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Mohawk Industries, Inc. Announces Third Quarter Earnings

October 31, 2014, 9:00 UTC+3
Record Adjusted EPS; 21% Increase Over PY Adjusted Operating Income Up 110 bps
1 pages in this article

CALHOUN, Georgia, Oct. 30, 2014 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2014 third quarter net earnings of $151 million and diluted earnings per share (EPS) of $2.06. Excluding unusual charges, net earnings were $179 million and EPS was $2.44, a 21% increase over last year's third quarter adjusted EPS and the highest quarterly adjusted EPS in the company's history. Net sales for the third quarter of 2014 were $1.99 billion, an increase of 1.5% versus the prior year's third quarter or approximately 2% on a constant exchange basis. For the third quarter of 2013, net sales were $1.96 billion, net earnings were $119 million and EPS was $1.63; excluding unusual charges, net earnings were $147 million and EPS was $2.02.

For the nine months ending September 27, 2014, net sales were $5.9 billion, an increase of 8% versus the prior year. Net earnings and EPS for the nine-month period were $385 million and $5.25, respectively. Net earnings excluding unusual charges were $431 million and adjusted EPS was $5.88, an increase of 24% over the nine-month adjusted EPS results in 2013. For the nine months ending September 28, 2013, net sales were $5.4 billion, net earnings were $254 million and EPS was $3.53; excluding unusual charges, net earnings and EPS were $342 million and $4.76.

Commenting on Mohawk Industries' third quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "During the period, we significantly increased our adjusted operating income by 12% compared to last year through productivity enhancements, cost containment and acquisition synergies. Ongoing initiatives to control our expenses and increase our productivity yielded our highest operating margins in 8 years. We delivered good results this period, even in an environment with sluggish demand, due to our market diversification and strong execution. We will continue investing into our business to support future growth and profitability. The $550 million in capital investments we will make this year are increasing our productivity, allowing us to further differentiate our products and improve our margins."

Carpet segment net sales for the quarter were $779 million, up 1% over last year. Adjusted operating income for the segment rose approximately 20% over the prior year and the margin was up 170 basis points as a result of investments in new technology, increased productivity, cost reductions and improved quality. During the period, Mohawk's participation in the more value-oriented polyester category increased due to the company's proprietary Continuum fiber process that delivers superior post-consumer recycled carpet with outstanding stain and soil resistance as well as greater softness. Mohawk's position in modular tile continues to grow and is enhanced by the introduction of new 12-by-36-inch plank carpet tiles that can be utilized to create stylish new designs for public spaces. The price increase on certain products announced in April was fully executed at the beginning of the quarter and helped to offset increased raw material prices and freight costs. To offset escalating transportation costs, an additional freight increase was implemented in July.

Ceramic segment net sales for the quarter were $780 million, up 2% over last year as reported or 3% at a constant exchange rate. The segment's adjusted operating income grew 16% over the prior year due to increased productivity, better quality and improved pricing and mix. In the U.S., the integration of Marazzi into the company's U.S. ceramic operations is substantially complete. Site work has begun for the new ceramic plant in Tennessee, which will make higher value technical porcelain products that the company historically has imported. To recoup higher freight and raw material costs, a price increase was announced for implementation in January. In Mexico, new larger sizes, planks and market-leading designs should fuel further sales growth and improve mix, margins and average selling price. In Russia, sales grew on a local basis as enhancements in design, value and service helped capture increased share in a slowing ceramic market. In Europe, sales were essentially flat, although margins grew due to reduced costs and improved mix as new higher value products replaced older ones.

Laminate and Wood segment net sales for the quarter were $463 million, up approximately 3% over last year as reported and at a constant exchange rate. Adjusted operating margin for the segment was 11.6% due to lower sales in laminate, higher costs in new products and equipment start-ups offset by acquisitions and productivity improvements. In the U.S., new residential construction strengthened wood flooring sales, although market pricing did not keep pace with higher material costs. The segment's U.S. manufacturing facilities are aggressively implementing productivity improvements and cost reductions. In Europe, the Pergo product revision has upgraded the styling and performance of the brand, and the new Quick-Step laminate collection is being well received as a result of its luxurious appearance and distinctive texture. The segment's insulation business continued to grow with operational and formula improvements offsetting pricing pressures. The segment's European board business delivered top line growth due to a broad product offering and increased margins from productivity improvements and higher material yields.

