Mohawk Industries Reports Record Q2 Results
For the six months ending
Commenting on
"During the period, we completed the acquisition of two small ceramic manufacturers to expand our European platform and two U.S. material manufacturing operations to enhance the vertical integration of our businesses. This year, we are increasing our internal investments to over
"For the quarter, our Global Ceramic Segment sales increased approximately 9% as reported and on a constant days and currency basis. Operating margin was 17% as reported and 18% on an adjusted basis, with adjusted operating income rising approximately 16% for the quarter. We completed two European ceramic acquisitions that increased our segment sales by 6% during the period. Our legacy business improved from the prior quarter but was limited in
"During the quarter, our
"For the quarter, our Flooring Rest of the World Segment's sales increased 2% as reported and 8.5% on a constant days and currency basis. Operating margin was 17% as reported and on an adjusted basis, with adjusted operating income decreasing approximately 12% for the quarter. The segment was impacted by increasing material costs and currency changes, which we are implementing price increases to recover, and the reduction in patent income. We anticipate that the majority of the price increases will be fully implemented by the fourth quarter, allowing us to recover our higher costs. Our LVT sales are growing significantly, although we are reaching the limits of our present capacity. Our new LVT production line in
"Mohawk's operating performance in the third quarter should continue to significantly improve, with sales and income strengthening further, even with higher material inflation and changes in patents. We are implementing price increases across most product categories and regions to recover material and currency changes in the third quarter. We will continue optimizing the acquisitions we completed in the second quarter by improving their strategies and enhancing their profitability. Taking all of this into account, our adjusted EPS guidance for the third quarter is
"To enhance our long-term performance, we are investing at record levels this year to expand our product offering and capacity, improve our efficiencies and extend our geographic reach. In the fourth quarter, we will incur higher start-up costs as our production expansions ramp up and we elevate our marketing activities to increase our sales. The expansion of our LVT, ceramic, laminate, sheet vinyl and carpet tile capacity will increase our future growth and profitability, strengthening our position as the global leader in flooring."
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; tax, 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) |
||||||||
Consolidated Statement of Operations Data |
Three Months Ended |
Six Months Ended |
||||||
(Amounts in thousands, except per share data) |
July 1, 2017 |
July 2, 2016 |
July 1, 2017 |
July 2, 2016 |
||||
Net sales |
$ 2,453,038 |
2,310,336 |
4,673,683 |
4,482,382 |
||||
Cost of sales |
1,673,902 |
1,554,748 |
3,214,194 |
3,087,115 |
||||
Gross profit |
779,136 |
755,588 |
1,459,489 |
1,395,267 |
||||
Selling, general and administrative expenses |
423,311 |
404,896 |
828,880 |
798,903 |
||||
Operating income |
355,825 |
350,692 |
630,609 |
596,364 |
||||
Interest expense |
8,393 |
10,351 |
16,595 |
22,652 |
||||
Other expense (income), net |
3,002 |
(5,807) |
170 |
(2,378) |
||||
Earnings before income taxes |
344,430 |
346,148 |
613,844 |
576,090 |
||||
Income tax expense |
82,682 |
90,034 |
151,040 |
147,859 |
||||
Net earnings including noncontrolling interest |
261,748 |
256,114 |
462,804 |
428,231 |
||||
Net earnings attributable to noncontrolling interest |
1,067 |
926 |
1,569 |
1,495 |
||||
Net earnings attributable to Mohawk Industries, Inc. |
$ 260,681 |
255,188 |
461,235 |
426,736 |
||||
Basic earnings per share attributable to Mohawk Industries, Inc. |
||||||||
Basic earnings per share attributable to Mohawk Industries, Inc. |
$ 3.51 |
3.44 |
6.21 |
5.76 |
||||
Weighted-average common shares outstanding - basic |
74,327 |
74,123 |
74,269 |
74,049 |
||||
Diluted earnings per share attributable to Mohawk Industries, Inc. |
||||||||
