Mohawk Industries Reports Record Third Quarter

CALHOUN, Ga., Nov. 3, 2016 /CNW/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2016 third quarter record net earnings of $270 million and diluted earnings per share (EPS) of $3.62, a 25% increase versus prior year. Excluding restructuring, acquisition and other charges, net earnings were $261 million and EPS was $3.50, a 17% increase over last year's third quarter adjusted EPS. Net sales for the third quarter of 2016 were $2.3 billion, up 7% versus the prior year's third quarter as reported and on a legacy basis applying constant days and currency rates. For the third quarter of 2015, net sales were $2.15 billion, net earnings were $215 million and EPS was $2.89; excluding restructuring, acquisition and other charges, net earnings were $222 million and EPS was $2.98.

For the nine months ending October 1, 2016, net earnings and EPS were $696.6 million and $9.34, respectively. Net earnings excluding restructuring, acquisition and other charges were $697.1 million and EPS was $9.35, an increase of 27% over the nine-month period adjusted EPS result in 2015. For the nine month period, net sales were $6.8 billion, an increase of 12% versus prior year as reported and 5% on a legacy basis applying constant currency rates. For the nine-month period ending October 3, 2015, net sales were $6.1 billion, net earnings were $424 million and EPS was $5.73; excluding restructuring, acquisition and other charges, net earnings and EPS were $546 million and $7.38.

Commenting on Mohawk Industries' third quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "During the period, our growth strengthened, and our margins continue to expand compared to the last year. Our strategy of investing in our existing business as well as synergistic acquisitions continues to deliver record results. Our earnings per share for the period were an all-time record for the company, marking the tenth consecutive quarter that Mohawk has delivered a year-over-year record quarterly EPS. Our operating margin rose to an all-time record of 16.5% or 16.0% on an adjusted basis, an increase of 160 basis points, as a result of higher sales volume and productivity.

"Our organization continues to create new products with greater value for the consumer, to introduce unique ideas that enhance our processes and to invest in technology and equipment that improve our cost, quality and service. The four acquisitions we completed in 2015 contributed to our results as we enhanced their performance by upgrading their offerings, expanding their distribution and improving their productivity. As expected, our SG&A costs, excluding restructuring, integration and other charges, as a percentage of sales improved by 60 basis points as our investments in sales personnel, marketing and merchandising increased our sales and mix.

"In many of our product categories and geographies, our operations are running at or near capacity. These include all of our global ceramic, laminate and sheet vinyl assets. Additionally, we are currently selling all of the LVT we are manufacturing even as we continue to increase our production capacity in the U.S. and Europe. To meet our growing customer demand, our capital investments this year will be the highest in our history with almost $650 million allocated to additional capacity, more efficient assets and new products. Our strong results have increased our cash flow, enabling the expansion of our capacities and pursuit of attractive opportunities. We continue to explore potential acquisitions from around the globe that complement our business and expand our geographic reach or product portfolio.

"For the quarter, our Global Ceramic Segment sales were up 4% as reported; on a constant days and currency basis sales were up 6%.  Operating income for the segment rose approximately 13% to an operating margin of 16.5%. Our North American ceramic sales trends improved from the second to the third quarter, and operating margins expanded over last year. New home construction and the commercial sector outperformed residential remodeling, and sales growth through our service centers exceeded other channels. Our new Tennessee ceramic plant is fully operational with improving throughput and new differentiated products. Our sales in Mexico continue to outpace the strong market, and we are broadening our product offering and distribution ahead of the expansion of our Salamanca plant, which will be operational by late 2017. Our European ceramic business grew significantly from our sales and product strategies that satisfy local markets and consumer preferences. In Western Europe, our investments in modern equipment have allowed us to bring unique products to market and expand our margins and mix. We increased the capacity at our Bulgarian facility and upgraded the style and design of our products which enhanced our mix. In Russia, our sales improved on a local basis as we increased participation in the new construction sector and expanded our distribution through investments in owned and franchised stores.

