Mohawk Industries, Inc. Announces Second Quarter Earnings

-- Record Adjusted EPS; 20% Increase Over PY

-- Adjusted Operating Income Up 160 bps

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

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

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

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

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

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

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

ABOUT MOHAWK INDUSTRIES
Mohawk Industries is the leading global flooring manufacturer that creates products to enhance residential and commercial spaces around the world. Mohawk's vertically integrated manufacturing and distribution processes provide competitive advantages in the production of carpet, rugs, ceramic tile, laminate, wood, stone and vinyl flooring. Our industry-leading innovation has yielded products and technologies that differentiate our brands in the marketplace and satisfy all remodeling and new construction requirements. Our brands are among the most recognized in the industry and include American Olean, Bigelow, Daltile, Durkan, Karastan, Lees, Marazzi, Kerama Marazzi, Mohawk, Pergo, Unilin and Quick-Step. During the past decade, Mohawk has transformed its business from an American carpet manufacturer into the world's largest flooring company with operations in Australia, Brazil, Canada, China, Europe, India, Malaysia, Mexico, Russia and the United States.

Certain of the statements in the immediately preceding paragraphs, particularly anticipating future performance, business prospects, growth and operating strategies and similar matters and those that include the words "could," "should," "believes," "anticipates," "expects," and "estimates," or similar expressions constitute "forward-looking statements." For those statements, Mohawk claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. There can be no assurance that the forward-looking statements will be accurate because they are based on many assumptions, which involve risks and uncertainties. The following important factors could cause future results to differ: changes in economic or industry conditions; competition; inflation in raw material prices and other input costs; energy costs and supply; timing and level of capital expenditures; timing and implementation of price increases for the Company's products; impairment charges; integration of acquisitions; international operations; introduction of new products; rationalization of operations; tax, product and other claims; litigation; and other risks identified in Mohawk's SEC reports and public announcements.

Conference call Friday, August 1, 2014 at 11:00 AM Eastern Time

The telephone number is [phone] for US/Canada and [phone] for International/Local.
Conference ID # 65483474. A replay will be available until Friday August 15, 2014 by dialing [phone] for US/local calls and [phone] for International/Local calls and entering Conference ID # 65483474.

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations			Three Months Ended					Six Months Ended
(Amounts in thousands, except per share data)			June 28, 2014			June 29, 2013		June 28, 2014		June 29, 2013
Net sales			$         2,048,247			1,976,299		3,861,342		3,463,114
Cost of sales			1,473,435			1,462,243		2,805,175		2,571,992
Gross profit			574,812			514,056		1,056,167		891,122
Selling, general and administrative expenses			352,564			380,858		703,184		671,082
Operating income			222,248			133,198		352,983		220,040
Interest expense			20,702			25,312		42,798		44,468
Other (income) expense, net			(1,555)			(1,097)		3,335		5,290
Earnings from continuing operations before income taxes			203,101			108,983		306,850		170,282
Income tax expense			50,240			23,240		72,936		33,972
Earnings from continuing operations			152,861			85,743		233,914		136,310
Loss from discontinued operations, net of income tax benefit of $485			-			(1,361)		-		(1,361)
Net earnings including noncontrolling interest			152,861			84,382		233,914		134,949
Net earnings (loss)  attributable to noncontrolling interest			111			(190)		83		(118)
Net earnings attributable to Mohawk Industries, Inc.			$            152,750			84,572		233,831		135,067
Basic earnings per share attributable to Mohawk Industries, Inc.
Income from continuing operations			$                  2.10			1.19		3.21		1.92
Loss from discontinued operations, net of income taxes			-			(0.02)		-		(0.02)
Basic earnings per share attributable to Mohawk Industries, Inc.			$                  2.10			1.17		3.21		1.90
Weighted-average common shares outstanding - basic			72,832			72,406		72,788		70,907
Diluted earnings per share attributable to Mohawk Industries, Inc.
Income from continuing operations			$                  2.08			1.18		3.19		1.91
Loss from discontinued operations, net of income taxes			-			(0.02)		-		(0.02)
Diluted earnings per share attributable to Mohawk Industries, Inc.			$                  2.08			1.16		3.19		1.89
Weighted-average common shares outstanding - diluted			73,297			72,867		73,302		71,405
Other Financial Information
(Amounts in thousands)
Depreciation and amortization			$              83,754			80,643		164,738		140,992
Capital expenditures			$            127,616			82,815		249,697		146,097
Consolidated Balance Sheet Data
(Amounts in thousands)
								June 28, 2014		June 29, 2013
ASSETS
Current assets:
Cash and cash equivalents								$              70,044		168,745
Receivables, net								1,261,808		1,145,550
Inventories								1,644,768		1,591,552
Prepaid expenses and other current assets								267,210		229,859
Deferred income taxes								135,259		134,489
Total current assets								3,379,089		3,270,195
Property, plant and equipment, net								2,830,202		2,594,256
Goodwill								1,730,713		1,690,622
Intangible assets, net								792,260		800,529
Deferred income taxes and other non-current assets								149,417		153,362
Total assets								$         8,881,681		8,508,964
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and commercial paper								$            619,229		83,171
Accounts payable and accrued expenses								1,253,291		1,261,791
Total current liabilities								1,872,520		1,344,962
Long-term debt, less current portion								1,807,609		2,450,584
Deferred income taxes and other long-term liabilities								528,252		609,125
Total liabilities								4,208,381		4,404,671
Total stockholders' equity								4,673,300		4,104,293
Total liabilities and stockholders' equity								$         8,881,681		8,508,964
Segment Information			Three Months Ended					As of or for the Six Months Ended
(Amounts in thousands)			June 28, 2014			June 29, 2013		June 28, 2014		June 29, 2013
Net sales:
Carpet			$            780,308			770,868		1,455,234		1,466,202
Ceramic			796,724			760,168		1,491,818		1,172,049
Laminate and Wood			501,257			470,980		969,265		875,455
Intersegment sales			(30,042)			(25,717)		(54,975)		(50,592)
Consolidated net sales			$         2,048,247			1,976,299		3,861,342		3,463,114
Operating income (loss):
Carpet			$              62,826			54,862		97,097		80,100
Ceramic			106,407			46,304		167,066		76,280
Laminate and Wood			60,843			41,362		104,962		80,055
Corporate and eliminations			(7,828)			(9,330)		(16,142)		(16,395)
Consolidated operating income			$            222,248			133,198		352,983		220,040
Assets:
Carpet								$         1,960,106		1,803,212
Ceramic								3,900,387		3,832,888
Laminate and Wood								2,818,129		2,691,553
Corporate and eliminations								203,059		181,311
Consolidated assets								$         8,881,681		8,508,964

