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Monday, November 03, 2008
Mohawk Industries, Inc. Announces Third Quarter Earnings
Comtex
CALHOUN, Georgia, Nov 03, 2008 (PR Newswire Europe via COMTEX) ----Mohawk Industries, Inc. (NYSE: MHK) today announced 2008 third quarter sales of US$1,763 million, a decrease of 9% from 2007. The company generated cash flow from operations of US$185 million, paid down debt of US$128 million and has over US$800 million available under current credit facilities. As a result of Mohawk's declining stock price and deteriorating industry conditions, accounting rules required non-cash charges for a preliminary goodwill and other intangibles impairment of US$1,216 million net of tax and for a deferred tax asset impairment of US$253 million. While our goodwill and other intangibles impairment analysis is not yet complete, we believe the preliminary amount is a reasonable estimate and we will adjust the charge if required. These impairment charges do not require any cash payments or impact our operations, liquidity or debt covenants. Including the non-cash write offs during the quarter, the company reported a net loss of US$1,394 million or US$20.37 per share. Excluding the non-cash write off, non-GAAP net earnings were US$76 million or US$1.10 per share. In the third quarter of 2007, net earnings were US$122 million or US$1.78 per share.
Net sales for the first nine months of 2008 were US$5,341 million representing an 8% decrease from 2007. For the first nine months of 2008, the loss was US$1,239 million or US$18.12 per share including a non-cash write off for a preliminary goodwill and other intangibles impairment of US$1,216 million net of tax and for a deferred tax asset impairment of US$253 million. Excluding the non-cash write off's, non-GAAP net earnings were US$230 million or US$3.35 per share in the first nine months of 2008.
In commenting on the third quarter results, Jeffrey S. Lorberbaum, Chairman and CEO stated, "We generated strong cash flow from operations of US$185 million during the period while our earnings were under pressure from falling demand and higher costs. All of our businesses are focused on reducing overhead costs, managing working capital and enhancing sales and margins. The U.S. economy is declining with consumers reducing discretionary expenditures. Residential home sales and remodeling are at low levels and commercial projects are being impacted by tightening credit and softening business conditions. The European economy has become significantly weaker and affected both our flooring and non-flooring products. Government intervention should help stabilize the banking system and improve availability of credit. We are hopeful that the declining energy and commodity prices will help strengthen consumer confidence and lead to an improvement in the flooring market next year.
The Mohawk segment was impacted most by the down turn. Sales declined by 11% with both costs and revenues under pressure. Almost every channel and product category has slowed during the quarter. The price increases we announced in the summer should be fully implemented by year end. During the quarter raw materials escalated more than we anticipated. Additional price increases were initiated in our ceramic, laminate, and vinyl products during the period. Our SG&A has been reduced from the prior year and will decline further in the future from additional actions. To right size the business, we announced closing two staple yarn plants and several regional distribution centers in the fourth quarter. This restructuring will benefit us with lower overhead and more efficient operations going forward. We are carefully rationalizing all our facilities to match the needs for both our near-term and long-term environment.
Dal-Tile sales declined in the quarter 5% below the prior year with business deteriorating through the quarter. We believe Dal-Tile is performing much better than the overall ceramic market. We are increasing our product offerings to the hospitality, multifamily and other commercial segments. New commercial introductions in the American Olean brand will add to our commercial sales through independent distributors. We have begun our factory direct program for large customers and expanded our product line for the Mexican market. We are reducing our ceramic production in the fourth quarter with both shorter work schedules and shift reductions. Our sales, distribution and administrative infrastructures are being reduced further to adapt to the poor environment. Savings in trucking costs are being achieved through increased fleet utilization and synergies with other Mohawk shipments.
