Mohawk Industries, Inc. Announces Third Quarter Earnings

CALHOUN, Georgia, Nov. 1, 2012 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2012 third quarter net earnings of $70 million and diluted earnings per share (EPS) of $1.01. Excluding restructuring charges, net earnings were $72 million and EPS was $1.04, a 25% increase over last year's third quarter adjusted EPS. Net sales for the third quarter of 2012 were $1.5 billion, an increase of 2% versus prior year and an increase of 4% on a constant exchange rate. For the third quarter of 2011, net sales were $1.4 billion, net earnings were $47 million and EPS was $0.68. Excluding unusual items, net earnings for the third quarter of 2011 were $57 million and EPS was $0.83.

For the nine months ending September 29, 2012, net sales were $4.4 billion, an increase of 2% versus prior year and 4% on a constant exchange rate. Net earnings and EPS for the nine-month period were $184 million and $2.66, respectively. Excluding restructuring charges, net earnings were $191 million and EPS was $2.76, an increase of 25% over the nine-month adjusted EPS results in 2011. For the nine months ending October 1, 2011, net sales were $4.3 billion, net earnings were $131 million and EPS was $1.90. Excluding unusual items, net earnings and EPS were $152 million and $2.21, respectively.

Commenting on Mohawk Industries' third quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "All of our segments delivered solid third quarter performances with improvements in product mix, pricing, volume and productivity, as well as lower interest expense contributing to our results. Across the enterprise, we have managed to keep SG&A dollars in line with last year even as we invested significantly more in new product innovations and marketing to improve our future sales and product mix. During the quarter, we generated adjusted EBITDA of $179 million and free cash flow of $156 million. Both our net debt to adjusted EBITDA ratio and net debt to capitalization ratio improved to 1.7 and 22%, respectively. Mohawk's strong financial position provides us with the flexibility to pursue strategic opportunities such as the recently announced agreement to acquire Pergo, the most recognized brand of premium laminate flooring in the U.S. and Europe."

The Mohawk segment increased its adjusted operating income margin 180 basis points with sales remaining flat compared to 2011. The gains stemmed from improved pricing and product mix, reduced manufacturing and distribution costs and increased productivity. Our carpet sales performance was stronger in our specialty and contractor channels but was offset by the timing of product transitions in the home center channel. Our rug sales improved over the prior period, though they still remained below last year as retailers adjusted their strategies with consumer spending. We saw continued improvement in mix and expanded our SmartStrand® Silk' collection, which has redefined the premium carpet market. We enhanced productivity through improved manufacturing and distribution efficiencies and gains from our capital investments.

Dal-Tile sales grew 9% during the quarter or 10% on a constant exchange rate. The segment improved sales in both residential and commercial categories and continued significant growth in the Mexican market. Operating margins were enhanced from actions that improved productivity and increased yields. Sales grew across all residential channels supported by our new Reveal Imaging designs, fashionable mosaics and larger format tiles that are aligned with today's decorating trends. We are leveraging Dal-Tile's traditional strength in the builder channel across our business segments to expand commitments with regional builders. We have introduced specific value-engineered products to gain position in the growing multi-family category. In Mexico, our new Salamanca tile plant is successfully ramping up and supplying product to satisfy our growing ceramic position. Across the segment, we lowered manufacturing costs through improved material formulations, higher yields and lower waste.

Unilin segment sales during the quarter were flat as reported, but grew 9% on a constant exchange rate. Outside North America, laminate and wood flooring sales grew from continued expansion into the DIY channel, increases in the Russian market and our Australian acquisition. Our Russian laminate facility increased its production to satisfy higher demand and implemented productivity improvements. In North America, we grew our laminate and wood products through all customer channels during the quarter. New product introductions, increased home center penetration, gains within the builder channel and promotional activity increased our sales. Declining new construction in Benelux and France created headwinds for our insulated roofing panels. To reduce costs in this category, we are consolidating our brands and sales forces as well as implementing process improvements. By helping meet European energy goals, our insulation panels delivered strong sales increases in both Belgium and France.

