Mohawk Industries Reports Record Second Quarter

CALHOUN, Ga., Aug. 4, 2016 /CNW/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2016 second quarter record net earnings of $255 million and diluted earnings per share (EPS) of $3.42, a 35% increase versus prior year. Excluding restructuring, acquisition and other charges, net earnings were $259 million and EPS was $3.47, a 29% increase over last year's second quarter adjusted EPS. Net sales for the second quarter of 2016 were $2.3 billion, up 13.2% versus the prior year's second quarter or approximately 12.1% increase on a constant days and currency exchange rate basis. For the second quarter of 2015, net sales were $2.0 billion, net earnings were $186 million and EPS was $2.53; excluding restructuring, acquisition and other charges, net earnings were $199 million and EPS was $2.69.

For the six months ending July 2, 2016, net earnings and EPS were $427 million and $5.73, respectively. Net earnings excluding restructuring, acquisition and other charges were $436 million and EPS was $5.85, an increase of 33% over the six-month period adjusted EPS result in 2015. For the six month period, net sales were $4.5 billion, an increase of 14% versus prior year as reported or 15% on a constant currency basis. For the six-month period ending July 4, 2015, net sales were $3.9 billion, net earnings were $209 million and EPS was $2.83; excluding restructuring, acquisition and other charges, net earnings and EPS were $324 million and $4.39.

Commenting on Mohawk Industries' second quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "We delivered our highest sales for any quarter in the company's history, and our earnings per share set an all-time record for the company, marking the ninth consecutive quarter that Mohawk has delivered a year over year record quarterly adjusted EPS. Our operating margin rose to a second quarter record of 15.2%, an increase of 270 basis points, or 15.4% on an adjusted basis, an increase of 160 basis points, as a result of productivity, sales volume, acquisitions and lower inputs, partially offset by investments in SG&A and unfavorable price-mix.

"Our innovations in products and processes, investments in efficiencies and integration of our acquisitions enhanced our performance during the quarter and provide a foundation for long-term growth. Our recent acquisitions are progressing as we broaden their strategies, leverage their distribution and provide additional resources. Across the enterprise, we are investing in marketing to support our product introductions and expand our distribution and sales.

"To optimize growth, we have initiated many capital projects that will enhance our performance this year and beyond by expanding our capacity and improving our efficiencies. We are in the final stages of the start-up of our new U.S. ceramic, LVT and outdoor rug operations as well as our European LVT plant. We have begun additional expansion projects to support growth across our product categories: LVT and premium laminate in the U.S. and Europe; ceramic tile in Mexico, Europe and Russia; and Continuum polyester carpet, engineered wood and utility mats in the U.S. This year, we anticipate our capital expenditures will exceed $600 million and will lead to higher future sales and profits.

"For the quarter, our Global Ceramic Segment sales were up 5% as reported; on a constant days and currency basis legacy sales were up 4%.  Operating income for the segment rose approximately 16% to an operating margin of 17%, which benefited from higher volume, productivity and mix. Our North American ceramic business continued to grow as we increased sales personnel and distribution points. Our new Tennessee ceramic plant is ahead of schedule with the last line becoming operational in the third quarter. We are manufacturing higher value products at the facility, including 48-inch wood planks and color body porcelain tiles. We are focusing each of our North American plants on specific products to optimize productivity and increase their efficiency and quality. All of our Mexican ceramic capacity is being utilized, and we will double the capacity of our Salamanca plant by fall of next year. Our European ceramic sales continue to improve with expanded margins and improved mix. We have initiated the final phase of our Italian asset modernization, which will be completed during the first half of next year. We are enhancing our Bulgarian product offering, improving efficiencies and supplying product to Western European and U.S. markets. Despite the decline of the Russian economy and ceramic industry, our sales rose on a local currency basis with improvements in volume, price and mix.

