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Mohawk Industries, Inc. Announces First Quarter Earnings

May 08, 2015, 9:00 UTC+3
Record Q1 Adjusted EPS; 38% Increase Over PY. Adjusted Operating Income Up 170 bps
1 pages in this article

CALHOUN, Georgia, May 8 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2015 first quarter net earnings of $22 million and diluted earnings per share (EPS) of $.30. Excluding unusual charges, net earnings were $125 million and EPS was $1.70, a 38% increase over last year's first quarter adjusted EPS and the highest Q1 adjusted EPS in the company's history. Net sales for the first quarter of 2015 were $1.9 billion, an increase of approximately 4% versus the prior year's first quarter or 6% on a constant days and currency exchange rate basis excluding a 2014 disposition of a ceramic plant. For the first quarter of 2014, net sales were $1.8 billion, net earnings were $81 million and EPS was $1.11; excluding unusual charges, net earnings were $90 million and EPS was $1.23.

 

Commenting on Mohawk Industries' first quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "For the period, our adjusted operating margin was approximately 10%, an increase of 170 basis points compared to the prior year, as a result of new products, higher volume, and numerous productivity initiatives. We improved SG&A as a percent of sales by 90 basis points across the business, even as we expanded our sales organization, introduced leading product innovation and implemented merchandising systems that showcase our product value. Throughout the business, we are introducing new products across all categories that are being well received in their markets, generating sales growth and increasing margins."

Carpet Segment net sales for the quarter were $739 million, up approximately 10% over last year as reported or 4% on a constant days basis. Our adjusted operating income increased about 20% over the prior year with a margin of 5.5% as we reduced our SG&A as a percent of sales. SmartStrand® Forever Clean™, the next generation of our exclusive SmartStrand franchise, was launched in the first quarter, and continues to gain momentum in the market. We are expanding the sales of our premium Karastan carpet brand and increasing our participation in the builder and multifamily channels. In commercial carpet, we continue to improve sales and operating margin through innovative designs, process simplification and material optimization. We have completed our Continuum™ manufacturing expansion and are increasing sales in this faster growing polyester category.

Ceramic Segment net sales for the quarter were $720 million, up approximately 4% over last year as reported or an increase of approximately 9% on a constant days and currency exchange rate basis excluding a 2014 disposition of a ceramic plant. Even with the impact of the weaker euro and ruble, the segment's adjusted operating income grew 37% over the prior year to a margin of approximately 12%, an increase of 290 basis points. Our regional ceramic organizations are outperforming our competitors on a local basis as we leverage our product innovation, manufacturing expertise and distribution advantages. Our U.S. ceramic business continues to strengthen as we introduce unique products in all of our channels. For the eleventh consecutive year, retailers voted one of our ceramic collections as the best in the industry, underscoring our leadership in design and technical innovation. In Mexico, we are gaining significant share as a result of our leading styling and expanded distribution; and our margins are improving as we enhance our product mix and lower our costs. In Europe, our focus on bringing differentiated products to market has expanded our distribution and improved our average selling price. In Russia, the strong performance of our porcelain collections improved our mix and volume, yielding a higher operating profit in local currency than last year in a difficult environment.

Laminate and Wood Segment net sales for the quarter were $448 million, decreasing approximately 4% over last year as reported and increasing approximately 5% at a constant days and currency exchange rate basis. Adjusted operating margin for the segment was 14%, growing 280 basis points over the prior year. The segment's improved results were driven by positive volume, productivity improvements and successful product introductions, partially offset by the stronger dollar. On a local currency basis, our European laminate business showed improvement, with strong growth in the U.K., Australia and Russia, partially offset by lower sales in France. Sales of our new Impressive™ laminate collection have grown rapidly due to the product's richly detailed surface and exclusive water resistant technology. We are aggressively marketing new LVT collections produced at our facility in Belgium to generate sales volume and achieve our product expansion goals. In the U.S., new laminate product launches featuring our most realistic visuals and textures drove sales across all channels, with retailers selecting one of our collections as the best new laminate product, the fifth consecutive year we've received this honor. Sales of our engineered wood collections increased, in both our retail and new construction channels; and we announced a price increase for the category during the period.

