TILE - Earnings call transcript Q3 2017

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Operator

Good morning. My name is Karina, and I will be your conference operator today. At this time, I’d like to welcome everyone to the Q3 2017 Interface, Inc. Earnings Conference Call. All lines have been placed on mute to prevent any background noise. there a remarks, session. speakers' the will question-and-answer be After [Operator you. Instructions] Thank Ms. may Corporate conference. Global Needles, begin Communications, Christine you your

Christine Needles

Thank you, by Karina. President conference and call Good and and morning, and third CEO; XXXX welcome CFO. quarter results, Hausmann, hosted Bruce Jay President regarding Gould, Vice to Interface's

management's historical Before begin information statements. call are please Interface's business, during today's note forward-looking we regarding that which remarks, conference the comments are not

January during assumes to and Commission. to cautions listeners this reconciliation the these and such and uncertainties contained call uncertainties differ Forward-looking yesterday. including Management's reliance A We that been cause to filed comparable XXXX, revise as statements of involve the direct risks associated listeners non-GAAP the update report to any on Factors call a well Company's all which actual The Securities conditions heading Risk commercial not with that annual forward-looking and place no certain uncertainties statements during in remarks ended Item on statements. materially to and risks Form the such form is or earnings the undue from measures in with responsibility X, economic forward-looking refer made any in GAAP statements, measures Company's release the under number risks results as SEC of for the the measures. most interiors discussed could has XA with XX-K the Exchange the non-GAAP and industry of the filed to Company X-K year fiscal document.

not expressed contains recorded Interface. being rebroadcasted without is Interface's for call permission. It this or copyrighted may material and rerecorded broadcasted be Lastly, and

the and confirms the your of consent call it. on participation Company's taping to broadcasting Your

like to Gould, over I'd Jay turn Now, CEO. to call the

Jay Gould

begin pleased see our full-year quarter product coupled line of to I'm core carpet the the expectations our initiatives particularly that world business delivering gross in the LVT for Targeted orders, our with XX basis controls the new than the would associates productivity cost margin thanking to basis P&L. as provided consistent commitments. in tile more line, with growth as in another morning. I in quarter. our innovation solid by offset delivered and Interface helped increased XX revenue. our down And around like our by Good inflation and with in than our a points balance Strong initiatives, of in SG&A quarter. third the input reduce percent points spending sales more strong

income the XXXX, XX% the softer and operating against per increased share our of QX grew our quarter. earnings albeit for Now XX%

to as of of outlook we XX% $X.XX, on believe track XX% that repurchase deliver first full-year share up our SG&A we’ve you against expressed each Certainly, to gained to on These the of we recent product to margin has forecast overall been our QX our QX. our initiatives charge, are Over the year. in marketplace. incremental versus growth. at million the in the generated in end the XX.X% driven gross year. provide and EPS quarter initiative. exclude last climbed deliver $XXX should we've for creation strategy strategy sequentially have activities the executed share is quarterly our in Organic line forecast productivity us X.X% to and our carpet market, range enabled our range, $XXX to the our of most higher has LVT Strong year-to-date that deliver we’ve also but from and past year, year, X% is we've working quarters value growth our year-to-date one control restructuring for calls. in executing order EPS QX if evidence X.X% And million $X.XX,

QX on full-year very on growth, year-over-year do our bit target of the sales little track a puts grew exiting to X.X% stores. fourth and deliver X.X%, X.X% in Organic to for were quarter. X% in supports high was sales momentum which adjust QX adjust year-over-year. order up FLOR solidly X% us in backlog sales that at with look order retail combined of we’ve fluctuations foreign hit basis. third our growth the let's to also for recognizing detail. momentum This order sales currency that a believe specialty target. Now GAAP single-digit more up We Organic that a Net quarter growth solid

the delivered up year-over-year. XX margins gross line was at that quarter, also in we Now XX.X%, points basis in with expectations,

efforts in margin negative optimization the that effectively stores. County FLOR exiting improvements balanced Troup and drove retail the impact from the quarter efficiency productivity Our out specialty

to as I from County mentioned months. productivity track -- Troup from on the we next be over Troup continue benefits XX initiative see previously, to Now our

with globally, In addition, price were to material impact our that the and no positive strategy the our strategically Raw had we we line realized with business. is line input costs net pricing which expectations material on experienced our in hurricanes world. in around

