Mohawk Industries, Inc. Announces Third Quarter Earnings
-- Net sales up 33% over PY
-- Adjusted EPS increased 94%
CALHOUN, Georgia, Oct. 31, 2013 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE:MHK) today announced 2013 third quarter net earnings of $119 million and diluted earnings per share (EPS) of $1.63. Excluding unusual charges, net earnings were $147 million and EPS was $2.02, a 94% increase over last year's third quarter adjusted EPS. Net sales for the third quarter of 2013 were approximately $2.0 billion, an increase of 33% versus the prior year's third quarter. For the third quarter of 2012, net sales were approximately $1.5 billion, net earnings were $70 million and EPS was $1.01; excluding unusual charges, net earnings were $72 million and EPS was $1.04.
For the nine months ending September 28, 2013, net sales were approximately $5.4 billion, an increase of approximately 25% versus the prior year. Net earnings and EPS for the nine-month period were $254 million and $3.53, respectively. Net earnings excluding unusual charges were $342 million and EPS was $4.76, an increase of 72% over the nine-month adjusted EPS results in 2012. For the nine months ending September 29, 2012, net sales were approximately $4.4 billion, net earnings were $184 million and EPS was $2.66. Excluding unusual charges, net earnings and EPS were $191 million and $2.76, respectively.
Commenting on Mohawk Industries' third quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "This quarter we are reporting the highest adjusted EPS in Company history. During the period, higher U.S. volumes, efficiency improvements and the performance of our Pergo, Marazzi and Spano acquisitions supported our strong growth. Our legacy net sales increased approximately 5% as reported, with the balance of our revenue growth derived from our recent acquisitions. Our adjusted operating income improved 350 basis points over the prior year to approximately 11% of sales as a result of enhanced product mix from innovative new collections, improved manufacturing and distribution efficiencies and the implementation of new systems and processes. Ongoing cost containment measures improved our adjusted SG&A by 130 basis points even with significant investments in samples and marketing for new product launches."
Carpet segment net sales for the quarter were $773 million, up 3% over last year, rising with stronger demand from residential new construction and remodeling. The segment's operating margin, excluding unusual charges, for the quarter was 9% of sales, an increase of 290 basis points and the strongest in more than six years due to improved product mix, realignment of assets, productivity, cost controls and volume leverage. Residential mix continued to improve with the expansion of the company's industry-leading position in premium soft carpets and the introduction of the Soft Appeal™ luxury polyester collection. Price increases previously executed offset raw material inflation.
Ceramic segment net sales were $767 million, up 84% over last year, with strong results from both the legacy Dal-Tile business and the Marazzi acquisition. Operating margins, excluding unusual charges, were approximately 12% of sales, an increase of 290 basis points over the prior year as a result of higher volumes, efficiency gains and improved product mix. North American sales rose in the low teens with strong performances in the specialty retail, home center, builder and commercial channels and Mexican sales that outpaced the market. A 2-4% North American price increase was implemented in August to offset higher energy and transportation costs. The Company's Russian ceramic sales outperformed the overall market and gained share due to the success of new product introductions as well as strength in the new construction and franchised retail channels. The Company's European ceramic sales increased in Eastern Europe, the Middle East and the Far East offsetting soft conditions in Western Europe.
Laminate and Wood segment net sales were $451 million, up 37% over last year, with most of that increase from the acquisitions of Pergo and Spano and growth in North America across all product categories and customer channels. Operating income, excluding unusual charges, was approximately 13% of sales, an improvement of 380 basis points over the prior year due primarily to increased North American volume, overall improved productivity and decreased amortization expense. In North America, the integration of Unilin and Pergo is yielding improved productivity and efficiencies and new capacity is being added to satisfy increased demand for single planks. In Europe, the Pergo manufacturing assets have been closed and production was moved to the Company's more efficient Belgium operations to improve the product offering and manufacturing costs. In both Russia and Australia, price increases of 4 to 8% were implemented on laminate and wood to offset currency changes. The new insulation board plant in France has begun production and is expanding our reach into new territories in France and Germany.
