Oct. 28--Thanks to an immense tax benefit, Armstrong World Industries on Tuesday reported a 65.5 percent jump in net profits for the third quarter.

The Lancaster-based manufacturer had net profits of $64.4 million ($1.12 a share), up from $38.9 million (68 cents a share) in the third quarter of 2008.

The $46 million tax benefit -- part of a 10-year tax refund that the IRS approved in July -- reversed what was otherwise a weak quarter, as the recession continued to undercut demand for Armstrong's products.

Excluding taxes, profits from continuing operations were down 47.6 percent to $39.8 million from $76.0 million, hurt by a 19.0 percent drop in sales to $753.0 million from $929.6 million.

The tax benefit, which consists of foreign tax credits and interest, was not the only unusual factor to shape Armstrong's third-quarter results.

Pulling profits down was a $31.6 million charge for speeding up the vesting of long-term stock compensation for about 400 company managers, executives and directors.

The faster timetable for vesting the stock compensation was triggered by TPG Capital's investment in Armstrong in August. The Texas-based private equity firm bought 14 percent of Armstrong's stock.

Factoring out both taxes and the accelerated vesting charge, as well as the expense of cost-cutting initiatives, Armstrong's adjusted operating profits decreased 13.1 percent to $78.6 million from $90.5 million.

Speaking to Wall Street analysts who follow the company, Armstrong chairman and chief executive officer Michael D. Lockhart said the firm is sticking with its strategy of improving its competitive position during the recession, even if the economy won't let it improve its sales.

"We continue to expect a longer downturn and a more shallow recovery than some others are forecasting," he said.

"As a result, we continue to focus on coming out of this downturn substantially better positioned than we went into it and to remain profitable throughout the period.

"We can't make our markets grow, but we can work on increasing share, improving mix, reducing cost and generating cash ... ," Lockhart said.

"We will continue to compete by offering consistent quality and great service, as well as by continuing product innovation."

Taking a closer look at how Armstrong's businesses performed in the third quarter, its resilient flooring and wood flooring businesses fared better but its building products and cabinets businesses did worse.

Resilient flooring posted operating profits of $12.4 million, a 10-fold improvement, despite a 16.1 percent dip in sales to $282.6 million.

Lower raw material costs, freight costs and selling, general and administrative costs all helped the results. In addition, the 2008 quarter was depressed by a $9.2 million loss in the European division.

Also on the upswing was wood flooring. Operating profits grew 31.8 percent to $11.2 million, overcoming an 18.1 percent slip in sales to $140.1 million.

Again, Armstrong cited lower raw material costs, freight costs and selling, general and administrative costs, as well as lower manufacturing costs.

But the company's biggest business, building products (ceilings), experienced a sharp decline in operating profits, waning 23.5 percent to $57.4 million. Sales slumped 21.9 percent to $292.1 million.

Armstrong blamed the drop in sales plus lower profits from its joint venture that makes ceiling grid, saying those factors offset the benefits of lower expenses.

Losing ground as well was the cabinets business, Armstrong's smallest. Its operating loss deepened to $3.0 million from a $1.1 million in the 2008 third quarter, as sales tumbled 19.7 percent to $38.2 million.

Lower sales again were cited, partially offset by lower manufacturing costs.

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