Market Overview

Mohawk Industries, Inc. Announces Third Quarter Earnings

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CALHOUN, Ga., Nov. 1, 2012 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2012 third quarter net earnings of $70 million and diluted earnings per share (EPS) of $1.01. Excluding restructuring charges, net earnings were $72 million and EPS was $1.04, a 25% increase over last year's third quarter adjusted EPS. Net sales for the third quarter of 2012 were $1.5 billion, an increase of 2% versus prior year and an increase of 4% on a constant exchange rate. For the third quarter of 2011, net sales were $1.4 billion, net earnings were $47 million and EPS was $0.68. Excluding unusual items, net earnings for the third quarter of 2011 were $57 million and EPS was $0.83.

For the nine months ending September 29, 2012, net sales were $4.4 billion, an increase of 2% versus prior year and 4% on a constant exchange rate. Net earnings and EPS for the nine-month period were $184 million and $2.66, respectively. Excluding restructuring charges, net earnings were $191 million and EPS was $2.76, an increase of 25% over the nine-month adjusted EPS results in 2011. For the nine months ending October 1, 2011, net sales were $4.3 billion, net earnings were $131 million and EPS was $1.90. Excluding unusual items, net earnings and EPS were $152 million and $2.21, respectively.

Commenting on Mohawk Industries' third quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "All of our segments delivered solid third quarter performances with improvements in product mix, pricing, volume and productivity, as well as lower interest expense contributing to our results. Across the enterprise, we have managed to keep SG&A dollars in line with last year even as we invested significantly more in new product innovations and marketing to improve our future sales and product mix. During the quarter, we generated adjusted EBITDA of $179 million and free cash flow of $156 million. Both our net debt to adjusted EBITDA ratio and net debt to capitalization ratio improved to 1.7 and 22%, respectively.  Mohawk's strong financial position provides us with the flexibility to pursue strategic opportunities such as the recently announced agreement to acquire Pergo, the most recognized brand of premium laminate flooring in the U.S. and Europe."

The Mohawk segment increased its adjusted operating income margin 180 basis points with sales remaining flat compared to 2011. The gains stemmed from improved pricing and product mix, reduced manufacturing and distribution costs and increased productivity. Our carpet sales performance was stronger in our specialty and contractor channels but was offset by the timing of product transitions in the home center channel. Our rug sales improved over the prior period, though they still remained below last year as retailers adjusted their strategies with consumer spending.  We saw continued improvement in mix and expanded our SmartStrand® Silk™ collection, which has redefined the premium carpet market. We enhanced productivity through improved manufacturing and distribution efficiencies and gains from our capital investments. 

Dal-Tile sales grew 9% during the quarter or 10% on a constant exchange rate. The segment improved sales in both residential and commercial categories and continued significant growth in the Mexican market. Operating margins were enhanced from actions that improved productivity and increased yields. Sales grew across all residential channels supported by our new Reveal Imaging designs, fashionable mosaics and larger format tiles that are aligned with today's decorating trends. We are leveraging Dal-Tile's traditional strength in the builder channel across our business segments to expand commitments with regional builders. We have introduced specific value-engineered products to gain position in the growing multi-family category. In Mexico, our new Salamanca tile plant is successfully ramping up and supplying product to satisfy our growing ceramic position. Across the segment, we lowered manufacturing costs through improved material formulations, higher yields and lower waste.

Unilin segment sales during the quarter were flat as reported, but grew 9% on a constant exchange rate. Outside North America, laminate and wood flooring sales grew from continued expansion into the DIY channel, increases in the Russian market and our Australian acquisition. Our Russian laminate facility increased its production to satisfy higher demand and implemented productivity improvements.  In North America, we grew our laminate and wood products through all customer channels during the quarter. New product introductions, increased home center penetration, gains within the builder channel and promotional activity increased our sales. Declining new construction in Benelux and France created headwinds for our insulated roofing panels. To reduce costs in this category, we are consolidating our brands and sales forces as well as implementing process improvements. By helping meet European energy goals, our insulation panels delivered strong sales increases in both Belgium and France.