"During the quarter, our Flooring North America Segment's sales were up 7% as reported; the legacy sales were up 1% on a constant days basis. Operating income grew 25% to a margin of 12% as reported and grew 16% excluding restructuring charges to a margin of 13%, versus prior year. The segment's profitability improved, as we increased investments in sales personnel, retail merchandising and samples. Residential carpet margins expanded as a result of our differentiated products, process innovations and investments that lowered our cost structure. We continue to strengthen our manufacturing performance with many process advances, higher yields and material enhancements. Commercial carpet sales increased as we strengthened our product offering and expanded our sales in all channels. New innovations in laminate are differentiating our products and expanding our market share. Our European operations are providing product to support our laminate growth until our new U.S. capacity is operational in the second half of next year. By the end of this year, we will install more engineered wood production to satisfy greater demand and produce higher value products. Our vinyl business continues to expand as we increase the product assortment and distribution of our LVT and sheet vinyl. By the end of next year, we will double our U.S. LVT capacity and enhance our capabilities in this fast growing category.

"For the quarter, our Flooring Rest of the World segment's sales were up 51% as reported; on a constant days and currency basis legacy sales were up 5%.  Operating income grew 91% as reported to a margin of 20% and grew 67% on a constant currency basis, excluding restructuring and integration charges, to a margin of 21%. Our flooring business continued to improve significantly, led by growth in premium laminate and LVT. Our laminate mix benefited from higher sales of our innovative new collections featuring more realistic visuals and water resistance. We are adding laminate capacity in Europe to support the next generation of this unique technology. We are expanding sheet vinyl sales in commercial channels to improve our mix. LVT sales and margins increased as our mix and efficiencies improved. To satisfy our anticipated LVT growth, a new production line should be operational by the end of next year. During the period, our panel sales and margins expanded, and the integration of Xtratherm has enhanced our results. 

"We are optimistic about our future performance as a result of our ongoing investments in people, products and assets. Our current booking trends have improved, and we anticipate that third quarter sales growth will be higher on a local basis. We expect continued margin expansion in all of our segments due to process improvements, operational innovations and greater efficiencies. Across the business, we are introducing differentiated new products and leveraging customer relationships to increase our market position. We are making significant investments to expand our capacity and grow sales in all of our products and geographies. Our LVT sales growth is accelerating, and our new plants are making gains in capacity, productivity and efficiency. Taking these factors into account, our third quarter EPS guidance is $3.40 to $3.49, excluding any restructuring charges.

"From 2013 through 2016, we will have invested about $2 billion in new assets to drive Mohawk's profitability. We have substantially integrated our recent acquisitions, and with our strong organization and balance sheet we can exploit additional opportunities. In every region, our differentiated product collections, operational excellence and extensive customer relationships give us advantages so we can deliver strong results."

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, IVC, 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, 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, August 5, 2016, 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 # 47343802. A replay will be available until Friday, September 2, 2016, by dialing 855-859-2056 for US/local calls and 404-537-3406 for International/Local calls and entering Conference ID # 47343802.

 

 

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES

(Unaudited)

Consolidated Statement of Operations

Three Months Ended

Six Months Ended

(Amounts in thousands, except per share data)

July 2, 2016

July 4, 2015

July 2, 2016

July 4, 2015

Net sales

$             2,310,336

2,041,733

4,482,382

3,922,910

Cost of sales

1,554,748

1,426,604

3,087,115

2,795,838

    Gross profit

755,588

615,129

1,395,267

1,127,072

Selling, general and administrative expenses

404,896

359,313

798,903

827,482

Operating income

350,692

255,816

596,364

299,590

Interest expense

10,351

16,838

22,652

33,287

Other expense (income), net

(5,807)

2,928

(2,378)

1,845

    Earnings before income taxes

346,148

236,050

576,090

264,458

Income tax expense

90,034

49,276

147,859

55,180

        Net earnings including noncontrolling interest

256,114

186,774

428,231

209,278

Net earnings attributable to noncontrolling interest

926

282

1,495

440

Net earnings attributable to Mohawk Industries, Inc.

$               255,188

186,492

426,736

208,838

Basic earnings per share attributable to Mohawk Industries, Inc.

