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Mohawk Industries Reports Q3 Results

October 26, 2017 at 4:05 PM EDT

CALHOUN, Ga., Oct. 26, 2017 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2017 third quarter, net earnings of $270 million and diluted earnings per share (EPS) of $3.61. Adjusted net earnings were $281 million and EPS was $3.75, excluding restructuring, acquisition and other charges, a 7% increase over last year. Net sales for the third quarter of 2017 were $2.4 billion, up 7% in the quarter and 5% on a constant days and currency basis. For the third quarter of 2016, net sales were $2.3 billion, net earnings were $270 million and EPS was $3.62; adjusted net earnings were $261 million and EPS was $3.50, excluding restructuring, acquisition and other charges.

For the nine months ending September 30, 2017, net earnings and EPS were $731 million and $9.77, respectively. Adjusted net earnings and EPS were $763 million and $10.19, excluding restructuring, acquisition and other charges, a 9% increase over last year. For the nine-month period, net sales were $7.1 billion, an increase of 5% and 5.5% on a constant days and currency basis. For the nine-month period ending October 1, 2016, net sales were $6.8 billion, net earnings were $697 million and EPS was $9.34; adjusted net earnings and EPS were $697 million and $9.35, excluding restructuring, acquisition and other charges.

Commenting on Mohawk Industries' third quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "During the period, Mohawk delivered record adjusted earnings and EPS, with sales growing approximately 7%. Our businesses outside the U.S. had stronger revenue growth, as the economies of those countries expanded. In the period, we overcame rising material costs, disruptions from hurricanes and reduced patent revenue. Our price and mix improved as we enhanced our product offering and implemented pricing actions to recover inflation. Our many operational and process improvements resulted in productivity gains of approximately $49 million and we incurred $8 million of start-up costs.

"For the full year, we are investing about $900 million to optimize long-term results by entering new product categories, extending our reach into new geographies and facilitating growth in our existing businesses. These projects include ceramic expansions in Mexico, Russia, Italy and Poland; additional premium laminate, engineered wood, rug and polyester carpet capacity in the U.S.; and increased premium laminate capacity in Europe and Russia. These investments will satisfy increasing demand for our products as well as introduce state-of-the-art manufacturing technology to further our position as the industry's innovation leader. During 2018, in the U.S., we will launch production of rigid LVT as well as quartz countertops. In Europe, we will enter the rigid LVT, carpet tile and porcelain countertop businesses, and in Russia we will open a manufacturing plant to participate in the country's large sheet vinyl market.

"For the quarter, our Flooring Rest of the World Segment's sales increased 13% as reported and 8% on a constant days and currency basis. The segment had an exceptional quarter with the majority of our manufactured product sales and earnings growing dramatically. Our patent revenue is running at a higher rate than we anticipated due to broader use of our patents and the increase in worldwide sales of LVT.  During the period, our price and mix improvements offset inflation and currency changes. Our laminate innovation in proprietary structures and water-proof technologies is increasing the selection of our products by customers who would ordinarily purchase wood flooring. Our present European LVT manufacturing is nearing capacity, and our new plant will begin operating by the end of the year. The new plant will expand our capacity of flexible LVT as well as produce rigid LVT. We are expanding the segment's commercial sales force to increase the specifications of sheet vinyl, LVT and our upcoming carpet tile collections. Our new commercial carpet tile plant should initiate limited production in the fourth quarter.

"For the quarter, our Global Ceramic Segment sales increased 9% as reported and 7% on a constant days and currency basis. In the quarter, the strongest growth in our ceramic business was in Russia and Mexico as well as our acquisitions in Italy and Poland, which have been integrated with our existing European ceramic business. New capacity came online during the period with new production in Mexico and our modernized commercial tile plant in Italy. We also started up idled assets at our Polish plant, and we are installing additional equipment to broaden our position in the Northern and Central European markets. Our U.S. ceramic business was softer than we anticipated due to the impact of hurricanes in two of the country's largest ceramic markets. In the third and fourth quarters of this year, we are opening about 15 service centers and stone centers in key U.S. markets. Our North American manufacturing plants are operating at record levels for volume, quality and cost. Our sales and margins in Mexico increased as we broadened our product offering and enlarged our customer base. During the period, our European ceramic business increased dramatically, with growth in our local markets and the addition of our Italian and Polish acquisitions. Our Russian ceramic business is meaningfully outperforming the industry, and we are adding capacity to increase our share as the market expands.