So expect for net year, inflation. we the of $X savings million productivity of approximately

that factors in solid net these continue of full-year margin the I of position at achieve Taken at we to put effectively very the our believe XX.X% sales. in manage XX% XX.X% to we will a for finish together, coming gross high to end SG&A and again, range. us target for of likely

initiatives, to our repurposing growth dollars business. to including fund focus existing continue We on LVT

we we on Again, of SG&A As to the rate we million. higher million track our end $XXX XXXX likely run end say, that remain look would $XXX at at targeted of I will with the full-year, range.

year's with operating margin of of sales. in or million XXX XX% sales solid resulted last $XX.X the income of That's growth an increase basis third points our over in gross Now third coupled and performance management, SG&A quarter. quarter,

Now let the me turn sheet. balance to

to accelerate I'll $XX year-over-year sheet use inventory, quarter third continue Our the note, up balance million to as growth. we is

of of our as needs than service customers. attributed is we increase anticipated, are LVT meet million that more to certain As $XX the to making half inventory

quick Americas, of and the is to in support Troup our creation the Again, our project. in to in strategy. invested ship balance also yarn accelerate support and goods value sheet carpet our the inventory we We also right in core added finished additional use we business this transformation growth program believe inventory tile County to our

Now in million share our repurchase we allocation, execute quarter, our we completed $XXX repurchases. this of and continue program to additional share million announced against capital previously regarding an $XX

focus track of are on next long-term shareowners. as are the an delivering allocation to for our $XX Stock on strategy, our We important complete million repurchases over remaining the we value aspect year. capital

dividend Our also quarterly of Board $X.XXX the share. approved per

valuable focus services and to products agenda our So of on execution in become company. team summary, continues strategic the to world's the most the interior

very controlling in to going outlook $XXX XX% the position to X% SG&A into $XXX million quarter fourth gross deliver XX.X% and our are solid growth, a full-year million. to to our of We sales margins to of X%

review So in details. with turn call to our Bruce? that, I'll the depth of a for financial over more Bruce

Bruce Hausmann

morning, Thanks, Good everyone. Jay.

net of million, with noted, quarter growth and improvement. were regions currency As Adjusting the for an organic the year QX showing retail, foreign Jay in specialty broad of versus rate based impact up sales X.X%. we third growth, X.X% last all $XXX.X on experienced exiting FLOR of fluctuations

with compared pieces to to contributing up the of X% Americas growth, QX improvements last growth, in sales including both across QX to as and quarter business evenly Sales services continuing over prior to were We and relatively in with business. up growth LVT core third business. markets in benefited And the in order local year-over-year, year Interface tile, In currency organic X% X.X% of across U.S we were region, in the several organic EMEA from tailwinds. compared modest our seeing order EMEA were Canada, sales we're with up year-over-year the see year are momentum currency, year. the in last X% up dollars, both the positive solid carpet reception

growth. had Asia-Pacific where quarter, and year, strong Australia both up to contributing sales were XX% with Asia a compared last double-digit

QX year. was expansion the the negative of County year impact government. was our to optimization a FLOR see exiting particularly non-office margin same FLOR an really specialty exiting which third that residential terms the global last productivity for Gross gross margin Sales were range. over up to including office market education our a of of continue delivered This continue over key the the of in margin in is retail. project, in our last period was than strong for target And which in and quarter, Troup retail Managing due to points as greater increase XX% as initiatives, the segments, core of down to XX.X% we priority. Jay segmentation, the to was mentioned, increases result expected. segment XX full-year, we and In be of XX.X% continues SG&A basis specialty

of our that release, to third sales of the million Jay well end or LVT million, compared XXX range on percentage SG&A prior higher expense from is and and $XXX $XXX in margin a to and XX% as versus full-year or SG&A year of in cost operating as range. exited sales and we SG&A resulted expenses target expansion press to at to Gross launched we XX% focused specialty carpet in improvement land And last points repurposing SG&A million came $XX.X Our stores to management, third effective remained will year. the mentioned, as the quarter quarter the in expansion. mentioned sales of due recently the income basis as FLOR XX.X% million core tile business. a $XX.X retail of effective This management probably improvement margin at as

