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Thursday 18 October, 2007

Mohawk Industries, Inc.

Mohawk Industries, Inc. Announces Third Quarter...





CALHOUN, Georgia, October 18 /PRNewswire/ --

    Mohawk Industries, Inc. (NYSE: MHK) today announced 2007 third quarter
net earnings of US$122 million and diluted earnings per share (EPS) of
US$1.78 (both 5% below last year). Net earnings and EPS include a charge of
US$14.2 million before tax (US$0.13 per share) related to plant closings in
our Mohawk and Dal-Tile segments. In the third quarter of 2006, net earnings
and EPS were US$128 million and US$1.88 per share, respectively, and included
a benefit of US$8.8 million before tax (US$0.08 per share) related to a
refund from U.S. Customs. New tax strategies were implemented in Europe,
which have decreased our ongoing tax rates. Net sales for the quarter were
US$1,938 million, a decrease of 4% from 2006. The company generated cash flow
from operations of US$287 million. In addition, debt of US$53 million was
paid down improving the Company's debt to capital ratio to 37%.



    For the first nine months of 2007, net earnings were US$328 million and
EPS was US$4.79 (both flat to last year). Net earnings and EPS include a
charge of US$14.2 million before tax (US$0.13 per share) related to the plant
closings. Net earnings and EPS were US$326 million and US$4.80 per share,
respectively, in the first nine months of 2006 and included a benefit of
US$15.1 million before tax (US$0.14 per share) related to a refund from U.S.
Customs. Net sales for the first nine months of 2007 were US$5,779 million
representing a 4% decrease from 2006. The sales decreases for both the
quarter and the year to date are attributable to slowing U.S. residential
demand.



    In commenting on the third quarter results, Jeffrey S. Lorberbaum,
Chairman and CEO, stated: "We again exceeded our expectations in the third
quarter in a difficult environment. Our total results have been positively
impacted by the broadening of our product portfolio and our expanded
geographic participation which has partially offset the cyclical downturn in
the U.S. flooring industry. The U.S. residential flooring industry was
negatively affected by the slowing economy, tightening credit market, falling
housing prices and low consumer confidence. The combination of these factors
further reduced the sales of flooring in the residential channel. The
European business performed well overall with faster growth in the eastern
European and Russian markets. The U.S. commercial channel is operating at a
higher level than the residential channel with business investments still at
positive levels.



    The Mohawk segment sales were down in the third quarter. After pre-tax
plant closing costs of US$8.5 million, the operating margins were 7.2% (7.9%
excluding closing costs). The segment margins are good given the challenging
environment. We are completing the implementation of the carpet price
increase in a soft market. There remains pressure on our commodity products
and a higher level of promotions than normal in the market. We continue to
make adjustments in our sales and marketing organizations to control costs
and maximize focus on individual channels. We are closely controlling our SG
& A costs, manufacturing costs and working capital. In the segment we are
closing staple yarn, tufting, and flat weaving assets because of shifts in
demand and cost reductions which should benefit future periods.



    Dal-Tile sales during the quarter were about flat with last year. After
pre-tax plant closing costs of US$5.7 million, the operating margins were
12.7% (13.8% excluding closing costs). We believe we are out performing the
industry and have benefited from our significant position in the commercial
channel. We are repositioning some of our sales efforts to the commercial and
multifamily channels from the residential channels. Dal-Tile introduced
higher value products from our new production lines, new exterior stone
products and new merchandising and warranties for our ceramic accessories. We
are managing our SG & A, manufacturing and distribution costs. We have closed
a high cost ceramic plant and moved the production to more efficient
facilities.



    Unilin had excellent results with sales increasing dramatically and
operating margins at 18.8%. The Euro continued to strengthen favorably
affecting sales by 7% and operating income by US$4.5 million when compared to
last year. Sales were up in all product categories for Unilin. Our sales were
strong in the western European market and accelerated in eastern Europe and
Russia. Improved demand in our board and roofing products has positively
affected revenues and selling prices. We are seeing increases in raw
materials and moderating growth in some markets. The U.S. laminate business
was also strong as we focus on the value added mid to high end markets using
Quick Step, Mohawk, and private label brands. We are growing our business in
both the retail and the home center channels. We have signed additional
agreements in the period with other companies to license our patented
technology.



