these peak hours, moderating demand and providing relief to electrical infrastructure when it's needed. Most as utilities and grid operators seek solutions for grid stability. This kind of demand flexibility is becoming more critical for a more resilient energy system. Also in support of built building energy savings is a regulatory driver for increased energy efficiency through new building codes and standards.
One example is currently gaining momentum across the country our enhanced building performance standards that are being introduced by state local governments that mandates specific building level energy use and emission reductions. 13 cities in the US have emit implemented laws on these standards as of 2024, including New York City, Boston, St. Louis and Seattle to name a few.
There are another 30 cities planning on launching similar laws by 2026. Now over time, we believe these standards will contribute to an acceleration of retrofit fitting older buildings, particularly Class B and Class C buildings in order to comply, but also to become more competitive.
This is because new tenants know that buildings meeting the standards will be more economical to operate. The energy saving products we have launched are well positioned to help building owners reach these standards and will contribute to a renovation tailwind for years to come.
Now before turning to your questions, I would like to go back to a point I made earlier, so far in 2024 for Armstrong has continued to demonstrate resilience in a challenging environment and is delivering consistent profitable growth. Well, it's too early to provide a detailed outlook for 2025. We do expect the foundational components of our growth algorithm to persist, and these include steady, consistent Mineral Fiber AUV growth, supported by like-for-like pricing and market driven product innovation, growth initiatives to drive mineral fiber sales volume above market level growth rates, growth from our Architectural Specialties through market penetration and acquisitions that are scaled on the Armstrong platform, manufacturing productivity improvements that offset inflation and expands margins, as we can continued to successfully execute our growth strategy we are confident in our ability to generate strong and consistent free cash flow to fund future growth and provide an attractive return to shareholders through our dividend and share repurchase program.
These are the hallmarks of Armstrong business model that continue to drive consistent results through all parts of the economic cycle. But this proven framework. Again, we are confident in our ability to navigate a dynamic market backdrop, capitalize on the opportunities we see and deliver strong growth and profitability for years to come. With that, we'll be happy to take your questions.

Question and Answer Session

Operator

(Operator instructions.)
Your first question comes from the line of Susan Maklari with Goldman Sachs.

Susan Maklari

Thank you. Good morning, everyone. My first question is, am I thinking about Mineral Fiber volume growth, given the backdrop that you outlined and some of these on stabilizing factors or some of the green shoots that you're starting to see across some of the end markets and the different verticals? How you are thinking about that potential to get back to that longer term volume (inaudible) maybe how that could start to come through over the next several quarters?

Victor Grizzle

Yes, sure. The market at that, you're referencing really, and we've talked about this right in the last three or four quarters. We've really had a market that is stabilizing and it's kind of moving sideways. Even the bidding activity that we monitor on quarter-to-quarter basis has been moving in a tight range over the last several quarters. And so we do feel like we've kind of stabilizing, created them a new base here, if you will, to go forward.
To your point, Susan, on the outlook. When I look at the outlook fundamentals in the building blocks for that outlook, that was in that 2% to 4% volume range. The building blocks are there now that we have stabilized and when you look at the distance from where we are to those 2019 pre-pandemic levels of volume, we have a tailwind of getting back to that from a market recovery. So big building block of that at that two to four. We do believe that that's still intact and it might be initially led by new construction with renovation to follow, which is an interesting dynamic in this particular cycle.
But the other is the growth initiatives and we've been demonstrating our ability to generate somewhere around 1% and in some cases, slightly of 1% volume gain to help us offset some of the market weaknesses that we've been experiencing the last four or five, six quarters that building block is still there. And so when you any when you add energy savings ceiling tiles, which were in the very early stages of that, has another vague of growth to our initiatives that we're very excited about. So I believe that building block is still intact and that gets you to that debt back into that 2% to 4% range.
So feel good about the outlook to them for the midterm, the question that you're alluding to your Susan, is the rate and pace to what we could we get back to that. So I'm confident the building blocks there. I think the rate and pace we still have to wait and see how some of this uncertainty kind of close up for us so that the discretionary work and get back in the market as well.

Susan Maklari

Yes. Okay. I hear right on that, but I appreciate the color and that commentary in there and then maybe turning to margins. You saw some really nice tailwinds from the productivity initiatives that you've been pursuing the last couple of quarters, as you look out, can you talk to the opportunity that still out there and any thoughts on (Inaudible) that may come through over time?

