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Press release from PR Newswire

Mohawk Industries, Inc. Announces Second Quarter Earnings

Thursday, August 05, 2010

Mohawk Industries, Inc. Announces Second Quarter Earnings16:07 EDT Thursday, August 05, 2010CALHOUN, Ga., Aug. 5, /PRNewswire-FirstCall/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2010 second quarter net earnings of $68 million and diluted earnings per share (EPS) of $0.99 which included non-recurring tax benefits, charges for redemption premiums on bonds and restructuring activities. Excluding these unusual items, net earnings and EPS would have been $53 million and $0.77 per share.  In the second quarter of 2009, the net earnings were $46 million and EPS was $0.67. Excluding the 2009 unusual items, net earnings and EPS would have been $54 million and $0.79 per share. Net sales for the second quarter of 2010 were $1.4 billion which was flat versus 2009 net sales. Our operating margin has improved to 6.4% (6.8% adjusted) and is the highest we have achieved in two years. We have a strong financial position with free cash flow of $111 million in the quarter, cash of $343 million and an improving net debt to EBITDA ratio of 2.1. For the first six months of 2010, our net earnings were $89 million or an EPS of $1.29. Excluding the unusual items noted above, net earnings would have been $77 million and EPS would have been $1.12. In the first six months of 2009, our net loss was $60 million and loss per share was $0.87. Excluding the 2009 year-to-date unusual items, net earnings and EPS would have been $64 million and $0.93 per share. Net sales for the first six months of 2010 were $2.7 billion representing a 5% increase from 2009. On a local exchange rate, constant days and excluding 2009 sales adjustments net sales decreased 2.5% during this period.In commenting on the second quarter results, Jeffrey S. Lorberbaum, Chairman and CEO stated, "Our earnings were better than anticipated due to higher sales in Unilin, improving product mix in Mohawk, price increases and cost reduction programs. Our second quarter sales were flat compared to the prior year as the residential business improved. The European business grew in most geographic and product categories with volumes increasing. Commercial markets are declining at a slower rate with expectations of a bottom this year. Residential remodeling markets should expand in the second half of the year driven by higher disposable income and low interest rates. New home construction remains low but above last year. The European economy is gaining momentum with positive industry reports, higher consumer confidence and an improved banking outlook. We have expanded our international presence with a minority interest in one of the top ten Chinese ceramic tile manufacturers and purchased a building in Russia for laminate manufacturing."Our Mohawk segment net sales were down 3% and operating income was up $11 million before restructuring charges for the period.  Profitability has improved as price increases, product mix, productivity improvements and cost reductions resulted in higher margins. Our residential product introductions shipped earlier this year and should improve our volume in the second half of the year. Our commercial team's selling efforts are focused on the government, healthcare and education markets. Our focus continues on improving quality, product management, service and costs. Our second price increase this year of 5-7%, announced in April, is being implemented to offset higher cost raw material. Our Dal-Tile segment net sales were down 3% as a result of new residential construction and commercial still lagging the economy. We are improving manufacturing output, increasing productivity and lowering SG&A costs to expand margins. Our Home Center share is growing and we are strengthening our position in Mexico by broadening our product offering and customer base. In manufacturing, we have increased labor productivity and energy utilization with process innovation.  In Monterrey, Mexico, a flood caused by Hurricane Alex temporarily stopped our ceramic tile production in the beginning of July. Most of the equipment has been repaired and most will be back at full capacity within a month. Shipping was not interrupted by the flood since our finished inventories are stored at another site. We believe our aggressive actions will result in a minimal impact from the storm on our customers and performance due to product substitutions, moving production, sourcing products and coverage from our insurance.Our Unilin segment net sales increased 10% as reported or 16% in local currency. Our business improved in most European markets, Russia and Asia with nearly all product categories growing compared to last year. Quick Step laminate is positioned as the leading brand with