Mohawk Industries, Inc. Announces Third Quarter Earnings

Nov 03, 2011, 16:01 ET from Mohawk Industries, Inc.

CALHOUN, Ga., Nov. 3, 2011 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2011 third quarter net earnings of $47 million and diluted earnings per share (EPS) of $0.68. Adjusted net earnings were $57 million and EPS was $0.83 excluding the unusual items. For the third quarter of 2010, the net earnings were $51 million and EPS was $0.74 both as reported and excluding unusual items. Net sales for the third quarter of 2011 were $1.4 billion increasing 10% as reported and 8% with a constant exchange rate. Our cash position at the end of the quarter remains strong with $276 million and our net debt to adjusted EBITDA ratio was 2.1.

For the nine months ended October 1, 2011, net sales were $4.3 billion, an increase of approximately 5% as reported and 4% with a constant exchange rate. For the nine-month period, net earnings and EPS were $131 million and $1.90, respectively. Excluding unusual items, net earnings were $152 million and EPS was $2.21. For the nine months ended October 2, 2010, net earnings were $140 million and EPS was $1.99. Excluding unusual items in 2010, net earnings were $128 million and EPS was $1.86.

Commenting on the third quarter results, Jeffrey S. Lorberbaum, Chairman and CEO, stated, “The Company’s third quarter results reflect an improvement in sales and earnings over last year even with increased raw material costs and consumer reluctance to invest in renovation projects. Sales in both the residential and commercial categories expanded with commercial renovation leading the growth and new residential continuing to lag. Each segment continues to lower costs with new processes, reduced infrastructure and investment in more efficient assets.”

Our Mohawk segment net sales improved 6% as we improved our position and grew in both residential and commercial categories. Operating margins were lower due to price increases lagging material inflation as well as continued pressure on our product mix as consumers remain cautious about larger discretionary investments. During the quarter, residential sales grew across most channels and product categories. Commercial sales momentum continued from the previous quarter, with both broadloom and carpet tile achieving gains. During 2011, we implemented two price increases that were fully realized by the end of the third quarter. During the period, raw material costs were greater than anticipated and the higher expense will impact our fourth quarter costs and margins. We have implemented hundreds of manufacturing initiatives yielding significant cost savings in 2011.

Our Dal-Tile segment net sales grew almost 11% during the period with both residential and commercial categories showing gains with product mix continuing to decline. In the comparable 2010 period, business was lower than expected due to the flooding in our Mexican facility from Hurricane Alex. During the quarter, we increased sales in all channels with particular strength in home centers due to additional commitments for our innovative mosaics, wall tile and porcelain tile. Our Mexican ceramic sales grew significantly on a local basis as we enhanced our penetration with new products and broader distribution. We have implemented new manufacturing processes to lower raw material costs, improve efficiency, reduce production runs and improve distribution costs.    

Our Unilin net sales increased approximately 19% as reported and 11% with a constant exchange rate. Sales in Europe increased across most channels and regions, and our price increases are beginning to catch up with the raw material inflation. We are implementing additional price increases for roof panels and insulation boards to offset further inflation in those products. Innovation in board manufacturing processes is enhancing our efficiency and material yields. Despite challenging market conditions, our European flooring products grew by capitalizing on the strength of our Quick-Step brand, growing our participation in the DIY channel, and expanding our wood flooring category. In the U.S., sales of our laminate flooring grew through expanded programs in all channels. We completed our Russian laminate flooring plant on schedule and are initiating production. We acquired the largest laminate and wood flooring distributor in Australia, which expands our strategy of getting closer to our customers and becoming more responsive to local markets.    

Mohawk’s strategy to maximize our long term results is reflected in our international expansion in Mexico, Russia, China and Australia, new technologies to increase value, innovative product categories like Didit click furniture and process enhancements to lower our cost position across the enterprise.  We remain confident in the future of our business and will continue to adjust our tactics as economic conditions change.  In the fourth quarter, we will be impacted by higher third quarter raw material costs; however we are currently seeing some moderation which will benefit next year. We will consider further price increases as appropriate and implement additional cost reductions to improve the business. With these factors, our fourth quarter guidance for earnings is $0.67 to $0.76 per share, excluding any restructuring costs.

Our strategy in this environment focuses on lowering our cost infrastructure, creating innovative products, maintaining a strong balance sheet and targeting new investments for future growth. Although the macro outlook is somewhat uncertain, we believe our results for next year will reflect continued improvement.

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, Durkan, Daltile, 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 in the U.S. 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; tax, product and other claims; litigation; and other risks identified in Mohawk’s SEC reports and public announcements.

