Mohawk Industries Reports Q4 Results

The following excerpt is from the company's SEC filing.
Calhoun, Georgia, February 11, 2021
- Mohawk Industries, Inc. (NYSE: MHK) today announced a 2020 fourth quarter net profit of $248 million and diluted earnings per share (EPS) of $3.49. Adjusted net earnings were $252 million, and EPS was $3.54, excluding restructuring, acquisition and other charges. Net sales for the fourth quarter of 2020 were $2.6 billion, an increase of 9.0% as reported and 5.5% on a constant currency and days basis. For the fourth quarter of 2019, net sales were $2.4 billion, net earnings were $265 million and EPS was $3.68, which included a one-time tax benefit. Adjusted net earnings were $16 2 million, and EPS was $2.25, excluding restructuring, acquisition and other charges in addition to the one-time tax benefit.
For the twelve months ending December 31, 2020, net earnings and EPS were $516 million and $7.22, respectively. Net earnings excluding restructuring, acquisition and other charges were $631 million and EPS was $8.83. For the 2020 twelve-month period, net sales were $9.6 billion, a decrease of 4.2% versus prior year as reported or 3.9% on a constant currency and days basis. For the twelve-month period ending December 31, 2019, net sales were approximately $10 billion, net earnings were $744 million and EPS was $10.30; excluding restructuring, acquisition, other charges and benefits, net earnings and EPS were $725 million and $10.04, respectively.
Commenting on Mohawk Industries’ fourth quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, “Our fourth quarter results exceeded our expectations as we posted our highest ever quarterly sales. All of our markets saw strengthening residential purchases, with laminate, LVT and sheet vinyl outperforming other flooring categories. Commercial activity remains weak and impacted sales and margins in the businesses where we have significant participation. Our results improved with higher volumes, restructuring initiatives and leverage on costs, while being adversely affected by lower runs and inventory, higher absenteeism and labor shortages in some operations. We are also seeing greater inflationary pressures in many product categories, and we are increasing prices to recover. We are mitigating the spread of Covid among our employees and customers by utilizing best practices across the business, including testing and tracking employees with potential contacts.
“Through the fourth quarter we have achieved about $50 million of the projected $100 to $110 million in anticipated savings from our restructuring initiatives. We continue to assess some projects based on changing market conditions. Our free cash flow for the period was about $250 million after capital investments of approximately $160 million, and for the year our record free cash flow exceeded $1.3 billion. After paying off our short-term debt and prefunding our longer-term maturities in the second quarter, our net debt leverage is at a historical low. Our strong financial position gives us flexibility to pursue additional opportunities, including internal investments, acquisitions and stock purchases. Since the third quarter, we have acquired approximately one million shares of our stock for $130 million as part of our stock repurchase plan.
“For the quarter, our Flooring Rest of the World Segment’s sales increased 20% as reported and 13% on a constant currency and days basis. The segment’s operating income grew over 60% with a margin of 17.5% as reported and 18.2%, excluding restructuring costs due to higher volumes and better productivity as well as favorable material costs. Sales and margins were strong in most categories and geographies with most of our plants operating near capacity. Raw material costs began to rise in many of our product categories, and we are taking pricing actions to respond to the increases. Laminate, the segment’s largest flooring category, delivered significant growth across most of our markets. Our margins increased as higher volumes drove greater absorption, while increased productivity and better throughputs enhanced our results. Our LVT sales increased substantially, led by accelerated growth of our rigid collections. Both our LVT margins and profitability improved due to increased volume, lower production costs and SG&A absorption. We are introducing new collections with enhanced visuals and exclusive water-tight joints that better prevent water damage. Our sheet vinyl business rebounded as our retailers re-opened their shops and our export markets picked up. Our greenfield Russian sheet vinyl plant’s volume has grown to a level that its margins are in line with our other businesses. Our wood panels business performed well in the period, with sales limited by our capacity and low inventories. We are expanding our capacity and increasing efficiency in melamine products to further improve our margins. In insulation, volume was good, with margins impacted by significant material inflation due to supply constraints. Our sales in Australia and New Zealand were strong, and margins improved with higher volume and lower material cost given their longer supply chain. We enhanced our market position with more aggressive sales initiatives and by providing more consistent service under difficult circumstances.
