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Armstrong World Industries Inc (NYSE:AWI)
Q2 2019 Earnings Call
Jul 29, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2019 Armstrong World Industries, Inc. Earnings Conference Call [Operator Instructions].

I would now like to introduce your host for today's conference, Tom Waters, Vice President of Corporate Finance. Please go ahead, sir.

Thomas Waters -- Vice President of Treasury and Investor Relations

Thank you. Good morning, and welcome. Please note that members of the media have been invited to listen to this call and the call is being broadcast live on our website at armstrongceilings.com. With me today, our Vic Grizzle, our CEO; and Brian MacNeal, our CFO. Hopefully, you have seen our press release this morning and both the release and the presentation, Brian 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 World Industries, please review our SEC filings, including the 10-Q filed earlier this morning.

Forward-looking statements speak only as of the date they are made. We undertake no obligation to update any forward-looking statements, beyond what is required by applicable securities law. In addition, our discussion of operating performance will include non-GAAP financial measures within the meaning of SEC Regulation G. A reconciliation of these measures with the most directly comparable GAAP measures is included in the press release and in the appendix of the presentation, both are available on our website.

With that, I'll turn the call over to Vic.

Vic Grizzle -- Chief Executive Officer

Thanks, Tom, and good morning, everyone. It's good to be with you today to review our second quarter results, another solid quarter for the company. We delivered sales growth of 9%, adjusted EBITDA improved 14%, and margins expanded 160 basis points. With this strong quarter, we are completing a solid first half of 2019, for the half, sales were up 8%, EBITDA is up 15%, and margins expanded by 240 basis points. Both of our segments are performing well and accelerated throughout the half. And therefore, we remain confident in our 2019 guidance. In a moment, Brian is going to walk you through the details of the results by segment, but I first want to touch on a few of the key takeaways.

In the Mineral Fiber segment, average unit value or AUV was up more than 6% with both like-for-like pricing and mix improvements positively contributing in the quarter. Our industry leading innovation continues to be the key driver of mix improvement, with sales of mineral fiber products at the high end of our portfolio growing double-digits in the quarter.

Recent new product launches including the Sustain and Total Acoustics product families are leading the way. But we are now also seeing contribution from DESIGNFlex, which we launched last summer. Architects and designers are beginning to see the creative possibilities afforded by this leading edge new offering, and we are encouraged by the initial new business results. Our new product vitality measure, which is a measure of sales of new products introduced in the last five years is now over 40%. For perspective, this measure is up from the low-teens as recently as five years ago. This has been a focused effort by our team and we are now seeing the fruits of this work.

Year-to-date, Mineral Fiber AUV is up over 7%. We're confident in once again delivering AUV growth in the 5% to 7% range, consistent with our historical average. Now, as we discussed when reporting our first quarter results, weather and other timing related headwinds impacted Mineral Fiber volume at the start of the year. And we anticipated steady improvement as the year progressed. And that's what we saw in Q2. As volume improved sequentially, making up a meaningful portion of the shortfall. The relatively smaller channels, namely Latin America, continue to lag in the quarter and given the political and economic conditions in those regions, we expect that these areas will remain a headwind in the second half, resulting in overall flattish volume for the year. Our Mineral Fiber operations are executing at a high level. In the quarter and year-to-date, Mineral Fiber gross margins have expanded more than 300 basis points. Our plant reliability metric, a multi input measure of overall manufacturing performance, continued its recent favorable trend and was near all time highs in the quarter. Quality and service metrics were also excellent. And most importantly, safety performance remains strong.

Now its early days, we are beginning to see results from our digital factory initiatives, a subset of our overall digitalization strategy. To date, we have deployed hundreds of sensors throughout our Mineral Fiber plants and our harvesting and analyzing the data using both human and artificial intelligence. Insights from this analysis is already allowing us to optimize how we run our production lines, resulting in lower scrap rates and increased uptime. I believe this technology will enable our solid track record of productivity to continue into the future.

Architectural Specialties continues its strong run, with sales up 38% in the quarter. The base business, which includes our 2018 acquisitions of Plasterform and Steel Ceilings grew a strong 23%. And our first quarter 2019 acquisition of ACGI contributed the rest of the growth. We continue to penetrate the specialty ceilings and walls market and expand our leadership position through the broadest portfolio, the best in-class design capabilities, and the industry leading service and quality through our distribution partners.

Now related to this combination of competitive strengths, I'd like to share a real example of a custom job we recently won. A major hotel project in Nashville, called for a complex wood fabrication solution that prior to the ACGI acquisition was not an opportunity for us. However, with ACGI advanced manufacturing capabilities, we were able to provide the required solution containing the highly engineered wood products necessary to achieve the performance and the aesthetic vision of the architect and building owner. This solution included 13 different wood product types, including curved panels, baffles and radius trim, a rare combination for any single manufacturer. These specialty wood capabilities also opened the door for us to win a significant order of DESIGNFlex, Mineral Fiber ceilings and drywall grid.