 

 

Reconciliation of Net Earnings Attributable to Mohawk Industries, Inc. to Adjusted Net Earnings Attributable to Mohawk Industries, Inc. and Adjusted Diluted Earnings Per Share Attributable to Mohawk Industries, Inc.
(Amounts in thousands, except per share data)
				Three Months Ended					Six Months Ended
				June 28, 2014			June 29, 2013		June 28, 2014		June 29, 2013
Net earnings attributable to Mohawk Industries, Inc.				$            152,750			84,572		233,831		135,067
Adjusting items:
Restructuring, acquisition and integration-related costs				11,169			41,321		22,894		51,177
Acquisitions purchase accounting (inventory step-up)				-			18,744		-		18,744
Discontinued operations				-			1,845		-		1,845
Interest on 3.85% senior notes				-			-		-		3,559
Income taxes				(2,229)			(12,668)		(4,620)		(15,448)
Adjusted net earnings attributable to Mohawk Industries, Inc.				$            161,690			133,814		252,105		194,944
Adjusted diluted earnings per share attributable to Mohawk Industries, Inc.				2.21			1.84		3.44		2.73
Weighted-average common shares outstanding - diluted				73,297			72,867		73,302		71,405

 

 

Reconciliation of Total Debt to Net Debt
(Amounts in thousands)
	June 28, 2014
Current portion of long-term debt and commercial paper	$               619,229
Long-term debt, less current portion	1,807,609
Less: Cash and cash equivalents	70,044
Net Debt	$            2,356,794

 

 

Reconciliation of Operating Income to Adjusted EBITDA
(Amounts in thousands)	Three Months Ended										Trailing Twelve Months Ended
	September 28, 2013			December 31, 2013			March 29, 2014		June 28, 2014		June 28, 2014
Operating income	$               175,903			150,988			130,735		222,248		679,874
Other (expense) income	(1,168)			(2,656)			(4,890)		1,555		(7,159)
Net (earnings) loss attributable to noncontrolling interest	(491)			(132)			28		(111)		(706)
Depreciation and amortization	81,550			86,329			80,984		83,754		332,617
EBITDA	255,794			234,529			206,857		307,446		1,004,626
Restructuring, acquisition and integration-related costs	24,431			37,812			11,725		11,169		85,137
Acquisitions purchase accounting (inventory step-up)	12,297			-			-		-		12,297
Adjusted EBITDA	$               292,522			272,341			218,582		318,615		1,102,060
Net Debt to  Adjusted EBITDA											2.1

 

 

