The pricing effect is very evident in the IFF results and projections, highlighted below. The company projected higher revenue expectations for the year but no increase in EBITDA with that higher revenue. We expect this trend to continue through at least the next couple of quarters, even if energy prices do not rise any further, as we believe that there is still some energy-related pass-through to come in many sectors. As the ammonia chart below shows, inputs in the agriculture/food industry keep rising.
Source: IFF – 1Q22 Earnings Result Presentation, May 2022
Ammonia is an interesting story on its own, as while we see production restrictions today because of higher natural prices and natural gas availability, especially in Europe, we have rapidly rising potential demand as companies and countries look at ammonia as a potential clean fuel. Given the natural gas limitations today, we see plenty of projects emerging for ammonia but much of it on pause right now. Ammonia manufacture in the US could grow dramatically with the right support for blue ammonia, as the US has the competitive edge on natural gas supply and on CCS economics, but the investment landscape needs to be clearer.
Source: EIA – Today In Energy, May 2022
The Armstrong chapter 11 filing shows that despite strong demand growth over the last couple of years, not everyone has been equipped to move pricing fast enough to counter inflation, and/or may have just been tactically adrift as inflation has ballooned. We have seen a wide range of results as we move through 1Q 2022 reporting season with success stories where pricing power has triumphed and shortfalls, of which Armstrong is the worst so far. We are increasingly concerned that some of the companies closer to the consumer are seeing demand weakness, which will begin to limit abilities to raise prices, and Armstrong may not be the only failure, especially among those that are more highly levered. If we see continued weakness in financial markets as well as a decline in overall consumer demand, it would be naïve to assume that Armstrong will be the only failure.
Source: Armstrong Flooring – 3Q21 Results Presentation, May 2022
