Mohawk Industries, Inc. Announces Second Quarter Earnings

Aug 04, 2011, 16:43 ET from Mohawk Industries, Inc.

CALHOUN, Ga., Aug. 4, 2011 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2011 second quarter net earnings of $61 million and diluted earnings per share (EPS) of $0.88. Excluding restructuring charges, net earnings were $66 million and EPS was $0.95. For the second quarter of 2010, the net earnings were $68 million and EPS was $0.95. Excluding non-recurring tax benefits, redemption premium on bonds and restructuring charges, net earnings and EPS were $53 million and $0.77 per share. Net sales for the second quarter of 2011 were $1.5 billion increasing 6% as reported and 3% with a constant exchange rate. Our cash position at the end of the quarter was $285 million and our net debt to adjusted EBITDA ratio was 2.1. A new five-year lower cost bank facility was executed in July to support future growth and investments.

For the six months ended July 2, 2011, net sales were $2.8 billion, an increase of approximately 3% as reported and 2% with a constant exchange rate. For the six-month period, net earnings and EPS were $84 million and $1.22, respectively. Excluding restructuring charges, net earnings were $95 million and EPS was $1.38. For the six months ended July 3, 2010, net earnings were $89 million and EPS was $1.24. Excluding unusual items in 2010, net earnings were $77 million and EPS was $1.12.

Commenting on the second quarter results, Jeffrey S. Lorberbaum, Chairman and CEO stated, "All of our businesses reported year over year sales growth and our operating margin improved to 7.3%, an increase of 50 basis points over last year excluding restructuring charges. This is our highest operating margin since 2008 as a result of continuing cost reductions, selling price increases and productivity gains throughout the enterprise. U.S. economic growth was lower than expected in the second quarter with the U.S. residential business remaining soft and the commercial business continuing to grow."

Our Mohawk segment net sales grew about 1% with improving commercial sales offsetting soft residential sales. Excluding restructuring charges, operating margin was 80 basis points higher than last year as a result of reductions in SG&A costs, price increases and improved manufacturing productivity. We are performing in line with the industry with growth in commercial remodeling and lower residential activity. Our commercial business posted sales gains in both tile and broadloom products. The carpet price increase announced in February was fully implemented in the period and the second increase initiated in April will be completed during the third quarter. Our South Carolina extrusion expansion was completed, we consolidated a commercial carpet plant and we announced the closure of a yarn spinning plant. Continued emphasis on productivity improvements has yielded more efficient processes in our manufacturing and administrative areas allowing us to reduce personnel costs by an additional $10 million annually.  

Our Dal-Tile segment net sales grew more than 4% this period with commercial sales growth exceeding residential. Sales in all of our channels grew over the prior year as we outperformed the overall market. Higher product prices and fuel surcharges were implemented in the period to recover rising transportation costs. Our market share has improved due to the breadth of our offerings, new products with enhanced visuals, larger sizes and our superior service. We introduced a completely merchandised ceramic tile shop and a new installation warranty to differentiate Dal-Tile products. Our Reveal Imaging technology is being expanded throughout our manufacturing operations. Our business in Mexico is expanding as we broaden our product line and satisfy all price points. The plant near Mexico City is being constructed to produce non-porcelain ceramic tile at much lower costs, beginning in mid-2012. New workforce management systems, increased truck utilization rates and new shipping channels are reducing our freight and distribution costs.    

Our Unilin net sales increased approximately 18% as reported and 7% on a constant exchange rate. Sales of our European products were positive with growth in our roofing systems and panels outperforming our flooring products and impacting the mix of our margins. In most of our European products, our price increases are beginning to catch up with the higher raw material costs. Our European flooring is gaining share in a challenging market by increasing our position in the European DIY channel and growing our presence in the UK, Russian and Australian markets. In the U.S., our Unilin flooring sales were impacted by low residential remodeling. Our wood sales continue to expand with an improved product mix and our wood plants have increased their productivity, yields and flexibility. We are growing our Russian customer base to support the new plant under construction near Moscow. In addition, the consolidation and expansion of our Malaysian wood manufacturing operations should be complete by first quarter 2012.  

Our second quarter results were accomplished despite the weaker than expected economies in both the U.S. and Europe. During this challenging economic period, we have made many improvements throughout our business resulting in a leaner, more efficient organization. We are introducing innovative products and re-engineering existing ones to improve our sales mix and margins. We are continuing to reduce our cost structure, increase our productivity and invest in new products and geographies. We are increasing prices as needed in response to raw material and energy inflation. We are well positioned to leverage these changes into a more profitable business as residential remodeling and the economy improves. With these factors, our third quarter guidance for earnings is $0.82 to $0.91 per share, excluding any restructuring costs. Mohawk's strategies reflect our evolution from a North American carpet business into a larger, more diverse, total flooring company operating in the global market.