No other single company is capable of delivering such a broad combination of products and technical support necessary to make this project a reality. A true one stop shop experience for the architect and building owner. With the acquisition of ACGI, we now have in-house capabilities in the critical specialty substrates of metal, wood, and wood fiber, combined with our glass reinforced gypsum capabilities of Plasterform and our -- strategic supplier network, we have established a unique leadership platform in the specialties category. While, we have come a long way in building these capabilities, there is still much more to come, as we broaden and deepen our specialty ceiling and walls capabilities and accelerate growth for years to come.

I'm particularly pleased that we were able to expand margins and the Architectural Specialties segment despite our investments. And while overcoming the integration of lower margin acquired businesses. We remain confident that our playbook of acquiring good businesses, bolting them on to the Armstrong sales and marketing platform, and investing in their manufacturing capabilities will yield significant growth, margin expansion and create shareholder value.

So with that, let me turn the call over to Brian to go through some of the details. Brian?

Brian MacNeal -- Chief Financial Officer

Thanks, Vic, good morning to everyone on the call. Today, I'll be reviewing our second quarter results. But before we go into the financials, as a friendly reminder, I'll be referring to the slides available on our website. Slide 3 details our bases of presentation.

Turning now to Slide 4 for our second quarter results, sales of $272 million were up 9%, despite one less shipping day versus Q2 of 2018. Adjusted EBITDA increased 14% with margins expanding a 160 basis points. Adjusted diluted earnings per share of $1.27 grew 31%. As profitability increased, we lowered our share count 5% via buybacks and our book tax rate was 400 basis points lower than last year. Adjusted free cash flow declined by $14 million over the prior year. Cash earnings improved, but we're offset by a $20 million income tax refund in 2018 and lower payables in 2019. Net debt increased by $63 million, driven by a lower cash balance due to the acquisition of Steel Ceilings and ACGI, as well as share repurchase activity.

In the quarter, we repurchased $28 million of stock, since the inception of the repurchase program, we have bought back 8.3 million shares or 15% of our outstanding float. At a cost of $479 million for an average price of $57.42. Currently, we have over $200 million remaining on our share repurchase program, which runs through October of 2020.

Turning now to Slide 5. Adjusted EBITDA increased $13 million, as strong AUV gains driven by both like-for-like pricing and improve Mineral Fiber product mix fell to the bottom line.

Volume gains were driven by Architectural Specialties. Inflation moderated in the quarter, but remained a slight headwind. Year-to-date inflation is running in the range of 2% to 3%. As Vic mentioned, our plants continue to run well and delivered gains that offset the added costs of our acquired businesses and investments in AS capabilities. SG&A costs were slightly favorable as our 2018 restructuring efforts overcame inflation, investments in AS and the SG&A of our acquired companies. WAVE earnings were down $2 million as they are comping a very strong second quarter in 2018. WAVE remains on track to deliver earnings growth for the full year and margin expansion.

Slide 6 shows adjusted free cash flow performance in the quarter versus the second quarter of 2018. Cash earnings growth improved and grew 46%, but was offset by the tax and accounts payable headwinds I mentioned earlier. Other cash items were essentially flat year-on-year.

Slide 7 begins our segment reporting. In the quarter, Mineral Fiber sales grew $7 million or 4%. AUV gains driven by strong like-for-like pricing and continued mix improvements more than offset volume declines. Despite a weak Latin American market, we maintained a positive outlook for volume in the second half of the year.

Adjusted EBITDA was up $10 million or 11% as margins expanded 310 basis points. AUV gains were the biggest driver to improve the EBITDA. Productivity in the plants was solid and we realized savings from the footprint optimization actions we took last year. Raw material costs were slightly higher than last year, while freight and energy costs were essentially flat. SG&A expenses were lower as a result of our cost saving initiatives in 2018, and as you will remember, we announced the $20 million restructuring program in the second quarter of 2018 to right size our SG&A structure and optimize our manufacturing and distribution for our America's only business. We realized $10 million in savings in the second half of 2018, and we've now delivered another $10 million of savings across both manufacturing and SG&A in the first half of 2019.

Moving to Architectural Specialty segment on Slide 8. Quarterly sales increased 38%. Organic sales grew 12% as share gains continued. Base sales which includes the acquisitions closed in 2018, grew 23% and the ACGI acquisition contributed the rest. Adjusted EBITDA and AS was up 39% in the quarter, as sales gains were partially offset by investment in sales support capabilities and the fixed costs of the acquisitions. As Vic mentioned, margins expanded as sales leverage and our integration efforts offset the headwinds of investments and lower margin acquisitions. EBITDA margins in the base business, which includes our 2018 acquisitions, expanded 40 basis points.

