Information  X 
Enter a valid email address

Mohawk Industries, Inc. (0K2F)

  Print      Mail a friend       Annual reports

Thursday 24 October, 2019

Mohawk Industries, Inc.

Mohawk Industries Reports Q3 Results

Mohawk Industries Reports Q3 Results

CALHOUN, Ga., Oct. 24, 2019 (GLOBE NEWSWIRE) -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2019 third quarter net earnings of $156 million and diluted earnings per share (EPS) of $2.15. Adjusted net earnings were $199 million, and EPS was $2.75, excluding restructuring, acquisition and other charges. Net sales for the third quarter of 2019 were $2.5 billion, down 1.0% as reported but flat on a constant currency and days basis. For the third quarter of 2018, net sales were $2.5 billion, net earnings were $227 million and EPS was $3.02, adjusted net earnings were $246 million, and EPS was $3.29, excluding restructuring, acquisition and other charges.

For the nine months ending September 28, 2019, net earnings and EPS were $480 million and $6.61, respectively. Net earnings excluding restructuring, acquisition and other charges were $564 million and EPS was $7.77. For the 2019 nine-month period, net sales were $7.5 billion, flat versus prior year as reported or an increase of 3% on a constant currency and days basis. For the nine-month period ending September 29, 2018, net sales were $7.5 billion, net earnings were $632 million and EPS was $8.42; excluding restructuring, acquisition and other charges, net earnings and EPS were $735 million and $9.80.

Commenting on Mohawk Industries’ third quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, “Our third quarter operating results were in line with our expectations, though we are not satisfied with our performance. As anticipated, our U.S. businesses presented the greatest challenges during the period given soft retail demand, the impact of LVT, a stronger dollar and excess ceramic industry inventories. Trends in our other major markets weakened, creating a more competitive environment. We expect the present conditions to persist and will further adjust our strategies as needed.

“We are progressing on many initiatives to improve our business, with the most significant of these being aligning ceramic production with demand in the U.S., realigning our North American carpet operations, optimizing our LVT manufacturing and ramping up our new plants. In addition, we are entering new product categories, introducing innovative product extensions and optimizing our recent acquisitions in Australia, New Zealand and Brazil. We are investing more in sales personnel and marketing to increase our penetration in new and existing products. We continue to streamline our operations to enhance efficiencies, and we are leveraging automation and process enhancements to lower costs. 

“Our free cash flow for the quarter is up year over year, and our balance sheet remains strong. Since the beginning of the third quarter, we purchased over 740,000 shares for approximately $91 million under our stock purchase program.

“For the quarter, our Global Ceramic Segment sales increased 3.5% as reported and 4% on a constant currency and days basis. The segment’s operating margin was 9% as reported, declining year over year primarily due to inflation and lower production rates partially offset by productivity. Our ceramic businesses around the world are facing slowing economies, and excess industry capacities are increasing competition. The U.S. ceramic market has been impacted by a decline in product mix, consumers shifting to LVT and excess inventories in the channel. Recently, the U.S. imposed 104% tariffs on Chinese imports, and further anti-dumping duties are anticipated. We expect the U.S. ceramic market to remain soft, and we are taking actions to improve our sales and costs. We are expanding our offering of stone looks and polished tiles and introducing additional value-oriented collections. We are initiating a limited launch of our new easy installation ceramic tile, and we will expand more broadly in the beginning of the year. We are developing new markets for our porcelain roofing and thick landscape tiles. Our new countertop plant in Tennessee is ramping up, processes and formulations are being refined and new products are being created. Although the Mexican economy has slowed, we have outperformed the industry by expanding our product offering and growing our customer base. We have outpaced the Brazilian ceramic market with our premium brand and leading offering, and we are installing a new porcelain line. In Europe, lower demand is impacting pricing and compressing margins as we increased sales of lower value tile. We are strengthening our higher value offerings by expanding our commercial technical tile, porcelain slabs and outdoor products. Our Russian ceramic business is the market leader and is gaining share due to our national distribution system, owned and franchised stores and project specification teams.?