"During the quarter, our Flooring North America Segment's sales were up 6% as reported or 7% on a constant days basis. Operating income grew 35% to a margin of 17% as reported or excluding restructuring, integration and other charges, to a margin of 15%. Both our hard and soft surface flooring increased with hard surface growing faster. Our strong commercial carpet and rug sales offset softer residential carpet which was impacted by polyester growth and pressure on commodities. Product innovation continues to drive our business, and recent introductions comprised about one-third of our soft surface sales during the period. Our commercial carpet performance continues to strengthen with all end markets growing. We have expanded our commercial sales force and are increasing our participation in individual projects and large national accounts. We announced a residential and commercial carpet price increase of 3-5% for January 2017 to offset costs. Our rug sales grew as we introduced new fashion-forward collections and entered new categories with outdoor rugs and utility mats. Our hard surface sales continue to grow significantly with expanded margins. Improvements in our LVT production continue to increase our capacity and broaden our product offering. We are completing our new engineered wood plant, which will allow us to introduce larger sizes with unique finishes. The expansion of our laminate capacity in 2017 will help to satisfy increasing demand for our premium collections with superior performance and realistic visuals.

"For the quarter, our Flooring Rest of the World Segment's sales were up 15% as reported; on a constant days and currency basis, legacy sales were up 8%.  Operating income grew 47% as reported to a margin of 18% and increased 41% on a constant currency basis, excluding restructuring and integration charges, to a margin of approximately 19%. Our laminate business continues to grow on the strength of our premium Quick-Step and Pergo brands. We are leveraging the strong performance of our 2016 laminate introductions by expanding the designs and sizes we offer across all brands. Our European and Russian laminate facilities are operating near capacity with expansions planned for Europe and Russia in 2018. Our LVT sales are increasing dramatically, and our margins are expanding as our product mix and productivity improve. To alleviate capacity constraints, we are modifying our LVT equipment and processes to further increase production speeds, and we are supplementing our collections with sourced products. Sales of our insulation boards continue to grow, although lower material costs and manufacturing improvements are being offset by competition and unfavorable exchange rates. We are increasing prices based on market conditions to offset currency fluctuations.  

"Today, Mohawk is in the best position in the company's history. This year, we are investing at our highest level ever to meet increasing demand around the globe. We are preparing for future growth by expanding our differentiated product offerings and increasing the capacity and efficiency of our operations. With our continued investments in manufacturing technology, we are introducing distinctive collections to improve our sales and enhance our mix. We are aggressively implementing productivity improvements across the enterprise in all facets of our business, and we are bringing new capacity online to support our growth. This year, our strong operating results have expanded our cash flow and reduced our leverage to historically low levels. We are currently exploring numerous investment options to further our expansion, including green field opportunities and acquisitions to broaden our geographic presence and product portfolio. Taking these factors into account, our EPS guidance for the fourth quarter is $3.16 to $3.25, which represents a 12% to 15% increase over our fourth quarter 2015 EPS, excluding any restructuring charges."

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, Daltile, Durkan, IVC, Karastan, Marazzi, Mohawk, Mohawk Group, 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, November 4, 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 # 92116089. A replay will be available until Friday, December 2, 2016, by dialing 855-859-2056 for US/local calls and 404-537-3406 for International/Local calls and entering Conference ID # 92116089.

 

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES









(Unaudited)









Consolidated Statement of Operations


Three Months Ended


Nine Months Ended

(Amounts in thousands, except per share data)


October 1, 2016


October 3, 2015


October 1, 2016


October 3, 2015










Net sales


$                  2,294,139


2,150,656


6,776,521


6,073,566

Cost of sales


1,567,580


1,489,252


4,654,695


4,285,090

    Gross profit


726,559


661,404


2,121,826


1,788,476

Selling, general and administrative expenses


348,252


372,670


1,147,155


1,200,152

Operating income


378,307


288,734


974,671


588,324

Interest expense


9,410


19,319


32,062


52,606

Other expense (income), net


3,839


4,249


1,461


6,094

    Earnings before income taxes


365,058


265,166


941,148


529,624

Income tax expense


94,231


49,463


242,090


104,643

        Net earnings including noncontrolling interest


270,827


215,703


699,058


424,981

Net earnings attributable to noncontrolling interest


949


798


2,444


1,238

Net earnings attributable to Mohawk Industries, Inc.


