Mohawk Industries, Inc. Announces Fourth Quarter Earnings

Record Q4 Adjusted EPS; 27% Increase Over PY

Adjusted Operating Income Up 160 bps

CALHOUN, Ga., Feb. 19, 2015 /CNW/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2014 fourth quarter net earnings of $147 million and diluted earnings per share (EPS) of $2.00. Excluding unusual charges, net earnings were $167 million and EPS was $2.27, a 27% increase over last year's fourth quarter adjusted EPS and the highest Q4 adjusted EPS in the company's history. Net sales for the fourth quarter of 2014 were $1.95 billion, an increase of 1.4% versus the prior year's fourth quarter or approximately 5% on a constant exchange basis. For the fourth quarter of 2013, net sales were $1.92 billion, net earnings were $95 million and EPS was $1.29; excluding unusual charges, net earnings were $131 million and EPS was $1.79.

For the twelve months ending December 31, 2014, net sales were $7.8 billion, an increase of 6% versus the prior year as reported or 7% on a constant exchange basis. Net earnings and EPS for the twelve month period were $532 million and $7.25, respectively. Net earnings excluding unusual charges were $598 million and adjusted EPS was $8.15, an increase of 24% over the twelve month adjusted EPS results in 2013. For the twelve months ending December 31, 2013, net sales were $7.3 billion, net earnings were $349 million and EPS was $4.82; excluding unusual charges, net earnings and EPS were $473 million and $6.55, respectively.

Commenting on Mohawk Industries' fourth quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "During the period, we significantly increased our adjusted operating income by 18% compared to the prior year as a result of productivity initiatives, aggressive cost containment and benefits from our acquisitions. We delivered solid results during the quarter, generating increased earnings even with negative translation impact from foreign currency. On a local basis, our European operations improved across all product categories in a challenging market. Across the enterprise, we reduced SG&A as a percentage of sales and held total dollars flat while still investing in growth areas of the business."

Carpet segment net sales for the quarter were $780 million, up 4% over last year. Our adjusted operating income increased approximately 32% over the prior year to 11%, producing our best quarterly performance in over a decade. We continue to benefit from product innovation, enhanced raw material strategies, plant simplification, investments in state-of-the-art technologies and improved sales execution. In the quarter, we introduced SmartStrand® Forever Clean™, the next generation of our exclusive franchise, which was selected by retailers at the national flooring trade show in January as the most innovative new product in any flooring category. Forever Clean combines SmartStrand's luxurious softness and exceptional durability with exclusive Nanoloc™ spill protection for quick and easy clean-up. The company continued to expand its Continuum™ polyester offering, which is gaining momentum across all price points. In commercial carpet, the business improved both top line growth and margins as a result of enhanced design, productivity improvements and material optimization.

Ceramic segment net sales for the quarter were $744 million, up 1% over last year as reported or 7% at a constant exchange rate.  The segment's adjusted operating income grew 16% over the prior year, even with the impact of the declining euro and ruble; and the margin increased 150 basis points due to increased productivity as well as improved pricing and mix. In the U.S., the combined Dal-Tile and Marazzi organization is operating exceptionally well. The consolidated organization has enhanced the styling of our new products as we expand our offering of larger tile sizes, rectangles and planks, increasing our product mix and average selling prices.  The company's new ceramic plant in Tennessee is on track to start up in the beginning of next year, with the building pad nearly complete.  The company's ceramic sales in Mexico are growing rapidly from providing a complete product line of higher styled premium products and value priced products as well as expanding participation in the retail and new construction channels. Sales and margins in the company's European ceramic business grew by improving product mix, replacing inefficient manufacturing assets and reducing SG&A. Ceramic sales in Russia expanded significantly in local currency as consumers purchased ahead of anticipated price increases.