Diluted earnings per share attributable to Mohawk Industries, Inc. |
$ 3.48 |
3.42 |
6.17 |
5.73 |
||||
Weighted-average common shares outstanding - diluted |
74,801 |
74,574 |
74,773 |
74,526 |
||||
Other Financial Information |
||||||||
(Amounts in thousands) |
||||||||
Depreciation and amortization |
$ 109,761 |
101,215 |
214,785 |
201,408 |
||||
Capital expenditures |
$ 224,153 |
136,081 |
425,423 |
276,914 |
||||
Consolidated Balance Sheet Data |
||||||||
(Amounts in thousands) |
||||||||
July 1, 2017 |
July 2, 2016 |
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ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ 130,238 |
112,049 |
||||||
Receivables, net |
1,639,614 |
1,448,898 |
||||||
Inventories |
1,865,941 |
1,660,131 |
||||||
Prepaid expenses and other current assets |
374,930 |
298,125 |
||||||
Total current assets |
4,010,723 |
3,519,203 |
||||||
Property, plant and equipment, net |
3,892,251 |
3,243,838 |
||||||
Goodwill |
2,417,058 |
2,322,735 |
||||||
Intangible assets, net |
878,301 |
930,323 |
||||||
Deferred income taxes and other non-current assets |
391,158 |
296,732 |
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Total assets |
$ 11,589,491 |
10,312,831 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
||||||||
Current liabilities: |
||||||||
Current portion of long-term debt and commercial paper |
$ 1,754,077 |
1,795,584 |
||||||
Accounts payable and accrued expenses |
1,466,658 |
1,334,150 |
||||||
Total current liabilities |
3,220,735 |
3,129,734 |
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Long-term debt, less current portion |
1,174,440 |
1,160,700 |
||||||
Deferred income taxes and other long-term liabilities |
713,110 |
613,131 |
||||||
Total liabilities |
5,108,285 |
4,903,565 |
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Redeemable noncontrolling interest |
26,713 |
23,683 |
||||||
Total stockholders' equity |
6,454,493 |
5,385,583 |
||||||
Total liabilities and stockholders' equity |
$ 11,589,491 |
10,312,831 |
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Segment Information |
As of or for the Three Months Ended |
As of or for the Six Months Ended |
||||||
(Amounts in thousands) |
July 1, 2017 |
July 2, 2016 |
July 1, 2017 |
July 2, 2016 |
||||
Net sales: |
||||||||
Global Ceramic |
$ 902,670 |
829,794 |
1,687,639 |
1,603,520 |
||||
Flooring NA |
1,040,299 |
980,693 |
1,979,795 |
1,887,057 |
||||
Flooring ROW |
510,069 |
499,849 |
1,006,249 |
991,805 |
||||
Intersegment sales |
- |
- |
- |
- |
||||
Consolidated net sales |
$ 2,453,038 |
2,310,336 |
4,673,683 |
4,482,382 |
||||
Operating income (loss): |
||||||||
Global Ceramic |
$ 152,557 |
140,606 |
268,593 |
240,383 |
||||
Flooring NA |
127,482 |
118,946 |
219,624 |
194,297 |
||||
Flooring ROW |
86,052 |
101,062 |
162,147 |
180,599 |
||||
Corporate and eliminations |
(10,266) |
(9,922) |
(19,755) |
(18,915) |
||||
Consolidated operating income |
$ 355,825 |
350,692 |
630,609 |
596,364 |
||||
Assets: |
||||||||
Global Ceramic |
$ 4,736,068 |
4,054,351 |
||||||
Flooring NA |
3,625,350 |
3,316,048 |
||||||
Flooring ROW |
2,984,716 |
2,835,497 |
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Corporate and eliminations |
243,357 |
106,935 |
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Consolidated assets |
$ 11,589,491 |
10,312,831 |
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. |
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(Amounts in thousands, except per share data) |
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Three Months Ended |
Six Months Ended |
|||||||||||
July 1, 2017 |
July 2, 2016 |
July 1, 2017 |
July 2, 2016 |
|||||||||
Net earnings attributable to Mohawk Industries, Inc. |
$ 260,681 |
255,188 |
461,235 |
426,736 |
||||||||
Adjusting items: |
||||||||||||
Restructuring, acquisition and integration-related and other costs |
15,878 |
6,020 |
19,856 |
13,738 |
||||||||
Acquisitions purchase accounting (inventory step-up) |
9,571 |
- |
9,763 |
- |
||||||||
Income taxes |
(7,677) |
(2,342) |
(9,091) |
(4,620) |
||||||||
Adjusted net earnings attributable to Mohawk Industries, Inc. |
$ 278,453 |
258,866 |
481,763 |
435,854 |
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Adjusted diluted earnings per share attributable to Mohawk Industries, Inc. |
