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Mohawk Industries Reports Q1 Results

April 25, 2019 at 4:15 PM EDT

CALHOUN, Ga., April 25, 2019 (GLOBE NEWSWIRE) -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2019 first quarter net earnings of $122 million and diluted earnings per share (EPS) of $1.67. Adjusted net earnings were $154 million, and EPS was $2.13, excluding restructuring, acquisition and other charges. Net sales for the first quarter of 2019 were $2.44 billion, up 1% in the quarter and 6% on a constant currency and days basis. For the first quarter of 2018, net sales were $2.41 billion, net earnings were $209 million and EPS was $2.78, adjusted net earnings were $225 million, and EPS was $3.01, excluding restructuring, acquisition and other charges.

Commenting on Mohawk Industries’ first quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, “In the first quarter, we delivered results in-line with the high end of our expectations despite economies weakening in most regions and a stronger U.S. dollar, reducing our translated results.  While U.S. housing markets began softer and higher inputs increased costs, both are showing signs of improvement as we enter the second quarter. Around the world, uneven demand impacted volume, increasing pressure on both price and mix. We reduced our production rates to balance our inventories with our customers’ demand and manage our working capital. Results from our recent acquisitions in Australia, New Zealand and Brazil are on track, and we remain optimistic about our ability to improve their market positions and costs.”

“Each of our businesses is taking specific actions to adapt to the present environment. We are introducing new products to differentiate our offering and enhance our margins, and we raised prices to offset higher energy and materials.  We have replaced high-cost assets, consolidated inefficient operations, enhanced manufacturing processes and reduced our overhead expenses.”

For the quarter, our Global Ceramic Segment sales increased 2.5% as reported and 7% on a constant currency and days basis. The segment’s operating margin was 9% as reported or 10% excluding other charges, declining year over year due to inflation, temporary shutdown costs and marketing investments partially offset by productivity. In the U.S., we implemented price increases across many categories to cover inflation and higher transportation costs. We are enhancing the value of our products with unique features such as slip resistance, greater durability and bacteria-resistant technologies. We are testing a fast installation technology and pioneering a new porcelain roofing system. The start-up of our new quartz countertop plant is on schedule and will complement our sourced stone and quartz program.  To reduce operational expenses, we have enhanced body formulations, improved manufacturing efficiencies, maintenance costs and freight strategies as well as lowering administrative and selling expenses. In Mexico, we are growing by broadening our customer base, expanding our porcelain offering and supporting stores that exclusively sell our brand. We implemented price increases to recover higher natural gas, electricity and transportation costs. In Brazil, we have also recently implemented price increases to offset the dramatically higher cost of natural gas, which the government regulates. We are upgrading our mix with high-end porcelain and restarting an idled production line. As weakening markets increased pressure in Europe, our sales were driven by commercial, outdoor and porcelain slab products as well as higher styled mid-price offerings. We are realigning the production of our products in our European plants and reducing staffing to improve our costs, distribution and service. In Russia, our sales grew significantly, our product mix improved, and we are increasing prices to recover inflation. During the period, we completed our porcelain floor and wall tile expansion to support further growth, and we have begun construction for additional slab production and the manufacturing of premium sanitary ware to expand our offering.

During the quarter, our Flooring North America Segment’s sales decreased 3% as reported and 1.4% on a constant day’s basis. The segment’s operating margin was 0.1% as reported and 3.4% on an adjusted basis. As expected, operating income for the segment declined due to lower volume, inventory reductions, high material costs and LVT manufacturing variances. The segment’s business improved as we moved into the second quarter, supported by higher retail activity and an improving housing environment. Our new ColorMax technology that blends earth tones was voted the best carpet innovation at the national trade show. The carpet price increases we have implemented are being partially offset by declining product mix. Our commercial business improved during the quarter due to new product launches and channel segmentation. Our recent investments in advanced laminate manufacturing technology are allowing us to expand our market and upgrade our mix. Our LVT continues to grow substantially, and we have a complete offering with different features under our key brands. We have replaced high-cost assets and are consolidating five operations and two warehouses, which will reduce our overhead and cost structure. We are enhancing planning strategies, increasing production output and reducing process variations to facilitate this realignment.