$                       269,878


214,905


696,614


423,743










Basic earnings per share attributable to Mohawk Industries, Inc.









Basic earnings per share attributable to Mohawk Industries, Inc.


$                             3.64


2.91


9.40


5.77

Weighted-average common shares outstanding - basic


74,154


73,915


74,084


73,384










Diluted earnings per share attributable to Mohawk Industries, Inc.









Diluted earnings per share attributable to Mohawk Industries, Inc.


$                             3.62


2.89


9.34


5.73

Weighted-average common shares outstanding - diluted


74,613


74,438


74,551


73,907




























Other Financial Information









(Amounts in thousands)









Depreciation and amortization


$                     103,680


94,954


305,088


268,622

Capital expenditures


$                     183,846


123,648


460,760


352,070










Consolidated Balance Sheet Data









(Amounts in thousands)















October 1, 2016


October 3, 2015

ASSETS









Current assets:









    Cash and cash equivalents






$                     112,108


110,716

    Receivables, net






1,506,316


1,340,650

    Inventories






1,673,242


1,621,154

    Prepaid expenses and other current assets






284,648


273,775

        Total current assets






3,576,314


3,346,295

Property, plant and equipment, net






3,340,893


3,046,491

Goodwill






2,331,821


2,280,722

Intangible assets, net






876,715


918,655

Deferred income taxes and other non-current assets






294,850


464,047

    Total assets






$               10,420,593


10,056,210

LIABILITIES AND STOCKHOLDERS' EQUITY









Current liabilities:









Current portion of long-term debt and commercial paper






$                 1,548,251


1,927,815

Accounts payable and accrued expenses






1,435,069


1,353,512

        Total current liabilities






2,983,320


3,281,327

Long-term debt, less current portion






1,165,577


1,254,904

Deferred income taxes and other long-term liabilities






574,267


741,946

        Total liabilities






4,723,164


5,278,177

Redeemable noncontrolling interest






24,741


22,150

Total stockholders' equity






5,672,688


4,755,883

    Total liabilities and stockholders' equity






$               10,420,593


10,056,210










Segment Information


 Three Months Ended


As of or for the Nine Months Ended

(Amounts in thousands)


October 1, 2016


October 3, 2015


October 1, 2016


October 3, 2015










Net sales:









    Global Ceramic


$                     822,040


791,538


2,425,560


2,301,168

    Flooring NA


1,008,553


955,099


2,895,610


2,722,347

    Flooring ROW


463,546


404,026


1,455,351


1,050,390

    Intersegment sales


-


(7)


-


(339)

        Consolidated net sales


$                  2,294,139


2,150,656


6,776,521


6,073,566










Operating income (loss):









    Global Ceramic


$                     135,985


120,055


376,368


326,571

    Flooring NA


170,507


125,910


364,804


145,861

    Flooring ROW


81,757


55,471


262,356


153,164

    Corporate and eliminations


(9,942)


(12,702)


(28,857)


(37,272)

        Consolidated operating income


$                     378,307


288,734


974,671


588,324










Assets:









    Global Ceramic






$                  4,118,510


3,938,242

    Flooring NA






3,354,286


3,195,904

    Flooring ROW






2,851,227


2,699,255

    Corporate and eliminations






96,570


222,809

        Consolidated assets






$               10,420,593


10,056,210










 

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


Nine Months Ended





October 1, 2016


October 3, 2015


October 1, 2016


October 3, 2015

Net earnings attributable to Mohawk Industries, Inc.