The Unilin sales declined 5% as reported or 11% on a constant exchange rate basis. The Western European market has softened substantially as the global economy declines. Our laminate sales were down in both U.S. and Europe with Eastern Europe and Russia out performing other areas. Our laminate royalties have also declined as the industry units contracted. Roofing system sales were slightly up for the period. Our European board volume has declined along with the industry and pricing is at cyclical low levels. In the Columbia wood operations, we have taken out costs and launched new products. Customer demand for wood is very challenging and Columbia continues to operate at a loss. During the period, Unilin costs were higher due to rising chemical, energy, transportation and increased unabsorbed overhead. Many cost initiatives are under way including reengineering products, implementing new systems and reducing infrastructure."
The fourth quarter outlook is challenging due to the slowing economy, tightening credit and falling consumption of consumers and businesses. We do not expect to benefit significantly from declining oil and energy until the first half of 2009. In the quarter, our businesses will reduce inventory with increased shut downs and be impacted by a decline in product mix. The stronger dollar is expected to negatively impact our results in the period. Based on these factors our EPS guidance for the fourth quarter of 2008 is US$0.20 to US$0.30. Excluded from this guidance is a fourth quarter restructuring charge of US$25 to US$30 million related to closing facilities which will benefit our future operations.
We anticipate 2009 results will improve from our second half in 2008. During 2009 higher selling prices and lower costs should help our margins. Actions taken in 2008 to reduce overhead, improve productivity, shut down high cost capacity and manage inventories will positively impact our operations. Consumer discretionary spending for flooring will improve from substantial government stimulus, additional liquidity, lower gas and falling commodity prices. We remain convinced Mohawk will be a stronger company when we come out of this cycle.
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; raw material and energy costs and supply; timing and level of capital expenditures; integration of acquisitions; impairment charges; rationalization of operations; litigation and other risks identified in Mohawk's SEC reports and public announcements.
Mohawk is a leading supplier of flooring for both residential and commercial applications. Mohawk offers a complete selection of carpet, ceramic tile, laminate, wood, stone, vinyl, and rugs. These products are marketed under the premier brands in the industry, which include Mohawk, Karastan, Ralph Lauren, Lees, Bigelow, Dal-Tile, American Olean, Unilin and Quick Step. Mohawk's unique merchandising and marketing assist our customers in creating the consumers' dream. Mohawk provides a premium level of service with its own trucking fleet and over 250 local distribution locations.
There will be a conference call Tuesday, November 4, 2008 at 11:00 AM Eastern Time. The telephone number to call is +1-800-603-9255 for US/Canada and +1-706-634-2294 for International/Local. Conference ID # 67235451. A conference call replay will also be available until Tuesday, November 11, 2008 by dialing +1-800-642-1687 for US/local calls and +1-706-645-9291 for International/Local calls and entering Conference ID # 67235451.