$ 3.72 |
3.47 |
6.44 |
5.85 |
||||||||
Weighted-average common shares outstanding - diluted |
74,801 |
74,574 |
74,773 |
74,526 |
||||||||
Reconciliation of Total Debt to Net Debt |
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(Amounts in thousands) |
|||||
July 1, 2017 |
|||||
Current portion of long-term debt and commercial paper |
$ 1,754,077 |
||||
Long-term debt, less current portion |
1,174,440 |
||||
Less: Cash and cash equivalents |
130,238 |
||||
Net Debt |
$ 2,798,279 |
Reconciliation of Operating Income to Adjusted EBITDA |
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(Amounts in thousands) |
Trailing Twelve |
|||||||||||
Three Months Ended |
Months Ended |
|||||||||||
October 1, 2016 |
December 31, 2016 |
April 1, 2017 |
July 1, 2017 |
July 1, 2017 |
||||||||
Operating income |
$ 378,307 |
305,272 |
274,784 |
355,825 |
1,314,188 |
|||||||
Other (expense) income |
(3,839) |
3,190 |
2,832 |
(3,002) |
(819) |
|||||||
Net (earnings) loss attributable to non-controlling interest |
(949) |
(760) |
(502) |
(1,067) |
(3,278) |
|||||||
Depreciation and amortization |
103,680 |
104,379 |
105,024 |
109,761 |
422,844 |
|||||||
EBITDA |
477,199 |
412,081 |
382,138 |
461,517 |
1,732,935 |
|||||||
Restructuring, acquisition and integration-related and other costs |
30,572 |
16,214 |
3,978 |
15,878 |
66,642 |
|||||||
Acquisitions purchase accounting (inventory step-up) |
- |
- |
192 |
9,571 |
9,763 |
|||||||
Legal settlement and reserves |
(90,000) |
- |
- |
- |
(90,000) |
|||||||
Release of indemnification asset |
2,368 |
3,004 |
- |
- |
5,372 |
|||||||
Tradename impairment |
47,905 |
- |
- |
- |
47,905 |
|||||||
Adjusted EBITDA |
$ 468,044 |
431,299 |
386,308 |
486,966 |
1,772,617 |
|||||||
Net Debt to Adjusted EBITDA |
1.6 |
|||||||||||
Reconciliation of Net Sales to Net Sales on a Constant Exchange Rate and Constant Shipping Days Excluding Acquisition Volume |
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(Amounts in thousands) |
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Three Months Ended |
Six Months Ended |
|||||||||||
July 1, 2017 |
July 2, 2016 |
July 1, 2017 |
July 2, 2016 |
|||||||||
Net sales |
$ 2,453,038 |
2,310,336 |
4,673,683 |
4,482,382 |
||||||||
Adjustment to net sales on constant shipping days |
23,317 |
- |
35,247 |
- |
||||||||
Adjustment to net sales on a constant exchange rate |
12,356 |
- |
30,535 |
- |
||||||||
Net sales on a constant exchange rate and constant shipping days |
2,488,711 |
2,310,336 |
4,739,465 |
4,482,382 |
||||||||
Less: impact of acquisition volume |
(48,224) |
- |
(48,224) |
- |
||||||||
Net sales on a constant exchange rate and constant shipping days excluding acquisition volume |
$ 2,440,487 |
2,310,336 |
4,691,241 |
4,482,382 |
||||||||
Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate and Constant Shipping Days Excluding Acquisition Volume |
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(Amounts in thousands) |
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Three Months Ended |
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Global Ceramic |
July 1, 2017 |
July 2, 2016 |
|||||
Net sales |
$ 902,670 |
829,794 |
|||||
Adjustment to net sales on constant shipping days |
6,163 |
- |
|||||
Adjustment to segment net sales on a constant exchange rate |
(2,542) |
- |
|||||
Segment net sales on a constant exchange rate and constant shipping days |
906,291 |
829,794 |
|||||
Less: impact of acquisition volume |
(48,224) |
- |
|||||
Segment net sales on a constant exchange rate and constant shipping days excluding acquisition volume |
$ 858,067 |
829,794 |
|||||
Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate and Constant Shipping Days |
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(Amounts in thousands) |
|||||||
Three Months Ended |
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Flooring ROW |
July 1, 2017 |
July 2, 2016 |
|||||
Net sales |
$ 510,069 |
499,849 |
|||||
Adjustment to net sales on constant shipping days |
17,154 |
- |
|||||
Adjustment to segment net sales on a constant exchange rate |
14,897 |
- |
|||||
Segment net sales on a constant exchange rate and constant shipping days |
$ 542,120 |
499,849 |
|||||
Reconciliation of Gross Profit to Adjusted Gross Profit |
