Mohawk Industries, Inc. Announces Second Quarter Earnings

CNW Group

CALHOUN, Ga. , July 31, 2014 /CNW/ -- Mohawk Industries, Inc. (MHK) today announced 2014 second quarter net earnings of $153 million and diluted earnings per share (EPS) of $2.08 . Excluding unusual charges, net earnings were $162 million and EPS was $2.21 , a 20% increase over last year's second quarter adjusted EPS and the highest quarterly adjusted EPS in the company's history. Net sales for the second quarter of 2014 were $2.05 billion , an increase of approximately 4% versus the prior year's second quarter or 3% on a constant exchange basis. For the second quarter of 2013, net sales were $1.98 billion , net earnings were $85 million and EPS was $1.16 ; excluding unusual charges, net earnings were $134 million and EPS was $1.84 .

For the six months ending June 28, 2014 , net sales were $3.9 billion , an increase of 12% versus the prior year. Net earnings and EPS for the six-month period were $234 million and $3.19 , respectively. Net earnings excluding unusual charges were $252 million and adjusted EPS was $3.44 , an increase of 26% over the six-month adjusted EPS results in 2013. For the six months ending June 29, 2013 , net sales were $3.5 billion , net earnings were $135 million and EPS was $1.89 . Excluding unusual charges, net earnings and EPS were $195 million and $2.73 , respectively.

Commenting on Mohawk Industries' second quarter performance, Jeffrey S. Lorberbaum , Chairman and CEO, stated, "Our adjusted operating income increased 160 basis points as productivity initiatives, cost reductions, price increases and manufacturing consolidation drove higher earnings across the business. Top line growth was less than we anticipated due to slower improvement in U.S. housing and remodeling; however, profits were in line with expectations as a result of successful product introductions, productivity improvements and better cost controls. We reduced SG&A compared to last year across the enterprise, even as we reinvested into the business to promote new product collections and enhance our sales strategies. We are continuing to invest in our acquisitions to improve profitability, increase mix and streamline the business; and we anticipate that these actions will result in even higher earnings as the European and Russian economies improve."

Carpet segment net sales for the quarter were $780 million , up 1% over last year. Adjusted operating income for the segment rose 15% as a result of increased productivity, improved quality and cost reductions in operations and administration.  Mohawk's patented Continuum technology is stimulating growth in our new polyester collections, and our state-of-the-art yarn project to support it is 75% complete. We are also expanding the distribution of our premium Karastan carpets by providing a broader offering and increasing the number of retailers selling our high-end brand. Commercial orders are growing now that we have substantially completed the product transition to our own fibers, and we have reorganized our commercial sales organization into smaller regions segmented by customer type with a complete portfolio for each channel. The carpet price increase announced in April was fully implemented at the end of the quarter to cover raw material inflation.

Ceramic segment net sales were $797 million , up 5% over last year as reported and with a constant exchange rate. The segment's adjusted operating income rose 21% due to productivity, volume, pricing and mix. In the U.S., the business benefited from innovative new collections that are leading the market shift to larger sizes, planks and rectangles. The new ceramic production line in Dallas has begun operation, and the additional capacity will satisfy the increasing demand for ceramic wood planks and larger sizes. Sales in Mexico are growing significantly with expanded distribution of new products from our Salamanca plant that provide market-leading style and value with superior availability. In Russia , sales and profitability increased on a local basis, but the decline of the ruble reduced our sales and income when translated to U.S. dollars. In the region, specialized products tailored for the new construction and DIY channels drove growth, offsetting slower retail sales. In Europe , sales and margins continue to progress due to increased sales outside of Southern Europe , as well as growth in Spain and improved mix from larger sizes with unique styling.

Laminate and Wood segment sales were $501 million , up 6% over last year, or 3% on a constant exchange rate.  Adjusted operating income for the segment increased 21% from acquisition synergies, productivity improvements and cost reductions. In the U.S., greater participation in new construction increased sales of wood flooring. The second wood flooring price increase this year was implemented in July to cover higher wood and transportation costs. In Europe , stronger sales in the Nordic countries and the U.K. outpaced the softer Western European markets, with growth in the wood and luxury vinyl tile categories offsetting slower laminate sales. At the recently acquired plant in the Czech Republic , new equipment has been installed to produce higher value wood flooring under the Pergo and Quick-Step brands for the European and Russian markets. The segment's insulation business continued to expand, supported by additional production in our new French facility. The integration of the Unilin and Spano businesses progressed with a single sales force providing a comprehensive product offering for all customers.

