Mohawk Industries Reports Q3 Results
For the nine months ending
Commenting on Mohawk Industries’ third quarter performance,
“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
“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
“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
“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
“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
“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
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
Conference call
The telephone number is 1-800-603-9255 for US/
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES | |||||||||||||
(Unaudited) | |||||||||||||
Condensed Consolidated Statement of Operations Data | Three 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 Information | Three 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 Ended | Months Ended | |||||||||||||
December 31, 2018 | March 30, 2019 | June 29, 2019 | September 28, 2019 | September 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 |
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(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 |
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(Amounts in thousands) | ||||||||||||||
Three Months Ended | ||||||||||||||
Global Ceramic | September 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 |
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(Amounts in thousands) | ||||||||||||||
Three Months Ended | ||||||||||||||
Flooring ROW | September 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 |
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(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 Ceramic | September 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 |
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(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
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
Source: Mohawk Industries, Inc.