Basic earnings per share attributable to Mohawk Industries, Inc.

$                     3.44

2.54

5.76

2.85

Weighted-average common shares outstanding - basic

74,123

73,264

74,049

73,123

Diluted earnings per share attributable to Mohawk Industries, Inc.

Diluted earnings per share attributable to Mohawk Industries, Inc.

$                     3.42

2.53

5.73

2.83

Weighted-average common shares outstanding - diluted

74,574

73,756

74,526

73,644

Other Financial Information

(Amounts in thousands)

Net cash provided by operating activities

$              411,620

317,165

549,380

267,519

Depreciation and amortization

$              101,215

88,011

201,408

173,667

Capital expenditures

$              136,081

122,628

276,914

228,422

 

 

 

Consolidated Balance Sheet Data

(Amounts in thousands)

July 2, 2016

July 4, 2015

ASSETS

Current assets:

    Cash and cash equivalents

$                       112,049

171,087

    Receivables, net

1,448,898

1,387,687

    Inventories

1,660,131

1,592,403

    Prepaid expenses and other current assets

298,125

303,871

        Total current assets

3,519,203

3,455,048

Property, plant and equipment, net

3,243,838

3,014,751

Goodwill

2,322,735

2,294,214

Intangible assets, net

930,323

931,296

Deferred income taxes and other non-current assets

296,732

461,774

    Total assets

$               10,312,831

10,157,083

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt and commercial paper

$                  1,795,584

1,698,044

Accounts payable and accrued expenses

1,334,150

1,282,831

        Total current liabilities

3,129,734

2,980,875

Long-term debt, less current portion

1,160,700

1,769,241

Deferred income taxes and other long-term liabilities

613,131

770,782

        Total liabilities

4,903,565

5,520,898

Redeemable noncontrolling interest

23,683

21,304

Total stockholders' equity

5,385,583

4,614,881

    Total liabilities and stockholders' equity

$               10,312,831

10,157,083

 

 

Segment Information

 Three Months Ended

As of or for the Six Months Ended

(Amounts in thousands)

July 2, 2016

July 4, 2015

July 2, 2016

July 4, 2015

Net sales:

    Global Ceramic

$                      829,794

789,802

1,603,520

1,509,630

    Flooring NA

980,693

920,337

1,887,057

1,767,248

    Flooring ROW

499,849

331,622

991,805

646,364

    Intersegment sales

-

(28)

-

(332)

        Consolidated net sales

$                   2,310,336

2,041,733

4,482,382

3,922,910

Operating income (loss):

    Global Ceramic

$                       140,606

121,189

240,383

206,516

    Flooring NA

118,946

95,143

194,297

19,951

    Flooring ROW

101,062

53,052

180,599

97,693

    Corporate and eliminations

(9,922)

(13,568)

(18,915)

(24,570)

        Consolidated operating income

$                       350,692

255,816

596,364

299,590

Assets:

    Global Ceramic

$                  4,054,351

3,950,088

    Flooring NA

3,316,048

3,182,465

    Flooring ROW

2,835,497

2,710,895

    Corporate and eliminations

106,935

313,635

        Consolidated assets

$               10,312,831

10,157,083

 

 

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

Six Months Ended

July 2, 2016

July 4, 2015

July 2, 2016

July 4, 2015

Net earnings attributable to Mohawk Industries, Inc.

$                  255,188

186,492

426,736

208,838

Adjusting items:

Restructuring, acquisition and integration-related and other costs 

6,020

18,485

13,738

31,014

Acquisitions purchase accounting (inventory step-up)

-

6,156

-

6,156

Legal settlement and reserves

-

2,000

-

127,000

Deferred loan costs

-

-

-

651

Income taxes 

(2,342)

(14,490)

(4,620)

(50,043)

Adjusted net earnings attributable to Mohawk Industries, Inc.

