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Current macroeconomic trends hurt Interface in Q4 2011

24
Feb '12
Interface Inc announced results for the fourth quarter and full fiscal year ended January 1, 2012. Sales for the fourth quarter of 2011 were $270.9 million, compared with sales of $265.3 million in the fourth quarter of 2010, an increase of 2.1%. As previously announced, during the 2011 fourth quarter, the Company incurred a restructuring charge of $6.2 million, or $0.06 per diluted share after-tax, related to initiatives to drive manufacturing efficiencies and better align the Company's expenses with the current market environment.

Interface expects these actions to result in annual pre-tax cost savings of approximately $11.0 million beginning in 2012. Excluding this charge, operating income for the 2011 fourth quarter was $20.4 million, or 7.5% of sales. Including the restructuring charge, operating income in the fourth quarter of 2011 was $14.3 million, or 5.3% of sales, compared with last year's fourth quarter operating income of $29.5 million, or 11.1% of sales.

Excluding the aforementioned restructuring charge, adjusted income from continuing operations in the 2011 fourth quarter was $8.8 million, or $0.13 per diluted share. This compares with adjusted income from continuing operations in the 2010 fourth quarter of $14.3 million, or $0.22 per diluted share, which excludes pre-tax bond retirement expenses of $43.3 million in the prior year period.

"We are pleased to report increased sales for the year, though sales growth moderated in the fourth quarter, reflecting the continuation of challenging market conditions and a pause in demand as customers digested uncertain macroeconomic trends at the end of the year," said Daniel T. Hendrix, Chairman and Chief Executive Officer.

"In the face of difficult market conditions, we reduced SG&A expenses during the quarter, cutting $3.6 million sequentially from the third quarter level. We also progressed with our strategic investment initiatives and continued to see success from our FLOR consumer offerings, as demonstrated by its 34% increase in fourth quarter sales and the successful openings of stores in Houston and Brooklyn during the quarter."

Patrick C. Lynch, Senior Vice President and Chief Financial Officer, commented, "The impact of lower production volumes, combined with raw material pricing that remained higher throughout the quarter, resulted in gross margin pressure during the period. While we raised our sales prices in response to increased costs, these price increases only gained traction later in the period and did not fully offset the increased costs we faced.”

“ We took further restructuring actions to reduce our cost structure, and we expect to see the full benefits in 2012. We are evaluating other potential actions, including significant restructuring in our Europe modular business, to expand gross margin and enhance profitability. While market conditions remained difficult, we exited the year well-positioned financially with a solid platform from which to invest in our future."


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