CALHOUN, GA -- 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.

 

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

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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