operating XX% Net (sic) net $X.XX [$XX.X] quarter, year. of an with or or share of in third is income Third the operating diluted compared which sales million million over was per was share. $XX.X year $XX.X million $X.XX $XX of prior increase sales quarter million, $XX.X or or of diluted last income XX.X% per income million income

third sheet. for outstanding of of strong Notably, extended debt as facility. under fixed amended and and we Moving the the revolving the available million, balance our million We $XXX liquidity, facility a $XXX on on quarter, period cash to with credit rate we term, credit of total $XX the million five-year we interest our hand debt. and $XXX our in had ended million,

quarter noted, to so. the $X.X we million million last QX in million quarter, execute And repurchases As looking depreciation with million compared third $XXX last was expenditures on completed million compared the the announced be repurchase additional $X.X program, and third and Capital were $X.X over $X.X stock million we for year. third to year. plan quarter of or million quarter last amortization next to year. at previously $XX third on $X.X $X.X in year million on the with QX $XX ahead, the track expense in was repurchases Interest compared in Jay in continue executing the of remaining the on million an share

invest to $XX continue capital to and $XX our call for expenditures expenditures in the fourth open-up expect quarter we million in We that, in I'll million capital with Operator? And questions. the full-year productivity increase to initiatives, as the expect range.

Operator

from question Please the first of Your Stifel. line is Instructions] [Operator John from go Baugh ahead.

is line Your open.

John Baugh

level initiatives that. you. maybe can year, but up from would the factors you know Troup interested, as around drivers you you year. you next suppliers Any congratulations boost to on is if into right Thank Jumping you into gross could you. of added lag Thank about the and higher on Good solid County the on margin I results. I give expect a I talk get then gross helpful? input what don’t how little questions. be want next a talk some And about how from I next get realization cost. year guidance am with price know, into matching well. your particularly going you morning a Jay, -- may appreciate bit margin

Jay Gould

appreciate your for comments, thanks John, Yes. it.

a to basis year. for looking still gross XX for are in improvement We margins point XXX next

have. XX% this So pricing experienced expecting, to that some are Troup we strategic is, County counterbalance about the positive cost input what the looking of we we we as The initiative drivers that we The line, been are globally, pricing they’ve million. And LVT out is at inflation really the and quite that do is the are offset the have XX.X%. are same $X to as around $XX still as the we somewhere playing roll it we but margins. to in This year, not is, robust accretive as around year U.S. other million that

line. put we that that think margin on downward So gross the might pressure some

John Baugh

you. if price in are you of there? Okay. carpet you what tile, are I Thank That’s low needed? wondering helpful. you fibers with more market, innovation then response face precise And mentioned I And that, we getting if believe to referring polyester then, aware discuss to to am any, prominence the that in your tiles, and some could carpet

Jay Gould

all, call last of which [indiscernible]) monitor, percent most of you new reading, first on products product is at the are Well, design is index, which our largely And innovation. driven innovation, years. our up I'd we Yes. three the points. from we is by say recent introduced this the that what XXX generated But look if we over basis business,

that design innovation year has been received market. our new launched we in the So over particularly the well last

received. that that’s So part this driving strong what’s we’ve order of growth

Now, the are share carpet tile, know. has material impact. some in that it's John, a in believe We market we no market don't $X as We that the aware gain out really compete had in of $X polyester or it you market, square at I mean, quarter. yard. we

felt really really where activity that the so, going compete on end of the at have not market, pressure. and of And while some not that’s we may lower there that be

John Baugh

guess my any around or And color an trends market for which market, there, the the is question on I Brexit Okay. you. there you’re plus U.K. minus? be, you, Thank would important seeing and last

Jay Gould

little we end up in Yes. really but think the year-to-date, were far. for mean, currency mid neutral the and, will a the the for Orders soft so single-digit revenue I quarter, posting quarter growth full-year. third for have we again, the I growth rates U.K. in

John Baugh

Great. Good you. Thank luck.

Bruce Hausmann

John. you, Thank

Jay Gould

I support. Thank you, John. appreciate your

Operator

Research from question from Group. of Thompson Thompson is go next the ahead. Your Kathryn line Please

open. Your is line

Jay Gould

morning, Good Kathryn.

