Mohawk Industries Reports Q3 Results
For the nine months ending
As previously disclosed, Mohawk received subpoenas from the
Commenting on Mohawk Industries’ third quarter performance,
“All of our businesses and geographies were stronger due to higher demand and customers increasing inventory in our distribution channels. Flooring Rest of the World delivered the strongest results in the quarter as our northern European, Russian and Australian businesses were less impacted by the pandemic. Our
During the period, demand for our products exceeded our production, and inventory declined by about
As our business responded to the COVID crisis, our focus has remained on keeping our employees safe. Throughout our offices, operations and distribution systems, we have implemented procedures that exceed public health guidelines. We are tracking all identified COVID cases, testing all contacts and successfully containing the spread within our global operations. Throughout the pandemic, our people have collaborated to protect each other and support our customers around the world.
In the second quarter, we took advantage of the favorable rate environment to pay off
For the quarter, our Global Ceramic Segment sales declined 1% as reported and increased 2% on a constant currency and days basis. The segment had an operating margin of 8% as reported and 10% excluding restructuring cost. Operating income decreased by 11% as reported versus prior year and increased by 11%, excluding restructuring charges, primarily due to productivity, increased volume and lower energy cost partially offset by unfavorable price and mix. All of our ceramic businesses improved substantially in the third quarter with low inventories limiting both our sales and service. Most of our plants have staffed up to run all of their capacity to meet present demand and increase inventories in the fourth quarter. In the
During the quarter, our Flooring North America Segment’s sales decreased 2% as reported with an operating margin of approximately 8%. The year-over-year decrease in operating income, excluding restructuring charges, was primarily due to lower volume and unfavorable price and mix, partially offset by strengthening productivity and lower raw material cost. The segment’s performance improved substantially from the prior period as residential channels strengthen offset by continued weakness in Commercial. Our restructuring programs are progressing and achieving the expected cost savings in manufacturing, logistics and SG&A. Our residential carpet business improved with retail remodeling and polyester products outperforming. To cover higher costs, we are implementing price increases in the market. Our rug sales increased as consumers used them as an easy way to update their home décor. During the period, laminate had strong growth, with expanding distribution and sales in all channels. To increase our laminate production and provide new features, we are installing a new line that should begin production in the fourth quarter of next year. Sales of our residential LVT collections continued to expand at a rapid pace, with rigid products increasing their share and our new product launches improving our mix. To offset higher tariffs on our sourced collections, we implemented price increases in the period. Our sheet vinyl collections continue to take market share, and our costs in the category improved due to greater efficiencies.
For the quarter, our Flooring Rest of the World Segment’s sales increased 13% as reported and 10% on a constant currency basis. The segment’s operating income grew 56% with a margin of 19% as reported due to strengthening volume and productivity as well as favorable material costs partially offset by unfavorable price and mix. During the period, the segment outperformed since the majority of its sales are in northern
We enter the fourth quarter with improved sales and margin trends and have a solid order backlog across the enterprise. Residential remodeling and new home construction are forecasted to remain strong as the pandemic has transformed our living spaces into schools and offices and as participation in other activities has fallen. The fourth quarter is slower for our industry due to normal seasonality, and we expect lower growth in channel inventory levels. Our higher margin commercial business will continue to be slow, with completed projects likely to outpace new starts. We anticipate service improving with our inventories rising as production levels exceed sales. We are implementing our restructuring plans and are on track to reduce costs as expected. Our visibility continues to be limited by many uncertainties, including how government restrictions and demand will evolve. Assuming that the current economic trends continue, we anticipate our fourth quarter EPS to be
Our businesses have responded effectively to the Covid crisis, changing government restrictions and varying market conditions. Residential remodeling and new construction are expected to improve next year. The commercial business should increase from its present low levels as economies recover going forward. Our strong balance sheet, cash generation and liquidity will allow us to move from a defensive posture to a more aggressive growth strategy.