“During the quarter, our Flooring North America Segment’s sales decreased 4% with an operating margin of 8% as reported. Operating income for the segment declined primarily due to lower volume and inflation. The segment has been reorganized by product category to enhance our sales, product and operational strategies and execution. Polyester carpets continue to gain share in a soft market, which has reduced our overall product mix. We have completed the expansion of recycled polyester fiber to support continued growth in the category. The realignment of our residential carpet manufacturing will be largely complete in the fourth quarter and will improve our cost, quality and service. We are closing higher cost extrusion and dyeing assets and consolidating yarn and tufting operations. We have increased automation and upgraded assets to reduce our backing and yarn costs. Our commercial business continues to outperform residential with carpet tile and LVT growing fastest. We are expanding our sales organization and increasing our carpet tile manufacturing. During the period, LVT sales outperformed the other categories, and our operations improved production volume, speeds and cost. In September, we set a record for rigid LVT production, and our flexible LVT line is running at speeds comparable to our European operations. Our manufactured sheet vinyl sales continue to grow as we broaden our position in the apartment and home center channels. We expanded our waterproof laminate offering, and our RevWood collection is growing with its superior scratch and dent resistance, state-of-the art visuals and greater value.

“For the quarter, our Flooring Rest of the World Segment’s sales decreased 2% as reported and increased 2.5% on a constant basis. The segment’s operating margin was 14% as reported, due to volume growth and lower inflation offset by price and mix. In a slower environment, the segment delivered solid results, driven by product innovation, cost improvements, new businesses and acquisitions. Our new LVT, sheet vinyl, laminate and carpet tile operations are making progress in reaching our expected levels. In laminate, we outperformed the market as our new premium products gained momentum and improved our mix. We have introduced the Signature collection, which sets the standard for the most realistic visuals and textures, and we are adding our water-proof technology to most of our laminate products. Our Russian laminate expansion is operating at expected levels, and our sales are growing. As our LVT production increases, we are expanding our sales organization, and we are introducing new rigid collections that are embossed in registration. We continue to enhance our line speeds, yields and formulations, reducing our costs. Our sheet vinyl business improved as our new Russian plant expanded sales and volume increased. Our insulation business is performing well, with volumes at historically high levels with selling prices and material costs declining. Our panels business has slowed, reducing our pricing and volume partially offset by mix and material cost. In Australia and New Zealand, the integration of our acquisition is largely complete. To increase our position, we are upgrading hard and soft surface offerings, investing in our retail and commercial sales and we have closed high cost assets in Australia.

“We see the present market conditions continuing, and we are taking actions to better position our business for the future. We are investing more in sales and marketing to expand placement of our products and increase the utilization of our new plants. Our new greenfield projects will progress as sales and costs improve. Our LVT production is improving, and increased distribution will follow. Our U.S. and European ceramic businesses are being impacted by lower market demand, and we are reducing inventory levels, expanding product offerings and entering new categories. The restructuring of our U.S. carpet operations will be substantially complete this year and will benefit our costs next year. Taking all of this into account, our EPS guidance for the fourth quarter of 2019 is $2.13 to $2.23, excluding any one-time charges.

“Next year, our business will benefit from our new products, higher utilization of our start-ups and cost reductions we have taken during 2019. Our results and balance sheet should improve with strong cash generation to take advantage of future opportunities. We have a strong global management team, and they are focused on enhancing our results and optimizing our long-term profitability. We will adapt our business strategies to future circumstances as required.”

ABOUT MOHAWK INDUSTRIES
Mohawk Industries is the leading global flooring manufacturer that creates products to enhance residential and commercial spaces around the world. Mohawk’s vertically integrated manufacturing and distribution processes provide competitive advantages in the production of carpet, rugs, ceramic tile, laminate, wood, stone and vinyl flooring. Our industry leading innovation has yielded products and technologies that differentiate our brands in the marketplace and satisfy all remodeling and new construction requirements. Our brands are among the most recognized in the industry and include American Olean, Daltile, Durkan, Eliane, Feltex, Godfrey Hirst, IVC, Karastan, Marazzi, Mohawk, Mohawk Group, Pergo, Quick-Step and Unilin. During the past decade, Mohawk has transformed its business from an American carpet manufacturer into the world’s largest flooring company with operations in Australia, Brazil, Canada, Europe, India, Malaysia, Mexico, New Zealand, Russia and the United States.

