Mohawk’s Global Ceramic Segment Sees Sales Increase in 2018 Fourth Quarter
The Global Ceramic Segment will reduce headcount in North America while expanding in other regions and product areas, including sanitaryware in Russia.
Mohawk Industries, Inc. recently announced its financial results for the 2018 fourth quarter and full year. Net sales for the fourth quarter of 2018 were $2.45 billion, up 3% in the quarter and 5% on a constant currency basis. For the 12 months ending December 31, 2018, net sales were $10 billion, an increase of 5% vs. 2017 as reported, or 4% on a constant currency basis.
“The period was affected by significant inflation, slowing markets and LVT impacting sales of other products,” said Jeffrey S. Lorberbaum, chairman and CEO. “Even as we executed price increases in many products, our businesses experienced greater pressures on pricing and mix. In the quarter, inflation continued to be a headwind across most of our categories, as higher cost materials flowed through our results. During the period, we decreased our manufacturing production to adapt to market demand. Our start-up costs for the quarter were higher than we projected, with LVT production improving slower than anticipated. Our new countertop and sheet vinyl plants initiated manufacturing, along with our Polish ceramic tile expansion.
“After five consecutive years of record earnings, 2018 proved more difficult than we anticipated with inflation increasing dramatically, luxury vinyl tile impacting other U.S. flooring products and most of our markets slowing. In this environment, we selectively invested approximately $1.5 billion to enhance our long-term performance, primarily in new product categories and geographies with green field projects and acquisitions, cost saving initiatives and buying back shares. We are managing through current conditions while enhancing the longer-term value of our business. To accomplish this, in 2018, we acquired leading flooring companies in Australia, New Zealand and Brazil and in Europe acquired two flooring distributors and a specialized mezzanine company. We entered the European porcelain slabs and carpet tile markets, expanded our higher end ceramic in Eastern Europe and initiated sheet vinyl production in Russia and quartz countertop manufacturing in the U.S. Much of the benefit from these capital investments will be realized in 2020 and beyond as we achieve higher volume, mix and productivity. In the period, we purchased approximately $274 million of Mohawk stock, reducing our share count by 2.3 million or the equivalent of 3% of outstanding shares.
“For the quarter, our Global Ceramic Segment sales increased 4.5% as reported and 7% on a constant currency basis. The segment’s operating margin was approximately 9% as reported or 10% excluding other charges, declining year over year due to inflation, price and mix pressures and lower production partially offset by increasing productivity. In North America, our ceramic business increased sequentially but remained challenged due to import pressures and transportation expenses. To improve our margins, we have increased prices on our products to recover inflation and higher freight costs. Our new quartz countertop plant is manufacturing basic products as we ramp up production and optimize our processes and formulations. Across North America, we are taking many actions to lower our costs, including consolidating regional service centers and reducing headcount.
“In Mexico, our new production lines in Salamanca are operating well, and we are focused on improving our mix and margins. We have announced price increases in Mexico to cover inflation and shipping costs. In November, we finalized the purchase of Eliane in Brazil. Eliane is an industry leader, with the best brand and a premium position in one of the world’s largest ceramic markets. We have ordered the first phase of new equipment to enhance Eliane’s operations and margins following the strategy we used to dramatically improve Marazzi’s profitability. In Europe, conditions softened as we went through the period, with the Italian economy deteriorating the most due to the political uncertainty. Given these conditions, we experienced greater pressure on margins as competition increased. We reduced production rates in the fourth quarter and are continuing to do so in the first period. With the expansion of our European ceramic footprint, we are increasing the specialization of our plants in Italy, Spain, Poland and Bulgaria to improve our competitive advantages. In Russia, our sales and profitability increased substantially, although the weaker ruble significantly reduced our translated results. To enable us to grow in Russia, we have installed two new production lines in 2018, and we will commence production of premium sanitaryware in 2019.”
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