innovative products and a strong market presence. New licensees have adopted our patented installation system utilized in laminate, wood and vinyl products. Both, our U.S. and European wood sales have grown and the sales mix has improved. We have implemented multiple price increases in wood this year to recover the inflation of our raw materials. The U.S. and European economies are expected to expand in the second half of the year. We believe product pricing will catch up with the inflation of our raw materials. Our new product introductions will benefit our sales while cost reductions and price increases will improve our margins. We believe raw material prices have peaked in the second quarter and our results should benefit as we go through the year. In the Unilin segment, the third quarter is seasonally slower due to the European holiday.  Our third quarter guidance for earnings is $0.70 to $0.79 per share excluding restructuring charges, the timing of insurance reimbursements and purchase accounting adjustments.In conclusion, global economic growth should benefit our business in the future as markets continue to recover. The execution of our product introductions and cost initiatives will support expansion of our profits. Increased exposure to international markets will drive growth and provide a better balance to our company. Our cash flow remains strong and our balance sheet will support continued investment in new opportunities.Mohawk is a leading supplier of flooring for both residential and commercial applications.  Mohawk offers a complete selection of carpet, ceramic tile, laminate, wood, stone, vinyl, and rugs.  These products are marketed under the premier brands in the industry, which include Mohawk, Karastan, Lees, Bigelow, Dal-Tile, American Olean, Unilin and Quick Step.  Mohawk's unique merchandising and marketing assist our customers in creating the consumers' dream.  Mohawk provides a premium level of service with its own trucking fleet and over 250 local distribution locations.  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; raw material and energy costs; timing and level of capital expenditures; integration of acquisitions; rationalization of operations; claims; litigation and other risks identified in Mohawk's SEC reports and public announcements.  There will be a conference call Friday, August 6, 2010 at 11:00 AM Eastern Time.The telephone number to call is 1-800-603-9255 for US/Canada and 1-706-634-2294 for International/Local. Conference ID # 87173114.  A conference call replay will also be available until August  20, 2010 by dialing 800-642-1687 for US/local calls and 706-645-9291 for International/Local calls and entering Conference ID # 87173114.MOHAWK INDUSTRIES, INC. AND SUBSIDIARIESConsolidated Statement of OperationsThree Months EndedSix Months Ended(Amounts in thousands, except per share data)July 3, 2010June 27, 2009July 3, 2010June 27, 2009Net sales$ 1,400,0861,406,0122,747,3222,614,351Cost of sales1,025,3301,038,6242,031,3202,093,274    Gross profit374,756367,388716,002521,077Selling, general and administrative expenses285,030292,710572,655592,283Operating income (loss)89,72674,678143,347(71,206)Interest expense39,03130,00272,93960,186Other expense (income), net1,428(4,622)(2,371)(2,007)    Earnings (loss) before income taxes49,26749,29872,779(129,385)Income tax (benefit) expense  (18,814)3,037(15,840)(69,759)    Net earnings (loss)$      68,08146,26188,619(59,626)Basic earnings (loss) per share$          0.990.681.29(0.87)Weighted-average common shares outstanding - basic68,58568,44968,55468,441Diluted earnings (loss) per share$          0.990.671.29(0.87)Weighted-average common shares outstanding - diluted68,78968,61368,76068,441Other Financial Information(Amounts in thousands)Net cash provided by operating activities$    135,169231,62788,977269,546Depreciation and amortization$      72,49777,062149,295144,742Capital expenditures$      23,83025,83047,13952,923Consolidated Balance Sheet Data(Amounts in thousands)July 3, 2010June 27, 2009ASSETSCurrent assets:    Cash and cash equivalents$    342,673226,543    Receivables, net703,458778,456    Inventories965,778936,336    Prepaid expenses118,096127,866    Deferred income taxes and other current assets154,855186,572        Total current assets2,284,8602,255,773Property, plant and equipment, net1,654,1611,864,301Goodwill1,340,0031,399,277Intangible assets, net686,156812,190Deferred income taxes and other non-current assets38,73624,148$ 6,003,9166,355,689LIABILITIES AND EQUITYCurrent liabilities:Current portion of long-term debt$    351,30755,335Accounts payable and accrued expenses808,909875,590        Total current liabilities1,160,216930,925Long-term debt, less current portion1,303,1551,804,086Deferred income taxes and other long-term liabilities431,355490,355        Total liabilities2,894,7263,225,366Total