Lorberbaum said, "We anticipate that growth in the U.S. economy and the flooring category will remain unchanged during the fourth quarter with residential remaining slow as commercial grows. Overall we expect improvement in our sales and operating margins compared to last year. However, due to the strengthening U.S. dollar, we anticipate foreign currency translation will reduce sales and profits as reported. Our performance will benefit from new products, productivity improvements, synergies from our acquisitions and cost containment initiatives. We remain confident in our ability to execute our business strategy within the prevailing economic conditions. With these factors, our guidance for fourth quarter earnings is $2.18 to $2.27 per share, excluding any restructuring charges. We foresee upside for the U.S. flooring industry over the medium to long term. The forecast for new home construction in the U.S. is for robust growth for the next several years, and we believe that stronger employment numbers and improving consumer confidence will result in increased home remodeling."

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, October 31, 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 # 10924357.

A replay will be available until Friday, November 14, 2014 by dialing 855-859-2056 for US/local calls and +1-404-537-3406 for International/Local calls and entering Conference ID # 10924357.

 

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES

                 

Consolidated Statement of Operations

 

Three Months Ended

 

Nine Months Ended

(Amounts in thousands, except per share data)

 

September 27, 2014

 

September 28, 2013

 

September 27, 2014

 

September 28, 2013

                 

Net sales

 

$ 1,990,658

 

1,961,536

 

5,852,000

 

5,424,650

Cost of sales

 

1,434,236

 

1,444,646

 

4,239,411

 

4,016,638

    Gross profit

 

556,422

 

516,890

 

1,612,589

 

1,408,012

Selling, general and administrative expenses

 

342,729

 

340,987

 

1,045,913

 

1,012,069

Operating income

 

213,693

 

175,903

 

566,676

 

395,943

Interest expense

 

34,786

 

25,630

 

77,584

 

70,098

Other expense (income), net

 

(2,374)

 

1,168

 

961

 

6,458

    Earnings from continuing operations before income taxes

 

181,281

 

149,105

 

488,131

 

319,387

Income tax expense

 

30,021

 

28,993

 

102,957

 

62,965

        Earnings from continuing operations

 

151,260

 

120,112

 

385,174

 

256,422

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

 

-

 

(553)

 

-

 

(1,914)

        Net earnings including noncontrolling interest

 

151,260

 

119,559

 

385,174

 

254,508

Net earnings (loss)  attributable to noncontrolling interest

 

(6)

 

491

 

77

 

373

Net earnings attributable to Mohawk Industries, Inc.

 

$                  151,266

 

119,068

 

385,097

 

254,135

                 

Basic earnings per share attributable to Mohawk Industries, Inc.

               

  Income from continuing operations 

 

$ 2.08

 

1.65

 

5.29

 

3.59

  Loss from discontinued operations, net of income taxes

 

-

 

(0.01)

 

-

 

(0.03)

Basic earnings per share attributable to Mohawk Industries, Inc.

 

$ 2.08

 

1.64

 

5.29

 

3.56

Weighted-average common shares outstanding - basic

 

72,864

 

72,575

 

72,814

 

71,467

                 

Diluted earnings per share attributable to Mohawk Industries, Inc.

               

  Income from continuing operations 

 

$                        2.06

 

1.64

 

5.25

 

3.56

  Loss from discontinued operations, net of income taxes

 

-

 

(0.01)

 

-

 

(0.03)

Diluted earnings per share attributable to Mohawk Industries, Inc.