Mohawk's third quarter results reflect our strengths in delivering innovative products, driving operational excellence and entering new geographic markets. We continue to invest strategically by introducing differentiated products, lowering our manufacturing and administrative costs and acquiring new companies that will enhance our results.  We have taken the necessary steps to align our pricing with our raw material inflation and we will react as required. In the U.S., increasing new home construction and improved sales of existing homes provide a positive outlook for future flooring growth. In Europe, soft market conditions due to economic uncertainty and changes in exchange rates are anticipated to be a headwind. Based on these factors, our guidance for fourth quarter earnings is $.89 to $.98 per share, excluding any restructuring costs.

Mohawk's strong financial position allowed us to enter into an agreement to acquire Pergo which will benefit our worldwide laminate business and we are well positioned to invest in other opportunities as they arise.  We continue to execute our long-term strategy of product innovation, cost reduction, asset maximization and geographic expansion. Each of our businesses is well situated to benefit from the improvements in the U.S. remodeling and construction category, which remains substantially below peak levels. Our organization is focused on bringing value to our customers while maximizing our results.

Mohawk is a leading supplier of flooring for both residential and commercial applications.  Mohawk provides a complete selection for all markets of carpet, ceramic tile, laminate, wood, stone, vinyl and rugs. These products are marketed under the premier brands in the industry including Mohawk, Karastan, Lees, Bigelow, Durkan, Mohawk Home, Daltile, American Olean, Unilin and Quick-Step.  Mohawk's unique merchandising and marketing assists consumers in creating exquisite floors to fulfill their dreams. Mohawk provides a premium level of service with its own trucking fleet and local distribution in the U.S.  Mohawk's international presence includes operations in Australia, Brazil, China, Europe, Malaysia, Mexico and Russia.

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 in raw material prices and other input costs; 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, November 2, 2012 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 # 37587426.  A replay will also be available until November 16, 2012 by dialing 855-859-2056 for US/local calls and 404-537-3406 for International/Local calls and entering Conference ID # 37587426.

 

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES

























Consolidated Statement of Operations



Three Months Ended





Nine Months Ended



(Amounts in thousands, except per share data)



September 29, 2012



October 1, 2011



September 29, 2012



October 1, 2011



















Net sales



$

1,473,493





1,442,512





4,352,321





4,263,961



Cost of sales



1,100,656





1,084,889





3,231,594





3,182,499



Gross profit



372,837





357,623





1,120,727





1,081,462



Selling, general and administrative expenses



268,883





266,159





837,079





832,214



Operating income



103,954





91,464





283,648





249,248



Interest expense



17,969





25,132





59,311





77,487



Other expense (income), net



322





13,413





(1,063)





13,794



Earnings before income taxes



85,663





52,919





225,400





157,967



Income tax expense



15,359





5,223





40,896





23,639



Net earnings



70,304





47,696





184,504





134,328



Net earnings attributable to noncontrolling interest







(1,050)





(635)





(3,337)



Net earnings attributable to Mohawk Industries, Inc.



$

70,304





46,646





183,869





130,991



Basic earnings per share attributable to Mohawk Industries, Inc.



$

1.02





0.68





2.67





1.91



Weighted-average common shares outstanding - basic



69,010





68,759





68,952





68,725



Diluted earnings per share attributable to Mohawk Industries, Inc.



