Mohawk Industries, Inc. Announces Third Quarter Earnings

Nov 01, 2012, 16:01 ET from Mohawk Industries, Inc.

CALHOUN, Ga., Nov. 1, 2012 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2012 third quarter net earnings of $70 million and diluted earnings per share (EPS) of $1.01. Excluding restructuring charges, net earnings were $72 million and EPS was $1.04, a 25% increase over last year's third quarter adjusted EPS. Net sales for the third quarter of 2012 were $1.5 billion, an increase of 2% versus prior year and an increase of 4% on a constant exchange rate. For the third quarter of 2011, net sales were $1.4 billion, net earnings were $47 million and EPS was $0.68. Excluding unusual items, net earnings for the third quarter of 2011 were $57 million and EPS was $0.83.

For the nine months ending September 29, 2012, net sales were $4.4 billion, an increase of 2% versus prior year and 4% on a constant exchange rate. Net earnings and EPS for the nine-month period were $184 million and $2.66, respectively. Excluding restructuring charges, net earnings were $191 million and EPS was $2.76, an increase of 25% over the nine-month adjusted EPS results in 2011. For the nine months ending October 1, 2011, net sales were $4.3 billion, net earnings were $131 million and EPS was $1.90. Excluding unusual items, net earnings and EPS were $152 million and $2.21, respectively.

Commenting on Mohawk Industries' third quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "All of our segments delivered solid third quarter performances with improvements in product mix, pricing, volume and productivity, as well as lower interest expense contributing to our results. Across the enterprise, we have managed to keep SG&A dollars in line with last year even as we invested significantly more in new product innovations and marketing to improve our future sales and product mix. During the quarter, we generated adjusted EBITDA of $179 million and free cash flow of $156 million. Both our net debt to adjusted EBITDA ratio and net debt to capitalization ratio improved to 1.7 and 22%, respectively.  Mohawk's strong financial position provides us with the flexibility to pursue strategic opportunities such as the recently announced agreement to acquire Pergo, the most recognized brand of premium laminate flooring in the U.S. and Europe."

The Mohawk segment increased its adjusted operating income margin 180 basis points with sales remaining flat compared to 2011. The gains stemmed from improved pricing and product mix, reduced manufacturing and distribution costs and increased productivity. Our carpet sales performance was stronger in our specialty and contractor channels but was offset by the timing of product transitions in the home center channel. Our rug sales improved over the prior period, though they still remained below last year as retailers adjusted their strategies with consumer spending.  We saw continued improvement in mix and expanded our SmartStrand® Silk™ collection, which has redefined the premium carpet market. We enhanced productivity through improved manufacturing and distribution efficiencies and gains from our capital investments. 

Dal-Tile sales grew 9% during the quarter or 10% on a constant exchange rate. The segment improved sales in both residential and commercial categories and continued significant growth in the Mexican market. Operating margins were enhanced from actions that improved productivity and increased yields. Sales grew across all residential channels supported by our new Reveal Imaging designs, fashionable mosaics and larger format tiles that are aligned with today's decorating trends. We are leveraging Dal-Tile's traditional strength in the builder channel across our business segments to expand commitments with regional builders. We have introduced specific value-engineered products to gain position in the growing multi-family category. In Mexico, our new Salamanca tile plant is successfully ramping up and supplying product to satisfy our growing ceramic position. Across the segment, we lowered manufacturing costs through improved material formulations, higher yields and lower waste.

Unilin segment sales during the quarter were flat as reported, but grew 9% on a constant exchange rate. Outside North America, laminate and wood flooring sales grew from continued expansion into the DIY channel, increases in the Russian market and our Australian acquisition. Our Russian laminate facility increased its production to satisfy higher demand and implemented productivity improvements.  In North America, we grew our laminate and wood products through all customer channels during the quarter. New product introductions, increased home center penetration, gains within the builder channel and promotional activity increased our sales. Declining new construction in Benelux and France created headwinds for our insulated roofing panels. To reduce costs in this category, we are consolidating our brands and sales forces as well as implementing process improvements. By helping meet European energy goals, our insulation panels delivered strong sales increases in both Belgium and France.

Mohawk's third quarter results reflect our strengths in delivering innovative products, driving operational excellence and entering new geographic markets. We continue to invest strategically by introducing differentiated products, lowering our manufacturing and administrative costs and acquiring new companies that will enhance our results.  We have taken the necessary steps to align our pricing with our raw material inflation and we will react as required. In the U.S., increasing new home construction and improved sales of existing homes provide a positive outlook for future flooring growth. In Europe, soft market conditions due to economic uncertainty and changes in exchange rates are anticipated to be a headwind. Based on these factors, our guidance for fourth quarter earnings is $.89 to $.98 per share, excluding any restructuring costs.

Mohawk's strong financial position allowed us to enter into an agreement to acquire Pergo which will benefit our worldwide laminate business and we are well positioned to invest in other opportunities as they arise.  We continue to execute our long-term strategy of product innovation, cost reduction, asset maximization and geographic expansion. Each of our businesses is well situated to benefit from the improvements in the U.S. remodeling and construction category, which remains substantially below peak levels. Our organization is focused on bringing value to our customers while maximizing our results.

