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Mohawk Industries Reports Q2 Results

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Mohawk Industries Reports Q2 Results

PR Newswire

CALHOUN, Ga., July 25, 2018 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE:MHK) today announced 2018 second quarter net earnings of $197 million and diluted earnings per share (EPS) of $2.62. Adjusted net earnings were $263 million and EPS was $3.51, excluding restructuring, acquisition and other charges, a 6% decrease from last year. Net sales for the second quarter of 2018 were $2.6 billion, up 5% in the quarter and 3% on a constant currency basis. For the second quarter of 2017, net sales were $2.5 billion, net earnings were $261 million and EPS was $3.48; adjusted net earnings were $278 million and EPS was $3.72, excluding restructuring, acquisition and other charges.

For the six months ending June 30, 2018, net earnings and EPS were $405 million and $5.41, respectively. Net earnings excluding restructuring, acquisition and other charges were $488 million and EPS was $6.52, an increase over the 2017 six-month period adjusted EPS. For the 2018 six-month period, net sales were $5.0 billion, an increase of 7% versus prior year as reported or 3% on a constant currency and legacy basis. For the six-month period ending July 1, 2017, net sales were $4.7 billion, net earnings were $461 million and EPS was $6.17; excluding restructuring, acquisition and other charges, net earnings and EPS were $482 million and $6.44.

Commenting on Mohawk Industries' second quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "Our results fell short of our expectations, and we are taking actions to improve the performance of our U.S. businesses. With the overall economy, our results were negatively impacted by input inflation, higher transportation costs, a stronger dollar and a tight labor market. We were also affected by changing product mix, timing of price increases, lower production units, start-up of new projects and the delayed Godfrey Hirst closing. To address these, we are raising prices, expanding in growing channels and participating in new products and geographies. In the U.S. market, we are increasing our LVT production and sourcing, as LVT continues gaining market share.

"Our businesses outside North America showed significant improvement and our results improved more without start-up costs and expired patents. Although the economy in Europe slowed somewhat, the results in most of our non-U.S. businesses improved substantially with LVT, Russian ceramic, wood panels and insulation leading the growth. As the dollar strengthened during the period, the Euro fell from $1.24 to $1.16, reducing our translated results in U.S. dollars.

"Our company and industry are absorbing significant inflation. This year, we have had two carpet price increases and recently followed those with a third increase to offset additional material and freight inflation. We are taking pricing actions in most product categories impacted by inflation, including our higher value ceramic products.

"During the quarter, our new expansion projects had start-up expenses of $15 million as we continued investing to broaden our product offering and geographic penetration. These investments will enhance our sales and profitability, with most of the impact occurring in 2019 and beyond.

"For the quarter, our Global Ceramic Segment sales increased 3% as reported and 2% on a constant currency basis. Operating margin was approximately 15% both as reported and on an adjusted basis, declining year over year due to inflation, product mix and start-up costs. During the period, our North American ceramic volume improved with our average price weakening from growth in lower value products and channels. To increase our share of the ceramic market, we are delivering innovative products, enhancing our service and increasing our participation in the home center, builder and commercial channels. Our U.S. countertop growth is accelerating, and construction on our quartz countertop plant in Tennessee is on schedule, with production slated to begin by the end of this year. In Mexico, our sales increased as the quarter progressed, outpacing the market. We have doubled production at our Salamanca plant and introduced larger sizes to the market. European ceramic sales slowed slightly with the economy, while margins increased from improved price and mix and higher productivity. As we expand our Polish factory, we are preparing to realign manufacturing among our European plants to optimize our assets and improve our offering. Our Russian ceramic sales and margins remain strong, and we are expanding our porcelain floor and wall tile capacity.

"During the quarter, our Flooring North America Segment's sales increased 2%. The segment's operating margin was 9.5% as reported and 10% on an adjusted basis, absorbing inflation, lower than expected production and start-up costs. The realization of our price increases was later and our product mix declined more than we anticipated. As our raw materials and freight costs continue to escalate, we announced another price increase to recover. Our LVT sales in the period grew less than we forecast due to a delay in shipments of our sourced products. We anticipate a significant increase in LVT sales as our new U.S. production ramps up and the supply of sourced products increases in the third period. Our residential carpet improved led by the builder, multi-family and Main Street channels. Our new introductions in SmartStrand Silk Reserve, Air.O unified soft flooring and our luxury Karastan collections gained momentum in the market. Our new RevWood collections with water proof technology are growing rapidly in the retail and builder channels as an alternative to hardwood. Our commercial hard surface collections showed stronger growth, and our commercial carpet bookings strengthened as we progressed through the period.

