Mohawk Industries Reports Q4 Results

CALHOUN, Ga., Feb. 13, 2020 (GLOBE NEWSWIRE) -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2019 fourth quarter net earnings of $265 million and diluted earnings per share (EPS) of $3.68, including a one-time tax benefit of $136 million. Adjusted net earnings were $162 million, and EPS was $2.25, excluding restructuring, acquisition and other charges. Net sales for the fourth quarter of 2019 were $2.4 billion, down 1.0% as reported and 1.7% on a constant currency and days basis. For the fourth quarter of 2018, net sales were $2.45 billion, net earnings were $229 million and EPS was $3.05, adjusted net earnings were $188 million, and EPS was $2.53, excluding restructuring, acquisition and other charges.

For the twelve months ending December 31, 2019, net earnings and EPS were $744 million and $10.30, including the one-time fourth quarter tax benefit. Net earnings excluding restructuring, acquisition and other charges were $725 million and EPS was $10.04. For the year, net sales were approximately $10 billion, flat versus prior year as reported or an increase of 2% on a constant currency and days basis. For the twelve-month period ending December 31, 2018, net sales were approximately $10 billion, net earnings were $862 million and EPS was $11.47; excluding restructuring, acquisition and other charges, net earnings and EPS were $922 million and $12.33.

Commenting on Mohawk Industries’ fourth quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, “Our fourth quarter results were as we expected, with sales flat to last year and very strong cash generation. Operating and free cash flow for the quarter were $440 million and $300 million, respectively.  For the full year, operating and free cash flow were about $1.4 billion and $870 million, respectively. Our leverage is approaching historical lows, which provides us with the flexibility to pursue additional opportunities. Under our stock repurchase program, we bought approximately $23 million in the fourth quarter, for a total of about $375 million since the inception of the buyback program.

“As we anticipated, our businesses remained challenged by soft demand, greater competition and reduced production volume. In the U.S., markets continued to be influenced by the strong dollar, the impact of LVT on other products and positive trends in housing that should be a tailwind. Competition has increased in our global markets, impacting our pricing and mix as we leverage investments in sales and marketing to drive growth. Many countries where we operate are stimulating their economies with lower interest rates to encourage greater consumer spending and economic growth this year. In the near term we still anticipate that most of our markets will have continued pressure in our product categories.

“Throughout the period, we implemented changes to increase sales and reduce costs. We have enhanced our LVT manufacturing in the U.S. and Europe and realigned our U.S. carpet operations. We have decreased our ceramic production and inventories and are taking out wood flooring plants in the U.S. and Europe. We are reducing the complexity of our operations, enhancing processes to reduce costs and increasing automation to improve efficiencies. We continue to improve the productivity and volume of our new LVT, U.S. countertop, Russian sheet vinyl and European carpet tile investments. Our acquisitions in Australia and Brazil are installing state-of-the-art equipment that will expand their product portfolios. We are introducing new design and performance innovations to enhance our market positions and broaden our customer base. To promote both new and existing products, we are making higher levels of sales and marketing investments.

“For the quarter, our Global Ceramic Segment sales were flat as reported and decreased 1.5% on a constant currency and days basis. The segment’s operating margin was 6% as reported, declining year over year primarily due to inflation and lower production rates partially offset by productivity. Most of the segment’s markets faced soft demand and excess industry capacity, that is compressing market prices and margins. Our U.S. ceramic business remained under pressure from LVT taking share and high industry inventories from ceramic purchases ahead of tariffs. To align our own inventory levels, we meaningfully reduced production in our North American ceramic plants, which increased our costs. To improve sales, we are rolling out multiple new products and adding sales representatives and design consultants in major markets. We have begun manufacturing our proprietary new click tile in multiple sizes and designs, and we have already received commitments from major customers. Our quartz countertop sales increased as we ramped up productivity at our new plant. In Mexico, we continued to gain market share by expanding our brands, distribution and product offering with larger sizes, porcelain products and a more comprehensive wall tile collection. In Brazil, we had good sales growth in the period and initiated a new porcelain line to create larger sizes for our premium collections. The southern European economies remain slow, impacting our primary ceramic markets and industry pricing. In Europe, we increased our volume and are expanding our activities in the commercial and outdoor channels. In Russia, we grew our sales in a soft market, and we are starting up additional porcelain production to make super large sizes as well as a new plant to produce coordinated premium sanitary ware.

