Interface(TILE) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales increased by 9% compared to the third quarter of the previous year, with organic sales up by 2% [9] - GAAP EPS rose by 221%, while adjusted EPS increased by 15% year-over-year [9] - GAAP gross margin improved by 760 basis points, with adjusted gross margin up by 160 basis points compared to the prior year [21][16] - Net income for Q3 was $26 million or $0.45 per diluted share, up from $8 million or $0.14 per diluted share last year [25] - Adjusted net income was $28 million or $0.47 per diluted share, representing a 15% growth [25] Business Line Data and Key Metrics Changes - Resilient flooring now constitutes 25% of the business, reflecting a shift from a carpet tile company to a commercial flooring company [11] - Rubber flooring growth exceeded expectations, while LVT continued to drive organic growth [12][13] - Carpet tile growth faced challenges due to difficult comparisons from a large customer order in Q3 of the previous year, but market share was maintained [15] Market Data and Key Metrics Changes - Legacy Interface sales in EMEA grew by 6% in local currency but only 1% in USD due to currency headwinds [19] - Sales in Asia Pacific were flat in local currency but down 4% in USD, primarily due to currency fluctuations [19] - Growth in the global market segments was driven by office, education, and healthcare [20] Company Strategy and Development Direction - The company is focused on customer-centric innovation and enhancing market capabilities to drive growth [12] - Strategic investments are being made to capitalize on market opportunities, including a $10 million acceleration in capital expenditures for carbon-negative products [17] - The company aims to maintain a disciplined approach to de-leveraging the balance sheet, with a target leverage ratio below 2 by the end of 2020 [28] Management's Comments on Operating Environment and Future Outlook - Management noted a mixed macroeconomic environment with some positive signs but ongoing challenges, particularly related to Brexit and CEO confidence levels [41] - The company expects a solid finish to the year, maintaining full-year guidance for net sales growth of 14% to 15% and organic sales growth of 2% to 3% [32] - Management acknowledged the choppy order backlog and cautioned about a slower growth outlook for Q4, projecting organic growth of 2% to 3% [57][85] Other Important Information - The company repatriated $18 million from foreign operations, allowing for a $43 million debt paydown in Q3 [27] - Capital expenditures for the full year are forecasted to be between $75 million and $85 million, with a focus on expanding manufacturing capabilities [34] Q&A Session Summary Question: Impact of macroeconomic conditions on commercial remodeling - Management indicated a mixed environment with some positive signs but ongoing challenges, particularly with Brexit and CEO confidence levels [41] Question: Details on gross profit trends - Management attributed lower gross profits to a strong US dollar and production declines in Europe and Asia, impacting EPS [42][43] Question: Expectations for carpet tile growth normalization - Management expects carpet tile growth to normalize, aiming for 3% to 4% growth in the long term despite recent challenges [49] Question: Clarification on Q4 guidance - Management explained that Q4 earnings are expected to be lower than Q3 due to business timing and not double counting accelerated Q3 business [53][56] Question: Order backlog and quoting activity - Management noted that the order backlog is choppy, with some pushouts in orders, but overall activity remains solid [85][86] Question: Raw material situation and input costs - Management reported stable input costs, with a significant portion of materials being recycled or bio-based, mitigating inflation impacts [78]