For the quarter, our Flooring Rest of the World Segment’s sales increased 6% as reported and 16% on a constant currency and days basis. The segment’s operating margin was 14.5% as reported and 15.3% on an adjusted basis, due to volume growth and lower inflation partially offset by price and mix and productivity. The economies in Europe have been slowing, putting pressure on both our revenues and margins. We have been increasing prices on selected products to offset continued inflation and currency changes. The segment was impacted by start-up costs and under-absorption as our new LVT, sheet vinyl, laminate and carpet tile operations ramp up. In laminate, we outperformed the European market with our unique technologies that make our products the preferred alternative to wood. We have specialized our European laminate plants, so they produce either luxury or volume products to improve our efficiencies and costs. Our LVT manufacturing has substantially improved, and we are introducing more rigid LVT collections across our brands. We are making equipment modifications to relieve process restrictions as throughput has improved. Our new Russian sheet vinyl plant is operating ahead of our plan in both volume and yields. Our insulation results improved as last year’s material shortages have been resolved and costs declined. Our new carpet tile plant in Belgium is operating well as we continue to build our specified and transactional sales. The Australian and New Zealand markets are under pressure as the economy and housing sales slow. We are raising prices to offset increased costs primarily from a weaker local currency, closing high cost extrusion assets and supplying yarn from our U.S. operations and other sources. We are introducing new carpet products with enhanced styling and performance and broadening our hard surface collections to expand our share of the flooring market.

All of our businesses are taking actions to enhance our results with the major focus on improving LVT manufacturing, U.S. carpet performance, managing ceramic headwinds and increasing utilization of our new investments. In the U.S., flooring sales started out weaker and have recently begun to improve. Outside the U.S., most markets have softened, and we are adjusting as required. Across the business, we are enhancing our offerings, reducing our costs and ramping up new plants to expand our portfolio. We continue to realize price increases to offset inflation and restore our margins. Our LVT sales are expanding significantly, and we are making equipment modifications to increase our volume and productivity this year. We are restructuring our U.S. carpet and laminate assets and realigning our European ceramic operations to improve our costs and results. Our acquisitions are positively impacting our results as we integrate them into the business. Taking all of this into account, our EPS guidance for the second quarter is $2.81 to $2.91, excluding any one-time charges.

We are investing in new products and geographies to drive growth and strengthening our organization to improve our execution. We are taking the necessary steps to adapt to present conditions and deliver greater profitability for the long term.

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, Eliane, Feltex, Godfrey Hirst, 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 26, 2019, 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 # 4699130. A replay will be available until May 26, 2019, by dialing 1-855-859-2056 for US/local calls and 1-404-537-3406 for International/Local calls and entering Conference ID # 4699130.

         
         
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES        
(Unaudited)        
Condensed Consolidated Statement of Operations Data   Three Months Ended
(Amounts in thousands, except per share data)   March 30, 2019   March 31, 2018
         
Net sales   $ 2,442,490     2,412,202  
Cost of sales     1,817,563     1,707,510  
Gross profit     624,927     704,692  
Selling, general and administrative expenses     459,597     436,293  
Operating income     165,330     268,399  
Interest expense     10,473     7,528  
Other expense, net     (3,736 )   3,998  
Earnings before income taxes     158,593     256,873  
Income tax expense     37,018     47,632  
Net earnings including noncontrolling interest     121,575     209,241  
Net income attributable to noncontrolling interest     (10 )   475  
Net earnings attributable to Mohawk Industries, Inc.   $ 121,585     208,766  
         
Basic earnings per share attributable to Mohawk Industries, Inc.        
Basic earnings per share attributable to Mohawk Industries, Inc.   $ 1.68     2.80  
Weighted-average common shares outstanding - basic     72,342     74,453  
         
