CALHOUN, Georgia, Aug. 6 /PRNewswire-Asia/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2010 second quarter net earnings of US$68 million and diluted earnings per share (EPS) of US$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 US$53 million and US$0.77 per share. In the second quarter of 2009, the net earnings were US$46 million and EPS was US$0.67. Excluding the 2009 unusual items, net earnings and EPS would have been US$54 million and US$0.79 per share. Net sales for the second quarter of 2010 were US$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 US$111 million in the quarter, cash of US$343 million and an improving net debt to EBITDA ratio of 2.1.
For the first six months of 2010, our net earnings were US$89 million or an EPS of US$1.29. Excluding the unusual items noted above, net earnings would have been US$77 million and EPS would have been US$1.12. In the first six months of 2009, our net loss was US$60 million and loss per share was US$0.87. Excluding the 2009 year-to-date unusual items, net earnings and EPS would have been US$64 million and US$0.93 per share. Net sales for the first six months of 2010 were US$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 US$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 US$0.70 to US$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 +1-800-642-1687 for US/local calls and +1-706-645-9291 for International/Local calls and entering Conference ID # 87173114.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
Three Months Ended
------------------
(Amounts in thousands,
except per share data) July 3, June 27,
2010 2009
---- ----
Net sales $1,400,086 1,406,012
Cost of sales 1,025,330 1,038,624
------------- --------- ---------
Gross profit 374,756 367,388
Selling, general and
administrative expenses 285,030 292,710
------------------------ ------- -------
Operating income (loss) 89,726 74,678
Interest expense 39,031 30,002
Other expense (income), net 1,428 (4,622)
--------------------------- ----- ------
Earnings (loss) before
income taxes 49,267 49,298
Income tax (benefit)
expense (18,814) 3,037
-------------------- ------- -----
Net earnings (loss) $68,081 46,261
------------------- ------- ------
Basic earnings (loss) per
share $0.99 0.68
------------------------- ----- ----
Weighted-average common
shares outstanding -
basic 68,585 68,449
----------------------- ------ ------
Diluted earnings (loss) per
share $0.99 0.67
--------------------------- ----- ----
Weighted-average common
shares outstanding -
diluted 68,789 68,613
----------------------- ------ ------
Other Financial Information
(Amounts in thousands)
Net cash provided by
operating activities $135,169 231,627
--------------------- -------- -------
Depreciation and
amortization $72,497 77,062
---------------- ------- ------
Capital expenditures $23,830 25,830
-------------------- ------- ------
Six Months Ended
----------------
(Amounts in thousands,
except per share data) July 3, June 27,
2010 2009
---- ----
Net sales 2,747,322 2,614,351
Cost of sales 2,031,320 2,093,274
------------- --------- ---------
Gross profit 716,002 521,077
Selling, general and
administrative expenses 572,655 592,283
------------------------ ------- -------
Operating income (loss) 143,347 (71,206)
Interest expense 72,939 60,186
Other expense (income), net (2,371) (2,007)
--------------------------- ------ ------
Earnings (loss) before
income taxes 72,779 (129,385)
Income tax (benefit)
expense (15,840) (69,759)
-------------------- ------- -------
Net earnings (loss) 88,619 (59,626)
------------------- ------ -------
Basic earnings (loss) per
share 1.29 (0.87)
------------------------- ---- -----
Weighted-average common
shares outstanding -
basic 68,554 68,441
----------------------- ------ ------
Diluted earnings (loss) per
share 1.29 (0.87)
--------------------------- ---- -----
Weighted-average common
shares outstanding -
diluted 68,760 68,441
----------------------- ------ ------