"For the quarter, our Flooring Rest of the World Segment's sales increased 16% as reported and 8% on a constant currency basis. The segment's operating income increased 16% as reported, with an adjusted operating margin of 17%, as a result of improved price, product mix and productivity, offsetting inflation, start-up costs and expired patents. Our LVT sales were up dramatically and will increase more with our manufacturing expansion. Until now, we have been producing flexible LVT, and we have completed the initial production on rigid LVT, which will be launching in the third quarter. Our new premium laminate products utilizing unique technologies and water resistance are taking share and improving our mix. In Russia, we are introducing our latest European technology with our new laminate plant expansion. We are using our European sheet vinyl to build demand for our new Russian plant, which should start up by the end of this year. Our new carpet tile plant in Belgium is ramping up to penetrate the European commercial flooring market. Our wood panels and insulation products grew significantly from our manufacturing investments, better material supply and stronger market conditions. We completed the Godfrey Hirst acquisition on July 2, a month later than we had anticipated, and we are implementing strategies to become a total flooring provider in Australia and New Zealand as we have in the U.S.

"We are taking a comprehensive approach to improve our performance and profitability in the U.S. Our initiatives to improve pricing, increase sales in growing channels and reduce cost will benefit the remainder of the year. Given the impact of inflation, timing of price increases and other challenges, we do not anticipate that our actions in the U.S. will offset the pressures we are facing before next year. We expect continued strength in Europe and Russia, where inflation and shifting product preferences are less intense than in the U.S. Around the globe, we are entering new products and geographies as well as expanding constrained categories. Having closed Godfrey Hirst, we are already enhancing the largest flooring provider in Australia and New Zealand. In the U.S., we are investing in growing categories such as LVT and quartz countertops. If the recently announced Chinese tariffs are implemented, they will enhance our U.S. market position and results. Taking all of this into account, our EPS guidance for the third quarter is $3.54 to $3.64, excluding any one-time charges.

"We are passing through inflation, optimizing our new expansions and maximizing our LVT position to increase our profitability. Our talented organization, innovative products and strong balance sheet provide long-term advantages, and we continue to pursue acquisitions that bolt on or add new dimensions to expand the value of our company."

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, Feltex, Godfrey Hirst, 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; taxes and tax reform, product and other claims; litigation; and other risks identified in Mohawk's SEC reports and public announcements.

Conference call Thursday, July 26, 2018, 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 # 1166308. A replay will be available until August 25, 2018, by dialing 1-855-859-2056 for US/local calls and 1-404-537-3406 for International/Local calls and entering Conference ID # 1166308.

 

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES









(Unaudited)









Consolidated Statement of Operations Data


Quarter Ended


Six Months Ended

(Amounts in thousands, except per share data)


June 30, 2018


July 1, 2017


June 30, 2018


July 1, 2017










Net sales


$

2,577,014


2,453,038


$

4,989,216


4,673,683

Cost of sales


1,810,459


1,673,902


3,517,969


3,214,194

    Gross profit


766,555


779,136


1,471,247


1,459,489

Selling, general and administrative expenses


440,248


423,311


876,541


828,880

Operating income


326,307


355,825


594,706


630,609

Interest expense


7,863


8,393


15,391


16,595

Other expense (income), net


2,090


3,002


6,088


170

    Earnings before income taxes


316,354


344,430


573,227


613,844

Income tax expense


118,809


82,682


166,441


151,040

        Net earnings including noncontrolling interest


197,545


261,748


406,786


462,804

Net income attributable to noncontrolling interest


959


1,067


1,434


1,569

Net earnings attributable to Mohawk Industries, Inc.


$

196,586


260,681


$

405,352


461,235










Basic earnings per share attributable to Mohawk Industries, Inc.









Basic earnings per share attributable to Mohawk Industries, Inc.


$

2.64


3.51


$

5.44


6.21

Weighted-average common shares outstanding - basic


74,597


74,327


74,525


74,269










Diluted earnings per share attributable to Mohawk Industries, Inc.









Diluted earnings per share attributable to Mohawk Industries, Inc.