Certain of the statements in the immediately preceding paragraphs, particularly anticipating future performance, business prospects, growth and operating strategies and similar matters and those that include the words “could,” “should,” “believes,” “anticipates,” “expects,” and “estimates,” or similar expressions constitute “forward-looking statements.” For those statements, Mohawk claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.  There can be no assurance that the forward-looking statements will be accurate because they are based on many assumptions, which involve risks and uncertainties. The following important factors could cause future results to differ: changes in economic or industry conditions; competition; inflation and deflation in raw material prices and other input costs; inflation and deflation in consumer markets; energy costs and supply; timing and level of capital expenditures; timing and implementation of price increases for the Company’s products; impairment charges; integration of acquisitions; international operations; introduction of new products; rationalization of operations; taxes and tax reform, product and other claims; litigation; and other risks identified in Mohawk’s SEC reports and public announcements.

Conference call Friday, October 25, 2019, at 11:00 AM Eastern Time
The telephone number is 1-800-603-9255 for US/Canada and 1-706-634-2294 for International/Local. Conference ID # 9847415. A replay will be available until November 24, 2019, by dialing 1-855-859-2056 for US/local calls and 1-404-537-3406 for International/Local calls and entering Conference ID # 9847415.

        
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES       
(Unaudited)       
Condensed Consolidated Statement of Operations DataThree Months Ended Nine Months Ended
(Amounts in thousands, except per share data)September 28, 2019 September 29, 2018 September 28, 2019 September 29, 2018
        
Net sales$2,519,185  2,545,800   7,546,160  7,535,016 
Cost of sales 1,827,494  1,825,367   5,492,924  5,343,336 
Gross profit 691,691  720,433   2,053,236  2,191,680 
Selling, general and administrative expenses 451,471  433,189   1,380,826  1,309,730 
Operating income 240,220  287,244   672,410  881,950 
Interest expense 9,316  9,025   30,310  24,416 
Other (income) expense, net 52,713  706   45,929  6,794 
Earnings before income taxes 178,191  277,513   596,171  850,740 
Income tax expense 22,522  49,487   116,273  215,928 
Net earnings including noncontrolling interest 155,669  228,026   479,898  634,812 
Net income attributable to noncontrolling interest 151  1,013   354  2,447 
Net earnings attributable to Mohawk Industries, Inc.$155,518  227,013   479,544  632,365 
        
Basic earnings per share attributable to Mohawk Industries, Inc.       
Basic earnings per share attributable to Mohawk Industries, Inc.$2.16  3.03   6.63  8.46 
Weighted-average common shares outstanding - basic 72,106  74,603   72,302  74,599 
        
Diluted earnings per share attributable to Mohawk Industries, Inc.       
Diluted earnings per share attributable to Mohawk Industries, Inc.$2.15  3.02   6.61  8.42 
Weighted-average common shares outstanding - diluted 72,392  74,945   72,578  74,977 
        
        
Other Financial Information       
(Amounts in thousands)       
Net cash provided by operating activities$411,761  273,498   978,086  894,485 
Depreciation and amortization$144,920  132,972   422,693  382,673 
Capital expenditures$124,555  144,594   405,614  642,949 
        
