Mohawk Industries Reports Q2 Results
For the six months ending
Commenting on Mohawk Industries’ second quarter performance,
At this time, our visibility into the future continues to be uncertain due to the persistent Covid spread and the unknown strength of the economic recovery. Some near-term factors represent a potential upside, including historically low interest rates, rising remodeling activity, consumer discretionary funds being shifted to home improvements and increasing home purchases. Alternately, potential changes in government policies, consumer and business spending and higher Covid infection rates could reduce demand around the world, particularly if governments increase restrictions. Given these factors, our business plans must remain flexible to quickly adjust our production levels.
We are restructuring our business to enhance our results and our future performance. We are reducing SG&A, headcount and lower performing products and SKUs. We are closing less efficient operations and investing in more productive equipment. The largest of these changes are in the
For the quarter, our Global Ceramic Segment sales declined 21% as reported and 19% on a constant currency and days basis. As reported, the segment had an operating loss of
During the quarter, our Flooring North America Segment’s sales decreased 19% as reported with an operating loss of
For the quarter, our Flooring Rest of the World Segment’s sales decreased 23% as reported and 20% on a constant currency basis. The segment’s operating margin was 6% as reported or 12% after excluding restructuring charges due to shutdowns and lower volume from Covid as well as unfavorable price and mix, partially offset by lower inflation and productivity actions. Our Flooring Rest of the World results continue to outperform our other segments. The distribution of the segment’s business is much greater in residential remodeling, which is performing better than the commercial category. Across the segment, we have reduced our overhead costs and are consolidating lower volume SKUs. We are now increasing production to meet emerging demand while protecting our employees’ health. Our laminate business outperformed our other products as our waterproof collections and new introductions are increasing consumer preference for our products. Our flexible and rigid LVT sales improved as we progressed through the period as retailers re-opened in our key markets. In
Since April, we have seen substantial improvement in all of our businesses and markets. The residential remodeling and new construction channels have recovered more than commercial, where businesses are maintaining a cautious approach to investment. Some areas, particularly the
Our business is well positioned with a strong balance sheet and deep liquidity. During the second quarter, we generated free cash flow of almost
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
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(Unaudited) | ||||||||||||||
Condensed Consolidated Statement of Operations Data | Three Months Ended | Six Months Ended | ||||||||||||
(Amounts in thousands, except per share data) | ||||||||||||||
Net sales | $ | 2,049,800 | 2,584,485 | 4,335,563 | 5,026,975 | |||||||||
Cost of sales | 1,679,833 | 1,847,867 | 3,349,156 | 3,665,430 | ||||||||||
Gross profit | 369,967 | 736,618 | 986,407 | 1,361,545 | ||||||||||
Selling, general and administrative expenses | 430,925 | 469,758 | 895,883 | 929,355 | ||||||||||
Operating income (loss) | (60,958) | 266,860 | 90,524 | 432,190 | ||||||||||
Interest expense | 12,956 | 10,521 | 21,627 | 20,994 | ||||||||||
Other (income) expense, net | 1,037 | (3,048) | 6,716 | (6,784) | ||||||||||
Earnings (loss) before income taxes | (74,951) | 259,387 | 62,181 | 417,980 | ||||||||||
Income tax expense (benefit) | (26,363) | 56,733 | 304 | 93,751 | ||||||||||
Net earnings (loss) including noncontrolling interest | (48,588) | 202,654 | 61,877 | 324,229 | ||||||||||
Net income (loss) attributable to noncontrolling interest | (331) | 213 | (380) | 203 | ||||||||||
Net earnings (loss) attributable to |
$ | (48,257) | 202,441 | 62,257 | 324,026 | |||||||||
Basic earnings (loss) per share attributable to |
