Mohawk Industries, Inc. Announces Third Quarter Earnings

CALHOUN, Ga., Oct. 29 /CNW/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2009 third quarter net earnings of $34 million and diluted earnings per share (EPS) of $0.50 which included a restructuring charge of approximately $16 million, primarily related to our distribution and manufacturing infrastructure. Excluding the restructuring charge, net earnings and EPS would be $44 million and $0.64 per share, respectively. In the third quarter of 2008, the net loss was $1,485 million and loss per share was $21.70. Excluding the 2008 third quarter charges, net earnings and EPS would have been $84 million and $1.23 per share, respectively. Net sales for the 2009 third quarter were $1,383 million, a decrease of 22% (21% with a constant exchange rate) from 2008. Continued cost control, reduced capital spending and lower working capital enabled generation of free cash flow of $128 million for the quarter.

For the nine months of 2009, our net loss was $25 million or a net loss per share of $0.37. Excluding year to date charges, net earnings would be $108 million and EPS would be $1.57. In the first nine months of 2008 net loss and loss per share were $1,331 million and $19.45 per share, respectively. Excluding the 2008 year to date charges, net earnings and EPS would have been $244 million and $3.56 per share, respectively. Net sales for the first nine months of 2009 were $3,997 million representing a 25% decrease from 2008. Sales declined 22% with a constant exchange rate excluding carpet tile charges. The sales decrease for both the quarter and the year to date in the U.S. and Europe is primarily attributable to continuing low home sales, soft business investment and weak consumer discretionary spending.

In commenting on the third quarter results, Jeffery S. Lorberbaum, Chairman and CEO stated, "Our third quarter earnings were slightly better than our guidance due to the many changes we have made to manage through this difficult environment. Our gross margin of 27%, an improvement of almost 200 basis points over last year benefited from lower raw material and freight costs, personnel reductions, cost containment measures and plant consolidations. Investments in new products, research and development and capital expenditures are being made to improve sales, efficiencies, quality and service. Our balance sheet is strong with over $300 million of cash, ample liquidity from our new $600 million bank facility and free cash flow of over $340 million exceeding last year by approximately 55% on a year to date basis. Our strategy continues to be adjusted as the economic environment requires."

Mohawk segment sales were down 21% for the third quarter, in line with the industry. Much of our efforts to reduce costs and improve processes have been offset by low industry volumes and unabsorbed overhead. Consumers are purchasing more value-oriented products and selling prices on commoditized products have compressed. Residential volume remains weak with commercial still in decline. We have made improvements in our controllable production costs and quality throughout our processes. Reductions in our SG&A continue to be made throughout the organization. The restructuring of our distribution model and consolidating regional warehouses with Dal-Tile will lower our infrastructure cost further. The commercial team is focused on the government, healthcare and education markets, which should be stronger than the other channels.

Dal-Tile sales for the third quarter were down 23% or 22% with a constant exchange rate. The decline in new housing sales and commercial is significantly affecting the ceramic industry. Dal-Tile is taking share from imports, which make up about half of the industry volume with our broad product line and strong distribution. We further reduced our SG&A in the third quarter by merging local service centers, consolidating regional warehouses and reducing our warehousing infrastructure. Manufacturing costs continue to improve with increased productivity, lower waste levels, and higher quality. Our new introductions of engineered stone and terrazzo tile products are growing in the U.S. market. In Mexico, we are improving our market position by broadening our product line and expanding our customer base.

Unilin sales declined 21% or 18% with a constant exchange rate. Our operating margins for the quarter were approximately 12% and the EBITDA margin was approximately 26%. Demand in both our U.S. and European markets remained challenging in the quarter. Lower raw material costs, increased royalty income, postponement of expenses and better than expected sales volume in some of our products favorably impacted our earnings. Our laminate business has been influenced by customers trading down to lower value alternatives. To improve our laminate sales, we are increasing participation in the DIY channels, growing sales of our new product introductions, adding new product features and investing in new product innovation. We broadened our wood distribution in both the U.S. and Europe under multiple brands to reach all markets. We continue to invest in research and development in our products to provide greater value and to lower production costs. The board products remain under significant pricing pressure due to excess capacity in the markets and high fixed operating costs. Unilin has implemented many cost reductions to lower SG&A, reduce manufacturing costs and manage inventory levels.

Business conditions remain weak as we move into seasonally slower quarters. The residential business appears to have stabilized and the commercial business will continue to be difficult next year. Sequentially, lower plant utilization rates in the fourth quarter will result in higher unabsorbed overhead. Carpet material costs will reduce margins until we pass them through with higher prices. Our fourth quarter guidance for earnings is $0.28 to $0.38 per share. Excluded from the guidance is an estimated restructuring charge of $25 million, primarily non-cash reductions of our manufacturing and distribution infrastructure. We continue to make the necessary structural changes to strengthen our long-term business. Each segment is executing innovative ways to positively position us in all product categories. All of our efforts to strengthen the business during this downturn will significantly benefit us in the future as the industry recovers.

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.

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, Ralph Lauren, 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.

