Mohawk Industries, Inc. Announces Second Quarter Earnings


    


    
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<p>CALHOUN, Ga., <span class="xn-chron">Aug. 5</span>, /CNW/ -- Mohawk Industries, Inc. (NYSE:   MHK) today announced 2010 second quarter net earnings of <span class="xn-money">$68 million</span> and diluted earnings per share (EPS) of <span class="xn-money">$0.99</span> which included non-recurring tax benefits, charges for redemption premiums on bonds and restructuring activities. Excluding these unusual items, net earnings and EPS would have been <span class="xn-money">$53 million</span> and <span class="xn-money">$0.77</span> per share.  In the second quarter of 2009, the net earnings were <span class="xn-money">$46 million</span> and EPS was <span class="xn-money">$0.67</span>. Excluding the 2009 unusual items, net earnings and EPS would have been <span class="xn-money">$54 million</span> and <span class="xn-money">$0.79</span> per share. Net sales for the second quarter of 2010 were <span class="xn-money">$1.4 billion</span> which was flat versus 2009 net sales. Our operating margin has improved to 6.4% (6.8% adjusted) and is the highest we have achieved in two years.  We have a strong financial position with free cash flow of <span class="xn-money">$111 million</span> in the quarter, cash of <span class="xn-money">$343 million</span> and an improving net debt to EBITDA ratio of 2.1.</p>
<p/>
<p>For the first six months of 2010, our net earnings were <span class="xn-money">$89 million</span> or an EPS of <span class="xn-money">$1.29</span>. Excluding the unusual items noted above, net earnings would have been <span class="xn-money">$77 million</span> and EPS would have been <span class="xn-money">$1.12</span>. In the first six months of 2009, our net loss was <span class="xn-money">$60 million</span> and loss per share was <span class="xn-money">$0.87</span>. Excluding the 2009 year-to-date unusual items, net earnings and EPS would have been <span class="xn-money">$64 million</span> and <span class="xn-money">$0.93</span> per share. Net sales for the first six months of 2010 were <span class="xn-money">$2.7 billion</span> representing a 5% increase from 2009. On a local exchange rate, constant days and excluding 2009 sales adjustments net sales decreased 2.5% during this period.</p>
<p/>
<p>In commenting on the second quarter results, Jeffrey S. Lorberbaum, Chairman and CEO stated, "Our earnings were better than anticipated due to higher sales in Unilin, improving product mix in Mohawk, price increases and cost reduction programs. Our second quarter sales were flat compared to the prior year as the residential business improved. The European business grew in most geographic and product categories with volumes increasing. Commercial markets are declining at a slower rate with expectations of a bottom this year. Residential remodeling markets should expand in the second half of the year driven by higher disposable income and low interest rates. New home construction remains low but above last year. The European economy is gaining momentum with positive industry reports, higher consumer confidence and an improved banking outlook. We have expanded our international presence with a minority interest in one of the top ten Chinese ceramic tile manufacturers and purchased a building in <span class="xn-location">Russia</span> for laminate manufacturing."</p>
<p/>
<p>Our Mohawk segment net sales were down 3% and operating income was up <span class="xn-money">$11 million</span> before restructuring charges for the period.  Profitability has improved as price increases, product mix, productivity improvements and cost reductions resulted in higher margins. Our residential product introductions shipped earlier this year and should improve our volume in the second half of the year. Our commercial team's selling efforts are focused on the government, healthcare and education markets. Our focus continues on improving quality, product management, service and costs. Our second price increase this year of 5-7%, announced in April, is being implemented to offset higher cost raw material.</p>
<p/>
<p>Our Dal-Tile segment net sales were down 3% as a result of new residential construction and commercial still lagging the economy. We are improving manufacturing output, increasing productivity and lowering SG&A costs to expand margins. Our Home Center share is growing and we are strengthening our position in <span class="xn-location">Mexico</span> by broadening our product offering and customer base. In manufacturing, we have increased labor productivity and energy utilization with process innovation.</p>
<p/>
<p>In <span class="xn-location">Monterrey</span>, <span class="xn-location">Mexico</span>, a flood caused by Hurricane Alex temporarily stopped our ceramic tile production in the beginning of July. Most of the equipment has been repaired and most will be back at full capacity within a month. Shipping was not interrupted by the flood since our finished inventories are stored at another site. We believe our aggressive actions will result in a minimal impact from the storm on our customers and performance due to product substitutions, moving production, sourcing products and coverage from our insurance.</p>
<p/>
<p>Our Unilin segment net sales increased 10% as reported or 16% in local currency. Our business improved in most European markets, <span class="xn-location">Russia</span> and Asia with nearly all product categories growing compared to last year. Quick Step laminate is positioned as the leading brand with innovative products and a strong market presence. New licensees have adopted our patented installation system utilized in laminate, wood and vinyl products. Both, our U.S. and European wood sales have grown and the sales mix has improved. We have implemented multiple price increases in wood this year to recover the inflation of our raw materials.</p>
<p/>
<p>The U.S. and European economies are expected to expand in the second half of the year. We believe product pricing will catch up with the inflation of our raw materials. Our new product introductions will benefit our sales while cost reductions and price increases will improve our margins. We believe raw material prices have peaked in the second quarter and our results should benefit as we go through the year. In the Unilin segment, the third quarter is seasonally slower due to the European holiday.  Our third quarter guidance for earnings is <span class="xn-money">$0.70 to $0.79</span> per share excluding restructuring charges, the timing of insurance reimbursements and purchase accounting adjustments.</p>
<p/>
<p>In conclusion, global economic growth should benefit our business in the future as markets continue to recover. The execution of our product introductions and cost initiatives will support expansion of our profits. Increased exposure to international markets will drive growth and provide a better balance to our company. Our cash flow remains strong and our balance sheet will support continued investment in new opportunities.</p>
<p/>
<p>Mohawk is a leading supplier of flooring for both residential and commercial applications.  Mohawk offers a complete selection of carpet, ceramic tile, laminate, wood, stone, vinyl, and rugs.  These products are marketed under the premier brands in the industry, which include Mohawk, Karastan, Lees, Bigelow, Dal-Tile, American Olean, Unilin and Quick Step.  Mohawk's unique merchandising and marketing assist our customers in creating the consumers' dream.  Mohawk provides a premium level of service with its own trucking fleet and over 250 local distribution locations.</p>
<p/>
<p>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; raw material and energy costs; timing and level of capital expenditures; integration of acquisitions; rationalization of operations; claims; litigation and other risks identified in Mohawk's SEC reports and public announcements.</p>
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    There will be a conference call Friday, August 6, 2010 at 11:00 AM Eastern
Time.