Other Financial Information
(Amounts in thousands)
Net cash provided by
operating activities 88,977 269,546
--------------------- ------ -------
Depreciation and
amortization 149,295 144,742
---------------- ------- -------
Capital expenditures 47,139 52,923
-------------------- ------ ------
Consolidated Balance Sheet Data
(Amounts in thousands)
July 3, 2010 June 27, 2009
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $ 342,673 226,543
Receivables, net 703,458 778,456
Inventories 965,778 936,336
Prepaid expenses 118,096 127,866
Deferred income taxes and other current
assets 154,855 186,572
Total current assets 2,284,860 2,255,773
Property, plant and equipment, net 1,654,161 1,864,301
Goodwill 1,340,003 1,399,277
Intangible assets, net 686,156 812,190
Deferred income taxes and other non-current
assets 38,736 24,148
$ 6,003,916 6,355,689
----------- ---------
LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt $ 351,307 55,335
Accounts payable and accrued expenses 808,909 875,590
Total current liabilities 1,160,216 930,925
Long-term debt, less current portion 1,303,155 1,804,086
Deferred income taxes and other long-term
liabilities 431,355 490,355
Total liabilities 2,894,726 3,225,366
Total equity 3,109,190 3,130,323
$ 6,003,916 6,355,689
----------- ---------
As of or for the Three
Segment Information Months Ended
----------------------
July 3, June 27,
(Amounts in thousands) 2010 2009
-------- ---------
Net sales:
Mohawk $747,582 767,790
Dal-Tile 363,618 376,704
Unilin 308,385 279,715
Intersegment sales (19,499) (18,197)
Consolidated net sales $1,400,086 1,406,012
---------------------- ---------- ---------
Operating income (loss):
Mohawk $26,345 20,560
Dal-Tile 28,124 30,331
Unilin 42,336 31,141
Corporate and eliminations (7,079) (7,354)
Consolidated operating
income (loss) $89,726 74,678
---------------------- ------- ------
Assets:
Mohawk
Dal-Tile
Unilin
Corporate and eliminations
Consolidated assets
-------------------
As of or for the Six
Segment Information Months Ended
--------------------
July 3, June 27,
(Amounts in thousands) 2010 2009
-------- ---------
Net sales:
Mohawk 1,464,165 1,362,121
Dal-Tile 705,014 735,182
Unilin 614,265 548,181
Intersegment sales (36,122) (31,133)
Consolidated net sales 2,747,322 2,614,351
---------------------- --------- ---------
Operating income (loss):
Mohawk 42,973 (158,495)
Dal-Tile 43,519 51,460
Unilin 68,794 45,693
Corporate and eliminations (11,939) (9,864)
Consolidated operating
income (loss) 143,347 (71,206)
---------------------- ------- -------
Assets:
Mohawk $1,675,226 1,723,006
Dal-Tile 1,570,238 1,621,409
Unilin 2,423,695 2,646,999
Corporate and eliminations 334,757 364,275
-------
Consolidated assets $6,003,916 6,355,689
------------------- ---------- ---------
Reconciliation of Net Earnings (Loss) to Adjusted Net Earnings and
Adjusted Diluted Earnings Per Share
(Amounts in thousands, except per share data)
Three Months Ended
------------------
July 3, 2010 June 27, 2009
------------ -------------
Net earnings (loss) $68,081 46,261
Unusual items:
Commercial carpet tile reserve - -
FIFO Inventory - -
Business restructurings 4,929 12,060
Debt extinguishment costs 7,514 -
Discrete tax items, net (24,407) -
Income taxes (3,290) (4,402)
------------ ------ ------
Adjusted net earnings $52,827 53,919
--------------------- ------- ------
Adjusted diluted earnings per
share $0.77 0.79
Weighted-average common shares
outstanding - diluted 68,789 68,613
Six Months Ended
----------------
July 3, 2010 June 27, 2009
------------ -------------
Net earnings (loss) 88,619 (59,626)
Unusual items:
Commercial carpet tile reserve - 122,492
FIFO Inventory - 61,794
Business restructurings 8,933 15,917
Debt extinguishment costs 7,514 -
Discrete tax items, net (24,407) -
Income taxes (3,759) (76,837)
------------ ------ -------
Adjusted net earnings 76,900 63,740
--------------------- ------ ------
Adjusted diluted earnings per
share 1.12 0.93
Weighted-average common shares