Mohawk is a leading supplier of flooring for both residential and commercial applications.  Mohawk provides a complete selection for all markets of carpet, ceramic tile, laminate, wood, stone, vinyl and rugs. These products are marketed under the premier brands in the industry including Mohawk, Karastan, Lees, Bigelow, Durkan, Mohawk Home, Daltile, American Olean, Unilin and Quick-Step.  Mohawk's unique merchandising and marketing assists consumers in creating exquisite floors to fulfill their dreams. Mohawk provides a premium level of service with its own trucking fleet and local distribution in the U.S.  Mohawk's international presence includes operations in Australia, Brazil, China, Europe, Malaysia, Mexico and Russia.

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 in raw material prices and other input costs; 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 2, 2012 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 # 37587426.  A replay will also be available until November 16, 2012 by dialing 855-859-2056 for US/local calls and 404-537-3406 for International/Local calls and entering Conference ID # 37587426.

 

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Statement of Operations

Three Months Ended

Nine Months Ended

(Amounts in thousands, except per share data)

September 29, 2012

October 1, 2011

September 29, 2012

October 1, 2011

Net sales

$

1,473,493

1,442,512

4,352,321

4,263,961

Cost of sales

1,100,656

1,084,889

3,231,594

3,182,499

Gross profit

372,837

357,623

1,120,727

1,081,462

Selling, general and administrative expenses

268,883

266,159

837,079

832,214

Operating income

103,954

91,464

283,648

249,248

Interest expense

17,969

25,132

59,311

77,487

Other expense (income), net

322

13,413

(1,063)

13,794

Earnings before income taxes

85,663

52,919

225,400

157,967

Income tax expense

15,359

5,223

40,896

23,639

Net earnings

70,304

47,696

184,504

134,328

Net earnings attributable to noncontrolling interest

(1,050)

(635)

(3,337)

Net earnings attributable to Mohawk Industries, Inc.

$

70,304

46,646

183,869

130,991

Basic earnings per share attributable to Mohawk Industries, Inc.

$

1.02

0.68

2.67

1.91

Weighted-average common shares outstanding - basic

69,010

68,759

68,952

68,725

Diluted earnings per share attributable to Mohawk Industries, Inc.

$

1.01

0.68

2.66

1.90

Weighted-average common shares outstanding - diluted

69,337

68,954

69,247

68,946

Other Financial Information

(Amounts in thousands)

Net cash provided by operating activities

$

202,971

109,598

298,547

138,188

Depreciation and amortization

$

71,298

74,207

216,415

222,804

Capital expenditures

$

47,311

69,741

134,998

182,260

Consolidated Balance Sheet Data

(Amounts in thousands)

September 29, 2012

October 1, 2011

ASSETS

Current assets:

Cash and cash equivalents

$

380,842

276,156

Receivables, net

817,214

775,421

Inventories

1,139,403

1,132,073

Prepaid expenses and other current assets

146,275

125,007

Deferred income taxes

112,995

131,931

Total current assets

2,596,729

2,440,588

Property, plant and equipment, net

1,657,226

1,696,182

Goodwill

1,371,494

1,389,430

Intangible assets, net

554,257

634,164

Deferred income taxes and other non-current assets

122,906

117,204

Total assets

$

6,302,612

6,277,568

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt

$

57,673

438,300

Accounts payable and accrued expenses

761,186

774,939

Total current liabilities

818,859

1,213,239

Long-term debt, less current portion

1,467,269

1,173,038

Deferred income taxes and other long-term liabilities

421,549

439,798

Total liabilities

2,707,677

2,826,075

Noncontrolling interest

32,758

Total stockholders' equity

3,594,935

3,418,735

Total liabilities and stockholders' equity

$

6,302,612

6,277,568

Segment Information

Three Months Ended

As of or for the Nine Months Ended

(Amounts in thousands)

September 29, 2012

October 1, 2011

September 29, 2012

October 1, 2011

Net sales:

Mohawk

$

751,787

754,470

2,186,160

2,203,699

Dal-Tile

417,533

381,891

1,214,746

1,105,775

Unilin

328,582

329,514

1,020,380

1,018,443

Intersegment sales

(24,409)

(23,363)

(68,965)

(63,956)

Consolidated net sales

$

1,473,493

1,442,512

4,352,321

4,263,961

Operating income (loss):

Mohawk

$

43,810

30,946

106,228

79,187

Dal-Tile

37,452

33,073

99,912

82,911

Unilin

28,892

33,048

96,613

105,507

Corporate and eliminations

(6,200)

(5,603)

(19,105)

(18,357)

Consolidated operating income

$

103,954

91,464

283,648

249,248

Assets:

Mohawk

$

1,760,828

1,810,191

Dal-Tile

1,783,147

1,735,718

Unilin

2,586,084

2,569,103

Corporate and eliminations

172,553

162,556

Consolidated assets

$

6,302,612

6,277,568

 

 

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

September 29, 2012

October 1, 2011

September 29, 2012

October 1, 2011

Net earnings attributable to Mohawk Industries, Inc.