$

1.01





0.68





2.66





1.90



Weighted-average common shares outstanding - diluted



69,337





68,954





69,247





68,946





















Other Financial Information

















(Amounts in thousands)

















Net cash provided by operating activities



$

202,971





109,598





298,547





138,188



Depreciation and amortization



$

71,298





74,207





216,415





222,804



Capital expenditures



$

47,311





69,741





134,998





182,260





















Consolidated Balance Sheet Data

















(Amounts in thousands)





























September 29, 2012



October 1, 2011

ASSETS

















Current assets:

















Cash and cash equivalents











$

380,842





276,156



Receivables, net











817,214





775,421



Inventories











1,139,403





1,132,073



Prepaid expenses and other current assets











146,275





125,007



Deferred income taxes











112,995





131,931



Total current assets











2,596,729





2,440,588



Property, plant and equipment, net











1,657,226





1,696,182



Goodwill











1,371,494





1,389,430



Intangible assets, net











554,257





634,164



Deferred income taxes and other non-current assets











122,906





117,204



Total assets











$

6,302,612





6,277,568



LIABILITIES AND STOCKHOLDERS' EQUITY

















Current liabilities:

















Current portion of long-term debt











$

57,673





438,300



Accounts payable and accrued expenses











761,186





774,939



Total current liabilities











818,859





1,213,239



Long-term debt, less current portion











1,467,269





1,173,038



Deferred income taxes and other long-term liabilities











421,549





439,798



Total liabilities











2,707,677





2,826,075



Noncontrolling interest















32,758



Total stockholders' equity











3,594,935





3,418,735



Total liabilities and stockholders' equity











$

6,302,612





6,277,568





















Segment Information



Three Months Ended





As of or for the Nine Months Ended



(Amounts in thousands)



September 29, 2012



October 1, 2011



September 29, 2012



October 1, 2011



















Net sales:

















Mohawk



$

751,787





754,470





2,186,160





2,203,699



Dal-Tile



417,533





381,891





1,214,746





1,105,775



Unilin



328,582





329,514





1,020,380





1,018,443



Intersegment sales



(24,409)





(23,363)





(68,965)





(63,956)



Consolidated net sales



$

1,473,493





1,442,512





4,352,321





4,263,961





















Operating income (loss):

















Mohawk



$

43,810





30,946





106,228





79,187



Dal-Tile



37,452





33,073





99,912





82,911



Unilin



28,892





33,048





96,613





105,507



Corporate and eliminations



(6,200)





(5,603)





(19,105)





(18,357)



Consolidated operating income



$

103,954





91,464





283,648





249,248





















Assets:

















Mohawk











$

1,760,828





1,810,191



Dal-Tile











1,783,147





1,735,718



Unilin











2,586,084





2,569,103



Corporate and eliminations











172,553





162,556



Consolidated assets











$

6,302,612





6,277,568





















 

 

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 29,
2012



October 1,
2011



September 29,
2012



October 1,
2011

Net earnings attributable to Mohawk Industries, Inc.



$

70,304





46,646





183,869





130,991



Adjusting items:

















Unrealized foreign currency losses (1)







9,085









9,085



Business restructurings



4,229





2,186





12,455





15,513



Debt extinguishment costs







1,116









1,116



Income taxes



(2,691)





(1,761)





(4,892)





(4,597)



Adjusted net earnings attributable to Mohawk Industries, Inc.



$

71,842





57,272





191,432





152,108



























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



$

1.04





0.83





2.76





2.21



Weighted-average common shares outstanding - diluted



69,337





68,954





69,247





68,946



























Reconciliation of Operating Cash Flow to Free Cash Flow













(Amounts in thousands)























Three Months Ended























September 29, 2012

















Net cash provided by operating activities



$

202,971



















Capital expenditures



(47,311)



















Free cash flow



$

155,660











































Reconciliation of Total Debt to Net Debt

















(Amounts in thousands)



























September 29, 2012

















Current portion of long-term debt



$

57,673



















Long-term debt, less current portion



1,467,269



















Cash and cash equivalents



(380,842)



















Net Debt



$

1,144,100











































Reconciliation of Capitalization

















(Amounts in thousands)



























September 29, 2012

















Current portion of long-term debt



$

57,673



















Long-term debt, less current portion



1,467,269



















Total stockholders' equity



3,594,935



















Capitalization



$

5,119,877









































Net Debt to Capitalization



22%



























































































Reconciliation of Operating Income to Adjusted EBITDA













(Amounts in thousands)