Kathryn Thompson

Good today. Thank taking morning. for my questions you

through. with outlined give prepared this orders, sales on up impacts you. flow bit XXXX sales ends? your the and color which orders, Your how your potentially more On order How QX you your matches outlook? Thank could little a commentary you in

Jay Gould

Yes.

of order the so September. accelerated, -- pacing the First quarter all, order really a had through strong we

carpet that’s about of P&L. year, to the carpet the the a order onto tile on at X% been translated the there's the been Secondly, through buildup but We’ve course running about tile our year. on of growth backlog only X% growth entire

of solid got XX% the will to That we coupled we’ve with order quarter in that during So acceleration a the fourth quarter. to that as X% quarter. us we on fourth go leads this growth bullish backlog very into the intake order deliver be revenue

Kathryn Thompson

in to to surface LVT tile how just or hard did much growth the versus top carpet clarify, line the And quarter? contribute

Jay Gould

revenue In growth of the our quarter, about X/X off was LVT. driven of

at so X% So it that and between roughly, XX-XX will and fourth LVT X% from carpet are we in the X% rebalance LVT. roughly XX%, driven from think to the if carpet quarter. We quarter, think fourth will looking tile tile in the I be

Bruce Hausmann

Yes.

Kathryn Thompson

Okay.

still so for And boogie loop speaking closing for on and million of the target LVT $XX on that, you XXXX? are that

Jay Gould

Yes, we are.

Kathryn Thompson

and you’re color you Okay. that upper little on to more we types And operational or you. next initiatives the then some that Thank SG&A year Could of you’re range finally, the sales year. that more into a give are going will these combination? you or of bit put outlined end as us on look for the initiatives you a be -- doing,

Jay Gould

on in commitments in delivering a like I I ahead go over felt One and investing selling to investments our we’re some we we drive could where Yes, accelerate system, go really particular. for our are significantly, thanks we year in $X sophistication to for how X.X two mean, million time more is Because year, period Kathryn. global market. asking, this

investment. So sales a and we so deploying methodology we’ve that started are globally

IT our areas. accelerating second we’re of The the piece or actually into is technology that investments

year ERP and last to system know, This factory in you took the to FLOR factory Americas. system As went Europe, took -- the we’re taking the down Asia-Pacific. next down we factory it year we ERP FLOR the in we year FLOR went -- the in we our down to

to investments deployment ERP that our making further we’re ability to some up our seamlessly of system. to transition sure So

Kathryn Thompson

the much a Great. so Thank color. you Have day. great for

Jay Gould

Kathryn. Thanks,

Bruce Hausmann

Kathryn. Thanks,

Operator

Your Wood next from of the question is ahead. Mike go Nomura line from Instinet. Please

Your line open. is

Mason Marion

Hi. Mason on for is This Mike.

you that XX.X% which XQ range. be how framework within So and year-to-date, above fall bridge suggest Can get of kind from XX% gross margins there? have to are at below tracking to XX.X% your XX.X% we would is to

Jay Gould

Mason. Yes. Thanks,

You are right.

when less we down. QX, less the In for versus just really GP about is leverage a of the plants we runs get will seasonally. run amount will quarter this a sequentially how margins as business go in you factor QX. the So cost This in fixed think time of

So equation. of that just it's it's really simple an a just --

Mason Marion

Okay.

Jay Gould

And and this were code last ZIP will same -- that year. in XX.X% QX it margins be

Mason Marion

Yes, changed all? okay. there anything All one right. competitive the of recently tile situation It a makes up And opened European sense. then, has carpet your has competitors -- at plant,

Jay Gould

I for that. pressure that's pleased better have -- felt we bit little haven't the got business it's growth to European we see No, quarter, than our been X% actually that in doing. the from was a we

seeing in well. as there business are we the up So a step

Mason Marion

great. you. Thank Okay,

Jay Gould

way, That was by the in Mason. currency, local

Mason Marion

Okay.

Operator

line from next go question Your of Seaport Matt is Global. from the ahead. McCall Please

Your line open. is

Matt McCall

morning, Thank you. guys. Good

Jay Gould

Good morning, Matt.

Bruce Hausmann

morning, Good Matt.