“For the quarter, our Global Ceramic Segment’s sales increased 7% as reported and 6% on a constant currency and days basis. The segment had an operating margin of 8.7% as reported and 9.5%, excluding restructuring cost. Operating income increased by over 50% as reported versus prior year and by 65%, excluding restructuring charges, primarily due to improved productivity, increased volume and lower shutdown cost, partially offset by unfavorable price and mix. Our U.S. business delivered strong residential sales growth while commercial sales remain challenged as businesses defer investments. Our service centers are experiencing improved customer traffic due to higher home sales and remodeling activity. We have announced price increases across most collections to pass through higher transportation costs. Our plant productivity and costs improved during the period due to higher volumes and continued process improvements. We expect to complete our planned plant consolidations by the end of the first quarter. Sales of our quartz products are growing significantly, and we are increasing our mix with higher stylized products. Our Brazilian and Mexican businesses delivered record quarterly sales and expanded margins even with inflationary headwinds and capacity constraints. In both markets, margins improved due to higher productivity, and we have implemented price increases to cover rising inflation. We are investing to further upgrade our Brazilian manufacturing assets this year. Our European sales and profitability improved with residential sales stronger and lower commercial sales negatively impacting our mix and margins. Our service levels improved with the plants operating at higher rates though inventories remained low due to higher demand. Our Russian ceramic business delivered strong results, even with inflation and currency headwinds. Sales rose significantly in all channels and were led by new residential construction. We are successfully ramping up our premium sanitaryware manufacturing to expand our product offering in our owned and franchised stores.
“During the quarter, our Flooring North America Segment’s sales increased 3% as reported and were flat on a constant days basis. The segment had an operating margin of 8.6% as reported and 9.5%, excluding restructuring cost. Operating income increased by over 25% excluding restructuring charges, primarily due to productivity, increased volume and lower material costs, partially offset by unfavorable price and mix. The segment had strong growth in the residential channel, offset by lower commercial which improved from its low base in the prior periods. Our service levels improved as we increased production, though high demand required allocating shipments of some products. Due to higher demand and Covid disruptions in our plants, our inventories did not grow as we anticipated. We are taking pricing actions in most products due to rising material, labor and transportation costs. We have executed a large part of our restructuring initiatives, which is benefiting our results with some of the savings flowing through inventory in future periods. Demand for our residential carpet grew as comfort and noise reduction have become more important to consumers. Our laminate business is growing substantially in all channels as our unique visuals and waterproof technology have become desirable alternatives to natural wood and LVT. Our laminate plants are running at capacity to meet the exceptional demand, and by the end of the year a new line should be operational with additional capabilities. We have repurposed a plant to manufacture a waterproof wood flooring with dramatically improved scratch, dent and wear resistance. Sales of our LVT and sheet vinyl increased substantially, and we are introducing updated residential and commercial LVT collections with our water tight technology that will improve our mix and margins. Engineers from our European business are working in our U.S. LVT operations to implement demonstrated improvements to increase output, reduce material cost and enhance product visuals and performance.
“Our fourth quarter sales and operating performance were much stronger than we anticipated. We ran our plants around the world at high levels during the period, but fell short of the inventory build we anticipated. Our operations are taking actions to optimize throughput and reach our desired service levels. Given present trends, the momentum of our residential businesses should remain strong, while the commercial channel should slowly improve from its trough. We will benefit from structural improvements in our costs and innovative new products that will enhance our mix. Most of the Covid restrictions around the world have not directly impacted the sales or installation of our products. Continued government subsidies and low interest rates should support economic recoveries, new home construction and residential remodeling. We are seeing increasing inflation in most of our product categories and are raising prices in response. Assuming current conditions continue, we anticipate our first quarter adjusted EPS to be $2.69 to $2.79, excluding restructuring charges.
“The strength of our organization was demonstrated by our management of last year’s historic decline in sales and the subsequent spike in demand while protecting our employees and customers. Our strategies and initiatives remain flexible to adapt to economic changes. With improving sales and cash flows and a strong balance sheet, we are well positioned to take advantage of future opportunities.”
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, United Kingdom 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; the risks and uncertainty related to the COVID-19 pandemic; and other risks identified in Mohawk’s SEC reports and public announcements.
Conference call Friday, February 12, 2021, 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 # 7346226. A replay will be available until March 12, 2021, by dialing 1-855-859-2056 for US/local calls and 1-404-537-3406 for International/Local calls and entering Conference ID # 7346226.
MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
(Unaudited)
Condensed Consolidated Statement of Operations Data
Three Months Ended
Twelve Months Ended
(Amounts in thousands, except per share data)
2,641,764 
2,424,512 
9,552,197 
9,970,672 
Cost of sales
1,903,680 
1,801,705 
7,121,507 
7,294,629 
    Gross profit
738,084 
622,807 
2,430,690 
2,676,043 
Selling, general and administrative expenses
455,351 
467,993 
1,794,688 
1,848,819 
282,733 
154,814 
636,002 
827,224 
Interest expense
15,897 
10,962 
52,379 
41,272 
Other (income) expense, net
(6,742)
(9,522)
36,407 
    Earnings before income taxes
273,578 
153,374 
584,374 
749,545 
Income tax expense
25,180 
(111,299)
68,647 
4,974 
        Net earnings including noncontrolling interests
248,398 
264,673 
515,727 
744,571 
Net earnings attributable to noncontrolling interests
Net earnings attributable to Mohawk Industries, Inc.
248,222 
264,667 
515,595 
744,211 
Basic earnings per share attributable to Mohawk Industries, Inc.
10.34 
Weighted-average common shares outstanding - basic
70,951 
71,640 
71,214 
71,986 
Diluted earnings per share attributable to Mohawk Industries, Inc.
10.30 
Weighted-average common shares outstanding - diluted
71,209 
71,954 
71,401 
72,264 
Other Financial Information
(Amounts in thousands)
Net cash provided by operating activities
407,844 
440,675 
1,769,839 
1,418,761 
Less: Capital expenditures
160,142 
139,849 
425,557 
545,462 
Free cash flow
247,702 
300,826 
1,344,282 
873,299 
Depreciation and amortization
156,555 
153,759 
607,507 
576,452 
Condensed Consolidated Balance Sheet Data
ASSETS
Current assets:
    Cash and cash equivalents
768,625 
134,785 
    Short-term investments
571,741 
42,500 
    Receivables, net
1,709,493 
1,526,619 
    Inventories
1,913,020 
2,282,328 
    Prepaid expenses and other current assets
400,775 
443,225 
        Total current assets
5,363,654 
4,429,457 
Property, plant and equipment, net
4,591,229 
4,698,917 
Right of use operating lease assets
323,138 
323,003 
Goodwill
2,650,831 
2,570,027 
Intangible assets, net
951,607 
928,879 
Deferred income taxes and other non-current assets
447,292 
436,397 
    Total assets
14,327,751 
13,386,680 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt
377,255 
1,051,498 
Accounts payable and accrued expenses
1,895,951 
1,559,140 
Current operating lease liabilities
98,042 
101,945 
        Total current liabilities
2,371,248 
2,712,583 
Long-term debt, less current portion
2,356,887 
1,518,388 
Non-current operating lease liabilities
234,726 
228,155 
Deferred income taxes and other long-term liabilities
823,732 
801,106 
        Total liabilities
5,786,593 
5,260,232 
Total stockholders' equity
8,541,158 
8,126,448 
    Total liabilities and stockholders' equity
Segment Information
As of or for the Twelve Months Ended
Net sales:
    Global Ceramic
919,668 
858,337 
3,432,756 
3,631,142 
    Flooring NA
963,365 
936,387 
3,594,075 
3,843,714 
    Flooring ROW
758,731 
629,788 
2,525,366 
2,495,816 
        Consolidated net sales
Operating income (loss):
79,565 
52,068 
167,731 
335,639 
82,407 
29,556 
147,442 
177,566 
132,505 
81,595 
366,934 
353,666 
    Corporate and intersegment eliminations
(11,744)
(8,405)
(46,105)
(39,647)
        Consolidated operating income
Assets:
5,250,069 
5,419,896 
3,594,976 
3,823,654 
4,194,447 
3,925,246 
1,288,259 
217,884 
        Consolidated assets
During the second quarter of 2020, the Company revised the methodology it uses to estimate and allocate corporate general and administrative expenses to its operating segments to better align usage of corporate resources allocated to the Company segments. The updated allocation methodology had no impact on the Company’s consolidated statements of operations. This change was applied retrospectively, and segment operating income for all comparative periods has been updated to reflect this change.
Reconciliation of Net Earnings Attributable to Mohawk Industries, Inc. to Adjusted Net Earnings Attributable to Mohawk Industries, Inc. and Adjusted Diluted Earnings Per Share Attributable to Mohawk Industries, Inc.