Diluted earnings per share attributable to Mohawk Industries, Inc.        
Diluted earnings per share attributable to Mohawk Industries, Inc.   $ 1.67     2.78  
Weighted-average common shares outstanding - diluted     72,646     74,929  
         
         
         
Other Financial Information        
(Amounts in thousands)        
Depreciation and amortization   $ 137,291     122,654  
Capital expenditures   $ 136,948     250,936  
         
Condensed Consolidated Balance Sheet Data        
(Amounts in thousands)        
    March 30, 2019   March 31, 2018
ASSETS        
Current assets:        
Cash and cash equivalents   $ 105,668     114,843  
Receivables, net     1,743,581     1,689,912  
Inventories     2,338,125     2,044,962  
Prepaid expenses and other current assets     501,591     447,322  
Total current assets     4,688,965     4,297,039  
Property, plant and equipment, net     4,674,435     4,460,793  
Right of use operating lease assets     320,800     -  
Goodwill     2,548,997     2,512,615  
Intangible assets, net     950,564     899,989  
Deferred income taxes and other non-current assets     421,314     389,936  
Total assets   $ 13,605,075     12,560,372  
LIABILITIES AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Current portion of long-term debt and commercial paper   $ 1,763,332     1,331,917  
Accounts payable and accrued expenses     1,571,273     1,463,993  
Current operating lease liabilities     99,642     -  
Total current liabilities     3,434,247     2,795,910  
Long-term debt, less current portion     1,497,975     1,585,651  
Non-current operating lease liabilities     227,595     -  
Deferred income taxes and other long-term liabilities     868,213     801,878  
Total liabilities     6,028,030     5,183,439  
Redeemable noncontrolling interest     -     30,924  
Total stockholders' equity     7,577,045     7,346,009  
Total liabilities and stockholders' equity   $ 13,605,075     12,560,372  
         
Segment Information   As of or for the Three Months Ended
(Amounts in thousands)   March 30, 2019   March 31, 2018
         
Net sales:        
Global Ceramic   $ 898,352     876,548  
Flooring NA     921,980     950,358  
Flooring ROW     622,158     585,296  
Intersegment sales     -     -  
Consolidated net sales   $ 2,442,490     2,412,202  
         
Operating income (loss):        
Global Ceramic   $ 84,335     113,417  
Flooring NA     649     74,748  
Flooring ROW     90,431     89,060  
Corporate and intersegment eliminations     (10,085 )   (8,826 )
Consolidated operating income   $ 165,330     268,399  
         
Assets:        
Global Ceramic   $ 5,503,807     5,029,225  
Flooring NA     4,020,336     3,847,555  
Flooring ROW     3,799,591     3,410,958  
Corporate and intersegment eliminations     281,341     272,634  
Consolidated assets   $ 13,605,075     12,560,372  
         


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            
    March 30, 2019   March 31, 2018            
Net earnings attributable to Mohawk Industries, Inc.   $ 121,585     208,766              
Adjusting items:                          
Restructuring, acquisition and integration-related and other costs     39,495     22,104              
Acquisitions purchase accounting , including inventory step-up     2,552     1,354              
Release of indemnification asset     -     1,749              
Income taxes - reversal of uncertain tax position     -     (1,749 )            
Income taxes     (9,152 )   (6,940 )            
Adjusted net earnings attributable to Mohawk Industries, Inc.   $ 154,480     225,284              
                           
Adjusted diluted earnings per share attributable to Mohawk Industries, Inc.   $ 2.13     3.01              
Weighted-average common shares outstanding - diluted     72,646     74,929              
                     
 
                     
                     
Reconciliation of Total Debt to Net Debt                    
(Amounts in thousands)                    
    March 30, 2019                
Current portion of long-term debt and commercial paper   $ 1,763,332                  
Long-term debt, less current portion     1,497,975                  
Less: Cash and cash equivalents     105,668                  
Net Debt   $ 3,155,639                  
                     
