News Column

Mohawk Industries, Inc. Announces Second Quarter Earnings

July 31, 2014

CALHOUN, Ga., July 31, 2014 /CNW/ -- Mohawk Industries, Inc. (NYSE:MHK) today announced 2014 second quarter net earnings of $153 million and diluted earnings per share (EPS) of $2.08. Excluding unusual charges, net earnings were $162 million and EPS was $2.21, a 20% increase over last year's second quarter adjusted EPS and the highest quarterly adjusted EPS in the company's history. Net sales for the second quarter of 2014 were $2.05 billion, an increase of approximately 4% versus the prior year's second quarter or 3% on a constant exchange basis. For the second quarter of 2013, net sales were $1.98 billion, net earnings were $85 million and EPS was $1.16; excluding unusual charges, net earnings were $134 million and EPS was $1.84.

For the six months ending June 28, 2014, net sales were $3.9 billion, an increase of 12% versus the prior year. Net earnings and EPS for the six-month period were $234 million and $3.19, respectively. Net earnings excluding unusual charges were $252 million and adjusted EPS was $3.44, an increase of 26% over the six-month adjusted EPS results in 2013. For the six months ending June 29, 2013, net sales were $3.5 billion, net earnings were $135 million and EPS was $1.89. Excluding unusual charges, net earnings and EPS were $195 million and $2.73, respectively.

Commenting on Mohawk Industries' second quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "Our adjusted operating income increased 160 basis points as productivity initiatives, cost reductions, price increases and manufacturing consolidation drove higher earnings across the business. Top line growth was less than we anticipated due to slower improvement in U.S. housing and remodeling; however, profits were in line with expectations as a result of successful product introductions, productivity improvements and better cost controls. We reduced SG&A compared to last year across the enterprise, even as we reinvested into the business to promote new product collections and enhance our sales strategies. We are continuing to invest in our acquisitions to improve profitability, increase mix and streamline the business; and we anticipate that these actions will result in even higher earnings as the European and Russian economies improve."

Carpet segment net sales for the quarter were $780 million, up 1% over last year. Adjusted operating income for the segment rose 15% as a result of increased productivity, improved quality and cost reductions in operations and administration.  Mohawk's patented Continuum technology is stimulating growth in our new polyester collections, and our state-of-the-art yarn project to support it is 75% complete. We are also expanding the distribution of our premium Karastan carpets by providing a broader offering and increasing the number of retailers selling our high-end brand. Commercial orders are growing now that we have substantially completed the product transition to our own fibers, and we have reorganized our commercial sales organization into smaller regions segmented by customer type with a complete portfolio for each channel. The carpet price increase announced in April was fully implemented at the end of the quarter to cover raw material inflation.

Ceramic segment net sales were $797 million, up 5% over last year as reported and with a constant exchange rate. The segment's adjusted operating income rose 21% due to productivity, volume, pricing and mix. In the U.S., the business benefited from innovative new collections that are leading the market shift to larger sizes, planks and rectangles. The new ceramic production line in Dallas has begun operation, and the additional capacity will satisfy the increasing demand for ceramic wood planks and larger sizes. Sales in Mexico are growing significantly with expanded distribution of new products from our Salamanca plant that provide market-leading style and value with superior availability. In Russia, sales and profitability increased on a local basis, but the decline of the ruble reduced our sales and income when translated to U.S. dollars. In the region, specialized products tailored for the new construction and DIY channels drove growth, offsetting slower retail sales. In Europe, sales and margins continue to progress due to increased sales outside of Southern Europe, as well as growth in Spain and improved mix from larger sizes with unique styling.

Laminate and Wood segment sales were $501 million, up 6% over last year, or 3% on a constant exchange rate.  Adjusted operating income for the segment increased 21% from acquisition synergies, productivity improvements and cost reductions. In the U.S., greater participation in new construction increased sales of wood flooring. The second wood flooring price increase this year was implemented in July to cover higher wood and transportation costs. In Europe, stronger sales in the Nordic countries and the U.K. outpaced the softer Western European markets, with growth in the wood and luxury vinyl tile categories offsetting slower laminate sales. At the recently acquired plant in the Czech Republic, new equipment has been installed to produce higher value wood flooring under the Pergo and Quick-Step brands for the European and Russian markets. The segment's insulation business continued to expand, supported by additional production in our new French facility. The integration of the Unilin and Spano businesses progressed with a single sales force providing a comprehensive product offering for all customers.