Laminate and Wood segment net sales for the quarter were $459 million, decreasing approximately 2% over last year as reported and increasing 4% at a constant exchange rate. Adjusted operating margin for the segment was approximately 12%, growing 30 basis points over the prior year. Laminate sales in Europe benefited from the rapid acceptance of the new Quick-Step® Impressive™ collection with enhanced surface texture and water repellency. Construction of the company's LVT plant in Belgium has been completed, and the start-up is focused on new product development. During the period, the company purchased a New Zealand flooring distributor, which expands the company's distribution model successfully executed in the U.K., Eastern Europe and Australia. The integration of Spano into the company's European board business is largely complete, creating improved mix, increased operational efficiencies and reduced SG&A costs. In the U.S., wood flooring sales grew, with engineered wood sales rising substantially, while laminate sales were impacted by lower mix, product changes and inventory reductions by our customers.

We anticipate stronger organic growth on a local basis in 2015, driven by improvements in the U.S. economy and the flooring market. In the U.S., rising consumer confidence supported by lower gasoline prices, low interest rates, increased home values and an improving job market should drive higher growth in our category. The U.S. dollar has recently strengthened considerably relative to the euro, ruble and other currencies and our translated results will be impacted.  While we cannot affect the exchange rates, we are aggressively implementing productivity initiatives, SG&A reductions and other cost containment projects to minimize the impact. We will continue to invest in product innovation and operational improvements to drive our top line growth and margins. The first quarter of 2015 has four additional days, increasing sales 6%, and the fourth quarter will have four less days than in the same periods last year. Taking all of these factors into account, our guidance for first quarter earnings is $1.54 to $1.63 per share, excluding any restructuring charges and new acquisitions.

In January, we announced the continuation of our aggressive acquisition strategy with the purchase of the IVC Group, and we anticipate that the transaction will close early in the second quarter. Recently, we also signed an agreement to purchase a small Eastern European ceramic manufacturer, with the transaction expected to be completed in the second quarter. We have a strong foundation for future growth in all flooring categories in North America, Europe, Russia, Asia and Australia as we enhance 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, 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, 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 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, February 20, 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 # 64529911.  A replay will be available until Friday, March 6, 2015 by dialing 855-859-2056 for US/local calls and 404-537-3406 for International/Local calls and entering Conference ID # 64529911.

 

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES










Consolidated Statement of Operations


Three Months Ended


Twelve Months Ended

(Amounts in thousands, except per share data)


December

31, 2014


December

31, 2013


December

31, 2014


December

31, 2013










Net sales


$     1,951,446


1,924,104


7,803,446


7,348,754

Cost of sales


1,409,843


1,411,307


5,649,254


5,427,945

    Gross profit


541,603


512,797


2,154,192


1,920,809

Selling, general and administrative expenses


335,483


361,809


1,381,396


1,373,878

Operating income


206,120


150,988


772,796


546,931

Interest expense


20,623


22,148


98,207


92,246

Other expense (income), net


9,737


2,656


10,698


9,114

    Earnings from continuing operations before income taxes


175,760


126,184


663,891


445,571

Income tax expense


28,680


15,420


131,637


78,385

        Earnings from continuing operations


147,080


110,764


532,254


367,186

Loss from discontinued operations, net of income tax benefit of $268 and $1,050, respectively


-


(15,981)


-


(17,895)

        Net earnings including noncontrolling interest


147,080


94,783


532,254


349,291

Net earnings (loss) attributable to noncontrolling interest


212


132


289


505

Net earnings attributable to Mohawk Industries, Inc.


$        146,868


94,651


531,965


348,786










Basic earnings per share attributable to Mohawk Industries, Inc.









  Income from continuing operations 


$              2.01


1.52


7.30


5.11

  Loss from discontinued operations, net of income taxes


-


(0.22)


-


(0.25)

Basic earnings per share attributable to Mohawk Industries, Inc.


$              2.01


1.30


7.30


4.86

Weighted-average common shares outstanding - basic


72,905


72,654


72,837


71,773










Diluted earnings per share attributable to Mohawk Industries, Inc.









  Income from continuing operations 


$              2.00


1.51


7.25


5.07

  Loss from discontinued operations, net of income taxes


-


(0.22)


-


(0.25)

Diluted earnings per share attributable to Mohawk Industries, Inc.


