Interline’s sales drop 0.4% in Q3 but earnings rise

Interline also buys CleanSource, a janitorial supplies distributor

Interline Brands, Inc. a distributor of maintenance, repair and operations products yesterday reported sales and earnings for the fiscal 3rd quarter ended September 24, 2010.

Sales for the quarter decreased 0.4% compared to the third quarter of 2009. Earnings per diluted share were $0.34 for the third quarter of 2010, an increase of 6% compared to earnings per diluted share of $0.32 for the same period last year. Earnings per diluted share for the third quarter of 2010 included a $0.02 per diluted share charge associated with ongoing improvements to our distribution network.

Michael J. Grebe, Interline's Chairman and Chief Executive Officer, commented, "We've made meaningful progress over the past year toward improving our operating model, which has resulted in better value and service to our customers, and improved margins at all levels of the business. Although we generated only modest growth in certain areas of our business during the third quarter, we have achieved significant productivity gains as evidenced by our 10.3% EBITDA margin. These productivity gains have been driven, in part, by our sales professionals who are focused on building high-quality relationships with targeted customers. This has taken considerable effort over the past few quarters, but we are now better positioned for it. With our end markets continuing to stabilize, we expect to accelerate proven targeted investments to drive growth. We have successfully done this in the past and are confident these investments will yield strong results given the improvements in our operating model."

Sales for the quarter were $276.8 million, a 0.4% decrease compared to sales of $277.9 million in the comparable 2009 period. Interline's facilities maintenance end-market, which comprised 74% of sales, declined 1.5% during the third quarter. The professional contractor end-market, which comprised 15% of sales, increased 0.1% for the quarter. The specialty distributor end-market, which comprised 11% of sales, increased 4.1% for the quarter.

Gross profit increased $2.6 million, or 2.6%, to $104.8 million for the third quarter of 2010, compared to $102.2 million for the third quarter of 2009. As a percentage of net sales, gross profit increased 110 basis points to 37.9% compared to 36.8% for the third quarter of 2009.

"Our supply chain efforts remain highly focused on reducing our fixed cost structure, driving operating efficiencies, and improving our customer experience through enhanced technology and inventory management. We accomplish this with larger, more sophisticated distribution centers, such as our newest facility in Jacksonville, Florida, which became fully operational during the third quarter. As initial evidence of the success of these types of facilities, in Jacksonville we are now delivering some of the best fill-rates to our customers in the history of our company," commented Kenneth D. Sweder, Interline's Chief Operating Officer.

Sales for the nine months ended September 24, 2010 were $792.2 million, a 1.5% decrease over sales of $804.7 million in the comparable 2009 period.

Gross profit increased $4.4 million, or 1.5%, to $301.5 million for the nine months ended September 24, 2010, compared to $297.1 million in the prior year period.

Interline Brands also announced that it has acquired substantially all of the assets of CleanSource, In., a distributor of janitorial and sanitation ("JanSan") supplies, for $60.1 million, comprised of $54.6 million in cash plus an earn-out of up to $5.5 million in cash over the next two years, subject to working capital and other closing adjustments. The transaction is expected to be neutral to Interline's fiscal 2010 results after acquisition-related expenses, but accretive to future earnings periods.

CleanSource, a regional JanSan distributor headquartered in San Jose, California, primarily serves institutional facilities in the healthcare and education markets, as well as building services contractors. For the twelve-month period ended September 30, 2010, CleanSource generated approximately $115 million of sales.

"The acquisition of CleanSource fits well with our strategy of acquiring well-run businesses with leadership positions in attractive facilities maintenance markets," said Greber. "In addition to being accretive, we believe the acquisition offers numerous opportunities to grow sales and improve profitability.

"In particular, the acquisition enhances our position in the strategically important JanSan market as well as provides us with an opportunity to expand our national account capability to the West Coast. In addition, the transaction provides the potential for meaningful operating and sales benefits as we leverage our platform to generate cost synergies and sourcing benefits, as well as cross-sell more products to deliver a better value proposition to our customers. We have a very high regard for CleanSource's employees, their culture, and their valued relationships with customers and suppliers. They have a strong service-oriented approach, which is an excellent fit with Interline's culture."

Interline Brands, Inc. is headquartered in Jacksonville, Florida. Interline provides maintenance, repair and operations products to a diversified customer base made up of facilities maintenance professionals, professional contractors, and specialty distributors primarily throughout North America, Central America and the Caribbean.

CleanSource is a regional distributor of JanSan products in California. CleanSource provides product solutions and value-added services, including over 4,000 SKUs, to help businesses prosper while maintaining safe, healthy environments for their customers and employees. CleanSource was founded in 1956.