Condensed Consolidated Balance Sheet Data       
(Amounts in thousands)       
     September 28, 2019 September 29, 2018
ASSETS       
Current assets:       
Cash and cash equivalents    $111,303  91,351 
Receivables, net     1,787,158  1,755,710 
Inventories     2,337,952  2,214,295 
Prepaid expenses and other current assets     491,367  487,114 
Total current assets     4,727,780  4,548,470 
Property, plant and equipment, net     4,600,630  4,586,236 
Right of use operating lease assets     334,083  - 
Goodwill     2,519,214  2,522,139 
Intangible assets, net     916,953  944,661 
Deferred income taxes and other non-current assets     294,102  399,420 
Total assets    $13,392,762  13,000,926 
LIABILITIES AND STOCKHOLDERS' EQUITY       
Current liabilities:       
Current portion of long-term debt and commercial paper    $1,273,158  1,333,853 
Accounts payable and accrued expenses     1,738,859  1,623,418 
Current operating lease liabilities     102,682  - 
Total current liabilities     3,114,699  2,957,271 
Long-term debt, less current portion     1,483,581  1,528,551 
Non-current operating lease liabilities     238,560  - 
Deferred income taxes and other long-term liabilities     790,643  912,100 
Total liabilities     5,627,483  5,397,922 
Redeemable noncontrolling interest     -  31,227 
Total stockholders' equity     7,765,279  7,571,777 
Total liabilities and stockholders' equity    $13,392,762  13,000,926 
        
        
Segment InformationThree Months Ended As of or for the Nine Months Ended
(Amounts in thousands)September 28, 2019 September 29, 2018 September 28, 2019 September 29, 2018
        
Net sales:       
Global Ceramic$916,422  885,773   2,772,805  2,691,618 
Flooring NA 1,001,908  1,047,540   2,907,327  3,055,468 
Flooring ROW 600,855  612,487   1,866,028  1,787,930 
Intersegment sales -  -   -  - 
Consolidated net sales$2,519,185  2,545,800   7,546,160  7,535,016 
        
Operating income (loss):       
Global Ceramic$84,410  118,716   286,886  366,893 
Flooring NA 80,223  93,369   140,374  268,779 
Flooring ROW 84,428  84,108   276,392  273,334 
Corporate and intersegment eliminations (8,841) (8,949)  (31,242) (27,056)
Consolidated operating income$240,220  287,244   672,410  881,950 
        
Assets:       
Global Ceramic    $5,385,279  4,999,334 
Flooring NA     4,020,205  3,989,784 
Flooring ROW     3,736,296  3,709,623 
Corporate and intersegment eliminations     250,982  302,185 
Consolidated assets    $13,392,762  13,000,926 



Reconciliation of Net Earnings Attributable to Mohawk Industries, Inc. to Adjusted Net Earnings Attributable to Mohawk Industries, Inc. and Adjusted Diluted Earnings Per Share Attributable to Mohawk Industries, Inc.
(Amounts in thousands, except per share data)        
 Three Months Ended Nine Months Ended 
 September 28, 2019 September 29, 2018 September 28, 2019 September 29, 2018 
Net earnings attributable to Mohawk Industries, Inc.$155,518  227,013  479,544  632,365  
Adjusting items:        
Restructuring, acquisition and integration-related and other costs 1,542  19,890  49,877  58,036  
Acquisitions purchase accounting , including inventory step-up -  7,090  3,716  8,638  
Impairment of investment in a manufacturer and distributor of Ceramic tile in China [1] 65,172  -  65,172  -  
Release of indemnification asset (659) -  (659) 1,749  
Income taxes - reversal of uncertain tax position 659  -  659  (1,749) 
Income taxes (22,807) (7,701) (34,660) 35,465  
Adjusted net earnings attributable to Mohawk Industries, Inc.$199,425  246,292  563,649  734,504  
         
Adjusted diluted earnings per share attributable to Mohawk Industries, Inc.$2.75  3.29  7.77  9.80  
Weighted-average common shares outstanding - diluted 72,392  74,945  72,578  74,977  
         
[1] In September, the US commerce department imposed a 104% countervailing duty on top of the 25% general tariffs on all ceramic produced in China. As a consequence, ceramic purchases from China will dramatically decline and Mohawk is taking a $65 million write off to our investment in a Chinese manufaturer and distributor.
         