    


    

    
          There will be a conference call Friday, October  30, 2009
                           at 11:00 AM Eastern Time.
       The telephone number to call is 1-800-603-9255 for US/Canada and
       1-706-634-2294 for International/Local. Conference ID # 34166688.
            A conference call replay will also be available until
       November 13,  2009 by dialing 800-642-1687 for US/local calls and
           706-645-9291 for International/Local calls and entering
                           Conference ID # 34166688.
    

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Statement of Operations

    
                                  Three Months Ended     Nine Months Ended
                                 --------------------   --------------------
    (Amounts in thousands,       Sept. 26,  Sept. 27,   Sept. 26,  Sept. 27,
     except per share data)       2009       2008        2009       2008
                                 ---------  ---------   ---------  ---------
    

    
    Net sales                   $1,382,565  1,763,034   3,996,916  5,341,176
    Cost of sales                1,013,106  1,323,963   3,106,380  3,959,374
                                 ---------  ---------   ---------  ---------
      Gross profit                 369,459    439,071     890,536  1,381,802
    Selling, general and
     administrative expenses       301,388    321,259     893,671    993,609
    Impairment of goodwill
     and other intangibles               -  1,418,912           -  1,418,912
                                 ---------  ---------   ---------  ---------
      Operating income (loss)       68,071 (1,301,100)     (3,135)(1,030,719)
    Interest expense                32,318     30,540      92,504     97,049
    Other (income) expense, net       (610)     4,201      (2,617)     8,630
                                 ---------  ---------   ---------  ---------
    Earnings (loss) before
     income taxes                   36,363 (1,335,841)    (93,022)(1,136,398)
    Income tax expense (benefit)     2,015    148,940     (67,744)   194,215
                                 ---------  ---------   ---------  ---------
      Net earnings (loss)          $34,348 (1,484,781)    (25,278)(1,330,613)
                                 ---------  ---------   ---------  ---------
    Basic earnings (loss)
     per share                       $0.50     (21.70)      (0.37)    (19.45)
                                 ---------  ---------   ---------  ---------
    Weighted-average common
     shares outstanding - basic     68,456     68,411      68,446     68,396
                                 ---------  ---------   ---------  ---------
    Diluted earnings (loss)
     per share                       $0.50     (21.70)      (0.37)    (19.45)
                                 ---------  ---------   ---------  ---------
    Weighted-average common
     shares outstanding - diluted   68,653     68,411      68,446     68,396
                                 ---------  ---------   ---------  ---------
    

    
    Other Financial Information
    (Amounts in thousands)
    Net cash provided by
     operating activities         $146,549    190,287     412,594    376,979
                                 ---------  ---------   ---------  ---------
    Depreciation and amortization  $76,435     77,712     221,177    226,020
                                 ---------  ---------   ---------  ---------
    Capital expenditures           $18,678     49,512      71,281    155,322
                                 ---------  ---------   ---------  ---------
    

    
    Consolidated Balance Sheet Data
    (Amounts in thousands)
    

    
                                   September 26, 2009   September 27, 2008
                                   ------------------   ------------------
    ASSETS
    Current assets:
        Cash and cash equivalents        $306,145             62,025
        Receivables, net                  832,105            933,741
        Inventories                       939,478          1,234,651
        Prepaid expenses                  117,367            122,464
        Deferred income taxes and
         other current assets             164,016            151,160
    ----------------------------------------------------------------
          Total current assets          2,359,111          2,504,041
    Property, plant and equipment,
     net                                1,841,779          1,963,939
    Goodwill                            1,424,391          1,529,321
    Intangible assets, net                817,586            954,826
    Deferred income taxes and
     other non-current assets              45,588             20,259
    ----------------------------------------------------------------
                                       $6,488,455          6,972,386
    ----------------------------------------------------------------
    LIABILITIES AND EQUITY
    Current liabilities:
      Current portion of
       long-term debt                     $53,163            131,663
      Accounts payable and
       accrued expenses                   876,579            980,873
    ----------------------------------------------------------------
         Total current liabilities        929,742          1,112,536
    Long-term debt, less
     current portion                    1,802,138          1,924,698
    Deferred income taxes and
     other long-term liabilities          510,486            558,471
    ----------------------------------------------------------------
         Total liabilities              3,242,366          3,595,705
    ----------------------------------------------------------------
    Total equity                        3,246,089          3,376,681
    ----------------------------------------------------------------
                                       $6,488,455          6,972,386
    ----------------------------------------------------------------
    

    
                               As of or for the           As of or for the
    Segment Information       Three Months Ended          Nine Months Ended
    (Amounts in thousands)  -----------------------    ---------------------
                            Sept. 26,    Sept. 27,     Sept. 26,    Sept. 27,
                               2009         2008          2009        2008
                             ---------    ---------     ---------   ---------
    

    
    Net sales:
        Mohawk               $755,904      953,827     2,118,025    2,827,297
        Dal-Tile              361,590      472,031     1,096,772    1,402,593
        Unilin                281,803      357,785       829,984    1,173,065
        Intersegment sales    (16,732)     (20,609)      (47,865)     (61,779)
    -------------------------------------------------------------------------
         Consolidated net
          sales            $1,382,565    1,763,034     3,996,916    5,341,176
    -------------------------------------------------------------------------
    

