Mohawk Industries, Inc. Announces Third Quarter Earnings

News provided by

Mohawk Industries, Inc.

31 Oct, 2013, 20:29 GMT

-- Net sales up 33% over PY

-- Adjusted EPS increased 94%

CALHOUN, Georgia, Oct. 31, 2013 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE:MHK) today announced 2013 third quarter net earnings of $119 million and diluted earnings per share (EPS) of $1.63. Excluding unusual charges, net earnings were $147 million and EPS was $2.02, a 94% increase over last year's third quarter adjusted EPS. Net sales for the third quarter of 2013 were approximately $2.0 billion, an increase of 33% versus the prior year's third quarter. For the third quarter of 2012, net sales were approximately $1.5 billion, net earnings were $70 million and EPS was $1.01; excluding unusual charges, net earnings were $72 million and EPS was $1.04.

For the nine months ending September 28, 2013, net sales were approximately $5.4 billion, an increase of approximately 25% versus the prior year. Net earnings and EPS for the nine-month period were $254 million and $3.53, respectively. Net earnings excluding unusual charges were $342 million and EPS was $4.76, an increase of 72% over the nine-month adjusted EPS results in 2012. For the nine months ending September 29, 2012, net sales were approximately $4.4 billion, net earnings were $184 million and EPS was $2.66. Excluding unusual charges, net earnings and EPS were $191 million and $2.76, respectively.

Commenting on Mohawk Industries' third quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "This quarter we are reporting the highest adjusted EPS in Company history. During the period, higher U.S. volumes, efficiency improvements and the performance of our Pergo, Marazzi and Spano acquisitions supported our strong growth. Our legacy net sales increased approximately 5% as reported, with the balance of our revenue growth derived from our recent acquisitions. Our adjusted operating income improved 350 basis points over the prior year to approximately 11% of sales as a result of enhanced product mix from innovative new collections, improved manufacturing and distribution efficiencies and the implementation of new systems and processes. Ongoing cost containment measures improved our adjusted SG&A by 130 basis points even with significant investments in samples and marketing for new product launches."

Carpet segment net sales for the quarter were $773 million, up 3% over last year, rising with stronger demand from residential new construction and remodeling. The segment's operating margin, excluding unusual charges, for the quarter was 9% of sales, an increase of 290 basis points and the strongest in more than six years due to improved product mix, realignment of assets, productivity, cost controls and volume leverage. Residential mix continued to improve with the expansion of the company's industry-leading position in premium soft carpets and the introduction of the Soft Appeal™ luxury polyester collection. Price increases previously executed offset raw material inflation.

Ceramic segment net sales were $767 million, up 84% over last year, with strong results from both the legacy Dal-Tile business and the Marazzi acquisition. Operating margins, excluding unusual charges, were approximately 12% of sales, an increase of 290 basis points over the prior year as a result of higher volumes, efficiency gains and improved product mix. North American sales rose in the low teens with strong performances in the specialty retail, home center, builder and commercial channels and Mexican sales that outpaced the market. A 2-4% North American price increase was implemented in August to offset higher energy and transportation costs. The Company's Russian ceramic sales outperformed the overall market and gained share due to the success of new product introductions as well as strength in the new construction and franchised retail channels. The Company's European ceramic sales increased in Eastern Europe, the Middle East and the Far East offsetting soft conditions in Western Europe.

Laminate and Wood segment net sales were $451 million, up 37% over last year, with most of that increase from the acquisitions of Pergo and Spano and growth in North America across all product categories and customer channels. Operating income, excluding unusual charges, was approximately 13% of sales, an improvement of 380 basis points over the prior year due primarily to increased North American volume, overall improved productivity and decreased amortization expense. In North America, the integration of Unilin and Pergo is yielding improved productivity and efficiencies and new capacity is being added to satisfy increased demand for single planks. In Europe, the Pergo manufacturing assets have been closed and production was moved to the Company's more efficient Belgium operations to improve the product offering and manufacturing costs. In both Russia and Australia, price increases of 4 to 8% were implemented on laminate and wood to offset currency changes. The new insulation board plant in France has begun production and is expanding our reach into new territories in France and Germany.

