Mohawk Industries Reports Q1 Results
Commenting on Mohawk Industries’ first quarter performance,
Until the COVID-19 outbreak, our results for the quarter were in line with our plan, as we benefited from the initiatives we implemented in 2019. As we progressed through the period, government actions to reduce the spread of the virus impacted all our markets, with some shutting down retail and manufacturing operations. Across all of our markets, demand has dropped dramatically, with residential remodeling being impacted the most up to this point and DIY products performing best, as some people started projects while staying home.
To respond to this global event, we have established corporate, segment and business teams to manage our actions as conditions change. We are keeping employees safe, increasing work from home and adjusting strategies as required. As demand dropped, we significantly reduced production, and are making weekly adjustments to adapt to the changing environment. Even where mandatory shutdowns were initiated, we are shipping product from inventory to our customers that are operating. We are lowering our costs by implementing layoffs and furloughs, using government assistance where available and absorbing labor costs where mandated to do so. We are benefiting from lower raw material and energy costs, though other headwinds are considerably greater. We are limiting our expenses and investments to what is essential to run the business and enhancing reports to manage major areas of focus, including inventory levels, headcount, receivables and payables.
Each of our segments and individual businesses has strong leaders that have managed through difficult circumstances multiple times during their careers. Our entire global team is taking extraordinary steps to support our customers and protect our people and business. Our organization is flexible in adapting to fluid conditions, and we are applying the lessons we learned from 9/11 and the last recession to guide us through these times.
For the quarter, our Global Ceramic Segment sales declined 6% as reported and 2% on a constant currency and days basis. The segment’s operating margin was 6% as reported, declining year over year primarily due to lower volume, unfavorable price and mix and unplanned shutdown costs due to COVID-19, partially offset by productivity and lower start-up cost. Each of the segment’s regions was affected by the virus at different points in the period, with
During the quarter, our Flooring North America Segment’s sales decreased 8% as reported and approximately 5.5% with one less day and the exit of unprofitable wood and other products with an operating margin of 4% as reported and 5% excluding restructuring and other charges. Operating income for the segment increased primarily due to improvements in productivity and reductions in inflation, partially offset by lower volume, price, mix and COVID-19. Across the business, we are reducing production and implementing layoffs and furloughs to align with the abrupt decline in demand. The segment has a higher percentage of sales from remodeling, and a large number of our retailers are not operating. Many retailers that carry our rug collections have also been closed. Our carpet sales performed best in the builder, multi-family, education and government sectors as projects underway have continued. During the quarter, LVT and sheet vinyl performed the best in the segment. Our LVT operations have improved with higher daily output and increased uptime. To improve our margins and mix, we have introduced collections featuring enhanced design and performance under our premium brands. Like resilient flooring, our state-of-the-art laminate also provides a DIY alternative with realistic visuals, water-proof technology and enhanced durability. In our wood flooring business, we have restructured our manufacturing operations and increased productivity and yields, improving our margins.
For the quarter, our Flooring Rest of the World Segment’s sales decreased 5% as reported and were flat on a constant currency and days basis. The segment’s operating margin was 13% as reported and 14% excluding restructuring and other charges due to lower price and mix, volume and shutdown costs from COVID-19, partially offset by lower inflation and increased productivity. Across our product categories, we have continued shipping from inventory to support customers that are operating. During the first quarter, the product categories in which we have made recent investments, including rigid LVT, sheet vinyl and carpet tile, delivered growth in a difficult environment. LVT outperformed as it takes market share from other product categories. Our sheet vinyl business grew due to exports outside the region, and higher sales in