Victor Grizzle

Yes, we've actually established a multi-year history now, right of providing greater than 3% productivity. And it's really the approach that our teams are taking on the fundamentals of the lean methodology. And we take a multi-year look at driving a pipeline of productivity program, so that each and every year, almost irrespective of what volume is doing, were able to implement programs around scrap reduction around uptime on our equipment and so forth. We have a pipeline going forward, that pipeline is intact because it's still very healthy. And therefore, our confidence along with our expectation of continued greater than 3% productivity gains are intact and we expect that to be part of the business model going forward.

Susan Maklari

Okay. Thank you for the color. Thanks and good luck with everything.

Victor Grizzle

Yes, thank you.

Operator

Your next question comes from the line of Keith Hughes with Truist Securities.

Keith Hughes

Thank you, My input costs have been a tailwind for the whole year is pretty small here in the third quarter and talk about what you're looking at for the fourth quarter and early next year. And again this year in Mineral Fiber.

Chris Calzaretta Calzaretta

Hey, Keith, it's Chris, exactly for the fourth quarter, just to break down the components of our inputs about 10% of our inputs are energy pretty even split between the electricity and gas up 10% is freight and 35% is raw material related.
So in the third quarter, we are seeing input costs in the low single digit deflation level with some, call it mid-single digit deflation on freight, double digit deflation on energy and low single digit inflation on raws. So fourth quarter were largely going to see continuation of that as we finish out the end of the year.
When I look forward to 2025, just to take a step back and think about our raw material inputs. For example, about two thirds of our spend is on contracted Ross and some of those span multiple years and have some inflation tied to them. So I expect in '25 a modest level of inflation heading into the new year.
But again, we don't see a lot of variability and volatility on our raw material inputs. The freight and energy components of our inputs can fluctuate from time to time too early to call yet what the 2025 holds that some of the work will do as we finished a year and start modeling out 2025. So hopefully, that helps give you a little bit of context for the end of the year and looking into next year.

Keith Hughes

If I could, on one other question that we had some nice growth here and architectural square organic growth on Architectural Specialties, are you called out transportation has been particularly large as a part of a US sales? Or was it just for the time?

Chris Calzaretta Calzaretta

People say, it's a contributor for sure right from these projects are quite large placements in some of the large projects that are out there supporting that. But I wouldn't want to overemphasize the organic growth being tied specifically are only to airport projects, there are meaningful contributor, but we're seeing some broad base activity and across our portfolio of businesses that are supporting this organic growth some of the smaller locations and which we've added in recent years on all the way up to the main metal and wood parts of our business.
So I'm encouraged by the fact that it's the step-up is really broad-based, but certainly these larger projects are having a nice contribution and really when I think about our backlog are contributing to a nice healthy backlog that gives us confidence going forward the next couple of years as well.

Keith Hughes

Okay. Well, thank you.

Chris Calzaretta Calzaretta

Thanks, Keith

Operator

Your next question comes from the line of Adam Baumgarten with Zelman & Associates.

Adam Baumgarten

(inaudible) AUV (inaudible) which seemingly is has gone pretty well and we expect AUV maybe to accelerate a bit on a year-over-year basis in 4Q to get to that to the guidance you've given.

Victor Grizzle

Yes, we've had some nice realization really both in our February in our August price increases throughout the year we got back to some normalization with our price increases and the size of our price increases. And the realization again has been really good team has done a nice job on that. We didn't have in the third quarter was a strong positive mix component of AUV (inaudible) in the fourth quarter is more contribution from the mix side as the channel mix kind of normalizes out and to your point should be a bit of an acceleration on AUV in the fourth quarter versus our third quarter performance similar like-for-like pricing, but a little bit more contribution on the mix side.

Adam Baumgarten

Okay, great. And then just on SG&A and Mineral Fiber, it's been or year-over-year headwind for the past couple of years it seems to maybe be moderating a little bit. How should we expect that to trend into the fourth quarter here and then maybe into 2025 at this point?

Victor Grizzle

I'm sorry, what was the first part of that Adam,

Adam Baumgarten

Mineral Fiber SG&A's and a year-over-year headwind for the last couple of years or so then moderation (inaudible) little bit in the third quarter. You had to think about that in 4Q or next year.

Victor Grizzle

On the fourth quarter, a little bit of moderation versus Q3 ,but I'd take a step back and think about SG&A and looking forward to 2025. Obviously, we've established a relatively a foundational level for growth investments and the incremental on that has been relatively small and I normalize for some of the items that we've talked about over the past couple of quarters, incentive comp being one of them and look forward to 2025, we'll continue to get our SG&A as percentage of sales down below that 20% level and continued to focus on leveraging our investments in getting that getting that operating leverage.
So fourth quarter, will be relatively similar to Q3, maybe a little bit better. But it's something that as we look forward to the new year to obviously continue to get that leverage from our investment base continue to drive profitable growth.