$

2.62


3.48


$

5.41


6.17

Weighted-average common shares outstanding - diluted


74,937


74,801


74,928


74,773




























Other Financial Information









(Amounts in thousands)









Depreciation and amortization


$

127,048


109,762


$

249,702


214,785

Capital expenditures


$

247,418


224,153


$

498,354


425,423



















Consolidated Balance Sheet Data









(Amounts in thousands)















June 30, 2018


July 1, 2017

ASSETS









Current assets:









    Cash and cash equivalents






$

518,226


130,238

    Receivables, net






1,737,935


1,639,614

    Inventories






2,061,204


1,865,941

    Prepaid expenses and other current assets






456,315


374,930

        Total current assets






4,773,680


4,010,723

Property, plant and equipment, net






4,421,073


3,892,251

Goodwill






2,447,046


2,417,058

Intangible assets, net






858,532


878,301

Deferred income taxes and other non-current assets






393,708


391,158

    Total assets






$

12,894,039


11,589,491

LIABILITIES AND STOCKHOLDERS' EQUITY









Current liabilities:









Current portion of long-term debt and commercial paper






$

1,146,511


1,754,077

Accounts payable and accrued expenses






1,589,561


1,466,658

        Total current liabilities






2,736,072


3,220,735

Long-term debt, less current portion






1,884,023


1,174,440

Deferred income taxes and other long-term liabilities






870,467


713,110

        Total liabilities






5,490,562


5,108,285

Redeemable noncontrolling interest






30,043


26,713

Total stockholders' equity






7,373,434


6,454,493

    Total liabilities and stockholders' equity






$

12,894,039


11,589,491















Segment Information


Quarter Ended


As of or for the Six Months Ended

(Amounts in thousands)


June 30, 2018


July 1, 2017


June 30, 2018


July 1, 2017










Net sales:









    Global Ceramic


$

929,297


902,670


$

1,805,845


1,687,639

    Flooring NA


1,057,570


1,040,299


2,007,928


1,979,795

    Flooring ROW


590,147


510,069


1,175,443


1,006,249

    Intersegment sales


-


-


-


-

        Consolidated net sales


$

2,577,014


2,453,038


$

4,989,216


4,673,683










Operating income (loss):









    Global Ceramic


$

134,760


152,557


$

248,177


268,593

    Flooring NA


100,662


127,482


175,410


219,624

    Flooring ROW


100,166


86,052


189,226


162,147

    Corporate and intersegment eliminations


(9,281)


(10,266)


(18,107)


(19,755)

        Consolidated operating income


$

326,307


355,825


$

594,706


630,609










Assets:









    Global Ceramic






$

4,974,791


4,736,068

    Flooring NA






3,927,190


3,625,350

    Flooring ROW






3,701,419


2,984,716

    Corporate and intersegment eliminations






290,639


243,357

        Consolidated assets






$

12,894,039


11,589,491










 

 

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)


















Quarter Ended


Six Months Ended







June 30, 2018


July 1, 2017


June 30, 2018


July 1, 2017

Net earnings attributable to Mohawk Industries, Inc.




$

196,586


260,681


405,352


461,235

Adjusting items:













Restructuring, acquisition and integration-related and other costs




16,042


15,878


38,146


19,856

Acquisitions purchase accounting , including inventory step-up




194


9,571


1,548


9,763

Release of indemnification asset





-


-


1,749


-

Income taxes - reversal of uncertain tax position




-


-


(1,749)


-

Income taxes 






50,106


(7,677)


43,166


(9,091)

Adjusted net earnings attributable to Mohawk Industries, Inc.




$

262,928


278,453


488,212


481,763














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




$

3.51


3.72


6.52


6.44

Weighted-average common shares outstanding - diluted





74,937


74,801


74,928


74,773














 

Reconciliation of Total Debt to Net Debt




(Amounts in thousands)









June 30, 2018

Current portion of long-term debt and commercial paper


$

1,146,511

Long-term debt, less current portion



1,884,023

Less: Cash and cash equivalents



518,226

Net Debt




$

2,512,308

 

Reconciliation of Operating Income to Adjusted EBITDA











(Amounts in thousands)












Trailing Twelve





Quarters Ended


Months Ended





September 30, 2017


December 31, 2017


March 31, 2018


June 30, 2018


June 30, 2018

Operating income




380,098


343,466


268,399


326,307


1,318,270

Other (expense) income




(1,285)


(3,750)


(3,998)


(2,090)


(11,123)

Net (income) loss attributable to noncontrolling interest


(997)


(488)


(475)


(959)


(2,919)

Depreciation and amortization



113,515


118,372


122,654


127,048


481,589

EBITDA




491,331


457,600


386,580


450,306


1,785,817

Restructuring, acquisition and integration-related and other costs


13,853


15,231


22,104


16,042


67,230

Acquisitions purchase accounting, including inventory step-up


3,551


-


1,354


194


5,099

Release of indemnification asset



-


4,459


1,749


-


6,208

  Adjusted EBITDA 




508,735


477,290


411,787


466,542


1,864,354














Net Debt to Adjusted EBITDA












1.3














 

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








(Amounts in thousands)