We were pleased with our progress during the first quarter and anticipate the improving U.S. economy and a stronger flooring market will benefit our business for the remainder of the year. In the U.S., continued economic and income growth, low gasoline prices and interest rates and increased home values should drive our business throughout 2015. We expect our European sales in local currency to improve slightly, with new product innovations enhancing our mix along with manufacturing and productivity initiatives improving margins. In Russia, our leading brand and product positions combined with our efficient manufacturing will improve our market share in a challenging economy, while increased inflation and competition will impact our margins. Foreign currency will continue to negatively impact our results during the second quarter, with the current euro approximately 20% weaker and ruble approximately 30% lower than last year. This will be partially mitigated by our sales and productivity initiatives, SG&A reductions and cost improvement projects. Taking all of these factors into account, our guidance for second quarter earnings is $2.51 to $2.60 per share, excluding any earnings from new acquisitions or any restructuring charges. Our second quarter earnings guidance would have been approximately $0.25 per share higher on a constant exchange rate relative to last year. Assuming the transactions close in the second quarter, we estimate the IVC and Kai acquisitions will add $0.06 to $0.08 per share to earnings in the period.

We anticipate significant opportunities with our IVC acquisition, which will expand our participation in the LVT and fiberglass sheet vinyl categories in the U.S. and Europe, and our Kai acquisition, which will increase our ceramic participation in Eastern Europe. These acquisitions will improve our future growth, broaden our geographic coverage and solidify our position as the world's largest flooring manufacturer.

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, 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, 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, May 8, 2015 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 # 21829028. A replay will be available until Friday, May 22, 2015 by dialing 855-859-2056 for US/local calls and 404-537-3406 for International/Local calls and entering Conference ID # 21829028.

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES

       
         

Consolidated Statement of Operations

 

Three Months Ended

(Amounts in thousands, except per share data)

 

April 4, 2015

 

March 29, 2014

         

Net sales

 

$                           1,881,177

 

1,813,095

Cost of sales

 

1,369,234

 

1,331,740

    Gross profit

 

511,943

 

481,355

Selling, general and administrative expenses

 

468,169

 

350,620

Operating income

 

43,774

 

130,735

Interest expense

 

16,449

 

22,096

Other expense (income), net

 

(1,083)

 

4,890

    Earnings from continuing operations before income taxes

 

28,408

 

103,749

Income tax expense

 

5,904

 

22,696

        Net earnings including noncontrolling interest

 

22,504

 

81,053

Net earnings (loss)  attributable to noncontrolling interest

 

158

 

(28)

Net earnings attributable to Mohawk Industries, Inc.

 

$                                  22,346

 

81,081

         

Basic earnings per share attributable to Mohawk Industries, Inc.

       

Basic earnings per share attributable to Mohawk Industries, Inc.

 

$                                        0.31

 

1.11

Weighted-average common shares outstanding - basic

 

72,988

 

72,742

         

Diluted earnings per share attributable to Mohawk Industries, Inc.

       

Diluted earnings per share attributable to Mohawk Industries, Inc.

 

$                                        0.30

 

1.11

Weighted-average common shares outstanding - diluted

 

73,530

 

73,282

         

Other Financial Information

       

(Amounts in thousands)

       

Depreciation and amortization

 

$                                  85,656

 

80,984

Capital expenditures

 

$                               105,794

 

122,081

         

Consolidated Balance Sheet Data

       

(Amounts in thousands)

       
   

April 4, 2015

 

March 29, 2014

ASSETS

       

Current assets:

       

    Cash and cash equivalents

 

$                               107,041

 

72,645

    Receivables, net

 

1,158,858

 

1,174,895

    Inventories

 

1,505,632

 

1,632,236

    Prepaid expenses and other current assets

 

285,261

 

249,690

    Deferred income taxes 

 

147,027

 

133,808

        Total current assets

 

3,203,819

 

3,263,274

Property, plant and equipment, net

 

2,618,633

 

2,745,057

Goodwill

 

1,553,155

 

1,721,792

Intangible assets, net

 

661,846

 

796,896

Deferred income taxes and other non-current assets

 

247,169

 

154,469

    Total assets

 

$                           8,284,622

 