“During the quarter, our Flooring North America Segment’s sales decreased 4% as reported and 5% on a constant days basis with an operating margin of 3% as reported and 7% excluding restructuring and other charges. Operating income for the segment declined primarily due to lower volume, price and mix. We have executed many initiatives to align the business with the present conditions, including closing three plants, consolidating high cost operations and reducing wood manufacturing. The effects of these actions will increase and flow through inventory with full cost benefit in the third quarter of 2020.  In the quarter, our residential carpet sales performed best in the new home construction and multi-family channels. We are leveraging our strengths in design and fiber technology to deliver differentiated new collections in both premium and value carpet categories. To create greater value for our commercial customers and improve our cost, we invested in new design capabilities, proprietary carpet tile backings and material manufacturing. We have increased the production and speeds of our LVT operations, and ongoing initiatives will further improve formulations and throughput. During the period, U.S. tariffs on click LVT were removed, and the market has adjusted pricing to reflect this change. To expand our price points and highlight our unique visuals and features, we are introducing new rigid and flexible LVT collections for both residential and commercial markets. The virus in China is postponing the start-up of some production and could potentially disrupt some LVT service, depending on when product shipments resume. Sales of our water-proof laminate products are expanding, and we anticipate continued growth due to their realistic appearance, durability and ease of installation. To support higher laminate sales, we are upgrading our HDF board production to expand capacity and improve our costs.

“For the quarter, our Flooring Rest of the World Segment’s sales increased 3% as reported and 4% on a constant currency and days basis. The segment’s operating margin was 13% as reported and 14% excluding restructuring and other charges, due to volume growth, reduced start-up cost and lower inflation partially offset by price and mix. Across the segment, our investments in product innovation, cost improvements, acquisitions and new businesses strengthened our results. We are outperforming the European laminate market, and sales of our new Signature collection are ramping up quickly due to an enhanced level of sophistication. We announced the consolidation of wood manufacturing to our facility in Malaysia, which will improve our costs and increase our flexibility to better satisfy our customers. Our LVT sales grew as our manufacturing productivity significantly improved. Our new rigid collections are being well received and our next generation of flexible LVT provides our most realistic wood and stone visuals. Our panels and insulation businesses had good results in a more competitive environment. In Australia and New Zealand, our soft and hard surface sales grew in a difficult environment and we are launching many new carpet collections to enhance our offering.

“Market conditions remain challenging across most of our businesses and geographies. In response, we are adjusting our business strategies, enhancing our product offering and restructuring operations. We are increasing our investments in sales and marketing, expanding our commercial participation and enhancing both our premium and value collections. To broaden our distribution into new channels and geographies, we are bringing many new product innovations and categories to market. Our new LVT, countertop, sheet vinyl and carpet tile plants are improving their productivity as we invest to expand our customer base and sales volume. As our LVT manufacturing capacity grows with higher speeds and efficiencies, we are enhancing design and features and increasing sales of our rigid and flexible offerings. We are limiting the traditional inventory build that we typically do in the first quarter, as we manage our production with market demand. Taking all of this into account, our EPS guidance for the first quarter of 2020 is $1.90 to $2.00, excluding any one-time charges.

“LVT growth in the U.S., exchange rates and excess global capacity continue as headwinds for our businesses. We are executing specific initiatives to adapt to shifting consumer preferences, changing markets and competitive pressures. For the full year of 2020, we expect that our actions to increase sales and distribution, reduce costs and enhance utilization of our new plants will deliver improved year-over-year results, with our performance accelerating during the second half of the year. Our balance sheet should continue to improve with ongoing strong cash generation, and we remain focused on delivering long-term value to our shareholders.”

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, February 14, 2020, 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 # 3678629. A replay will be available until March 14, 2020, by dialing 1-855-859-2056 for US/local calls and 1-404-537-3406 for International/Local calls and entering Conference ID # 3678629.

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