Turning now to Slide 9, this provides our results for the first half of 2019. Sales of $514 million were up 8% and adjusted EBITDA increased 15%, driving margin expansion of 240 basis points. Adjusted diluted earnings per share of $2.28 grew 25%, primarily driven by increased profitability.

Slide 10 is the bridge for our first half results. Volume gains and Architectural Specialties were largely offset by declines in Mineral Fiber volume. AUV was the big driver of earnings growth with both price and mix contributing meaningful gains. Year-to-date, we experienced moderate inflation and drove benefits from productivity gains in our 2018 restructuring. These improvements more than offset investments in the fixed manufacturing cost of acquisitions. SG&A also benefited from restructuring and more than offset investments in the SG&A of acquired businesses.

Slide 11, displays the drivers of adjusted free cash flow for the first half of the year. Operating cash flows benefited from cash earnings, which were up 11%, but year-on-year were impacted by the $20 million tax refund we received last year. We remain on track to deliver $220 million to $240 million of adjusted free cash flow for the year, a 9% increase at the midpoint when excluding the special dividend from WAVE in the base period.

Slide 12, outlines our guidance for the year. We are reaffirming our sales, EBITDA, EPS and cash flow guidance. The sale of our international business is nearing its conclusion. And we expect to close the transaction in the third quarter. I'll remind you that we receive the proceeds from the sale last year. So the impact on 2019 financial performance will be minimal.

To close, I'm pleased with the results we have been able to deliver so far this year, with first half sales up 8% and adjusted EBITDA up 15%. I remain confident that we have the plans in place to deliver high single-digit sales growth and double-digit adjusted EBITDA growth, consistent with our value creation model.

With that, I'll turn it over to Vic.

Vic Grizzle -- Chief Executive Officer

Thanks, Brian. At the halfway mark, 2019 is shaping up nicely. Overall, market conditions are largely as we expected entering 2019, and our teams are executing very well. So we remain confident in our full year guidance, which delivers high single-digit revenue growth and double-digit EBITDA increases consistent with the growth trajectory we outlook at our Investor Day last November.

Our value creation drivers, namely AUV improvement, Mineral Fiber, accelerated growth through share gains and acquisitions and architectural specialties, a balanced approach of feathering and investments to support the growth while maintaining margin expansion and returning cash to shareholders are all being executed as planned. And of course, innovation remains paramount in Armstrong, not only in new products, but now also in digital technology. Our digitalization initiatives are well under way and include design and visualization tools to improve the speed and accuracy of the architectural specification process. We are developing capabilities to provide virtual and augmented reality project visualization while simultaneously creating design drawings, installation instructions and a real-time bill of materials. What used to take weeks will soon take hours. This technology will allow AWI team to earn specifications for its industry leading product innovation, as well as improve our customer's experience along the way. Armstrong is committed to being a leader in innovation to providing the best possible experience for our customers and committed to making a difference in the spaces where people live, work, learn, heal and play.

So with that, we'll be happy to take your questions.

Questions and Answers:

Operator

[Operator Instructions] And our first question comes from the line of John Lovallo with Bank of America. Your line is now open.

John Lovallo -- Bank of America Merrill Lynch -- Analyst

Hey, guys. Thank you for taking my questions. The first one, it seems like of the Mineral Fiber volume headwinds that you called out last quarter, that Lat Am is probably the one that didn't improve as expected, which would imply that big box and weather both got a little bit better. Is this the right way to think about it? And, if it is, how big is Lat Am, as a percentage of your Mineral Fiber business?

Vic Grizzle -- Chief Executive Officer

Yeah, John, that's the right way to think about it. We had weather related issues in parts of the country and in Canada in particular we called out, and then also some of the inventory corrections in the big box area. All of those areas improved sequentially in the quarter as we expected it to and as we talked about in the first quarter. The one that didn't improve enough and knowing -- now knowing what we know now about that market, I don't expect Latin America in particular to bounce back or have enough time in the remainder of the year to bounce back. It eventually will bounce back, I think we're in good shape down there. But I don't think that, that's going to help us in the second half of the year. Therefore, that gets us to the lower end of our previous guidance range on volume. But the rest of the areas are again, they're working their ways through the system, as we expected them to do. And and as far as sizing, we don't breakout Lat Am specifically, but as I said in my prepared remarks, it's a smaller channel for us, overall relative to the other channels that we have.

John Lovallo -- Bank of America Merrill Lynch -- Analyst

Got you. Okay. That's helpful. And then, via the Mineral Fiber AUV in the quarter, was there any meaningful divergence between kind of the historical 50-50 split between price and mix?

