Mohawk Industries Flooring Third Quarter Earnings Rise

CALHOUN, Ga. -- 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 andGermany.

"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, 2013


September 29, 2012


September 28, 2013


September 29, 2012










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 Nine Months Ended

(Amounts in thousands)


September 28, 2013


September 29, 2012


September 28, 2013


September 29, 2012










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, 2013


September 29, 2012


September 28, 2013


September 29, 2012

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. 



















 

SOURCE Mohawk Industries, Inc.

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