Mohawk Industries Reports Q1 Results

CALHOUN, Ga., April 25, 2019 (GLOBE NEWSWIRE) -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2019 first quarter net earnings of $122 million and diluted earnings per share (EPS) of $1.67. Adjusted net earnings were $154 million, and EPS was $2.13, excluding restructuring, acquisition and other charges. Net sales for the first quarter of 2019 were $2.44 billion, up 1% in the quarter and 6% on a constant currency and days basis. For the first quarter of 2018, net sales were $2.41 billion, net earnings were $209 million and EPS was $2.78, adjusted net earnings were $225 million, and EPS was $3.01, excluding restructuring, acquisition and other charges.

Commenting on Mohawk Industries’ first quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, “In the first quarter, we delivered results in-line with the high end of our expectations despite economies weakening in most regions and a stronger U.S. dollar, reducing our translated results. While U.S. housing markets began softer and higher inputs increased costs, both are showing signs of improvement as we enter the second quarter. Around the world, uneven demand impacted volume, increasing pressure on both price and mix. We reduced our production rates to balance our inventories with our customers’ demand and manage our working capital. Results from our recent acquisitions in Australia, New Zealand and Brazil are on track, and we remain optimistic about our ability to improve their market positions and costs.”

“Each of our businesses is taking specific actions to adapt to the present environment. We are introducing new products to differentiate our offering and enhance our margins, and we raised prices to offset higher energy and materials. We have replaced high-cost assets, consolidated inefficient operations, enhanced manufacturing processes and reduced our overhead expenses.”

For the quarter, our Global Ceramic Segment sales increased 2.5% as reported and 7% on a constant currency and days basis. The segment’s operating margin was 9% as reported or 10% excluding other charges, declining year over year due to inflation, temporary shutdown costs and marketing investments partially offset by productivity. In the U.S., we implemented price increases across many categories to cover inflation and higher transportation costs. We are enhancing the value of our products with unique features such as slip resistance, greater durability and bacteria-resistant technologies. We are testing a fast installation technology and pioneering a new porcelain roofing system. The start-up of our new quartz countertop plant is on schedule and will complement our sourced stone and quartz program. To reduce operational expenses, we have enhanced body formulations, improved manufacturing efficiencies, maintenance costs and freight strategies as well as lowering administrative and selling expenses. In Mexico, we are growing by broadening our customer base, expanding our porcelain offering and supporting stores that exclusively sell our brand. We implemented price increases to recover higher natural gas, electricity and transportation costs. In Brazil, we have also recently implemented price increases to offset the dramatically higher cost of natural gas, which the government regulates. We are upgrading our mix with high-end porcelain and restarting an idled production line. As weakening markets increased pressure in Europe, our sales were driven by commercial, outdoor and porcelain slab products as well as higher styled mid-price offerings. We are realigning the production of our products in our European plants and reducing staffing to improve our costs, distribution and service. In Russia, our sales grew significantly, our product mix improved, and we are increasing prices to recover inflation. During the period, we completed our porcelain floor and wall tile expansion to support further growth, and we have begun construction for additional slab production and the manufacturing of premium sanitary ware to expand our offering.

During the quarter, our Flooring North America Segment’s sales decreased 3% as reported and 1.4% on a constant day’s basis. The segment’s operating margin was 0.1% as reported and 3.4% on an adjusted basis. As expected, operating income for the segment declined due to lower volume, inventory reductions, high material costs and LVT manufacturing variances. The segment’s business improved as we moved into the second quarter, supported by higher retail activity and an improving housing environment. Our new ColorMax technology that blends earth tones was voted the best carpet innovation at the national trade show. The carpet price increases we have implemented are being partially offset by declining product mix. Our commercial business improved during the quarter due to new product launches and channel segmentation. Our recent investments in advanced laminate manufacturing technology are allowing us to expand our market and upgrade our mix. Our LVT continues to grow substantially, and we have a complete offering with different features under our key brands. We have replaced high-cost assets and are consolidating five operations and two warehouses, which will reduce our overhead and cost structure. We are enhancing planning strategies, increasing production output and reducing process variations to facilitate this realignment.

