A weaker domestic economy meant a weaker performance for Armstrong World Industries in the first quarter, the company reported today.

First quarter net profits fell 41.5 percent to $15.2 million (27 cents a share) from $26.0 million (46 cents a share) in 2007's first quarter.

Sales for the Lancaster-based maker of floors, ceilings and cabinets dropped 4.1 percent to $828.2 million from $863.4 million in 2007's first quarter.

The first-quarter report comes the same week Armstrong disclosed its top five executives got sizable raises last year, led by a 57.8 percent boost for CEO Michael D. Lockhart, who received $10.2 million.

Armstrong had warned that the U.S. residential housing market and the U.S. commercial construction market would have a smaller appetite for its products in the first quarter, causing profits to decrease. And that's what happened.

In addition, Armstrong had some extra expenses in the period, which took slices out of profits.

These included $6.1 million in severance and related expenses, reflecting the termination costs for "certain corporate employees."

Armstrong spokeswoman Meg Graham said fewer than 20 "highly compensated executives" are "separating" from the company in the first half of this year, as part of a corporate reorganization.

This expense was offset in part by a $1.5 million reduction in Armstrong's stock compensation expense, related to stock grants to be forfeited by the affected employees.

Armstrong also had $1.2 million in expenses related to its review of its strategic alternatives, which concluded in February with the decision to remain an independent firm.

Other factors that raised expenses during the period included higher promotional spending for its wood flooring products, and higher spending at its European resilient flooring division to launch new products and add sales people. Armstrong did not specify these amounts.

While these expenses hurt profits in the 2008 quarter, the 2007 quarter was depressed by a $4.7 million net loss at the European textile and sports flooring business, which Armstrong sold in April 2007.

If the net loss from that "discontinued operation" is excluded from the results, leaving only "continuing operations," the slump in profits becomes noticeably worse — a drop of 50.8 percent.

But Armstrong had some positive developments during the quarter too.

It trimmed its interest expense nearly in half, to $8.4 million from $16.5 million, by reducing its debt balances, and improved its manufacturing productivity.

Armstrong is among the county's largest employers, with about 2,000 workers here.

Taking a look at Armstrong's business segments, only building products (ceilings) posted increased profits in the quarter.

The building products segment — which has surpassed resilient flooring to become Armstrong's largest business — saw its operating profits rise 2.4 percent to $55.0 million.

(Operating profits exclude taxes and interest expense).

The improved profits were attributed to higher sales, better manufacturing productivity and more profits from its joint venture with Worthington Industries.

But the results were less encouraging at Armstrong's three other segments.

Resilient flooring had an operating loss of $7.2 million, in contrast with an operating profit of $10.8 million in the 2007 quarter.

The downturn in the resilient flooring segment hit home earlier this week, when union leaders told the New Era that the residential flooring plant here is expected to cease production one week a month, tentatively starting in late May.

Lower volumes of products shipped and higher expenses related to the European initiatives hurt the quarter's results.

Wood flooring's operating profits tumbled 70.2 percent to $2.5 million. Lower volumes again were a culprit, as well as the higher promotional expense.

Cabinets had an operating loss of $3.7 million, in contrast with an operating profit of $900,000 in the 2007 quarter. Lower volumes once more were to blame, said Armstrong.

ARMSTRONG'S FIRST QUARTER

Sales: $828 million, down 4.1%.
Net profits: $15 million, down 41.5%/
Earnings per share: 27 cents, down 41.3%.

Staff writer Tim Mekeel can be reached at tmekeel@LNPnews.com or 481-6030.