$                  258,866

198,643

435,854

323,616

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

$                        3.47

2.69

5.85

4.39

Weighted-average common shares outstanding - diluted

74,574

73,756

74,526

73,644

 

 

Reconciliation of Total Debt to Net Debt

(Amounts in thousands)

July 2, 2016

Current portion of long-term debt and commercial paper

$                  1,795,584

Long-term debt, less current portion

1,160,700

Less: Cash and cash equivalents

112,049

Net Debt

$                  2,844,235

 

 

Reconciliation of Operating Income to Pro forma Adjusted EBITDA

(Amounts in thousands)

Trailing Twelve

Three Months Ended

Months Ended

October 3, 2015

December 31, 2015

April 2, 2016

July 2, 2016

July 2, 2016

Operating income

$                       288,734

249,242

245,672

350,692

1,134,340

Other (expense) income

(4,249)

(11,525)

(3,429)

5,807

(13,396)

Net (earnings) loss attributable to non-controlling interest

(798)

(446)

(569)

(926)

(2,739)

Depreciation and amortization

94,955

94,025

100,194

101,215

390,389

EBITDA

378,642

331,296

341,868

456,788

1,508,594

Restructuring, acquisition and integration-related and other costs 

11,690

30,820

7,718

6,020

56,248

Acquisitions purchase accounting (inventory step-up)

7,160

21

-

-

7,181

Legal settlement and reserves

-

(2,520)

-

-

(2,520)

Release of indemnification asset

-

11,180

-

-

11,180

 Acquisitions EBITDA

3,639

7,337

-

-

10,976

 Pro forma Adjusted EBITDA 

$                       401,131

378,134

349,586

462,808

1,591,659

Net Debt to Pro forma Adjusted EBITDA

1.8

 

 

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

(Amounts in thousands)

Three Months Ended

Six Months Ended

July 2, 2016

July 4, 2015

July 2, 2016

July 4, 2015

Net sales

$                  2,310,336

2,041,733

4,482,382

3,922,910

Adjustment to net sales on  constant shipping days

(37,849)

-

-

-

Adjustment to net sales on a constant exchange rate

16,048

-

41,928

-

Net sales on a constant exchange rate and constant shipping days

2,288,535

2,041,733

4,524,310

3,922,910

Less: impact of acquisition volume

(242,439)

(55,672)

(485,332)

(55,672)

Net sales on a constant exchange rate and constant shipping days excluding acquisition volume

$                  2,046,096

1,986,061

4,038,978

3,867,238

 

 

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

(Amounts in thousands)

Three Months Ended

Global Ceramic

July 2, 2016

July 4, 2015

Net sales

$                       829,794

789,802

Adjustment to net sales on  constant shipping days

(12,940)

-

Adjustment to segment net sales on a constant exchange rate

15,730

-

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

832,584

789,802

Less: impact of acquisition volume

(26,634)

(17,675)

Segment net sales on a constant exchange rate and constant shipping days excluding acquisition volume

$                       805,950

772,127

 

 

Reconciliation of Segment Net Sales to Segment Net Sales on Constant Shipping Days Excluding Acquisition Volume

(Amounts in thousands)

Three Months Ended

Flooring NA

July 2, 2016

July 4, 2015

Net sales

$                       980,693

920,337

Adjustment to net sales on  constant shipping days

(14,639)

-

Segment net sales on constant shipping days 

966,054

920,337

Less: impact of acquisition volume

(45,100)

(10,036)

Segment net sales on constant shipping days excluding acquisition volume

$                       920,954

910,301

 

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

(Amounts in thousands)

Three Months Ended

Flooring ROW

July 2, 2016

July 4, 2015

Net sales

$                       499,849

331,622

Adjustment to net sales on  constant shipping days

(10,269)

-

Adjustment to segment net sales on a constant exchange rate

317

-

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

489,897

331,622

Less: impact of acquisition volume

(170,705)

(27,961)

Segment net sales on a constant exchange rate and constant shipping days excluding acquisition volume

$                       319,192

303,661

 

 

Reconciliation of Gross Profit to Adjusted Gross Profit 

(Amounts in thousands)

