Mohawk Industries Reports Q1 Results

CALHOUN, Ga., April 25, 2019 (GLOBE NEWSWIRE) — Mohawk Industries, Inc. (NYSE: MHK) today announced 2019 first quarter net earnings of $122 million and diluted earnings per share (EPS) of $1.67. Adjusted net earnings were $154 million, and EPS was $2.13, excluding restructuring, acquisition and other charges. Net sales for the first quarter of 2019 were $2.44 billion, up 1% in the quarter and 6% on a constant currency and days basis. For the first quarter of 2018, net sales were $2.41 billion, net earnings were $209 million and EPS was $2.78, adjusted net earnings were $225 million, and EPS was $3.01, excluding restructuring, acquisition and other charges. Commenting on Mohawk Industries’ first quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, “In the first quarter, we delivered results in-line with the high end of our expectations despite economies weakening in most regions and a stronger U.S. dollar, reducing our translated results.  While U.S. housing markets began softer and higher inputs increased costs, both are showing signs of improvement as we enter the second quarter. Around the world, uneven demand impacted volume, increasing pressure on both price and mix. We reduced our production rates to balance our inventories with our customers’ demand and manage our working capital. Results from our recent acquisitions in Australia, New Zealand and Brazil are on track, and we remain optimistic about our ability to improve their market positions and costs.” “Each of our businesses is taking specific actions to adapt to the present environment. We are introducing new products to differentiate our offering and enhance our margins, and we raised prices to offset higher energy and materials.  We have replaced high-cost assets, consolidated inefficient operations, enhanced manufacturing processes and reduced our overhead expenses.” For the quarter, our Global Ceramic Segment sales increased 2.5% as reported and 7% on a constant currency and days basis. The segment’s operating margin was 9% as reported or 10% excluding other charges, declining year over year due to inflation, temporary shutdown costs and marketing investments partially offset by productivity. In the U.S., we implemented price increases across many categories to cover inflation and higher transportation costs. We are enhancing the value of our products with unique features such as slip resistance, greater durability and bacteria-resistant technologies. We are testing a fast installation technology and pioneering a new porcelain roofing system. The start-up of our new quartz countertop plant is on schedule and will complement our sourced stone and quartz program.  To reduce operational expenses, we have enhanced body formulations, improved manufacturing efficiencies, maintenance costs and freight strategies as well as lowering administrative and selling expenses. In Mexico, we are growing by broadening our customer base, expanding our porcelain offering and supporting stores that exclusively sell our brand. We implemented price increases to recover higher natural gas, electricity and transportation costs. In Brazil, we have also recently implemented price increases to offset the dramatically higher cost of natural gas, which the government regulates. We are upgrading our mix with high-end porcelain and restarting an idled production line. As weakening markets increased pressure in Europe, our sales were driven by commercial, outdoor and porcelain slab products as well as higher styled mid-price offerings. We are realigning the production of our products in our European plants and reducing staffing to improve our costs, distribution and service. In Russia, our sales grew significantly, our product mix improved, and we are increasing prices to recover inflation. During the period, we completed our porcelain floor and wall tile expansion to support further growth, and we have begun construction for additional slab production and the manufacturing of premium sanitary ware to expand our offering. During the quarter, our Flooring North America Segment’s sales decreased 3% as reported and 1.4% on a constant day’s basis. The segment’s operating margin was 0.1% as reported and 3.4% on an adjusted basis. As expected, operating income for the segment declined due to lower volume, inventory reductions, high material costs and LVT manufacturing variances. The segment’s business improved as we moved into the second quarter, supported by higher retail activity and an improving housing environment. Our new ColorMax technology that blends earth tones was voted the best carpet innovation at the national trade show. The carpet price increases we have implemented