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Mohawk Industries Reports Q4 Results

February 07, 9:00 UTC+3
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CALHOUN, Georgia, Feb. 7, 2019 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2018 fourth quarter net earnings of $229 million and diluted earnings per share (EPS) of $3.05. Adjusted net earnings were $188 million and EPS was $2.53, excluding restructuring, acquisition and other charges, a 26% decrease from last year. Net sales for the fourth quarter of 2018 were $2.45 billion, up 3% in the quarter and 5% on a constant currency basis. For the fourth quarter of 2017, net sales were $2.37 billion, net earnings were $240 million and EPS was $3.21; adjusted net earnings were $256 million, and EPS was $3.42, excluding restructuring, acquisition and other charges.

For the twelve months ending December 31, 2018, net earnings and EPS were $862 million and $11.47, respectively. Net earnings excluding restructuring, acquisition and other charges were $922 million and adjusted EPS was $12.33, a 9% decrease from the 2017 twelve-month period adjusted EPS. For the 2018 twelve-month period, net sales were $10.0 billion, an increase of 5% versus prior year as reported or 4% on a constant currency basis. For the twelve-month period ending December 31, 2017, net sales were $9.5 billion, net earnings were $972 million and EPS was $12.98; excluding restructuring, acquisition and other charges, net earnings and EPS were $1.0 billion and $13.61.

Commenting on Mohawk Industries' fourth quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "The period was affected by significant inflation, slowing markets and LVT impacting sales of other products. Even as we executed price increases in many products, our businesses experienced greater pressures on pricing and mix. In the quarter, inflation continued to be a headwind across most of our categories, as higher cost materials flowed through our results. During the period, we decreased our manufacturing production to adapt to market demand. Our start-up costs for the quarter were higher than we projected, with LVT production improving slower than anticipated. Our new countertop and sheet vinyl plants initiated manufacturing, along with our Polish ceramic tile expansion. 

"After five consecutive years of record earnings, 2018 proved more difficult than we anticipated with inflation increasing dramatically, luxury vinyl tile impacting other U.S. flooring products and most of our markets slowing. In this environment, we selectively invested approximately $1.5 billion to enhance our long-term performance, primarily in new product categories and geographies with green field projects and acquisitions, cost saving initiatives and buying back shares. We are managing through current conditions while enhancing the longer-term value of our business. To accomplish this, in 2018, we acquired leading flooring companies in Australia, New Zealand and Brazil and in Europe acquired two flooring distributors and a specialized mezzanine company. We entered the European porcelain slabs and carpet tile markets, expanded our higher end ceramic in Eastern Europe and initiated sheet vinyl production in Russia and quartz countertop manufacturing in the U.S. Much of the benefit from these capital investments will be realized in 2020 and beyond as we achieve higher volume, mix and productivity. In the period, we purchased approximately $274 million of Mohawk stock, reducing our share count by 2.3 million or the equivalent of 3% of outstanding shares.

"For the quarter, our Global Ceramic Segment sales increased 4.5% as reported and 7% on a constant currency basis. The segment's operating margin was approximately 9% as reported or 10% excluding other charges, declining year over year due to inflation, price and mix pressures and lower production partially offset by increasing productivity. In North America, our ceramic business increased sequentially but remained challenged due to import pressures and transportation expenses. To improve our margins, we have increased prices on our products to recover inflation and higher freight costs. Our new quartz countertop plant is manufacturing basic products as we ramp up production and optimize our processes and formulations. Across North America, we are taking many actions to lower our costs, including consolidating regional service centers and reducing headcount.

"In Mexico, our new production lines in Salamanca are operating well, and we are focused on improving our mix and margins. We have announced price increases in Mexico to cover inflation and shipping costs. In November, we finalized the purchase of Eliane in Brazil. Eliane is an industry leader, with the best brand and a premium position in one of the world's largest ceramic markets. We have ordered the first phase of new equipment to enhance Eliane's operations and margins following the strategy we used to dramatically improve Marazzi's profitability. In Europe, conditions softened as we went through the period, with the Italian economy deteriorating the most due to the political uncertainty. Given these conditions, we experienced greater pressure on margins as competition increased. We reduced production rates in the fourth quarter and are continuing to do so in the first period. With the expansion of our European ceramic footprint, we are increasing the specialization of our plants in Italy, Spain, Poland and Bulgaria to improve our competitive advantages. In Russia, our sales and profitability increased substantially, although the weaker ruble significantly reduced our translated results. To enable us to grow in Russia, we have installed two new production lines in 2018, and we will commence production of premium sanitary ware in 2019.