Matt McCall

to maybe back the gross John's margin go the drivers. Jay, question So, on

XXX was million it to Just basis trying understand that to of thought inflation. said productivity that's year-to-date XX I net savings interesting, points you $X --

basis just I side? make on is some on don't it of hurt, top little just quantified number. $X assume, number I talked I savings know inflation, inflation about had trying of expected you you detail? Can productivity I pressure, million you much line? get about was relying what give is kind you that The LVT through the points million, think talk How at around much what but inflation $XX going savings. within am is XX the the you part of are when I these in to again, How your net and XXX moves more talked of of you that productivity components, a so -- control to think, to about So to

Bruce Hausmann

you XXXX? are to clarify, talking Matt, about you XXXX, Just speaking or are about

Matt McCall

of was comment question talking was year. components from -- next Jay's earlier gross margin think, to John's the I kind about big Yes, I

Bruce Hausmann

it. Got

Okay.

Jay Gould

Yes.

the I -- math is we expecting will basic with which to million offset $XX mean, of to million so are gross around $XX have be inflation. million of Yes, So productivity, $XX

half $XX from around coming volume the about that’s transformation that the productivity variety world. Troup project million, our of increases. we and the initiatives of different gross of improvement County is result of would drive is Now, a coming from of margin the other our half say X% that I

to don’t volumes be our increase gross improvement in XX deliver margins. to we that So need to able XXX basis point to

Matt McCall

Okay.

need don’t that Okay. volume, But that we it's saying it's expect don’t not we volume. saying

Jay Gould

one. volume, a because Yes, we goods at number produce don’t need to would whack finished little we inventory. that like take not I And may

for may still the X% we So produce to flat volumes and year next growth. deliver X%

Matt McCall

Okay, got it.

Jay Gould

That between growth split you LVT know, carpet and is as LVT and is sourced. also the

So on our our hit we to growth bank volume gross don’t want points margins. couple to of

Matt McCall

thinking Okay, talk accelerating, the and that -- then you investments? you’re a talked to some about you about kind SG&A forecasting perfect. to -- reference And SG&A? relative are elevated did investments you question, accelerated those two also 'XX of How to SG&A to that is the was

Jay Gould

of next conservatively, I going as we say year. SG&A to is would that be Well, think, a flat sales percent

Matt McCall

Okay.

Jay Gould

our XXX margin are going by our points expansion. drive margin operating to gross to on we basis based So, XX

Matt McCall

all Okay, right.

-- that’s improvement? is going get leverage, the some again, is And so volume on SG&A that assuming case drive all no can is volume fronts so and to there, help potentially you that you better volume

Jay Gould

have we the EPS the on the SG&A honest Well, are we revenue invest are with growth you. to for I to year, to double-digit year. mean, to be deliver got we going looking curve behind

are assured we SG&A going to that revenue we get that out won't we growth. are So until put the

Matt McCall

perfect. had one, I high model, model a had wrong? anything that hear last did I higher don't know, too say, Bruce, you if that, in was number is than was something I change I or my to million? Okay, $XX million $XX CapEx but And my did then,

Bruce Hausmann

cut is a as the mentioned, Troup down actual, of shift project. project, -- into this some on get we the of on shift It's brought just the just Jay pieces for actual we construction going to And where that project Yes, County slightly. the year, that are is project, of completely actual of from that which track of that when next from number optimization year checks the the from economics

Jay Gould

but bit the to hoping validated were fourth in have -- quarter, we a to the we get ground that in year, expectations. just the ground this in delayed. in pulled and July shovels Again, just we had them we Yes, was economics, will have little expected the to capital in out the relative is million the but been we spending $XX it delayed

Matt McCall

Okay.

that does a to So year? point $XX plus spend million next kind of

Jay Gould

Probably. Yes, that sounds right.

Matt McCall

All right. Thank you, guys.

Operator

the Please from is MacGregor question line next ahead. go Your from Instructions] David of [Operator Longbow.

line open. Your is

David MacGregor

growth get opportunity FLOR Good going Yes. largely are that much you to about in SG&A to make quarter, to I your SG&A, before inflection the made guess, Nice and any keep have SG&A just revenue can tap a there around and of to talk go extent this Jay. I this little here see guess, a release you discussion what you the everyone. remarks you opportunity as of allows how business, sort these and flat of want you I wanted observation on to course. prepared forward, we in repurposing spend is repurposing feel SG&A? bit I that, in press and revenue to more morning, the to off references this on the in do and SG&A levels the you

Jay Gould

that know, to bring you our down. is as longer-term David, strategy, percentage Well,

David MacGregor

Okay.

