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Mohawk Industries Reports Q1 Results

April 26, 2018 at 4:05 PM EDT

CALHOUN, Ga., April 26, 2018 /CNW/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2018 first quarter net earnings of $209 million and diluted earnings per share (EPS) of $2.78. Adjusted net earnings were $225 million and EPS was $3.01, excluding restructuring, acquisition and other charges, an 11% increase over last year. Net sales for the first quarter of 2018 were $2.4 billion, up 9% in the quarter and 4% on a constant currency basis. For the first quarter of 2017, net sales were $2.2 billion, net earnings were $201 million and EPS was $2.68; adjusted net earnings were $203 million and EPS was $2.72, excluding restructuring, acquisition and other charges.

Commenting on Mohawk Industries' first quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "Mohawk is benefiting from its diverse geographical footprint and product portfolio. Our performance in the first quarter accentuated this strength as we realized significant growth in LVT in our largest markets and sales and profits grew strongly in our ceramic business outside the U.S. We are leveraging our global organization's strength to initiate manufacturing in new markets and extend our development of innovative products. Our global decentralized structure enables us to simultaneously manage numerous internal investments while also executing new acquisitions.

"For the quarter, our operating income grew at a greater rate when adjusted for the loss of income from expired patents and higher start-up costs of new facilities and sales initiatives. In the first quarter, material and freight inflation increased more than we anticipated and impacted our costs. We are initiating selective pricing actions by product and region that, combined with improving mix and cost reductions, will offset expected inflation.

"For the quarter, our Global Ceramic Segment sales increased 12% as reported and 8% on a constant currency basis. Our sales in Russia and Mexico grew the fastest, and our European acquisitions added approximately 6% to our sales. Operating margin was approximately 13% both as reported and on an adjusted basis, decreasing year over year due to inflation, product mix and start-up cost.  First quarter segment sales sequentially improved, and we anticipate increased growth throughout the balance of the year, supported by greater capacity and new product introductions. We are implementing sales actions to increase our customer base and market share in both the residential and commercial sectors. In the U.S., we are launching innovative slip resistant tile, introducing higher styled designs in all price points and marketing ceramic's durability and ease of care to consumers. Our new service centers and countertop distribution are ramping up and will enhance our results as sales increase. The building for our new quartz plant is nearing completion, and equipment installation should begin this quarter. In Mexico, the increased capacity and new capabilities of our Salamanca plant are allowing us to expand our customer base domestically and grow exports to Central and South America. In Europe, our product mix is improving as we capture a larger share of the premium market, and our new product launches increase our average price. Our two acquisitions in Italy and Poland are progressing as planned as we integrate their operations and expand their product offering. In Russia, we continue to grow our leading market position in a challenging economic environment.

"During the quarter, our Flooring North America Segment's sales increased 1%. The segment's operating margin was 8% as reported, absorbing increased inflation, restructuring and LVT start-up costs. On an adjusted basis, the operating margin was approximately 10% including the higher inflation and start-up costs. Our residential carpet sales increased during the quarter, led by the retail replacement channel. Our sales benefited from the strength of our innovative products, including super soft SmartStrand Silk Reserve, luxury Karastan collections, patented Continuum polyester offerings and propriety, hypoallergenic Air.o unified soft flooring. In the first quarter, we implemented the carpet price increase we announced last fall. In addition, our raw material and freight costs escalated more than we anticipated, and we announced another carpet price increase of 6% to 7% to cover these costs. We have realigned our commercial sales structure, so that we can provide greater expertise with complete flooring solutions for each end-use market. LVT sales continue to expand in both residential and commercial. To support our increasing manufacturing capabilities, we are expanding our collections of both flexible and rigid LVT. Our new laminate production line is working well and has unique capabilities to make products indistinguishable from natural wood with superior visuals and performance. Our revolutionary RevWood Plus, a new water-proof wood product, is rapidly gaining acceptance with longer planks and contemporary finishes. Our investments in new technologies and hundreds of productivity projects are enhancing our service levels, quality and cost structures.