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Basic earnings (loss) per share attributable to |
$ | (0.68) | 2.80 | 0.87 | 4.50 | |||||||||
Weighted-average common shares outstanding - basic | 71,186 | 72,402 | 71,364 | 71,970 | ||||||||||
Diluted earnings (loss) per share attributable to |
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Diluted earnings (loss) per share attributable to |
$ | (0.68) | 2.79 | 0.87 | 4.48 | |||||||||
Weighted-average common shares outstanding - diluted | 71,186 | 72,680 | 71,547 | 72,250 | ||||||||||
Other Financial Information | ||||||||||||||
(Amounts in thousands) | ||||||||||||||
Net cash provided by operating activities | $ | 568,521 | 396,190 | 763,495 | 566,327 | |||||||||
Less: Capital expenditures | 80,639 | 144,111 | 196,271 | 281,059 | ||||||||||
Free cash flow | $ | 487,882 | 252,079 | 567,224 | 285,268 | |||||||||
Depreciation and amortization | $ | 154,094 | 140,482 | 299,610 | 277,773 | |||||||||
Condensed Consolidated Balance Sheet Data | ||||||||||||||
(Amounts in thousands) | ||||||||||||||
ASSETS | ||||||||||||||
Current assets: | ||||||||||||||
Cash and cash equivalents | $ | 737,712 | 128,096 | |||||||||||
Receivables, net | 1,586,398 | 1,819,474 | ||||||||||||
Inventories | 1,922,048 | 2,367,631 | ||||||||||||
Prepaid expenses and other current assets | 499,840 | 493,116 | ||||||||||||
Total current assets | 4,745,998 | 4,808,317 | ||||||||||||
Property, plant and equipment, net | 4,434,544 | 4,714,306 | ||||||||||||
Right of use operating lease assets | 318,047 | 343,716 | ||||||||||||
2,541,906 | 2,565,702 | |||||||||||||
Intangible assets, net | 910,838 | 950,624 | ||||||||||||
Deferred income taxes and other non-current assets | 418,071 | 423,437 | ||||||||||||
Total assets | $ | 13,369,404 | 13,806,102 | |||||||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||
Current liabilities: | ||||||||||||||
Current portion of long-term debt and commercial paper | $ | 135,350 | 1,891,512 | |||||||||||
Accounts payable and accrued expenses | 1,618,584 | 1,713,934 | ||||||||||||
Current operating lease liabilities | 118,296 | 100,345 | ||||||||||||
Total current liabilities | 1,872,230 | 3,705,791 | ||||||||||||
Long-term debt, less current portion | 2,573,155 | 1,169,489 | ||||||||||||
Non-current operating lease liabilities | 226,555 | 249,844 | ||||||||||||
Deferred income taxes and other long-term liabilities | 772,600 | 859,387 | ||||||||||||
Total liabilities | 5,444,540 | 5,984,511 | ||||||||||||
Total stockholders' equity | 7,924,864 | 7,821,591 | ||||||||||||
Total liabilities and stockholders' equity | $ | 13,369,404 | 13,806,102 | |||||||||||
Segment Information | Three Months Ended | As of or for the Six Months Ended | ||||||||||||
(Amounts in thousands) | ||||||||||||||
Net sales: | ||||||||||||||
Global Ceramic | $ | 753,335 | 958,031 | 1,601,785 | 1,856,383 | |||||||||
Flooring NA | 800,088 | 983,439 | 1,648,418 | 1,905,419 | ||||||||||
Flooring ROW | 496,377 | 643,015 | 1,085,360 | 1,265,173 | ||||||||||
Consolidated net sales | $ | 2,049,800 | 2,584,485 | 4,335,563 | 5,026,975 | |||||||||
Operating income (loss): | ||||||||||||||
Global Ceramic | $ | (33,809) | 117,036 | 14,168 | 200,266 | |||||||||
Flooring NA | (45,484) | 62,047 | (9,278) | 65,242 | ||||||||||
Flooring ROW | 29,478 | 100,093 | 105,294 | 189,083 | ||||||||||
Corporate and intersegment eliminations | (11,143) | (12,316) | (19,660) | (22,401) | ||||||||||
Consolidated operating income (loss) (a) | $ | (60,958) | 266,860 | 90,524 | 432,190 | |||||||||
Assets: | ||||||||||||||
Global Ceramic | $ | 5,112,084 | 5,661,364 | |||||||||||
Flooring NA | 3,682,638 | 4,024,428 | ||||||||||||
Flooring ROW | 3,770,581 | 3,858,264 | ||||||||||||
Corporate and intersegment eliminations | 804,101 | 262,046 | ||||||||||||
Consolidated assets | $ | 13,369,404 | 13,806,102 | |||||||||||
(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 (Loss) Attributable to |
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(Amounts in thousands, except per share data) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
Net earnings (loss) attributable to |
$ | (48,257) | 202,441 | 62,257 | 324,026 | |||||||||||
Adjusting items: | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 100,359 | 8,840 | 112,324 | 48,335 | ||||||||||||