Adam Baumgarten

Great. Thanks. Best of luck.

Victor Grizzle

Okay, thank you.

Operator

Your next question comes from the line of Jadrosich Rafe from Bank of America.

Jadrosich Rafe

Hi, good morning. Thanks for taking my questions. For the fourth quarter, you said that (inaudible) revenue growth on which does imply like a pretty big acceleration on, what's driving that? And then what does that imply for Mineral Fiber volume? And what are kind of the puts and takes there?

Chris Calzaretta Calzaretta

Hey, Rafe, it's Chris. So let me start with the second part first, so with Mineral Fiber volume kind of expecting a flattish Q4 on that particular side of the business, just to help frame that again, Vic outlined the AUV the component, so AUV a bit of a step-up from Q3 down, but with flattish volumes in Q4. on the AS side, you're referring to the organic’s component of the business and the top line growth that we're referring to there. So we do expect to see top line acceleration sequentially in the fourth quarter on the organic side of the business. And again, continued EBITDA margin expansion as finish out the year organically. So hopefully that helps frame that a bit for you.

Jadrosich Rafe

That's helpful on the components and then just following up on an earlier question to some of SG&A cycle back on four or five years, like the SG&A as a percent of sales is up quite a bit on you've made really significant investments in Viacom, Canopy and project work. Can you talk about like the returns you've seen on those investments where you are in those by the investment cycle for those? And then how do we think about that going forward?

Chris Calzaretta Calzaretta

The investments that we started really back in 2019 on these growth initiatives, we continue through the pandemic, right? And that's from that's the SG&A step-up that you've been you're referencing there. And those were some foundational investments because these are some real white space in which we are investing in, as we have talked about we're kind of past the foundational investment levels for those initiatives, and we are seeking the operational leverage, which we started in '23 to get and we've continued in '24 to get good operating leverage on those initiatives contract ever been reporting that we've been EBITDA positive from those initiatives that's going to continue.
I don't think those investments and the way we look at those particular platforms of initiatives going forward as needing the foundational level of investments going forth. So we're confident we can continue to generate the operating leverage and get higher and higher returns on those initiatives. So we feel good about where we are with those and again, that we continue those investments through the pandemic instead of cutting them or paring that back because they're really materializing and helping us offset this continued weakness that's lingered on in the commercial markets.
And so again, I think going forward, we should continue to generate greater and greater operating leverage on those initiatives.

Jadrosich Rafe

That's very helpful. Thank you.

Chris Calzaretta Calzaretta

Thank you.

Operator

Your next question comes from the line of Stephen Kim with Evercore.

Stephen Kim

Hi this is Steve, Thanks for taking my question.
On you touched on this a little bit on for Mineral Fiber in the quarter. Can you talk about which markets outperformed or underperformed? And then kind of looking forward, do you see any kind of shifts in this you're seeing right now? Thanks.

Victor Grizzle

Yes. On the out the Mineral Fiber side, the third quarter was very consistent than what we've been talking about last couple of quarters in terms of the verticals, right leading with office continues to be stabilized but at a lower level. And so softer conditions, whereas healthcare and education, certainly the transportation segment was some were all positive contributors, some data centers also contributing. But again, transportation and data centers are relatively small verticals and the overall scheme of things.
So consistent education positivity, healthcare positivity, offset by some continued softness in the overall office market. Although we've seen continued signs of stabilization in office market, which are really encouraging.

Stephen Kim

That's great.

Operator

Your next question comes from the line of Gary Chase, Barclays Capital.

Gary Chase

Oh, hi, thanks. On just on the mix impact in 3Q on AUV, I'm just to be clear, so mostly a function of the growth we saw in retail just to drill in on when the regional strength that you commented on, was it primarily for loaded or where you see the point of sale accelerate or slow?

Victor Grizzle

Yeah, on the mix impact on it was nearly all on the channel mix and driven by retail, (inaudible) want to make sure I highlight so the underlying product mix of the business which is driven by sales growing faster at the higher end of our portfolio, driven by our specification work.
That continues to be a real positive distributor like it has, for years, that's still moving forward this quarter to quarter noise we can get sometimes on the retail channel is what we experienced in third quarter that pushed the mix to flat overall. We were awarded some additional stores at one of our big box customers. And we had earned that business based on really good service and the way that we're handling these accounts, so we're happy to be awarded these accounts and these new stores, which require you to populate the shelves and to load in these new stores.
And so that's what we experienced in the third quarter. And again, that is the overwhelming cause of the mix being dampened down in the third quarter. And maybe Gary, just a reminder also in terms of a full year AUV. So through nine months, we've seen really strong pricing and positive mix results on our year-to-date AUV performance, despite that, the Q3 impact that Vic mentioned.

