Mohawk Industries Reports Record Q2 Results
CALHOUN, Ga., July 27, 2017 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2017 second quarter record operating income of $356 million, net earnings of $261 million and diluted earnings per share (EPS) of $3.48. Excluding restructuring, acquisition and other charges, net earnings were $278 million and EPS was $3.72, a 7% increase over last year's second quarter adjusted EPS. Net sales for the second quarter of 2017 were $2.5 billion, up 6% versus the prior year's second quarter or an increase of approximately 8% on a constant days and currency basis. For the second quarter of 2016, net sales were $2.3 billion, operating income was $351 million, net earnings were $255 million and EPS was $3.42; excluding restructuring, acquisition and other charges, net earnings were $259 million and EPS was $3.47.
For the six months ending July 1, 2017, net earnings and EPS were $461 million and $6.17, respectively. Net earnings excluding restructuring, acquisition and other charges were $482 million and EPS was $6.44, an increase of 10% over the 2016 six-month period adjusted EPS. For the six-month period, net sales were $4.7 billion, an increase of 4% versus prior year as reported or 6% on a constant days and currency basis. For the six-month period ending July 2, 2016, net sales were $4.5 billion, net earnings were $427 million and EPS was $5.73; excluding restructuring, acquisition and other charges, net earnings and EPS were $436 million and $5.85.
Commenting on Mohawk Industries' second quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "During the period, Mohawk delivered record results, generating the highest sales, adjusted operating income and adjusted EPS in the company's history. Adjusted operating income increased to $381 million, up 7%, overcoming higher material and start-up costs and a reduction of IP income. Across the business, we are increasing prices to offset inflation, introducing innovative products and improving our productivity.
"During the period, we completed the acquisition of two small ceramic manufacturers to expand our European platform and two U.S. material manufacturing operations to enhance the vertical integration of our businesses. This year, we are increasing our internal investments to over $850 million to capitalize on innovative new products, increased automation and greater efficiencies, as well as to enhance the four acquisitions. As detailed last quarter, we are expanding our sales capacity by approximately $1.4 billion. This production will come online over the next twelve months, and our start-up costs will be higher until we have optimized all our new manufacturing operations later in 2018. These initiatives will increase our sales and profitability, maximizing the long-term value of our business.
"For the quarter, our Global Ceramic Segment sales increased approximately 9% as reported and on a constant days and currency basis. Operating margin was 17% as reported and 18% on an adjusted basis, with adjusted operating income rising approximately 16% for the quarter. We completed two European ceramic acquisitions that increased our segment sales by 6% during the period. Our legacy business improved from the prior quarter but was limited in North America by capacity constraints in red body ceramic and in Europe by a temporary plant shutdown to upgrade our technical production. In Europe, half of our new technical equipment has begun production and is operating at expected levels, and we are importing product to satisfy U.S. demand until our Mexican expansion becomes operational later this year. We are introducing higher value products from our new Tennessee plant, including longer, more-realistic wood visuals; surface textures in registration with our designs; and proprietary slip resistant surfaces. During the quarter, we completed the acquisition of a talc mine in Texas that will ensure our material supply and enhance our competitive position. Even with our capacity restraints, our sales in Mexico outpaced the strong local market. Our European ceramic business grew substantially as a result of our new acquisitions and new products we have introduced. Our Russian ceramic business is significantly outperforming the market, with sales and margins improving as a result of our unique styling, strong brand and robust distribution. Russia's economy has expanded the last two quarters, and we are increasing our capacity to support future growth.
"During the quarter, our Flooring North America Segment's sales increased 6% as reported. Operating margin for the quarter was 12% as reported and 13% on an adjusted basis, with adjusted operating income rising 12%. For the period, our hard surface sales outpaced carpet, and residential sales were stronger than commercial. We have implemented price increases and improved our product mix, which together have offset material and other inflation. We are executing productivity initiatives across our operations, resulting in improved efficiencies and yields. Our premium residential carpet collections are growing faster than the market due to increasing consumer preference for the superior softness and performance of our exclusive SmartStrand franchise. We have begun shipping SmartStrand Silk Reserve, the fourth generation of our proprietary fiber, with an even greater level of softness. During the period, we completed the purchase of a nylon polymerization plant, which we are enhancing to improve our competitive position. Our Main Street commercial sales expanded faster than our specified channels, with carpet tile continuing to gain share. Our LVT and laminate sales outpaced our other hard surfaces, with our distribution expanding as a result of our leading design and performance attributes. Our LVT operations are improving, and construction is progressing on our new rigid LVT line, which will start up by the end of this year. Our propriety water resistant laminate with enhanced visuals is growing as an alternative to wood, and we are increasing our capacity later this year to support additional growth.