Vic Grizzle -- Chief Executive Officer

It was a kind of elective first quarter, as we outlook, it was a little heavier on the like-for-like versus mix. But again, as the year plays out, we expect that to be closer to the 50-50.

John Lovallo -- Bank of America Merrill Lynch -- Analyst

Okay. Thanks, guys.

Vic Grizzle -- Chief Executive Officer

Yeah. Thanks, John.

Operator

Thank you. And our next question comes from the line of Kathryn Thompson with Thompson Research. Your line is now open.

Kathryn Thompson -- Thompson Research -- Analyst

Hi. Thanks for taking my questions today. And just to a follow up on the AUV, next question. Given that it's a little heavier for like-for-like, a synthesis from more the pricing actions from last year flowing through than current year pricing actions?

Vic Grizzle -- Chief Executive Officer

Yeah, Kathryn. That's a way to think about it. As we talked about in the first quarter, we're lapping some of the aggressive price increases we were doing based on the inflationary environment last year. As you know, we were going heavier with our price increases in the second quarter last year. So it wasn't a full quarter. That's why we saw some moderation there, but that's the right way to think about it.

Kathryn Thompson -- Thompson Research -- Analyst

And how should we think about it as we look over the next 12 months, given pricing actions that are out in the market now?

Vic Grizzle -- Chief Executive Officer

Yeah, I think, we're going to be comping again a lot of those successful actions last year and raising price to compensate for the heavy inflation. So I think you'll see some moderation on the price side. I expect the mix and it's been favorable all the year. I think that part of the equation should continue for us. I'm very confident about the mix continuing. So like I said, I think overall, we're going to end at a very similar place than we normally do or have historically have with about a 50-50 mix of pricing mix.

Kathryn Thompson -- Thompson Research -- Analyst

Okay, perfect. Just in terms of new products to give a update on the acoustical rollout, also just a clarification of how big you think that opportunity is. Thank you.

Vic Grizzle -- Chief Executive Officer

Yeah, the acoustical continues to gain a lot of attention and a lot of interest in the marketplace. I personally have been involved in some conversations with architects that are very interested in the combination of having that monolithic white, smooth white look with the acoustical performance of Mineral Fiber and we have that in the same product as -- is a revolutionary combination of features of benefit. So there's a lot of interest. We're in the early days of working through a specification cycle. So as we've talked about, this is not a meaningful impact in 2019. But I'm very pleased with the interest level, we've had several installations, we've closed already our first couple of jobs in that material and they've all gone very well. So very pleased with it. Early days and we're going to refrain from sizing the total market opportunity until we get further into the rollout. But again, we continue this is a meaningful opportunity and we're excited about it.

Kathryn Thompson -- Thompson Research -- Analyst

Okay. And then, final question really is more on technology understanding that most of the construction industry is populated by Luddites. How is this self-serviced quote rollout outgoing. And do you still see this as a meaningful cost saving for Armstrong? Thank you.

Vic Grizzle -- Chief Executive Officer

Yeah. Thanks for the question. I think, we're really excited about this one quote system that we have, that as we broaden our portfolio of products that -- we continue to be easy to do business with them and we provide access to this broad portfolio in a very frictionless way. So this one quote system that we have that's turning into a quarter order -- one quote order system, which is the next generation is just making that easier and easier for our customers to interact with us.

So the adoption rate of that was extremely high and went very quickly, and we continue to get traction with again the second generation of that, which is taking once you have a one quote in the system be able to have that go from a quote to an order in a seamless fashion as well. So, again, this is, I think, the beginning and we're in the early innings of rolling out more of this digital technology that makes it just as -- makes it just so much more easy to do business with. And again, I'm very encouraged by the adoption rate marketplace and the feedback I got personally from the ability to have this one closed system and more to come on that.

Kathryn Thompson -- Thompson Research -- Analyst

Great. Thank you so much.

Vic Grizzle -- Chief Executive Officer

Thanks, Kathryn.

Kathryn Thompson -- Thompson Research -- Analyst

Thank you.

Operator

Thank you. And our next question comes from the line of Ken Zener with KeyBanc. Your line is now open.

Ken Zener -- KeyBanc Capital Markets Inc -- Analyst

Good morning, gentlemen.

Vic Grizzle -- Chief Executive Officer

Good morning. Good morning, Ken.

Ken Zener -- KeyBanc Capital Markets Inc -- Analyst

Yeah. I'm not sure. Yeah, so the stock's off today you've had an incredible run all year. Yeah. There's something I asked you in the third quarter conference call, and I think that's what the weakness is kind of reflecting is persistence of volume decline in mineral wall, exceptional price mix that you talk to the 40 -- I think we said 40% vitality rate. And then the lower margins obviously in a AS, investments, etc etc. Can you just go over your view is the volume declines you said were coming from Latin America. Are those -- but you held your guidance, right? So -- but I think, is Latin America volume, which you're not going to break out, I understand, it seems to me that that margins would be less in that product mix that you're delivering there. Is that accurate or is that not accurate?