During the period, we once again demonstrated our ability to deliver earnings growth through sales improvement, productivity initiatives and leveraging acquisitions. In each of our segments, we are optimizing the efficiency of our operations, the advantages of our leading market positions, the breadth of our distribution and the strength of our brands to grow our business. We anticipate that our sales will strengthen as we move through the second half of the year supported by continued U.S. job creation and improved economic growth.  In the third quarter, we anticipate further improvement in the U.S. market with limited growth in Europe and Russia . With these factors, our guidance for third quarter earnings is $2.38 to $2.47 per share and, for the full year, $8.09 to $8.25 per share, excluding any restructuring charges. We remain committed to enhancing Mohawk's results, and we are optimistic about the improvement of the floor covering industry and our participation in it.

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, 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, August 1, 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 # 65483474.  A replay will be available until Friday August 15, 2014 by dialing 855-859-2056 for US/local calls and 404-537-3406 for International/Local calls and entering Conference ID # 65483474.

 

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES















Consolidated Statement of Operations


Three Months Ended


Six Months Ended

(Amounts in thousands, except per share data)


June 28, 2014


June 29, 2013


June 28, 2014


June 29, 2013










Net sales


$         2,048,247


1,976,299


3,861,342


3,463,114

Cost of sales


1,473,435


1,462,243


2,805,175


2,571,992

    Gross profit


574,812


514,056


1,056,167


891,122

Selling, general and administrative expenses


352,564


380,858


703,184


671,082

Operating income


222,248


133,198


352,983


220,040

Interest expense


20,702


25,312


42,798


44,468

Other (income) expense, net


(1,555)


(1,097)


3,335


5,290

    Earnings from continuing operations before income taxes


203,101


108,983


306,850


170,282

Income tax expense


50,240


23,240


72,936


33,972

        Earnings from continuing operations


152,861


85,743


233,914


136,310

Loss from discontinued operations, net of income tax benefit of $485


-


(1,361)


-


(1,361)

        Net earnings including noncontrolling interest


152,861


84,382


233,914


134,949

Net earnings (loss)  attributable to noncontrolling interest


111


(190)


83


(118)

Net earnings attributable to Mohawk Industries, Inc.


$            152,750


84,572


233,831


135,067










Basic earnings per share attributable to Mohawk Industries, Inc.









  Income from continuing operations 


$                  2.10


1.19


3.21


1.92

  Loss from discontinued operations, net of income taxes


-


(0.02)


-


(0.02)

Basic earnings per share attributable to Mohawk Industries, Inc.


$                  2.10


1.17


3.21


1.90

Weighted-average common shares outstanding - basic


72,832


72,406


72,788


70,907










Diluted earnings per share attributable to Mohawk Industries, Inc.









  Income from continuing operations 


$                  2.08


1.18


3.19


1.91

  Loss from discontinued operations, net of income taxes


-


(0.02)


-


(0.02)

Diluted earnings per share attributable to Mohawk Industries, Inc.


$                  2.08


1.16


3.19


1.89

Weighted-average common shares outstanding - diluted


73,297


72,867


73,302


71,405




























Other Financial Information









(Amounts in thousands)









Depreciation and amortization


$              83,754


80,643


164,738


140,992

Capital expenditures


$            127,616


82,815


249,697


146,097



















Consolidated Balance Sheet Data









(Amounts in thousands)















June 28, 2014


June 29, 2013

ASSETS









Current assets:









    Cash and cash equivalents






$              70,044


168,745

    Receivables, net






1,261,808


1,145,550

    Inventories






1,644,768


1,591,552

    Prepaid expenses and other current assets






267,210


229,859

    Deferred income taxes 






135,259


134,489

        Total current assets






3,379,089


3,270,195

Property, plant and equipment, net






2,830,202


2,594,256

Goodwill






1,730,713


1,690,622

Intangible assets, net






792,260


800,529

Deferred income taxes and other non-current assets






149,417


153,362

    Total assets






$         8,881,681


8,508,964

LIABILITIES AND STOCKHOLDERS' EQUITY









Current liabilities:









Current portion of long-term debt and commercial paper






$            619,229


83,171

Accounts payable and accrued expenses






1,253,291


1,261,791

        Total current liabilities






1,872,520


1,344,962

Long-term debt, less current portion






1,807,609


2,450,584

Deferred income taxes and other long-term liabilities






528,252


609,125

        Total liabilities






4,208,381


4,404,671

Total stockholders' equity






4,673,300


4,104,293

    Total liabilities and stockholders' equity






$         8,881,681


8,508,964










Segment Information


Three Months Ended


As of or for the Six Months Ended

(Amounts in thousands)


June 28, 2014


June 29, 2013


June 28, 2014


June 29, 2013










Net sales:









    Carpet


$            780,308


770,868


1,455,234


1,466,202

    Ceramic


796,724


760,168


1,491,818


1,172,049

    Laminate and Wood


501,257


470,980


969,265


875,455

    Intersegment sales


(30,042)


(25,717)


(54,975)


(50,592)

        Consolidated net sales


$         2,048,247


1,976,299


3,861,342


3,463,114










Operating income (loss):









    Carpet


$              62,826


54,862


97,097


80,100

    Ceramic


106,407


46,304


167,066


76,280

    Laminate and Wood


60,843


41,362


104,962


80,055

    Corporate and eliminations


(7,828)


(9,330)


(16,142)


(16,395)

        Consolidated operating income


$            222,248


133,198


352,983


220,040










Assets:









    Carpet






$         1,960,106


1,803,212

    Ceramic






3,900,387


3,832,888

    Laminate and Wood






2,818,129


2,691,553

    Corporate and eliminations






203,059


181,311

        Consolidated assets






$         8,881,681


8,508,964



















 

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


Six Months Ended




June 28, 2014


June 29, 2013


June 28, 2014


June 29, 2013

Net earnings attributable to Mohawk Industries, Inc.



$            152,750


84,572


233,831


135,067

Adjusting items:










Restructuring, acquisition and integration-related costs



11,169


41,321


22,894


51,177

Acquisitions purchase accounting (inventory step-up)



-


18,744


-


18,744

Discontinued operations



-


1,845


-


1,845

Interest on 3.85% senior notes



-


-


-


3,559

Income taxes



(2,229)


(12,668)


(4,620)


(15,448)

Adjusted net earnings attributable to Mohawk Industries, Inc.



$            161,690


133,814


252,105


194,944











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



2.21


1.84


3.44


2.73

Weighted-average common shares outstanding - diluted



73,297


72,867


73,302


71,405











Reconciliation of Total Debt to Net Debt







(Amounts in thousands)











June 28, 2014









Current portion of long-term debt and commercial paper

$               619,229









Long-term debt, less current portion

1,807,609









Less: Cash and cash equivalents

70,044









Net Debt

$            2,356,794



















Reconciliation of Operating Income to Adjusted EBITDA






(Amounts in thousands)

Three Months Ended


Trailing Twelve Months

Ended


September 28, 2013


December 31, 2013


March 29, 2014


June 28, 2014


June 28, 2014

Operating income

$               175,903


150,988


130,735


222,248


679,874

Other (expense) income

(1,168)


(2,656)


(4,890)


1,555


(7,159)











    Net (earnings) loss attributable to noncontrolling interest

(491)


(132)


28


(111)


(706)

Depreciation and amortization

81,550


86,329


80,984


83,754


332,617

EBITDA

255,794


234,529


206,857


307,446


1,004,626

Restructuring, acquisition and integration-related costs

24,431


37,812


11,725


11,169


85,137

Acquisitions purchase accounting (inventory step-up)

12,297


-


-


-


12,297

 Adjusted EBITDA 

$               292,522


272,341


218,582


318,615


1,102,060











Net Debt to  Adjusted EBITDA









2.1











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





(Amounts in thousands)











Three Months Ended






June 28, 2014


June 29, 2013







Net sales

$           2,048,247


1,976,299







Adjustment to net sales on a constant exchange rate

(14,171)


-







Net sales on a constant exchange rate

$           2,034,076


1,976,299

















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


(Amounts in thousands)











Three Months Ended







Ceramic

June 28, 2014


June 29, 2013







Net sales

$               796,724


760,168







Adjustment to segment net sales on a constant exchange rate

2,144


-







Segment net sales on a constant exchange rate

$               798,868


760,168

















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


(Amounts in thousands)