equity3,109,1903,130,323$ 6,003,9166,355,689Segment InformationAs of or for the Three Months EndedAs of or for the Six Months Ended(Amounts in thousands)July 3, 2010June 27, 2009July 3, 2010June 27, 2009Net sales:    Mohawk$    747,582767,7901,464,1651,362,121    Dal-Tile363,618376,704705,014735,182    Unilin308,385279,715614,265548,181    Intersegment sales(19,499)(18,197)(36,122)(31,133)        Consolidated net sales$ 1,400,0861,406,0122,747,3222,614,351Operating income (loss):    Mohawk$      26,34520,56042,973(158,495)    Dal-Tile28,12430,33143,51951,460    Unilin42,33631,14168,79445,693    Corporate and eliminations(7,079)(7,354)(11,939)(9,864)        Consolidated operating income (loss)$      89,72674,678143,347(71,206)Assets:    Mohawk$ 1,675,2261,723,006    Dal-Tile1,570,2381,621,409    Unilin2,423,6952,646,999    Corporate and eliminations334,757364,275        Consolidated assets$ 6,003,9166,355,689Reconciliation of Net Earnings (Loss) to Adjusted Net Earnings and Adjusted Diluted Earnings Per Share(Amounts in thousands, except per share data)Three Months EndedSix Months EndedJuly 3, 2010June 27, 2009July 3, 2010June 27, 2009Net earnings (loss)$                  68,08146,26188,619(59,626)Unusual items:Commercial carpet tile reserve---122,492FIFO Inventory---61,794Business restructurings4,92912,0608,93315,917Debt extinguishment costs7,514-7,514-Discrete tax items, net(24,407)-(24,407)-Income taxes(3,290)(4,402)(3,759)(76,837)Adjusted net earnings $                  52,82753,91976,90063,740Adjusted diluted earnings per share$                      0.770.791.120.93Weighted-average common shares outstanding - diluted68,78968,61368,76068,441Reconciliation of Operating Cash Flow to Free Cash Flow(Amounts in thousands)Three Months EndedJuly 3, 2010Net cash provided by operating activities$                135,169Net cash used in investing activities(23,830)Free Cash Flow$                111,339Reconciliation of Total Debt to Net Debt(Amounts in thousands)Three Months EndedJuly 3, 2010Current portion of long-term debt$                351,307Long-term debt, less current portion1,303,155Less: Cash and cash equivalents342,673Net Debt$             1,311,789Reconciliation of Operating Income to Adjusted EBITDA(Amounts in thousands)Trailing TwelveThree Months EndedMonths EndedSeptember 29, 2009December 31, 2009April 3, 2010July 3, 2010July 3, 2010Operating income$                  68,07146,86553,62189,726258,283Other income (expense)610(1,509)3,799(1,428)1,472Depreciation and amortization76,43581,82776,79872,497307,557Commercial carpet tile reserve-11,000--11,000Business restructurings16,01929,7874,0044,92954,739 Adjusted EBITDA $                161,135167,970138,222165,724633,051Net Debt to Adjusted EBITDA2.1Reconciliation of Net Sales to Adjusted Net Sales(Amounts in thousands)Three Months EndedSix Months EndedJuly 3, 2010June 27, 2009July 3, 2010June 27, 2009Net sales$             1,400,0861,406,0122,747,3222,614,351Adjustments to net salesCommercial carpet tile reserve---110,224Exchange rate13,509-(2,891)-Additional shipping days--(88,638)-Adjusted net sales$             1,413,5951,406,0122,655,7932,724,575Reconciliation of Mohawk Segment Operating Income to Adjusted Mohawk Segment Operating Income (Amounts in thousands)Three Months EndedJuly 3, 2010June 27, 2009Operating income$                  26,34520,560Adjustments to operating incomeBusiness restructurings4,929-Adjusted operating income$                  31,27420,560Reconciliation of Unilin Segment Net Sales to Adjusted Unilin Segment Net Sales(Amounts in thousands)Three Months EndedJuly 3, 2010June 27, 2009Net sales$                308,385279,715Adjustments to net salesExchange rate15,945-Adjusted net sales$                324,330279,715Reconciliation of Operating Income to Adjusted Operating Income (Amounts in thousands, except per share data)Three Months EndedJuly 3, 2010Operating income$                  89,726Unusual items:Business restructurings4,929Adjusted operating income$                  94,655Adjusted operating margin6.8%Reconciliation of Earnings Before Income Taxes to Adjusted Earnings Before Income Taxes(Amounts in thousands)Three Months EndedJuly 3, 2010Earnings before income taxes$                  49,267Unusual items:Business restructurings4,929Debt extinguishment costs7,514Adjusted earnings before income taxes$                  61,710Reconciliation of Income Tax Benefit to Adjusted Income Tax Expense(Amounts in thousands)Three Months EndedJuly 3, 2010Income tax benefit$                 (18,814)Unusual items:Discrete tax items, net24,407Income taxes3,290Adjusted income tax expense$                    8,883Adjusted income tax rate14%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.SOURCE Mohawk Industries, Inc.For further information: Frank H. Boykin, Chief Financial Officer, +1-706-624-2695