"During the quarter, our Flooring North America Segment's sales increased 2% as reported. The segment's price, mix and productivity improved significantly during the period, covering increases in raw materials and other inflation. Our new product introductions improved our average selling prices and margins, and our process innovations and investments in manufacturing technology improved our costs. The hurricanes in Texas and Florida interrupted normal purchasing patterns and impacted our sales during the period. For the quarter, our soft surfaces sales growth exceeded hard surfaces, which were constrained by production limitations that will be addressed in the fourth quarter. Growth in our residential carpet outpaced our commercial sales. We have recently announced a 5 to 6% price increase on all of our carpet products effective the end of this year to cover our increasing costs. We have enhanced the productivity of our U.S. LVT operations, and we are expanding our product offering in both the residential and commercial categories. We have introduced a proprietary rigid LVT collection designed for exceptional stability and durability as we prepare for our new U.S. LVT production in the second quarter of next year. Our new laminate production will be operational this quarter and will allow us to expand our successful water proof laminate that improves on Mother Nature in both performance and visuals.

"In the fourth quarter, we anticipate that the business will improve as we benefit from innovative new products, increased volume and the performance of our recent acquisitions. We expect higher sales with the relief of some of our capacity constraints, enabling us to expand our market position. During the upcoming period, we will absorb higher start-up costs estimated at $15 million in our results as new operations come online. The disruptions caused by hurricanes in the U.S. should diminish as those markets begin their recovery. Greater productivity, better product mix and price changes should improve our fourth quarter results, overcoming the reductions from our expired patents. Taking all of this into account, our EPS guidance for the fourth quarter is $3.25 to $3.34, excluding any one-time charges."

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; tax, product and other claims; litigation; and other risks identified in Mohawk's SEC reports and public announcements.

Conference call Friday, October 27, 2017, 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 # 95629983. A replay will be available until Friday, November 24, 2017, by dialing 1-855-859-2056 for US/local calls and 1-404-537-3406 for International/Local calls and entering Conference ID # 95629983.

 

 

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES









(Unaudited)









Consolidated Statement of Operations Data


Three Months Ended


Nine Months Ended

(Amounts in thousands, except per share data)


September 30, 2017


October 1, 2016


September 30, 2017


October 1, 2016










Net sales


$                   2,448,510


2,294,139


7,122,193


6,776,521

Cost of sales


1,665,209


1,567,580


4,879,403


4,654,695

    Gross profit


783,301


726,559


2,242,790


2,121,826

Selling, general and administrative expenses


403,203


348,252


1,232,083


1,147,155

Operating income


380,098


378,307


1,010,707


974,671

Interest expense


7,259


9,410


23,854


32,062

Other expense (income), net


1,285


3,839


1,455


1,461

    Earnings before income taxes


371,554


365,058


985,398


941,148

Income tax expense


100,532


94,231


251,572


242,090

        Net earnings including noncontrolling interest


271,022


270,827


733,826


699,058

Net income attributable to noncontrolling interest


997


949


2,566


2,444

Net earnings attributable to Mohawk Industries, Inc.


$                       270,025


269,878


731,260


696,614










Basic earnings per share attributable to Mohawk Industries, Inc.









Basic earnings per share attributable to Mohawk Industries, Inc.


$                                3.63


3.64


9.84


9.40

Weighted-average common shares outstanding - basic


74,338


74,154


74,330


74,084










Diluted earnings per share attributable to Mohawk Industries, Inc.









Diluted earnings per share attributable to Mohawk Industries, Inc.


$                                3.61


3.62


9.77


9.34

Weighted-average common shares outstanding - diluted


74,841


74,613


74,830


74,551




























Other Financial Information









(Amounts in thousands)









Depreciation and amortization


$                       113,515


103,680


328,300


305,088

Capital expenditures


$                       229,207


183,846


654,630


460,760










Consolidated Balance Sheet Data









(Amounts in thousands)















September 30, 2017


October 1, 2016

ASSETS









Current assets:









    Cash and cash equivalents






$                          84,502


112,108

    Receivables, net






1,656,064


1,506,316

    Inventories






1,911,029


1,673,242

    Prepaid expenses and other current assets






345,515


284,648

        Total current assets






3,997,110


3,576,314

Property, plant and equipment, net






4,090,099


3,340,893

Goodwill






2,454,360


2,331,821

Intangible assets, net






890,298


876,715

Deferred income taxes and other non-current assets






390,946


294,850

    Total assets






$                11,822,813


10,420,593

LIABILITIES AND STOCKHOLDERS' EQUITY









Current liabilities:









     Current portion of long-term debt and commercial paper






$                   1,172,781


1,548,251

     Accounts payable and accrued expenses






1,524,237


1,435,069

        Total current liabilities






2,697,018


2,983,320

Long-term debt, less current portion






1,544,665


1,165,577

Deferred income taxes and other long-term liabilities






755,020


574,267

        Total liabilities






4,996,703


4,723,164

Redeemable noncontrolling interest






28,508


24,741

Total stockholders' equity






6,797,602


5,672,688

    Total liabilities and stockholders' equity






$                11,822,813


10,420,593










Segment Information


Three Months Ended


As of or for the Nine Months Ended

(Amounts in thousands)


September 30, 2017


October 1, 2016


September 30, 2017


October 1, 2016










Net sales:









    Global Ceramic


$                       893,399


822,040


2,581,038


2,425,560

    Flooring NA


1,031,773


1,008,553


3,011,568


2,895,610

    Flooring ROW


523,338


463,546


1,529,587


1,455,351

    Intersegment sales


-


-


-


-

        Consolidated net sales


$                   2,448,510


2,294,139


7,122,193


6,776,521










Operating income (loss):









    Global Ceramic


$                       143,368


135,985


411,961


376,368

    Flooring NA


163,494


170,507


383,118


364,804

    Flooring ROW


83,042


81,757


245,189


262,356

    Corporate and intersegment eliminations


(9,806)


(9,942)


(29,561)


(28,857)

        Consolidated operating income


$                       380,098


378,307


1,010,707


974,671










Assets:









    Global Ceramic






$                   4,826,619


4,118,510

    Flooring NA






3,699,633


3,354,286

    Flooring ROW






3,128,213


2,851,227

    Corporate and intersegment eliminations






168,348


96,570

        Consolidated assets






$                11,822,813


10,420,593










 

 

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


Nine Months Ended





September 30, 2017


October 1, 2016


September 30, 2017


October 1, 2016

Net earnings attributable to Mohawk Industries, Inc.




$                       270,025


269,878


731,260


696,614

Adjusting items:











  Restructuring, acquisition and integration-related and other costs 




13,853


30,572


33,709


44,309

  Acquisitions purchase accounting , including inventory step-up




3,551


-


13,314


-

  Legal settlement and reserves




-


(90,000)


-


(90,000)

  Release of indemnification asset




-


2,368


-


2,368

  Tradename impairment 




-


47,905


-


47,905

  Income taxes - reversal of uncertain tax position




-


(2,368)


-


(2,368)

  Income taxes 




(6,545)


2,856


(15,637)


(1,764)

     Adjusted net earnings attributable to Mohawk Industries, Inc.




$                       280,884


261,211


762,646


697,064












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


$                              3.75


3.50


10.19


9.35

Weighted-average common shares outstanding - diluted




74,841


74,613


74,830


74,551












 

Reconciliation of Total Debt to Net Debt



(Amounts in thousands)





September 30, 2017

Current portion of long-term debt and commercial paper


$                   1,172,781

Long-term debt, less current portion


1,544,665

Less: Cash and cash equivalents


84,502

   Net Debt


$                   2,632,944




 

 

Reconciliation of Operating Income to Adjusted EBITDA











(Amounts in thousands)










Trailing Twelve



Three Months Ended


Months Ended



December 31, 2016


April 1, 2017


July 1, 2017


September 30, 2017


September 30, 2017

Operating income


$                       305,272


274,784


355,825


380,098


1,315,979

   Other (expense) income


3,190


2,832


(3,002)


(1,285)


1,735

   Net (income) loss attributable to noncontrolling interest


(760)


(502)


(1,067)


(997)


(3,326)

   Depreciation and amortization


104,379


105,024


109,761


113,515


432,679

  EBITDA


412,081


382,138


461,517


491,331


1,747,067

   Restructuring, acquisition and integration-related and other costs 


16,214


3,978


15,878


13,853


49,923

   Acquisitions purchase accounting, including inventory step-up


-


192


9,571


3,551


13,314

   Release of indemnification asset


3,004


-


-


-


3,004

  Adjusted EBITDA 


$                       431,299


386,308


486,966


508,735


1,813,308












Net Debt to Adjusted EBITDA










1.5












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





(Amounts in thousands)











Three Months Ended


Nine Months Ended



September 30, 2017


October 1, 2016


September 30, 2017


October 1, 2016

Net sales


$                   2,448,510


2,294,139


7,122,193


6,776,521

Adjustment to net sales on constant shipping days


1,111


-


36,358


-

Adjustment to net sales on a constant exchange rate


(39,769)


-


(9,234)


-

Net sales on a constant exchange rate and constant shipping days


2,409,852


2,294,139


7,149,317


6,776,521

Less: impact of acquisition volume


(47,118)


-


(95,342)


-

Net sales on a constant exchange rate and constant shipping days excluding
acquisition volume


$                   2,362,734


2,294,139


7,053,975


6,776,521

 

