Interface, Inc., a worldwide commercial flooring company and global leader in sustainability, Wednesday announced results for the second quarter ended July 1, 2018.
"We delivered another solid quarter in line with our expectations and remain focused on executing our value creation strategy across our core carpet tile and LVT product lines. Organic sales and organic order trends continue to demonstrate strong momentum in our business, with organic sales up 10.6% year over year and organic orders up 9.7% year over year," said Jay Gould, CEO of Interface. "Second quarter gross margin was slightly down year over year as a result of delayed productivity initiatives due to increased sales volume, and a change in this quarter's revenue mix that was more heavily weighted toward the InterfaceServices business. SG&A expenses were in line with expectations and, excluding nora transaction costs, SG&A improved 10 basis points as a percentage of net sales. Overall, it was another solid quarter for Interface as we delivered GAAP EPS of $0.35 and Adjusted EPS of $0.42."
In the second quarter, Interface also announced its intent to acquire nora systems, a global leader in performance flooring and worldwide share leader in the rubber flooring category. The Company expects to close the acquisition in the third quarter. Second quarter results include $5.8 million of nora transaction related expenses -- $3 million of which (or 1.1% of sales) are due diligence related costs recorded in the SG&A line, and $2.8 million of which are recorded in the other expense line as they relate to mark-to-market expenses on the previously mentioned financial instrument that is being used to hedge foreign exchange risk associated with the nora purchase price.
Second Quarter 2018 Financial Summary
Sales: Core carpet tile and LVT continued to drive strong sales and order growth in the quarter. Second quarter GAAP net sales were $284 million, up 12.7% versus $252 millionin the prior year period as strong sales momentum continued through the first half of the year. Organic sales, which adjust for the impact of foreign currency fluctuations, were up 10.6% year over year.
Organic orders, which exclude the impact of foreign currency fluctuations, were up 9.7% year over year. Carpet tile and LVT contributed relatively equally to sales and order growth.
Operating Income: Second quarter GAAP operating income was $34 million, or 11.9% of sales, compared with $34 million, or 13.3% of sales, in the prior year period. Excluding $3 million of transaction related expenses from the planned nora acquisition, second quarter adjusted operating income was $37 million, or 12.9% of sales.
Gross margin was 38.5% in the second quarter, a decrease of 40 basis points over the prior year period, driven by delayed productivity initiatives due to increased sales volume, and a change in this quarter's revenue mix that was more heavily weighted toward the InterfaceServices business.
Second quarter SG&A expenses were $75 million, or 26.6% of sales, compared to $64 million, or 25.6% of sales, in the second quarter of 2017. The 2018 second quarter SG&A includes $3 million of transaction costs associated with the planned nora acquisition. Excluding these transaction costs, SG&A was down 10 basis points as a percent of net sales year-over-year.
Net Income and EPS: GAAP net income during the second quarter of 2018 was $21 million, or $0.35 per diluted share, compared to second quarter 2017 net income of $21 million, or $0.33 per diluted share. Adjusted second quarter net income, which excludes nora transaction related expenses, was $25 million, or $0.42 per diluted share.
Year to Date 2018 Financial Results
Sales: For the first six months of 2018, net sales were $524 million, up 10.9% compared with $473 million in the first half of last year. Organic sales grew 8.8% versus prior year. Carpet tile and LVT contributed relatively equally to sales growth in the first half of 2018.
Operating Income: For the first half of 2018, the Company reported operating income of $57 million, or 10.8% of sales, compared to $49 million, or 10.4% of sales, for the same period in 2017. Adjusted operating income was $60 million, or 11.4% of sales, in the first half of 2018, versus adjusted operating income of $57 million, or 12.0% of sales, in the first six months of 2017.
Net Income and EPS: The Company reported net income of $36 million, or $0.60 per share, for the first half of 2018, including nora acquisition transaction related expenses, compared with $29 million or $0.46 per share, for the same period in 2017, including restructuring and asset impairment charges. Excluding the acquisition expenses and restructuring and asset impairment charges in the respective periods, the Company reported adjusted net income of $40 million, or $0.68 per share, for the first half of 2018 versus adjusted net income of $34 million, or $0.54 per share, for the first six months of 2017.
In the first half of 2018, GAAP EPS increased 30%, and adjusted EPS increased 26%.