$              2.00


1.29


7.25


4.82

Weighted-average common shares outstanding - diluted


73,452


73,214


73,363


72,301




























Other Financial Information









(Amounts in thousands)









Net cash provided by (used in) operating activities


$        338,765


198,190


662,188


525,163

Depreciation and amortization


$          95,665


86,329


345,570


308,871

Capital expenditures


$        170,224


111,027


561,804


366,550










Consolidated Balance Sheet Data








(Amounts in thousands)















December

31, 2014


December

31, 2013

ASSETS









Current assets:









    Cash and cash equivalents






$         97,877


54,066

    Receivables, net






1,081,963


1,062,875

    Inventories






1,543,313


1,572,325

    Prepaid expenses and other current assets






257,333


248,918

    Deferred income taxes 






151,784


147,534

        Total current assets






3,132,270


3,085,718

Property, plant and equipment, net






2,703,210


2,701,743

Goodwill






1,604,352


1,736,092

Intangible assets, net






702,009


811,602

Deferred income taxes and other non-current assets






143,703


159,022

    Total assets






$    8,285,544


8,494,177

LIABILITIES AND STOCKHOLDERS' EQUITY









Current liabilities:









Current portion of long-term debt and commercial paper






$       851,305


127,218

Accounts payable and accrued expenses






1,104,509


1,193,593

        Total current liabilities






1,955,814


1,320,811

Long-term debt, less current portion






1,402,135


2,132,790

Deferred income taxes and other long-term liabilities






504,782


570,270

        Total liabilities






3,862,731


4,023,871

Total stockholders' equity






4,422,813


4,470,306

    Total liabilities and stockholders' equity






$    8,285,544


8,494,177










Segment Information


Three Months Ended


As of or for the

Twelve Months Ended

(Amounts in thousands)


December

31, 2014


December

31, 2013


December

31, 2014


December

31, 2013










Net sales:









    Carpet


$        779,865


747,143


3,013,948


2,986,096

    Ceramic


743,619


738,004


3,015,279


2,677,058

    Laminate and Wood


458,728


466,082


1,890,567


1,792,260

    Intersegment sales


(30,766)


(27,125)


(116,348)


(106,660)

        Consolidated net sales


$     1,951,446


1,924,104


7,803,446


7,348,754










Operating income (loss):









    Carpet


$          84,759


60,087


255,938


209,023

    Ceramic


82,793


57,637


351,113


209,825

    Laminate and Wood


45,004


40,290


194,734


159,365

    Corporate and eliminations


(6,436)


(7,026)


(28,989)


(31,282)

        Consolidated operating income


$        206,120


150,988


772,796


546,931










Assets:









    Carpet






$    1,986,081


1,786,085

    Ceramic






3,542,594


3,787,785

    Laminate and Wood






2,542,566


2,716,759

    Corporate and eliminations






214,303


203,548

        Consolidated assets






$    8,285,544


8,494,177










 

 

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


Twelve Months Ended







December 31, 2014


December 31, 2013


December 31, 2014


December 31, 2013

Net earnings attributable to Mohawk Industries, Inc.


$          146,868


94,651


531,965


348,786

Adjusting items:









Restructuring, acquisition, integration-related costs and disposal of subsidiary


26,649


37,812


63,556


113,420

Acquisitions purchase accounting (inventory step-up)


-


-


-


31,041

Discontinued operations


-


16,249


-


18,945

Legal reserve


-


-


10,000


-

Bond redemption


3,472


-


18,922


-

Deferred loan costs


-


-


1,080


490

Interest on 3.85% senior notes


-


-


-


3,559

Income taxes


(10,444)


(17,621)


(27,856)


(42,841)

Adjusted net earnings attributable to Mohawk Industries, Inc.