$                269,878


214,905


696,614


423,743

Adjusting items:











Restructuring, acquisition and integration-related and other costs 




30,572


12,770


44,309


43,784

Acquisitions purchase accounting (inventory step-up)




-


7,160


-


13,316

Legal settlement and reserves




(90,000)


-


(90,000)


127,000

Release of indemnification asset




2,368


-


2,368


-

Tradename impairment 




47,905


-


47,905


-

Deferred loan costs




-


-


-


651

Income taxes - reversal of uncertain tax position




(2,368)


-


(2,368)


-

Income taxes 




2,856


(12,940)


(1,764)


(62,984)

Adjusted net earnings attributable to Mohawk Industries, Inc.




$                261,211


221,895


697,064


545,510












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


$                      3.50


2.98


9.35


7.38

Weighted-average common shares outstanding - diluted




74,613


74,438


74,551


73,907


































Reconciliation of Total Debt to Net Debt











(Amounts in thousands)













October 1, 2016









Current portion of long-term debt and commercial paper


$            1,548,251









Long-term debt, less current portion


1,165,577









Less: Cash and cash equivalents


112,108









Net Debt


$            2,601,720




















Reconciliation of Operating Income to Pro forma Adjusted EBITDA











(Amounts in thousands)










Trailing Twelve



Three Months Ended


Months Ended



December 31, 2015


April 2, 2016


July 2, 2016


October 1, 2016


October 1, 2016

Operating income


$               249,242


245,672


350,692


378,307


1,223,913

Other (expense) income


(11,525)


(3,429)


5,807


(3,839)


(12,986)

Net (earnings) loss attributable to non-controlling interest


(446)


(569)


(926)


(949)


(2,890)

Depreciation and amortization


94,025


100,194


101,215


103,680


399,114

EBITDA


331,296


341,868


456,788


477,199


1,607,151

Restructuring, acquisition and integration-related and other costs 


30,820


7,718


6,020


30,572


75,130

Acquisitions purchase accounting (inventory step-up)


21


-


-


-


21

Legal settlement and reserves


(2,520)


-


-


(90,000)


(92,520)

Release of indemnification asset


11,180


-


-


2,368


13,548

Tradename impairment 


-


-


-


47,905


47,905

 Acquisitions EBITDA


7,337


-


-


-


7,337

 Pro forma Adjusted EBITDA 


$               378,134


349,586


462,808


468,044


1,658,572












Net Debt to Pro forma Adjusted EBITDA










1.6













































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


Nine Months Ended





October 1, 2016


October 3, 2015


October 1, 2016


October 3, 2015



Net sales


$          2,294,139


2,150,656


6,776,521


6,073,566



Adjustment to net sales on constant shipping days


35,775


-


-


-



Adjustment to net sales on a constant exchange rate


10,139


-


52,001


-



Net sales on a constant exchange rate and constant shipping days


2,340,053


2,150,656


6,828,522


6,073,566



Less: impact of acquisition volume


(40,440)


-


(525,772)


(55,672)



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


$          2,299,613


2,150,656


6,302,750


6,017,894




































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









(Amounts in thousands)













Three Months Ended







Global Ceramic


October 1, 2016


October 3, 2015







Net sales


$             822,040


791,538







Adjustment to net sales on constant shipping days


13,066


-







Adjustment to segment net sales on a constant exchange rate


5,284


-







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


$             840,390


791,538








































Reconciliation of Segment Net Sales to Segment Net Sales on Constant Shipping Days 











(Amounts in thousands)













Three Months Ended







Flooring NA


October 1, 2016


October 3, 2015







Net sales


$        1,008,553


955,099







Adjustment to net sales on constant shipping days


16,009


-







Segment net sales on constant shipping days 


$        1,024,562


955,099








































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


October 1, 2016


October 3, 2015







Net sales


$             463,546


404,026







Adjustment to net sales on constant shipping days


6,700


-







Adjustment to segment net sales on a constant exchange rate


4,856


-







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


475,102


404,026







Less: impact of acquisition volume


(40,440)


-







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


$             434,662


404,026








































Reconciliation of Gross Profit to Adjusted Gross Profit 











(Amounts in thousands)













