Interface Reports Second Quarter 2019 Results
Solid Second Quarter Results Driven by Strong Resilient Flooring Growth
Interface, Inc. (Nasdaq: TILE), a worldwide commercial flooring company and global leader in sustainability, today announced results for the second quarter ended June 30, 2019.
Second Quarter Highlights:
- Q2 net sales up 26%; Q2 organic sales up 2%
- Q2 GAAP EPS of $0.50, up 43% year-over-year; Q2 adjusted EPS of $0.51, up 21% year-over-year
- Strong balance sheet. Total debt of $672 million; net debt of $588 million
- 2019 fiscal year outlook targeting net sales growth of 14 – 15%, including currency headwinds of 200 basis points
“We delivered solid results in the second quarter, with organic sales growth of 2%, in line with our expectations. Our strategy to expand into the high growth resilient flooring segment is paying off as LVT drove organic growth in the second quarter. Furthermore, our nora® rubber flooring business, which we acquired in August 2018, contributed $76 million of net sales during the second quarter and grew 11% in local currency year-over-year,” said Jay Gould, CEO of Interface.
“Despite a slow-growth macro environment, we enter the back half of 2019 as a stronger company. Our Carbon Neutral Floors™ program helped drive market share gains in key markets, including the U.S., U.K., Germany, and India. Customers have positively responded to our move into resilient flooring: LVT and rubber. Those two product lines are now approximately 25% of our revenue and both grew at double digit rates in local currency. First half gross profit margin was 38.8%, up 10 basis points versus the comparable prior year period. First half adjusted gross margin was 39.3%, up 60 basis points versus last year, and our planned second half productivity initiatives are anticipated to drive adjusted gross profit margin at or above 40%. First half SG&A was also in-line with expectations and, importantly, our selling system transformation is on track, with roughly 75% of our front line sales people now live on our new CRM platform. With this momentum, we are well-positioned to capture growth in the second half of the year,” noted Gould.
Second Quarter 2019 Financial Summary
Sales: Second quarter net sales were $358 million, up 26% versus $284 million in the prior year period. Organic sales were up 2% year-over-year driven by growth in LVT. Nora contributed $76 million of net sales in the quarter, up 5% compared to the stand-alone business last year. In local currency, nora grew 11% in Q2 2019 versus the stand-alone business in the same period last year.
Gross profit margin was 38.8% in the second quarter, which included $1 million of nora purchase accounting amortization—an increase of 30 basis points from the prior year period. Adjusted gross profit margin was 39.1%, an increase of 60 basis points over adjusted gross margin for the prior year period.
Operating Income: Second quarter operating income was $43 million, compared with $34 million in the prior year period. Second quarter 2019 adjusted operating income was $44 million, up 20% versus adjusted operating income of $37 million in the second quarter last year.
Second quarter SG&A expenses were in line with expectations at $96 million, or 26.8% of sales.
Net Income and EPS: The company recorded net income in the second quarter of 2019 of $29 million, or $0.50 per diluted share, compared to second quarter 2018 net income of $21 million, or $0.35 per diluted share. Second quarter 2019 adjusted net income was $30 million, or $0.51 per diluted share, compared to second quarter 2018 adjusted net income of $25 million, or $0.42 per share.
Adjusted EBITDA: In the second quarter of 2019, adjusted EBITDA was $57 million, up 20% compared to $48 million in the prior year period.
Cash and Liquidity: The company had cash on hand of $84 million and total debt of $672 million at June 30, 2019, compared to $81 million of cash and $619 million of total debt at December 31, 2018. Debt increased versus December 2018 as a result of the customary seasonality of working capital requirements in the first half of the year. In addition, the company executed on the remaining $25 million of share repurchases available under our previously announced $100 million share repurchase program.
“This was a solid quarter of execution for us, as we continued to focus on our operational disciplines and supply chain efficiencies. We remain focused on driving margin expansion, reducing leverage, and deploying capital efficiently,” said Bruce Hausmann, CFO of Interface.
Year to Date 2019 Financial Summary
Sales: For the first six months of 2019, net sales were $655 million, up 25% versus $524 million in the first half of last year. Organic sales were up 2% year-over-year. Nora contributed $136 million of net sales in the first six months of the year, up 3% compared to the stand-alone business in the first half of 2018. In local currency, nora grew 10% versus the stand-alone business in the same period last year.
Operating Income: For the first half of 2019, the company reported operating income of $59 million, compared with $57 million in the prior year period. Adjusted operating income was $63 million versus adjusted operating income of $60 million in the first six months of last year.
Net Income and EPS: The company recorded net income of $37 million, or $0.61 per diluted share, for the first half of 2019, compared to $36 million, or $0.60 per diluted share, in the prior year period. Adjusted net income was $39 million, or $0.65 per diluted share, compared to adjusted net income of $40 million, or $0.68 per diluted share in the first half of 2018.
Adjusted EBITDA: Adjusted EBITDA was $89 million for the first six months of 2019, compared to $82 million in the prior year period.
Fiscal Year 2019 Outlook
Looking ahead to the full year of 2019, Interface is targeting to achieve:
- Total net sales growth of 14 – 15%.
- Organic sales growth of 2 – 3%.
- Adjusted gross profit margin to increase 100 to 150 basis points versus prior year which equates to 39.7 – 40.2%.
- Adjusted SG&A expenses of approximately 28.5% as a percentage of net sales.
Full year company interest and other expenses are projected to be $32 – $34 million, and the effective tax rate is anticipated to be approximately 25%. Diluted share count is anticipated to be approximately 60 million shares. Capital expenditures for the full year are forecasted to be $65 – $75 million.
Looking at the second half of 2019, the company anticipates fourth quarter adjusted EPS to be higher than third quarter adjusted EPS by approximately 3 – 5 cents.
The full text of Interface’s 2Q19 earnings release, including all tables, and a webcast replay of the company’s July 26 conference call may be accessed at http://investors.interface.com.
Interface, Inc. is a global flooring company specializing in carbon neutral carpet tile and resilient flooring, including luxury vinyl tile (LVT) and nora® rubber flooring. We help our customers create high-performance interior spaces that support well-being, productivity, and creativity, as well as the sustainability of the planet. Our mission, Climate Take Back™, invites you to join us as we commit to operating in a way that is restorative to the planet and creates a climate fit for life.
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