Interface Reports Third Quarter 2019 Results
Atlanta -- Interface, Inc., announced results for the third quarter ended Sept. 29, 2019.
Third quarter net sales were $348 million, up 9% vs. $318 million in the prior year period. Organic sales were up 2% year-over-year driven by growth in LVT and the addition of nora net sales to Interface's organic sales calculation during the comparable period post-acquisition. In the third quarter of 2019, adjusted EBITDA was $57 million, up 13% compared to $51 million in the prior year period.
Gross profit margin was 39.0% in the third quarter, which included $1.3 million of nora purchase accounting amortization—an increase of 760 basis points from the prior year period. Adjusted gross profit margin was 39.4%, an increase of 160 basis points over adjusted gross margin for the prior year period.
"Our transformation from a carpet tile company to a commercial flooring company continues to create value for our shareholders," said Jay Gould, CEO. "Through this transformation, we've diversified our product offerings, with resilient flooring now comprising 25% of our revenue volume. In the third quarter, we grew adjusted earnings per share 15% year over year while delivering strong margin improvement and efficiently managing SG&A expenses. This quarter marked the one-year anniversary of the nora systems acquisition, which has contributed solid earnings per share, aligned with our commitment to shareholders. Despite a challenging demand environment, we remain on track to meet our previous full year 2019 outlook. LVT continues to perform strongly and drove organic growth in the quarter as we lapped a difficult comparable in carpet tile from the shipment of a large customer order in Q3 last year."
"Going forward, our robust product innovation is both increasing our opportunities with current customers and expanding our end market demand. We're excited about our new product launch of 3mm LVT, which is going to market in the Americas and is developed specifically to meet customer needs in the healthcare, multifamily and tenant improvement segments. These lower price-point and higher-margin LVT offerings provide new cross-selling opportunities across our expanding product portfolio; particularly combining LVT and rubber in segments like healthcare. Additionally, we are capitalizing on strategic investment opportunities across our business and building on the momentum of our Carbon Neutral Floors™ program by accelerating approximately $10 million dollars in capital expenditures in order to scale our capabilities to manufacture carbon negative products which we are targeting to launch next year."
Third quarter operating income was $44 million, compared with $16 million in the prior year period, an increase of 177%. Third quarter 2019 adjusted operating income was $46 million, up 23% vs. adjusted operating income of $37 million in the third quarter last year.
The company recorded net income in the third quarter of 2019 of $26 million, or $0.45 per diluted share, compared to third quarter 2018 net income of $8 million, or $0.14 per diluted share, an increase of 221%. Third quarter 2019 adjusted net income was $28 million, or $0.47 per diluted share, compared to third quarter 2018 adjusted net income of $24 million, or $0.41 per share.
Third quarter SG&A expenses were in line with expectations at $91 million, or 26.2% of sales. The company recorded restructuring charges of $672 thousand in the third quarter as a result of lease exit costs associated with the restructuring plan that was previously announced in the fourth quarter of last year. The company had cash on hand of $85 million and total debt of $626 million at September 29, 2019, compared to $84 million of cash and $672 million of total debt at June 30, 2019.
"In addition to solid growth and profitability in the third quarter, we also generated strong cash flow," said Bruce Hausmann, CFO of Interface. "We generated $30 million of cash via working capital and reduced total debt by $46 million, lowering our net debt to adjusted EBITDA ratio to 2.7x. We are maintaining the disciplined de-levering strategy that we committed to when we announced the nora acquisition."
For the first nine months of 2019, net sales were $1.0 billion, up 19% vs. $843 million in the first nine months of last year. Organic sales were up 2% year-over-year. For the first nine months of 2019, the company reported operating income of $103 million, compared with $72 million in the prior year period. Adjusted operating income was $108 million vs. adjusted operating income of $97 million in the first nine months of last year. Adjusted EBITDA was $146 million for the first nine months of 2019, compared to $132 million in the prior year period.
The company recorded net income of $63 million, or $1.06 per diluted share, for the first nine months of 2019, compared to $44 million, or $0.74 per diluted share, in the prior year period. Adjusted net income was $67 million, or $1.13 per diluted share, compared to adjusted net income of $65 million, or $1.08 per diluted share in the first nine months of 2018.
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 of approximately 39.5%, an increase of 80 basis points versus prior year; and adjusted SG&A expenses of approximately 28.5% as a percentage of net sales.
Full year interest and other expenses are projected to be approximately $30 million, and the effective tax rate is anticipated to be approximately 24%. Diluted share count is anticipated to be approximately 59 million shares. Capital expenditures for the full year are forecast to be $75 - $85 million.
For more information, visit www.interface.com.