    We completed the purchase of the four wood plants during the period and
have started to implement our plans to improve the productivity, costs, and
quality through both process changes and new investments. We are moving
products Mohawk previously purchased from outside suppliers into these
facilities. The plants are operating at a loss, which we estimate will be
US$7 - 15 million in the first year. In the third and fourth quarters of
2007, we will have non-cash purchase accounting charges aggregating
approximately US$2 million. We anticipate the operational results will be
accretive in the second year.



    The company continues to do well and generate significant cash flow.
Since our purchase of Unilin in November 2005, we have paid US$1 billion of
debt and our debt to capital ratio improved from 55% to 37%. Mohawk is well
positioned to take advantage of any opportunities which may arise as we move
through this cycle."



    In the fourth quarter the slowing housing and tightening credit markets
are forecast to continue to negatively impact the residential sector. We
expect lower production levels and increased promotional activity in the U.S.
with more difficult comparisons to last year in our Unilin business. We are
managing the controllable elements of our business while adapting to the
industry dynamics. Based on these factors our estimate for the fourth quarter
of 2007 is US$1.47 to US$1.56 EPS. At this point we anticipate next year's
results in the U.S. will be the inverse of this year with a soft environment
at the beginning and improvement in the second half. The European market is
expected to do well with some moderation of growth in 2008. We expect our
business to perform well in this challenging environment.



    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; raw material and energy costs; timing and level of capital
expenditures; integration of acquisitions; rationalization of operations;
litigation and other risks identified in Mohawk's SEC reports and public
announcements.



    Mohawk is a leading supplier of flooring for both residential and
commercial applications. Mohawk offers a complete selection of carpet,
ceramic tile, laminate, wood, stone, vinyl, and rugs. These products are
marketed under the premier brands in the industry, which include Mohawk,
Karastan, Ralph Lauren, Lees, Bigelow, Dal-Tile, American Olean, Unilin and
Quick Step. Mohawk's unique merchandising and marketing assist our customers
in creating the consumers' dream. Mohawk provides a premium level of service
with its own trucking fleet and over 250 local distribution locations.



    There will be a conference call Friday, October 19, 2007 at 11:00 AM
Eastern Time.



    The telephone number to call is +1-800-603-9255 for US/Canada and
+1-706-634-2294 for International/Local.



    A conference call replay will also be available until November 16, 2007
by dialing +1-800-642-1687 for US/local calls and +1-706-645-9291 for
International/Local calls and entering Conference ID # 17863604.


    
    (All amounts in US dollars unless otherwise noted.)
    
    MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
    
    Consolidated Statement of   
    Earnings Data                Three Months Ended      Nine Months Ended

    (Amounts in thousands,      September   September  September   September 
    except per share data)       29, 2007   30, 2006    29, 2007   30, 2006
    
    Net sales                   $1,937,677  2,024,019   5,778,750  6,007,248
    Cost of sales                1,392,294  1,455,508   4,153,229  4,330,015

        Gross profit               545,383    568,511   1,625,521  1,677,233
    Selling, general and        
     administrative expenses       344,569    345,771   1,055,882  1,067,547
        Operating income           200,814    222,740     569,639    609,686
    Interest expense                37,518     44,655     118,235    131,113
    Other (income) expense, net       (799)        55         677      6,380
    U.S. Customs refund                  -     (8,834)     (9,154)   (15,066)
        Earnings before income  
         taxes                     164,095    186,864     459,881    487,259
    Income taxes                    42,041     59,156     132,181    160,917
        Net earnings              $122,054    127,708     327,700    326,342
    Basic earnings per share         $1.79       1.89        4.81       4.82
    Weighted-average shares    
     outstanding                    68,281     67,704      68,118     67,654
    Diluted earnings per share       $1.78       1.88        4.79       4.80
    Weighted-average common and 
     dilutive potential common 
     shares outstanding             68,597     68,021      68,461     68,056
    


