Mohawk Industries Announces Q3 Financial Results
Calhoun, Ga. -- Mohawk Industries, Inc. announced 2019 third quarter net earnings of $156 million and diluted earnings per share (EPS) of $2.15. Adjusted net earnings were $199 million, and EPS was $2.75, excluding restructuring, acquisition and other charges. Net sales for the third quarter of 2019 were $2.5 billion, down 1.0% as reported but flat on a constant currency and days basis. For the third quarter of 2018, net sales were $2.5 billion, net earnings were $227 million, and EPS was $3.02; adjusted net earnings were $246 million, and EPS was $3.29, excluding restructuring, acquisition and other charges.
For the nine months of 2019, ending Sept. 28, net earnings and EPS were $480 million and $6.61, respectively. Net earnings excluding restructuring, acquisition and other charges were $564 million and EPS was $7.77. For the 2019 nine-month period, net sales were $7.5 billion, flat vs. prior year as reported, or an increase of 3% on a constant currency and days basis.
“Our third quarter operating results were in line with our expectations, though we are not satisfied with our performance," said Jeffrey S. Lorberbaum, chairman and CEO. "As anticipated, our U.S. businesses presented the greatest challenges during the period given soft retail demand, the impact of LVT, a stronger dollar and excess ceramic industry inventories. Trends in our other major markets weakened, creating a more competitive environment. We expect the present conditions to persist and will further adjust our strategies as needed."
“We are progressing on many initiatives to improve our business, with the most significant of these being aligning ceramic production with demand in the U.S., realigning our North American carpet operations, optimizing our LVT manufacturing and ramping up our new plants," Lorberbaum added. "In addition, we are entering new product categories, introducing innovative product extensions and optimizing our recent acquisitions in Australia, New Zealand, and Brazil. We are investing more in sales personnel and marketing to increase our penetration in new and existing products. We continue to streamline our operations to enhance efficiencies, and we are leveraging automation and process enhancements to lower costs."
The Global Ceramic Segment sales increased 3.5% as reported and 4% on a constant currency and days basis. The segment’s operating margin was 9% as reported, declining year over year primarily due to inflation and lower production rates partially offset by productivity. The company's ceramic businesses around the world are facing slowing economies, and excess industry capacities are increasing competition. The U.S. ceramic market has been impacted by a decline in product mix, consumers shifting to LVT, and excess inventories in the channel.
Recent tariffs on Chinese imports, and further anti-dumping duties, lead the company to expect the U.S. ceramic market to remain soft. To improve sales and costs, Mohawk is expanding its offering of stone looks and polished tiles and introducing additional value-oriented collections. The company is also initiating a limited launch of its new easy installation ceramic tile, to expand more broadly in the beginning of the new year. Mohawk is also developing new markets for its porcelain roofing and thick landscape tiles, ramping up its new countertop plant in Tennessee, and refining processes and formulations.
Although the Mexican economy has slowed, the company reported outperforming the industry by expanding its product offering and growing its customer base. The company plans to install a new porcelain line in the Brazilian ceramic market. In Europe, lower demand is impacting pricing and compressing margins as the company increases sales of lower value tile. Mohawk plans to strengthen its higher value offerings by expanding its commercial technical tile, porcelain slabs and outdoor products. Mohawk's Russian ceramic business is gaining share due to the company's national distribution system, owned and franchised stores, and project specification teams.
During the quarter, Mohawk reported a decrease in Flooring North America Segment sales of 4% with an operating margin of 8% as reported. Operating income for the segment declined primarily due to lower volume and inflation. The segment has been reorganized by product category to enhance sales, product and operational strategies and execution.
Polyester carpets continue to gain share in a soft market, which has reduced the company's overall product mix. The company completed its expansion of recycled polyester fiber to support continued growth in the category, and the realignment of its residential carpet manufacturing will be largely complete in the fourth quarter, which will improve costs, quality, and service. The company is closing higher cost extrusion and dyeing assets and consolidating yarn and tufting operations, as well as increasing automation and upgraded assets to reduce the company's backing and yarn costs.
Mohawk's commercial business continues to outperform residential, with carpet tile and LVT as the fastest growing segments. The company expects to expand its sales organization and increase its carpet tile manufacturing. During the period, LVT sales outperformed the other categories, and operations improved production volume, speeds and cost. In September, Mohawk set a record for rigid LVT production, and its flexible LVT line is running at speeds comparable to its European operations. Manufactured sheet vinyl sales continue to grow as the company broadens its position in the apartment and home center channels. Mohawk also expanded its waterproof laminate offering, and its RevWood collection is continuing to grow due to its scratch and dent resistance and state-of-the art visuals.
The company's Flooring Rest of the World Segment’s sales decreased 2% as reported and increased 2.5% on a constant basis. The segment’s operating margin was 14% as reported, due to volume growth and lower inflation offset by price and mix. In a slower environment, the segment delivered solid results, driven by product innovation, cost improvements, new businesses and acquisitions.
Mohawk's new LVT, sheet vinyl, laminate and carpet tile operations are making progress in reaching expected levels. In laminate, the company's new premium products gained momentum and improved Mohawk's product mix. The company also introduced the Signature collection, and plans to add its water-proof technology to most of its laminate products.
The company's Russian laminate expansion is operating at expected levels, and sales are growing. As the company's LVT production increases, the company expects to add new rigid collections that are embossed in registration and expand sales organization. The company continues to enhance line speeds, yields, and formulations, thus reducing our costs. Mohawk's sheet vinyl business improved as its new Russian plant expanded sales and volume increased.In Australia and New Zealand, the integration of Mohawk's acquisition is largely complete. To increase its position, the company is upgrading hard and soft surface offerings, investing in its retail and commercial sales, and has closed high cost assets in Australia.
“We see the present market conditions continuing, and we are taking actions to better position our business for the future," Lorberbaum concluded. "We are investing more in sales and marketing to expand placement of our products and increase the utilization of our new plants. Our new greenfield projects will progress as sales and costs improve. Our LVT production is improving, and increased distribution will follow. Our U.S. and European ceramic businesses are being impacted by lower market demand, and we are reducing inventory levels, expanding product offerings, and entering new categories. The restructuring of our U.S. carpet operations will be substantially complete this year and will benefit our costs next year." "Taking all of this into account, our EPS guidance for the fourth quarter of 2019 is $2.13 to $2.23, excluding any one-time charges. Next year, our business will benefit from our new products, higher utilization of our start-ups and cost reductions we have taken during 2019. Our results and balance sheet should improve with strong cash generation to take advantage of future opportunities. We have a strong global management team, and they are focused on enhancing our results and optimizing our long-term profitability. We will adapt our business strategies to future circumstances as required.”
For more information, visit mohawkind.com.