Adjusting items:
Restructuring, acquisition and integration-related and other costs
22,395 
49,802 
167,079 
99,679 
Acquisitions purchase accounting, including inventory step-up
3,938 
Deferred loan cost write off
Impairment of net investment in a manufacturer and distributor of Ceramic tile in China
(5,226)
59,946 
European tax restructuring
(136,194)
Release of indemnification asset
Income taxes - reversal of uncertain tax position
(18,609)
(12,183)
(52,002)
(46,842)
 Adjusted net earnings attributable to Mohawk Industries, Inc.
252,008 
161,689 
630,672 
725,338 
Adjusted diluted earnings per share attributable to Mohawk Industries, Inc.
10.04 
In September 2019, the US commerce department imposed a 104% countervailing duty on top of the 25% general tariffs on all ceramic produced in China. As a consequence, ceramic purchases from China would dramatically decline and Mohawk took a $60 million write off to our investment in a Chinese manufacturer and distributor.
In 2019, the Company implemented select operational, administrative and financial restructurings that centralized certain business processes and intangible assets in various European jurisdictions into a new entity. The restructurings resulted in a current tax liability of $136 million, calculated by measuring the fair value of intangible assets transferred. The Company offset the tax liability with the utilization of $136 million of deferred tax assets from accumulated net operating loss carry forwards. The restructurings also resulted in the Company recording a $136 million deferred tax asset, and a corresponding deferred tax benefit, related to the tax basis of the intangible assets transferred
Reconciliation of Total Debt to Net Debt Less Short-Term Investments
Total debt
2,734,142 
Less: Cash and cash equivalents
  Net Debt
1,965,517 
Less: Short-term investments
Net debt less short-term investments
1,393,776 
Reconciliation of Operating Income (Loss) to Adjusted EBITDA
Trailing Twelve
March 28,
June 27,
September 26,
151,483 
(60,958)
262,744 
Other (expense) income
(5,679)
(1,037)
6,742 
Net (income) loss attributable to noncontrolling interests
145,516 
154,094 
151,342 
  EBITDA
291,369 
92,430 
414,476 
445,854 
1,244,129 
10,376 
91,963 
27,116 
15,960 
145,415 
301,710 
184,370 
441,401 
461,801 
1,389,282 
Net Debt less short-term investments to Adjusted EBITDA
Includes $1,589 of accelerated depreciation in Q1 2020 with $8,395 in Q2 2020, $5,243 in Q3 2020 and $6,435 in Q4 2020.
Reconciliation of Net Sales to Net Sales on a Constant Exchange Rate and on Constant Shipping Days
Adjustment to net sales on constant shipping days
(65,438)
(30,192)
Adjustment to net sales on a constant exchange rate
(17,445)
58,799 
Net sales on a constant exchange rate and constant shipping days
2,558,881 
9,580,804 
Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate and on Constant Shipping Days
Adjustment to segment net sales on constant shipping days
(25,205)
Adjustment to segment net sales on a constant exchange rate
17,465 
Segment net sales on a constant exchange rate and constant shipping days
911,928 
Reconciliation of Segment Net Sales to Segment Net Sales on Constant Shipping Days
(29,193)
Segment net sales on constant shipping days
934,172 
(11,041)
(34,911)
712,779 
Reconciliation of Gross Profit to Adjusted Gross Profit
Adjustments to gross profit:
22,789 
45,372 
 Adjusted gross profit
760,873 
668,179 
Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses
Adjustments to selling, general and administrative expenses:
(4,651)
Adjusted selling, general and administrative expenses
455,745 
463,340 
Reconciliation of Operating Income to Adjusted Operating Income
Adjustments to operating income:
 Adjusted operating income
305,128 
204,840 
Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
Adjustments to segment operating income:
8,164 
1,204 
  Adjusted segment operating income
87,729 
53,272 
8,651 
42,149 
91,058 
71,705 
5,496 
6,235 
138,001 
88,052 
Reconciliation of Earnings Including Noncontrolling Interests Before Income Taxes to Adjusted Earnings Including Noncontrolling Interests Before Income Taxes
Adjustments to earnings including noncontrolling interests before income taxes:
Adjusted earnings including noncontrolling interests before income taxes
295,784 
199,370 
Reconciliation of Income Tax Expense to Adjusted Income Tax Expense
136,194 
Income tax effect of adjusting items
18,609 
12,183 
  Adjusted income tax expense
43,776 
37,681 
Adjusted income tax rate
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.

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

Current report, item 5.07 - May 26, 2021
Specialized disclosure report - May 26, 2021

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