$

70,304

46,646

183,869

130,991

Adjusting items:

Unrealized foreign currency losses (1)

9,085

9,085

Business restructurings

4,229

2,186

12,455

15,513

Debt extinguishment costs

1,116

1,116

Income taxes

(2,691)

(1,761)

(4,892)

(4,597)

Adjusted net earnings attributable to Mohawk Industries, Inc.

$

71,842

57,272

191,432

152,108

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

$

1.04

0.83

2.76

2.21

Weighted-average common shares outstanding - diluted

69,337

68,954

69,247

68,946

Reconciliation of Operating Cash Flow to Free Cash Flow

(Amounts in thousands)

Three Months Ended

September 29, 2012

Net cash provided by operating activities

$

202,971

Capital expenditures

(47,311)

Free cash flow

$

155,660

Reconciliation of Total Debt to Net Debt

(Amounts in thousands)

September 29, 2012

Current portion of long-term debt

$

57,673

Long-term debt, less current portion

1,467,269

Cash and cash equivalents

(380,842)

Net Debt

$

1,144,100

Reconciliation of Capitalization

(Amounts in thousands)

September 29, 2012

Current portion of long-term debt

$

57,673

Long-term debt, less current portion

1,467,269

Total stockholders' equity

3,594,935

Capitalization

$

5,119,877

Net Debt to Capitalization

22%

Reconciliation of Operating Income to Adjusted EBITDA

(Amounts in thousands)

Three Months Ended

Trailing Twelve Months Ended

December 31, 2011

March 31, 2012

June 30, 2012

September 29, 2012

September 29, 2012

Operating income

$

66,294

71,976

107,718

103,954

349,942

Other (expense) income

(257)

1,825

(440)

(322)

806

Net earnings attributable to noncontrolling interest

(966)

(635)

(1,601)

Depreciation and amortization

74,930

73,286

71,831

71,298

291,345

EBITDA

140,001

146,452

179,109

174,930

640,492

Operating lease correction (2)

6,035

6,035

Business restructurings

7,696

8,226

4,229

20,151

Adjusted EBITDA

$

153,732

146,452

187,335

179,159

666,678

Net Debt to Adjusted EBITDA

1.7

Reconciliation of Net Sales to Net Sales on a Constant Exchange Rate

(Amounts in thousands)

Three Months Ended

Nine Months Ended

September 29, 2012

October 1, 2011

September 29, 2012

October 1, 2011

Net sales

$

1,473,493

1,442,512

4,352,321

4,263,961

Adjustment to net sales on a constant exchange rate

32,777

82,877

Net sales on a constant exchange rate

$

1,506,270

1,442,512

4,435,198

4,263,961

Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate

(Amounts in thousands)

Three Months Ended

Dal-Tile

September 29, 2012

October 1, 2011

Net sales

$

417,533

381,891

Adjustment to segment net sales on a constant exchange rate

1,935

Segment net sales on a constant exchange rate

$

419,468

381,891

Three Months Ended

Unilin

September 29, 2012

October 1, 2011

Net sales

$

328,582

329,514

Adjustment to segment net sales on a constant exchange rate

30,842

Segment net sales on a constant exchange rate

$

359,424

329,514

Reconciliation of Operating Income to Adjusted Operating Income

(Amounts in thousands)

Three Months Ended

September 29, 2012

October 1, 2011

Operating income

$

103,954

91,464

Business restructurings

4,229

2,186

Adjusted operating income

$

108,183

93,650

Adjusted operating margin as a percent of net sales

7.3%

6.5%

Reconciliation of Segment Operating Income to Adjusted Segment Operating Income

(Amounts in thousands)

Three Months Ended

Mohawk

September 29, 2012

October 1, 2011

Operating income

$

43,810

30,946

Business restructurings

3,122

2,186

Adjusted segment operating income

$

46,932

33,132

Adjusted operating margin as a percent of net sales

6.2%

4.4%

Reconciliation of Earnings Before Income Taxes to Adjusted Earnings Before Income Taxes

(Amounts in thousands)

Three Months Ended

September 29, 2012

October 1, 2011

Earnings before income taxes

$

85,663

52,919

Adjustments to earnings before income taxes:

Unrealized foreign currency losses (1)

9,085

Business restructurings

4,229

2,186

Debt extinguishment costs

1,116

Adjusted earnings before income taxes

$

89,892

65,306

Reconciliation of Income Tax Expense to Adjusted Income Tax Expense

(Amounts in thousands)

Three Months Ended

September 29, 2012

October 1, 2011

Income tax expense

$

15,359

5,223

Income tax effect of business restructurings

2,691

1,761

Adjusted income tax expense

$

18,050

6,984

Adjusted income tax rate

20%

11%

(1)  Unrealized foreign currency losses in Q3 2011 for certain of the Company's consolidated foreign subsidiaries that measure financial position and results using the U.S. dollar rather than the local currency.

(2)  Correction of an immaterial error related to accounting for operating leases

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 the planning and forecasting in subsequent periods.

 

SOURCE Mohawk Industries, Inc.



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