As we enter May, the coronavirus is dramatically disrupting the economies around the world. Some countries are beginning to explore easing restrictions, while others are extending them. Presently, all our plants around the world are in operation except those in
ABOUT
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; the risks and uncertainty related to the COVID-19 pandemic; and other risks identified in Mohawk’s
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(Unaudited) | ||||||
Condensed Consolidated Statement of Operations Data | Three Months Ended | |||||
(Amounts in thousands, except per share data) | ||||||
Net sales | $ | 2,285,763 | 2,442,490 | |||
Cost of sales | 1,669,323 | 1,817,563 | ||||
Gross profit | 616,440 | 624,927 | ||||
Selling, general and administrative expenses | 464,957 | 459,597 | ||||
Operating income | 151,483 | 165,330 | ||||
Interest expense | 8,671 | 10,473 | ||||
Other (income) expense, net | 5,679 | (3,736 | ) | |||
Earnings before income taxes | 137,133 | 158,593 | ||||
Income tax expense | 26,668 | 37,018 | ||||
Net earnings including noncontrolling interest | 110,465 | 121,575 | ||||
Net income (loss) attributable to noncontrolling interest | (49 | ) | (10 | ) | ||
Net earnings attributable to |
$ | 110,514 | 121,585 | |||
Basic earnings per share attributable to |
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Basic earnings per share attributable to |
$ | 1.54 | 1.68 | |||
Weighted-average common shares outstanding - basic | 71,547 | 72,342 | ||||
Diluted earnings per share attributable to |
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Diluted earnings per share attributable to |
$ | 1.54 | 1.67 | |||
Weighted-average common shares outstanding - diluted | 71,777 | 72,646 | ||||
Other Financial Information | ||||||
(Amounts in thousands) | ||||||
Depreciation and amortization | $ | 145,516 | 137,291 | |||
Capital expenditures | $ | 115,632 | 136,948 | |||
Condensed Consolidated Balance Sheet Data | ||||||
(Amounts in thousands) | ||||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 263,086 | 105,668 | |||
Receivables, net | 1,644,750 | 1,743,581 | ||||
Inventories | 2,195,434 | 2,338,125 | ||||
Prepaid expenses and other current assets | 509,761 | 501,591 | ||||
Total current assets | 4,613,031 | 4,688,965 | ||||
Property, plant and equipment, net | 4,472,913 | 4,674,435 | ||||
Right of use operating lease assets | 331,329 | 320,800 | ||||
2,519,979 | 2,548,997 | |||||
Intangible assets, net | 904,023 | 950,564 | ||||
Deferred income taxes and other non-current assets | 415,667 | 421,314 | ||||
Total assets | $ | 13,256,942 | 13,605,075 | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Current liabilities: | ||||||
Current portion of long-term debt and commercial paper | $ | 1,210,525 | 1,763,332 | |||
Accounts payable and accrued expenses | 1,554,085 | 1,571,273 | ||||
Current operating lease liabilities | 106,673 | 99,642 | ||||
Total current liabilities | 2,871,283 | 3,434,247 | ||||
Long-term debt, less current portion | 1,514,000 | 1,497,975 | ||||
Non-current operating lease liabilities | 238,830 | 227,595 | ||||
Deferred income taxes and other long-term liabilities | 785,186 | 868,213 | ||||
Total liabilities | 5,409,299 | 6,028,030 | ||||
Total stockholders' equity | 7,847,643 | 7,577,045 | ||||
Total liabilities and stockholders' equity | $ | 13,256,942 | 13,605,075 | |||
Segment Information | As of or for the Three Months Ended | |||||
(Amounts in thousands) | ||||||
Net sales: | ||||||
Global Ceramic | $ | 848,450 | 898,352 | |||
Flooring NA | 848,330 | 921,980 | ||||
Flooring ROW | 588,983 | 622,158 | ||||
Intersegment sales | - | - | ||||
Consolidated net sales | $ | 2,285,763 | 2,442,490 | |||
Operating income (loss): | ||||||
Global Ceramic | $ | 49,089 | 84,335 | |||
Flooring NA | 33,682 | 649 | ||||
Flooring ROW | 77,227 | 90,431 | ||||
Corporate and intersegment eliminations | (8,515 | ) | (10,085 | ) | ||
Consolidated operating income | $ | 151,483 | 165,330 | |||
Assets: | ||||||
Global Ceramic | $ | 5,237,631 | 5,503,807 | |||
Flooring NA | 3,841,815 | 4,020,336 | ||||
Flooring ROW | 3,810,348 | 3,799,591 | ||||
Corporate and intersegment eliminations | 367,148 | 281,341 | ||||