Vic Grizzle -- Chief Executive Officer

That's accurate. I think the -- we've talked about the smaller channel for us, it's a developing market where you tend to sell lower -- lower value product mix and two, and therefore, lower margin. So that's I think you got right, Ken.

Ken Zener -- KeyBanc Capital Markets Inc -- Analyst

And then, because price mix is so strong, people just wonder how long you can have isolated mineral wall? I think, personally you have to leave them both together because you're covering the space in the building. But do you foresee all these -- this 40% vitality rate? I mean, when you record flex design and this stuff, I mean, is that going to be going through, I assume that's going through volume with price mix or is that how are you going to be recording that. So we don't misinterpret the volume that's occurring in that category as relates to price mix benefits.

Vic Grizzle -- Chief Executive Officer

Yeah. As I talked about, Ken, the main driver of the AUV improvement has been this mix impact from the new innovations, from total acoustics to sustain DESIGNFlex, which to your question will, is a Mineral Fiber product so it goes through our price volume mix breakout. So it's going to be contributing to the mix in a big way, ACOUSTIBuilt is another one that's going to be a Mineral Fiber product that's going to continue to support a higher value mix.

So again, I think, I'm really encouraged by the Vitality Index, that we've been tracking over the last several years. It tells us a lot of things and it should tell you this. It should tell you that the innovation that Armstrong is bringing to the market is relevant innovation and that the market wants. And we're really letting the market drive our innovation efforts. And I think this is an affirmation that, again, the products that we're bringing into the right features and benefits and at the right price point that customers are willing to pay. And that's why I think it's so encouraging. And I'd say, that's why you should also be encouraged because of the long cycle with this innovation that this mix up story is going to continue with Armstrong.

Ken Zener -- KeyBanc Capital Markets Inc -- Analyst

Right. Thank you very much.

Vic Grizzle -- Chief Executive Officer

Thank you, Ken. Thank you.

Operator

Thank you. And our next question comes from the line of Michael Wood with Nomura Instinet. Your line is now open.

Ryan Coyne -- Nomura Instinet -- Analyst

Good morning. This is Ryan Coyne on for Mike. Maybe just a little bit on cost inflation. Just curious how inflation is tracking your initial 3% to 3.5% range from earlier this year?

Brian MacNeal -- Chief Financial Officer

Yeah. Ryan, we're down below that now -- we're in that 2% to 3% range. I'd say, 2.5% to 3% is a little bit more accurate. But in that 2% to 3% range.

Ryan Coyne -- Nomura Instinet -- Analyst

Okay. Great. And then just a little bit higher level, just from your advantage point, how the commercial construction market is bearing year today? What do you see for the second half? And then maybe a little bit on what you're seeing for 2020?

Vic Grizzle -- Chief Executive Officer

Yeah, Ryan. This is Vic. Let me take that. I think, as I mentioned in my prepared remarks, the market is about what we expected it to be. Education in particular, I had been out looking that we were expecting a better education market this summer season than we saw last year. And that has materialized. It sets modestly better than last year. It's driven by healthier state local government spending. And that's also been supported by some improving education starts over the last 18 months or so. So I think that's been a nice materialization of what we were expecting to see.

Healthcare remains flat, overall. Retail is down slightly, and office continues to hang in there in the low-single digits. So I'd say overall, the market is about what we expected. And -- I'll add to that a little bit of color from my visits out to the field, meeting with contractors and distributors, even architects that are very bullish about the second half of the year, given their coding activity and their backlogs. So again, we feel good about what we're seeing in front of us right now from a market standpoint.

Ryan Coyne -- Nomura Instinet -- Analyst

Appreciate it. Thank you.

Vic Grizzle -- Chief Executive Officer

You bet.

Operator

Thank you. And our next question comes from the line of Garik Shmois with Longbow Research. Your line is now open.

Garik Shmois -- Longbow Research -- Analyst

Thank you. I'm just wondering if you could touch on the cash flow in the quarter. You're reiterating your outlook, but -- assume that working capital was a little bit of a headwind. So wondering how that tracks in the second half of the year, just the confidence if that reverses.

Brian MacNeal -- Chief Financial Officer

Sure, Garik. It's Brian. We're pretty confident in it. I mentioned they called out. We had some -- in the first half last year we got a $20 million refund on taxes and so we're normal -- we're starting to wrap that, and for the quarter specifically working capital was a headwind, but a slight benefit on the half. So we expect it to follow us consistent performance in the back half like we saw last year and deliver our guidance.

