Interface, Inc. wednesday announced results for the fourth quarter and fiscal year ended Dec. 29, 2019.

Highlights:

Q4 net sales up 1%; Q4 organic sales up 2%
Q4 GAAP EPS of $0.28, up 155%; Q4 adjusted EPS of $0.46, up 12%
FY net sales up 14%; FY organic sales up 2%
FY GAAP EPS of $1.34, up 60%; FY adjusted EPS of $1.59, up 7%
Reduced total debt in the quarter by $30 million

"We ended 2019 with a solid finish, delivering strong operating and financial performance, and executing on our strategic plan. Organic sales grew 2% in the fourth quarter with carpet tile and resilient flooring contributing equally to growth, while adjusted EPS grew 12% through continued gross margin expansion and SG&A optimization," said Dan Hendrix, Chairman and CEO of Interface. "Full year 2019 growth was in-line with our most recent guidance at 2% organic sales growth and 7% adjusted EPS growth, ending the year with $1.3 billion in sales and adjusted EPS of $1.59."

"We enter 2020 with strong momentum, as our team remains focused on delivering robust new product innovation to capitalize on the expanded market opportunities we have in front of us," Hendrix added. "We also continue to make significant progress on our Climate Take Back™ journey. We expect to invest approximately $50 million between 2019 and 2021 in manufacturing innovations. This includes tufting technology that will provide us with new design capability, and a new backing system that should increase our addressable market and further differentiate us in the marketplace. We believe these advancements will have great value for our customers. Our goal is to keep driving increased value to our shareholders by continuing the strategic investments and operational improvements we have made over the past several years."

"In addition to achieving strong profitability, we remain committed to a disciplined deleveraging strategy," commented Bruce Hausmann, CFO of Interface. "We generated $17 million of cash via working capital and reduced total debt by $30 million in the fourth quarter, lowering our net debt to adjusted EBITDA ratio to 2.6x at year end."

"With regard to the coronavirus situation," Hausmann added, "we were able to service production demand during the temporary closure of our carpet tile facility in China, and we continue to monitor the supply chain impacts very closely. The negative sales impact to our Asia business is evident in our year-to-date results, but we remain hopeful that we will be able to make up for the declines in the back half of the year."

Fourth Quarter 2019 Financial Summary

Sales: Fourth quarter net sales were $339 million, up 1% versus $337 million in the prior year period. Organic sales were up 2% year-over-year with carpet tile and LVT contributing equally to growth.

Gross profit margin was 40.0% in the fourth quarter, an increase of 390 basis points from the prior year period. Adjusted gross profit margin was 40.4%, an increase of 80 basis points over adjusted gross margin for the prior year period.

Fourth quarter SG&A expenses were $95 million, or 28.1% of sales compared to 28.9% in the prior year period.

The company recorded restructuring and other charges of $12.3 million in the fourth quarter. The charges were comprised of a restructuring charge of $9.0 million associated with a previously announced restructuring plan in 2019 offset by a reversal of certain 2018 restructuring accruals of $1.7 million. In addition, we recorded a $5.0 million non-cash charge primarily related to adjusting the carrying value of certain insurance-related assets.

Operating Income: Fourth quarter operating income was $28 million, compared to $4 million in the prior year period, an increase of 616%. Fourth quarter 2019 adjusted operating income was $42 million, up 11% versus adjusted operating income of $37 million in the fourth quarter last year.

Net Income and EPS: The company recorded net income in the fourth quarter of 2019 of $16 million, or $0.28 per diluted share, compared to fourth quarter 2018 net income of $6 million, or $0.11 per diluted share. Fourth quarter 2019 adjusted net income was $27 million, or $0.46 per diluted share, compared to fourth quarter 2018 adjusted net income of $24 million, or $0.41 per diluted share.

Adjusted EBITDA: In the fourth quarter of 2019, adjusted EBITDA was $54 million compared to $54 million in the prior year period.

Cash and Liquidity: The company had cash on hand of $81 million and total debt of $596 million at Dec. 29, 2019, compared to $81 million of cash and $619 million of total debt at Dec. 30, 2018.

Fiscal Year 2019 Financial Summary

Sales: Net sales in 2019 were $1.3 billion, up 14% versus $1.2 billion in 2018. Organic sales were up 2% year-over-year.

Operating Income: The company reported operating income of $131 million in 2019, compared to $76 million in the prior year. Adjusted operating income was $150 million in 2019 versus adjusted operating income of $134 million last year.

Net Income and EPS: The company recorded net income of $79 million, or $1.34 per diluted share, in 2019, compared to $50 million, or $0.84 per diluted share, last year. Adjusted net income was $93 million, or $1.59 per diluted share, compared to adjusted net income of $89 million, or $1.49 per diluted share, in 2018.

Adjusted EBITDA: Adjusted EBITDA was $200 million for full year 2019, compared to $186 million in the prior year.

Fiscal Year 2020 Outlook

Looking ahead to the full year of 2020, Interface is targeting to achieve organic sales growth of 2 - 4% and adjusted earnings per share of $1.60 - $1.70. The tax rate is anticipated to be approximately 28%. The fully diluted share count is forecast to be 59.5 million shares, and capital expenditures are anticipated to be $50 - $60 million.

Starting in 2020, and as part of the implementation of a global financial consolidation tool and the integration of nora®, we are reclassifying and standardizing cost categories globally, resulting in the reclassification of certain expenses between Cost of Sales and Selling, General & Administrative Expenses. As adjusted for these anticipated reclassifications, full year 2019 Gross Profit margin would increase approximately 50 basis points and full year 2019 Selling, General & Administrative Expenses as a percentage of Net Sales would increase by the same amount; with zero net impact to Operating Income or Operating Income margin. Starting in the first quarter of 2020, these reclassifications will be presented retrospectively to make all periods comparable.