Consolidated assets | $ | 13,256,942 | 13,605,075 | |||
Reconciliation of Net Earnings Attributable to |
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(Amounts in thousands, except per share data) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Net earnings attributable to |
$ | 110,514 | 121,585 | |||||||||||||
Adjusting items: | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 11,965 | 39,495 | ||||||||||||||
Acquisitions purchase accounting , including inventory step-up | - | 2,552 | ||||||||||||||
Release of indemnification asset | (35 | ) | - | |||||||||||||
Income taxes - reversal of uncertain tax position | 35 | - | ||||||||||||||
Income taxes | (3,115 | ) | (9,152 | ) | ||||||||||||
Adjusted net earnings attributable to |
$ | 119,364 | 154,480 | |||||||||||||
Adjusted diluted earnings per share attributable to |
$ | 1.66 | 2.13 | |||||||||||||
Weighted-average common shares outstanding - diluted | 71,777 | 72,646 | ||||||||||||||
Reconciliation of Total Debt to Net Debt | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||
Current portion of long-term debt and commercial paper | $ | 1,210,525 | ||||||||||||||
Long-term debt, less current portion | 1,514,000 | |||||||||||||||
Less: Cash and cash equivalents | 263,086 | |||||||||||||||
Net Debt | $ | 2,461,439 | ||||||||||||||
Reconciliation of Operating Income to Adjusted EBITDA | ||||||||||||||||
(Amounts in thousands) | Trailing Twelve | |||||||||||||||
Three Months Ended | Months Ended | |||||||||||||||
Operating income | $ | 266,860 | 240,220 | 154,814 | 151,483 | 813,377 | ||||||||||
Other (expense)/income | 3,048 | (52,713 | ) | 9,522 | (5,679 | ) | (45,822 | ) | ||||||||
Net (income) loss attributable to noncontrolling interest | (213 | ) | (151 | ) | (6 | ) | 49 | (321 | ) | |||||||
Depreciation and amortization (1) | 140,482 | 144,920 | 153,759 | 145,516 | 584,677 | |||||||||||
EBITDA | 410,177 | 332,276 | 318,089 | 291,369 | 1,351,911 | |||||||||||
Restructuring, acquisition and integration-related and other costs | 8,840 | 1,542 | 49,802 | 10,376 | 70,560 | |||||||||||
Impairment of net investment in a manufacturer and distributor of Ceramic tile in |
- | 65,172 | (5,226 | ) | - | 59,946 | ||||||||||
Acquisitions purchase accounting, including inventory step-up | 1,164 | - | 222 | - | 1,386 | |||||||||||
Release of indemnification asset | - | (659 | ) | 603 | (35 | ) | (91 | ) | ||||||||
Adjusted EBITDA | $ | 420,181 | 398,331 | 363,490 | 301,710 | 1,483,712 | ||||||||||
Net Debt to Adjusted EBITDA | 1.7 | |||||||||||||||
(1) Includes |
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Reconciliation of |
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(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Net sales | $ | 2,285,763 | 2,442,490 | |||||||||||||
Adjustment to net sales on constant shipping days | 37,996 | - | ||||||||||||||
Adjustment to net sales on a constant exchange rate | 34,051 | - | ||||||||||||||
Net sales on a constant exchange rate and constant shipping days | 2,357,810 | 2,442,490 | ||||||||||||||
Less: impact of acquisition volume | (4,101 | ) | - | |||||||||||||
Net sales on a constant exchange rate and constant shipping days excluding acquisition volume | $ | 2,353,709 | 2,442,490 | |||||||||||||
Reconciliation of Segment |
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(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Global Ceramic | ||||||||||||||||
Net sales | $ | 848,450 | 898,352 | |||||||||||||
Adjustment to net sales on constant shipping days | 14,547 | - | ||||||||||||||
Adjustment to segment net sales on a constant exchange rate | 13,484 | - | ||||||||||||||
Segment net sales on a constant exchange rate and constant shipping days | $ | 876,481 | 898,352 | |||||||||||||
Reconciliation of Segment |
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(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Flooring NA | ||||||||||||||||
Net sales | $ | 848,330 | 921,980 | |||||||||||||
Adjustment to net sales on constant shipping days | 13,683 | - | ||||||||||||||
Adjustment to net sales exiting of unprofitable wood and other products | 7,400 | - | ||||||||||||||
Segment net sales on constant shipping days and exiting of unprofitable wood and other products | $ | 869,413 | 921,980 | |||||||||||||
Reconciliation of Segment |
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(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Flooring ROW | ||||||||||||||||
Net sales | $ | 588,983 | 622,158 | |||||||||||||
