Mohawk Industries Sees Flat Net Sales in 2015 Second Quarter; Ceramic Becomes Largest Product Category
Mohawk Industries, Inc. recently announced 2015 second quarter net earnings of $186 million and diluted earnings per share (EPS) of $2.53. Excluding unusual charges, net earnings were $199 million and EPS was $2.69, a 22% increase over last year’s second quarter adjusted EPS and the highest adjusted quarterly EPS in the company’s history. Net sales for the second quarter of 2015 were $2.0 billion, flat vs. the prior year’s second quarter, or a 7% increase on a constant currency exchange rate basis. For the second quarter of 2014, net sales were $2.0 billion, net earnings were $153 million and EPS was $2.08; excluding unusual charges, net earnings were $162 million and EPS was $2.21.
For the six months ending July 4, 2015, net sales were $3.92 billion, an increase of approximately 2% vs. the prior year, or an increase of approximately 9% on a constant currency exchange rate basis. Net earnings and EPS for the six-month period were $209 million and $2.83, respectively. Net earnings excluding unusual charges were $324 million and adjusted EPS was $4.39, an increase of 28% over the six-month period adjusted EPS result in 2014. For the six months ending June 28, 2014, net sales were $3.86 billion, net earnings were $234 million and EPS was $3.19; excluding unusual charges, net earnings and EPS were $252 million and $3.44.
“For the period, our adjusted operating margin was approximately 14%, an increase of 21% or 240 basis points compared to the prior year due to the performance of our differentiated new products, higher volume and improved productivity and costs across the enterprise,” said Jeffrey S. Lorberbaum, chairman and CEO. “In May, we completed the purchase of KAI, giving us the leading position in the Bulgarian and Romanian ceramic markets positioned as the low-cost producer; and in mid-June we completed our acquisition of IVC, providing us with leading positions in luxury vinyl tile (LVT) and sheet vinyl on both sides of the Atlantic. The IVC and KAI acquisitions have compelling long-term potential and expand our business into new product categories and new markets. To maximize our growth, we have invested more into the business, including developing differentiated products, hiring more sales personnel, and increasing our product sampling and merchandising. Our capital investments increased capacity to meet growing demand and improved manufacturing efficiencies and costs.
“During the second quarter, the company realigned its reportable segments, organizing its carpet, wood, laminate and newly acquired vinyl operations by geography into the Flooring North America segment and the Flooring Rest of the World segment. Our Global Ceramic segment remains the same with the addition of KAI in Eastern Europe. Our management of the business has been aligned with this change, which will allow us to optimize our operations and sales by region while coordinating our technology, manufacturing and product development across the enterprise. We expect to gain synergies through enhanced customer relationships, better utilization of our assets and distribution systems, and the implementation of best practices.
“For the quarter, our Global Ceramic segment’s adjusted operating margin was approximately 16%, up 220 basis points as our mix, volume and productivity improved. The segment’s sales were down 1% as reported or up approximately 8% on a constant exchange basis, including two months of KAI’s results during the quarter. On a pro forma basis, ceramic has become the largest product category in our portfolio, constituting over 35% of our total revenues. Our U.S. ceramic business continues to build momentum across all channels with stronger growth in the residential new construction and commercial sectors. We are adding sales personnel, service centers and showrooms to maximize our U.S. sales and are utilizing our worldwide assets to satisfy the increasing U.S. demand. In Mexico, our sales continued their rapid growth as the economy expands and we grow our market share. We recently completed the acquisition of a small ceramic plant in Baja, Mexico, which will expand our position in Western Mexico and the Southwestern U.S. market. In our European ceramic business, our investments have significantly improved our product offering, sales and margins. The KAI acquisition expands our Eastern European business and creates opportunities to ship their products into other markets. In Russia, our second quarter revenues were up on a local basis as we grow market share in a contracting environment.
“During the period, our Flooring North America segment’s adjusted operating income increased 40%, achieving a margin of approximately 12%. All product categories contributed to the increase through productivity and lower costs, offset by price, mix and the start-up costs related to our new U.S. LVT plant. Segment sales increased approximately 3%, including about three weeks of IVC North American results. For the quarter, our carpet tile, laminate, wood, rugs and vinyl sales increased, with broadloom carpet down slightly. Our new residential carpet introductions are gaining traction and should improve our remodeling business. During the quarter, we announced the closing of a yarn manufacturing facility, initiated the consolidation of our woven manufacturing and eliminated four regional warehouses. Sales of our hard surface products are growing faster than carpet due to their increasing use in new home construction and residential remodeling. With IVC, we are leveraging Mohawk’s relationships to expand our sheet vinyl and LVT sales in all channels. Our new LVT plant in Georgia is starting up as anticipated, and is increasing its production as we refine the manufacturing processes.
“Our Flooring Rest of the World segment’s adjusted operating margin was 18.5%, an increase of 250 basis points over the prior year, driven by improved volume, productivity initiatives and lower costs, offset by the start-up expenses of our new Belgian LVT plant and the translation impact of the stronger dollar. Net sales for the segment were down 7% as reported but up 13% on a constant exchange basis, including about three weeks of IVC sales in Europe. Sales of almost all product categories improved over the prior year with our new laminate introductions enhancing our market position. Our Czech wood plant is now operating near capacity with improved costs and margins, although currency translation of wood products from Malaysia impacted our costs. Our Belgian LVT sales continue to increase as we broaden our product offering, increase production and improve our manufacturing cost and quality. The IVC acquisition adds a strong management team, leading manufacturing capabilities and new market opportunities that we can optimize with our existing business.
“Our business is benefiting from years of thoughtful investments in new equipment and acquisitions. In addition to being the world’s largest flooring manufacturer, we have the most comprehensive product portfolio with the best brands and assets. Looking ahead, we anticipate the U.S. economy will continue to improve, strengthening both the residential and commercial flooring markets. During the third quarter, we anticipate that U.S. sales and margins in all of our product categories will improve over last year. Though foreign currency is creating significant headwinds, most of our markets are improving and we are growing on a local basis. In Mexico, we expect our sales and margin expansion to continue in a ceramic market that is strongly growing. Our European business should continue to improve with the economy, as we benefit from our new ceramic manufacturing assets and other significant investments we have made. Even though Russia should be more difficult going forward, we expect to gain market share by expanding our position in all channels. In the third quarter, we will continue to absorb the start-up costs related to our capital investments, including two new LVT plants, a new ceramic plant and major upgrades across the enterprise. Our new acquisitions of vinyl in the U.S. and Europe and ceramic in Eastern Europe and Western Mexico will improve our results and long-term value. Taking all of these factors into account, our guidance for third quarter earnings is $2.91 to $2.99 per share, excluding any restructuring charges. Our third quarter earnings guidance would have been approximately $0.24 per share higher on a constant exchange rate relative to last year.”
Additional details are available at www.mohawkind.com.