8,681,488

LIABILITIES AND STOCKHOLDERS' EQUITY

       

Current liabilities:

       

Current portion of long-term debt and commercial paper

 

$                           1,806,175

 

654,871

Accounts payable and accrued expenses

 

1,085,805

 

1,188,644

        Total current liabilities

 

2,891,980

 

1,843,515

Long-term debt, less current portion

 

606,080

 

1,811,789

Deferred income taxes and other long-term liabilities

 

562,767

 

532,740

        Total liabilities

 

4,060,827

 

4,188,044

Total stockholders' equity

 

4,223,795

 

4,493,444

    Total liabilities and stockholders' equity

 

$                           8,284,622

 

8,681,488

         

Segment Information

 

As of and for the Three Months Ended

(Amounts in thousands)

 

April 4, 2015

 

March 29, 2014

         

Net sales:

       

    Carpet

 

$                               739,264

 

674,926

    Ceramic

 

719,828

 

695,094

    Laminate and Wood

 

448,398

 

468,008

    Intersegment sales

 

(26,313)

 

(24,933)

        Consolidated net sales

 

$                           1,881,177

 

1,813,095

         

Operating income (loss):

       

    Carpet

 

$                                (89,994)

 

34,271

    Ceramic

 

85,327

 

60,659

    Laminate and Wood

 

58,901

 

44,119

    Corporate and eliminations

 

(10,460)

 

(8,314)

        Consolidated operating income

 

$                                  43,774

 

130,735

         

Assets:

       

    Carpet

 

$                           2,015,550

 

1,920,937

    Ceramic

 

3,584,471

 

3,782,006

    Laminate and Wood

 

2,406,286

 

2,788,839

    Corporate and eliminations

 

278,315

 

189,706

        Consolidated assets

 

$                           8,284,622

 

8,681,488

         

 

 

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

       
         

April 4, 2015

 

March 29, 2014

       

Net earnings attributable to Mohawk Industries, Inc.

       

$                                  22,346

 

81,081

       

Adjusting items:

                     

Restructuring, acquisition and integration-related costs 

       

12,529

 

11,725

       

Legal settlement and reserve

       

125,000

 

-

       

Deferred loan costs

       

651

 

-

       

Income taxes

       

(35,554)

 

(2,391)

       

Adjusted net earnings attributable to Mohawk Industries, Inc.

       

$                                  124,972

 

90,415

       
                       

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

 

$                                        1.70

 

1.23

       

Weighted-average common shares outstanding - diluted

       

73,530

 

73,282

       
                       

Reconciliation of  Adjusted Diluted Earnings Per Share on a Constant Exchange Rate

                     
                       
             

Three Months Ended

       
             

April 4, 2015

       

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

     

$                                        1.70

       

   Adjustment to constant exchange rate

           

0.20

       

   Adjusted diluted earnings per share attributable to Mohawk Industries, Inc. on a constant exchange rate

       

$                                        1.90

       
                       
                       

Reconciliation of Total Debt to Net Debt

                     

(Amounts in thousands)

                     
     

April 4, 2015

               

Current portion of long-term debt and commercial paper

   

$                           1,806,175

               

Long-term debt, less current portion

   

606,080

               

Less: Cash and cash equivalents

   

107,041

               

Net Debt

   

$                           2,305,214

               
                       

Reconciliation of Operating Income to Adjusted EBITDA

                     

(Amounts in thousands)

                   

Trailing Twelve

     

Three Months Ended

 

Months Ended

     

June 28, 2014

 

September 27, 2014

 

December 31, 2014

 

April 4, 2015

 

April 4, 2015

Operating income

   

$                               222,248

 

213,693

 

206,120

 

43,774

 

685,835

Other (expense) income

   

1,555

 

2,374

 

(9,737)

 

1,083

 

(4,725)

Net (earnings) loss attributable to non-controlling interest

   

(111)

 

6

 

(212)

 

(158)

 

(475)

Depreciation and amortization

   

83,754

 

85,167

 

95,665

 

85,656

 

350,242

EBITDA

   

307,446

 

301,240

 

291,836

 

130,355

 

1,030,877

Restructuring, acquisition and integration-related costs 

   

10,224

 

11,311

 

21,859

 