For the quarter, our Flooring Rest of the World Segment’s sales increased 6% as reported and 16% on a constant currency and days basis. The segment’s operating margin was 14.5% as reported and 15.3% on an adjusted basis, due to volume growth and lower inflation partially offset by price and mix and productivity. The economies in Europe have been slowing, putting pressure on both our revenues and margins. We have been increasing prices on selected products to offset continued inflation and currency changes. The segment was impacted by start-up costs and under-absorption as our new LVT, sheet vinyl, laminate and carpet tile operations ramp up. In laminate, we outperformed the European market with our unique technologies that make our products the preferred alternative to wood. We have specialized our European laminate plants, so they produce either luxury or volume products to improve our efficiencies and costs. Our LVT manufacturing has substantially improved, and we are introducing more rigid LVT collections across our brands. We are making equipment modifications to relieve process restrictions as throughput has improved. Our new Russian sheet vinyl plant is operating ahead of our plan in both volume and yields. Our insulation results improved as last year’s material shortages have been resolved and costs declined. Our new carpet tile plant in Belgium is operating well as we continue to build our specified and transactional sales. The Australian and New Zealand markets are under pressure as the economy and housing sales slow. We are raising prices to offset increased costs primarily from a weaker local currency, closing high cost extrusion assets and supplying yarn from our U.S. operations and other sources. We are introducing new carpet products with enhanced styling and performance and broadening our hard surface collections to expand our share of the flooring market.

All of our businesses are taking actions to enhance our results with the major focus on improving LVT manufacturing, U.S. carpet performance, managing ceramic headwinds and increasing utilization of our new investments. In the U.S., flooring sales started out weaker and have recently begun to improve. Outside the U.S., most markets have softened, and we are adjusting as required. Across the business, we are enhancing our offerings, reducing our costs and ramping up new plants to expand our portfolio. We continue to realize price increases to offset inflation and restore our margins. Our LVT sales are expanding significantly, and we are making equipment modifications to increase our volume and productivity this year. We are restructuring our U.S. carpet and laminate assets and realigning our European ceramic operations to improve our costs and results. Our acquisitions are positively impacting our results as we integrate them into the business. Taking all of this into account, our EPS guidance for the second quarter is $2.81 to $2.91, excluding any one-time charges.

We are investing in new products and geographies to drive growth and strengthening our organization to improve our execution. We are taking the necessary steps to adapt to present conditions and deliver greater profitability for the long term.

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, Daltile, Durkan, Eliane, Feltex, Godfrey Hirst, IVC, Karastan, Marazzi, Mohawk, Mohawk Group, Pergo, Quick-Step and Unilin. 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, Europe, India, Malaysia, Mexico, New Zealand, 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 and deflation in raw material prices and other input costs; inflation and deflation in consumer markets; 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; taxes and tax reform, product and other claims; litigation; and other risks identified in Mohawk’s SEC reports and public announcements.

Conference call Friday, April 26, 2019, 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 # 4699130. A replay will be available until May 26, 2019, by dialing 1-855-859-2056 for US/local calls and 1-404-537-3406 for International/Local calls and entering Conference ID # 4699130.

Mohawk Industries Reports Q1 Results (in attachments)

The Company supplements its condensed consolidated financial statements, which are prepared and presented in accordance with US GAAP, with certain non-GAAP financial measures. As required by the Securities and Exchange Commission rules, the tables above present a reconciliation of the Company's non-GAAP financial measures to the most directly comparable US GAAP measure. Each of the non-GAAP measures set forth above should be considered in addition to the comparable US GAAP measure, and may not be comparable to similarly titled measures reported by other companies. The Company believes these non-GAAP measures, when reconciled to the corresponding US GAAP measure, help its investors as follows: Non-GAAP revenue measures that assist in identifying growth trends and in comparisons of revenue with prior and future periods and non-GAAP profitability measures that assist in understanding the long-term profitability trends of the Company's business and in comparisons of its profits with prior and future periods.

The Company excludes certain items from its non-GAAP revenue measures because these items can vary dramatically between periods and can obscure underlying business trends. Items excluded from the Company's non-GAAP revenue measures include: foreign currency transactions and translation and the impact of acquisitions.

The Company excludes certain items from its non-GAAP profitability measures because these items may not be indicative of, or are unrelated to, the Company's core operating performance. Items excluded from the Company's non-GAAP profitability measures include: restructuring, acquisition and integration-related and other costs, acquisition purchase accounting, including inventory step-up, release of indemnification assets and the reversal of uncertain tax positions.

Contact: Glenn Landau, Chief Financial Officer (706) 624-2025

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