    
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<p>The telephone number to call is 1-800-603-9255 for US/Canada and 1-706-634-2294 for International/Local. Conference ID # 87173114.  A conference call replay will also be available until <span class="xn-chron">August  20, 2010</span> by dialing 800-642-1687 for US/local calls and 706-645-9291 for International/Local calls and entering Conference ID # 87173114.</p>
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<p> </p>
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    MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
    Consolidated Statement of Operations
    
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<p> </p>
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                                          Three Months Ended
                                          ------------------
    (Amounts in thousands,
     except per share data)            July 3,        June 27,
                                           2010            2009
                                           ----            ----
    
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<p> </p>
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    Net sales                        $1,400,086       1,406,012
    Cost of sales                     1,025,330       1,038,624
    -------------                     ---------       ---------
        Gross profit                    374,756         367,388
    Selling, general and
     administrative expenses            285,030         292,710
    ------------------------            -------         -------
    Operating income (loss)              89,726          74,678
    Interest expense                     39,031          30,002
    Other expense (income), net           1,428          (4,622)
    ---------------------------           -----          ------
        Earnings (loss) before
         income taxes                    49,267          49,298
    Income tax (benefit)
     expense                            (18,814)          3,037
    --------------------                -------           -----
        Net earnings (loss)             $68,081          46,261
        -------------------             -------          ------
    Basic earnings (loss) per
     share                                $0.99            0.68
    -------------------------             -----            ----
    Weighted-average common
     shares outstanding -
     basic                               68,585          68,449
    -----------------------              ------          ------
    Diluted earnings (loss) per
     share                                $0.99            0.67
    ---------------------------           -----            ----
    Weighted-average common
     shares outstanding -
     diluted                             68,789          68,613
    -----------------------              ------          ------
    