"Mohawk today is in the strongest position in our company's history," said Lorberbaum. "We have substantially grown our profits and expect continued improvement next year. With our Pergo, Marazzi and Spano acquisitions, we are quickly moving to drive synergies, lower costs and increase top line growth. We have already executed many initiatives to improve the performance of these acquisitions, including implementing new strategies and organizational structures, upgrading marketing tactics and product lines, and reducing costs through best practices and closing high cost assets. In our legacy businesses, we have significant opportunities to deliver improved results as the U.S. business strengthens and we expand our investments in our people, products and capacities. With these factors, our guidance for fourth quarter earnings is $1.66 to $1.75 per share, excluding any restructuring or acquisition costs."

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, Kerama 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, November 1, 2013 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 # 74423838. A replay will be available until Friday November 22, 2013 by dialing 855-859-2056 for US/local calls and 404-537-3406 for International/Local calls and entering Conference ID # 74423838.

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Statement of Operations

Three Months Ended

Nine Months Ended

(Amounts in thousands, except per share data)

September 28,
2013

September 29,
2012

September 28,
2013

September 29,
2012









Net sales

$       1,961,536

1,473,493

5,424,650

4,352,321

Cost of sales

1,444,646

1,100,656

4,016,638

3,231,594

    Gross profit

516,890

372,837

1,408,012

1,120,727

Selling, general and administrative expenses

340,987

268,883

1,012,069

837,079

Operating income

175,903

103,954

395,943

283,648

Interest expense

25,630

17,969

70,098

59,311

Other (income) expense, net

1,168

322

6,458

(1,063)

    Earnings from continuing operations before income taxes

149,105

85,663

319,387

225,400

Income tax expense

28,993

15,359

62,965

40,896

        Earnings from continuing operations

120,112

70,304

256,422

184,504

Loss from discontinued operations, net of income tax benefit of $297 and $782

(553)

-

(1,914)

-

        Net Earnings including noncontrolling interest

119,559

70,304

254,508

184,504

Net earnings attributable to noncontrolling interest

491

-

373

635

Net earnings attributable to Mohawk Industries, Inc.

$         119,068

70,304

254,135

183,869









Basic earnings per share attributable to Mohawk Industries, Inc.







  Income from continuing operations 

$            1.65

1.02

3.59

2.67

  Loss from discontinued operations, net of income taxes

(0.01)

-

(0.03)

-

Basic earnings per share attributable to Mohawk Industries, Inc.

$            1.64

1.02

3.56

2.67

Weighted-average common shares outstanding - basic

72,575

69,010

71,467

68,952









Diluted earnings per share attributable to Mohawk Industries, Inc.







  Income from continuing operations 

$            1.64

1.01

3.56

2.66

  Loss from discontinued operations, net of income taxes

(0.01)

-

(0.03)

-

Diluted earnings per share attributable to Mohawk Industries, Inc.

$            1.63

1.01

3.53

2.66

Weighted-average common shares outstanding - diluted

73,087

69,337

71,975

69,247



























Other Financial Information







(Amounts in thousands)







Depreciation and amortization

$          81,550

71,298

222,542

216,415

Capital expenditures

$         109,426

47,311

255,523

134,998











Consolidated Balance Sheet Data




(Amounts in thousands)







September 28, 2013

September 29, 2012

ASSETS




Current assets:




    Cash and cash equivalents

$            63,580

380,842

    Receivables, net

1,154,368

817,214

    Inventories

1,612,696

1,139,403

    Prepaid expenses and other current assets

221,767

146,275

    Deferred income taxes 

136,052

112,995

        Total current assets

3,188,463

2,596,729

Property, plant and equipment, net

2,683,984

1,657,226

Goodwill

1,713,883

1,371,494

Intangible assets, net

811,116

554,257

Deferred income taxes and other non-current assets

166,711

122,906



$         8,564,157

6,302,612

LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




Current portion of long-term debt

$           89,031

57,673

Accounts payable and accrued expenses

1,296,192

761,186

        Total current liabilities

1,385,223

818,859

Long-term debt, less current portion

2,257,391

1,467,269

Deferred income taxes and other long-term liabilities

587,910

421,549

        Total liabilities

4,230,524

2,707,677

Noncontrolling interest

-

-

Total stockholders' equity

4,333,633

3,594,935



$         8,564,157

6,302,612








Segment Information

Three Months Ended

As of or for the
Nine Months Ended

(Amounts in thousands)