"During the quarter, our Flooring North America Segment's sales decreased 3%. The segment's operating margin was 8% as reported and 9% on an adjusted basis, impacted by inflation, lower than expected volume, productivity and higher start-up costs. In November, we announced Paul de Cock's appointment as President of the Flooring North America Segment to enhance our results. He has changed the management structure to improve our marketing, operations and innovation of each flooring product. Our sales slowed as we went through the period due to softer home sales and inventory reductions by customers in some channels. During the period, we initiated further price increases to recover higher material and freight costs. Carpet was impacted by hard surface alternatives and the high cost of materials. In our premium SmartStrand collections, we introduced our new ColorMax technology and expanded our patented Air.O unified soft flooring offering. We have reinvigorated the premium laminate category through the new investments we made to produce visuals that exceed real wood with previously unachievable durability and water resistance. LVT sales grew substantially during the period as we implemented our sourcing and manufacturing strategy. We are offering a premium Pergo LVT collection which, before introduction, has greater consumer brand recognition than any other LVT product in the market. Although we anticipated even more improvement, the output of our new LVT production has increased about 20% over the prior period. Long term, we are confident that our investment in this technology will provide us with competitive advantages when it is operating at expected levels.

"For the quarter, our Flooring Rest of the World Segment's sales increased 12% as reported and 16% on a constant currency basis. The segment's operating margin was 12% as reported and 13% on an adjusted basis, due to volume growth and productivity offset by the impact of price and mix, start-up costs and FX. As we progressed through the period, we experienced softening market conditions in both Europe and Australia. LVT sales continued their strong growth, and we significantly outperformed the laminate market with our premium collections. We have initiated laminate price increases to recover rising costs and currency changes. Our investments to expand laminate production in Europe and Russia have increased our market share by delivering differentiated visuals and water proof features. Our LVT sales continue to grow dramatically as our production rates increase. Some of our LVT introductions were postponed until later this period as we overcame technical problems that increased our costs during the fourth quarter. We have seen about 15% production improvements in LVT over the last quarter as our processes have been refined and we anticipate continued improvement in the year ahead. In Europe, we are gaining share in sheet vinyl and our new sheet vinyl plant in Russia has commenced production. Our Russian sheet vinyl facility is operating as planned and is producing goods to satisfy commitments to major customers. Our European carpet tile plant continues to progress as we broaden our product offering and customer base.

"We have integrated Godfrey Hirst into the Mohawk structure. Presently, the Australian housing market is slowing, and we are adapting to the changing conditions. We are investing in new assets to expand Godfrey Hirst's commercial carpet and leveraging Mohawk's resources to enhance product and material strategies. "The volume and profitability of our insulation business is improving significantly. Our polyurethane insulation is taking share from other products as it did prior to prices rising from material constraints. Our board sales and margins for the year were the highest in a decade. The investments we have made in our board business have improved our offering and productivity. We are expanding the mezzanine flooring business we acquired last year as we leverage our existing manufacturing and sales organization.

"As we enter 2019, many macroeconomic conditions around the world could impact our results. Economies have been slowing in most of our markets, oil volatility is making our costs unpredictable and housing markets in many regions are under pressure. Though our outlook is cautious because of these issues, we expect our results to improve through the year. In the first quarter, we are reducing production rates due to the softer environment we see in most of our markets. Higher priced materials will flow through before we realize the benefits from recent changes. The U.S. dollar strengthened relative to last year and will have a significant negative impact on the period. We continue to introduce innovative new collections, implement price increases and improve manufacturing processes. Taking all of this into account, our EPS guidance for the first quarter of 2019 is $2.02 to $2.12, excluding any one-time charges.

"Our major product and geographic expansions are at varying stages of ramping up. As we progress through this year, these investments will increase our sales and margins, price increases will benefit our results, start-up costs will decline, and production levels will increase. We will begin to realize the potential of these projects in 2020 as volume and efficiencies increase. Today, the business is stronger with substantial resources, a broader product portfolio and a more diverse geographic footprint. We have a strong balance sheet, extensive liquidity and historically low debt leverage. In the short-term, we are taking the appropriate steps to manage through market uncertainties, and we are confident our investments and acquisitions will significantly enhance our long-term business."

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, Eliane, 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.

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