Mohawk Industries Reports Q1 Results
Commenting on Mohawk Industries’ first quarter performance,
“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
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
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
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
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 | ||||||
(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.