Mohawk Industries Reports Q3 Results

CALHOUN, Georgia, Oct. 26, 2017 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2017 third quarter, net earnings of $270 million and diluted earnings per share (EPS) of $3.61. Adjusted net earnings were $281 million and EPS was $3.75, excluding restructuring, acquisition and other charges, a 7% increase over last year. Net sales for the third quarter of 2017 were $2.4 billion, up 7% in the quarter and 5% on a constant days and currency basis. For the third quarter of 2016, net sales were $2.3 billion, net earnings were $270 million and EPS was $3.62; adjusted net earnings were $261 million and EPS was $3.50, excluding restructuring, acquisition and other charges.

For the nine months ending September 30, 2017, net earnings and EPS were $731 million and $9.77, respectively. Adjusted net earnings and EPS were $763 million and $10.19, excluding restructuring, acquisition and other charges, a 9% increase over last year. For the nine-month period, net sales were $7.1 billion, an increase of 5% and 5.5% on a constant days and currency basis. For the nine-month period ending October 1, 2016, net sales were $6.8 billion, net earnings were $697 million and EPS was $9.34; adjusted net earnings and EPS were $697 million and $9.35, excluding restructuring, acquisition and other charges.

Commenting on Mohawk Industries' third quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "During the period, Mohawk delivered record adjusted earnings and EPS, with sales growing approximately 7%. Our businesses outside the U.S. had stronger revenue growth, as the economies of those countries expanded. In the period, we overcame rising material costs, disruptions from hurricanes and reduced patent revenue. Our price and mix improved as we enhanced our product offering and implemented pricing actions to recover inflation. Our many operational and process improvements resulted in productivity gains of approximately $49 million and we incurred $8 million of start-up costs.

"For the full year, we are investing about $900 million to optimize long-term results by entering new product categories, extending our reach into new geographies and facilitating growth in our existing businesses. These projects include ceramic expansions in Mexico, Russia, Italy and Poland; additional premium laminate, engineered wood, rug and polyester carpet capacity in the U.S.; and increased premium laminate capacity in Europe and Russia. These investments will satisfy increasing demand for our products as well as introduce state-of-the-art manufacturing technology to further our position as the industry's innovation leader. During 2018, in the U.S., we will launch production of rigid LVT as well as quartz countertops. In Europe, we will enter the rigid LVT, carpet tile and porcelain countertop businesses, and in Russia we will open a manufacturing plant to participate in the country's large sheet vinyl market.

"For the quarter, our Flooring Rest of the World Segment's sales increased 13% as reported and 8% on a constant days and currency basis. The segment had an exceptional quarter with the majority of our manufactured product sales and earnings growing dramatically. Our patent revenue is running at a higher rate than we anticipated due to broader use of our patents and the increase in worldwide sales of LVT.  During the period, our price and mix improvements offset inflation and currency changes. Our laminate innovation in proprietary structures and water-proof technologies is increasing the selection of our products by customers who would ordinarily purchase wood flooring. Our present European LVT manufacturing is nearing capacity, and our new plant will begin operating by the end of the year. The new plant will expand our capacity of flexible LVT as well as produce rigid LVT. We are expanding the segment's commercial sales force to increase the specifications of sheet vinyl, LVT and our upcoming carpet tile collections. Our new commercial carpet tile plant should initiate limited production in the fourth quarter.

"For the quarter, our Global Ceramic Segment sales increased 9% as reported and 7% on a constant days and currency basis. In the quarter, the strongest growth in our ceramic business was in Russia and Mexico as well as our acquisitions in Italy and Poland, which have been integrated with our existing European ceramic business. New capacity came online during the period with new production in Mexico and our modernized commercial tile plant in Italy. We also started up idled assets at our Polish plant, and we are installing additional equipment to broaden our position in the Northern and Central European markets. Our U.S. ceramic business was softer than we anticipated due to the impact of hurricanes in two of the country's largest ceramic markets. In the third and fourth quarters of this year, we are opening about 15 service centers and stone centers in key U.S. markets. Our North American manufacturing plants are operating at record levels for volume, quality and cost. Our sales and margins in Mexico increased as we broadened our product offering and enlarged our customer base. During the period, our European ceramic business increased dramatically, with growth in our local markets and the addition of our Italian and Polish acquisitions. Our Russian ceramic business is meaningfully outperforming the industry, and we are adding capacity to increase our share as the market expands.

"During the quarter, our Flooring North America Segment's sales increased 2% as reported. The segment's price, mix and productivity improved significantly during the period, covering increases in raw materials and other inflation. Our new product introductions improved our average selling prices and margins, and our process innovations and investments in manufacturing technology improved our costs. The hurricanes in Texas and Florida interrupted normal purchasing patterns and impacted our sales during the period. For the quarter, our soft surfaces sales growth exceeded hard surfaces, which were constrained by production limitations that will be addressed in the fourth quarter. Growth in our residential carpet outpaced our commercial sales. We have recently announced a 5 to 6% price increase on all of our carpet products effective the end of this year to cover our increasing costs. We have enhanced the productivity of our U.S. LVT operations, and we are expanding our product offering in both the residential and commercial categories. We have introduced a proprietary rigid LVT collection designed for exceptional stability and durability as we prepare for our new U.S. LVT production in the second quarter of next year. Our new laminate production will be operational this quarter and will allow us to expand our successful water proof laminate that improves on Mother Nature in both performance and visuals.

"In the fourth quarter, we anticipate that the business will improve as we benefit from innovative new products, increased volume and the performance of our recent acquisitions. We expect higher sales with the relief of some of our capacity constraints, enabling us to expand our market position. During the upcoming period, we will absorb higher start-up costs estimated at $15 million in our results as new operations come online. The disruptions caused by hurricanes in the U.S. should diminish as those markets begin their recovery. Greater productivity, better product mix and price changes should improve our fourth quarter results, overcoming the reductions from our expired patents. Taking all of this into account, our EPS guidance for the fourth quarter is $3.25 to $3.34, excluding any one-time charges."

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, 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; tax, product and other claims; litigation; and other risks identified in Mohawk's SEC reports and public announcements.

Conference call Friday, October 27, 2017, 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 # 95629983. A replay will be available until Friday, November 24, 2017, by dialing 1-855-859-2056 for US/local calls and 1-404-537-3406 for International/Local calls and entering Conference ID # 95629983.

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, including inventory step-up, release of indemnification assets and the reversal of uncertain tax positions.

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