    Other Financial Information
    (Amounts in thousands)
    
    Net cash provided by        
     operating activities         $287,385    203,534     601,837    546,241
    Depreciation & amortization    $75,636     68,040     224,864    202,674
    Capital expenditures           $37,448     41,389      97,832    124,048
    

    Consolidated Balance Sheet Data
    (Amounts in thousands)
                                                       September   September 
                                                        29, 2007   30, 2006
    ASSETS
    Current assets:
        Cash & cash equivalents                           $81,664     69,730
        Receivables                                       958,947    958,416
        Inventories                                     1,297,605  1,275,435
        Prepaid expenses                                  111,494    126,895
        Deferred income taxes                             157,665     55,128
            Total current assets                        2,607,375  2,485,604

    Property, plant and         
     equipment, net                                     1,936,598  1,869,273
    Goodwill                                            2,784,760  2,685,092
    Intangible assets                                   1,171,465  1,168,739
    Other assets                                           26,972     25,933

                                                       $8,527,170  8,234,641


    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
      Current portion of long-term
       debt                                              $337,351    509,151
      Accounts payable and accrued
       expenses                                         1,022,114  1,124,974

            Total current liabilities                   1,359,465  1,634,125
    Long-term debt, less current
     portion                                            2,126,936  2,438,732
    Deferred income taxes and   
     other long-term liabilities                          793,037    631,283
            Total liabilities                           4,279,438  4,704,140

    Total stockholders' equity                          4,247,732  3,530,501

                                                       $8,527,170  8,234,641



    Segment Information        As of or for the Three  As of or for the Nine 
                                    Months Ended           Months Ended

    (Amounts in thousands)      September   September  September   September 
                                 29, 2007   30, 2006    29, 2007   30, 2006
    
    Net sales:
        Mohawk                  $1,076,745  1,233,833   3,237,818  3,626,371
        Dal-Tile                   497,420    501,241   1,469,568  1,482,065
        Unilin                     378,446    292,924   1,094,073    909,319
        Corporate and           
         eliminations              (14,934)    (3,979)    (22,709)   (10,507)

            Consolidated net    
             sales              $1,937,677  2,024,019   5,778,750  6,007,248
    

    Operating income:
        Mohawk                     $77,002    110,505     185,177    275,111
        Dal-Tile                    63,109     69,642     196,857    213,286
        Unilin                      71,034     49,748     213,270    149,424
        Corporate and           
         eliminations              (10,331)    (7,155)    (25,665)   (28,135)

            Consolidated        
             operating income     $200,814    222,740     569,639    609,686
    
    Assets:
        Mohawk                                         $2,391,392  2,597,805
        Dal-Tile                                        2,298,695  2,294,118
        Unilin                                          3,613,857  3,239,804
        Corporate and          
         eliminations                                     223,226    102,914

            Consolidated assets                        $8,527,170  8,234,641



    Reconciliation of Free cash flow per share and Debt to capital
     percentage.

                                                           For the trailing
                                                         Twelve Months Ended
    (Amounts in thousands, except per                     September 29, 2007
    share amounts)                                

    Free cash flow reconciliation:
      Cash flow from operations                                     $837,641
      Less:  Additions of property, plant
             and equipment                                          (139,553)

            Free cash flow                                          $698,088
    
      Weighted average shares - dilutive - 
       trailing four quarters                                         68,361
    
    Diluted free cash flow per share                                  $10.21
    

                                                                 As of
                                                          September 29, 2007

    Outstanding Debt (a)                                          $2,464,287
    Total stockholders' equity                                     4,247,732

            Total capital (b)                                     $6,712,019
    
            Debt to capital percentage   
             (a)/(b)                                                      37%
    
    
    The Company believes it is useful for itself and investors to review, as  
    applicable, both GAAP and the above non-GAAP measures in order to assess 
    the performance of the Company's business for planning and forecasting in 
    subsequent periods.





Web site: http://www.mohawkind.com

                                                                                                                                                                                                                                                   

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