Mohawk's third quarter results reflect our strengths in delivering innovative products, driving operational excellence and entering new geographic markets. We continue to invest strategically by introducing differentiated products, lowering our manufacturing and administrative costs and acquiring new companies that will enhance our results. We have taken the necessary steps to align our pricing with our raw material inflation and we will react as required. In the U.S., increasing new home construction and improved sales of existing homes provide a positive outlook for future flooring growth. In Europe, soft market conditions due to economic uncertainty and changes in exchange rates are anticipated to be a headwind. Based on these factors, our guidance for fourth quarter earnings is $.89 to $.98 per share, excluding any restructuring costs.

Mohawk's strong financial position allowed us to enter into an agreement to acquire Pergo which will benefit our worldwide laminate business and we are well positioned to invest in other opportunities as they arise. We continue to execute our long-term strategy of product innovation, cost reduction, asset maximization and geographic expansion. Each of our businesses is well situated to benefit from the improvements in the U.S. remodeling and construction category, which remains substantially below peak levels. Our organization is focused on bringing value to our customers while maximizing our results.

Mohawk is a leading supplier of flooring for both residential and commercial applications. Mohawk provides a complete selection for all markets of carpet, ceramic tile, laminate, wood, stone, vinyl and rugs. These products are marketed under the premier brands in the industry including Mohawk, Karastan, Lees, Bigelow, Durkan, Mohawk Home, Daltile, American Olean, Unilin and Quick-Step. Mohawk's unique merchandising and marketing assists consumers in creating exquisite floors to fulfill their dreams. Mohawk provides a premium level of service with its own trucking fleet and local distribution in the U.S. Mohawk's international presence includes operations in Australia, Brazil, China, Europe, Malaysia, Mexico and Russia.

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 in raw material prices and other input costs; 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; tax, product and other claims; litigation; and other risks identified in Mohawk's SEC reports and public announcements.

Conference call Friday, November 2, 2012 at 11:00 AM Eastern Time
The telephone number is 1-800-603-9255 for US/Canada and [phone] for International/Local.
Conference ID # 37587426. A replay will also be available until November 16, 2012 by dialing 855-859-2056 for US/local calls and [phone] for International/Local calls and entering Conference ID # 37587426.

MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES
Consolidated Statement of Operations		Three Months Ended							Nine Months Ended
(Amounts in thousands, except per share data)		September29, 2012				October1, 2011			September29, 2012			October1, 2011
Net sales		$	1,473,493			1,442,512			4,352,321			4,263,961
Cost of sales		1,100,656				1,084,889			3,231,594			3,182,499
Gross profit		372,837				357,623			1,120,727			1,081,462
Selling, general and administrative expenses		268,883				266,159			837,079			832,214
Operating income		103,954				91,464			283,648			249,248
Interest expense		17,969				25,132			59,311			77,487
Other expense (income), net		322				13,413			(1,063)			13,794
Earnings before income taxes		85,663				52,919			225,400			157,967
Income tax expense		15,359				5,223			40,896			23,639
Net earnings		70,304				47,696			184,504			134,328
Net earnings attributable to noncontrolling interest		-				(1,050)			(635)			(3,337)
Net earnings attributable to Mohawk Industries, Inc.		$	70,304			46,646			183,869			130,991
Basic earnings per share attributable to Mohawk Industries, Inc.		$	1.02			0.68			2.67			1.91
Weighted-average common shares outstanding - basic		69,010				68,759			68,952			68,725
Diluted earnings per share attributable to Mohawk Industries, Inc.		$	1.01			0.68			2.66			1.90
Weighted-average common shares outstanding - diluted		69,337				68,954			69,247			68,946
Other Financial Information
(Amounts in thousands)
Net cash provided by operating activities		$	202,971			109,598			298,547			138,188
Depreciation and amortization		$	71,298			74,207			216,415			222,804
Capital expenditures		$	47,311			69,741			134,998			182,260

