Mohawk Industries Reports Q2 Results
Mohawk Industries, Inc. (NYSE: MHK) today announced 2019 second quarter net earnings of $202 million and diluted earnings per share (EPS) of $2.79. Adjusted net earnings were $210 million, and EPS was $2.89, excluding restructuring, acquisition and other charges. Net sales for the second quarter of 2019 were $2.6 billion, up 0.3% as reported and 2.4% on a constant currency and days basis. For the second quarter of 2018, net sales were $2.6 billion, net earnings were $197 million and EPS was $2.62, adjusted net earnings were $263 million, and EPS was $3.51, excluding restructuring, acquisition and other charges.
For the six months ending June 29, 2019, net earnings and EPS were $324 million and $4.48, respectively. Net earnings excluding restructuring, acquisition and other charges were $364 million and EPS was $5.04. For the 2019 six-month period, net sales were $5.03 billion, up 0.8% versus prior year as reported or 4% on a constant currency and days basis. For the six-month period ending June 30, 2018, net sales were $4.99 billion, net earnings were $405 million and EPS was $5.41; excluding restructuring, acquisition and other charges, net earnings and EPS were $488 million and $6.52.
Commenting on Mohawk Industries’ second quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, “In the second quarter, our business delivered results at the high end of our guidance. The U.S. dollar strengthened compared to the prior year, reducing our translated results for the quarter by approximately $9 million. Most markets we operate in remain soft, with pressure on volume and pricing, and we anticipate the environment to remain difficult.
“Given the uncertainties in our markets, we are taking actions to improve our business. We are streamlining our operations, consolidating facilities and taking out higher cost assets. We are reducing production to control inventory levels, introducing new product categories and increasing promotions to address changing markets. We are reducing overhead structures and controlling investments. We benefited in the period from lower material costs offset by labor and energy costs that continue to rise. We are improving our administrative costs while investing in sales to support new products and enter new geographies. To recover inflation, we have implemented price increases in the first half of the year, though much of the benefit has been offset by mix and competitive pressures.
“While managing these challenges, we are enhancing the long-term value of our business. The utilization of our new investments in the U.S., Europe and Russia is increasing as we broaden our product offering, expand our customer base and add shifts to increase production at the new facilities. The margins of our greenfield projects will increase over time as our sales, production and mix improve and the costs decline. The critical integration of our acquisitions in Australia, New Zealand and Brazilhas been largely executed, and our management teams are focused on improving our market position, offerings and cost structure. In each acquisition, we are progressing with new investments to enhance our capabilities and introduce new products. These acquisitions are contributing to our results, as we build a foundation for growth and margin expansion.
“For the quarter, our Global Ceramic Segment sales increased 3% as reported and 5% on a constant currency and days basis. The segment’s operating margin was 12% as reported, declining year over year due to inflation, temporary shutdown costs and marketing investments partially offset by productivity. We believe our ceramic sales are in line with the U.S. market, with our pricing and mix impacted from increased competition and excess inventory. We expect the U.S. ceramic market to remain soft in the second half of the year, and we are taking many actions to improve our sales and costs. We are installing equipment for our new ceramic click installation system, expanding the distribution of our porcelain roofing system and introducing thick porcelain tiles for outdoor applications. We are initiating promotions to increase volume, and we are introducing lower price points to align with the market. Our new quartz countertop plant in Tennessee is ramping up, and we have begun manufacturing more stylized products to increase our sales and mix. In Mexico, we are increasing our distribution, introducing new porcelain collections and supporting stores that only sell Daltile products. In Brazil, our Eliane business is performing well due to our leading brand, premium products and efficient operations. In a difficult ceramic market, our strong presence in retail, home centers and the builder channel is enabling us to grow, partially offset by softer exports. In a slowing European economy, we are growing our ceramic sales, but it has impacted our margins and mix. To expand further, we have reorganized our European sales organization to focus on smaller geographic areas and specific channels, and we are using private label programs to optimize our market penetration. To improve our efficiencies, actions to reduce manufacturing and SG&A costs are being completed. Despite a weaker ceramic market, our Russian business continued to have strong growth, with our premium products improving our mix. The new capacity we recently installed is being fully utilized to support our higher sales.