"Mohawk today is in the strongest position in our company's history," said Lorberbaum. "We have substantially grown our profits and expect continued improvement next year. With our Pergo, Marazzi and Spano acquisitions, we are quickly moving to drive synergies, lower costs and increase top line growth. We have already executed many initiatives to improve the performance of these acquisitions, including implementing new strategies and organizational structures, upgrading marketing tactics and product lines, and reducing costs through best practices and closing high cost assets. In our legacy businesses, we have significant opportunities to deliver improved results as the U.S. business strengthens and we expand our investments in our people, products and capacities. With these factors, our guidance for fourth quarter earnings is $1.66 to $1.75 per share, excluding any restructuring or acquisition costs."
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, November 1, 2013 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 # 74423838. A replay will be available until Friday November 22, 2013 by dialing 855-859-2056 for US/local calls and 404-537-3406 for International/Local calls and entering Conference ID # 74423838.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES | |||||||||
Consolidated Statement of Operations | Three Months Ended | Nine Months Ended | |||||||
(Amounts in thousands, except per share data) | September 28, | September 29, | September 28, | September 29, | |||||
Net sales | $ 1,961,536 | 1,473,493 | 5,424,650 | 4,352,321 | |||||
Cost of sales | 1,444,646 | 1,100,656 | 4,016,638 | 3,231,594 | |||||
Gross profit | 516,890 | 372,837 | 1,408,012 | 1,120,727 | |||||
Selling, general and administrative expenses | 340,987 | 268,883 | 1,012,069 | 837,079 | |||||
Operating income | 175,903 | 103,954 | 395,943 | 283,648 | |||||
Interest expense | 25,630 | 17,969 | 70,098 | 59,311 | |||||
Other (income) expense, net | 1,168 | 322 | 6,458 | (1,063) | |||||
Earnings from continuing operations before income taxes | 149,105 | 85,663 | 319,387 | 225,400 | |||||
Income tax expense | 28,993 | 15,359 | 62,965 | 40,896 | |||||
Earnings from continuing operations | 120,112 | 70,304 | 256,422 | 184,504 | |||||
Loss from discontinued operations, net of income tax benefit of $297 and $782 | (553) | - | (1,914) | - | |||||
Net Earnings including noncontrolling interest | 119,559 | 70,304 | 254,508 | 184,504 | |||||
Net earnings attributable to noncontrolling interest | 491 | - | 373 | 635 | |||||
Net earnings attributable to Mohawk Industries, Inc. | $ 119,068 | 70,304 | 254,135 | 183,869 | |||||
Basic earnings per share attributable to Mohawk Industries, Inc. | |||||||||
Income from continuing operations | $ 1.65 | 1.02 | 3.59 | 2.67 | |||||
Loss from discontinued operations, net of income taxes | (0.01) | - | (0.03) | - | |||||
Basic earnings per share attributable to Mohawk Industries, Inc. | $ 1.64 | 1.02 | 3.56 | 2.67 | |||||
Weighted-average common shares outstanding - basic | 72,575 | 69,010 | 71,467 | 68,952 | |||||
Diluted earnings per share attributable to Mohawk Industries, Inc. | |||||||||
Income from continuing operations | $ 1.64 | 1.01 | 3.56 | 2.66 | |||||
Loss from discontinued operations, net of income taxes | (0.01) | - | (0.03) | - | |||||
Diluted earnings per share attributable to Mohawk Industries, Inc. | $ 1.63 | 1.01 | 3.53 | 2.66 | |||||
Weighted-average common shares outstanding - diluted | 73,087 | 69,337 | 71,975 | 69,247 | |||||