 

$ 2.06

 

1.63

 

5.25

 

3.53

Weighted-average common shares outstanding - diluted

 

73,376

 

73,087

 

73,332

 

71,975

                 
                 
                 

Other Financial Information

               

(Amounts in thousands)

               

Net cash provided by (used in)  operating activities

 

$ 225,549

 

213,059

 

323,423

 

326,973

Depreciation and amortization

 

$ 85,167

 

81,550

 

249,905

 

222,542

Capital expenditures

 

$ 141,883

 

109,426

 

391,580

 

255,523

                 

Consolidated Balance Sheet Data

               

(Amounts in thousands)

               
           

September 27, 2014

 

September 28, 2013

ASSETS

               

Current assets:

               

    Cash and cash equivalents

         

$ 105,569

 

63,580

    Receivables, net

         

1,209,557

 

1,154,368

    Inventories

         

1,640,487

 

1,612,696

    Prepaid expenses and other current assets

         

275,981

 

221,767

    Deferred income taxes 

         

137,220

 

136,052

        Total current assets

         

3,368,814

 

3,188,463

Property, plant and equipment, net

         

2,772,722

 

2,683,984

Goodwill

         

1,668,520

 

1,713,883

Intangible assets, net

         

746,304

 

811,116

Deferred income taxes and other non-current assets

         

145,100

 

166,711

    Total assets

         

$ 8,701,460

 

8,564,157

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Current liabilities:

               

Current portion of long-term debt and commercial paper

         

$ 583,495

 

89,031

Accounts payable and accrued expenses

         

1,247,862

 

1,296,192

        Total current liabilities

         

1,831,357

 

1,385,223

Long-term debt, less current portion

         

1,806,821

 

2,257,391

Deferred income taxes and other long-term liabilities

         

486,764

 

587,910

        Total liabilities

         

4,124,942

 

4,230,524

Noncontrolling interest

         

-

 

-

Total stockholders' equity

         

4,576,518

 

4,333,633

    Total liabilities and stockholders' equity

         

$               8,701,460

 

8,564,157

                 

Segment Information

 

Three Months Ended

 

As of or for the Nine Months Ended

(Amounts in thousands)

 

September 27, 2014

 

September 28, 2013

 

September 27, 2014

 

September 28, 2013

                 

Net sales:

               

    Carpet

 

$ 778,849

 

772,751

 

2,234,083

 

2,238,953

    Ceramic

 

779,842

 

767,005

 

2,271,660

 

1,939,054

    Laminate and Wood

 

462,574

 

450,723

 

1,431,839

 

1,326,178

    Intersegment sales

 

(30,607)

 

(28,943)

 

(85,582)

 

(79,535)

        Consolidated net sales

 

$               1,990,658

 

1,961,536

 

5,852,000

 

5,424,650

                 

Operating income (loss):

               

    Carpet

 

$ 74,082

 

68,836

 

171,179

 

148,936

    Ceramic

 

101,254

 

75,908

 

268,320

 

152,188

    Laminate and Wood

 

44,768

 

39,020

 

149,730

 

119,075

    Corporate and eliminations

 

(6,411)

 

(7,861)

 

(22,553)

 

(24,256)

        Consolidated operating income

 

$ 213,693

 

175,903

 

566,676

 

395,943

                 

Assets:

               

    Carpet

         

$ 2,016,109

 

1,830,869

    Ceramic

         

3,788,164

 

3,820,002

    Laminate and Wood

         

2,672,599

 

2,721,707

    Corporate and eliminations

         

224,588

 

191,579

        Consolidated assets

         

$ 8,701,460

 

8,564,157

 

 

 

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 27, 2014

 

September 28, 2013

 

September 27, 2014

 

September 28, 2013

   

Net earnings attributable to Mohawk Industries, Inc.

 

$ 151,266

 

119,068

 

385,097

 

254,135

   

Adjustments to net earnings:

                   

Restructuring, acquisition and integration-related costs

 

14,013

 

24,431

 

36,907

 

75,608

   

Acquisitions purchase accounting (inventory step-up)

 

-

 

12,297

 

-

 

31,041

   

Discontinued operations

 

-

 

851

 

-

 

2,696

   

Legal reserve

 

10,000

 

-

 

10,000

 

-

   

Bond redemption

 

15,450

 

-

 

15,450

 

-

   

Deferred loan costs

 

1,080

 

490

 

1,080

 

490

   

Interest on 3.85% senior notes

 

-

 

-

 

-

 

3,559

   

Income taxes

 

(12,792)

 

(9,772)

 

(17,412)

 

(25,220)

   

Adjusted net earnings attributable to Mohawk Industries, Inc.