“During the quarter, our Flooring North America Segment’s sales decreased 7%. The segment’s operating margin was 6% as reported. As expected, operating income for the segment declined due to lower volume, inflation and ramp up cost of LVT. Paul de Cock, the segment president, has completed his management reorganization, and the new team is in place and is enhancing the strategies and execution. Relative to last year, sales were softer in most categories as customers traded down, and price increases were offset by a declining product mix. We have made significant progress on our cost improvement actions, including replacing inefficient extrusion and closing four higher cost operations. Residential carpet sales have declined, and lower cost polyester carpet is taking share and impacting our mix. We are increasing our promotional activity, and we have introduced new products to defend our market position. Our commercial carpet tile business continues to grow as we introduce innovative styling as well as new pattern technologies. Our water-proof laminate products with enhanced visuals and textures are improving our mix and average selling price. We are adding our unique water-proof technology to all of our production lines and upgrading our HDF manufacturing to increase our capacity and reduce our cost. We are making substantial progress with our LVT manufacturing, with production increasing more than 30% in the period. As we proceed through the year we anticipate further improvement in production and cost, as well as introducing new features that are being developed in Europe. We will further expand our sales in LVT as we introduce new visuals and features from our operations.
“For the quarter, our Flooring Rest of the World Segment’s sales increased 9% as reported and 15% on a constant currency basis. The segment’s operating margin was 16% as reported and 17% on an adjusted basis, due to volume growth and lower inflation partially offset by price and mix. Even with softening economies, the segment is performing well due to our investments in product innovation, cost improvements and new businesses, including European LVT and carpet tile and Russian sheet vinyl. Our European laminate business is growing due to our unique surface technologies and water-resistance in our premium Quick-Step and Pergo brands. Our two original European LVT lines are performing well and are providing us with competitive advantages. Our new third LVT line dramatically improved during the period, with production speeds, efficiency and yields increasing substantially. The higher output is supporting new introductions that will expand our business. Our new sheet vinyl plant in Russia is ramping up with productivity and quality similar to our established operations. We are expanding our Russian customer base and product offering to grow our volume and achieve our expected results. The European panel market has slowed, impacting volume and margins. To strengthen our position, we are introducing innovative products and reducing our costs. Our insulation business is performing well as our polyurethane product takes share from other alternatives. To enhance our position in Australia and New Zealand, we are launching many new soft and hard surface products that utilize concepts from our other geographies. We have closed high cost yarn production in Australia, and we are installing new carpet tile equipment to expand our commercial sales.
“The general conditions in our flooring markets around the world have become more challenging, and competition is more intense. We are taking actions to improve our sales, reduce our costs, manage our inventory and adjust our offerings. The U.S. flooring market is the most difficult, and we are taking actions to increase our volume and reduce our cost. In U.S. ceramic, lower demand and purchases ahead of tariffs have created excess inventory in the market, which is impacting sales and margins. Our LVT production has increased substantially in the U.S. and Europe and will continue to improve through the year as we introduce more sophisticated technology. Our Flooring ROW Segment is delivering solid results despite softening markets. Our new plants in the U.S., Europe and Russia have made substantial progress increasing production and we are increasing our sales to achieve our planned results over time. Taking all of this into account, our EPS guidance for the third quarter is $2.58 to $2.68, excluding any one-time charges.
“As we manage through the current conditions impacting the flooring sector, we are focused on optimizing the long-term growth and profitability of our business. We are implementing numerous changes that will enhance our future results. We have leading positions in our products and markets and our new investments will provide solid returns when further developed. Our balance sheet and cashflow are strong with our net debt to adjusted EBITDA at 1.8X, which will further decrease by the end of the year.”
The full text of the 2Q19 Mohawk Industries earnings release, including all tables, and a replay of the company’s July 26 conference call may be accessed at http://ir.mohawkind.com/. A telephone replay will also be available through August 25, 2019 by dialing 1-855-859-2056 (US/Canada) or 1-404-537-3406 (Int’l/Local) and entering Conference ID # 8037996.
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.