"For the quarter, our Flooring Rest of the World Segment's sales increased 2% as reported and 8.5% on a constant days and currency basis. Operating margin was 17% as reported and on an adjusted basis, with adjusted operating income decreasing approximately 12% for the quarter. The segment was impacted by increasing material costs and currency changes, which we are implementing price increases to recover, and the reduction in patent income. We anticipate that the majority of the price increases will be fully implemented by the fourth quarter, allowing us to recover our higher costs. Our LVT sales are growing significantly, although we are reaching the limits of our present capacity. Our new LVT production line in Belgium will produce both rigid and flexible products and should start-up in the fourth quarter. In Russia, we are finalizing the purchase of a building near our ceramic facilities to house our new sheet vinyl manufacturing operation. In Europe, our premium laminate collections grew substantially, and we have begun installation of a new laminate press line to further expand our business and improve our product mix with value-added introductions. Construction of our new carpet tile plant is underway, and we will begin limited operations in the fourth quarter.
"Mohawk's operating performance in the third quarter should continue to significantly improve, with sales and income strengthening further, even with higher material inflation and changes in patents. We are implementing price increases across most product categories and regions to recover material and currency changes in the third quarter. We will continue optimizing the acquisitions we completed in the second quarter by improving their strategies and enhancing their profitability. Taking all of this into account, our adjusted EPS guidance for the third quarter is $3.70 to $3.79.
"To enhance our long-term performance, we are investing at record levels this year to expand our product offering and capacity, improve our efficiencies and extend our geographic reach. In the fourth quarter, we will incur higher start-up costs as our production expansions ramp up and we elevate our marketing activities to increase our sales. The expansion of our LVT, ceramic, laminate, sheet vinyl and carpet tile capacity will increase our future growth and profitability, strengthening our position as the global leader in flooring."
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, Daltile, Durkan, 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; tax, product and other claims; litigation; and other risks identified in Mohawk's SEC reports and public announcements.
Conference call Friday, July 28, 2017, 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 # 51858547. A replay will be available until Friday, August 25, 2017, by dialing 1-855-859-2056 for US/local calls and 1-404-537-3406 for International/Local calls and entering Conference ID # 51858547.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited)
Consolidated Statement of Operations Data Three Months Ended Six Months Ended
------------------ ----------------
(Amounts in thousands, except per share data) July 1, 2017 July 2, 2016 July 1, 2017 July 2, 2016
------------ ------------ ------------ ------------
Net sales $2,453,038 2,310,336 4,673,683 4,482,382
Cost of sales 1,673,902 1,554,748 3,214,194 3,087,115
------------- --------- --------- ---------
Gross profit 779,136 755,588 1,459,489 1,395,267
Selling, general and administrative expenses 423,311 404,896 828,880 798,903
-------------------------------------------- ------- ------- -------
Operating income 355,825 350,692 630,609 596,364
Interest expense 8,393 10,351 16,595 22,652
Other expense (income), net 3,002 (5,807) 170 (2,378)
--------------------------- ------ ---
Earnings before income taxes 344,430 346,148 613,844 576,090
Income tax expense 82,682 90,034 151,040 147,859
------------------ ------ ------ -------
Net earnings including noncontrolling interest 261,748 256,114 462,804 428,231
Net earnings attributable to noncontrolling interest 1,067 926 1,569 1,495
---------------------------------------------------- ----- --- -----
Net earnings attributable to Mohawk Industries, Inc. $260,681 255,188 461,235 426,736
---------------------------------------------------- -------- ------- ------- -------
Basic earnings per share attributable to Mohawk Industries, Inc.