$          166,545


131,091


597,667


473,400














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


2.27


1.79


8.15


6.55

Weighted-average common shares outstanding - diluted


73,452


73,214


73,363


72,301














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






























Three Months Ended













December 31, 2014





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


$                   2.27





Adjustment to constant exchange rate


0.09





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


$                   2.36


















Reconciliation of Total Debt to Net Debt










(Amounts in thousands)















December 31, 2014









Current portion of long-term debt and commercial paper


$          851,305









Long-term debt, less current portion


1,402,135









Less: Cash and cash equivalents


97,877









Net Debt


$       2,155,563






















Reconciliation of Operating Income to Adjusted EBITDA










(Amounts in thousands)









Trailing Twelve





Three Months Ended


Months Ended





March 29, 2014


June 28, 2014


September 27, 2014


December 31, 2014


December 31, 2014

Operating income


130,735


222,248


213,693


206,120


772,796

Other (expense) income


(4,890)


1,555


2,374


(9,737)


(10,698)

Net (earnings) loss attributable to non-controlling interest


28


(111)


6


(212)


(289)

Depreciation and amortization


80,984


83,754


85,167


95,665


345,570

EBITDA


206,857


307,446


301,240


291,836


1,107,379

Restructuring, acquisition and integration-related costs


11,725


11,169


14,013


26,649


63,556

Legal reserve


-


-


10,000


-


10,000

 Adjusted EBITDA 


218,582


318,615


325,253


318,485


1,180,935














Net Debt to  Adjusted EBITDA










1.8














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











(Amounts in thousands)















Three Months Ended


Twelve Months Ended







December 31, 2014


December 31, 2013


December 31, 2014


December 31, 2013



Net sales


$       1,951,446


1,924,104


7,803,446


7,348,754



Adjustment to net sales on a constant exchange rate


72,152


-


56,052


-



Net sales on a constant exchange rate


$       2,023,598


1,924,104


7,859,498


7,348,754
















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









(Amounts in thousands)















Three Months Ended







Ceramic


December 31, 2014


December 31, 2013







Net sales


$          743,619


738,004







Adjustment to segment net sales on a constant exchange rate


44,742


-







Segment net sales on a constant exchange rate


$          788,361


738,004




















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









(Amounts in thousands)















Three Months Ended







Laminate and Wood


December 31, 2014


December 31, 2013







Net sales


$          458,728


466,082







Adjustment to segment net sales on a constant exchange rate


27,411


-







Segment net sales on a constant exchange rate


$          486,139


466,082




















Reconciliation of Gross Profit to Adjusted Gross Profit 











(Amounts in thousands)















Three Months Ended


Twelve Months Ended







December 31, 2014


December 31, 2013


December 31, 2014


December 31, 2013



Gross Profit


$          541,603


512,797


2,154,192


1,920,809



Adjustments to gross profit:











Restructuring and integration-related costs


11,568


16,707


31,222


49,151



Acquisitions purchase accounting (inventory step-up)


-


-


-


31,041



  Adjusted gross profit


$          553,171


529,504


2,185,414


2,001,001



 Adjusted gross profit as a percent of net sales


28.3%


27.5%


28.0%


27.2%
















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







(Amounts in thousands)















Three Months Ended









December 31, 2014


December 31, 2013







Selling, general and administrative expenses

$          335,483


361,809







Adjustments to selling, general and administrative expenses:










Restructuring, acquisition and integration-related costs

(3,127)


(19,644)







  Adjusted selling, general and administrative expenses

$          332,356


342,165







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

17.0%


17.8%




















Reconciliation of Operating Income to Adjusted Operating Income 










(Amounts in thousands)















Three Months Ended


Twelve Months Ended







December 31, 2014


December 31, 2013


December 31, 2014


December 31, 2013



Operating income


$          206,120


150,988


772,796


546,931



Adjustments to operating income:











Restructuring, acquisition and integration-related costs

14,695


36,351


63,556


111,939



Legal reserve


-


-


10,000


-



Acquisitions purchase accounting (inventory step-up)

-


-


-


31,041



  Adjusted operating income

$          220,815


187,339


846,352


689,911



   Adjusted operating income as a percent of net sales

11.3%


9.7%


10.8%


9.4%
















Reconciliation of Adjusted Operating Income on a Constant Exchange Rate










(Amounts in thousands)