|||||||
(Amounts in thousands) |
|||||||
Three Months Ended |
|||||||
July 1, 2017 |
July 2, 2016 |
||||||
Gross Profit |
$ 779,136 |
755,588 |
|||||
Adjustments to gross profit: |
|||||||
Restructuring, acquisition and integration-related and other costs |
13,028 |
2,778 |
|||||
Acquisitions purchase accounting (inventory step-up) |
9,571 |
- |
|||||
Adjusted gross profit |
$ 801,735 |
758,366 |
|||||
Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses |
|||||||
(Amounts in thousands) |
|||||||
Three Months Ended |
|||||||
July 1, 2017 |
July 2, 2016 |
||||||
Selling, general and administrative expenses |
$ 423,311 |
404,896 |
|||||
Adjustments to selling, general and administrative expenses: |
|||||||
Restructuring, acquisition and integration-related and other costs |
(2,850) |
(3,241) |
|||||
Adjusted selling, general and administrative expenses |
$ 420,461 |
401,655 |
|||||
Reconciliation of Operating Income to Adjusted Operating Income |
|||||||
(Amounts in thousands) |
|||||||
Three Months Ended |
|||||||
July 1, 2017 |
July 2, 2016 |
||||||
Operating income |
$ 355,825 |
350,692 |
|||||
Adjustments to operating income: |
|||||||
Restructuring, acquisition and integration-related and other costs |
15,878 |
6,020 |
|||||
Acquisitions purchase accounting (inventory step-up) |
9,571 |
- |
|||||
Adjusted operating income |
$ 381,274 |
356,712 |
|||||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income |
|||||||
(Amounts in thousands) |
|||||||
Three Months Ended |
|||||||
Global Ceramic |
July 1, 2017 |
July 2, 2016 |
|||||
Operating income |
$ 152,557 |
140,606 |
|||||
Adjustments to segment operating income: |
|||||||
Restructuring, acquisition and integration-related and other costs |
1,305 |
381 |
|||||
Acquisitions purchase accounting (inventory step-up) |
9,571 |
- |
|||||
Adjusted segment operating income |
$ 163,433 |
140,987 |
|||||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income |
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(Amounts in thousands) |
|||||||
Three Months Ended |
|||||||
Flooring NA |
July 1, 2017 |
July 2, 2016 |
|||||
Operating income |
$ 127,482 |
118,946 |
|||||
Adjustments to segment operating income: |
|||||||
Restructuring, acquisition and integration-related and other costs |
12,196 |
6,146 |
|||||
Adjusted segment operating income |
$ 139,678 |
125,092 |
|||||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income |
|||||||
(Amounts in thousands) |
|||||||
Three Months Ended |
|||||||
Flooring ROW |
July 1, 2017 |
July 2, 2016 |
|||||
Operating income |
$ 86,052 |
101,062 |
|||||
Adjustments to segment operating income: |
|||||||
Restructuring, acquisition and integration-related and other costs |
2,170 |
(507) |
|||||
Adjusted segment operating income |
$ 88,222 |
100,555 |
|||||
Reconciliation of Earnings including Noncontrolling Interests Before Income Taxes to Adjusted Earnings including Noncontrolling Interests Before Income Taxes |
|||||||
(Amounts in thousands) |
|||||||
Three Months Ended |
|||||||
July 1, 2017 |
July 2, 2016 |
||||||
Earnings before income taxes |
$ 344,430 |
346,148 |
|||||
Noncontrolling interests |
(1,067) |
(926) |
|||||
Adjustments to earnings including noncontrolling interests before income taxes: |
|||||||
Restructuring, acquisition and integration-related & other costs |
15,878 |
6,020 |
|||||
Acquisitions purchase accounting (inventory step-up) |
9,571 |
- |
|||||
Adjusted earnings including noncontrolling interests before income taxes |
$ 368,812 |
351,242 |
|||||
Reconciliation of Income Tax Expense to Adjusted Income Tax Expense |
|||||||
(Amounts in thousands) |
|||||||
Three Months Ended |
|||||||
July 1, 2017 |
July 2, 2016 |
||||||
Income tax expense |
$ 82,682 |
90,034 |
|||||
Income tax effect of adjusting items |
7,677 |
2,342 |
|||||
Adjusted income tax expense |
$ 90,359 |
92,376 |
|||||
Adjusted income tax rate |
24.5% |
26.3% |
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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 (inventory step-up), release of indemnification assets and the reversal of uncertain tax positions. |
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SOURCE
Frank H. Boykin, Chief Financial Officer (706) 624-2695