Three Months Ended

July 2, 2016

July 4, 2015

Gross Profit

$                       755,588

615,129

Adjustments to gross profit:

Restructuring, acquisition and integration-related and other costs 

2,778

12,341

Acquisitions purchase accounting (inventory step-up)

-

6,156

  Adjusted gross profit

$                       758,366

633,626

 

 

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

(Amounts in thousands)

Three Months Ended

July 2, 2016

July 4, 2015

Selling, general and administrative expenses

$                       404,896

359,313

Adjustments to selling, general and administrative expenses:

Restructuring, acquisition and integration-related and other costs 

(3,241)

(6,144)

Legal settlement and reserves

-

(2,000)

  Adjusted selling, general and administrative expenses

$                       401,655

351,169

 

 

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

(Amounts in thousands)

Three Months Ended

July 2, 2016

July 4, 2015

Operating income

$                       350,692

255,816

Adjustments to operating income:

Restructuring, acquisition and integration-related and other costs 

6,020

18,485

Legal settlement and reserves

-

2,000

Acquisitions purchase accounting (inventory step-up)

-

6,156

Adjusted operating income

356,712

282,457

    Adjustment to operating income on a constant exchange rate

4,372

-

  Adjusted operating income on constant exchange rate

$                       361,084

282,457

 

 

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

(Amounts in thousands)

Three Months Ended

Global Ceramic

July 2, 2016

July 4, 2015

Operating income

$                       140,606

121,189

Adjustments to segment operating income:

Restructuring, acquisition and integration-related and other costs 

381

77

Acquisitions purchase accounting (inventory step-up)

-

1,932

Adjusted segment operating income

140,987

123,198

Adjustment to operating income on a constant exchange rate

2,420

-

  Adjusted  segment operating income on constant exchange rate

$                       143,407

123,198

 

 

Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 

(Amounts in thousands)

Three Months Ended

Flooring NA 

July 2, 2016

July 4, 2015

Operating income

$                       118,946

95,143

Adjustments to segment operating income:

Legal settlement and reserves

-

2,000

Restructuring, acquisition and integration-related and other costs 

6,146

9,465

Acquisitions purchase accounting (inventory step-up)

-

1,167

  Adjusted segment operating income

$                       125,092

107,775

 

 

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

(Amounts in thousands)

Three Months Ended

Flooring ROW 

July 2, 2016

July 4, 2015

Operating income

$                       101,062

53,052

Adjustments to segment operating income:

Restructuring, acquisition and integration-related and other costs 

(507)

5,109

Acquisitions purchase accounting (inventory step-up)

-

3,057

Adjusted segment operating income

100,555

61,218

Adjustment to operating income on a constant exchange rate

1,951

-

  Adjusted segment operating income on constant exchange rate

$                       102,506

61,218

 

 

Reconciliation of Earnings incl Noncontrolling Interests Before Income Taxes to Adjusted Earnings incl Noncontrolling Interests Before Income Taxes

(Amounts in thousands)

Three Months Ended

July 2, 2016

July 4, 2015

Earnings before income taxes

$                       346,148

236,050

Noncontrolling interests

(926)

(282)

Adjustments to earnings including noncontrolling interests before income taxes:

Restructuring, acquisition and integration-related & other costs 

6,020

18,485

Acquisitions purchase accounting (inventory step-up)

-

6,156

Legal settlement and reserves

-

2,000

 Adjusted earnings including noncontrolling interests before income taxes

$                       351,242

262,409

 

 

Reconciliation of Income Tax Expense to Adjusted Income Tax Expense 

(Amounts in thousands)

Three Months Ended

July 2, 2016

July 4, 2015

Income tax expense 

$                          90,034

49,276

Income tax effect of adjusting items

2,342

14,490

  Adjusted income tax expense

$                          92,376

63,766

Adjusted income tax rate

26.4%

24.3%

 

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, integration-related and other costs, legal settlement and reserves and acquisitions purchase accounting (inventory step-up) 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, http://www.mohawkind.com


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