Other Financial Information | |||||||||
(Amounts in thousands) | |||||||||
Depreciation and amortization | $ 81,550 | 71,298 | 222,542 | 216,415 | |||||
Capital expenditures | $ 109,426 | 47,311 | 255,523 | 134,998 | |||||
Consolidated Balance Sheet Data | ||||||
(Amounts in thousands) | ||||||
September 28, 2013 | September 29, 2012 | |||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ 63,580 | 380,842 | ||||
Receivables, net | 1,154,368 | 817,214 | ||||
Inventories | 1,612,696 | 1,139,403 | ||||
Prepaid expenses and other current assets | 221,767 | 146,275 | ||||
Deferred income taxes | 136,052 | 112,995 | ||||
Total current assets | 3,188,463 | 2,596,729 | ||||
Property, plant and equipment, net | 2,683,984 | 1,657,226 | ||||
Goodwill | 1,713,883 | 1,371,494 | ||||
Intangible assets, net | 811,116 | 554,257 | ||||
Deferred income taxes and other non-current assets | 166,711 | 122,906 | ||||
$ 8,564,157 | 6,302,612 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Current liabilities: | ||||||
Current portion of long-term debt | $ 89,031 | 57,673 | ||||
Accounts payable and accrued expenses | 1,296,192 | 761,186 | ||||
Total current liabilities | 1,385,223 | 818,859 | ||||
Long-term debt, less current portion | 2,257,391 | 1,467,269 | ||||
Deferred income taxes and other long-term liabilities | 587,910 | 421,549 | ||||
Total liabilities | 4,230,524 | 2,707,677 | ||||
Noncontrolling interest | - | - | ||||
Total stockholders' equity | 4,333,633 | 3,594,935 | ||||
$ 8,564,157 | 6,302,612 | |||||
Segment Information | Three Months Ended | As of or for the | |||||||
(Amounts in thousands) | September 28, | September 29, | September 28, | September 29, | |||||
Net sales: | |||||||||
Carpet | $ 772,751 | 751,787 | 2,238,953 | 2,186,160 | |||||
Ceramic | 767,005 | 417,533 | 1,939,054 | 1,214,746 | |||||
Laminate and Wood | 450,723 | 328,582 | 1,326,178 | 1,020,380 | |||||
Intersegment sales | (28,943) | (24,409) | (79,535) | (68,965) | |||||
Consolidated net sales | 1,961,536 | 1,473,493 | 5,424,650 | 4,352,321 | |||||
Operating income (loss): | |||||||||
Carpet | $ 68,836 | 43,810 | 148,936 | 106,228 | |||||
Ceramic | 75,908 | 37,452 | 152,188 | 99,912 | |||||
Laminate and Wood | 39,020 | 28,892 | 119,075 | 96,613 | |||||
Corporate and eliminations | (7,861) | (6,200) | (24,256) | (19,105) | |||||
Consolidated operating income | $ 175,903 | 103,954 | 395,943 | 283,648 | |||||
Assets: | |||||||||
Carpet | $ 1,830,869 | 1,760,828 | |||||||
Ceramic | 3,820,002 | 1,783,147 | |||||||
Laminate and Wood | 2,721,707 | 2,586,084 | |||||||
Corporate and eliminations | 191,579 | 172,553 | |||||||
Consolidated assets | $ 8,564,157 | 6,302,612 | |||||||
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 28, | September 29, | September 28, | September 29, | ||||||||
Net earnings attributable to Mohawk Industries, Inc. | $ 119,068 | 70,304 | 254,135 | 183,869 | |||||||
Adjusting items: | |||||||||||
Restructuring, acquisition and integration-related costs | 24,431 | 4,229 | 75,608 | 12,455 | |||||||
Acquisitions purchase accounting (inventory step-up) | 12,297 | - | 31,041 | ||||||||
Discontinued operations | 851 | - | 2,696 | - | |||||||
Deferred loan costs | 490 | 490 | |||||||||
Interest on 3.85% senior notes | - | - | 3,559 | - | |||||||
Income taxes | (9,772) | (2,691) | (25,220) | (4,892) | |||||||
Adjusted net earnings attributable to Mohawk Industries, Inc. | $ 147,365 | 71,842 | 342,309 | 191,432 | |||||||