Garik Shmois -- Longbow Research -- Analyst

Okay. Thanks. And then, just a follow up just on the volumes in Mineral Fiber. I just wanted to be clear, is it really the only change in your guidance related to Lat Am, and then also just with respect to the expected volume growth in the second half of the year, you touched on education coming in a little bit better than you've previously expected. There is also that the main change in, I guess, the verticals tracking in the second half versus your initial expectations?

Vic Grizzle -- Chief Executive Officer

Yeah, I think all the verticals are about what we expected. Again, the one that we had to kind of wait and see on was education because it's such a seasonal market. But as I said earlier, it's materialized as we had hoped it would. So I think the main headwinds, as we talked about, we got to a slow start in the first quarter, driven by some of these weather and timing related issues. And I still think those are working their way through with the exception of Latin America being, I think, a little bit more of a headwind and probably a longer time frame than we'll have time for in 2019. But I think overall, I think that's -- I think we're seeing the market that we expected.

Brian MacNeal -- Chief Financial Officer

Hey, Garik, this is Brian. The other thing I'd add to the education is interestingly enough, we're starting to see is a mix-up there. And even K-12, so it's not the universities. So it's encouraging mix up, too.

Garik Shmois -- Longbow Research -- Analyst

Okay. That's helpful. Thank you very much.

Brian MacNeal -- Chief Financial Officer

Yeah.

Operator

Thank you. And our next question comes from the line of Keith Hughes with SunTrust. Your line is now open.

Keith Hughes -- SunTrust -- Analyst

Thank you, Vic, back to your comments of your work in the field and some of the general bullishness of the contractors and other customers. Are they seeing demand spill over into 2020? Did you have that longer vision that started 2020 will look as robust as the second half of '19?

Vic Grizzle -- Chief Executive Officer

Well, as you know, they have a lot less right. But in our longer project cycle business, like an Architectural Specialties, I am hearing some good activities spilling over into 2020 already. So as you know, the contractors and distributors aren't going to get too far out front because of their visibility, but -- it's more positive than it's -- than people are being negative, if that helps, and I'm really seeing again on the the longer cycle projects in Architectural Specialties. So it's early days, early to tell, but that's one sentiment that I'm picking up in the marketplace.

Keith Hughes -- SunTrust -- Analyst

One follow-up too, on the mix question. Are you seeing or higher-end projects come in or are you just think you're winning more share at the higher-end right now?

Vic Grizzle -- Chief Executive Officer

Well, I think there's some up-selling going on with these new features and benefits that are available now. Like we're talking about with Total Acoustics and Sustain, for example. So a lot of this stuff, Armstrong is involved, and we're on. But there is a trade up going on with these new offerings. So I think there's a lot of that going on. I do believe that we do a really good job on the specification side of the business, driving the specifications at the high end of the market. So I think, we're doing a really good job at the high end there.

Keith Hughes -- SunTrust -- Analyst

Okay. Thank you.

Vic Grizzle -- Chief Executive Officer

Thanks.

Operator

Thank you. Our next question comes from the line of Stephen Kim with Evercore ISI. Your line is now open.

Stephen Kim -- Evercore ISI -- Analyst

Thanks very much, guys. Good quarter. Just as a housekeeping item, a couple of housekeeping items here. Days impact, what do you think that had -- what kind of influence do you think that had in the quarter? And did I hear you say that the -- you thought that the office segment was up mid-single digits or low-single digits?

Vic Grizzle -- Chief Executive Officer

Yeah. So it's on the days impact, it's about 1.5%, is the way to think about that on the quarter, both on volume and revenue. What I said on office, Stephen, was that it continued to be positive and it's in the low-single digit positive, is what we're seeing so far in the marketplace. And again, there is some really good construction activities that are supporting that as well.

Stephen Kim -- Evercore ISI -- Analyst

Got it. Okay. And then, second question related to the SG&A savings in Mineral Fiber and the investments and investments in Architectural Specialties. Can you break out like what some of the largest contributors to the savings are? What drove the increase in those two numbers, one positive, one negative. And is that 2Q savings run rate pretty good news going forward?

Brian MacNeal -- Chief Financial Officer

Stephen, this is Brian. So now -- we've completed the benefit of the restructuring and it's a combination of cost of goods sold and SG&A. We have profiled $10 million in the first half of this year. So that run rate that we saw from Mineral Fiber is not a run rate, which is roughly $4 million in the quarter. But the investments we're making, for example, in AS and remember, even though we break these in the segments, it's really one big business, right? Because there is multiple products or broad portfolio in every job. And so we're adding some more CAD designers in the upfront, technical folks that help with project oriented specifications.