         
Reconciliation of Total Debt to Net Debt
(Amounts in thousands)        
 September 28, 2019       
Current portion of long-term debt and commercial paper$1,273,158        
Long-term debt, less current portion 1,483,581        
Less: Cash and cash equivalents 111,303        
Net Debt$2,645,436        
         
         
Reconciliation of Operating Income to Adjusted EBITDA
(Amounts in thousands)       Trailing Twelve
 Three Months EndedMonths Ended
 December 31, 2018 March 30, 2019 June 29, 2019 September 28, 2019September 28, 2019
Operating income$213,376  165,330  266,860  240,220 885,786 
Other (Expense)/ Income (504) 3,736  3,048  (52,713)(46,433)
Net (income) loss attributable to noncontrolling interest (704) 10  (213) (151)(1,058)
Depreciation and amortization 139,092  137,291  140,482  144,920 561,785 
EBITDA 351,260  306,367  410,177  332,276 1,400,080 
Restructuring, acquisition and integration-related and other costs 20,412  39,495  8,840  1,542 70,289 
Impairment of investment in a manufacturer and distributor of Ceramic tile in China -  -  -  65,172 65,172 
Acquisitions purchase accounting, including inventory step-up 6,721  2,552  1,164  - 10,437 
Release of indemnification asset 2,857  -  -  (659)2,198 
Adjusted EBITDA$381,250  348,414  420,181  398,331 1,548,176 
         
Net Debt to Adjusted EBITDA       1.7 
         
         
Reconciliation of Net Sales to Net Sales on a Constant Exchange Rate and on Constant Shipping Days Excluding Acquisition Volume
(Amounts in thousands)        
 Three Months Ended Nine Months Ended 
 September 28, 2019 September 29, 2018 September 28, 2019 September 29, 2018 
Net sales$2,519,185  2,545,800  7,546,160  7,535,016  
Adjustment to net sales on constant shipping days (1,332) -  37,182  -  
Adjustment to net sales on a constant exchange rate 35,215  -  159,570  -  
Net sales on a constant exchange rate and constant shipping days 2,553,068  2,545,800  7,742,912  7,535,016  
Less: impact of acquisition volume (70,357) -  (325,352) -  
Net sales on a constant exchange rate and constant shipping days excluding acquisition volume$2,482,711  2,545,800  7,417,560  7,535,016  
         
         
Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate and on Constant Shipping Days Excluding Acquisition Volume
(Amounts in thousands)        
 Three Months Ended     
Global CeramicSeptember 28, 2019 September 29, 2018     
Net sales$916,422  885,773      
Adjustment to net sales on constant shipping days (1,332) -      
Adjustment to segment net sales on a constant exchange rate 8,364  -      
Segment net sales on a constant exchange rate and constant shipping days 923,454  885,773      
Less: impact of acquisition volume (57,369) -      
Segment net sales on a constant exchange rate and constant shipping days excluding acquisition volume$866,085  885,773      
         
         
Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate Excluding Acquisition Volume
(Amounts in thousands)        
 Three Months Ended     
Flooring ROWSeptember 28, 2019 September 29, 2018     
Net sales$600,855  612,487      
Adjustment to segment net sales on a constant exchange rate 26,852  -      
Segment net sales on a constant exchange rate 627,707  612,487      
Less: impact of acquisition volume (12,988) -      
Segment net sales on a constant exchange rate excluding acquisition volume$614,719  612,487      
         
         
Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses
(Amounts in thousands)        
 Three Months Ended     
 September 28, 2019 September 29, 2018     
Selling, general and administrative expenses$451,471  433,189      
Adjustments to selling, general and administrative expenses:        
Restructuring, acquisition and integration-related and other costs (2,051) (9,688)     
Release of indemnification asset (246) -      
Adjusted selling, general and administrative expenses$449,174  423,501      
         