Mohawk is a leading supplier of flooring for both residential and commercial applications.  Mohawk offers a complete selection of carpet, ceramic tile, laminate, wood, stone, vinyl, and rugs.  These products are marketed under the premier brands in the industry, which include Mohawk, Karastan, Lees, Bigelow, Dal-Tile, American Olean, Unilin and Quick Step.  Mohawk's unique merchandising and marketing assist our customers in creating the consumers' dream.  Mohawk provides a premium level of service with its own trucking fleet and local distribution. Mohawk's operational international presence includes 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; claims; litigation; and other risks identified in Mohawk’s SEC reports and public announcements.

There will be a conference call Friday, August 5, 2011 at 11:00 AM Eastern Time.

The telephone number to call is 1-800-603-9255 for US/Canada and 1-706-634-2294 for International/Local. Conference ID # 82606045.  A conference call replay will also be available until August 19, 2011 by dialing 855-859-2056 for US/local calls and 404-537-3406 for International/Local calls and entering Conference ID # 82606045.

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Statement of Operations

Three Months Ended

Six Months Ended

(Amounts in thousands, except per share data)

July 2, 2011

July 3, 2010

July 2, 2011

July 3, 2010

Net sales

$1,477,854

1,400,086

2,821,449

2,747,322

Cost of sales

1,095,607

1,025,330

2,097,610

2,031,320

   Gross profit

382,247

374,756

723,839

716,002

Selling, general and administrative expenses

280,547

285,030

566,055

572,655

Operating income

101,700

89,726

157,784

143,347

Interest expense

25,760

39,031

52,355

72,939

Other (income) expense, net

396

544

381

(3,987)

   Earnings before income taxes

75,544

50,151

105,048

74,395

Income tax expense (benefit)  

13,450

(18,814)

18,416

(15,840)

Net earnings

62,094

68,965

86,632

90,235

Net earnings attributable to noncontrolling interest

(1,191)

(884)

(2,287)

(1,616)

   Net earnings attributable to Mohawk Industries, Inc.

$    60,903

68,081

84,345

88,619

Basic earnings per share attributable to Mohawk Industries, Inc. (1)

$        0.89

0.95

1.23

1.25

Weighted-average common shares outstanding - basic

68,744

68,585

68,709

68,554

Diluted earnings per share attributable to Mohawk Industries, Inc. (1)

$       0.88

0.95

1.22

1.24

Weighted-average common shares outstanding - diluted

68,981

68,789

68,942

68,760

(1) Basic earnings per share attributable to Mohawk Industries, Inc. for the three and six months ended July 3, 2010, includes a decrease of approximately $0.04, and diluted earnings per share attributable to Mohawk Industries, Inc. for the three and six months ended July 3, 2010, includes a decrease of approximately $0.04 and $0.05, respectively, related to the change in fair value for a redeemable noncontrolling interest in a consolidated subsidiary of the Company.  

Other Financial Information

(Amounts in thousands)

Net cash provided by operating activities

$ 96,003

135,169

28,590

88,977

Depreciation and amortization

$ 74,344

72,497

148,597

149,295

Capital expenditures

$ 59,708

23,830

112,519

47,139

Consolidated Balance Sheet Data

(Amounts in thousands)

July 2, 2011

July 3, 2010

ASSETS

Current assets:

   Cash and cash equivalents

$ 285,422

342,673

   Receivables, net

797,893

703,458

   Inventories

1,102,769

965,778

   Prepaid expenses and other current assets

125,815

137,338

   Deferred income taxes

135,338

135,613

       Total current assets

2,447,237

2,284,860

Property, plant and equipment, net

1,730,914

1,654,161

Goodwill

1,418,830

1,340,003

Intangible assets, net

681,178

686,156

Deferred income taxes and other non-current assets

110,841

38,736

$ 6,389,000

6,003,916

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt

$ 453,185

351,307

Accounts payable and accrued expenses

771,297

808,909

       Total current liabilities

1,224,482

1,160,216

Long-term debt, less current portion

1,155,150

1,303,155

Deferred income taxes and other long-term liabilities

460,109

431,355

       Total liabilities

2,839,741

2,894,726

Noncontrolling interest

32,300

33,309

Total stockholders' equity

3,516,959

3,075,881

$ 6,389,000

6,003,916

Segment Information

(Amounts in thousands)

Three Months Ended

As of or for the Six Months Ended

July 2, 2011

July 3, 2010

July 2, 2011

July 3, 2010

Net sales:

   Mohawk

$    758,064

747,582

1,449,229

1,464,165

   Dal-Tile

379,469

363,618

723,884

705,014

   Unilin

363,097

308,385

688,929

614,265

   Intersegment sales

(22,776)

(19,499)

(40,593)

(36,122)

       Consolidated net sales

$ 1,477,854

1,400,086

2,821,449

2,747,322

Operating income (loss):

   Mohawk

$      31,201

26,345

48,241

42,973

   Dal-Tile

32,138

28,124

49,838

43,519

   Unilin

46,209

42,336

72,459

68,794

   Corporate and eliminations

(7,848)

(7,079)

(12,754)

(11,939)

       Consolidated operating income

$    101,700

89,726

157,784

143,347

Assets:

   Mohawk

$  1,783,630

1,675,226

   Dal-Tile

1,700,482

1,570,238

   Unilin

2,717,032

2,423,695

   Corporate and eliminations

187,856

334,757

       Consolidated assets

$  6,389,000

6,003,916

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, 2011

July 3, 2010

July 2, 2011

July 3, 2010

Net earnings attributable to Mohawk Industries, Inc.