Stephen Kim -- Evercore ISI -- Analyst

Okay. That makes sense. Sort of keying off of that. Vic, you had talked about the visualization initiatives and the innovations that are being implemented on that front. just want to make sure I understand, are these desktop based applications these website driven? Where are the designers going to utilize this functionality and these features that are sitting at their own offices? Or do they have to go to a distributor location to interact with these? Sort of what is --where is -- what's the user interface like?

Brian MacNeal -- Chief Financial Officer

Yeah. Initially, these are desktop applications because of the size of these files. Eventually they'll migrate to cloud-based solutions, is our hope and the plan. But yeah, the opportunity right now is in both in their office where we have to take our system in. But they're -- we have a site on campus now that they can come to and we can do live work on campus, or we can do it virtually through an Internet feed. So there's multiple ways to interact, but right now they're desk based solutions.

Stephen Kim -- Evercore ISI -- Analyst

Would it be your guess that, where this really takes kind of like a potential quantum leap forward would be when they can actually do it in the convenience of their own office whenever they get around to it, be having a cloud-based system or is there something about the way in which the designers work and interact with your products such that won't necessarily be the case, like it would be if I'd say in certain other product and design situations?

Brian MacNeal -- Chief Financial Officer

No, we certainly expect this to get to a point where it's easy enough to use and they can do it in a cloud-based environment. That's definitely the plan and the direction. I think our customers want this to be available as a tool for them to use as they see fit within their design cycles. So that's definitely the rational moving.

Stephen Kim -- Evercore ISI -- Analyst

Okay. And in terms of time frame to get there?

Brian MacNeal -- Chief Financial Officer

We're not really -- prepared to say publicly, it's kind of an ongoing development and we'll keep you updated as we go. But right now it's kind of locked in or sitting in a desktop solution for the time being.

Stephen Kim -- Evercore ISI -- Analyst

Okay. Well, great. Thanks very much, guys.

Brian MacNeal -- Chief Financial Officer

Thanks.

Vic Grizzle -- Chief Executive Officer

Thanks.

Operator

Thank you. And our next question comes from the line of Phil Ng with Jefferies. Your line is now open.

Philip Ng -- Jefferies -- Analyst

Hey, guys. To get to your flat volume guidance for a Mineral Fiber would imply you would see a pretty notional pickup in the back half. Is part of the confidence that's driving that uptick driven from the trends you're seeing in July and perhaps the education piece you flagged?

Vic Grizzle -- Chief Executive Officer

Yeah, I'd say what we're seeing in July is consistent with that outlook. And again, in my comments earlier about the education season. So say yes, I'd say, that that's right.

Philip Ng -- Jefferies -- Analyst

Okay. Big piece of the education. All right. Sounds good. And then good to hear you're seeing some pretty positive feedback on DESIGNFlex. Have you started seeing the -- see any meaningful contribution, whether it's on the AUV line or on shipments. And then as for the ACOUSTIBuilt piece, I know it's going to be more of a 2020 event. Is the opportunity more on commercial? Or there's some opportunity on the resi side as well? Thanks.

Vic Grizzle -- Chief Executive Officer

Yeah. I'd say DESIGNFlex, it's still early and relatively small to the overall size of the business. So it would probably be in the rounding air of -- on the mix line. But again, I think we're gaining ground there. And it is starting to materialize in terms of revenue, which is very nice to see. The ACOUSTIBuilt has application on both sides, both residential and commercial. So where we're focused right now is where we have the opportunities is initially on the commercial side of the business, but we have clearly see opportunities on both sides.

Philip Ng -- Jefferies -- Analyst

Got it. All right. Thanks a lot.

Vic Grizzle -- Chief Executive Officer

You're welcome.

Operator

Thank you. Our last question comes from the line of Justin Speer with Zelman & Associates. Your line is now open.

Justin Speer -- Zelman & Associates -- Analyst

Hey, guys. Appreciate time. Just a few questions. One, starting out with the Architectural Specialties side, the growth in margin expectations, as you look to the back half, if you can help characterize what you're thinking, the comparisons, particularly on the growth side in the third quarter were fairly difficult. But just getting some characterization there would be helpful.

Vic Grizzle -- Chief Executive Officer

Yeah, I think, again, -- I think what we talked about earlier in terms of the segment activity and the way that our customers are feeling about their backlogs, we are comping some tougher price comps, because a lot of the price activity in the second half -- occurred in the second half of last year. So again, that's why we expect to see some of that moderate on a comp basis. But we should have some stronger volume in the second half as we've talked about. And so, I think the combination there keeps us in the high single-digit top line growth. And then the plants and the teams are operating very, very well. So I hope to -- we expect to continue to see double-digit earnings growth on the bottom line.