Three Months Ended











December 31, 2014


December 31, 2013







Operating income


$          206,120


150,988







Adjustments to operating income


14,695


36,351







Adjustments to operating income on a constant exchange rate

8,050


-







  Adjusted operating income on constant exchange rate

$          228,865


187,339







   Adjusted operating income as a percent of net sales

11.3%


9.7%




















Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 









(Amounts in thousands)















Three Months Ended


Twelve Months Ended



Carpet


December 31, 2014


December 31, 2013


December 31, 2014


December 31, 2013



Operating income


$            84,759


60,087


255,938


209,023



Adjustment to segment operating income:











Restructuring, acquisition and integration-related costs

1,999


6,005


1,999


13,603



Legal reserve


-


-


10,000


-



  Adjusted segment operating income

$            86,758


66,092


267,937


222,626



   Adjusted operating income as a percent of net sales

11.1%


8.8%


8.9%


7.5%
















Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 









(Amounts in thousands)















Three Months Ended


Twelve Months Ended



Ceramic


December 31, 2014


December 31, 2013


December 31, 2014


December 31, 2013



Operating income


$            82,793


57,637


351,113


209,825



Adjustments to segment operating income:










Restructuring, acquisition and integration-related costs

2,905


15,982


9,330


42,876



Acquisitions purchase accounting (inventory step-up)

-


-


-


31,041



  Adjusted segment operating income

$            85,698


73,619


360,443


283,742



   Adjusted operating income as a percent of net sales

11.5%


10.0%


12.0%


10.6%
















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







(Amounts in thousands)















Three Months Ended







Ceramic



December 31, 2014


December 31, 2013







Operating income


$            82,793


57,637







Adjustments to operating income


2,905


15,982







Adjustments to operating income on a constant exchange rate

4,493


-







  Adjusted operating income on constant exchange rate

$            90,191


73,619







   Adjusted operating income as a percent of net sales

11.4%


10.0%




















Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 









(Amounts in thousands)















Three Months Ended


Twelve Months Ended



Laminate and Wood


December 31, 2014


December 31, 2013


December 31, 2014


December 31, 2013



Operating income


$            45,004


40,290


194,734


159,365



Adjustment to segment operating income:










Restructuring, acquisition and integration-related costs

9,424


13,852


38,788


54,235



  Adjusted segment operating income

$            54,428


54,142


233,522


213,600



   Adjusted operating income as a percent of net sales

11.9%


11.6%


12.4%


11.9%
















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







(Amounts in thousands)















Three Months Ended







Laminate and Wood


December 31, 2014


December 31, 2013







Operating income


$            45,004


40,290







Adjustments to operating income

9,424


13,852







Adjustments to operating income on a constant exchange rate

3,557


-







  Adjusted operating income on constant exchange rate

$            57,985


54,142







   Adjusted operating income as a percent of net sales

11.9%


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











December 31, 2014


December 31, 2013







Earnings from continuing operations before income taxes

$          175,760


126,184







Adjustments to earnings from continuing operations before income taxes:










Restructuring, acquisition, integration-related costs and disposal of subsidiary

26,649


37,812







Acquisitions purchase accounting (inventory step-up)

-


-







Legal reserve

-


-







Bond redemption

3,472


-







Deferred loan costs

-


-







Interest on 3.85% senior notes

-


-







  Adjusted earnings before income taxes

$          205,881


163,996

































Reconciliation of Income Tax Expense to Adjusted Income Tax Expense 










(Amounts in thousands)















Three Months Ended











December 31, 2014


December 31, 2013







Income tax expense 



$            28,680


15,420







Income tax effect of adjusting items


10,444


17,353







  Adjusted income tax expense


$            39,124


32,773




















Adjusted income tax rate


19%


20%

































Proforma Net Sales and Operating Income Adjusted by FX










(Amounts in thousands)


Twelve Months Ended











December 31, 2014











Net Sales


Operating Income







Net Sales and Operating Income as reported

$       7,803,446


772,796







FX adjustments using average rates of Euro/USD: 1.14 and Ruble/USD: 61.0

(392,838)


(56,436)







Proforma Net Sales and Operating Income Adjusted by FX

$       7,410,608


716,360




















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.

For further information: Frank H. Boykin, Chief Financial Officer, (706) 624-2695


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