are being partially offset by declining product mix. Our commercial business improved during the quarter due to new product launches and channel segmentation. Our recent investments in advanced laminate manufacturing technology are allowing us to expand our market and upgrade our mix. Our LVT continues to grow substantially, and we have a complete offering with different features under our key brands. We have replaced high-cost assets and are consolidating five operations and two warehouses, which will reduce our overhead and cost structure. We are enhancing planning strategies, increasing production output and reducing process variations to facilitate this realignment. For the quarter, our Flooring Rest of the World Segment’s sales increased 6% as reported and 16% on a constant currency and days basis. The segment’s operating margin was 14.5% as reported and 15.3% on an adjusted basis, due to volume growth and lower inflation partially offset by price and mix and productivity. The economies in Europe have been slowing, putting pressure on both our revenues and margins. We have been increasing prices on selected products to offset continued inflation and currency changes. The segment was impacted by start-up costs and under-absorption as our new LVT, sheet vinyl, laminate and carpet tile operations ramp up. In laminate, we outperformed the European market with our unique technologies that make our products the preferred alternative to wood. We have specialized our European laminate plants, so they produce either luxury or volume products to improve our efficiencies and costs. Our LVT manufacturing has substantially improved, and we are introducing more rigid LVT collections across our brands. We are making equipment modifications to relieve process restrictions as throughput has improved. Our new Russian sheet vinyl plant is operating ahead of our plan in both volume and yields. Our insulation results improved as last year’s material shortages have been resolved and costs declined. Our new carpet tile plant in Belgium is operating well as we continue to build our specified and transactional sales. The Australian and New Zealand markets are under pressure as the economy and housing sales slow. We are raising prices to offset increased costs primarily from a weaker local currency, closing high cost extrusion assets and supplying yarn from our U.S. operations and other sources. We are introducing new carpet products with enhanced styling and performance and broadening our hard surface collections to expand our share of the flooring market. All of our businesses are taking actions to enhance our results with the major focus on improving LVT manufacturing, U.S. carpet performance, managing ceramic headwinds and increasing utilization of our new investments. In the U.S., flooring sales started out weaker and have recently begun to improve. Outside the U.S., most markets have softened, and we are adjusting as required. Across the business, we are enhancing our offerings, reducing our costs and ramping up new plants to expand our portfolio. We continue to realize price increases to offset inflation and restore our margins. Our LVT sales are expanding significantly, and we are making equipment modifications to increase our volume and productivity this year. We are restructuring our U.S. carpet and laminate assets and realigning our European ceramic operations to improve our costs and results. Our acquisitions are positively impacting our results as we integrate them into the business. Taking all of this into account, our EPS guidance for the second quarter is $2.81 to $2.91, excluding any one-time charges. We are investing in new products and geographies to drive growth and strengthening our organization to improve our execution. We are taking the necessary steps to adapt to present conditions and deliver greater profitability for the long term. ABOUT MOHAWK INDUSTRIESMohawk 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, Eliane, Feltex, Godfrey Hirst, IVC, Karastan, Marazzi, Mohawk, Mohawk Group, Pergo, Quick-Step and Unilin. 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; taxes and tax reform, product and other claims; litigation; and other risks identified in Mohawk’s SEC reports and public announcements. Conference call Friday, April 26, 2019, at 11:00 AM Eastern TimeThe telephone number is 1-800-603-9255 for US/Canada and 1-706-634-2294 for International/Local. Conference ID # 4699130. A replay will be available until May 26, 2019, by dialing 1-855-859-2056 for US/local calls and 1-404-537-3406 for International/Local calls and entering Conference ID # 4699130.           MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES    (Unaudited)    Condensed Consolidated Statement of Operations Data Three Months Ended(Amounts in thousands, except per share data) March 30, 2019 March 31, 2018     Net sales $2,442,490  2,412,202 Cost of sales  1,817,563  1,707,510 Gross profit  624,927  704,692 Selling, general and administrative expenses  459,597  436,293 Operating income  165,330  268,399 Interest expense  10,473  7,528 Other expense, net  (3,736) 3,998 Earnings before income taxes  158,593  256,873 Income tax expense  37,018  47,632 Net earnings including noncontrolling interest  121,575  209,241 Net income attributable to noncontrolling interest  (10) 475 Net earnings attributable to Mohawk Industries, Inc. $121,585  208,766      Basic earnings per share attributable to Mohawk Industries, Inc.    Basic earnings per share attributable to Mohawk Industries, Inc. $1.68  2.80 Weighted-average common shares outstanding – basic  72,342  74,453      Diluted earnings per share attributable to Mohawk Industries, Inc.    Diluted earnings per share attributable to Mohawk Industries, Inc. $1.67  2.78 Weighted-average common shares outstanding – diluted  72,646  74,929                Other Financial Information    (Amounts in thousands)    Depreciation and amortization $137,291  122,654 Capital expenditures $136,948  250,936      Condensed Consolidated Balance Sheet Data    (Amounts in thousands)      March 30, 2019 March 31, 2018ASSETS    Current assets:    Cash and cash equivalents $105,668  114,843 Receivables, net  1,743,581  1,689,912 Inventories  2,338,125  2,044,962 Prepaid expenses and other current assets  501,591  447,322 Total current assets  4,688,965  4,297,039 Property, plant and equipment, net  4,674,435  4,460,793 Right of use operating lease assets  320,800  – Goodwill  2,548,997  2,512,615 Intangible assets, net  950,564  899,989 Deferred income taxes and other non-current assets  421,314  389,936 Total assets $13,605,075  12,560,372 LIABILITIES AND STOCKHOLDERS’ EQUITY    Current liabilities:    Current portion of long-term debt and commercial paper $1,763,332  1,331,917 Accounts payable and accrued expenses  1,571,273  1,463,993 Current operating lease liabilities  99,642  – Total current liabilities  3,434,247  2,795,910 Long-term debt, less current portion  1,497,975  1,585,651 Non-current operating lease liabilities  227,595  – Deferred income taxes and other long-term liabilities  868,213  801,878 Total liabilities  6,028,030  5,183,439 Redeemable noncontrolling interest  –  30,924 Total stockholders’ equity  7,577,045  7,346,009 Total liabilities and stockholders’ equity $13,605,075  12,560,372      Segment Information As of or for the Three Months Ended(Amounts in thousands) March 30, 2019 March 31, 2018     Net sales:    Global Ceramic $898,352  876,548 Flooring NA  921,980  950,358 Flooring ROW  622,158  585,296 Intersegment sales  –  – Consolidated net sales $2,442,490  2,412,202      Operating income (loss):    Global Ceramic $84,335  113,417 Flooring NA  649  74,748 Flooring ROW  90,431  89,060 Corporate and intersegment eliminations  (10,085) (8,826)Consolidated operating income $165,330  268,399      Assets:    Global Ceramic $5,503,807  5,029,225 Flooring NA  4,020,336  3,847,555 Flooring ROW  3,799,591  3,410,958 Corporate and intersegment eliminations  281,341  272,634 Consolidated assets $13,605,075  12,560,372       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        March 30, 2019 March 31, 2018      Net earnings attributable to Mohawk Industries, Inc. $121,585  208,766       Adjusting items:             Restructuring, acquisition and integration-related and other costs  39,495  22,104       Acquisitions purchase accounting , including inventory step-up  2,552  1,354       Release of indemnification asset  –  1,749       Income taxes – reversal of uncertain tax position  –  (1,749)      Income taxes  (9,152) (6,940)      Adjusted net earnings attributable to Mohawk Industries, Inc. $154,480  225,284                     Adjusted diluted earnings per share attributable to Mohawk Industries, Inc. $2.13  3.01       Weighted-average common shares outstanding – diluted  72,646  74,929                                         Reconciliation of Total Debt to Net Debt          (Amounts in thousands)            March 30, 2019        Current portion of long-term debt and commercial paper $1,763,332         Long-term debt, less current portion  1,497,975         Less: Cash and cash equivalents  105,668         Net Debt $3,155,639                    Reconciliation of Operating Income to Adjusted EBITDA          (Amounts in thousands)         Trailing Twelve  Three Months Ended Months Ended  June 30, 2018 September 29, 2018 December 31, 2018 March 