Mohawk Industries, Inc. Announces First Quarter Earnings

News provided by

Mohawk Industries, Inc.

01 May, 2014, 21:40 GMT

 - Net sales up 22% over PY

 - Adjusted EPS increased 41%

CALHOUN, Georgia, May 1, 2014 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2014 first quarter net earnings of $81 million and diluted earnings per share (EPS) of $1.11. Excluding unusual charges, net earnings for the quarter were $90 million; EPS was $1.23, a 41% increase over last year's first quarter adjusted EPS. Net sales for the first quarter of 2014 were approximately $1.8 billion, an increase of 22% as reported and 21% on a constant exchange basis versus the prior year's first quarter. In addition, the first quarter had one less shipping day when compared to prior year, which equates to approximately 1.5% of net sales. For the first quarter of 2013, net sales were approximately $1.5 billion, net earnings were $50 million and EPS was $0.72; excluding unusual charges, net earnings were $61 million and EPS was $0.87.

Commenting on Mohawk Industries' first quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "First quarter earnings were higher than expected due to our 2013 acquisitions, improved productivity across our business and stronger results outside North America, although severe winter weather in the U.S. impacted sales. During the period, we continued making progress with our acquisitions, including enhancing our organizational structures, sales strategies, product offerings and productivity. Our adjusted operating income for the quarter increased 47% to approximately 8% of net sales as initiatives drove higher earnings across all divisions and operational improvements gained traction in our acquisitions."

For the quarter, the Carpet segment's adjusted operating margins rose 60 basis points to 5.1% of net sales as a result of productivity improvements, cost reductions and improved pricing. Net sales for the segment were $675 million, down 3% as reported with one less day in the period. The period was negatively impacted by the harsh weather conditions in the U.S., with residential outperforming the other categories. In residential, the company's ultra-soft products continue to capture a greater share of the premium carpet category. New Continuum products, made from up to 100% recycled polyester, are gaining momentum at both the value added and promotional price points. Last year's DuraColor commercial carpet collections, that provide greater value and improved styling, are now among our best-selling products, with higher efficiencies and margins for the company. Numerous productivity projects across the segment including operational enhancements, re-engineered materials and capital investments are generating significant savings. A price increase for carpet and freight was announced to offset material, energy and transportation costs.

For the quarter, the Ceramic segment's adjusted operating margins grew 160 basis points to 9.0% of net sales as a result of higher volumes, efficiency gains and improved mix. Net sales for the segment were $695 million, up 69% compared to the prior year, primarily due to the Marazzi acquisition and legacy sales growth in North America. The company's ceramic business in North American expanded its design offerings and enhanced its market position with new larger sizes, rectangles and longer planks. The company announced the construction of a new U.S. ceramic plant to manufacture premium products, with production scheduled to start up by the end of 2015. The company's ceramic business in Europe increased its profitability through new sales and manufacturing strategies that reduced cost and improved product mix. On a local basis, the company's ceramic business in Russia significantly grew its revenues and operating income with higher volumes and improved mix, despite a slowing economy. We continue to improve productivity and conversion costs across our worldwide ceramic operations.

For the quarter, the Laminate and Wood segment's adjusted operating margins rose 110 basis points over the prior year to 11.5% of net sales, with productivity initiatives, acquisition synergies and price increases partially offset by higher wood costs. Net sales in the segment were $468 million, an increase of 16% over the prior year as reported or 13% on a constant exchange rate, with most of the increase from the Spano acquisition, higher volume in wood flooring and growth in insulation boards. In the U.S., price and freight increases on wood flooring were implemented in March to offset rising wood costs and transportation expenses, with further price increases announced in April. In Europe, the roll out of our new updated Pergo laminate collections with improved design, performance and installation systems should be complete in the second quarter and should enhance our sales and market position. Our new wood plant in the Czech Republic will increase capacity so we can grow our business in Europe, Russia and Asia. Our new insulation board plant is allowing us to significantly expand sales in the Benelux region and France. The integration of the Unilin and Spano board businesses has improved our position through the consolidation of production lines and sales organizations and lower material and energy costs.