(All amounts in U.S. dollars unless otherwise specified) MOHAWK INDUSTRIES, INC. AND SUBSIDIARIES Consolidated Statement of Earnings Data Three Months Ended Nine Months Ended (Amounts in thousands, Sept. 27, Sept. 29, Sept. 27, Sept. 29, except per share data) 2008 2007 2008 2007 Net sales $1,763,034 1,937,677 5,341,176 5,778,750 Cost of sales 1,323,963 1,392,294 3,959,374 4,153,229 Gross profit 439,071 545,383 1,381,802 1,625,521 Selling, general and administrative expenses 321,259 344,569 993,609 1,055,882 Impairment of goodwill and other intangibles 1,327,118 - 1,327,118 - Operating (loss) income (1,209,306) 200,814 (938,925) 569,639 Interest expense 30,540 37,518 97,049 118,235 Other (income) expense, net 4,201 (799) 8,630 677 U.S. Customs refund - - - (9,154) Earnings (loss) before income taxes (1,244,047) 164,095 (1,044,604) 459,881 Income taxes 149,596 42,041 194,871 132,181 Net (loss) earnings $(1,393,643) 122,054 (1,239,475) 327,700 Basic (loss) earnings per share $(20.37) 1.79 (18.12) 4.81 Weighted-average shares outstanding 68,411 68,281 68,396 68,118 Diluted (loss) earnings per share $(20.37) 1.78 (18.12) 4.79 Weighted-average common and dilutive potential common shares outstanding 68,411 68,597 68,396 68,461 Other Financial Information (Amounts in thousands) Net cash provided by operating activities $184,837 287,385 371,529 601,837 Depreciation & amortization $73,883 75,636 222,191 224,864 Capital expenditures $49,512 37,448 155,322 97,832 Consolidated Balance Sheet Data (Amounts in thousands) Sept. 27, Sept. 29, 2008 2007 ASSETS Current assets: Cash & cash equivalents $62,025 81,664 Receivables 933,741 992,230 Inventories 1,234,696 1,297,605 Prepaid expenses 122,464 111,494 Deferred income taxes 167,728 157,665 Total current assets 2,520,654 2,640,658 Property, plant and equipment, net 1,963,939 1,936,598 Goodwill 1,621,115 2,784,760 Intangible assets 954,826 1,171,465 Deferred income taxes and other assets 20,260 26,972 $7,080,794 8,560,453 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long- term debt $131,663 337,351 Accounts payable and accrued expenses 980,918 1,055,397 Total current liabilities 1,112,581 1,392,748 Long-term debt, less current portion 1,924,698 2,126,936 Deferred income taxes and other long-term liabilities 605,688 793,037 Total liabilities 3,642,967 4,312,721 Total stockholders' equity 3,437,827 4,247,732 $7,080,794 8,560,453
As of or for the As of or for the Segment Information Three Months Ended Nine Months Ended Sept. 27, Sept. 29, Sept. 27, Sept. 29, (Amounts in thousands) 2008 2007 2008 2007 Net sales: Mohawk $953,827 1,076,745 2,827,297 3,237,818 Dal-Tile 472,031 497,420 1,402,593 1,469,568 Unilin 357,785 378,446 1,173,065 1,094,073 Corporate and eliminations (20,609) (14,934) (61,779) (22,709) Consolidated net sales $1,763,034 1,937,677 5,341,176 5,778,750 Operating (loss) income: Mohawk $(224,376) 77,002 (167,542) 185,177 Dal-Tile (430,528) 63,109 (315,418) 196,857 Unilin (550,145) 71,034 (440,068) 213,270 Corporate and eliminations (4,257) (10,331) (15,897) (25,665) Consolidated operating income $(1,209,306) 200,814 (938,925) 569,639 Assets: Mohawk $2,122,463 2,417,845 Dal-Tile 1,785,602 2,298,695 Unilin 2,950,856 3,620,687 Corporate and eliminations 221,873 223,226 Consolidated assets $7,080,794 8,560,453 Reconciliation of Net Loss to Adjusted Net Earnings Three Months Nine Months (Amounts in thousands, except per Ended Ended share data) September 27, September 27, 2008 2008 Net (loss) earnings $(1,393,643) (1,239,475) Add: Impairment of goodwill and other intangibles 1,327,118 1,327,118 Less: Tax benefit on Impairment of goodwill and other intangibles (110,684) (110,684) Add: Deferred tax asset impairment 252,751 252,751 Adjusted net earnings $75,542 229,710 Adjusted Basic earnings per share $1.10 3.36 Weighted-average shares outstanding 68,411 68,396 Adjusted Diluted (loss) earnings per share $1.10 3.35 Weighted-average common and dilutive potential common shares outstanding 68,601 68,599 Reconciliation of Unilin Segment Net Sales to Adjusted Unilin Segment Net Sales Three Months Ended (Amounts in thousands) September 27, 2008 Unilin segment net sales $357,785 Less: Exchange rate gain 22,835 Adjusted Unilin segment net sales $334,950
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 planning and forecasting in subsequent periods.
Frank H. Boykin, Chief Financial Officer, Mohawk Industries, Inc., +1-706-624-2695
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