Reconciliation of Operating Income to Adjusted EBITDA                    
(Amounts in thousands)                   Trailing Twelve
    Three Months Ended   Months Ended
    June 30, 2018   September 29, 2018   December 31, 2018   March 30, 2019   March 30, 2019
Operating income   $ 326,307     287,244     213,376     165,330   992,257  
Other (expense) income     (2,090 )   (706 )   (504 )   3,736   436  
Net (income) loss attributable to noncontrolling interest     (959 )   (1,013 )   (704 )   10   (2,666 )
Depreciation and amortization     127,048     132,972     139,092     137,291   536,403  
EBITDA     450,306     418,497     351,260     306,367   1,526,430  
Restructuring, acquisition and integration-related and other costs     16,042     19,890     20,412     39,495   95,839  
Acquisitions purchase accounting, including inventory step-up     194     7,090     6,721     2,552   16,557  
Release of indemnification asset     -     -     2,857     -   2,857  
Adjusted EBITDA   $ 466,542     445,477     381,250     348,414   1,641,683  
                     
Net Debt to Adjusted EBITDA                   1.9  
                     
                     
                     
                     
Reconciliation of Net Sales to Net Sales on a Constant Exchange Rate and on Constant Shipping Days Excluding Acquisition Volume                
(Amounts in thousands)                    
    Three Months Ended            
    March 30, 2019   March 31, 2018            
Net sales   $ 2,442,490     2,412,202              
Adjustment to net sales on constant shipping days     35,681                  
Adjustment to net sales on a constant exchange rate     73,145     -              
Net sales on a constant exchange rate and constant shipping days     2,551,316     2,412,202              
Less: impact of acquisition volume     (119,891 )   -              
Net sales on a constant exchange rate and constant shipping days excluding acquisition volume   $ 2,431,425     2,412,202              
                     
                     
                     
Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate and  Constant Shipping Days Excluding Acquisition Volume              
(Amounts in thousands)                    
    Three Months Ended        
Global Ceramic   March 30, 2019   March 31, 2018            
Net sales   $ 898,352     876,548              
Adjustment to net sales on constant shipping days     11,549     -              
Adjustment to segment net sales on a constant exchange rate     26,880     -              
Segment net sales on a constant exchange rate and constant shipping days     936,781     876,548              
Less: impact of acquisition volume     (50,996 )   -              
Segment net sales on a constant exchange rate and constant shipping days excluding acquisition volume   $ 885,785     876,548              
                     
                     
                     
Reconciliation of Segment Net Sales to Segment Net Sales on Constant Shipping Days                    
(Amounts in thousands)                    
    Three Months Ended        
Flooring NA   March 30, 2019   March 31, 2018            
Net sales   $ 921,980     950,358              
Adjustment to net sales on constant shipping days     14,635     -              
Segment net sales on constant shipping days   $ 936,615     950,358              
                     
                     
                     
Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate and  Constant Shipping Days Excluding Acquisition Volume              
(Amounts in thousands)                    
    Three Months Ended        
Flooring ROW   March 30, 2019   March 31, 2018            
Net sales   $ 622,158     585,296              
Adjustment to net sales on constant shipping days     9,497     -              
Adjustment to segment net sales on a constant exchange rate     46,265     -              
Segment net sales on a constant exchange rate and constant shipping days     677,920     585,296              
Less: impact of acquisition volume     (68,895 )   -              
Segment net sales on a constant exchange rate and constant shipping days excluding acquisition volume   $ 609,025     585,296              
                     
                     
                     
Reconciliation of Gross Profit to Adjusted Gross Profit                    
(Amounts in thousands)                    
    Three Months Ended            
    March 30, 2019   March 31, 2018            
Gross Profit   $ 624,927     704,692              
Adjustments to gross profit:                    
Restructuring, acquisition and integration-related and other costs     35,602     14,498              
Acquisitions purchase accounting, including inventory step-up     2,552     1,354              
Adjusted gross profit   $ 663,081     720,544              
                     