During the period, we once again demonstrated our ability to deliver earnings growth through sales improvement, productivity initiatives and leveraging acquisitions. In each of our segments, we are optimizing the efficiency of our operations, the advantages of our leading market positions, the breadth of our distribution and the strength of our brands to grow our business. We anticipate that our sales will strengthen as we move through the second half of the year supported by continued U.S. job creation and improved economic growth.  In the third quarter, we anticipate further improvement in the U.S. market with limited growth in Europe and Russia. With these factors, our guidance for third quarter earnings is $2.38 to $2.47 per share and, for the full year, $8.09 to $8.25 per share, excluding any restructuring charges. We remain committed to enhancing Mohawk's results, and we are optimistic about the improvement of the floor covering industry and our participation in it.

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, Bigelow, Daltile, Durkan, Karastan, Lees, Marazzi, Kerama Marazzi, Mohawk, 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, China, Europe, India, Malaysia, Mexico, 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 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, August 1, 2014 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 # 65483474.  A replay will be available until Friday August 15, 2014 by dialing 855-859-2056 for US/local calls and 404-537-3406 for International/Local calls and entering Conference ID # 65483474.

 

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES





























Consolidated Statement of Operations



Three Months Ended



Six Months Ended

(Amounts in thousands, except per share data)



June 28, 2014



June 29, 2013



June 28, 2014



June 29, 2013



















Net sales



$         2,048,247



1,976,299



3,861,342



3,463,114

Cost of sales



1,473,435



1,462,243



2,805,175



2,571,992

    Gross profit



574,812



514,056



1,056,167



891,122

Selling, general and administrative expenses



352,564



380,858



703,184



671,082

Operating income



222,248



133,198



352,983



220,040

Interest expense



20,702



25,312



42,798



44,468

Other (income) expense, net



(1,555)



(1,097)



3,335



5,290

    Earnings from continuing operations before income taxes



203,101



108,983



306,850



170,282

Income tax expense



50,240



23,240



72,936



33,972

        Earnings from continuing operations



152,861



85,743



233,914



136,310

Loss from discontinued operations, net of income tax benefit of $485



-



(1,361)



-



(1,361)

        Net earnings including noncontrolling interest



152,861



84,382



233,914



134,949

Net earnings (loss)  attributable to noncontrolling interest



111



(190)



83



(118)

Net earnings attributable to Mohawk Industries, Inc.



$            152,750



84,572



233,831



135,067



















Basic earnings per share attributable to Mohawk Industries, Inc.

















  Income from continuing operations 



$                  2.10



1.19



3.21



1.92

  Loss from discontinued operations, net of income taxes



-



(0.02)



-



(0.02)

Basic earnings per share attributable to Mohawk Industries, Inc.



$                  2.10



1.17



3.21



1.90

Weighted-average common shares outstanding - basic



72,832



72,406



72,788



70,907



















Diluted earnings per share attributable to Mohawk Industries, Inc.

















  Income from continuing operations 



$                  2.08



1.18



3.19



1.91

  Loss from discontinued operations, net of income taxes



-



(0.02)



-



(0.02)

Diluted earnings per share attributable to Mohawk Industries, Inc.



$                  2.08



1.16



3.19



1.89

Weighted-average common shares outstanding - diluted



73,297



72,867



73,302



71,405























































Other Financial Information

















(Amounts in thousands)

















Depreciation and amortization



$              83,754



80,643



164,738



140,992

Capital expenditures



$            127,616



82,815



249,697



146,097





































Consolidated Balance Sheet Data

















(Amounts in thousands)





























June 28, 2014



June 29, 2013

ASSETS

















Current assets:

















    Cash and cash equivalents











$              70,044



168,745

    Receivables, net











1,261,808



1,145,550

    Inventories











1,644,768



1,591,552

    Prepaid expenses and other current assets











267,210



229,859

    Deferred income taxes 











135,259



134,489

        Total current assets











3,379,089



3,270,195

Property, plant and equipment, net











2,830,202



2,594,256

Goodwill











1,730,713



1,690,622

Intangible assets, net











792,260



800,529

Deferred income taxes and other non-current assets











149,417



153,362

    Total assets











$         8,881,681



8,508,964

LIABILITIES AND STOCKHOLDERS' EQUITY

















Current liabilities:

