Consolidated Balance Sheet Data
(Amounts in thousands)
						September29, 2012				October1, 2011
ASSETS
Current assets:
Cash and cash equivalents						$	380,842			276,156
Receivables, net						817,214				775,421
Inventories						1,139,403				1,132,073
Prepaid expenses and other current assets						146,275				125,007
Deferred income taxes						112,995				131,931
Total current assets						2,596,729				2,440,588
Property, plant and equipment, net						1,657,226				1,696,182
Goodwill						1,371,494				1,389,430
Intangible assets, net						554,257				634,164
Deferred income taxes and other non-current assets						122,906				117,204
Total assets						$	6,302,612			6,277,568
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt						$	57,673			438,300
Accounts payable and accrued expenses						761,186				774,939
Total current liabilities						818,859				1,213,239
Long-term debt, less current portion						1,467,269				1,173,038
Deferred income taxes and other long-term liabilities						421,549				439,798
Total liabilities						2,707,677				2,826,075
Noncontrolling interest						-				32,758
Total stockholders' equity						3,594,935				3,418,735
Total liabilities and stockholders' equity						$	6,302,612			6,277,568

Segment Information		Three Months Ended							As of or for the Nine Months Ended
(Amounts in thousands)		September29, 2012				October1, 2011			September29, 2012				October1, 2011
Net sales:
Mohawk		$	751,787			754,470			2,186,160				2,203,699
Dal-Tile		417,533				381,891			1,214,746				1,105,775
Unilin		328,582				329,514			1,020,380				1,018,443
Intersegment sales		(24,409)				(23,363)			(68,965)				(63,956)
Consolidated net sales		$	1,473,493			1,442,512			4,352,321				4,263,961
Operating income (loss):
Mohawk		$	43,810			30,946			106,228				79,187
Dal-Tile		37,452				33,073			99,912				82,911
Unilin		28,892				33,048			96,613				105,507
Corporate and eliminations		(6,200)				(5,603)			(19,105)				(18,357)
Consolidated operating income		$	103,954			91,464			283,648				249,248
Assets:
Mohawk									$	1,760,828			1,810,191
Dal-Tile									1,783,147				1,735,718
Unilin									2,586,084				2,569,103
Corporate and eliminations									172,553				162,556
Consolidated assets									$	6,302,612			6,277,568

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.
(Amounts in thousands, except per share data)
				Three Months Ended							Nine Months Ended
				September 29, 2012				October 1, 2011			September 29, 2012			October 1, 2011
Net earnings attributable to Mohawk Industries, Inc.				$	70,304			46,646			183,869			130,991
Adjusting items:
Unrealized foreign currency losses (1)					-			9,085			-			9,085
Business restructurings					4,229			2,186			12,455			15,513
Debt extinguishment costs								1,116			-			1,116
Income taxes					(2,691)			(1,761)			(4,892)			(4,597)
Adjusted net earnings attributable to Mohawk Industries, Inc.				$	71,842			57,272			191,432			152,108
Adjusted diluted earnings per share attributable to Mohawk Industries, Inc.				$	1.04			0.83			2.76			2.21
Weighted-average common shares outstanding - diluted					69,337			68,954			69,247			68,946

Reconciliation of Operating Cash Flow to Free Cash Flow
(Amounts in thousands)
			Three Months Ended
			September29, 2012
Net cash provided by operating activities			$	202,971
Capital expenditures			(47,311)
Free cash flow			$	155,660

Reconciliation of Total Debt to Net Debt
(Amounts in thousands)
			September29, 2012
Current portion of long-term debt			$	57,673
Long-term debt, less current portion			1,467,269
Cash and cash equivalents			(380,842)
Net Debt			$	1,144,100

Reconciliation of Capitalization
(Amounts in thousands)
			September29, 2012
Current portion of long-term debt			$	57,673
Long-term debt, less current portion			1,467,269
Total stockholders' equity			3,594,935
Capitalization			$	5,119,877
Net Debt to Capitalization			22%