Adjustment to net sales on constant shipping days | 9,767 | - | ||||||||||||||
Adjustment to segment net sales on a constant exchange rate | 20,567 | - | ||||||||||||||
Segment net sales on a constant exchange rate and constant shipping days | 619,317 | 622,158 | ||||||||||||||
Less: impact of acquisition volume | (4,101 | ) | - | |||||||||||||
Segment net sales on a constant exchange rate and constant shipping days excluding acquisition volume | $ | 615,216 | 622,158 | |||||||||||||
Reconciliation of Gross Profit to Adjusted Gross Profit | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Gross Profit | $ | 616,440 | 624,927 | |||||||||||||
Adjustments to gross profit: | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 11,080 | 35,602 | ||||||||||||||
Acquisitions purchase accounting, including inventory step-up | - | 2,552 | ||||||||||||||
Adjusted gross profit | $ | 627,520 | 663,081 | |||||||||||||
Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses |
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(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Selling, general and administrative expenses | $ | 464,957 | 459,597 | |||||||||||||
Adjustments to selling, general and administrative expenses: | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | (895 | ) | (3,101 | ) | ||||||||||||
Adjusted selling, general and administrative expenses | $ | 464,062 | 456,496 | |||||||||||||
Reconciliation of Operating Income to Adjusted Operating Income | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Operating income | $ | 151,483 | 165,330 | |||||||||||||
Adjustments to operating income: | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 11,975 | 38,703 | ||||||||||||||
Acquisitions purchase accounting, including inventory step-up | - | 2,552 | ||||||||||||||
Adjusted operating income | $ | 163,458 | 206,585 | |||||||||||||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Global Ceramic | ||||||||||||||||
Operating income | $ | 49,089 | 84,335 | |||||||||||||
Adjustments to segment operating income: | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | (122 | ) | 5,263 | |||||||||||||
Acquisitions purchase accounting, including inventory step-up | - | 204 | ||||||||||||||
Adjusted segment operating income | $ | 48,967 | 89,802 | |||||||||||||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Flooring NA | ||||||||||||||||
Operating income | $ | 33,682 | 649 | |||||||||||||
Adjustments to segment operating income: | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 8,067 | 30,599 | ||||||||||||||
Adjusted segment operating income | $ | 41,749 | 31,248 | |||||||||||||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Flooring ROW | ||||||||||||||||
Operating income | $ | 77,227 | 90,431 | |||||||||||||
Adjustments to segment operating income: | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 3,969 | 2,561 | ||||||||||||||
Acquisitions purchase accounting, including inventory step-up | - | 2,348 | ||||||||||||||
Adjusted segment operating income | $ | 81,196 | 95,340 | |||||||||||||
Reconciliation of Earnings Including Noncontrolling Interests Before Income Taxes to Adjusted Earnings Including Noncontrolling Interests Before Income Taxes |
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(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Earnings before income taxes | $ | 137,133 | 158,593 | |||||||||||||
Noncontrolling interests | 49 | 10 | ||||||||||||||
Adjustments to earnings including noncontrolling interests before income taxes: | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 11,965 | 39,495 | ||||||||||||||
Acquisitions purchase accounting, including inventory step-up | - | 2,552 | ||||||||||||||
Release of indemnification asset | (35 | ) | - | |||||||||||||
Adjusted earnings including noncontrolling interests before income taxes | $ | 149,112 | 200,650 | |||||||||||||
Reconciliation of Income Tax Expense to Adjusted Income Tax Expense | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Income tax expense | $ | 26,668 | 37,018 | |||||||||||||
Income taxes - reversal of uncertain tax position | (35 | ) | - | |||||||||||||
Income tax effect of adjusting items | 3,115 | 9,152 | ||||||||||||||
Adjusted income tax expense | $ | 29,748 | 46,170 | |||||||||||||
Adjusted income tax rate | 20.0 | % | 23.0 | % | ||||||||||||
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 |
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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. |
Source: Mohawk Industries, Inc.