Three Months Ended







Laminate and Wood

June 28, 2014


June 29, 2013







Net sales

$               501,257


470,980







Adjustment to segment net sales on a constant exchange rate

(16,315)


-







Segment net sales on a constant exchange rate

$               484,942


470,980

















Reconciliation of Gross Profit to Adjusted Gross Profit 





(Amounts in thousands)











Three Months Ended






June 28, 2014


June 29, 2013







Gross Profit

$               574,812


514,056







Adjustments to gross profit:










Restructuring and integration-related costs

6,755


14,334







Acquisitions purchase accounting (inventory step-up)

-


18,744







  Adjusted gross profit

$               581,567


547,134







   Adjusted gross profit as a percent of net sales

28.4%


27.7%

















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

(Amounts in thousands)











Three Months Ended






June 28, 2014


June 29, 2013







Selling, general and administrative expenses

$               352,564


380,858







Adjustments to selling, general and administrative expenses:










Restructuring, acquisition and integration-related costs

(4,414)


(26,987)







  Adjusted selling, general and administrative expenses

$               348,150


353,871







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

17.0%


17.9%

















Reconciliation of Operating Income to Adjusted Operating Income 


(Amounts in thousands)











Three Months Ended


Six Months Ended




June 28, 2014


June 29, 2013


June 28, 2014


June 29, 2013



Operating income

$               222,248


133,198


352,983


220,040



Adjustments to operating income:










Restructuring, acquisition and integration-related costs

11,169


41,321


22,895


51,177



Acquisitions purchase accounting (inventory step-up)

-


18,744


-


18,744



  Adjusted operating income

$               233,417


193,263


375,878


289,961



   Adjusted operating margin as a percent of net sales

11.4%


9.8%


9.7%


8.4%













Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 


(Amounts in thousands)











Three Months Ended


Six Months Ended



Carpet

June 28, 2014


June 29, 2013


June 28, 2014


June 29, 2013



Operating income

$                  62,826


54,862


97,097


80,100



Adjustment to segment operating income:










Restructuring, acquisition and integration-related costs

-


-


-


6,217



  Adjusted segment operating income

$                  62,826


54,862


97,097


86,317



   Adjusted operating margin as a percent of net sales

8.1%


7.1%


6.7%


5.9%













Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 


(Amounts in thousands)











Three Months Ended


Six Months Ended



Ceramic

June 28, 2014


June 29, 2013


June 28, 2014


June 29, 2013



Operating income

$               106,407


46,304


167,066


76,280



Adjustments to segment operating income:










Restructuring, acquisition and integration-related costs

196


23,361


2,177


23,823



Acquisitions purchase accounting (inventory step-up)

-


18,744


-


18,744



  Adjusted segment operating income

$               106,603


88,409


169,243


118,847



   Adjusted operating margin as a percent of net sales

13.4%


11.6%


11.3%


10.1%













Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 


(Amounts in thousands)











Three Months Ended


Six Months Ended



Laminate and Wood

June 28, 2014


June 29, 2013


June 28, 2014


June 29, 2013



Operating income

$                  60,843


41,362


104,962


80,055



Adjustment to segment operating income:










Restructuring, acquisition and integration-related costs

10,773


17,960


20,348


21,137



  Adjusted segment operating income

$                  71,616


59,322


125,310


101,192



   Adjusted operating margin as a percent of net sales

14.3%


12.6%


12.9%


11.6%













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

(Amounts in thousands)











Three Months Ended








June 28, 2014


June 29, 2013







Earnings from continuing operations before income taxes

$               203,101


108,983







Adjustments to earnings from continuing operations before income taxes:










Restructuring, acquisition and integration-related costs

11,169


41,321







Acquisitions purchase accounting (inventory step-up)

-


18,744







  Adjusted earnings before income taxes

$               214,270


169,048



























Reconciliation of Income Tax Expense to Adjusted Income Tax Expense 



(Amounts in thousands)











Three Months Ended








June 28, 2014


June 29, 2013







Income tax expense 

$                  50,240


23,240







Income tax effect of adjusting items

2,229


12,183







  Adjusted income tax expense

$                  52,469


35,423

















Adjusted income tax rate

24%


21%








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.

 

SOURCE Mohawk Industries, Inc.

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.
Contact:
Frank H. Boykin, Chief Financial Officer (706) 624-2695

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