The long view
Armstrong CEO Matthew J. Espe looks to horizon to guide businessJim T. Ryan
Imagine Matthew J. Espe as a surfer sitting atop a board, the sun setting in the distance as he peers at the ocean's horizon seeking that large swell rolling toward shore.
The 54-year-old northern California native, who is CEO of global building-products manufacturer Armstrong World Industries Inc., said that's similar to how he looks at managing the business: He looks at the trends rolling along and tries to guide the company onto a wave of success.
That isn't always easy, especially since Lancaster County-based Armstrong emerged from Chapter 11 bankruptcy reorganization about six years ago. The company has dealt with recession, tense union negotiations, executive turnover, factory constructions and segment sales since Espe took over in 2010.
However, Armstrong posted third-quarter earnings of $74 million, 43 percent better than a year ago.
The company is in safer waters these days, Espe said.
Q: Armstrong appears to be moving in a strong direction. Can you give an overview of where the company is today and where it is going?
A: What I found when I got here a couple years ago was an extremely strong culture. The company has been around 150 years. The average length of service is very strong. The relationships we have with our customers, our distributors, the architects are very strong. So you look around the company, you have a great deal of pride, great deal of commitment, and what I would consider very relevant experience. And so that culture really gives us something to build on.
What I also found was a company that had become a little overly bureaucratic. Some of the processes in place were a little dated. It caused us to move too slow, maybe miss out on some opportunities. I think some of that is a function of emerging from the bankruptcy. You just manage a company different through that process. So the opportunity we had was very strong fundamental culture combined with an opportunity to simplify stuff and pick up speed.
The company has been closing older factories, opening a few new ones around the world and here in the U.S. Where is the company in that process?
Most of the plant openings are in support of (our) emerging market strategy … So we have been in China, India, Russia for 15 to 20 years. We've got great distribution. We've got good presence there.
Russia is the third-largest ceiling market in the world. We've got 30 to 40 percent (market) share. We're a significant player in the ceiling business and the flooring business in China and the same in India. The difference is, historically, we've sort of harvested that opportunity instead of looked at it strategically and got behind it.
We have three plants going into China. … But these plants are for China consumption. We're not shifting jobs to China to ship product back here. These are plants to support that double-digit revenue growth in Asia. …
Are there plans to upgrade the Marietta and Lancaster facilities?
A couple years ago, before I got here, we made a major renovation in Lancaster. ... I think it allowed us to take our product line and make it a little more conventional.
Marietta is one of our largest ceiling-tile plants in the world and certainly in the U.S. There are ongoing investments there in terms of automation, upgrade of equipment, maintenance and things like that.
Once you build a ceiling plant, there's not a lot of manufacturing technology advances — again, the ceiling-tile guys are probably going to argue with that a little bit — but what we're focusing on in Marietta is making the plant more productive, more effective and always safer. …
But as the market grows in the U.S., we're going to look for opportunities to invest here. The thing about our business is you have to make the stuff close to demand. The best way to support growth in the market in the U.S. is to invest in our manufacturing platform in the U.S.
Last year, the company renegotiated contracts with its unions. What did the company gain in that process?
I think we gained stability for our customers and a consistency of service. I think through a tough and challenging negotiating process, we were able to get and continue to build a more competitive cost structure. I think where we landed was fair for all parties and that allows us to continue to invest here and to continue to maintain the viability of the plants. …
We're pleased with how it ended. We're glad to have our employees back, and we're off and running and worrying about our customers now.
Can you explain why the company took on debt to pay shareholder dividends?
We finance special dividends fundamentally out of excess cash. … What we did do twice since I've been here is take advantage of historically low interest rates to take on a little debt but well within a conservative range. That allows us to refinance the balance sheet facilitating a dividend payment. So thinking that we took on debt to pay a dividend is a little over-simplistic.
The way this works with us, we start a dialogue with the board about strategic investments we want to make: the plants in China, potential acquisitions. We look at our cash-flow projects, then we identify funds that are in excess of what we need to drive the business.
Many people are talking about American manufacturing and its potential for growth. What's your take on where American manufacturing is going?
I think we've learned a lot about productivity in the last four or five years. The success of American manufacturing is predicated on product innovation, proximity to customers and manufacturing productivity.
I think companies that have survived and arguably prospered in the last three to four years are extremely well positioned on all three of those fronts. And those companies are looking outward versus internally to pick up the growth signals before anyone else. …
I want our company to look outside. I want to focus on customers, on opportunities, on distributors, looking for growth certainly around the world, but also here. Seventy percent of our revenue is from the U.S. This is the mothership.