Justin Speer -- Zelman & Associates -- Analyst

And particularly for the Architectural Specialties business, that high-single is a good number to kind -- to kind of model toward. And then I guess, the second question on that is just on the margin side. Given the investments that you're making, how you're thinking about that lining up in the back half as well for that business?

Vic Grizzle -- Chief Executive Officer

Yeah, again, I think we're expecting to see margin expansion in that business. I would expect double-digit top line growth to continue in that business.

Justin Speer -- Zelman & Associates -- Analyst

Okay.

Vic Grizzle -- Chief Executive Officer

Again, they're continuing to take share in the, I would say, the base business materials that we're currently in, as we ramp up some of these new acquisitions as well. So I expect to see some continued momentum in that business in the second half.

Justin Speer -- Zelman & Associates -- Analyst

Okay. And in terms of the spending, is that going to sequence down in terms of the margins? You said you expect expansion in terms of the -- I guess, the magnitude of expansion on the volumes. What are you baking in your guidance there?

Vic Grizzle -- Chief Executive Officer

Brian, you want to take that?

Brian MacNeal -- Chief Financial Officer

Yeah, sure. So Justin, the couple of things here. One, we're not going to be shy about making some investments. Again, these investments show up mostly in AS, but they benefit the total company, and we want to make those rightful choices and investments that helps sustain this nice high single-digit growth. So I can't give you an exact number. There's typically a couple million dollars a quarter, one to two a quarter for the total company. Again, most of that shows up in the AS. But again, we're not going to hesitate to make some of those investments in order to sustain that top line.

Justin Speer -- Zelman & Associates -- Analyst

Perfect. And this next question is more intermediate term in nature and you've had some acquisitions here, but just maybe an update on what you think, the -- for your current platform as it stands today in architectural specialties in particular. What your -- I guess the addressable market size or definition and how fast do you think that market is growing or expected to grow in the coming year or two? Of course, you're taking share, but just trying to get a baseline or a handle on the addressable market.

Vic Grizzle -- Chief Executive Officer

Yeah, the addressable market. Justin, is -- it's tough to be very, very specific about it, but we've talked about it being it's greater than a billion dollar market opportunity in that specialty ceilings and walls. And so again, our share position would be although we're the leader in this space, you can see the nature of the fragmentation in that space. So that's the opportunity for us to continue to execute against that. And again, our pipeline of acquisitions continues to develop nicely to support that penetration in that market.

Justin Speer -- Zelman & Associates -- Analyst

Excellent. And then last question for me is just on the SG&A leverage, obviously very good on some of the actions that you've taken for the overall business. What do you embedding for SG&A either as a percentage of revenue or maybe a dollar run-rate figure recognizing their seasonality in business. But dollar run rate figure, what's a good run rate to think about for the balance of this year and maybe on an annualized basis?

Vic Grizzle -- Chief Executive Officer

So just I'd say annualized, we're running rate around that 15% of sales, and so that affords us as we grow sales to make some investments back in the business. But are longer term value creation is right around that 15% of sales.

Justin Speer -- Zelman & Associates -- Analyst

Okay. So the 15%, you think is a good number to use or close to it for the full year despite the very good first or particularly second quarter, very good there. So we should see that step up a little bit in the back half?

Vic Grizzle -- Chief Executive Officer

Yeah. In this year, I'd say we're running a little heavier than that because of some of the acquisitions we closed last year. But overall, longer term, it is right on that 15% mark.

Justin Speer -- Zelman & Associates -- Analyst

All right. I really appreciate the time, guys. Congratulations.

Vic Grizzle -- Chief Executive Officer

Thank you, Justin.

Brian MacNeal -- Chief Financial Officer

Thank you.

Operator

Thank you. And that does conclude today's question-and-answer session. Now let's turn the call back to CEO, Vic Grizzle for any further remarks.

Vic Grizzle -- Chief Executive Officer

Yeah, I just want to thank everybody for joining our call today. Again, we feel very good. I want to thank our employees, too, for just terrific execution in the first half of this year. And we look forward to updating you after our third quarter performance. Thank you.

Operator

[Operator Closing Remarks]

Duration: 47 minutes

Call participants:

Thomas Waters -- Vice President of Treasury and Investor Relations

Vic Grizzle -- Chief Executive Officer

Brian MacNeal -- Chief Financial Officer

John Lovallo -- Bank of America Merrill Lynch -- Analyst

Kathryn Thompson -- Thompson Research -- Analyst

Ken Zener -- KeyBanc Capital Markets Inc -- Analyst

Ryan Coyne -- Nomura Instinet -- Analyst

Garik Shmois -- Longbow Research -- Analyst

Keith Hughes -- SunTrust -- Analyst

Stephen Kim -- Evercore ISI -- Analyst

Philip Ng -- Jefferies -- Analyst

Justin Speer -- Zelman & Associates -- Analyst

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