"For the quarter, our Flooring Rest of the World Segment's sales increased 18% as reported and 4% on a constant currency basis, as local economies improved and the Euro strengthened. As reported, our operating income increased 17% as a result of improved price and mix, productivity and the strengthening Euro, overcoming inflation, start-up costs and expired patents. On an adjusted basis, the operating margin was approximately 16%, a slight improvement even with higher start-up costs and lower patent income. We are starting new LVT and laminate production in Belgium, and we are launching new carpet tile and rigid LVT products. The price increases we implemented last fall are covering raw material increases from 2017, and we are selectively increasing prices to offset further inflation. LVT in Europe is growing in acceptance, and we are the market leader. Our new LVT production line is ramping up, and we are expanding our product offering to fully utilize its capacity. Our sheet vinyl assets in Europe are running at capacity, and we are seeding the Russian market to build demand for our new plant, which should initiate production by the end of this year. To expand our sales across Europe, we are assembling an experienced commercial sales force for our LVT, sheet vinyl and carpet tile. Our laminate business continues to perform well, and we lead the premium market in realistic design and water-resistant products. Our new laminate press is operating, and we are introducing additional premium products to extend our market leadership. Our wood panel sales are performing well as a result of investments that expanded capacity and improved our costs. Our insulation business is recovering as raw material supply increases and costs moderate.

"Around the globe, we are starting up a number of large investments that will significantly enhance our long-term results by expanding existing sales, adding product categories and entering new markets. Many of these operations are currently initiating new production, including Mexican, Italian and Russian ceramic; U.S. and European premium laminate; U.S. and European LVT; Italian porcelain slabs; and European carpet tile. In addition, by the end of this year, we anticipate commencing production of quartz countertops in the U.S. and sheet vinyl in Russia, as well as expanding polyester carpet in the U.S.; ceramic tile in Poland; and laminate and ceramic wall tile in Russia. We anticipate finalizing the acquisition of Godfrey Hirst as early as the end of May, adding the largest flooring producer in Australia and New Zealand to our global portfolio. To prepare for the integration, we are assessing the sales, product and raw material strategies for both companies to optimize performance.

"As anticipated this year, we will have a non-recurring reduction of operating income of $70-75 million, comprised of $30-35 million from higher start-up costs and $40 million from patents that expired in 2017. In 2018, incremental depreciation of $75 million will curtail our operating margins until our sales reach a level to fully absorb these investments. Changes in the U.S. tax law will reduce our adjusted tax rate from 26% last year to an estimated 21% this year. Taking all of this into account, our EPS guidance for the second quarter is $3.89 to $3.98, excluding any one-time charges.

"During the balance of 2018, our sales growth should improve as we increase the use of our new production, introduce additional products and complete the acquisition of Godfrey Hirst. This year, the Godfrey Hirst acquisition is estimated to increase revenue by $180 million and EPS by $0.25. In the third quarter, higher prices, mix and productivity should increase our adjusted operating income above last year, even with a lower operating margin. In the fourth quarter, our adjusted operating income and margin should exceed 2017, as the impact from start-ups and patents decline. Next year, with higher utilization and lower start-up costs, we will see further enhancements of our sales and profitability. With the strength of our organization, we can execute additional acquisitions if appropriate risk and return can be achieved."

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, 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, April 27, 2018, 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 # 6659539. A replay will be available until May 27, 2018, by dialing 1-855-859-2056 for US/local calls and 1-404-537-3406 for International/Local calls and entering Conference ID # 6659539.

 

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES





(Unaudited)





Consolidated Statement of Operations Data


Quarter Ended

(Amounts in thousands, except per share data)


March 31, 2018


April 1, 2017






Net sales


$                           2,412,202


2,220,645

Cost of sales


1,707,510


1,540,292

    Gross profit


704,692


680,353

Selling, general and administrative expenses


436,293


405,569

Operating income


268,399


274,784

Interest expense


7,528


8,202

Other expense (income), net


3,998


(2,832)

    Earnings before income taxes


256,873


269,414

Income tax expense


47,632


68,358

        Net earnings including noncontrolling interest


209,241


201,056

Net income attributable to noncontrolling interest


475


502

Net earnings attributable to Mohawk Industries, Inc.


$                               208,766


200,554






Basic earnings per share attributable to Mohawk Industries, Inc.





Basic earnings per share attributable to Mohawk Industries, Inc.


$                                        2.80


2.70

Weighted-average common shares outstanding - basic


74,453


74,212






Diluted earnings per share attributable to Mohawk Industries, Inc.





Diluted earnings per share attributable to Mohawk Industries, Inc.


