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Interface Inc. Q1 2010 Earnings Call Transcript

Interface Inc. Q1 2010 Earnings Call Transcript

Interface Inc. (IFSIA)

Q1 2010 Earnings Call

April 29, 2010 9:00 AM ET

Executives

Jessica Greenberger – IR, Financial Dynamics

Dan Hendrix – President and CEO

Patrick Lynch – Senior Vice President and CFO

Analysts

Sam Darkatsh – Raymond James

Matt McCall – BB&T Capital Markets

Keith Hughes – SunTrust

David Macgregor – Longbow Research

John Baugh – Stifel Nicolaus

Carl Reichardt – Wells Fargo Securities

Glenn Wortman – Sidoti & Company

Presentation

Operator

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Good day, ladies and gentlemen and welcome to the Q1 2010 Interface Earnings Conference Call. My name is Derrick and I will be your Operator for today. At this time, all participants are in listen-only mode. Later, we will be conducting a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Ms. Jessica Greenberger of Financial Dynamics. Please proceed.

Jessica Greenberger

Thank you, operator. Good morning and welcome to Interface’s conference call regarding first 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 yesterday, please call Financial Dynamics at 212-850-5600 or if you can get a copy off of the Investor Relations section of Interface’s website. An archived version of this conference call will also be available through that website.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 and the commercial interiors industry as well as risks and uncertainties discussed under the heading Risk Factors in item 1-A 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 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 on Form 8-K filed with the SEC yesterday, 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 re-recorded or re-broadcast without Interface’s expressed 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. Please go ahead, sir.

Dan Hendrix

Thank you and good morning to everyone. I’m really pleased with the beginning of the year, as performance improved across nearly all aspects of our business. We saw our first year-over-year improvement in sales since the second quarter of 2008.

In another welcome side, our sales within the corporate office segment turned positive on a year-over-year basis as well. As in prior quarters, we’ve benefited from end market diversification strategy with non-office segments such as education, retail and hospitality accounting for most of our sales improvement.

This is a very encouraging sign as we enter the second quarter, education buying season. Emerging markets actually had the largest percentage sales growth year-over-year, mostly coming in China, India, Brazil and the Middle East.

First quarter orders also improved year-over-year and would compare with the fourth quarter, which is unusual, but positive signs given that the first quarter historically is usually the slowest period. We continued to realize manufacturing efficiencies from our restructuring initiatives and as a result, our first quarter gross margin expanded year-over-year and held even with the prior quarter despite a lower sales level.

The combination of increased sales and enhanced manufacturing efficiencies led to our improved operating income and earnings per share compared with the year-ago period. Looking regionally, our U.S. modular business had another solid quarter with a second straight quarter of year-over-year sales improvement.

The corporate office segment led the gain with non-office segments also improving, particularly education and retail. Our Asia-Pacific division had a breakout performance with most of the success coming in Australia, which is now our third largest market and with China growing rapidly. To capitalize on the opportunities that we see in China, we are making progress on our plan to open a carpet tile manufacturing plant there and are on track to begin production in the third quarter of 2010.

Our decision to ramp up end-use market diversification strategy in Asia has had some success as well. And we gained traction compared with the first quarter of last year in education, government and hospitality sectors.

In Europe, we began to see some stabilization, mature office markets but still no significant improvement. Emerging markets in India, Africa and the Middle East are beginning to come around and help with performance.

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