$ 60,903

68,081

84,345

88,619

Unusual items:

Business restructurings

6,514

4,929

13,327

8,933

Debt extinguishment costs

-

7,514

-

7,514

Discrete tax items, net

-

(24,407)

-

(24,407)

Income taxes

(1,818)

(3,290)

(2,836)

(3,759)

Adjusted net earnings attributable to Mohawk Industries, Inc.

$ 65,599

52,827

94,836

76,900

Adjusted diluted earnings per share attributable to Mohawk Industries, Inc.(1)

0.95

0.77

1.38

1.12

Weighted-average common shares outstanding - diluted

68,981

68,789

68,942

68,760

(1) Diluted earnings per share attributable to Mohawk Industries, Inc. for the three and six months ended July 3, 2010, excludes approximately $0.04 and $0.05, respectively, related to the change in fair value for a redeemable noncontrolling interest in a consolidated subsidiary of the Company.  

Reconciliation of Total Debt to Net Debt

(Amounts in thousands)

July 2, 2011

Current portion of long-term debt

$    453,185

Long-term debt, less current portion

1,155,150

Less: Cash and cash equivalents

285,422

Net Debt

$ 1,322,913

Reconciliation of Operating Income to Adjusted EBITDA

(Amounts in thousands)

Trailing Twelve

Three Months Ended

Months Ended

October 2, 2010

December 31, 2010

April 2, 2011

July 2, 2011

July 2, 2011

Operating income

$   85,182

85,640

56,084

101,700

328,606

Other income (expense)

(1,124)

1,037

(15)

396

294

U.S. customs refund

5,765

1,965

-

-

7,730

Net earnings attributable to noncontrolling interest

(1,170)

(1,678)

(1,096)

(1,191)

(5,135)

Depreciation and amortization

72,956

74,522

74,253

74,344

296,075

EBITDA

161,609

161,486

129,226

175,249

627,570

Business restructurings

3,330

-

6,813

6,514

16,657

Adjusted EBITDA

$ 164,939

161,486

136,039

181,763

644,227

Net Debt to Adjusted EBITDA

2.1

Reconciliation of Net Sales to Adjusted Net Sales

(Amounts in thousands)

Three Months Ended

Six Months Ended

July 2, 2011

July 3, 2010

July 2, 2011

July 3, 2010

Net sales

$   1,477,854

1,400,086

2,821,449

2,747,322

Adjustments to net sales:

Exchange rate

(35,604)

-

(33,285)

-

Adjusted net sales

$   1,442,250

1,400,086

2,788,164

2,747,322

Reconciliation of Segment Net Sales to Adjusted Segment Net Sales

(Amounts in thousands)

Three Months Ended

Unilin segment

July 2, 2011

July 3, 2010

Net sales

$   363,097

308,385

Adjustments to net sales:

Exchange rate

(33,558)

-

Adjusted net sales

$   329,539

308,385

Reconciliation of Operating Income to Adjusted Operating Income

(Amounts in thousands)

Three Months Ended

July 2, 2011

July 3, 2010

Operating income

$  101,700

89,726

Adjustments to operating income:

Business restructurings

6,514

4,929

Adjusted operating income

$  108,214

94,655

  Adjusted operating margin as a percent of net sales

7.3%

6.8%

Mohawk segment

Operating income

$   31,201

26,345

Adjustments to operating income:

Business restructurings

6,514

4,929

Adjusted operating income

$   37,715

31,274

  Adjusted operating margin as a percent of net sales

5.0%

4.2%

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

(Amounts in thousands)

Three Months Ended

July 2, 2011

July 3, 2010

Earnings before income taxes

$    75,544

50,151

Unusual items:

Business restructurings

6,514

4,929

Debt extinguishment costs

-

7,514

Adjusted earnings before income taxes

$    82,058

62,594

Reconciliation of Income Tax Expense (Benefit) to Adjusted Income Tax Expense

(Amounts in thousands)

Three Months Ended

July 2, 2011

July 3, 2010

Income tax expense (benefit)

$  13,450

(18,814)

Unusual items:

Discrete tax items, net

-

24,407

Income taxes

1,818

3,290

Adjusted income tax expense

$  15,268

8,883

Adjusted income tax rate

19%

14%

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

(Amounts in thousands)

Three Months Ended

July 2, 2011

July 3, 2010

Selling, general and administrative expenses

$ 280,547

285,030

Adjustments to selling, general and administrative expenses:

Exchange rate

(5,821)

-

Adjusted selling, general and administrative expenses

$ 274,726

285,030

The Company believes it is useful for itself and investors to review, as applicable, both GAAP and the

above non-GAAP measures in order to assess the performance of the Company's business for

planning and forecasting in subsequent periods.

SOURCE Mohawk Industries, Inc.



RELATED LINKS

http://www.mohawkind.com