Adjusted diluted earnings per share attributable to Mohawk Industries, Inc. | 2.02 | 1.04 | 4.76 | 2.76 | |||||||
Weighted-average common shares outstanding - diluted | 73,087 | 69,337 | 71,975 | 69,247 | |||||||
Reconciliation of Total Debt to Net Debt | |||
(Amounts in thousands) | |||
September 28, 2013 | |||
Current portion of long-term debt | $ 89,031 | ||
Long-term debt, less current portion | 2,257,391 | ||
Less: Cash and cash equivalents | 63,580 | ||
Net Debt | $ 2,282,842 | ||
Reconciliation of Operating Income to Proforma Adjusted EBITDA | ||||||||||
(Amounts in thousands) | Trailing Twelve | |||||||||
Three Months Ended | Months Ended | |||||||||
December 31, 2012 | March 30, 2013 | June 29, 2013 | September 28, 2013 | September 28, 2013 | ||||||
Operating income | $ 95,860 | 86,842 | 133,198 | 175,903 | 491,803 | |||||
Other (expense) income | (1,366) | (6,387) | 1,097 | (1,168) | (7,824) | |||||
Net (earnings) loss attributable to noncontrolling interest | - | (72) | 190 | (491) | (373) | |||||
Depreciation and amortization | 63,878 | 60,349 | 80,643 | 81,550 | 286,420 | |||||
EBITDA | 158,372 | 140,732 | 215,128 | 255,794 | 770,026 | |||||
Restructuring, acquisition and integration-related costs | 6,109 | 9,856 | 41,321 | 24,431 | 81,717 | |||||
Acquisitions purchase accounting (inventory step-up) | - | - | 18,744 | 12,297 | 31,041 | |||||
Acquisitions EBITDA | 55,046 | 40,542 | - | - | 95,588 | |||||
Proforma Adjusted EBITDA | $ 219,527 | 191,130 | 275,193 | 292,522 | 978,372 | |||||
Net Debt to Proforma Adjusted EBITDA | 2.3 | |||||||||
Reconciliation of Net Sales to Net Sales on a Constant Exchange Rate | ||||
(Amounts in thousands) | ||||
Three Months Ended | ||||
September 28, 2013 | September 29, 2012 | |||
Net sales | $ 1,961,536 | 1,473,493 | ||
Adjustment to net sales on a constant exchange rate | (13,621) | - | ||
Net sales on a constant exchange rate | $ 1,947,915 | 1,473,493 | ||
Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate | ||||
(Amounts in thousands) | ||||
Three Months Ended | ||||
Ceramic | September 28, 2013 | September 29, 2012 | ||
Net sales | $ 767,005 | 417,533 | ||
Adjustment to segment net sales on a constant exchange rate | 91 | - | ||
Segment net sales on a constant exchange rate | $ 767,096 | 417,533 | ||
Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate | ||||
(Amounts in thousands) | ||||
Three Months Ended | ||||
Laminate and Wood | September 28, 2013 | September 29, 2012 | ||
Net sales | $ 450,723 | 328,582 | ||
Adjustment to segment net sales on a constant exchange rate | (13,712) | - | ||
Segment net sales on a constant exchange rate | $ 437,011 | 328,582 | ||
Reconciliation of Gross Profit to Adjusted Gross Profit | ||||
(Amounts in thousands) | Three Months Ended | |||
September 28, 2013 | September 29, 2012 | |||
Gross Profit | $ 516,890 | 372,837 | ||
Adjustments to gross profit: | ||||
Restructuring and integration-related costs | 14,699 | 2,984 | ||
Acquisitions purchase accounting (inventory step-up) | 12,297 | - | ||
Adjusted gross profit | $ 543,886 | 375,821 | ||
Adjusted gross profit as a percent of net sales | 27.7% | 25.5% | ||
Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses | ||||
(Amounts in thousands) | ||||
Three Months Ended | ||||
September 28, 2013 | September 29, 2012 | |||
Selling, general and administrative expenses | $ 340,987 | 268,883 | ||
Adjustments to selling, general and administrative expenses: | ||||