Quarter Ended


Six Months Ended





June 30, 2018


July 1, 2017


June 30, 2018


July 1, 2017

Net sales




$

2,577,014


2,453,038


4,989,216


4,673,683

Adjustment to net sales on a constant exchange rate


(48,326)


-


(147,158)


-

Net sales on a constant exchange rate



2,528,688


2,453,038


4,842,058


4,673,683

Less: impact of acquisition volume



(1,239)


-


(46,515)


-

Net sales on a constant exchange rate excluding acquisition volume


$

2,527,449


2,453,038


4,795,543


4,673,683












 

 

Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate Excluding Acquisition Volume




(Amounts in thousands)











Quarter Ended

Global Ceramic




June 30, 2018


July 1, 2017

Net sales




$

929,297


902,670

Adjustment to segment net sales on a constant exchange rate


(10,986)


-

Segment net sales on a constant exchange rate 


918,311


902,670

Less: impact of acquisition volume



(1,239)


-

Segment net sales on a constant exchange rate excluding acquisition volume


$

917,072


902,670















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





(Amounts in thousands)











Quarter Ended

Flooring ROW




June 30, 2018


July 1, 2017

Net sales




$

590,147


510,069

Adjustment to segment net sales on a constant exchange rate


(37,340)


-

Segment net sales on a constant exchange rate 


$

552,807


510,069











Reconciliation of Gross Profit to Adjusted Gross Profit





(Amounts in thousands)











Quarter Ended





June 30, 2018


July 1, 2017

Gross Profit




$

766,555


779,136

Adjustments to gross profit:







Restructuring, acquisition and integration-related and other costs


12,018


13,028

Acquisitions purchase accounting, including inventory step-up


194


9,571

  Adjusted gross profit




$

778,767


801,735






















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





(Amounts in thousands)











Quarter Ended





June 30, 2018


July 1, 2017

Selling, general and administrative expenses



$

440,248


423,311

Adjustments to selling, general and administrative expenses:





Restructuring, acquisition and integration-related and other costs


(4,024)


(2,850)

  Adjusted selling, general and administrative expenses


$

436,224


420,461















Reconciliation of Operating Income to Adjusted Operating Income





(Amounts in thousands)











Quarter Ended





June 30, 2018


July 1, 2017

Operating income




$

326,307


355,825

Adjustments to operating income:






Restructuring, acquisition and integration-related and other costs


16,042


15,878

Acquisitions purchase accounting, including inventory step-up


194


9,571

Adjusted operating income




$

342,543


381,274















Reconciliation of Segment Operating Income to Adjusted Segment Operating Income





(Amounts in thousands)











Quarter Ended

Global Ceramic




June 30, 2018


July 1, 2017

Operating income




$

134,760


152,557

Adjustments to segment operating income:






Restructuring, acquisition and integration-related and other costs


5,408


1,305

Acquisitions purchase accounting, including inventory step-up


-


9,571

Adjusted segment operating income



$

140,168


163,433













Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 





(Amounts in thousands)











Quarter Ended

Flooring NA 




June 30, 2018


July 1, 2017

Operating income




$

100,662


127,482

Adjustments to segment operating income:






Restructuring, acquisition and integration-related and other costs


8,881


12,196

  Adjusted segment operating income



$

109,543


139,678













Reconciliation of Segment Operating Income to Adjusted Segment Operating Income





(Amounts in thousands)











Quarter Ended

Flooring ROW 




June 30, 2018


July 1, 2017

Operating income




$

100,166


86,052

Adjustments to segment operating income:






Restructuring, acquisition and integration-related and other costs


1,338


2,170

Acquisitions purchase accounting, including inventory step-up


194


-

Adjusted segment operating income



$

101,698


88,222









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

(Amounts in thousands)











Quarter Ended





June 30, 2018


July 1, 2017

Earnings before income taxes




$

316,354


344,430

Noncontrolling interests




(959)


(1,067)

Adjustments to earnings including noncontrolling interests before income taxes:





Restructuring, acquisition and integration-related & other costs


16,042


15,878

Acquisitions purchase accounting, including inventory step-up


194


9,571

 Adjusted earnings including noncontrolling interests before income taxes


$

331,631


368,812















Reconciliation of Income Tax Expense to Adjusted Income Tax Expense 





(Amounts in thousands)











Quarter Ended





June 30, 2018


July 1, 2017

Income tax expense 




$

118,809


82,682

Income tax effect of adjusting items




(50,106)


7,677

  Adjusted income tax expense



$

68,703


90,359








Adjusted income tax rate




20.7%


24.5%








 

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 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.

 

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SOURCE Mohawk Industries, Inc.

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