outstanding - diluted 68,760 68,441
Reconciliation of Operating Cash Flow to Free Cash Flow
(Amounts in thousands)
Three Months Ended
------------------
July 3, 2010
------------
Net cash provided by
operating activities $135,169
Net cash used in
investing activities (23,830)
--------------------- -------
Free Cash Flow $111,339
-------------- --------
Reconciliation of Total Debt to Net Debt
(Amounts in thousands)
Three Months
Ended
------------
July 3, 2010
------------
Current portion of long-term debt $351,307
Long-term debt, less current portion 1,303,155
Less: Cash and cash equivalents 342,673
Net Debt $1,311,789
-------- ----------
Reconciliation of Operating Income to Adjusted EBITDA
(Amounts in thousands)
Three Months Ended
------------------
September December April 3, July 3,
29, 2009 31, 2009 2010 2010
---------- --------- --------- --------
Operating income $68,071 46,865 53,621 89,726
Other income
(expense) 610 (1,509) 3,799 (1,428)
Depreciation and
amortization 76,435 81,827 76,798 72,497
Commercial carpet
tile reserve - 11,000 - -
Business
restructurings 16,019 29,787 4,004 4,929
Adjusted EBITDA $161,135 167,970 138,222 165,724
--------------- -------- ------- ------- -------
Net Debt to
Adjusted EBITDA
----------------
Trailing
Twelve
Months
Ended
------
July 3,
2010
--------
Operating income 258,283
Other income (expense) 1,472
Depreciation and
amortization 307,557
Commercial carpet tile
reserve 11,000
Business restructurings 54,739
Adjusted EBITDA 633,051
--------------- -------
Net Debt to Adjusted EBITDA 2.1
--------------------------- ---
Reconciliation of Net Sales to Adjusted Net Sales
(Amounts in thousands)
Three Months Ended Six Months Ended
------------------ ----------------
July 3, 2010 June 27,2009 July 3, 2010 June 27, 2009
------------ ------------ ------------ -------------
Net sales $1,400,086 1,406,012 2,747,322 2,614,351
Adjustments to
net sales
Commercial
carpet tile
reserve - - - 110,224
Exchange rate 13,509 - (2,891) -
Additional
shipping days - - (88,638) -
Adjusted net
sales $1,413,595 1,406,012 2,655,793 2,724,575
------------ ---------- --------- --------- ---------
Reconciliation of Mohawk Segment Operating Income to Adjusted Mohawk
Segment Operating Income
(Amounts in thousands)
Three Months Ended
------------------
July 3, 2010 June 27, 2009
------------ -------------
Operating income $26,345 20,560
Adjustments to operating
income
Business restructurings 4,929 -
Adjusted operating income $31,274 20,560
------------------------- ------- ------
Reconciliation of Unilin Segment Net Sales to Adjusted Unilin Segment
Net Sales
(Amounts in thousands)
Three Months Ended
------------------
July 3, 2010 June 27, 2009
------------ -------------
Net sales $308,385 279,715
Adjustments to net
sales
Exchange rate 15,945 -
Adjusted net sales $324,330 279,715
------------------ -------- -------
Reconciliation of Operating Income to Adjusted Operating Income
(Amounts in thousands, except per share data)
Three Months Ended
------------------
July 3, 2010
Operating income $89,726
Unusual items:
Business restructurings 4,929
Adjusted operating income $94,655
------------------------- -------
Adjusted operating margin 6.8%
Reconciliation of Earnings Before Income Taxes to Adjusted Earnings
Before Income Taxes
(Amounts in thousands)
Three Months Ended
------------------
July 3, 2010
Earnings before income taxes $49,267
Unusual items:
Business restructurings 4,929
Debt extinguishment costs 7,514
Adjusted earnings before income
taxes $61,710
------------------------------- -------
Reconciliation of Income Tax Benefit to Adjusted Income Tax Expense
(Amounts in thousands)
Three Months Ended
------------------
July 3, 2010
Income tax benefit $(18,814)
Unusual items:
Discrete tax items, net 24,407
Income taxes 3,290
Adjusted income tax expense $8,883
--------------------------- ------
Adjusted income tax rate 14%
------------------------ ---
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.