8,169

 

51,563

Legal settlement and reserve

   

-

 

10,000

 

-

 

125,000

 

135,000

 Adjusted EBITDA 

   

$                               317,670

 

322,551

 

313,695

 

263,524

 

1,217,440

                       

   Net Debt to  Adjusted EBITDA

                   

1.9

                       

Reconciliation of Net Sales to Net Sales on a Constant Exchange Rate and Shipping Days

                     

(Amounts in thousands)

                     
     

Three Months Ended

           
     

April 4, 2015

 

March 29, 2014

           

Net sales

   

$                           1,881,177

 

1,813,095

           

Adjustment to net sales on  constant shipping days

   

(105,125)

 

-

           

Adjustment to net sales on a constant exchange rate

   

136,782

 

-

           

Net sales on a constant exchange rate and shipping days

   

$                           1,912,834

 

1,813,095

           
                       

Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate and Shipping Days

                   

(Amounts in thousands)

                     
     

Three Months Ended

           

Carpet

   

April 4, 2015

 

March 29, 2014

           

Net sales

   

$                               739,264

 

674,926

           

Adjustment to net sales on  constant shipping days

   

(40,500)

 

-

           

Adjustment to segment net sales on a constant exchange rate

   

-

 

-

           

Segment net sales on a constant exchange rate and shipping days

   

$                               698,764

 

674,926

           
                       
                       

Reconciliation of Segment Net Sales to Proforma Segment Net Sales on a Constant Exchange Rate and Shipping Days

                 

(Amounts in thousands)

                     
     

Three Months Ended

           

Ceramic

   

April 4, 2015

 

March 29, 2014

           

Net sales

   

$                               719,828

 

695,094

           

Adjustment to net sales on  constant shipping days

   

(37,449)

 

-

           

Adjustment to segment net sales on a constant exchange rate

   

66,882

 

-

           

Exclusion of sales from 2014 disposal of French Ceramic Subsidiary

   

-

 

(8,700)

           

Segment proforma net sales on a constant exchange rate and shipping days

   

$                               749,261

 

686,394

           
                       

Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate and Shipping Days

                   

(Amounts in thousands)

                     
     

Three Months Ended

           

Laminate and Wood

   

April 4, 2015

 

March 29, 2014

           

Net sales

   

$                               448,398

 

468,008

           

Adjustment to net sales on  constant shipping days

   

(27,176)

 

-

           

Adjustment to segment net sales on a constant exchange rate

   

69,900

 

-

           

Segment net sales on a constant exchange rate and shipping days

   

$                               491,122

 

468,008

           
                       

Reconciliation of Gross Profit to Adjusted Gross Profit 

                     

(Amounts in thousands)

                     
     

Three Months Ended

           
     

April 4, 2015

 

March 29, 2014

           

Gross Profit

   

$                               511,943

 

481,355

           

Adjustments to gross profit:

                     

Restructuring and integration-related costs

   

9,976

 

5,637

           

    Adjusted gross profit

   

$                               521,919

 

486,992

           

   Adjusted gross profit as a percent of net sales

   

27.7%

 

26.9%

           
                       

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

                 

(Amounts in thousands)

                     
     

Three Months Ended

       
     

April 4, 2015

 

March 29, 2014

           

Selling, general and administrative expenses

   

$                               468,169

 

350,620

           

Adjustments to selling, general and administrative expenses:

                     

Restructuring, acquisition and integration-related costs

   

(2,553)

 

(6,088)

           

Legal settlement and reserve

   

(125,000)

 

-

           

 Adjusted selling, general and administrative expenses

   

$                               340,616

 

344,532

           

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

18.1%

 

19.0%

           
                       

Reconciliation of Operating Income to Adjusted Operating Income 

                     

(Amounts in thousands)

                     
     

Three Months Ended

           
     

April 4, 2015

 

March 29, 2014

           

Operating income

   

$                                  43,774

 

130,735

           

Adjustments to operating income:

                     

Restructuring, acquisition and integration-related costs

   

12,529

 

11,725

           

Legal settlement and reserve

   

125,000

 

-

           

  Adjusted operating income

   

$                               181,303

 

142,460

           

   Adjusted operating income as a percent of net sales

   