Acquisitions purchase accounting , including inventory step-up | - | 1,164 | - | 3,716 | ||||||||||||
Release of indemnification asset | (23) | - | (58 | ) | - | |||||||||||
Income taxes - reversal of uncertain tax position | 23 | - | 58 | - | ||||||||||||
Income taxes | (25,746) | (2,701) | (28,860) | (11,853) | ||||||||||||
Adjusted net earnings attributable to |
$ | 26,356 | 209,744 | 145,721 | 364,224 | |||||||||||
Adjusted diluted earnings per share attributable to |
$ | 0.37 | 2.89 | 2.04 | 5.04 | |||||||||||
Weighted-average common shares outstanding - diluted | 71,186 | 72,680 | 71,547 | 72,250 | ||||||||||||
Reconciliation of Total Debt to Net Debt | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||
Current portion of long-term debt and commercial paper | $ | 135,350 | ||||||||||||||
Long-term debt, less current portion | 2,573,155 | |||||||||||||||
Less: Cash and cash equivalents | 737,712 | |||||||||||||||
Net Debt | $ | 1,970,793 | ||||||||||||||
Reconciliation of Operating Income (Loss) to Adjusted EBITDA | ||||||||||||||||
(Amounts in thousands) | Trailing Twelve | |||||||||||||||
Three Months Ended | Months Ended | |||||||||||||||
Operating income (loss) | $ | 240,220 | 154,814 | 151,483 | (60,958) | 485,559 | ||||||||||
Other (expense) income | (52,713) | 9,522 | (5,679) | (1,037) | (49,907) | |||||||||||
Net (income) loss attributable to noncontrolling interest | (151) | (6) | 49 | 331 | 223 | |||||||||||
Depreciation and amortization (1) | 144,920 | 153,759 | 145,516 | 154,094 | 598,289 | |||||||||||
EBITDA | 332,276 | 318,089 | 291,369 | 92,430 | 1,034,164 | |||||||||||
Restructuring, acquisition and integration-related and other costs | 1,542 | 49,802 | 10,376 | 91,963 | 153,683 | |||||||||||
Impairment of net investment in a manufacturer and distributor of Ceramic tile in |
65,172 | (5,226) | - | - | 59,946 | |||||||||||
Acquisitions purchase accounting, including inventory step-up | - | 222 | - | - | 222 | |||||||||||
Release of indemnification asset | (659) | 603 | (35) | (23) | (114) | |||||||||||
Adjusted EBITDA | $ | 398,331 | 363,490 | 301,710 | 184,370 | 1,247,901 | ||||||||||
Net Debt to Adjusted EBITDA | 1.6 | |||||||||||||||
(1) Includes |
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Reconciliation of |
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(Amounts in thousands) | ||||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
Net sales | $ | 2,049,800 | 2,584,485 | 4,335,563 | 5,026,975 | |||||||||||
Adjustment to net sales on constant shipping days | (508) | - | 37,488 | - | ||||||||||||
Adjustment to net sales on a constant exchange rate | 40,499 | - | 74,550 | - | ||||||||||||
Net sales on a constant exchange rate and constant shipping days | $ | 2,089,791 | 2,584,485 | 4,447,601 | 5,026,975 | |||||||||||
Reconciliation of Segment |
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(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Global Ceramic | ||||||||||||||||
Net sales | $ | 753,335 | 958,031 | |||||||||||||
Adjustment to net sales on constant shipping days | (508) | - | ||||||||||||||
Adjustment to segment net sales on a constant exchange rate | 23,265 | - | ||||||||||||||
Segment net sales on a constant exchange rate and constant shipping days | $ | 776,092 | 958,031 | |||||||||||||
Reconciliation of Segment |
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(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Flooring ROW | ||||||||||||||||
Net sales | $ | 496,377 | 643,015 | |||||||||||||
Adjustment to net sales on constant shipping days | - | - | ||||||||||||||
Adjustment to segment net sales on a constant exchange rate | 17,234 | - | ||||||||||||||
Segment net sales on a constant exchange rate | $ | 513,611 | 643,015 | |||||||||||||
Reconciliation of Gross Profit to Adjusted Gross Profit | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Gross Profit | $ | 369,967 | 736,618 | |||||||||||||
Adjustments to gross profit: | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 69,478 | 5,867 | ||||||||||||||
Acquisitions purchase accounting, including inventory step-up | - | 1,164 | ||||||||||||||
Adjusted gross profit | $ | 439,445 | 743,649 | |||||||||||||