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<p> </p>
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    Other Financial Information
    (Amounts in thousands)
    Net cash provided by
     operating activities              $135,169         231,627
    ---------------------              --------         -------
    Depreciation and
     amortization                       $72,497          77,062
    ----------------                    -------          ------
    Capital expenditures                $23,830          25,830
    --------------------                -------          ------



    
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<p> </p>
<p> </p>
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                                           Six Months Ended
                                           ----------------
    (Amounts in thousands,
     except per share data)           July 3,        June 27,
                                          2010            2009
                                          ----            ----
    
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<p> </p>
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    Net sales                        2,747,322       2,614,351
    Cost of sales                    2,031,320       2,093,274
    -------------                    ---------       ---------
        Gross profit                   716,002         521,077
    Selling, general and
     administrative expenses           572,655         592,283
    ------------------------           -------         -------
    Operating income (loss)            143,347         (71,206)
    Interest expense                    72,939          60,186
    Other expense (income), net         (2,371)         (2,007)
    ---------------------------         ------          ------
        Earnings (loss) before
         income taxes                   72,779        (129,385)
    Income tax (benefit)
     expense                           (15,840)        (69,759)
    --------------------               -------         -------
        Net earnings (loss)             88,619         (59,626)
        -------------------             ------         -------
    Basic earnings (loss) per
     share                                1.29           (0.87)
    -------------------------             ----           -----
    Weighted-average common
     shares outstanding -
     basic                              68,554          68,441
    -----------------------             ------          ------
    Diluted earnings (loss) per
     share                                1.29           (0.87)
    ---------------------------           ----           -----
    Weighted-average common
     shares outstanding -
     diluted                            68,760          68,441
    -----------------------             ------          ------
    
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<p> </p>
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    Other Financial Information
    (Amounts in thousands)
    Net cash provided by
     operating activities               88,977         269,546
    ---------------------               ------         -------
    Depreciation and
     amortization                      149,295         144,742
    ----------------                   -------         -------
    Capital expenditures                47,139          52,923
    --------------------                ------          ------






    
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<p> </p>
<p> </p>
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                                            As of or for the Three
    Segment Information                          Months Ended
                                            ----------------------
                                           July 3,        June 27,
    (Amounts in thousands)                  2010            2009
                                          --------       ---------
    
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<p> </p>
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    Net sales:
        Mohawk                             $747,582        767,790
        Dal-Tile                            363,618        376,704
        Unilin                              308,385        279,715
        Intersegment sales                  (19,499)       (18,197)
    
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            Consolidated net sales       $1,400,086      1,406,012
            ----------------------       ----------      ---------
    
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<p> </p>
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    Operating income (loss):
        Mohawk                              $26,345         20,560
        Dal-Tile                             28,124         30,331
        Unilin                               42,336         31,141
        Corporate and eliminations           (7,079)        (7,354)
    
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<p> </p>
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            Consolidated operating
             income (loss)                  $89,726         74,678
            ----------------------          -------         ------
    
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<p> </p>
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    Assets:
        Mohawk
        Dal-Tile
        Unilin
        Corporate and eliminations
    
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            Consolidated assets
            -------------------



    
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<p> </p>
<p> </p>
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                                             As of or for the Six
    Segment Information                          Months Ended
                                             --------------------
                                          July 3,        June 27,
    (Amounts in thousands)                  2010            2009
                                         --------       ---------
    
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<p> </p>
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    Net sales:
        Mohawk                           1,464,165       1,362,121
        Dal-Tile                           705,014         735,182
        Unilin                             614,265         548,181
        Intersegment sales                 (36,122)        (31,133)
    
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<p> </p>
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            Consolidated net sales       2,747,322       2,614,351
            ----------------------       ---------       ---------
    