Restructuring, acquisition and integration-related costs | (9,712) | (1,245) | ||
Adjusted selling, general and administrative expenses | $ 331,275 | 267,638 | ||
Adjusted selling, general and administrative expenses as a percent of net sales | 16.9% | 18.2% | ||
Reconciliation of Operating Income to Adjusted Operating Income | ||||
(Amounts in thousands) | ||||
Three Months Ended | ||||
September 28, 2013 | September 29, 2012 | |||
Operating income | $ 175,903 | 103,954 | ||
Adjustment to operating income: | ||||
Restructuring, acquisition and integration-related costs | 24,411 | 4,229 | ||
Acquisitions purchase accounting (inventory step-up) | 12,297 | - | ||
Adjusted operating income | $ 212,611 | 108,183 | ||
Adjusted operating margin as a percent of net sales | 10.8% | 7.3% | ||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income | ||||
(Amounts in thousands) | ||||
Three Months Ended | ||||
Carpet | September 28, 2013 | September 29, 2012 | ||
Operating income | $ 68,836 | 43,810 | ||
Adjustment to segment operating income: | ||||
Restructuring, acquisition and integration-related costs | 1,570 | 3,122 | ||
Adjusted segment operating income | $ 70,406 | 46,932 | ||
Adjusted operating margin as a percent of net sales | 9.1% | 6.2% | ||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income | ||||
(Amounts in thousands) | ||||
Three Months Ended | ||||
Ceramic | September 28, 2013 | September 29, 2012 | ||
Operating income | $ 75,908 | 37,452 | ||
Adjustment to segment operating income: | ||||
Restructuring, acquisition and integration-related costs | 3,070 | - | ||
Acquisitions purchase accounting (inventory step-up) | 12,297 | - | ||
Adjusted segment operating income | $ 91,275 | 37,452 | ||
Adjusted operating margin as a percent of net sales | 11.9% | 9.0% | ||
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income | ||||
(Amounts in thousands) | ||||
Three Months Ended | ||||
Laminate and Wood | September 28, 2013 | September 29, 2012 | ||
Operating income | $ 39,020 | 28,892 | ||
Adjustment to segment operating income: | ||||
Restructuring, acquisition and integration-related costs | 19,246 | 1,107 | ||
Adjusted segment operating income | $ 58,266 | 29,999 | ||
Adjusted operating margin as a percent of net sales | 12.9% | 9.1% | ||
Reconciliation of Earnings from Continuing Operations Before Income Taxes to Adjusted Earnings from Continuing Operations Before Income Taxes | ||||
(Amounts in thousands) | ||||
Three Months Ended | ||||
September 28, 2013 | September 29, 2012 | |||
Earnings from continuing operations before income taxes | $ 149,105 | 85,663 | ||
Adjustment to earnings from continuing operations before income taxes: | ||||
Restructuring, acquisition and integration-related costs | 24,431 | 4,229 | ||
Acquisitions purchase accounting (inventory step-up) | 12,297 | - | ||
Deferred loan costs | 490 | - | ||
Interest on 3.85% senior notes | - | - | ||
Adjusted earnings before income taxes | $ 186,323 | 89,892 | ||
Reconciliation of Income Tax Expense to Adjusted Income Tax Expense | ||||
(Amounts in thousands) | ||||
Three Months Ended | ||||
September 28, 2013 | September 29, 2012 | |||
Income tax expense | $ 28,993 | 15,359 | ||
Income tax effect of adjusting items | 9,475 | 2,691 | ||
Adjusted income tax expense | $ 38,468 | 18,050 | ||
Adjusted income tax rate | 21% | 20% | ||
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. | ||||
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