30, 2019 March 30, 2019Operating income $326,307  287,244  213,376  165,330 992,257 Other (expense) income  (2,090) (706) (504) 3,736 436 Net (income) loss attributable to noncontrolling interest  (959) (1,013) (704) 10 (2,666)Depreciation and amortization  127,048  132,972  139,092  137,291 536,403 EBITDA  450,306  418,497  351,260  306,367 1,526,430 Restructuring, acquisition and integration-related and other costs  16,042  19,890  20,412  39,495 95,839 Acquisitions purchase accounting, including inventory step-up  194  7,090  6,721  2,552 16,557 Release of indemnification asset  –  –  2,857  – 2,857 Adjusted EBITDA $466,542  445,477  381,250  348,414 1,641,683            Net Debt to Adjusted EBITDA         1.9                                             Reconciliation of Net Sales to Net Sales on a Constant Exchange Rate and on Constant Shipping Days Excluding Acquisition Volume        (Amounts in thousands)            Three Months Ended        March 30, 2019 March 31, 2018      Net sales $2,442,490  2,412,202       Adjustment to net sales on constant shipping days  35,681         Adjustment to net sales on a constant exchange rate  73,145  –       Net sales on a constant exchange rate and constant shipping days  2,551,316  2,412,202       Less: impact of acquisition volume  (119,891) –       Net sales on a constant exchange rate and constant shipping days excluding acquisition volume $2,431,425  2,412,202                                        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 March 30, 2019 March 31, 2018      Net sales $898,352  876,548       Adjustment to net sales on constant shipping days  11,549  –       Adjustment to segment net sales on a constant exchange rate  26,880  –       Segment net sales on a constant exchange rate and constant shipping days  936,781  876,548       Less: impact of acquisition volume  (50,996) –       Segment net sales on a constant exchange rate and constant shipping days excluding acquisition volume $885,785  876,548                                        Reconciliation of Segment Net Sales to Segment Net Sales on Constant Shipping Days           (Amounts in thousands)            Three Months Ended    Flooring NA March 30, 2019 March 31, 2018      Net sales $921,980  950,358       Adjustment to net sales on constant shipping days  14,635  –       Segment net sales on constant shipping days $936,615  950,358                                        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 March 30, 2019 March 31, 2018      Net sales $622,158  585,296       Adjustment to net sales on constant shipping days  9,497  –       Adjustment to segment net sales on a constant exchange rate  46,265  –       Segment net sales on a constant exchange rate and constant shipping days  677,920  585,296       Less: impact of acquisition volume  (68,895) –       Segment net sales on a constant exchange rate and constant shipping days excluding acquisition volume $609,025  585,296                                        Reconciliation of Gross Profit to Adjusted Gross Profit          (Amounts in thousands)            Three Months Ended        March 30, 2019 March 31, 2018      Gross Profit $624,927  704,692       Adjustments to gross profit:          Restructuring, acquisition and integration-related and other costs  35,602  14,498       Acquisitions purchase accounting, including inventory step-up  2,552  1,354       Adjusted gross profit $663,081  720,544                                        Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses        (Amounts in thousands)            Three Months Ended        March 30, 2019 March 31, 2018      Selling, general and administrative expenses $459,597  436,293       Adjustments to selling, general and administrative expenses:          Restructuring, acquisition and integration-related and other costs  (3,101) (7,606)      Adjusted selling, general and administrative expenses $456,496  428,687                                        Reconciliation of Operating Income to Adjusted Operating Income          (Amounts in thousands)            Three Months Ended        March 30, 2019 March 31, 2018      Operating income $165,330  268,399       Adjustments to operating income:          Restructuring, acquisition and integration-related and other costs  38,703  22,104       Acquisitions purchase accounting, including inventory step-up  2,552  1,354       Adjusted operating income $206,585  291,857                                        Reconciliation of Segment Operating Income to Adjusted Segment Operating Income          (Amounts in thousands)            Three Months Ended      Global Ceramic March 30, 2019 March 31, 2018      Operating income $84,335  113,417       Adjustments to segment operating income:          Restructuring, acquisition and integration-related and other costs  5,263  3,561       Acquisitions purchase accounting, including inventory step-up  204  –       Adjusted segment operating income $89,802  116,978                                        Reconciliation of Segment Operating Income to Adjusted Segment Operating Income           (Amounts in thousands)            Three Months Ended      Flooring NA  March 30, 2019 March 31, 2018      Operating income $649  74,748       Adjustments to segment operating income:          Restructuring, acquisition and integration-related and other costs  30,599  16,204       Adjusted segment operating income $31,248  90,952                                        Reconciliation of Segment Operating Income to Adjusted Segment Operating Income and Adjusted Segment Operating Income on a Constant Exchange Rate      (Amounts in thousands)            Three Months Ended      Flooring ROW  March 30, 2019 March 31, 2018      Operating income $90,431  89,060       Adjustments to segment operating income:          Restructuring, acquisition and integration-related and other costs  2,561  2,094       Acquisitions purchase accounting, including inventory step-up  2,348  1,354       Adjusted segment operating income  95,340  92,508       Adjustment to operating income on a constant exchange rate  7,755  –       Adjusted segment operating income on a constant exchange rate $103,095  92,508                                        Reconciliation of Earnings including Noncontrolling Interests Before Income Taxes to Adjusted Earnings Including Noncontrolling Interests Before Income Taxes      (Amounts in thousands)            Three Months Ended        March 30, 2019 March 31, 2018      Earnings before income taxes $158,593  256,873       Noncontrolling interests  10  (475)      Adjustments to earnings including noncontrolling interests before income taxes:          Restructuring, acquisition and integration-related and other costs  39,495  22,104       Acquisitions purchase accounting, including inventory step-up  2,552  1,354       Release of indemnification asset  –  1,749       Adjusted earnings including noncontrolling interests before income taxes $200,650  281,605                                                   Reconciliation of Income Tax Expense to Adjusted Income Tax Expense           (Amounts in thousands)            Three Months Ended        March 30, 2019 March 31, 2018      Income tax expense $37,018  47,632       Income taxes – reversal of uncertain tax position  –  1,749       Income tax effect of adjusting items  9,152  6,940       Adjusted income tax expense $46,170  56,321                  Adjusted income tax rate  23.0% 20.0%                                       The Company supplements its condensed consolidated financial statements, which are prepared and presented in accordance with US GAAP, with certain non-GAAP financial measures. As required by the Securities and Exchange Commission rules, the tables above present a reconciliation of the Company’s non-GAAP financial measures to the most directly comparable US GAAP measure. Each of the non-GAAP measures set forth above should be considered in addition to the comparable US GAAP measure, and may not be comparable to similarly titled measures reported by other companies. The Company believes these non-GAAP measures, when reconciled to the corresponding US GAAP measure, help its investors as follows: Non-GAAP revenue measures that assist in identifying growth trends and in comparisons of revenue with prior and future periods and non-GAAP profitability measures that assist in understanding the long-term profitability trends of the Company’s business and in comparisons of its profits with prior and future periods.            The Company excludes certain items from its non-GAAP revenue measures because these items can vary dramatically between periods and can obscure underlying business trends. Items excluded from the Company’s non-GAAP revenue measures include: foreign currency transactions and translation and the impact of acquisitions.            The Company excludes certain items from its non-GAAP profitability measures because these items may not be indicative of, or are unrelated to, the Company’s core operating performance. Items excluded from the Company’s non-GAAP profitability measures include: restructuring, acquisition and integration-related and other costs,  acquisition purchase accounting, including inventory step-up, release of indemnification assets and the reversal of uncertain tax positions.             Contact:   Glenn Landau, Chief Financial Officer (706) 624-2025