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
Conference call
The telephone number is 1-800-603-9255 for US/
Contact:
(Unaudited) | ||||||||||||||
Condensed Consolidated Statement of Operations Data | Three Months Ended | Nine Months Ended | ||||||||||||
(Amounts in thousands, except per share data) | ||||||||||||||
Net sales | $ | 2,574,870 | 2,519,185 | 6,910,433 | 7,546,160 | |||||||||
Cost of sales | 1,868,671 | 1,827,494 | 5,217,827 | 5,492,924 | ||||||||||
Gross profit | 706,199 | 691,691 | 1,692,606 | 2,053,236 | ||||||||||
Selling, general and administrative expenses | 443,455 | 451,471 | 1,339,338 | 1,380,826 | ||||||||||
Operating income | 262,744 | 240,220 | 353,268 | 672,410 | ||||||||||
Interest expense | 14,854 | 9,316 | 36,481 | 30,310 | ||||||||||
Other (income) expense, net | (726 | ) | 52,713 | 5,990 | 45,929 | |||||||||
Earnings before income taxes | 248,616 | 178,191 | 310,797 | 596,171 | ||||||||||
Income tax expense | 43,163 | 22,522 | 43,467 | 116,273 | ||||||||||
Net earnings including noncontrolling interest | 205,453 | 155,669 | 267,330 | 479,898 | ||||||||||
Net income (loss) attributable to noncontrolling interest | 336 | 151 | (44 | ) | 354 | |||||||||
Net earnings attributable to |
$ | 205,117 | 155,518 | 267,374 | 479,544 | |||||||||
Basic earnings per share attributable to |
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Basic earnings per share attributable to |
$ | 2.88 | 2.16 | 3.76 | 6.63 | |||||||||
Weighted-average common shares outstanding - basic | 71,197 | 72,106 | 71,190 | 72,302 | ||||||||||
Diluted earnings per share attributable to |
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Diluted earnings per share attributable to |
$ | 2.87 | 2.15 | 3.75 | 6.61 | |||||||||
Weighted-average common shares outstanding - diluted | 71,378 | 72,392 | 71,362 | 72,578 | ||||||||||
Other Financial Information | ||||||||||||||
(Amounts in thousands) | ||||||||||||||
Net cash provided by operating activities | $ | 598,499 | 411,761 | 1,361,994 | 978,086 | |||||||||
Less: Capital expenditures | 69,143 | 124,555 | 265,414 | 405,614 | ||||||||||
Free cash flow | $ | 529,356 | 287,206 | 1,096,580 | 572,472 | |||||||||
Depreciation and amortization | $ | 151,342 | 144,920 | 450,952 | 422,693 | |||||||||
Condensed Consolidated Balance Sheet Data | ||||||||||||||
(Amounts in thousands) | ||||||||||||||
ASSETS | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 781,238 | 111,303 | |||||||||||
Short-term investments | 407,784 | 45,000 | ||||||||||||
Receivables, net | 1,710,961 | 1,787,158 | ||||||||||||
Inventories | 1,841,973 | 2,337,952 | ||||||||||||
Prepaid expenses and other current assets | 410,031 | 446,367 | ||||||||||||
Total current assets | 5,151,987 | 4,727,780 | ||||||||||||
Property, plant and equipment, net | 4,405,243 | 4,600,630 | ||||||||||||
Right of use operating lease assets | 303,050 | 334,083 | ||||||||||||
2,574,641 | 2,519,214 | |||||||||||||
Intangible assets, net | 918,778 | 916,953 | ||||||||||||
Deferred income taxes and other non-current assets | 430,515 | 294,102 | ||||||||||||
Total assets | $ | 13,784,214 | 13,392,762 | |||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||
Current liabilities: | ||||||||||||||
Current portion of long-term debt and commercial paper | $ | 356,130 | 1,273,158 | |||||||||||
Accounts payable and accrued expenses | 1,933,206 | 1,738,859 | ||||||||||||
Current operating lease liabilities | 97,778 | 102,682 | ||||||||||||
Total current liabilities | 2,387,114 | 3,114,699 | ||||||||||||
Long-term debt, less current portion | 2,282,781 | 1,483,581 | ||||||||||||
Non-current operating lease liabilities | 214,654 | 238,560 | ||||||||||||