Three Months Ended





Trailing Twelve Months Ended







December 31, 2011



March 31, 2012



June 30, 2012



September 29, 2012



September 29,
2012

Operating income



$

66,294





71,976





107,718





103,954





349,942



Other (expense) income



(257)





1,825





(440)





(322)





806



Net earnings attributable to noncontrolling interest



(966)





(635)













(1,601)



Depreciation and amortization



74,930





73,286





71,831





71,298





291,345



EBITDA



140,001





146,452





179,109





174,930





640,492



Operating lease correction (2)



6,035

















6,035



Business restructurings



7,696









8,226





4,229





20,151



Adjusted EBITDA



$

153,732





146,452





187,335





179,159





666,678



























Net Debt to Adjusted EBITDA



















1.7



























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







(Amounts in thousands)























Three Months Ended



Nine Months Ended













September 29,
2012



October 1,
2011



September 29,
2012



October 1,
2011





Net sales



$

1,473,493





1,442,512





4,352,321





4,263,961







Adjustment to net sales on a constant exchange rate



32,777









82,877











Net sales on a constant exchange rate



$

1,506,270





1,442,512





4,435,198





4,263,961































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













(Amounts in thousands)



























Three Months Ended













Dal-Tile



September 29,
2012



October 1,
2011













Net sales



$

417,533





381,891















Adjustment to segment net sales on a constant exchange rate



1,935



















Segment net sales on a constant exchange rate



$

419,468





381,891













































Three Months Ended













Unilin





September 29,
2012



October 1,
2011













Net sales



$

328,582





329,514















Adjustment to segment net sales on a constant exchange rate



30,842



















Segment net sales on a constant exchange rate



$

359,424





329,514































































































































































Reconciliation of Operating Income to Adjusted Operating Income













(Amounts in thousands)



























Three Months Ended



















September 29,
2012



October 1,
2011













Operating income



$

103,954





91,464















Business restructurings



4,229





2,186















Adjusted operating income



$

108,183





93,650















Adjusted operating margin as a percent of net sales



7.3%





6.5%







































Reconciliation of Segment Operating Income to Adjusted Segment Operating Income













(Amounts in thousands)



























Three Months Ended













Mohawk



September 29,
2012



October 1,
2011













Operating income



$

43,810





30,946















Business restructurings



3,122





2,186















Adjusted segment operating income



$

46,932





33,132















Adjusted operating margin as a percent of net sales



6.2%





4.4%







































Reconciliation of Earnings Before Income Taxes to Adjusted Earnings Before Income Taxes













(Amounts in thousands)



























Three Months Ended



















September 29,
2012



October 1,
2011













Earnings before income taxes



$

85,663





52,919















Adjustments to earnings before income taxes:





















Unrealized foreign currency losses (1)







9,085















Business restructurings



4,229





2,186















Debt extinguishment costs







1,116















Adjusted earnings before income taxes



$

89,892





65,306







































Reconciliation of Income Tax Expense to Adjusted Income Tax Expense













(Amounts in thousands)



























Three Months Ended



















September 29,
2012



October 1,
2011













Income tax expense



$

15,359





5,223















Income tax effect of business restructurings



2,691





1,761















Adjusted income tax expense



$

18,050





6,984







































Adjusted income tax rate



20%





11%







































(1)  Unrealized foreign currency losses in Q3 2011 for certain of the Company's consolidated foreign subsidiaries that measure financial position and results using the U.S. dollar rather than the local currency.



























(2)  Correction of an immaterial error related to accounting for operating leases



























The Company believes it is useful for itself and investors to review, as applicable, both GAAP and the above non-GAAP measures in order to assess the performance of the Company's business for the planning and forecasting in subsequent periods.













 

SOURCE Mohawk Industries, Inc.

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