-- Record Adjusted EPS; 21% Increase Over PY
-- Adjusted Operating Income Up 110 bps
CALHOUN, Georgia, Oct. 30, 2014 /PRNewswire/ -- Mohawk Industries, Inc. (NYSE: MHK) today announced 2014 third quarter net earnings of $151 million and diluted earnings per share (EPS) of $2.06. Excluding unusual charges, net earnings were $179 million and EPS was $2.44, a 21% increase over last year's third quarter adjusted EPS and the highest quarterly adjusted EPS in the company's history. Net sales for the third quarter of 2014 were $1.99 billion, an increase of 1.5% versus the prior year's third quarter or approximately 2% on a constant exchange basis. For the third quarter of 2013, net sales were $1.96 billion, net earnings were $119 million and EPS was $1.63; excluding unusual charges, net earnings were $147 million and EPS was $2.02.
For the nine months ending September 27, 2014, net sales were $5.9 billion, an increase of 8% versus the prior year. Net earnings and EPS for the nine-month period were $385 million and $5.25, respectively. Net earnings excluding unusual charges were $431 million and adjusted EPS was $5.88, an increase of 24% over the nine-month adjusted EPS results in 2013. For the nine months ending September 28, 2013, net sales were $5.4 billion, net earnings were $254 million and EPS was $3.53; excluding unusual charges, net earnings and EPS were $342 million and $4.76.
Commenting on Mohawk Industries' third quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, "During the period, we significantly increased our adjusted operating income by 12% compared to last year through productivity enhancements, cost containment and acquisition synergies. Ongoing initiatives to control our expenses and increase our productivity yielded our highest operating margins in 8 years. We delivered good results this period, even in an environment with sluggish demand, due to our market diversification and strong execution. We will continue investing into our business to support future growth and profitability. The $550 million in capital investments we will make this year are increasing our productivity, allowing us to further differentiate our products and improve our margins."
Carpet segment net sales for the quarter were $779 million, up 1% over last year. Adjusted operating income for the segment rose approximately 20% over the prior year and the margin was up 170 basis points as a result of investments in new technology, increased productivity, cost reductions and improved quality. During the period, Mohawk's participation in the more value-oriented polyester category increased due to the company's proprietary Continuum fiber process that delivers superior post-consumer recycled carpet with outstanding stain and soil resistance as well as greater softness. Mohawk's position in modular tile continues to grow and is enhanced by the introduction of new 12-by-36-inch plank carpet tiles that can be utilized to create stylish new designs for public spaces. The price increase on certain products announced in April was fully executed at the beginning of the quarter and helped to offset increased raw material prices and freight costs. To offset escalating transportation costs, an additional freight increase was implemented in July.
Ceramic segment net sales for the quarter were $780 million, up 2% over last year as reported or 3% at a constant exchange rate. The segment's adjusted operating income grew 16% over the prior year due to increased productivity, better quality and improved pricing and mix. In the U.S., the integration of Marazzi into the company's U.S. ceramic operations is substantially complete. Site work has begun for the new ceramic plant in Tennessee, which will make higher value technical porcelain products that the company historically has imported. To recoup higher freight and raw material costs, a price increase was announced for implementation in January. In Mexico, new larger sizes, planks and market-leading designs should fuel further sales growth and improve mix, margins and average selling price. In Russia, sales grew on a local basis as enhancements in design, value and service helped capture increased share in a slowing ceramic market. In Europe, sales were essentially flat, although margins grew due to reduced costs and improved mix as new higher value products replaced older ones.
Laminate and Wood segment net sales for the quarter were $463 million, up approximately 3% over last year as reported and at a constant exchange rate. Adjusted operating margin for the segment was 11.6% due to lower sales in laminate, higher costs in new products and equipment start-ups offset by acquisitions and productivity improvements. In the U.S., new residential construction strengthened wood flooring sales, although market pricing did not keep pace with higher material costs. The segment's U.S. manufacturing facilities are aggressively implementing productivity improvements and cost reductions. In Europe, the Pergo product revision has upgraded the styling and performance of the brand, and the new Quick-Step laminate collection is being well received as a result of its luxurious appearance and distinctive texture. The segment's insulation business continued to grow with operational and formula improvements offsetting pricing pressures. The segment's European board business delivered top line growth due to a broad product offering and increased margins from productivity improvements and higher material yields.
Lorberbaum said, "We anticipate that growth in the U.S. economy and the flooring category will remain unchanged during the fourth quarter with residential remaining slow as commercial grows. Overall we expect improvement in our sales and operating margins compared to last year. However, due to the strengthening U.S. dollar, we anticipate foreign currency translation will reduce sales and profits as reported. Our performance will benefit from new products, productivity improvements, synergies from our acquisitions and cost containment initiatives. We remain confident in our ability to execute our business strategy within the prevailing economic conditions. With these factors, our guidance for fourth quarter earnings is $2.18 to $2.27 per share, excluding any restructuring charges. We foresee upside for the U.S. flooring industry over the medium to long term. The forecast for new home construction in the U.S. is for robust growth for the next several years, and we believe that stronger employment numbers and improving consumer confidence will result in increased home remodeling."
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, Bigelow, Daltile, Durkan, Karastan, Lees, Marazzi, Kerama Marazzi, Mohawk, Pergo, Unilin and Quick-Step. 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, China, Europe, India, Malaysia, Mexico, Russia 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 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, October 31, 2014 at 11:00 AM Eastern TimeThe telephone number is 1-800-603-9255 for US/Canada and +1-706-634-2294 for International/Local. Conference ID # 10924357. A replay will be available until Friday, November 14, 2014 by dialing 855-859-2056 for US/local calls and +1-404-537-3406 for International/Local calls and entering Conference ID # 10924357.