Deferred income taxes and other long-term liabilities | 732,596 | 790,643 | ||||||||||||
Total liabilities | 5,617,145 | 5,627,483 | ||||||||||||
Total stockholders' equity | 8,167,069 | 7,765,279 | ||||||||||||
Total liabilities and stockholders' equity | $ | 13,784,214 | 13,392,762 | |||||||||||
Segment Information | Three Months Ended | As of or for the Nine Months Ended | ||||||||||||
(Amounts in thousands) | ||||||||||||||
Net sales: | ||||||||||||||
Global Ceramic | $ | 911,303 | 916,422 | 2,513,088 | 2,772,805 | |||||||||
Flooring NA | 982,292 | 1,001,908 | 2,630,710 | 2,907,327 | ||||||||||
Flooring ROW | 681,275 | 600,855 | 1,766,635 | 1,866,028 | ||||||||||
Consolidated net sales | $ | 2,574,870 | 2,519,185 | 6,910,433 | 7,546,160 | |||||||||
Operating income (loss): | ||||||||||||||
Global Ceramic | $ | 73,998 | 83,305 | 88,166 | 283,571 | |||||||||
Flooring NA | 74,313 | 82,768 | 65,035 | 148,010 | ||||||||||
Flooring ROW | 129,135 | 82,988 | 234,429 | 272,071 | ||||||||||
Corporate and intersegment eliminations | (14,702 | ) | (8,841 | ) | (34,362 | ) | (31,242 | ) | ||||||
Consolidated operating income (a) | $ | 262,744 | 240,220 | 353,268 | 672,410 | |||||||||
Assets: | ||||||||||||||
Global Ceramic | $ | 5,111,492 | 5,385,279 | |||||||||||
Flooring NA | 3,626,339 | 4,020,205 | ||||||||||||
Flooring ROW | 3,928,243 | 3,736,296 | ||||||||||||
Corporate and intersegment eliminations | 1,118,140 | 250,982 | ||||||||||||
Consolidated assets | $ | 13,784,214 | 13,392,762 | |||||||||||
(a)During the second quarter of 2020, the Company revised the methodology it uses to estimate and allocate corporate general and administrative expenses to its operating segments to better align usage of corporate resources allocated to the Company segments. The updated allocation methodology had no impact on the Company’s consolidated statements of operations. This change was applied retrospectively, and segment operating income for all comparative periods has been updated to reflect this change. |
Reconciliation of Net Earnings Attributable to |
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(Amounts in thousands, except per share data) | ||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||
Net earnings attributable to |
$ | 205,117 | 155,518 | 267,374 | 479,544 | |||||||||||||
Adjusting items: | ||||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 32,359 | 1,542 | 144,683 | 49,877 | ||||||||||||||
Acquisitions purchase accounting , including inventory step-up | - | - | - | 3,716 | ||||||||||||||
Impairment of net investment in a manufacturer and distributor of Ceramic tile in |
- | 65,172 | - | 65,172 | ||||||||||||||
Release of indemnification asset | (191 | ) | (659 | ) | (249 | ) | (659 | ) | ||||||||||
Income taxes - reversal of uncertain tax position | 191 | 659 | 249 | 659 | ||||||||||||||
Income taxes | (4,533 | ) | (22,807 | ) | (33,393 | ) | (34,660 | ) | ||||||||||
Adjusted net earnings attributable to |
$ | 232,943 | 199,425 | 378,664 | 563,649 | |||||||||||||
Adjusted diluted earnings per share attributable to |
$ | 3.26 | 2.75 | 5.31 | 7.77 | |||||||||||||
Weighted-average common shares outstanding - diluted | 71,378 | 72,392 | 71,362 | 72,578 | ||||||||||||||
[1] In |
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Reconciliation of Total Debt to Net Debt | ||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||
Current portion of long-term debt and commercial paper | $ | 356,130 | ||||||||||||||||
Long-term debt, less current portion | 2,282,781 | |||||||||||||||||
Total debt | 2,638,911 | |||||||||||||||||
Less: Cash and cash equivalents | 781,238 | |||||||||||||||||
Net Debt | 1,857,673 | |||||||||||||||||
Less: Short-term investments | 407,784 | |||||||||||||||||