Gary Chase

Okay, that makes sense. And then one follow-up, just on a comment you made around manufacturing productivity coming in ahead of your targets maybe expand on that a little bit more as a related consumables, longer-term initiatives you called out with your second cycle times and scrappage? Or is there anything maybe a little bit more, Neil, besides fuels from former chairman items that are driving some of the productivity improvements and you saw in the third quarter?

Victor Grizzle

Yes, one of the things our fundamental to your productivity is just running the plants really well, right? And not having a lot of downtime and just be very effective and the runs that we need to make. That was really a big foundational component of our productivity gains in the quarter as did plants were running very well, we had some record plant reliability numbers and some of our plants.
And so it's really starts with that. Fundamentally, you got to run the plants really well. And then on top of that, with your initiatives around scrap reduction of overall quality, (inaudible)on quality, some of the things that can drive costs up in the plant being really good on those fronts was the driver and it's been consistent actually throughout the year out how well our plants have run.

Gary Chase

Yes, that makes sense. Appreciate.

Operator

Your next question comes from the line of Kathryn Thompson; your line is open.

Kathryn Thompson

Hi. Thank you for taking my questions and just following up on a recent WAVE acquisition and the data center space, it is given a little bit more color on this acquisition. And also when you think about M&A and growing our current portfolio and add more color in terms of how much are focused on the data center space versus other areas for growth?

Victor Grizzle

Yes. Kathryn, thanks for the question. Data centers, we believe is a terrific some kind of new and emerging vertical, we're very focused on it. And there's a lot of opportunity for design and design trends to make them even more efficient, more energy efficient has been. So we're really excited about that space and what we can bring to it.
One of the fundamental things about data center design is the grid system because more and more as being suspended from the grid system from cable trays to containment for heating and cooling separation, there's a lot of things that hinge on the design of that grid system in the Ceiling, that's really one of our strengths as a company. So we have a real right to play here, and that stems from really efficient design of that skeleton, if you will, in the ceiling. So this acquisition you're referring to is an extension of what we can bring into the ceiling and the ceiling grid system.
It's really highly structural, but it's componentry that's kind of hang off that grid system to provide and more of the heating and cooling solution set that data centers are looking for. So it's an exciting area term. It's a really small acquisition to get us started in this space to build off of our success in the grid system. And again, most of these data centers that we're working on, most of them the vast majority of them have ceilings in them. And this is how they control the environment for heating and cooling. So it's a nice upward opportunity for us and our WAVE joint venture this acquisition was in that joint venture because they're at the point of the spear in terms of how we want to support that given the importance the structural grid system that goes in these data centers. So sort of an exciting and it's an area of focus for us as a company, but certainly the WAVE joint venture,

Kathryn Thompson

How you go after business or data scientists can be different than tomorrow, but I'll call traditional end markets, be it, hospitality and office. And how do you approach strategy towards and gaining (inaudible) share specifically and data centers throughout the U.S.?

Victor Grizzle

Well, the good news here at a lot of it is specification driven, right? Architects are designing data centers and their specifying what materials go in those data centers, parent employing contractors into the interest, the model is actually quite similar. There are different sets of architects and in some cases, different sets of contractors. But the overall strength of how you win a specification plays right to Armstrong's strength. So yes, that some that's how we plan to approach it. One of the things that we've done in our ceiling business around project works and being able to automate the design, we've been able to incorporate these structural grid components now in project works. And so we're using the project works tool also to drive automation and productivity for the architects and contractors for these complex grid systems.

Kathryn Thompson

But we're just finding and some of our that that decision making processes for data centers. It has been a big departure from other types of projects and sent out this remains on track for that question. Thanks again for your time today. Thank you.

Operator

Your next question comes from the line of Fiona Shang with Jefferies.