 

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


September 30, 2017


October 1, 2016

Net sales


$                       893,399


822,040

Adjustment to net sales on constant shipping days


1,111


-

Adjustment to segment net sales on a constant exchange rate


(16,758)


-

Segment net sales on a constant exchange rate and constant shipping days 


877,752


822,040

Less: impact of acquisition volume


(47,118)


-

Segment net sales on a constant exchange rate and constant shipping days excluding
acquisition volume


$                       830,634


822,040











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



(Amounts in thousands)







Three Months Ended

Flooring ROW


September 30, 2017


October 1, 2016

Net sales


$                       523,338


463,546

Adjustment to segment net sales on a constant exchange rate


(23,012)


-

Segment net sales on a constant exchange rate 


$                       500,326


463,546
















Reconciliation of Gross Profit to Adjusted Gross Profit





(Amounts in thousands)







Three Months Ended



September 30, 2017


October 1, 2016

Gross Profit


$                       783,301


726,559

Adjustments to gross profit:





   Restructuring, acquisition and integration-related and other costs 


8,845


17,459

   Acquisitions purchase accounting, including inventory step-up


3,551


-

  Adjusted gross profit


$                       795,697


744,018
















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

(Amounts in thousands)







Three Months Ended



September 30, 2017


October 1, 2016

Selling, general and administrative expenses


$                       403,203


348,252

Adjustments to selling, general and administrative expenses:





  Restructuring, acquisition and integration-related and other costs 


(5,008)


(13,112)

  Legal settlement and reserves


-


90,000

  Tradename impairment 


-


(47,905)

    Adjusted selling, general and administrative expenses


$                       398,195


377,235











Reconciliation of Operating Income to Adjusted Operating Income





(Amounts in thousands)







Three Months Ended



September 30, 2017


October 1, 2016

Operating income


$                       380,098


378,307

Adjustments to operating income:





   Restructuring, acquisition and integration-related and other costs 


13,853


30,572

   Legal settlement and reserves


-


(90,000)

   Tradename impairment 


-


47,905

   Acquisitions purchase accounting, including inventory step-up


3,551


-

Adjusted operating income


$                       397,502


366,784











Reconciliation of Segment Operating Income to Adjusted Segment Operating Income




(Amounts in thousands)







Three Months Ended

Global Ceramic


September 30, 2017


October 1, 2016

Operating income


$                       143,368


135,985

Adjustments to segment operating income:





  Restructuring, acquisition and integration-related and other costs 


2,800


456

  Acquisitions purchase accounting, including inventory step-up


3,551


-

  Adjusted segment operating income


$                       149,719


136,441






Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 




(Amounts in thousands)







Three Months Ended

Flooring NA 


September 30, 2017


October 1, 2016

Operating income


$                       163,494


170,507

Adjustments to segment operating income:





  Legal settlement and reserves


-


(90,000)

  Restructuring, acquisition and integration-related and other costs 


8,682


26,193

  Tradename impairment 


-


47,905

    Adjusted segment operating income


$                       172,176


154,605






Reconciliation of Segment Operating Income to Adjusted Segment Operating Income




(Amounts in thousands)







Three Months Ended

Flooring ROW 


September 30, 2017


October 1, 2016

Operating income


$                          83,042


81,757

Adjustments to segment operating income:





  Restructuring, acquisition and integration-related and other costs 


1,620


3,596

  Adjusted segment operating income


$                          84,662


85,353











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

(Amounts in thousands)







Three Months Ended



September 30, 2017


October 1, 2016

Earnings before income taxes


$                       371,554


365,058

Noncontrolling interests


(997)


(949)

Adjustments to earnings including noncontrolling interests before income taxes:





  Restructuring, acquisition and integration-related & other costs 


13,853


30,572

  Acquisitions purchase accounting, including inventory step-up


3,551


-

  Legal settlement and reserves


-


(90,000)

  Release of indemnification asset


-


2,368

  Tradename impairment 


-


47,905

  Adjusted earnings including noncontrolling interests before income taxes


$                       387,961


354,954











Reconciliation of Income Tax Expense to Adjusted Income Tax Expense 





(Amounts in thousands)







Three Months Ended



September 30, 2017


October 1, 2016

Income tax expense 


$                       100,532


94,231

Income taxes - reversal of uncertain tax position


-


2,368

Income tax effect of adjusting items


6,545


(2,856)

  Adjusted income tax expense


$                       107,077


93,743






Adjusted income tax rate


27.6%


26.4%






 

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, more or fewer shipping days in a period 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, legal settlements and reserves, tradename impairments, 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.

Frank H. Boykin, Chief Financial Officer (706) 624-2695