Reconciliation of Operating Income to Adjusted EBITDA
(Amounts in thousands)
	Three Months Ended													Trailing Twelve Months Ended
	December31, 2011				March 31, 2012			June 30, 2012			September29, 2012			September29, 2012
Operating income	$	66,294			71,976			107,718			103,954			349,942
Other (expense) income	(257)				1,825			(440)			(322)			806
Net earnings attributable to noncontrolling interest	(966)				(635)			-			-			(1,601)
Depreciation and amortization	74,930				73,286			71,831			71,298			291,345
EBITDA	140,001				146,452			179,109			174,930			640,492
Operating lease correction (2)	6,035				-			-			-			6,035
Business restructurings	7,696				-			8,226			4,229			20,151
Adjusted EBITDA	$	153,732			146,452			187,335			179,159			666,678
Net Debt to Adjusted EBITDA														1.7

Reconciliation of Net Sales to Net Sales on a Constant Exchange Rate
(Amounts in thousands)
		Three Months Ended						Nine Months Ended
		September 29, 2012			October 1, 2011			September 29, 2012		October 1, 2011
Net sales		$	1,473,493			1,442,512		4,352,321			4,263,961
Adjustment to net sales on a constant exchange rate		32,777				-		82,877			-
Net sales on a constant exchange rate		$	1,506,270			1,442,512		4,435,198			4,263,961

Reconciliation of Segment Net Sales to Segment Net Sales on a Constant Exchange Rate
(Amounts in thousands)
			Three Months Ended
Dal-Tile			September29, 2012			October1, 2011
Net sales			$	417,533		381,891
Adjustment to segment net sales on a constant exchange rate			1,935			-
Segment net sales on a constant exchange rate			$	419,468		381,891
			Three Months Ended
Unilin			September29, 2012			October1, 2011
Net sales			$	328,582		329,514
Adjustment to segment net sales on a constant exchange rate			30,842			-
Segment net sales on a constant exchange rate			$	359,424		329,514

Reconciliation of Operating Income to Adjusted Operating Income
(Amounts in thousands)
			Three Months Ended
			September29, 2012				October1, 2011
Operating income			$	103,954			91,464
Business restructurings			4,229				2,186
Adjusted operating income			$	108,183			93,650
Adjusted operating margin as a percent of net sales			7.3%				6.5%

Reconciliation of Segment Operating Income to Adjusted Segment Operating Income
(Amounts in thousands)
			Three Months Ended
Mohawk			September29, 2012				October1, 2011
Operating income			$	43,810			30,946
Business restructurings			3,122				2,186
Adjusted segment operating income			$	46,932			33,132
Adjusted operating margin as a percent of net sales			6.2%				4.4%

Reconciliation of Earnings Before Income Taxes to Adjusted Earnings Before Income Taxes
(Amounts in thousands)
			Three Months Ended
			September29, 2012				October1, 2011
Earnings before income taxes			$	85,663			52,919
Adjustments to earnings before income taxes:
Unrealized foreign currency losses (1)			-				9,085
Business restructurings			4,229				2,186
Debt extinguishment costs			-				1,116
Adjusted earnings before income taxes			$	89,892			65,306

Reconciliation of Income Tax Expense to Adjusted Income Tax Expense
(Amounts in thousands)
			Three Months Ended
			September29, 2012				October1, 2011
Income tax expense			$	15,359			5,223
Income tax effect of business restructurings			2,691				1,761
Adjusted income tax expense			$	18,050			6,984
Adjusted income tax rate			20%				11%

(1) Unrealized foreign currency losses in Q3 2011 for certain of the Company's consolidated foreign subsidiaries that measure financial position and results using the U.S. dollar rather than the local currency.
(2) Correction of an immaterial error related to accounting for operating leases
The Company believes it is useful for itself and investors to review, as applicable, both GAAP and the above non-GAAP measures in order to assess the performance of the Company's business for the planning and forecasting in subsequent periods.