Net debt less short-term investments | $ | 1,449,889 | ||||||||||||||||
Reconciliation of Operating Income (Loss) to Adjusted EBITDA | ||||||||||||||||||
(Amounts in thousands) | Trailing Twelve | |||||||||||||||||
Three Months Ended | Months Ended | |||||||||||||||||
Operating income (loss) | $ | 154,814 | 151,483 | (60,958 | ) | 262,744 | 508,083 | |||||||||||
Other (expense) income | 9,522 | (5,679 | ) | (1,037 | ) | 726 | 3,532 | |||||||||||
Net (income) loss attributable to noncontrolling interest | (6 | ) | 49 | 331 | (336 | ) | 38 | |||||||||||
Depreciation and amortization (1) | 153,759 | 145,516 | 154,094 | 151,342 | 604,711 | |||||||||||||
EBITDA | 318,089 | 291,369 | 92,430 | 414,476 | 1,116,364 | |||||||||||||
Restructuring, acquisition and integration-related and other costs | 49,802 | 10,376 | 91,963 | 27,116 | 179,257 | |||||||||||||
Impairment of net investment in a manufacturer and distributor of Ceramic tile in |
(5,226 | ) | - | - | - | (5,226 | ) | |||||||||||
Acquisitions purchase accounting, including inventory step-up | 222 | - | - | - | 222 | |||||||||||||
Release of indemnification asset | 603 | (35 | ) | (23 | ) | (191 | ) | 354 | ||||||||||
Adjusted EBITDA | $ | 363,490 | 301,710 | 184,370 | 441,401 | 1,290,971 | ||||||||||||
Net Debt less short-term investments to Adjusted EBITDA | 1.1 | |||||||||||||||||
(1) Includes |
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Reconciliation of |
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(Amounts in thousands) | ||||||||||||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||||
Net sales | $ | 2,574,870 | 2,519,185 | 6,910,433 | 7,546,160 | |||||||||||||
Adjustment to net sales on constant shipping days | (2,242 | ) | - | 35,247 | - | |||||||||||||
Adjustment to net sales on a constant exchange rate | 1,695 | - | 76,245 | - | ||||||||||||||
Net sales on a constant exchange rate and constant shipping days | $ | 2,574,323 | 2,519,185 | 7,021,925 | 7,546,160 | |||||||||||||
Reconciliation of Segment |
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(Amounts in thousands) | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||
Global Ceramic | ||||||||||||||||||
Net sales | $ | 911,303 | 916,422 | |||||||||||||||
Adjustment to net sales on constant shipping days | (2,242 | ) | - | |||||||||||||||
Adjustment to segment net sales on a constant exchange rate | 23,026 | - | ||||||||||||||||
Segment net sales on a constant exchange rate and constant shipping days | $ | 932,087 | 916,422 | |||||||||||||||
Reconciliation of Segment |
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(Amounts in thousands) | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||
Flooring ROW | ||||||||||||||||||
Net sales | $ | 681,275 | 600,855 | |||||||||||||||
Adjustment to segment net sales on a constant exchange rate | (21,331 | ) | - | |||||||||||||||
Segment net sales on a constant exchange rate | $ | 659,944 | 600,855 | |||||||||||||||
Reconciliation of Gross Profit to Adjusted Gross Profit | ||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||
Gross Profit | $ | 706,199 | 691,691 | |||||||||||||||
Adjustments to gross profit: | ||||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 23,585 | 7,464 | ||||||||||||||||
Adjusted gross profit | $ | 729,784 | 699,155 | |||||||||||||||
Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses | ||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||
Selling, general and administrative expenses | $ | 443,455 | 451,471 | |||||||||||||||
Adjustments to selling, general and administrative expenses: | ||||||||||||||||||
Restructuring, acquisition and integration-related and other costs | (8,764 | ) | (2,051 | ) | ||||||||||||||
