Interface Inc. (

IFSIA

)

Q3 2010 Earnings Call

October 27, 2010 5:00 PM ET

Executives

Jessica Greenberger – FD, Investor Relations

Dan Hendrix – President and CEO

Patrick Lynch – Senior Vice President and CFO

Analysts

Josh – Raymond James

David MacGregor – Longbow Research

Keith Hughes – SunTrust

Matt McCall – BB&T Capital Markets

John Baugh – Stifel Nicolaus

Glenn Wortman – Sidoti and Company

Carl Reichardt – Wells Fargo Securities

Eric Glover – Canaccord

Presentation

Operator

Compare to:
Previous Statements by IFSIA
» Interface, Inc. Q2 2010 Earnings Call Transcript
» Interface Inc. Q1 2010 Earnings Call Transcript
» Interface, Inc. Q4 2008 Earnings Call Transcript
» Interface Inc. Q3 2008 Earnings Call Transcript

Good day, ladies and gentlemen. And welcome to the Third Quarter 2010 Interface Earnings Conference Call. My name is Lacy, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. Later, we will facilitate a question-and-answer session. (Operator instructions)

As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the presentation over to your host for today’s call, Ms. Jessica Greenberger of FD. Please proceed.

Jessica Greenberger

Thank you, Operator. Good afternoon and welcome to Interface's conference call regarding third quarter 2010 results. Joining us from the company are Dan Hendrix, President and Chief Executive Officer; and Patrick Lynch, Senior Vice President and Chief Financial Officer.

Dan will review highlights from the quarter as well as Interface's business outlook. Patrick will then review the company's key performance metrics and financial results. We will then open the call for Q&A.

If you have not yet received a copy of the results release which was issued after the close of market today, please call Financial Dynamics at 212-850-5600. Or you can get a copy off the Investor Relations section of Interface's website. An archive version of this conference call will also be available through that website.

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

Forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from any such statements, including risks and uncertainties associated with the economic conditions in the commercial interiors industry, as well as risks and uncertainties discussed under the heading Risk Factors in Item 1A of the company's annual report on Form 10-K for the fiscal year ended January 3, 2010, which has been filed with the Securities and Exchange Commission.

We direct all listeners to that document. Any such forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995. The company assumes no responsibility to update or revise forward-looking statements made during this call and cautions listeners not to place undue reliance on any such forward-looking statements.

Management's remarks during this call may refer to certain non-GAAP measures. A reconciliation of these non-GAAP measures to the most comparable GAAP measures are contained in the company's results release and Form 8-K filed with the SEC today, each of which can be found on the Investor Relations portion of the company's website, www.interfaceglobal.com.

Lastly, please note that this call is being recorded and broadcasted for Interface. It contains copyrighted material. It may not be rerecorded or rebroadcast without Interface's express permission. Your participation on the call confirms your consent to the company's taping and broadcasting of it.

With these formalities out of the way, I'd like to turn the call over to Dan Hendrix. Dan. Please go ahead, sir.

Dan Hendrix

Thank you, and good afternoon to everyone. We're very pleased with our third quarter results. We turned in another strong performance as momentum continues in our business as we once again saw significant year-over-year increases in overall sales, margins and earnings. We continue to benefit from the ongoing secular shift toward carpet tile and growing our market share.

Our sales increase in the third quarter was largely due to two factors. First from the continuing release of pent-up demand from the corporate office market globally, with a focus on office refurbishment and second, from the emerging markets, particularly in India and China.

The investments we made in our end market diversification strategy also continued positively impact our sales as non-office segments such as hospitality, education and government grew nicely compared with last year.

This revenue growth drove gross margin expansion both year-over-year and sequentially. The combination of increased sales, enhanced manufacturing efficiencies and cost reduction initiatives led to a 48% increase in operating income on a 16% increase in revenues year-over-year.

Looking regionally, our Asia-Pacific division once again delivered excellent results and Australia, which is now our second largest market continues to be a key driver in the region. The sales environment in emerging markets was increasingly robust, particularly in India, China and Brazil, with demand for our products coming from the investments being made by both local and multinational companies.

I'm really pleased with our progress in China. Over the past several years, we've invested in building our sales presence there with carpet source from our plant in Thailand. After establishing a, excuse me, sufficient sales presence, we made a decision to development our infrastructure with a new plant, which is scheduled to be fully operational in about a month.

With a new plant we'll serve the Greater China area while our plant in Thailand will continue to serve Southeast Asia, India and the Middle East. As those regions continue to grow, we're very optimistic about our opportunities.

It's worth noting that other emerging markets such as remainder of Latin America, Africa and Eastern Europe also delivered solid results during the quarter. Our Americas modular business had nice performance making it four straight quarter of year-over-year improvement.

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