Current portion of long-term debt and commercial paper











$            619,229



83,171

Accounts payable and accrued expenses











1,253,291



1,261,791

        Total current liabilities











1,872,520



1,344,962

Long-term debt, less current portion











1,807,609



2,450,584

Deferred income taxes and other long-term liabilities











528,252



609,125

        Total liabilities











4,208,381



4,404,671

Total stockholders' equity











4,673,300



4,104,293

    Total liabilities and stockholders' equity











$         8,881,681



8,508,964



















Segment Information



Three Months Ended



As of or for the Six Months Ended

(Amounts in thousands)



June 28, 2014



June 29, 2013



June 28, 2014



June 29, 2013



















Net sales:

















    Carpet



$            780,308



770,868



1,455,234



1,466,202

    Ceramic



796,724



760,168



1,491,818



1,172,049

    Laminate and Wood



501,257



470,980



969,265



875,455

    Intersegment sales



(30,042)



(25,717)



(54,975)



(50,592)

        Consolidated net sales



$         2,048,247



1,976,299



3,861,342



3,463,114



















Operating income (loss):

















    Carpet



$              62,826



54,862



97,097



80,100

    Ceramic



106,407



46,304



167,066



76,280

    Laminate and Wood



60,843



41,362



104,962



80,055

    Corporate and eliminations



(7,828)



(9,330)



(16,142)



(16,395)

        Consolidated operating income



$            222,248



133,198



352,983



220,040



















Assets:

















    Carpet











$         1,960,106



1,803,212

    Ceramic











3,900,387



3,832,888

    Laminate and Wood











2,818,129



2,691,553

    Corporate and eliminations











203,059



181,311

        Consolidated assets











$         8,881,681



8,508,964







































 

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







June 28, 2014



June 29, 2013



June 28, 2014



June 29, 2013

Net earnings attributable to Mohawk Industries, Inc.





$            152,750



84,572



233,831



135,067

Adjusting items:



















Restructuring, acquisition and integration-related costs





11,169



41,321



22,894



51,177

Acquisitions purchase accounting (inventory step-up)





-



18,744



-



18,744

Discontinued operations





-



1,845



-



1,845

Interest on 3.85% senior notes





-



-



-



3,559

Income taxes





(2,229)



(12,668)



(4,620)



(15,448)

Adjusted net earnings attributable to Mohawk Industries, Inc.





$            161,690



133,814



252,105



194,944





















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





2.21



1.84



3.44



2.73

Weighted-average common shares outstanding - diluted





73,297



72,867



73,302



71,405





















Reconciliation of Total Debt to Net Debt













(Amounts in thousands)





















June 28, 2014

















Current portion of long-term debt and commercial paper

$               619,229

















Long-term debt, less current portion

1,807,609

















Less: Cash and cash equivalents

70,044

















Net Debt

$            2,356,794





































Reconciliation of Operating Income to Adjusted EBITDA











(Amounts in thousands)

Three Months Ended



Trailing Twelve Months

Ended



September 28, 2013



December 31, 2013



March 29, 2014



June 28, 2014



June 28, 2014

Operating income

$               175,903



150,988



130,735



222,248



679,874

Other (expense) income

(1,168)



(2,656)



(4,890)



1,555



(7,159)





















    Net (earnings) loss attributable to noncontrolling interest

(491)



(132)



28



(111)



(706)

Depreciation and amortization

81,550



86,329



80,984



83,754



332,617

EBITDA

255,794



234,529



206,857



307,446



1,004,626

Restructuring, acquisition and integration-related costs

24,431



37,812



11,725



11,169



85,137

Acquisitions purchase accounting (inventory step-up)

12,297



-



-



-



12,297

 Adjusted EBITDA 

$               292,522



272,341



218,582



318,615



1,102,060





















Net Debt to  Adjusted EBITDA

















2.1





















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









(Amounts in thousands)





















Three Months Ended











June 28, 2014



June 29, 2013













Net sales

$           2,048,247



1,976,299













Adjustment to net sales on a constant exchange rate

(14,171)



-













Net sales on a constant exchange rate

$           2,034,076



1,976,299

































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



(Amounts in thousands)





















Three Months Ended













Ceramic

June 28, 2014



June 29, 2013













Net sales

$               796,724



760,168













Adjustment to segment net sales on a constant exchange rate

2,144



-













Segment net sales on a constant exchange rate

$               798,868



760,168

































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



(Amounts in thousands)





















Three Months Ended













Laminate and Wood

June 28, 2014



June 29, 2013













Net sales

$               501,257



470,980













Adjustment to segment net sales on a constant exchange rate

(16,315)