Reconciliation of Net Sales to Net Sales on a Constant Exchange Rate
(Amounts in thousands)
	Three Months Ended
	June 28, 2014			June 29, 2013
Net sales	$           2,048,247			1,976,299
Adjustment to net sales on a constant exchange rate	(14,171)			-
Net sales on a constant exchange rate	$           2,034,076			1,976,299
Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate
(Amounts in thousands)
	Three Months Ended
Ceramic	June 28, 2014			June 29, 2013
Net sales	$               796,724			760,168
Adjustment to segment net sales on a constant exchange rate	2,144			-
Segment net sales on a constant exchange rate	$               798,868			760,168
Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate
(Amounts in thousands)
	Three Months Ended
Laminate and Wood	June 28, 2014			June 29, 2013
Net sales	$               501,257			470,980
Adjustment to segment net sales on a constant exchange rate	(16,315)			-
Segment net sales on a constant exchange rate	$               484,942			470,980
Reconciliation of Gross Profit to Adjusted Gross Profit
(Amounts in thousands)
	Three Months Ended
	June 28, 2014			June 29, 2013
Gross Profit	$               574,812			514,056
Adjustments to gross profit:
Restructuring and integration-related costs	6,755			14,334
Acquisitions purchase accounting (inventory step-up)	-			18,744
Adjusted gross profit	$               581,567			547,134
Adjusted gross profit as a percent of net sales	28.4%			27.7%
Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses
(Amounts in thousands)
	Three Months Ended
	June 28, 2014			June 29, 2013
Selling, general and administrative expenses	$               352,564			380,858
Adjustments to selling, general and administrative expenses:
Restructuring, acquisition and integration-related costs	(4,414)			(26,987)
Adjusted selling, general and administrative expenses	$               348,150			353,871
Adjusted selling, general and administrative expenses as a percent of net sales	17.0%			17.9%

 

 

Reconciliation of Operating Income to Adjusted Operating Income
(Amounts in thousands)
	Three Months Ended						Six Months Ended
	June 28, 2014			June 29, 2013			June 28, 2014		June 29, 2013
Operating income	$               222,248			133,198			352,983		220,040
Adjustments to operating income:
Restructuring, acquisition and integration-related costs	11,169			41,321			22,895		51,177
Acquisitions purchase accounting (inventory step-up)	-			18,744			-		18,744
Adjusted operating income	$               233,417			193,263			375,878		289,961
Adjusted operating margin as a percent of net sales	11.4%			9.8%			9.7%		8.4%
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
(Amounts in thousands)
	Three Months Ended						Six Months Ended
Carpet	June 28, 2014			June 29, 2013			June 28, 2014		June 29, 2013
Operating income	$                  62,826			54,862			97,097		80,100
Adjustment to segment operating income:
Restructuring, acquisition and integration-related costs	-			-			-		6,217
Adjusted segment operating income	$                  62,826			54,862			97,097		86,317
Adjusted operating margin as a percent of net sales	8.1%			7.1%			6.7%		5.9%
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
(Amounts in thousands)
	Three Months Ended						Six Months Ended
Ceramic	June 28, 2014			June 29, 2013			June 28, 2014		June 29, 2013
Operating income	$               106,407			46,304			167,066		76,280
Adjustments to segment operating income:
Restructuring, acquisition and integration-related costs	196			23,361			2,177		23,823
Acquisitions purchase accounting (inventory step-up)	-			18,744			-		18,744
Adjusted segment operating income	$               106,603			88,409			169,243		118,847
Adjusted operating margin as a percent of net sales	13.4%			11.6%			11.3%		10.1%
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
(Amounts in thousands)
	Three Months Ended						Six Months Ended
Laminate and Wood	June 28, 2014			June 29, 2013			June 28, 2014		June 29, 2013
Operating income	$                  60,843			41,362			104,962		80,055
Adjustment to segment operating income:
Restructuring, acquisition and integration-related costs	10,773			17,960			20,348		21,137
Adjusted segment operating income	$                  71,616			59,322			125,310		101,192
Adjusted operating margin as a percent of net sales	14.3%			12.6%			12.9%		11.6%

 

 

Reconciliation of Earnings from Continuing Operations Before Income Taxes to Adjusted Earnings from Continuing Operations Before Income Taxes
(Amounts in thousands)
	Three Months Ended
	June 28, 2014			June 29, 2013
Earnings from continuing operations before income taxes	$               203,101			108,983
Adjustments to earnings from continuing operations before income taxes:
Restructuring, acquisition and integration-related costs	11,169			41,321
Acquisitions purchase accounting (inventory step-up)	-			18,744
Adjusted earnings before income taxes	$               214,270			169,048
Reconciliation of Income Tax Expense to Adjusted Income Tax Expense
(Amounts in thousands)
	Three Months Ended
	June 28, 2014			June 29, 2013
Income tax expense	$                  50,240			23,240
Income tax effect of adjusting items	2,229			12,183
Adjusted income tax expense	$                  52,469			35,423
Adjusted income tax rate	24%			21%
The Company believes it is useful for itself and investors to review, as applicable, both GAAP and the above non-GAAP measures in order to assess the performance of the Company's business for planning and forecasting in subsequent periods.  In particular, the Company believes excluding the impact of restructuring, acquisition and integration-related costs is useful because it allows investors to evaluate our performance for different periods on a more comparable basis.