Basic earnings per share attributable to Mohawk Industries, Inc. $3.51 3.44 6.21 5.76
---------------------------------------------------------------- ----- ---- ---- ----
Weighted-average common shares outstanding - basic 74,327 74,123 74,269 74,049
-------------------------------------------------- ------ ------ ------ ------
Diluted earnings per share attributable to Mohawk Industries, Inc.
Diluted earnings per share attributable to Mohawk Industries, Inc. $3.48 3.42 6.17 5.73
------------------------------------------------------------------ ----- ---- ---- ----
Weighted-average common shares outstanding - diluted 74,801 74,574 74,773 74,526
---------------------------------------------------- ------ ------ ------ ------
Other Financial Information
(Amounts in thousands)
Depreciation and amortization $109,761 101,215 214,785 201,408
----------------------------- -------- ------- ------- -------
Capital expenditures $224,153 136,081 425,423 276,914
-------------------- -------- ------- ------- -------
Consolidated Balance Sheet Data
(Amounts in thousands)
July 1, 2017 July 2, 2016
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $130,238 112,049
Receivables, net 1,639,614 1,448,898
Inventories 1,865,941 1,660,131
Prepaid expenses and other current assets 374,930 298,125
-----------------------------------------
Total current assets 4,010,723 3,519,203
Property, plant and equipment, net 3,892,251 3,243,838
Goodwill 2,417,058 2,322,735
Intangible assets, net 878,301 930,323
Deferred income taxes and other non-current assets 391,158 296,732
--------------------------------------------------
Total assets $11,589,491 10,312,831
------------ ----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and commercial paper $1,754,077 1,795,584
Accounts payable and accrued expenses 1,466,658 1,334,150
------------------------------------- --------- ---------
Total current liabilities 3,220,735 3,129,734
Long-term debt, less current portion 1,174,440 1,160,700
Deferred income taxes and other long-term liabilities 713,110 613,131
----------------------------------------------------- ------- -------
Total liabilities 5,108,285 4,903,565
----------------- --------- ---------
Redeemable noncontrolling interest 26,713 23,683
---------------------------------- ------ ------
Total stockholders' equity 6,454,493 5,385,583
-------------------------- --------- ---------
Total liabilities and stockholders' equity $11,589,491 10,312,831
------------------------------------------ ----------- ----------
Segment Information As of or for the Three Months
Ended As of or for the Six Months Ended
----------------------------- ---------------------------------
(Amounts in thousands) July 1, 2017 July 2, 2016 July 1, 2017 July 2, 2016
------------ ------------ ------------ ------------
Net sales:
Global Ceramic $902,670 829,794 1,687,639 1,603,520
Flooring NA 1,040,299 980,693 1,979,795 1,887,057
Flooring ROW 510,069 499,849 1,006,249 991,805
Intersegment sales - - - -
------------------ --- --- --- ---
Consolidated net sales $2,453,038 2,310,336 4,673,683 4,482,382
---------------------- ---------- --------- --------- ---------
Operating income (loss):
Global Ceramic $152,557 140,606 268,593 240,383
Flooring NA 127,482 118,946 219,624 194,297
Flooring ROW 86,052 101,062 162,147 180,599
Corporate and eliminations (10,266) (9,922) (19,755) (18,915)
-------------------------- ------- ------ ------- -------
Consolidated operating income $355,825 350,692 630,609 596,364
----------------------------- -------- ------- ------- -------
Assets:
Global Ceramic $4,736,068 4,054,351
Flooring NA 3,625,350 3,316,048
Flooring ROW 2,984,716 2,835,497
Corporate and eliminations 243,357 106,935
------- -------
Consolidated assets $11,589,491 10,312,831
------------------- ----------- ----------
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 1, 2017 July 2, 2016 July 1, 2017 July 2, 2016
------------ ------------ ------------ ------------
Net earnings attributable to Mohawk Industries, Inc. $260,681 255,188 461,235 426,736
Adjusting items:
Restructuring, acquisition and integration-related and other costs 15,878 6,020 19,856 13,738
Acquisitions purchase accounting (inventory step-up) 9,571 - 9,763 -
Income taxes (7,677) (2,342) (9,091) (4,620)
------------ ------ ------ ------ ------
Adjusted net earnings attributable to Mohawk Industries, Inc. $278,453 258,866 481,763 435,854