$                                        2.78


2.68

Weighted-average common shares outstanding - diluted


74,929


74,754
















Other Financial Information





(Amounts in thousands)





Depreciation and amortization


$                               122,654


105,024

Capital expenditures


$                               250,936


201,270






Consolidated Balance Sheet Data





(Amounts in thousands)







March 31, 2018


April 1, 2017

ASSETS





Current assets:





    Cash and cash equivalents


$                               114,843


188,436

    Receivables, net


1,689,912


1,497,908

    Inventories


2,044,962


1,740,880

    Prepaid expenses and other current assets


447,322


307,758

        Total current assets


4,297,039


3,734,982

Property, plant and equipment, net


4,460,793


3,506,154

Goodwill


2,512,615


2,293,107

Intangible assets, net


899,989


835,761

Deferred income taxes and other non-current assets


389,936


357,513

    Total assets


$                        12,560,372


10,727,517

LIABILITIES AND STOCKHOLDERS' EQUITY





Current liabilities:





Current portion of long-term debt and commercial paper


$                           1,331,917


1,497,986

Accounts payable and accrued expenses


1,463,993


1,330,341

        Total current liabilities


2,795,910


2,828,327

Long-term debt, less current portion


1,585,651


1,132,268

Deferred income taxes and other long-term liabilities


801,878


677,897

        Total liabilities


5,183,439


4,638,492

Redeemable noncontrolling interest


30,924


24,201

Total stockholders' equity


7,346,009


6,064,824

    Total liabilities and stockholders' equity


$                        12,560,372


10,727,517






Segment Information


As of or for the Quarter Ended

(Amounts in thousands)


March 31, 2018


April 1, 2017






Net sales:





    Global Ceramic


$                               876,548


784,969

    Flooring NA


950,358


939,496

    Flooring ROW


585,296


496,180

    Intersegment sales


-


-

        Consolidated net sales


$                           2,412,202


2,220,645






Operating income (loss):





    Global Ceramic


$                               113,417


116,036

    Flooring NA


74,748


92,142

    Flooring ROW


89,060


76,095

    Corporate and intersegment eliminations


(8,826)


(9,489)

        Consolidated operating income


$                               268,399


274,784






Assets:





    Global Ceramic


$                           5,029,225


4,229,183

    Flooring NA


3,847,555


3,528,062

    Flooring ROW


3,410,958


2,801,782

    Corporate and intersegment eliminations


272,634


168,490

        Consolidated assets


$                        12,560,372


10,727,517

 

 

 

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)


















Quarter Ended









March 31, 2018


April 1, 2017





Net earnings attributable to Mohawk Industries, Inc.




$                                 208,766


200,554





Adjusting items:













Restructuring, acquisition and integration-related and other costs




22,104


3,978





Acquisitions purchase accounting , including inventory step-up




1,354


192





Release of indemnification asset





1,749


-





Income taxes - reversal of uncertain tax position




(1,749)


-





Income taxes 






(6,940)


(1,415)





  Adjusted net earnings attributable to Mohawk Industries, Inc.




$                                  225,284


203,309


















Adjusted diluted earnings per share attributable to Mohawk Industries, Inc. 




$                                        3.01


2.72





Weighted-average common shares outstanding - diluted





74,929


74,754












































Reconciliation of Total Debt to Net Debt












(Amounts in thousands)

















March 31, 2018









Current portion of long-term debt and commercial paper


$                             1,331,917









Long-term debt, less current portion



1,585,651









Less: Cash and cash equivalents



114,843









Net Debt




$                             2,802,725






















Reconciliation of Operating Income to Adjusted EBITDA











(Amounts in thousands)












Trailing Twelve





Quarters Ended


Months Ended





July 1, 2017


September 30, 2017


December 31, 2017


March 31, 2018


March 31, 2018

Operating income




$                                  355,825


380,098


343,466


268,399


1,347,788

Other (expense) income




(3,002)


(1,285)


(3,750)


(3,998)


(12,035)

Net (income) loss attributable to noncontrolling interest


(1,067)


(997)


(488)


(475)


(3,027)

Depreciation and amortization



109,761


113,515


118,372


122,654


464,302

EBITDA




461,517


491,331


457,600


386,580


1,797,028

Restructuring, acquisition and integration-related and other costs


15,878


13,853


15,231


22,104


67,066

Acquisitions purchase accounting, including inventory step-up


9,571


3,551


-


1,354


14,476

Release of indemnification asset



-


-


4,459


1,749


6,208

Adjusted EBITDA 




$                                  486,966


508,735


477,290


411,787


1,884,778














Net Debt to Adjusted EBITDA












1.5





















































Reconciliation of Net Sales to Net Sales on a Constant Exchange Rate Excluding Acquisition Volume









(Amounts in thousands)

















Quarter Ended









March 31, 2018


April 1, 2017







Net sales




$                             2,412,202


2,220,645







Adjustment to net sales on a constant exchange rate


(98,832)


-







Net sales on a constant exchange rate



2,313,370


2,220,645







Less: impact of acquisition volume



(45,276)