                     
                     
Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses                
(Amounts in thousands)                    
    Three Months Ended            
    March 30, 2019   March 31, 2018            
Selling, general and administrative expenses   $ 459,597     436,293              
Adjustments to selling, general and administrative expenses:                    
Restructuring, acquisition and integration-related and other costs     (3,101 )   (7,606 )            
Adjusted selling, general and administrative expenses   $ 456,496     428,687              
                     
                     
                     
Reconciliation of Operating Income to Adjusted Operating Income                    
(Amounts in thousands)                    
    Three Months Ended            
    March 30, 2019   March 31, 2018            
Operating income   $ 165,330     268,399              
Adjustments to operating income:                    
Restructuring, acquisition and integration-related and other costs     38,703     22,104              
Acquisitions purchase accounting, including inventory step-up     2,552     1,354              
Adjusted operating income   $ 206,585     291,857              
                     
                     
                     
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income                    
(Amounts in thousands)                    
    Three Months Ended            
Global Ceramic   March 30, 2019   March 31, 2018            
Operating income   $ 84,335     113,417              
Adjustments to segment operating income:                    
Restructuring, acquisition and integration-related and other costs     5,263     3,561              
Acquisitions purchase accounting, including inventory step-up     204     -              
Adjusted segment operating income   $ 89,802     116,978              
                     
                     
                     
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income                    
(Amounts in thousands)                    
    Three Months Ended            
Flooring NA   March 30, 2019   March 31, 2018            
Operating income   $ 649     74,748              
Adjustments to segment operating income:                    
Restructuring, acquisition and integration-related and other costs     30,599     16,204              
Adjusted segment operating income   $ 31,248     90,952              
                     
                     
                     
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income and Adjusted Segment Operating Income on a Constant Exchange Rate            
(Amounts in thousands)                    
    Three Months Ended            
Flooring ROW   March 30, 2019   March 31, 2018            
Operating income   $ 90,431     89,060              
Adjustments to segment operating income:                    
Restructuring, acquisition and integration-related and other costs     2,561     2,094              
Acquisitions purchase accounting, including inventory step-up     2,348     1,354              
Adjusted segment operating income     95,340     92,508              
Adjustment to operating income on a constant exchange rate     7,755     -              
Adjusted segment operating income on a constant exchange rate   $ 103,095     92,508              
                     
                     
                     
Reconciliation of Earnings including Noncontrolling Interests Before Income Taxes to Adjusted Earnings Including Noncontrolling Interests Before Income Taxes            
(Amounts in thousands)                    
    Three Months Ended            
    March 30, 2019   March 31, 2018            
Earnings before income taxes   $ 158,593     256,873              
Noncontrolling interests     10     (475 )            
Adjustments to earnings including noncontrolling interests before income taxes:                    
Restructuring, acquisition and integration-related and other costs     39,495     22,104              
Acquisitions purchase accounting, including inventory step-up     2,552     1,354              
Release of indemnification asset     -     1,749              
Adjusted earnings including noncontrolling interests before income taxes   $ 200,650     281,605              
                     
                     
                     
                     
Reconciliation of Income Tax Expense to Adjusted Income Tax Expense                    
(Amounts in thousands)                    
    Three Months Ended            
    March 30, 2019   March 31, 2018            
Income tax expense   $ 37,018     47,632              
Income taxes - reversal of uncertain tax position     -     1,749              
Income tax effect of adjusting items     9,152     6,940              
Adjusted income tax expense   $ 46,170     56,321              
                     
Adjusted income tax rate     23.0 %   20.0 %            
                     
                     
                     
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 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. 
                     

Contact:   Glenn Landau, Chief Financial Officer (706) 624-2025

Source: Mohawk Industries, Inc.