Fiona Shang

Hi, this is Fiona, so again and congrats on a good quarter. Its international market (inaudible) recovery rates as we go into 2025 on should we be expecting some more growth? (inaudible)

Victor Grizzle

Yes, when you peel the part of the market apart for a second in terms of new and renovation, what's really visible is the new construction activity on throughout 2024 it's been positive. New construction starts on a square footage basis has consistently outperformed the rental activity in 2024, so the pipeline of new construction activity in 2024 (inaudible) that does say there could be in the second half of 2025, a tailwind activity from new construction starts in 2024. So we'll be looking will be looking for that, on the other part of the business, which is a larger part of our business. 70% of our demand profile comes from renovation activity of the installed base, that is going to be a little bit more dependent on some of the other factors for on interest rates being one of them, of course is going to drive, but some of the uncertainty around what's going to happen to the economy that will drive competence for people to go ahead and release some of this discretionary renovation act activity that we've been talking about it's on the sideline today.
That's really kind of the things we'll have to them as we get further into the year in our planning process for next year to assess how much of that discretionary renovation activity will come back and at what rate and pace to influence the overall demand so far for 2025, in total there's more potential for tailwind opportunities going into 2025, then there are headwinds opportunities to the business.
So we'll have to see as we get closer to February and we give our full year outlook look, but that's kind of how we're thinking about today.

Fiona Shang

Perfect. That's helpful. Then just a quick follow-up on margin expansion form (inaudible), it was pretty good. It's all on how should we think about the cadence for the second line going into 2025? Any colors on margins or revenue will be helpful.

Chris Calzaretta Calzaretta

Yes, we have healthy margins and Mineral Fiber and again, you can see the performance relative to our best quarterly performance since 2019 after the third quarter the way we think about margins and Mineral Fiber is just kind of going back to the building blocks and core value drivers that Vic outlined earlier continued pricing execution and again, we look at all the inputs and components in order to determine our pricing that for the year and really at a minimum to offset inflation. It's the continued ability to drive manufacturing productivity in our plants, again to drive that margin expansion.
And then again, all of the pull together have all of the execution in terms of controlling our costs, making disciplined investment decisions to get those returns should yields in our future and ongoing margin expansion, so that's how we look at the algorithm. That's how we look at the fundamentals of the business. And that's how we run the business is to continue to drive profitable growth with ongoing margin expansion.

Fiona Shang

Perfect. Thank you.

Operator

Your next question comes from the line of John Lovallo with UBS.

John Lovallo

Good morning, guys. Thanks for taking my questions as well. The first one is just on Vic, you characterize the Mineral Fiber volumes sort of stabilizing moving sideways, in the context of the slight decline in volume for Mineral Fiber that you guys posted in the quarter. Where does the market or how did the market performance, and how much would you say are you outperforming? And as we move into next year, how do you see that kind of spread between the market into the ARM chunks, ability to outperform hedge on the EM?

Victor Grizzle

The market overall seem to be fairly consistent in the third quarter with what we've seen the last two or three quarters to characterize it down low single digit level. Our initiatives we've sized in that one may be slightly north of one percentage in terms of volume, incremental volume contribution. So not quite offsetting all of the market softness, but a good part of it.
And that's been pretty consistent all year from the initiatives that we've talked about because I think about that going forward next year, I expect that we'll continue our growth initiatives, especially as we add new growth initiatives like the energy saving ceiling tiles and our Low Embodied Carbon products. We have some confidence that our growth initiatives can continue to be in that one slightly, again, greater than 1% contribution to the business, whatever the market gives us.
And again, we're were up or kind of moving in a sideways here until some of this uncertainty closed up, the delta between our market reality to our growth initiatives should still be in that one plus percent range.

John Lovallo

Okay. Makes sense. And then just the beginning of the call that you guys mentioned the Hurricane impact. And so it's a little bit uncomfortable will talk about the rebuild that for what is your role could be in that, but is there any opportunity for us from trying to participate in the rebuild that will occur there, authentic?

Victor Grizzle

Yes, it's early to tell, John, on that, for this kind of a storm it usually is later in the cycle versus early in the cycle to be determined like in similar storms, there's been a little bit, but it's not a big needle mover and material to the overall profile of the business. And that's kind of how we're thinking about this one at this point. But it's kind of early to tell.

John Lovallo

Understood. Thanks for the color.

Victor Grizzle

Okay, thank you.

Operator

There are no further questions at this time. I will turn it back over to Vic Grizzle, President and CEO for closing remarks.

Victor Grizzle

Thank you all for joining our call today. Again, we're well positioned to finish the year strong, as Chris mentioned, and well positioned for whatever the market conditions happened to be in '25. And we're very pleased with the demonstration of really strong execution and the overall resilience of the business model. And we think that's going to continue as we go forward into 2025, so look forward to talking to you later again. Thank you for joining.

Operator

This does conclude today's conference. You may now disconnect.