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<p> </p>
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    Operating income (loss):
        Mohawk                              42,973        (158,495)
        Dal-Tile                            43,519          51,460
        Unilin                              68,794          45,693
        Corporate and eliminations         (11,939)         (9,864)
    
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<p> </p>
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            Consolidated operating
             income (loss)                 143,347         (71,206)
            ----------------------         -------         -------
    
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<p> </p>
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    Assets:
        Mohawk                          $1,675,226       1,723,006
        Dal-Tile                         1,570,238       1,621,409
        Unilin                           2,423,695       2,646,999
        Corporate and eliminations         334,757         364,275
                                                           -------
            Consolidated assets         $6,003,916       6,355,689
            -------------------         ----------       ---------





    
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<p> </p>
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    Reconciliation of Net Earnings (Loss) to Adjusted Net Earnings and
    Adjusted Diluted Earnings Per Share
    (Amounts in thousands, except per share data)
    
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<p> </p>
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                                                   Three Months Ended
                                                   ------------------
                                           July 3, 2010       June 27, 2009
                                           ------------       -------------
    Net earnings (loss)                            $68,081             46,261
    Unusual items:
      Commercial carpet tile reserve                     -                  -
      FIFO Inventory                                     -                  -
      Business restructurings                        4,929             12,060
      Debt extinguishment costs                      7,514                  -
      Discrete tax items, net                      (24,407)                 -
      Income taxes                                (3,290)            (4,402)
      ------------                                ------             ------
        Adjusted net earnings                    $52,827             53,919
        ---------------------                    -------             ------
    
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<p> </p>
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    Adjusted diluted earnings per
     share                                         $0.77               0.79
    Weighted-average common shares
     outstanding - diluted                        68,789             68,613



    
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<p> </p>
<p> </p>
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                                                 Six Months Ended
                                                 ----------------
                                             July 3,         June 27,
                                              2010             2009
                                            --------        ---------
    Net earnings (loss)                          88,619          (59,626)
    Unusual items:
      Commercial carpet tile reserve                  -          122,492
      FIFO Inventory                                  -           61,794
      Business restructurings                     8,933           15,917
      Debt extinguishment costs                   7,514                -
      Discrete tax items, net                 (24,407)               -
      Income taxes                             (3,759)         (76,837)
      ------------                             ------          -------
        Adjusted net earnings                  76,900           63,740
        ---------------------                  ------           ------
    
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<p> </p>
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    Adjusted diluted earnings per
     share                                       1.12             0.93
    Weighted-average common shares
     outstanding - diluted                     68,760           68,441




    
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<p> </p>
<p> </p>
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    Reconciliation of Operating Cash Flow to Free Cash Flow
    (Amounts in thousands)
                                           Three Months Ended
                                           ------------------
                                              July 3, 2010
                                              ------------
    Net cash provided by
     operating activities                                $135,169
    Net cash used in
     investing activities                                 (23,830)
    ---------------------                                 -------
      Free Cash Flow                                     $111,339
      --------------                                     --------






    
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<p> </p>
<p> </p>
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    Reconciliation of Total Debt to Net
     Debt
    (Amounts in thousands)
                                                   Three Months
                                                       Ended
                                                   ------------
                                                  July 3, 2010
                                                  ------------
    Current portion of long-term debt                  $351,307
    Long-term debt, less current portion              1,303,155
    Less: Cash and cash equivalents                     342,673
      Net Debt                                       $1,311,789
      --------                                       ----------




    
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<p> </p>
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    Reconciliation of Operating Income to Adjusted EBITDA
    (Amounts in thousands)
    
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<p> </p>
<p> </p>
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                                          Three Months Ended
                                          ------------------
                           September  December        April 3,   July 3,
                           29, 2009   31, 2009           2010     2010
                          ---------- ---------       ---------  --------
    Operating income         $68,071    46,865           53,621    89,726
        Other income
         (expense)               610    (1,509)           3,799    (1,428)
        Depreciation and
         amortization         76,435    81,827           76,798    72,497
        Commercial carpet
         tile reserve              -    11,000                -         -
        Business
         restructurings       16,019    29,787            4,004     4,929
     Adjusted EBITDA        $161,135   167,970          138,222   165,724
     ---------------        --------   -------          -------   -------
    