"Across the enterprise, our management team is executing strategic initiatives to maximize our acquisitions and is implementing best practices and process improvements to enhance our legacy business," said Lorberbaum. "Although the pace of economic improvement varies across our markets, we are driving innovation, operational excellence and sales growth to optimize our results. In each of our businesses, we have many local advantages, including leading market positions, highly recognized brands, diverse distribution and efficient manufacturing that position our businesses for growth as each market improves.

"Although the weather in the first quarter impacted our U.S. business, orders and shipments began improving as the period ended. Our growth outside the U.S. was higher in the first period due to warmer weather in Europe than last year and better performance of our Russian ceramic introductions. Across the business, we are implementing product and freight increases as required to offset inflation. With these factors, our guidance for second quarter earnings is $2.14 to $2.23 per share and for the full year $8.00 to $8.30 per share, excluding any unusual charges.

"We remain positive about both our strategies to enhance Mohawk's results and the overall outlook for the floor covering industry this year. We are planning to increase capital investments across the enterprise to an all-time high of $500 million to support the introduction of innovative products, to sustain our growth with increased manufacturing capacity and to drive productivity, efficiency and cost improvements. We remain focused on enhancing shareholder value by increasing our top line growth and improving our bottom line."

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, Bigelow, Daltile, Durkan, Karastan, Lees, Marazzi, Mohawk, Pergo, Unilin and Quick-Step. 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, China, Europe, India, Malaysia, Mexico, 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 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, May 2, 2014 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 # 23642005. A replay will be available until Thursday, May 15, 2014 by dialing 1-855-859-2056 for US/local calls and 1-404-537-3406 for International/Local calls and entering Conference ID # 23642005.

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES








Consolidated Statement of Operations

Three Months Ended

(Amounts in thousands, except per share data)

March 29, 2014

March 30, 2013





Net sales

$         1,813,095

1,486,815

Cost of sales

1,331,740

1,109,749

    Gross profit

481,355

377,066

Selling, general and administrative expenses

350,620

290,224

Operating income

130,735

86,842

Interest expense

22,096

19,156

Other expense, net

4,890

6,387

    Earnings from continuing operations before income taxes

103,749

61,299

Income tax expense

22,696

10,732

        Net earnings including noncontrolling interest

81,053

50,567

Net earnings (loss)  attributable to noncontrolling interest

(28)

72

Net earnings attributable to Mohawk Industries, Inc.

$            81,081

50,495





Basic earnings per share attributable to Mohawk Industries, Inc.



Basic earnings per share attributable to Mohawk Industries, Inc.

$              1.11

0.73

Weighted-average common shares outstanding - basic

72,742

69,375





Diluted earnings per share attributable to Mohawk Industries, Inc.



Diluted earnings per share attributable to Mohawk Industries, Inc.

$              1.11

0.72

Weighted-average common shares outstanding - diluted

73,282

69,897















Other Financial Information



(Amounts in thousands)



Depreciation and amortization

$            80,984

60,349

Capital expenditures

$           122,081

63,282





Consolidated Balance Sheet Data



(Amounts in thousands)





March 29, 2014

March 30, 2013

ASSETS



Current assets:



    Cash and cash equivalents

$            72,645

1,120,167

    Receivables, net

1,174,895

825,659

    Inventories

1,632,236

1,230,250

    Prepaid expenses and other current assets

249,690

157,011

    Deferred income taxes 

133,808

113,519

        Total current assets

3,263,274

3,446,606

Property, plant and equipment, net

2,745,057

1,729,916

Goodwill

1,721,792

1,394,062

Intangible assets, net

796,896

569,356

Deferred income taxes and other non-current assets

154,469

121,905

    Total assets

$         8,681,488

7,261,845

LIABILITIES AND STOCKHOLDERS' EQUITY



Current liabilities:



Current portion of long-term debt and commercial paper

$          654,871

53,496

Accounts payable and accrued expenses

1,188,644

824,135

        Total current liabilities

1,843,515

877,631

Long-term debt, less current portion

1,811,789

2,253,020

Deferred income taxes and other long-term liabilities

532,740

406,610

        Total liabilities

4,188,044

3,537,261

Total stockholders' equity

4,493,444

3,724,584

    Total liabilities and stockholders' equity

$        8,681,488

7,261,845





Segment Information

As of and for the Three Months Ended

(Amounts in thousands)

March 29, 2014

March 30, 2013





Net sales:



    Carpet

$          674,926

695,334

    Ceramic

695,094

411,881

    Laminate and Wood

468,008

404,475

    Intersegment sales

(24,933)

(24,875)

        Consolidated net sales

$        1,813,095

1,486,815





Operating income (loss):



    Carpet

$           34,271

25,238

    Ceramic

60,659

29,976

    Laminate and Wood

44,119

38,693

    Corporate and eliminations

(8,314)

(7,065)

        Consolidated operating income

$          130,735

86,842





Assets:



    Carpet

$        1,920,937

1,802,241

    Ceramic

3,782,006

1,795,828

    Laminate and Wood

2,788,839

2,469,264

    Corporate and eliminations

189,706

1,194,512

        Consolidated assets

$        8,681,488

7,261,845







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





March 29, 2014

March 30, 2013

Net earnings attributable to Mohawk Industries, Inc.

$              81,081

50,495

Adjusting items:





Restructuring, acquisition and integration-related costs

11,725

9,856

Interest on 3.85% senior notes

-

3,559

Income taxes


(2,391)

(2,780)

   Adjusted net earnings attributable to Mohawk Industries, Inc.

$              90,415

61,130








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

1.23

0.87

Weighted-average common shares outstanding - diluted

73,282

69,897










Reconciliation of Total Debt to Net Debt

(Amounts in thousands)

March 29, 2014

Current portion of long-term debt and commercial paper

$             654,871

Long-term debt, less current portion

1,811,789

Less: Cash and cash equivalents

72,645

Net Debt

$           2,394,015



Reconciliation of Operating Income to Proforma Adjusted EBITDA







(Amounts in thousands)





















Trailing Twelve




Three Months Ended

Months Ended




June 29, 2013

September 28, 2013

December 31, 2013

March 29, 2014

March 29, 2014

Operating income

$             133,198

175,903

150,988

130,735

590,824

      Other (expense) income

1,097

(1,168)

(2,656)

(4,890)

(7,617)

     Net (earnings) loss attributable to noncontrolling interest

190

(491)

(132)

28

(405)

      Depreciation and amortization

80,643

81,550

86,329

80,984

329,506

   EBITDA

215,128

255,794

234,529

206,857

912,308

   Restructuring, acquisition and integration-related costs

41,321

24,431

37,812

11,725

115,289

   Acquisitions purchase accounting (inventory step-up)

18,744

12,297

-

-

31,041

 Adjusted EBITDA 

$             275,193

292,522

272,341

218,582

1,058,638













   Net Debt to  Adjusted EBITDA








2.3















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

(Amounts in thousands)






Three Months Ended



March 29, 2014

March 30, 2013

Net sales

$           1,813,095

1,486,815

Adjustment to net sales on a constant exchange rate

(10,446)

-

Net sales on a constant exchange rate

$           1,802,649

1,486,815








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

(Amounts in thousands)








Three Months Ended

Laminate and Wood

March 29, 2014

March 30, 2013

Net sales


$             468,008

404,475

Adjustment to segment net sales on a constant exchange rate

(12,446)

-

Segment net sales on a constant exchange rate

$             455,562

404,475









Reconciliation of Net Sales to Proforma Adjusted Net Sales



(Amounts in thousands)








Three Months Ended




March 29, 2014

March 30, 2013

Net sales


$           1,813,095

1,486,815

Acquisition net sales

-

310,000

Proforma adjusted net sales

$           1,813,095

1,796,815









Reconciliation of Segment Net Sales to Proforma Adjusted Segment Net Sales

(Amounts in thousands)








