Interface Earnings: Slowly Turning the Corner

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Success is relative for the top dog in modular carpeting. Interface (NASDAQ: TILE) reported fresh financials after Wednesday's market close. Net sales inching 1.4% higher may not turn heads for fans of absolute growth, but it's the flooring specialist's heartiest top-line showing in two years. Perhaps more importantly, the report puts an end to an unfortunate streak in which Interface had posted six straight periods of year-over-year declines in revenue.

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Net sales clocked in at $251.7 million for the second quarter, up slightly from the $248.2 million that it served up a year earlier. If we adjust results for foreign exchange fluctuations and its decision to exit its FLOR retail business we're looking at a slightly better 4% uptick in organic sales growth. 

Interface credits growth in its core carpet tile business and the recent launch of its LVT modular resilient flooring business for its return to top-line growth. It's also singling out gains in the Americas and Asia-Pacific for its sales turnaround. 

The pieces are starting to come together

There was modest improvement in Interface's bottom-line results. Net income clocked in at $20.9 million or $0.33 a share, up marginally from the profit of $0.32 a share it posted a year earlier. Operating margin improved despite a slight increase in gross margin, something that Interface was already anticipating given the increase in raw material input costs and the FLOR-related restructuring.

This was Jay Gould's first full quarter as CEO. He's been with Interface since 2015 but was tapped as its new CEO back in March. He's reiterating the firm's earlier forecast calling for 3% to 4% in organic sales growth, 38% to 38.5% in gross margin, and $260-265 million in SG&A expenses for all of 2017.

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Interface is comfortable enough in its performance to hand over more of its money to its stakeholders. It announced on Wednesday afternoon that it's boosting its quarterly payouts from $0.06 a share to $0.065 a share. The distributions go along with its share buybacks -- it repurchased $25 million worth of its own stock during the second quarter -- as ways that Interface is returning money to its shareholders. 

With orders on the rise and a long overdue return to net sales growth, Interface is taking small but definite steps in the right direction. Gould can bask in the return to growth in his first full quarter at the helm, but now Interface will have to make sure that this is the start of a new -- and this time positive -- streak.

 

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Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Interface. The Motley Fool has a disclosure policy.