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      Net Debt to
       Adjusted EBITDA
      ----------------



    
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<p> </p>
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                                             Trailing
                                               Twelve
                                               Months
                                               Ended
                                                ------
                                              July 3,
                                                2010
                                             --------
    Operating income                           258,283
        Other income (expense)                   1,472
        Depreciation and
         amortization                          307,557
        Commercial carpet tile
         reserve                                11,000
        Business restructurings                 54,739
     Adjusted EBITDA                           633,051
     ---------------                           -------
    
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      Net Debt to Adjusted EBITDA                  2.1
      ---------------------------                  ---




    
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    Reconciliation of Net Sales to Adjusted Net Sales
    (Amounts in thousands)
    
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<p> </p>
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                      Three Months Ended           Six Months Ended
                      ------------------           ----------------
                              June 27,
                     July 3, 2010     2009  July 3, 2010  June 27, 2009
                     ------------ --------- ------------  -------------
    Net sales           $1,400,086  1,406,012  2,747,322      2,614,351
    Adjustments to
     net sales
      Commercial
       carpet tile
       reserve                   -          -          -        110,224
      Exchange rate         13,509          -     (2,891)             -
      Additional
       shipping days             -          -    (88,638)             -
        Adjusted net
         sales          $1,413,595  1,406,012  2,655,793      2,724,575
        ------------    ----------  ---------  ---------      ---------




    
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<p> </p>
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    Reconciliation of Mohawk Segment Operating Income to Adjusted Mohawk
    Segment Operating Income
    (Amounts in thousands)
    
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<p> </p>
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                                          Three Months Ended
                                          ------------------
                                July 3, 2010            June 27, 2009
                                ------------            -------------
    Operating income                    $26,345                  20,560
    Adjustments to operating
     income
      Business restructurings             4,929                       -
      Adjusted operating income         $31,274                  20,560
      -------------------------         -------                  ------




    
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<p> </p>
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    Reconciliation of Unilin Segment Net Sales to Adjusted Unilin Segment
    Net Sales
    (Amounts in thousands)
    
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                                            Three Months Ended
                                            ------------------
                                   July 3, 2010          June 27, 2009
                                   ------------          -------------
    Net sales                            $308,385               279,715
    Adjustments to net
     sales
      Exchange rate                        15,945                     -
        Adjusted net sales               $324,330               279,715
        ------------------               --------               -------




    
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<p> </p>
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    Reconciliation of Operating Income to Adjusted Operating Income
    (Amounts in thousands, except per share data)
    
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<p> </p>
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                                          Three Months
                                          Ended
                                          ------------
                                          July 3, 2010
    
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    Operating income                            $89,726
    Unusual items:
      Business restructurings                     4,929
      Adjusted operating income                 $94,655
      -------------------------                 -------
      Adjusted operating margin                     6.8%




    
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    Reconciliation of Earnings Before Income Taxes to Adjusted Earnings
    Before Income Taxes
    (Amounts in thousands)
    
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<p> </p>
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                                             Three Months Ended
                                             ------------------
                                                July 3, 2010
    Earnings before income taxes                        $49,267
    Unusual items:
      Business restructurings                             4,929
      Debt extinguishment costs                           7,514
        Adjusted earnings before income
         taxes                                          $61,710
        -------------------------------                 -------




    
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<p> </p>
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    Reconciliation of Income Tax Benefit to Adjusted Income Tax Expense
    (Amounts in thousands)
    
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<p> </p>
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                                           Three Months Ended
                                           ------------------
                                              July 3, 2010
    Income tax benefit                               $(18,814)
    Unusual items:
      Discrete tax items, net                          24,407
      Income taxes                                      3,290
        Adjusted income tax expense                    $8,883
        ---------------------------                    ------
    
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    Adjusted income tax rate                               14%
    ------------------------                              ---
    
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<p> </p>
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    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.







    

For further information: For further information: Frank H. Boykin, Chief Financial Officer, +1-706-624-2695 Web Site: http://www.mohawkind.com


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