Three Months Ended

Ceramic


March 29, 2014

March 30, 2013

Segment net sales

$             695,094

411,881

Acquisition net sales

-

268,000

Proforma adjusted segment net sales 

$             695,094

679,881









Reconciliation of Segment Net Sales to Proforma Adjusted Segment Net Sales 

(Amounts in thousands)








Three Months Ended

Laminate and Wood

March 29, 2014

March 30, 2013

Segment net sales

$             468,008

404,475

Acquisition net sales

-

42,000

Proforma adjusted segment net sales

$             468,008

446,475









Reconciliation of Gross Profit to Adjusted Gross Profit 



(Amounts in thousands)








Three Months Ended




March 29, 2014

March 30, 2013

Gross Profit


$             481,355

377,066

Adjustments to gross profit:



   Restructuring and integration-related costs

5,637

3,411

     Adjusted gross profit

$             486,992

380,477

  Adjusted gross profit as a percent of net sales

26.9%

25.6%









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

(Amounts in thousands)








Three Months Ended




March 29, 2014

March 30, 2013

Selling, general and administrative expenses

$             350,620

290,224

Adjustments to selling, general and administrative expenses:


  Restructuring, acquisition and integration-related costs

(6,088)

(6,445)

    Adjusted selling, general and administrative expenses

$             344,532

283,779

      Adjusted selling, general and administrative expenses as a percent
      of net sales

19.0%

19.1%









Reconciliation of Operating Income to Adjusted Operating Income 

(Amounts in thousands)



Three Months Ended



March 29, 2014

March 30, 2013

Operating income

$             130,735

86,842

Adjustments to operating income:


    Restructuring, acquisition and integration-related costs

11,725

9,856

      Adjusted operating income

$             142,460

96,698

  Adjusted operating margin as a percent of net sales

7.9%

6.5%








Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 

(Amounts in thousands)

Three Months Ended

Carpet

March 29, 2014

        March 30, 2013        

Operating income

$              34,271

25,238

Adjustments to segment operating income:


    Restructuring, acquisition and integration-related costs

-

6,217

      Adjusted segment operating income

$              34,271

31,455

  Adjusted operating margin as a percent of net sales

5.1%

4.5%






Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 

(Amounts in thousands)



Three Months Ended

Ceramic

March 29, 2014

      March 30, 2013      

Operating income

$              60,659

    29,976

Adjustments to segment operating income:


    Restructuring, acquisition and integration-related costs

1,981

463

      Adjusted segment operating income

$              62,640

30,439

  Adjusted operating margin as a percent of net sales

9.0%

7.4%








Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 

(Amounts in thousands)






Three Months Ended

Laminate and Wood

March 29, 2014

March 30, 2013

Operating income

$              44,119

38,693

Adjustments to segment operating income:


    Restructuring, acquisition and integration-related costs

9,576

3,176

      Adjusted segment operating income

$              53,695

41,869

  Adjusted operating margin as a percent of net sales

11.5%

10.4%








Reconciliation of Earnings from Continuing Operations Before Income Taxes to Adjusted Earnings from Continuing Operations Before Income Taxes

(Amounts in thousands)








Three Months Ended




March 29, 2014

March 30, 2013

Earnings from continuing operations before income taxes

$             103,749

61,299

Adjustments to earnings from continuing operations before income taxes:

  Restructuring, acquisition and integration-related costs

11,725

9,856

  Interest on 3.85% senior notes

-

3,559

  Adjusted earnings from continuing operations before income taxes

$             115,474

74,714
















Reconciliation of Income Tax Expense to Adjusted Income Tax Expense 

(Amounts in thousands)








Three Months Ended




March 29, 2014

March 30, 2013

Income tax expense 

$              22,696

10,732

Income tax effect of adjusting items


2,391

2,780

  Adjusted income tax expense

$              25,087

13,512







Adjusted income tax rate

22%

18%

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 planning and forecasting in subsequent periods.  In particular, the Company believes excluding the impact of restructuring, acquisition and integration-related costs is useful because it allows investors to evaluate our performance for different periods on a more comparable basis.