    
    Operating income (loss):
        Mohawk                $16,261     (224,376)     (142,234)    (167,542)
        Dal-Tile               21,166     (479,918)       72,626     (364,808)
        Unilin                 34,929     (592,549)       80,622     (482,472)
        Corporate and
         eliminations          (4,285)      (4,257)      (14,149)     (15,897)
    -------------------------------------------------------------------------
          Consolidated
           operating income
           (loss)             $68,071   (1,301,100)       (3,135)  (1,030,719)
    -------------------------------------------------------------------------
    

    
    Assets:
        Mohawk                                        $1,697,334    2,122,463
        Dal-Tile                                       1,622,502    1,736,212
        Unilin                                         2,754,233    2,912,235
        Corporate and eliminations                       414,386      201,476
    -------------------------------------------------------------------------
          Consolidated assets                         $6,488,455    6,972,386
    -------------------------------------------------------------------------
    

    
    Reconciliation of Net Sale to Adjusted Net Sales
    (Amounts in thousands)
    

    
                                  Three Months Ended     Nine Months Ended
                                 --------------------   --------------------
                                 Sept. 26,  Sept. 27,   Sept. 26,  Sept. 27,
                                   2009       2008        2009       2008
                                 ---------  ---------   ---------  ---------
    Net sales                   $1,382,565  1,763,034   3,996,916  5,341,176
    Add: Commercial carpet
     tile reserve                        -     14,614     110,224     23,651
    Add: Exchange rate              16,825          -      89,825          -
                                 ---------  ---------   ---------  ---------
      Adjusted net sales        $1,399,390  1,777,648   4,196,965  5,364,827
                                 ---------  ---------   ---------  ---------
    

    
    Reconciliation of Segment Net Sale to Adjusted Segment Net Sales
    (Amounts in thousands)
    

    
                                  Three Months Ended
                                 --------------------
                                 Sept. 26,  Sept. 27,
                                   2009       2008
                                 ---------  ---------
    Dal-Tile segment
    -------------------------------------------------
    Net sales                     $361,590    472,031
    Add: Exchange rate               4,518          -
    -------------------------------------------------
      Adjusted net sales          $366,108    472,031
    -------------------------------------------------
    

    
    Unilin segment
    -------------------------------------------------
    Net sales                     $281,803    357,785
    Add: Exchange rate              12,307          -
    -------------------------------------------------
      Adjusted net sales          $294,110    357,785
    -------------------------------------------------
    

    
    Reconciliation of Net Earnings (Loss) to Adjusted Net Earnings
    (Amounts in thousands, except per share data)
    

    
                                  Three Months Ended      Nine Months Ended
                                 --------------------    --------------------
                                  Sept. 26,  Sept. 27,   Sept. 26,  Sept. 27,
                                    2009       2008        2009       2008
                                 ----------  ---------   ---------  ---------
    Net earnings (loss)            $34,348 (1,484,781)    (25,278) (1,330,613)
    Unusual charges:
    Add: Impairment of goodwill
     and other intangibles               -  1,418,912           -   1,418,912
    Add: Commercial
     carpet tile reserve                 -     14,614     122,492      23,651
    Add: FIFO inventory                  -          -      61,794           -
    Add: Business restructurings    16,019          -      31,936           -
    Add: Income tax
     expense (benefit)              (6,167)   135,620     (83,004)    132,140
    -------------------------------------------------------------------------
      Adjusted net earnings        $44,200     84,365     107,940     244,090
    -------------------------------------------------------------------------
    

    
    Basic earnings
     (loss) per share                $0.50     (21.70)      (0.37)     (19.45)
    Weighted-average common shares
     outstanding - basic            68,456     68,411      68,446      68,396
    Adjusted Diluted
     earnings per share              $0.64       1.23        1.57        3.56
    Weighted-average common shares
     outstanding - diluted          68,653     68,600      68,606      68,599
    

    
    Reconciliation of Free Cash Flow
    (Amounts in thousands)
    

    
                           Three Months Ended         Nine Months Ended
                           ------------------   ------------------------------
                            Sept. 26, 2009      Sept. 26, 2009  Sept. 27, 2008
                           ------------------   --------------  --------------
    Net cash provided
     by operations               $146,549             412,594         376,979
    Net cash used in
     investing                    (24,282)            (77,205)       (163,668)
      less:
       Acquisitions,
        net of cash                 5,604               5,924           8,346
    ----------------------------------------    ------------------------------
      Free cash flow             $127,871             341,313         221,657
    ----------------------------------------    ------------------------------
    

    
    Reconciliation of Unilin Segment Operating Income to Unilin Segment EBITDA
    (Amounts in thousands)
                           Three Months Ended
                           ------------------
    EBITDA reconciliation  September 26, 2009
    -----------------------------------------
    Operating income                  $34,929
        Add:  Other income                833
        Add:
         Depreciation and
         amortization                  38,247
        -----------------              ------
     EBITDA                           $74,009
    --------                          -------
    

    
    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.


    

SOURCE Mohawk Industries, Inc.

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


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