There will be a conference call Friday, November 4, 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 # 17731505.  A conference call replay will also be available until November 18, 2011 by dialing 855-859-2056 for US/local calls and 404-537-3406 for International/Local calls and entering Conference ID # 17731505

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES

Consolidated Statement of Operations

Three Months Ended

Nine Months Ended

(Amounts in thousands, except per share data)

October 1, 2011

October 2, 2010

October 1, 2011

October 2, 2010

Net sales

$           1,442,512

1,309,552

4,263,961

4,056,874

Cost of sales

1,084,889

964,620

3,182,499

2,995,940

   Gross profit

357,623

344,932

1,081,462

1,060,934

Selling, general and administrative expenses

266,159

259,750

832,214

832,405

Operating income

91,464

85,182

249,248

228,529

Interest expense

25,132

30,046

77,487

102,985

Other (income) expense, net

13,413

(4,641)

13,794

(8,628)

   Earnings before income taxes

52,919

59,777

157,967

134,172

Income tax expense (benefit)  

5,223

7,513

23,639

(8,327)

Net earnings

47,696

52,264

134,328

142,499

Net earnings attributable to noncontrolling interest

(1,050)

(1,170)

(3,337)

(2,786)

   Net earnings attributable to Mohawk Industries, Inc.

$                46,646

51,094

130,991

139,713

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

$                    0.68

0.74

1.91

1.99

Weighted-average common shares outstanding - basic

68,759

68,593

68,725

68,567

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

$                    0.68

0.74

1.90

1.99

Weighted-average common shares outstanding - diluted

68,954

68,773

68,946

68,764

(1) Basic earnings per share attributable to Mohawk Industries, Inc. for the nine months ended October 2, 2010, includes a decrease of approximately $0.05, and diluted earnings per share attributable to Mohawk Industries, Inc. for the nine months ended October 2, 2010, includes a decrease of approximately $0.04, 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

$              109,598

121,417

138,188

210,394

Depreciation and amortization

$                74,207

72,956

222,804

222,251

Capital expenditures

$                69,741

39,101

182,260

86,240

Consolidated Balance Sheet Data

(Amounts in thousands)

October 1, 2011

October 2, 2010

ASSETS

Current assets:

   Cash and cash equivalents

$              276,156

365,835

   Receivables, net

775,421

697,491

   Inventories

1,132,073

996,271

   Prepaid expenses and other current assets

125,007

114,876

   Deferred income taxes

131,931

119,729

       Total current assets

2,440,588

2,294,202

Property, plant and equipment, net

1,696,182

1,680,541

Goodwill

1,389,430

1,389,057

Intangible assets, net

634,164

710,934

Deferred income taxes and other non-current assets

117,204

117,176

$           6,277,568

6,191,910

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Current portion of long-term debt

$              438,300

351,486

Accounts payable and accrued expenses

774,939

779,825

       Total current liabilities

1,213,239

1,131,311

Long-term debt, less current portion

1,173,038

1,303,151

Deferred income taxes and other long-term liabilities

439,798

441,948

       Total liabilities

2,826,075

2,876,410

Noncontrolling interest

32,758

34,121

Total stockholders' equity

3,418,735

3,281,379

$           6,277,568

6,191,910

Segment Information

Three Months Ended

As of or for the Nine Months Ended

(Amounts in thousands)

October 1, 2011

October 2, 2010

October 1, 2011

October 2, 2010

Net sales:

   Mohawk

$              754,470

713,481

2,203,699

2,177,646

   Dal-Tile

381,891

345,074

1,105,775

1,050,088

   Unilin

329,514

276,594

1,018,443

890,859

   Intersegment sales

(23,363)

(25,597)

(63,956)

(61,719)

       Consolidated net sales

$           1,442,512

1,309,552

4,263,961

4,056,874

Operating income (loss):

   Mohawk

$                30,946

31,127

79,187

74,100

   Dal-Tile

33,073

33,913

82,911

77,432

   Unilin

33,048

24,640

105,507

93,434

   Corporate and eliminations

(5,603)

(4,498)

(18,357)

(16,437)

       Consolidated operating income

$                91,464

85,182

249,248

228,529

Assets:

   Mohawk

$           1,810,191

1,652,737

   Dal-Tile

1,735,718

1,677,957

   Unilin

2,569,103

2,542,233

   Corporate and eliminations

162,556

318,983

       Consolidated assets

$           6,277,568

6,191,910

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, 2011

October 2, 2010

October 1, 2011

October 2, 2010

Net earnings attributable to Mohawk Industries, Inc.

$                 46,646

51,094

130,991

139,713

Unusual items:

Unrealized foreign currency losses (1)

9,085

-

9,085

-

Business restructurings

2,186

3,330

15,513

12,263

Debt extinguishment costs

1,116

-

1,116

7,514

Acquisitions purchase accounting

-

1,713

-

1,713

U.S. customs refund

-

(5,765)

-

(5,765)

Discrete tax items, net

-

-

-

(24,407)

Income taxes

(1,761)

760

(4,597)

(2,999)

Adjusted net earnings attributable to Mohawk Industries, Inc.