         
Reconciliation of Operating Income to Adjusted Operating Income
(Amounts in thousands)        
 Three Months Ended     
 September 28, 2019 September 29, 2018     
Operating income$240,220  287,244      
Adjustments to operating income:        
Restructuring, acquisition and integration-related and other costs 9,515  19,890      
Release of indemnification asset 246  -      
Acquisitions purchase accounting, including inventory step-up -  7,090      
Adjusted operating income$249,981  314,224      
         
         
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
(Amounts in thousands)        
 Three Months Ended     
Global CeramicSeptember 28, 2019 September 29, 2018     
Operating income$84,410  118,716      
Adjustments to segment operating income:        
Restructuring, acquisition and integration-related and other costs 1,167  181      
Adjusted segment operating income$85,577  118,897      
         
         
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
(Amounts in thousands)        
 Three Months Ended     
Flooring NA September 28, 2019 September 29, 2018     
Operating income$80,223  93,369      
Adjustments to segment operating income:        
Restructuring, acquisition and integration-related and other costs 4,095  10,603      
Adjusted segment operating income$84,318  103,972      
         
         
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
(Amounts in thousands)        
 Three Months Ended     
Flooring ROW September 28, 2019 September 29, 2018     
Operating income$84,428  84,108      
Adjustments to segment operating income:        
Restructuring, acquisition and integration-related and other costs 4,435  5,596      
Acquisitions purchase accounting, including inventory step-up -  7,090      
Adjusted segment operating income$88,863  96,794      
         
         
Reconciliation of Earnings including Noncontrolling Interests Before Income Taxes to Adjusted Earnings Including Noncontrolling Interests Before Income Taxes
(Amounts in thousands)        
 Three Months Ended     
 September 28, 2019 September 29, 2018     
Earnings before income taxes$178,191  277,513      
Noncontrolling interests (151) (1,013)     
Adjustments to earnings including noncontrolling interests before income taxes:        
Restructuring, acquisition and integration-related and other costs 1,542  19,890      
Acquisitions purchase accounting, including inventory step-up -  7,090      
Impairment of investment in a manufacturer and distributor of Ceramic tile in China 65,172  -      
Release of indemnification asset (659) -      
Adjusted earnings including noncontrolling interests before income taxes$244,095  303,480      
         
         
Reconciliation of Income Tax Expense to Adjusted Income Tax Expense
(Amounts in thousands)        
 Three Months Ended     
 September 28, 2019 September 29, 2018     
Income tax expense$22,522  49,487      
Income taxes - reversal of uncertain tax position (659) -      
Income tax effect of adjusting items 22,807  7,701      
Adjusted income tax expense$44,670  57,188      
         
Adjusted income tax rate 18.3% 18.8%     
         

The Company supplements its condensed consolidated financial statements, which are prepared and presented in accordance with US GAAP, with certain non-GAAP financial measures. As required by the Securities and Exchange Commission rules, the tables above present a reconciliation of the Company's non-GAAP financial measures to the most directly comparable US GAAP measure. Each of the non-GAAP measures set forth above should be considered in addition to the comparable US GAAP measure, and may not be comparable to similarly titled measures reported by other companies. The Company believes these non-GAAP measures, when reconciled to the corresponding US GAAP measure, help its investors as follows: Non-GAAP revenue measures that assist in identifying growth trends and in comparisons of revenue with prior and future periods and non-GAAP profitability measures that assist in understanding the long-term profitability trends of the Company's business and in comparisons of its profits with prior and future periods.

The Company excludes certain items from its non-GAAP revenue measures because these items can vary dramatically between periods and can obscure underlying business trends. Items excluded from the Company's non-GAAP revenue measures include: foreign currency transactions and translation and the impact of acquisitions.

The Company excludes certain items from its non-GAAP profitability measures because these items may not be indicative of, or are unrelated to, the Company's core operating performance. Items excluded from the Company's non-GAAP profitability measures include: restructuring, acquisition and integration-related and other costs, acquisition purchase accounting, including inventory step-up, release of indemnification assets and the reversal of uncertain tax positions.

Contact:   Glenn Landau, Chief Financial Officer (706) 624-2025


a d v e r t i s e m e n t