September 28,
2013

September 29,
2012

September 28,
2013

September 29,
2012









Net sales:







    Carpet

$         772,751

751,787

2,238,953

2,186,160

    Ceramic

767,005

417,533

1,939,054

1,214,746

    Laminate and Wood

450,723

328,582

1,326,178

1,020,380

    Intersegment sales

(28,943)

(24,409)

(79,535)

(68,965)

        Consolidated net sales

1,961,536

1,473,493

5,424,650

4,352,321









Operating income (loss):







    Carpet

$          68,836

43,810

148,936

106,228

    Ceramic

75,908

37,452

152,188

99,912

    Laminate and Wood

39,020

28,892

119,075

96,613

    Corporate and eliminations

(7,861)

(6,200)

(24,256)

(19,105)

        Consolidated operating income

$         175,903

103,954

395,943

283,648









Assets:







    Carpet




$         1,830,869

1,760,828

    Ceramic




3,820,002

1,783,147

    Laminate and Wood




2,721,707

2,586,084

    Corporate and eliminations




191,579

172,553

        Consolidated assets




$         8,564,157

6,302,612











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 28,
2013

September 29,
2012

September 28,
2013

September 29,
2012

Net earnings attributable to Mohawk Industries, Inc.

$            119,068

70,304

254,135

183,869

Adjusting items:







Restructuring, acquisition and integration-related costs

24,431

4,229

75,608

12,455

Acquisitions purchase accounting (inventory step-up)

12,297

-

31,041

Discontinued operations

851

-

2,696

-

Deferred loan costs

490


490

Interest on 3.85% senior notes

-

-

3,559

-

Income taxes

(9,772)

(2,691)

(25,220)

(4,892)

Adjusted net earnings attributable to Mohawk Industries, Inc.

$            147,365

71,842

342,309

191,432









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

2.02

1.04

4.76

2.76

Weighted-average common shares outstanding - diluted

73,087

69,337

71,975

69,247


Reconciliation of Total Debt to Net Debt

(Amounts in thousands)


September 28, 2013

Current portion of long-term debt

$           89,031

Long-term debt, less current portion

2,257,391

Less: Cash and cash equivalents

63,580

Net Debt

$        2,282,842




Reconciliation of Operating Income to Proforma Adjusted EBITDA

(Amounts in thousands)







Trailing Twelve

Three Months Ended

Months Ended

December 31, 2012

March 30, 2013

June 29, 2013

September 28, 2013

September 28, 2013

Operating income

$           95,860

86,842

133,198

175,903

491,803

Other (expense) income

(1,366)

(6,387)

1,097

(1,168)

(7,824)

    Net (earnings) loss attributable to noncontrolling interest

-

(72)

190

(491)

(373)

Depreciation and amortization

63,878

60,349

80,643

81,550

286,420

EBITDA

158,372

140,732

215,128

255,794

770,026

Restructuring, acquisition and integration-related costs

6,109

9,856

41,321

24,431

81,717

Acquisitions purchase accounting (inventory step-up)

-

-

18,744

12,297

31,041

 Acquisitions EBITDA

55,046

40,542

-

-

95,588

 Proforma Adjusted EBITDA 

$          219,527

191,130

275,193

292,522

978,372










Net Debt to Proforma Adjusted EBITDA







2.3













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

(Amounts in thousands)

Three Months Ended

September 28, 2013

September 29, 2012

Net sales

$        1,961,536

1,473,493

Adjustment to net sales on a constant exchange rate

(13,621)

