Interface, Inc. (TILE), a worldwide commercial flooring company and global leader in sustainability, today announced results for the fourth quarter and fiscal year ended December 30, 2018.
"2018 was a great year for Interface and it provides solid momentum as we enter into 2019. We continue to deliver strong results, demonstrating that our value creation strategy is winning in the marketplace," said Jay Gould, CEO of Interface. "2018's full year organic sales were up 7% and adjusted EPS was $1.49. Q4 also ended strong with organic growth of 2% and adjusted EPS of $0.41. Our strategic investments in 2018, which included the nora acquisition, advancements in our manufacturing capabilities, and the transformation of our selling system, are successfully fueling growth. Building on a strong 2018 and an energizing kick-off to 2019, we are bringing momentum to the market and remain confident that we can continue to take share in carpet tile, LVT and rubber flooring. Looking forward over a four to six year time horizon, we will be planning and seeking to achieve gross profit margin of 42% and operating income margin of 15%."
Gould added, "We continue to lead industry consistent with our mission – Climate Take Back™ – to create a climate fit for life. We took a strong step forward in achieving our mission in 2018 as we announced that all of our carpet tile and LVT products are carbon neutral at no additional cost to our customers through our industry-first Carbon Neutral Floors™ program. In 2019, we have expanded the program to include all nora® rubber flooring products. We are the only global flooring company and one of the few beyond our industry to offer every flooring product that we make or sell as carbon neutral across the entire product lifecycle. These financial and operational achievements are incredible milestones for Interface, and they continue to differentiate us, and propel us forward."
"In addition to 2018's operational and financial achievements, our balance sheet remains strong and allows us to continue funding our value creation strategy. At the end of 2018, total borrowings were $619 million, down from $649 million at the end of the third quarter," said Bruce Hausmann, CFO of Interface.
Fourth Quarter 2018 Financial Summary
Sales: Fourth quarter net sales were $337 million, up 27% versus $266 million in the prior year period. Nora contributed $71 million of net sales in the quarter. Organic sales were up 2% year-over-year.
Operating Income: Fourth quarter operating income was $4 million, compared with $31 million in the prior year period. Fourth quarter adjusted operating income was $37 million, up 21% compared to $31 million in the prior year period.
As previously announced, the Company recorded a pre-tax restructuring and asset impairment charge in the fourth quarter of 2018 of $20.5 million. The charge was comprised of severance expenses ($10.8 million), impairment of assets ($8.5 million) and other items ($1.2 million).
Gross profit margin was 36.1% in the fourth quarter, which included $12 millionof nora purchase accounting amortization. Adjusted gross profit margin was 39.6%, an increase of 140 basis points over the prior year period.
Fourth quarter SG&A expenses were $97 million, or 29% of sales, including $1 million of nora transaction expenses. Excluding transaction expenses, fourth quarter adjusted SG&A expenses were $96 million, or 28% of sales.
Net Income and EPS: The Company recorded net income in the fourth quarter of 2018 of $6 million, or $ 0.11 per diluted share, compared to fourth quarter 2017 net income of $4 million, or $0.07 per diluted share. Adjusted fourth quarter net income was $24 million, or $0.41 per diluted share, which represents a 28% increase in adjusted EPS year over year.
Adjusted EBITDA: In the fourth quarter of 2018, adjusted EBITDA was $54 million, or 16% of sales, up 32% compared to $41 million, or 15% of sales in the prior year period.
Fiscal Year 2018 Financial Results
Sales: Net sales in 2018 were $1.2 billion, up 18% compared with $996 million in 2017. Nora contributed $113 million of net sales in 2018. Organic sales grew 7% versus the prior year with solid growth in both carpet tile and LVT.
Operating Income: The Company reported operating income of $76 million in 2018 compared to $112 million in 2017. Adjusted operating income, which excludes nora purchase accounting amortization, nora transaction expenses, and restructuring and asset impairment charges, was $134 million in 2018, up 13% versus adjusted operating income of $119 million in 2017.
Net Income and EPS: The Company reported net income of $50 million, or $0.84per share, in fiscal year 2018, compared with $53 million, or $0.86 per share, in 2017. Adjusted net income was $89 million for 2018 versus $73 million in the prior year. Adjusted EPS was $1.49 per share in 2018, up 26% versus $1.18 per share in 2017.
Adjusted EBITDA: Adjusted EBITDA was $186 million, or 16% of sales, in 2018 compared to $152 million, or 15% of sales, in the prior year.
Fiscal Year 2019 Outlook
Looking ahead to the full year of 2019, Interface is targeting to achieve:
Total net sales growth, including nora, of 16 – 18%
Organic sales growth from carpet and LVT of 2 – 4%
Adjusted gross profit margin of 40 – 40.5%
Adjusted SG&A expenses of 28 – 28.5% as a percentage of net sales
Full year Company interest and other expenses are projected to be $28 million to $29 million, and the effective tax rate is anticipated to be approximately 28%. Capital expenditures for the full year are forecasted to be $65 million to $75 million.
Based on prior year comparables and planned investments in the first quarter of 2019, the Company anticipates adjusted EPS in the first quarter of 2019 to be down compared to the first quarter of 2018 by approximately 13 to 16 cents, with stronger adjusted operating income and double digit adjusted EPS growth percentage in the second, third and fourth quarters.