Three Months Ended









October 1, 2016


October 3, 2015







Gross Profit


$             726,559


661,404







Adjustments to gross profit:






















Restructuring, acquisition and integration-related and other costs 


17,459


7,291







Acquisitions purchase accounting (inventory step-up)


-


7,160







  Adjusted gross profit


$             744,018


675,855





























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







(Amounts in thousands)













Three Months Ended









October 1, 2016


October 3, 2015







Selling, general and administrative expenses


$             348,252


372,670







Adjustments to selling, general and administrative expenses:











Restructuring, acquisition and integration-related and other costs 


(13,112)


(5,479)







Legal settlement and reserves


90,000


-







Tradename impairment 


(47,905)


-







  Adjusted selling, general and administrative expenses


$             377,235


367,191





























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









(Amounts in thousands)













Three Months Ended









October 1, 2016


October 3, 2015







Operating income


$             378,307


288,734







Adjustments to operating income:











Restructuring, acquisition and integration-related and other costs 


30,572


12,770







Legal settlement and reserves


(90,000)


-







Tradename impairment 


47,905


-







Acquisitions purchase accounting (inventory step-up)


-


7,160







Adjusted operating income


366,784


308,664







    Adjustment to operating income on a constant exchange rate


6,832


-







  Adjusted operating income on constant exchange rate


$             373,616


308,664





























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









(Amounts in thousands)













Three Months Ended







Global Ceramic


October 1, 2016


October 3, 2015







Operating income


$             135,985


120,055







Adjustments to segment operating income:











Restructuring, acquisition and integration-related and other costs 


456


118







Acquisitions purchase accounting (inventory step-up)


-


949







Adjusted segment operating income


136,441


121,122







Adjustment to operating income on a constant exchange rate


1,684


-







  Adjusted  segment operating income on constant exchange rate


$             138,125


121,122


















Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 











(Amounts in thousands)













Three Months Ended







Flooring NA 


October 1, 2016


October 3, 2015







Operating income


$             170,507


125,910







Adjustments to segment operating income:











Legal settlement and reserves


(90,000)


-







Restructuring, acquisition and integration-related and other costs 


26,193


5,148







Tradename impairment 


47,905


-







Acquisitions purchase accounting (inventory step-up)


-


1,527







  Adjusted segment operating income


$             154,605


132,585



















































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









(Amounts in thousands)













Three Months Ended







Flooring ROW 


October 1, 2016


October 3, 2015







Operating income


$                81,757


55,471







Adjustments to segment operating income:











Restructuring, acquisition and integration-related and other costs 


3,596


4,030







Acquisitions purchase accounting (inventory step-up)


-


4,683







Adjusted segment operating income


85,353


64,184







Adjustment to operating income on a constant exchange rate


5,147


-







  Adjusted segment operating income on constant exchange rate


$                90,500


64,184





























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





(Amounts in thousands)













Three Months Ended









October 1, 2016


October 3, 2015







Earnings before income taxes


$            365,058


265,166







Noncontrolling interests


(949)


(798)







Adjustments to earnings including noncontrolling interests before income taxes:











Restructuring, acquisition and integration-related & other costs 


30,572


12,770







Acquisitions purchase accounting (inventory step-up)


-


7,160







Legal settlement and reserves


(90,000)


-







Release of indemnification asset


2,368


-







Tradename impairment 


47,905


-







 Adjusted earnings including noncontrolling interests before income taxes


$             354,954


284,298





























Reconciliation of Income Tax Expense to Adjusted Income Tax Expense 








(Amounts in thousands)













Three Months Ended









October 1, 2016


October 3, 2015







Income tax expense 


$               94,231


49,463







Income taxes - reversal of uncertain tax position


2,368


-







Income tax effect of adjusting items


(2,856)


12,940







  Adjusted income tax expense


$                93,743


62,403


















Adjusted income tax rate


26.4%


21.9%




















































































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, tradename impairment 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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