-

Net sales on a constant exchange rate

$        1,947,915

1,473,493






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

(Amounts in thousands)

Three Months Ended

Ceramic

September 28, 2013

September 29, 2012

Net sales

$          767,005

417,533

Adjustment to segment net sales on a constant exchange rate

91

-

Segment net sales on a constant exchange rate

$          767,096

417,533




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

(Amounts in thousands)

Three Months Ended

Laminate and Wood

September 28, 2013

September 29, 2012

Net sales

$          450,723

328,582

Adjustment to segment net sales on a constant exchange rate

(13,712)

-

Segment net sales on a constant exchange rate

$          437,011

328,582


Reconciliation of Gross Profit to Adjusted Gross Profit 

(Amounts in thousands)

Three Months Ended


September 28, 2013

September 29, 2012

Gross Profit

$          516,890

372,837

Adjustments to gross profit:


Restructuring and integration-related costs

14,699

2,984

Acquisitions purchase accounting (inventory step-up)

12,297

-

  Adjusted gross profit

$          543,886

375,821

   Adjusted gross profit as a percent of net sales

27.7%

25.5%




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

(Amounts in thousands)

Three Months Ended

September 28, 2013

September 29, 2012

Selling, general and administrative expenses

$          340,987

268,883

Adjustments to selling, general and administrative expenses:


Restructuring, acquisition and integration-related costs

(9,712)

(1,245)

  Adjusted selling, general and administrative expenses

$          331,275

267,638

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

16.9%

18.2%




Reconciliation of Operating Income to Adjusted Operating Income 

(Amounts in thousands)

Three Months Ended

September 28, 2013

September 29, 2012

Operating income

$          175,903

103,954

Adjustment to operating income:


Restructuring, acquisition and integration-related costs

24,411

4,229

Acquisitions purchase accounting (inventory step-up)

12,297

-

  Adjusted operating income

$          212,611

108,183

   Adjusted operating margin as a percent of net sales

10.8%

7.3%




Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 

(Amounts in thousands)

Three Months Ended

Carpet

September 28, 2013

September 29, 2012

Operating income

$           68,836

43,810

Adjustment to segment operating income:


Restructuring, acquisition and integration-related costs

1,570

3,122

  Adjusted segment operating income

$           70,406

46,932

   Adjusted operating margin as a percent of net sales

9.1%

6.2%




Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 

(Amounts in thousands)

Three Months Ended

Ceramic

September 28, 2013

September 29, 2012

Operating income

$           75,908

37,452

Adjustment to segment operating income:


Restructuring, acquisition and integration-related costs

3,070

-

Acquisitions purchase accounting (inventory step-up)

12,297

-

  Adjusted segment operating income

$           91,275

37,452

   Adjusted operating margin as a percent of net sales

11.9%

9.0%




Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 

(Amounts in thousands)

Three Months Ended

Laminate and Wood

September 28, 2013

September 29, 2012

Operating income

$           39,020

28,892

Adjustment to segment operating income:


Restructuring, acquisition and integration-related costs

19,246

1,107

  Adjusted segment operating income

$           58,266

29,999

   Adjusted operating margin as a percent of net sales

12.9%

9.1%




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

(Amounts in thousands)

Three Months Ended

September 28, 2013

September 29, 2012

Earnings from continuing operations before income taxes

$          149,105

85,663

Adjustment to earnings from continuing operations before income taxes:


Restructuring, acquisition and integration-related costs

24,431

4,229

Acquisitions purchase accounting (inventory step-up)

12,297

-

Deferred loan costs

490

-

Interest on 3.85% senior notes

-

-

  Adjusted earnings before income taxes

$         186,323

89,892








Reconciliation of Income Tax Expense to Adjusted Income Tax Expense 

(Amounts in thousands)

Three Months Ended

September 28, 2013

September 29, 2012

Income tax expense 

$           28,993

15,359

Income tax effect of adjusting items

9,475

2,691

  Adjusted income tax expense

$           38,468

18,050




Adjusted income tax rate

21%

20%




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.