 

$ 179,017

 

147,365

 

431,122

 

342,309

   
                             

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

 

$ 2.44

 

2.02

 

5.88

 

4.76

   

Weighted-average common shares outstanding - diluted

 

73,376

 

73,087

 

73,332

 

71,975

   
                             

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

   

(Amounts in thousands)

                       
       

Three Months Ended

 

Nine Months Ended

       
       

September 27, 2014

 

September 28, 2013

 

September 27, 2014

 

September 28, 2013

       

Net sales

 

$ 1,990,658

 

1,961,536

 

5,852,000

 

5,424,650

       

Adjustment to net sales on a constant exchange rate

 

8,517

 

-

 

(16,100)

 

-

       

Net sales on a constant exchange rate

 

$ 1,999,175

 

1,961,536

 

5,835,900

 

5,424,650

       
                             

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

             

(Amounts in thousands)

                       
       

Nine Months Ended

           
       

September 27, 2014

 

September 28, 2013

               

Net sales

 

$ 5,852,000

 

5,424,650

               

2013 Acquisitions

     

333,994

               

Adjustment to net sales on a constant exchange rate

 

(16,100)

 

-

               

Pro forma net sales on a constant exchange rate

 

$ 5,835,900

 

5,758,644

               
                             

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

   

(Amounts in thousands)

                       
       

Ceramic

 

Laminate and Wood

       
       

Three Months Ended

 

Three Months Ended

       
       

September 27, 2014

 

September 28, 2013

 

September 27, 2014

 

September 28, 2013

       

Net sales

 

$ 779,842

 

767,005

 

462,574

 

450,723

       

Adjustment to segment net sales on a constant exchange rate

 

9,098

 

-

 

(581)

 

-

       

Segment net sales on a constant exchange rate

 

$ 788,940

 

767,005

 

461,993

 

450,723

       
                             

Reconciliation of Gross Profit to Adjusted Gross Profit 

(Amounts in thousands)

                       
       

Three Months Ended

           
       

September 27, 2014

 

September 28, 2013

               

Gross Profit

 

$ 556,422

 

516,890

               

Adjustments to gross profit:

                       

Restructuring and integration-related costs

 

7,261

 

14,699

               

Acquisitions purchase accounting (inventory step-up)

 

-

 

12,297

               

  Adjusted gross profit

 

$ 563,683

 

543,886

               

   Adjusted gross profit as a percent of net sales

 

28.3%

 

27.7%

               
                             

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

(Amounts in thousands)

                       
       

Three Months Ended

       
       

September 27, 2014

 

September 28, 2013

               

Selling, general and administrative expenses

 

$ 342,729

 

340,987

               

Adjustments to selling, general and administrative expenses:

                       

Restructuring, acquisition and integration-related costs

 

(6,752)

 

(9,712)

               

Legal reserve

   

(10,000)

 

-

               

  Adjusted selling, general and administrative expenses

 

$ 325,977

 

331,275

               

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

 

16.4%

 

16.9%

               
                             

Reconciliation of Operating Income to Adjusted Operating Income 

(Amounts in thousands)

                       
       

Three Months Ended

 

Nine Months Ended

       
       

September 27, 2014

 

September 28, 2013

 

September 27, 2014

 

September 28, 2013

       

Operating income

 

$ 213,693

 

175,903

 

566,676

 

395,943

       

Adjustments to operating income:

                       

Restructuring, acquisition and integration-related costs

 

14,013

 

24,411

 

36,907

 

75,588

       

Legal reserve

 

10,000

 

-

 

10,000

 

-

       

Acquisitions purchase accounting (inventory step-up)

 

-

 

12,297

 

-

 

31,041

       

  Adjusted operating income

 

$ 237,706

 

212,611

 

613,583

 

502,572

       

   Adjusted operating margin as a percent of net sales

 

11.9%

 

10.8%

 