9.6%

 

7.9%

           
                       

Reconciliation of Adjusted Operating Income on a Constant Exchange Rate

                     

(Amounts in thousands)

                     
     

Three Months Ended

           
     

April 4, 2015

 

March 29, 2014

           

Operating income

   

$                                  43,774

 

130,735

           

Adjustments to operating income:

                     

    Restructuring, acquisition and integration-related costs

   

12,529

 

11,725

           

    Legal settlement and reserve

   

125,000

 

-

           

     Adjustment to operating income on constant exchange rates of Euro/USD: 1.12 vs 1.37 and Ruble/USD: 61.87 vs 35.01

21,000

 

-

           

 Adjusted operating income on a constant exchange rate

   

$                               202,303

 

142,460

           
                       
                       

Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 

                     

(Amounts in thousands)

                     
     

Three Months Ended

           

Carpet

   

April 4, 2015

 

March 29, 2014

           

Operating income

   

$                                (89,994)

 

34,271

           

Adjustment to segment operating income:

                     

Restructuring, acquisition and integration-related costs

   

5,945

 

-

           

Legal settlement and reserve

   

125,000

 

-

           

  Adjusted segment operating income

   

$                                  40,951

 

34,271

           

   Adjusted operating income as a percent of net sales

   

5.5%

 

5.1%

           
                       

Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 

                     

(Amounts in thousands)

                     
     

Three Months Ended

           

Ceramic

   

April 4, 2015

 

March 29, 2014

           

Operating income

   

$                                  85,327

 

60,659

           

Adjustments to segment operating income:

                     

Restructuring, acquisition and integration-related costs

   

362

 

1,981

           

  Adjusted segment operating income

   

$                                  85,689

 

62,640

           

   Adjusted operating income as a percent of net sales

   

11.9%

 

9.0%

           
                       

Reconciliation of Segment Operating Income to Adjusted Segment Operating Income on a Constant Exchange Rate

                 

(Amounts in thousands)

                     
     

Three Months Ended

           

Ceramic

   

April 4, 2015

 

March 29, 2014

           

Operating income

   

$                                  85,327

 

60,659

           

Adjustments to segment operating income:

                     

Restructuring, acquisition and integration-related costs

   

362

 

1,981

           

     Adjustment to operating income on constant exchange rates of Euro/USD: 1.12 vs 1.37 and Ruble/USD: 61.87 vs 35.01

10,000

 

-

           

Adjusted segment operating income on a constant exchange rate

   

$                                  95,689

 

62,640

           
                       

Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 

                     

(Amounts in thousands)

                     
     

Three Months Ended

           

Laminate and Wood

   

April 4, 2015

 

March 29, 2014

           

Operating income

   

$                                  58,901

 

44,119

           

Adjustment to segment operating income:

                     

Restructuring, acquisition and integration-related costs

   

5,035

 

9,576

           

 Adjusted segment operating income

   

$                                  63,936

 

53,695

           

   Adjusted operating income as a percent of net sales

   

14.3%

 

11.5%

           
                       

Reconciliation of Segment Operating Income to Adjusted Segment Operating Income on a Constant Exchange Rate

                 

(Amounts in thousands)

                     
     

Three Months Ended

           

Laminate and Wood

   

April 4, 2015

 

March 29, 2014

           

Operating income

   

$                                  58,901

 

44,119

           

Adjustments to segment operating income:

                     

Restructuring, acquisition and integration-related costs

   

5,035

 

9,576

           

     Adjustment to operating income on a constant exchange rate of Euro/USD: 1.12 vs 1.37 

   

11,000

 

-

           

Adjusted segment operating income on a constant exchange rate

   

$                                  74,936

 

53,695

           
                       

Reconciliation of Income Tax Expense to Adjusted Income Tax Expense 

                     

(Amounts in thousands)

                     
     

Three Months Ended

           
     

April 4, 2015

 

March 29, 2014

           

Income tax expense 

   

$                                     5,904

 

22,696

           

Income tax effect of adjusting items

   

35,554

 

2,391

           

  Adjusted income tax expense

   

$                                  41,458

 

25,087

           
                       

Adjusted income tax rate

   

25%

 

22%

           
                       
                       
                       

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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