Release of indemnification asset | - | (246 | ) | |||||||||||||||
Adjusted selling, general and administrative expenses | $ | 434,691 | 449,174 | |||||||||||||||
Reconciliation of Operating Income to Adjusted Operating Income | ||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||
Operating income | $ | 262,744 | 240,220 | |||||||||||||||
Adjustments to operating income: | ||||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 32,349 | 9,515 | ||||||||||||||||
Release of indemnification asset | - | 246 | ||||||||||||||||
Adjusted operating income | $ | 295,093 | 249,981 | |||||||||||||||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income | ||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||
Global Ceramic | ||||||||||||||||||
Operating income | $ | 73,998 | 83,305 | |||||||||||||||
Adjustments to segment operating income: | ||||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 20,129 | 1,167 | ||||||||||||||||
Adjusted segment operating income | $ | 94,127 | 84,472 | |||||||||||||||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income | ||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||
Flooring NA | ||||||||||||||||||
Operating income | $ | 74,313 | 82,768 | |||||||||||||||
Adjustments to segment operating income: | ||||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 5,953 | 4,095 | ||||||||||||||||
Adjusted segment operating income | $ | 80,266 | 86,863 | |||||||||||||||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income | ||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||
Flooring ROW | ||||||||||||||||||
Operating income | $ | 129,135 | 82,988 | |||||||||||||||
Adjustments to segment operating income: | ||||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 2,019 | 4,435 | ||||||||||||||||
Adjusted segment operating income | $ | 131,154 | 87,423 | |||||||||||||||
Reconciliation of Segment Operating (Loss) to Adjusted Segment Operating (Loss) | ||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||
Corporate and intersegment eliminations | ||||||||||||||||||
Operating (loss) | $ | (14,702 | ) | (8,841 | ) | |||||||||||||
Adjustments to segment operating (loss): | ||||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 4,248 | 65 | ||||||||||||||||
Adjusted segment operating (loss) | $ | (10,454 | ) | (8,776 | ) | |||||||||||||
Reconciliation of Earnings Including Noncontrolling Interests Before Income Taxes to Adjusted Earnings Including Noncontrolling Interests Before Income Taxes | ||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||
Earnings before income taxes | $ | 248,616 | 178,191 | |||||||||||||||
Noncontrolling interests | (336 | ) | (151 | ) | ||||||||||||||
Adjustments to earnings including noncontrolling interests before income taxes: | ||||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 32,359 | 1,542 | ||||||||||||||||
Impairment of net investment in a manufacturer and distributor of Ceramic tile in |
- | 65,172 | ||||||||||||||||
Release of indemnification asset | (191 | ) | (659 | ) | ||||||||||||||
Adjusted earnings including noncontrolling interests before income taxes | $ | 280,448 | 244,095 | |||||||||||||||
Reconciliation of Income Tax Expense to Adjusted Income Tax Expense | ||||||||||||||||||
(Amounts in thousands) | ||||||||||||||||||
Three Months Ended | ||||||||||||||||||
Income tax expense | $ | 43,163 | 22,522 | |||||||||||||||
Income taxes - reversal of uncertain tax position | (191 | ) | (659 | ) | ||||||||||||||
Income tax effect of adjusting items | 4,533 | 22,807 | ||||||||||||||||
Adjusted income tax expense | $ | 47,505 | 44,670 | |||||||||||||||
Adjusted income tax rate | 16.9 | % | 18.3 | % | ||||||||||||||
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.