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 | $ | 430,925 | 469,758 | |||||||||||||
Adjustments to selling, general and administrative expenses: | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | (27,282) | (3,068) | ||||||||||||||
Adjusted selling, general and administrative expenses | $ | 403,643 | 466,690 | |||||||||||||
Reconciliation of Operating Income (Loss) to Adjusted Operating Income | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Operating income (loss) | $ | (60,958) | 266,860 | |||||||||||||
Adjustments to operating income (loss): | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 96,760 | 8,935 | ||||||||||||||
Acquisitions purchase accounting, including inventory step-up | - | 1,164 | ||||||||||||||
Adjusted operating income | $ | 35,802 | 276,959 | |||||||||||||
Reconciliation of Segment Operating Income (Loss) to Adjusted Segment Operating Income | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Global Ceramic | ||||||||||||||||
Operating income (loss) | $ | (33,809) | 117,036 | |||||||||||||
Adjustments to segment operating income (loss): | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 37,672 | 653 | ||||||||||||||
Adjusted segment operating income | $ | 3,863 | 117,689 | |||||||||||||
Reconciliation of Segment Operating Income (Loss) to Adjusted Segment Operating Income (Loss) |
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(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Flooring NA | ||||||||||||||||
Operating income (loss) | $ | (45,484) | 62,047 | |||||||||||||
Adjustments to segment operating income (loss): | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 28,226 | 3,352 | ||||||||||||||
Adjusted segment operating income (loss) | $ | (17,258) | 65,399 | |||||||||||||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income |
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(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Flooring ROW | ||||||||||||||||
Operating income | $ | 29,478 | 100,093 | |||||||||||||
Adjustments to segment operating income: | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 29,614 | 4,412 | ||||||||||||||
Acquisitions purchase accounting, including inventory step-up | - | 1,164 | ||||||||||||||
Adjusted segment operating income | $ | 59,092 | 105,669 | |||||||||||||
Reconciliation of Segment Operating (Loss) to Adjusted Segment Operating (Loss) | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Corporate and intersegment eliminations | ||||||||||||||||
Operating (loss) | $ | (11,143) | (12,316) | |||||||||||||
Adjustments to segment operating (loss): | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 1,249 | 519 | ||||||||||||||
Adjusted segment operating (loss) | $ | (9,894) | (11,797) | |||||||||||||
Reconciliation of Earnings (Loss) Including Noncontrolling Interests Before Income Taxes to Adjusted Earnings Including Noncontrolling Interests Before Income Taxes |
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(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Earnings (loss) before income taxes | $ | (74,951) | 259,387 | |||||||||||||
Noncontrolling interests | 331 | (213) | ||||||||||||||
Adjustments to earnings including noncontrolling interests before income taxes: | ||||||||||||||||
Restructuring, acquisition and integration-related and other costs | 100,359 | 8,840 | ||||||||||||||
Acquisitions purchase accounting, including inventory step-up | - | 1,164 | ||||||||||||||
Release of indemnification asset | (23) | - | ||||||||||||||
Adjusted earnings including noncontrolling interests before income taxes | $ | 25,716 | 269,178 | |||||||||||||
Reconciliation of Income Tax Expense (Benefit) to Adjusted Income Tax Expense (Benefit) | ||||||||||||||||
(Amounts in thousands) | ||||||||||||||||
Three Months Ended | ||||||||||||||||
Income tax expense (benefit) | $ | (26,363) | 56,733 | |||||||||||||
Income taxes - reversal of uncertain tax position | (23) | - | ||||||||||||||
Income tax effect of adjusting items | 25,746 | 2,701 | ||||||||||||||
Adjusted income tax expense (benefit) | $ | (640) | 59,434 | |||||||||||||
Adjusted income tax rate | (2.5)% | 22.1% | ||||||||||||||
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.