-







Net sales on a constant exchange rate excluding acquisition volume


$                             2,268,094


2,220,645














































Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate Excluding Acquisition Volume









(Amounts in thousands)

















Quarter Ended





Global Ceramic




March 31, 2018


April 1, 2017







Net sales




$                                  876,548


784,969







Adjustment to segment net sales on a constant exchange rate


(28,623)


-







Segment net sales on a constant exchange rate 


847,925


784,969







Less: impact of acquisition volume



(45,276)


-







Segment net sales on a constant exchange rate excluding acquisition volume


$                                  802,649


784,969

































Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate 











(Amounts in thousands)

















Quarter Ended





Flooring ROW




March 31, 2018


April 1, 2017







Net sales




$                                  585,296


496,180







Adjustment to segment net sales on a constant exchange rate


(70,209)


-







Segment net sales on a constant exchange rate 


$                                  515,087


496,180














































Reconciliation of Gross Profit to Adjusted Gross Profit











(Amounts in thousands)

















Quarter Ended











March 31, 2018


April 1, 2017







Gross Profit




$                                  704,692


680,353







Adjustments to gross profit:













Restructuring, acquisition and integration-related and other costs


14,498


2,813







Acquisitions purchase accounting, including inventory step-up


1,354


192







Adjusted gross profit




$                                  720,544


683,358














































Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses









(Amounts in thousands)

















Quarter Ended











March 31, 2018


April 1, 2017







Selling, general and administrative expenses



$                                  436,293


405,569







Adjustments to selling, general and administrative expenses:











Restructuring, acquisition and integration-related and other costs


(7,606)


(1,165)







  Adjusted selling, general and administrative expenses


$                                  428,687


404,404

































Reconciliation of Operating Income to Adjusted Operating Income











(Amounts in thousands)

















Quarter Ended









March 31, 2018


April 1, 2017







Operating income




$                                  268,399


274,784







Adjustments to operating income:












Restructuring, acquisition and integration-related and other costs


22,104


3,978







Acquisitions purchase accounting, including inventory step-up


1,354


192







Adjusted operating income




$                                  291,857


278,954

































Reconciliation of Segment Operating Income to Adjusted Segment Operating Income











(Amounts in thousands)

















Quarter Ended







Global Ceramic




March 31, 2018


April 1, 2017







Operating income




$                                  113,417


116,036







Adjustments to segment operating income:












Restructuring, acquisition and integration-related and other costs


3,561


204







Adjusted segment operating income



$                                  116,978


116,240




















Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 











(Amounts in thousands)

















Quarter Ended







Flooring NA 




March 31, 2018


April 1, 2017







Operating income




$                                     74,748


92,142







Adjustments to segment operating income:












Restructuring, acquisition and integration-related and other costs


16,204


2,313







  Adjusted segment operating income



$                                     90,952


94,455




















Reconciliation of Segment Operating Income to Adjusted Segment Operating Income











(Amounts in thousands)

















Quarter Ended







Flooring ROW 




March 31, 2018


April 1, 2017







Operating income




$                                     89,060


76,095







Adjustments to segment operating income:












Restructuring, acquisition and integration-related and other costs


2,094


1,460







Acquisitions purchase accounting , including inventory step-up


1,354


192







Adjusted segment operating income



$                                     92,508


77,747




















Reconciliation of Earnings including Noncontrolling Interests Before Income Taxes to Adjusted Earnings Including Noncontrolling Interests Before Income Taxes





(Amounts in thousands)

















Quarter Ended











March 31, 2018


April 1, 2017







Earnings before income taxes




$                                  256,873


269,414







Noncontrolling interests




(475)


(502)







Adjustments to earnings including noncontrolling interests before income taxes:











Restructuring, acquisition and integration-related & other costs


22,104


3,978







Acquisitions purchase accounting, including inventory step-up


1,354


192







Release of indemnification asset



1,749


-







 Adjusted earnings including noncontrolling interests before income taxes


$                                  281,605


273,082

































Reconciliation of Income Tax Expense to Adjusted Income Tax Expense 











(Amounts in thousands)

















Quarter Ended











March 31, 2018


April 1, 2017







Income tax expense 




$                                     47,632


68,358







Income taxes - reversal of uncertain tax position


1,749


-







Income tax effect of adjusting items




6,940


1,415







  Adjusted income tax expense



$                                     56,321


69,773




















Adjusted income tax rate




20.0%


25.6%








































































The Company supplements its 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.



 

 

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SOURCE Mohawk Industries, Inc.