-













Segment net sales on a constant exchange rate

$               484,942



470,980

































Reconciliation of Gross Profit to Adjusted Gross Profit 









(Amounts in thousands)





















Three Months Ended











June 28, 2014



June 29, 2013













Gross Profit

$               574,812



514,056













Adjustments to gross profit:



















Restructuring and integration-related costs

6,755



14,334













Acquisitions purchase accounting (inventory step-up)

-



18,744













  Adjusted gross profit

$               581,567



547,134













   Adjusted gross profit as a percent of net sales

28.4%



27.7%

































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

(Amounts in thousands)





















Three Months Ended











June 28, 2014



June 29, 2013













Selling, general and administrative expenses

$               352,564



380,858













Adjustments to selling, general and administrative expenses:



















Restructuring, acquisition and integration-related costs

(4,414)



(26,987)













  Adjusted selling, general and administrative expenses

$               348,150



353,871













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

17.0%



17.9%

































Reconciliation of Operating Income to Adjusted Operating Income 



(Amounts in thousands)





















Three Months Ended



Six Months Ended







June 28, 2014



June 29, 2013



June 28, 2014



June 29, 2013





Operating income

$               222,248



133,198



352,983



220,040





Adjustments to operating income:



















Restructuring, acquisition and integration-related costs

11,169



41,321



22,895



51,177





Acquisitions purchase accounting (inventory step-up)

-



18,744



-



18,744





  Adjusted operating income

$               233,417



193,263



375,878



289,961





   Adjusted operating margin as a percent of net sales

11.4%



9.8%



9.7%



8.4%

























Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 



(Amounts in thousands)





















Three Months Ended



Six Months Ended





Carpet

June 28, 2014



June 29, 2013



June 28, 2014



June 29, 2013





Operating income

$                  62,826



54,862



97,097



80,100





Adjustment to segment operating income:



















Restructuring, acquisition and integration-related costs

-



-



-



6,217





  Adjusted segment operating income

$                  62,826



54,862



97,097



86,317





   Adjusted operating margin as a percent of net sales

8.1%



7.1%



6.7%



5.9%

























Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 



(Amounts in thousands)





















Three Months Ended



Six Months Ended





Ceramic

June 28, 2014



June 29, 2013



June 28, 2014



June 29, 2013





Operating income

$               106,407



46,304



167,066



76,280





Adjustments to segment operating income:



















Restructuring, acquisition and integration-related costs

196



23,361



2,177



23,823





Acquisitions purchase accounting (inventory step-up)

-



18,744



-



18,744





  Adjusted segment operating income

$               106,603



88,409



169,243



118,847





   Adjusted operating margin as a percent of net sales

13.4%



11.6%



11.3%



10.1%

























Reconciliation of Segment Operating Income to Adjusted Segment Operating Income 



(Amounts in thousands)





















Three Months Ended



Six Months Ended





Laminate and Wood

June 28, 2014



June 29, 2013



June 28, 2014



June 29, 2013





Operating income

$                  60,843



41,362



104,962



80,055





Adjustment to segment operating income:



















Restructuring, acquisition and integration-related costs

10,773



17,960



20,348



21,137





  Adjusted segment operating income

$                  71,616



59,322



125,310



101,192





   Adjusted operating margin as a percent of net sales

14.3%



12.6%



12.9%



11.6%

























Reconciliation of Earnings from Continuing Operations Before Income Taxes to Adjusted Earnings from Continuing Operations Before Income Taxes

(Amounts in thousands)





















Three Months Ended















June 28, 2014



June 29, 2013













Earnings from continuing operations before income taxes

$               203,101



108,983













Adjustments to earnings from continuing operations before income taxes:



















Restructuring, acquisition and integration-related costs

11,169



41,321













Acquisitions purchase accounting (inventory step-up)

-



18,744













  Adjusted earnings before income taxes

$               214,270



169,048





















































Reconciliation of Income Tax Expense to Adjusted Income Tax Expense 





(Amounts in thousands)





















Three Months Ended















June 28, 2014



June 29, 2013













Income tax expense 

$                  50,240



23,240













Income tax effect of adjusting items

2,229



12,183













  Adjusted income tax expense

$                  52,469



35,423

































Adjusted income tax rate

24%



21%















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 and integration-related costs is useful because it allows investors to evaluate our performance for different periods on a more comparable basis.



 

SOURCE Mohawk Industries, Inc.


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