10.5%

 

9.3%

       
                             

Reconciliation of Segment Operating Income to Adjusted Operating Income 

(Amounts in thousands)

                       
       

Carpet

 

Ceramic

 

Laminate and Wood

       

Three Months Ended

 

Three Months Ended

 

Three Months Ended

       

September 27, 2014

 

September 28, 2013

 

September 27, 2014

 

September 28, 2013

 

September 27, 2014

 

September 28, 2013

Operating income

 

$ 74,082

 

68,836

 

101,254

 

75,908

 

44,768

 

39,020

Adjustments to operating income:

                       

Restructuring, acquisition and integration-related costs

 

-

 

1,570

 

4,248

 

3,070

 

9,015

 

19,246

Legal reserve

   

10,000

 

-

 

-

 

-

 

-

 

-

Acquisitions purchase accounting (inventory step-up)

 

-

 

-

 

-

 

12,297

 

-

 

-

  Adjusted operating income

 

$ 84,082

 

70,406

 

105,502

 

91,275

 

53,783

 

58,266

   Adjusted operating margin as a percent of net sales

 

10.8%

 

9.1%

 

13.5%

 

11.9%

 

11.6%

 

12.9%

                             

Reconciliation of Total Debt to Net Debt

 

(Amounts in thousands)

                       
       

September 27, 2014

                   

Current portion of long-term debt and commercial paper

 

$ 583,495

                   

Long-term debt, less current portion

 

1,806,821

                   

Less: Cash and cash equivalents

 

105,569

                   

Net Debt

 

$ 2,284,747

                   
                             

Reconciliation of Operating Income to Adjusted EBITDA

(Amounts in thousands)

                 

Trailing Twelve

   
       

Three Months Ended

 

Months Ended

   
       

December 31, 2013

 

March 29, 2014

 

June 28, 2014

 

September 27, 2014

 

September 27, 2014

   

Operating income

 

$ 150,988

 

130,735

 

222,248

 

213,693

 

717,664

   

Other (expense) income

 

(2,656)

 

(4,890)

 

1,555

 

2,374

 

(3,617)

   

    Net (earnings) loss attributable to noncontrolling interest

 

(132)

 

28

 

(111)

 

6

 

(209)

   

Depreciation and amortization

 

86,329

 

80,984

 

83,754

 

85,167

 

336,234

   

EBITDA

 

234,529

 

206,857

 

307,446

 

301,240

 

1,050,072

   

Restructuring, acquisition and integration-related costs

 

37,812

 

11,725

 

11,169

 

14,013

 

74,719

   

Legal reserve

 

-

 

-

 

-

 

10,000

 

10,000

   

 Adjusted EBITDA 

 

$ 272,341

 

218,582

 

318,615

 

325,253

 

1,134,791

   
                             

Net Debt to  Adjusted EBITDA

                 

2.0

   
                             

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 27, 2014

 

September 28, 2013

               

Earnings from continuing operations before income taxes

 

$ 181,281

 

149,105

               

Adjustments to earnings from continuing operations before income taxes:

                       

Restructuring, acquisition and integration-related costs

 

14,013

 

24,431

               

Acquisitions purchase accounting (inventory step-up)

 

-

 

12,297

               

Legal reserve

 

10,000

 

-

               

Bond redemption

 

15,450

 

-

               

Deferred loan costs

 

1,080

 

490

               

Interest on 3.85% senior notes

 

-

 

-

               

  Adjusted earnings before income taxes

 

$ 221,824

 

186,323

               
                             
                             

Reconciliation of Income Tax Expense to Adjusted Income Tax Expense 

(Amounts in thousands)

                       
       

Three Months Ended

               
       

September 27, 2014

 

September 28, 2013

               

Income tax expense 

 

$ 30,021

 

28,993

               

Income tax effect of adjusting items

 

12,792

 

9,475

               

  Adjusted income tax expense

 

$ 42,813

 

38,468

               
                             

Adjusted income tax rate

 

19%

 

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.

 

 

Contact:

Frank H. Boykin, Chief Financial Officer

Tel.: +1-706-624-2695

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