Interface (TILE - Snapshot Report) delivered better-than-expected second quarter results on July 29, driven by improvement in the corporate office market and profit margin expansion. Earnings estimates have soared following the report, sending the stock to a Zacks Rank #1 (Strong Buy).

While shares of Interface have been soaring this year, the stock still appears to offer plenty of upside potential.

Interface, Inc. manufactures modular carpet, also known as carpet tile, under the Interface and FLOR brands.

Second Quarter Results

Interface reported better-than-expected second quarter results on July 29. Earnings per share came in at $0.33, beating the Zacks Consensus Estimate by 5 cents. It was a whopping 65% increase over the same quarter last year.

Net sales rose 1% year-over-year to $263.6 million. Excluding foreign currency headwinds, net sales rose a solid 10%. In the Americas, sales increased 7%, driven by strength in the corporate office market segment. And in Europe, sales jumped 16% in local currency, which was also due to the strength in its corporate office market segment.

The biggest income driver this quarter came from gross margin expansion, as gross profit expanded from 34.7% to 38.4% of net sales. The company recently implemented lean manufacturing initiatives and a new restructuring plan in order to reduce costs, and it is paying off. Additionally, the gross margin expanded due to lower raw material prices and operating leverage.

Operating income jumped 36% as the operating margin expanded from 9.3% to 12.0% of net sales. The company also benefited from a 67% reduction in interest expense due to a debt refinancing in the fourth quarter of 2014.

Estimates Soaring

Following strong Q2 results, analysts have revised their estimates significantly higher for both 2015 and 2016. This has sent the stock to a Zacks Rank #1 (Strong Buy).

The 2015 Zacks Consensus Estimate is now $1.17, up from $1.07 before the report. The 2016 consensus has risen from $1.29 to $1.40 over the same period. As you can see, consensus estimates have been soaring over the last several months as Interface has delivered huge earnings beats.

Valuation

Shares of Interface have soared in 2015, but valuation does not look unreasonable given the positive earnings momentum and strong growth projections. The stock trades at 20x 12-month forward earnings, which is in-line with the industry.

Interface also generated strong cash flow in the first half and spent $10.5 million buying back 500,000 shares.

The Bottom Line

With improvement in the corporate office market, rapidly expanding profit margins, rising estimates and reasonable valuation, Interface still offers investors attractive upside potential.