Jay Gould

and So at a, attempt in phase point the the SG&A. I But this XX get run XX of we professionalize it in I a would transformation would to able like to really also basis to as globalize to say, improvement are we be company. company

down think of SG&A next a percent we under bring I looking these investments, of longer of to for critical. still But are can sales, couple intention. the is that term, year, that So make flat I want number XX% we so sales are at to as a

Bruce Hausmann

have credit run this was -- year. rate million target entering was into you rate that, the also remember to And run $XXX the SG&A

a $XXX in business. we’ve LVT repurposing David, So from to to actually launched is net addition million the that's reduction as bringing new the it million are when it to happened, we $XXX to SG&A, year, this

company big flex that learned company. It's So, continue how a to think is leveraging muscle, for the business has so the around, learn can -- learning it's continuing the the been I to SG&A is the a we advancing that accelerating to and and business. and been success move

keep we’ve planned, we if and growth. as consider of accelerate -- a EPS of growth be flat and and percentage will to sort on as we So bottom it some consider there can the we and next sales, that drop year, a win nice through nice line, continue that

David MacGregor

in Out portion just that a the Maybe million might that out ask $XXX available of different way and question of that reached then. to what structural, $XXX you million, kind how -- for of is of much be just repurposing? and

Jay Gould

I restructuring spend do at would -- be our how for all -- do question. you. with we best I that’s constantly mean, we it's say, a looking of mean, SG&A. available honest hard where it's are I to we kind

Then SG&A think, that went for were took FLOR it out annualized I an the of $XXX LVT we another we basis as rate, stores. into So $XX at this $XX when activity. to about million we about repurpose on towards million million, run we took year,

So out planned. much -- that’s played all and as pretty

that company David, challenges taking the added One have, $XX we’ve out million help I’ve capabilities, it taking HR, invested $XX the are at and that center of and the we to million center build so like at corporate about of running that management, product we in expense our the regions. of functional is,

million for we make total competitive how that that do we and $XXX the future. at say, are are sure we constantly budget reshape So to looking

David MacGregor

great. Okay,

of a if I follow-ups, couple could. Just

orders, talked drill that know, of, for acceleration can You just was and that? us about a September into the kind us little what let in you driving

Jay Gould

fourth strong, we I year. corporate is, budgets. progressed as years backlog as are helped of strong. think strong that’s more what’s weeks have of orders spent to think continued that able orders and want we their than Well, capital releasing few before to the first remain be them been I end earnings we that’s They will are mean, to relatively be happening quarter, here backlog believe is and as And, our get honestly, why I really the the what anything, in year-over-year. -- people release the the --

David MacGregor

verticals into that, specific Any driving Jay?

Jay Gould

solid. one year. is been strong Education very very that’s office been corporate this Well, has

refunded. state coffers have I been think

So retail, I I also biggest in now mean, it's surprise, guess is a there our really and not weakness across is residential weak. board, right the

David MacGregor

Okay. and a issue sort products? -- capacity what do source to LVT of your And a competitive last extent Asian you for see question, just becoming growing domestic of

Jay Gould

that, Sorry, the first missed part I of David.

David MacGregor

domestic can in Well, and what a about got product, are your just increasing you just that capacity and I just seeing bit? for dynamic competitive little LVT, issue source extent talk am wondering you to you Asian

Jay Gould

Yes.

up. U.S. in the Our is pricing really held

the think sweet pricing, it I us we had spot not on all. has at issue for been an

lot in box. capacity that that big think a U.S. I directed of residential, is on board towards came the

David MacGregor

Right.

Jay Gould

So, on in think, got the again, I we product the so far. pricing right LVT at least

David MacGregor

the projects. all Thanks. Great. Congratulations on

Jay Gould

appreciate Thanks, it. David. I

Bruce Hausmann

David. Thanks,

Operator

this time. delivering a Mr. call thank looking we to the further Gould. phone I are you much. very back turn the over and we no solid on to forward will support. very the now quarter, Jay at are questions had Well, your year appreciate There We

We quarter. talk you next to Thank you. will

Operator

call. today’s concludes This

You may disconnect. now

Interface (TILE) 27 Oct 172017 Q3 Earnings call transcript