------------------------------------------------------------- -------- ------- ------- -------
Adjusted diluted earnings per share attributable to Mohawk Industries, Inc. $3.72 3.47 6.44 5.85
Weighted-average common shares outstanding - diluted 74,801 74,574 74,773 74,526
Reconciliation of Total Debt to Net Debt
(Amounts in thousands)
July 1, 2017
------------
Current portion of long-term debt and commercial paper $1,754,077
Long-term debt, less current portion 1,174,440
Less: Cash and cash equivalents 130,238
Net Debt $2,798,279
-------- ----------
Reconciliation of Operating Income to Adjusted EBITDA
(Amounts in thousands) Trailing Twelve
Three Months Ended Months Ended
------------------ ------------
October 1, 2016 December 31, 2016 April 1, 2017 July 1, 2017 July 1, 2017
--------------- ----------------- ------------- ------------ ------------
Operating income $378,307 305,272 274,784 355,825 1,314,188
Other (expense) income (3,839) 3,190 2,832 (3,002) (819)
Net (earnings) loss attributable to non-controlling interest (949) (760) (502) (1,067) (3,278)
Depreciation and amortization 103,680 104,379 105,024 109,761 422,844
----------------------------- ------- ------- ------- ------- -------
EBITDA 477,199 412,081 382,138 461,517 1,732,935
Restructuring, acquisition and integration-related and other costs 30,572 16,214 3,978 15,878 66,642
Acquisitions purchase accounting (inventory step-up) - - 192 9,571 9,763
Legal settlement and reserves (90,000) - - - (90,000)
Release of indemnification asset 2,368 3,004 - - 5,372
Tradename impairment 47,905 - - - 47,905
Adjusted EBITDA $468,044 431,299 386,308 486,966 1,772,617
--------------- -------- ------- ------- ------- ---------
Net Debt to Adjusted EBITDA 1.6
---------------------------- ---
Reconciliation of Net Sales to Net Sales on a Constant Exchange Rate and Constant Shipping Days Excluding Acquisition Volume
(Amounts in thousands)
Three Months Ended Six Months Ended
------------------ ----------------
July 1, 2017 July 2, 2016 July 1, 2017 July 2, 2016
------------ ------------ ------------ ------------
Net sales $2,453,038 2,310,336 4,673,683 4,482,382
Adjustment to net sales on constant shipping days 23,317 - 35,247 -
Adjustment to net sales on a constant exchange rate 12,356 - 30,535 -
--------------------------------------------------- ------ --- ------ ---
Net sales on a constant exchange rate and constant shipping days 2,488,711 2,310,336 4,739,465 4,482,382
Less: impact of acquisition volume (48,224) - (48,224) -
------- --- ------- ---
Net sales on a constant exchange rate and constant shipping days excluding acquisition volume $2,440,487 2,310,336 4,691,241 4,482,382
--------------------------------------------------------------------------------------------- ---------- --------- --------- ---------
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 July 1, 2017 July 2, 2016
------------ ------------
Net sales $902,670 829,794
Adjustment to net sales on constant shipping days 6,163 -
Adjustment to segment net sales on a constant exchange rate (2,542) -
----------------------------------------------------------- ------ ---
Segment net sales on a constant exchange rate and constant shipping days 906,291 829,794
Less: impact of acquisition volume (48,224) -
------- ---
Segment net sales on a constant exchange rate and constant shipping days excluding acquisition volume $858,067 829,794
----------------------------------------------------------------------------------------------------- -------- -------
Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate and Constant Shipping Days
(Amounts in thousands)
Three Months Ended
------------------
Flooring ROW July 1, 2017 July 2, 2016
------------ ------------
Net sales $510,069 499,849
Adjustment to net sales on constant shipping days 17,154 -
Adjustment to segment net sales on a constant exchange rate 14,897 -
----------------------------------------------------------- ------ ---
Segment net sales on a constant exchange rate and constant shipping days $542,120 499,849
------------------------------------------------------------------------ -------- -------
Reconciliation of Gross Profit to Adjusted Gross Profit
(Amounts in thousands)
Three Months Ended
------------------
July 1, 2017 July 2, 2016
------------ ------------
Gross Profit $779,136 755,588
Adjustments to gross profit:
Restructuring, acquisition and integration-related and other costs 13,028 2,778
Acquisitions purchase accounting (inventory step-up) 9,571 -
--------------------------------------------------- ----- ---
Adjusted gross profit $801,735 758,366
--------------------- -------- -------
Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses
(Amounts in thousands)
Three Months Ended
------------------
July 1, 2017 July 2, 2016
------------ ------------
Selling, general and administrative expenses $423,311 404,896
Adjustments to selling, general and administrative expenses:
Restructuring, acquisition and integration-related and other costs (2,850) (3,241)
Adjusted selling, general and administrative expenses $420,461 401,655
----------------------------------------------------- -------- -------
Reconciliation of Operating Income to Adjusted Operating Income
(Amounts in thousands)
Three Months Ended
------------------
July 1, 2017 July 2, 2016
------------ ------------
Operating income $355,825 350,692
Adjustments to operating income:
Restructuring, acquisition and integration-related and other costs 15,878 6,020
Acquisitions purchase accounting (inventory step-up) 9,571 -
--------------------------------------------------- ----- ---
Adjusted operating income $381,274 356,712
------------------------- -------- -------
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
(Amounts in thousands)
Three Months Ended
------------------
Global Ceramic July 1, 2017 July 2, 2016
-------------- ------------ ------------
Operating income $152,557 140,606
Adjustments to segment operating income:
Restructuring, acquisition and integration-related and other costs 1,305 381
Acquisitions purchase accounting (inventory step-up) 9,571 -
--------------------------------------------------- ----- ---
Adjusted segment operating income $163,433 140,987
--------------------------------- -------- -------
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
(Amounts in thousands)
Three Months Ended
------------------
Flooring NA July 1, 2017 July 2, 2016
----------- ------------ ------------
Operating income $127,482 118,946
Adjustments to segment operating income:
Restructuring, acquisition and integration-related and other costs 12,196 6,146
Adjusted segment operating income $139,678 125,092
--------------------------------- -------- -------
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
(Amounts in thousands)
Three Months Ended
------------------
Flooring ROW July 1, 2017 July 2, 2016
------------ ------------ ------------
Operating income $86,052 101,062
Adjustments to segment operating income:
Restructuring, acquisition and integration-related and other costs 2,170 (507)
Adjusted segment operating income $88,222 100,555
--------------------------------- ------- -------
Reconciliation of Earnings including Noncontrolling Interests Before Income Taxes to Adjusted Earnings including Noncontrolling Interests Before Income Taxes
(Amounts in thousands)
Three Months Ended
------------------
July 1, 2017 July 2, 2016
------------ ------------
Earnings before income taxes $344,430 346,148
Noncontrolling interests (1,067) (926)
Adjustments to earnings including noncontrolling interests before income taxes:
Restructuring, acquisition and integration-related & other costs 15,878 6,020
Acquisitions purchase accounting (inventory step-up) 9,571 -
Adjusted earnings including noncontrolling interests before income taxes $368,812 351,242
------------------------------------------------------------------------ -------- -------
Reconciliation of Income Tax Expense to Adjusted Income Tax Expense
(Amounts in thousands)
Three Months Ended
------------------
July 1, 2017 July 2, 2016
------------ ------------
Income tax expense $82,682 90,034
Income tax effect of adjusting items 7,677 2,342
----- -----
Adjusted income tax expense $90,359 92,376
--------------------------- ------- ------
Adjusted income tax rate 24.5% 26.3%
------------------------ ---- ----
The Company supplements its
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, more
or fewer shipping days in a period
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, legal settlements and
reserves, tradename impairments,
acquisition purchase accounting
(inventory step-up), release of
indemnification assets and the
reversal of uncertain tax
positions.
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SOURCE Mohawk Industries, Inc.