$                 57,272

51,132

152,108

128,032

Adjusted diluted earnings per share attributable to Mohawk Industries, Inc. (2)

0.83

0.74

2.21

1.86

Weighted-average common shares outstanding - diluted

68,954

68,773

68,946

68,764

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

(2) Diluted earnings per share attributable to Mohawk Industries, Inc. for the nine months ended October 2, 2010, excludes approximately $0.04 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)

October 1, 2011

Current portion of long-term debt

$                438,300

Long-term debt, less current portion

1,173,038

Less: Cash and cash equivalents

276,156

Net Debt

$             1,335,182

Reconciliation of Operating Income to Adjusted EBITDA

(Amounts in thousands)

Trailing Twelve

Three Months Ended

Months Ended

December 31, 2010

April 2, 2011

July 2, 2011

October 1, 2011

October 1, 2011

Operating income

$                  85,640

56,084

101,700

91,464

334,888

Other (expense) income

1,037

(15)

396

(13,413)

(11,995)

Unrealized foreign currency losses (1)

-

-

-

9,085

9,085

U.S. customs refund

1,965

-

-

-

1,965

Net earnings attributable to noncontrolling interest

(1,678)

(1,096)

(1,191)

(1,050)

(5,015)

Depreciation and amortization

74,522

74,253

74,344

74,207

297,326

EBITDA

161,486

129,226

175,249

160,293

626,254

Business restructurings

-

6,813

6,514

2,186

15,513

Adjusted EBITDA

$                161,486

136,039

181,763

162,479

641,767

Net Debt to Adjusted EBITDA

2.1

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

Reconciliation of Net Sales to Adjusted Net Sales

(Amounts in thousands)

Three Months Ended

Nine Months Ended

October 1, 2011

October 2, 2010

October 1, 2011

October 2, 2010

Net sales

$             1,442,512

1,309,552

4,263,961

4,056,874

Adjustments to net sales:

Exchange rate

(22,724)

-

(57,554)

-

Adjusted net sales

$             1,419,788

1,309,552

4,206,407

4,056,874

Reconciliation of Segment Net Sales to Adjusted Segment Net Sales

(Amounts in thousands)

Three Months Ended

Unilin

October 1, 2011

October 2, 2010

Net sales

$                329,514

276,594

Adjustment to net sales:

Exchange rate

(21,205)

-

Adjusted net sales

$                308,309

276,594

Reconciliation of Operating Income to Adjusted Operating Income

(Amounts in thousands)

Three Months Ended

October 1, 2011

October 2, 2010

Operating income

$                  91,464

85,182

Adjustments to operating income:

Business restructurings

2,186

3,330

Adjusted operating income

$                  93,650

88,512

Adjusted operating margin as a percent of net sales

6.5%

6.8%

Reconciliation of Segment Operating Income to Adjusted Segment Operating Income

(Amounts in thousands)

Three Months Ended

Mohawk

October 1, 2011

October 2, 2010

Operating income

$                  30,946

31,127

Adjustments to operating income:

Business restructurings

2,186

1,292

Adjusted operating income

$                  33,132

32,419

Adjusted operating margin as a percent of net sales

4.4%

4.5%

Dal-Tile

Operating income

$                  33,073

33,913

Adjustments to operating income:

Business restructurings

-

1,223

Adjusted operating income

$                  33,073

35,136

  Adjusted operating margin as a percent of net sales

8.7%

10.2%

Unilin

Operating income

$                  33,048

24,640

Adjustments to operating income:

Business restructurings

-

815

Adjusted operating income

$                  33,048

25,455

Adjusted operating margin as a percent of net sales

10.0%

9.2%

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

(Amounts in thousands)

Three Months Ended

October 1, 2011

October 2, 2010

Earnings before income taxes

$                  52,919

59,777

Unusual items:

Unrealized foreign currency losses (1)

9,085

-

Business restructurings

2,186

3,330

Debt extinguishment costs

1,116

-

Acquisitions purchase accounting

-

1,713

U.S. customs refund

-

(5,765)

Adjusted earnings before income taxes

$                  65,306

59,055

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

Reconciliation of Income Tax Expense to Adjusted Income Tax Expense

(Amounts in thousands)

Three Months Ended

October 1, 2011

October 2, 2010

Income tax expense

$                    5,223

7,513

Unusual items:

Income taxes

1,761

(760)

Adjusted income tax expense

$                    6,984

6,753

Adjusted income tax rate

11%

11%

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

(Amounts in thousands)

Three Months Ended

October 1, 2011

October 2, 2010

Selling, general and administrative expenses

$                266,159

259,750

Adjustments to selling, general and administrative expenses:

Exchange rate

(3,920)

-

Adjusted selling, general and administrative expenses

$                262,239

259,750

Adjusted selling, general and administrative expenses as a percent of net sales

18.2%

19.8%

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