Mohawk Industries, Inc. Announces Second Quarter Earnings
For the six months ended July 2, 2011, net sales were $2.8 billion, an increase of approximately 3% as reported and 2% with a constant exchange rate. For the six-month period, net earnings and EPS were $84 million and $1.22, respectively. Excluding restructuring charges, net earnings were $95 million and EPS was $1.38. For the six months ended July 3, 2010, net earnings were $89 million and EPS was $1.24. Excluding unusual items in 2010, net earnings were $77 million and EPS was $1.12.
Commenting on the second quarter results, Jeffrey S. Lorberbaum, Chairman and CEO stated, "All of our businesses reported year over year sales growth and our operating margin improved to 7.3%, an increase of 50 basis points over last year excluding restructuring charges. This is our highest operating margin since 2008 as a result of continuing cost reductions, selling price increases and productivity gains throughout the enterprise. U.S. economic growth was lower than expected in the second quarter with the U.S. residential business remaining soft and the commercial business continuing to grow."
Our Mohawk segment net sales grew about 1% with improving commercial sales offsetting soft residential sales. Excluding restructuring charges, operating margin was 80 basis points higher than last year as a result of reductions in SG&A costs, price increases and improved manufacturing productivity. We are performing in line with the industry with growth in commercial remodeling and lower residential activity. Our commercial business posted sales gains in both tile and broadloom products. The carpet price increase announced in February was fully implemented in the period and the second increase initiated in April will be completed during the third quarter. Our South Carolina extrusion expansion was completed, we consolidated a commercial carpet plant and we announced the closure of a yarn spinning plant. Continued emphasis on productivity improvements has yielded more efficient processes in our manufacturing and administrative areas allowing us to reduce personnel costs by an additional $10 million annually.
Our Dal-Tile segment net sales grew more than 4% this period with commercial sales growth exceeding residential. Sales in all of our channels grew over the prior year as we outperformed the overall market. Higher product prices and fuel surcharges were implemented in the period to recover rising transportation costs. Our market share has improved due to the breadth of our offerings, new products with enhanced visuals, larger sizes and our superior service. We introduced a completely merchandised ceramic tile shop and a new installation warranty to differentiate Dal-Tile products. Our Reveal Imaging technology is being expanded throughout our manufacturing operations. Our business in Mexico is expanding as we broaden our product line and satisfy all price points. The plant near Mexico City is being constructed to produce non-porcelain ceramic tile at much lower costs, beginning in mid-2012. New workforce management systems, increased truck utilization rates and new shipping channels are reducing our freight and distribution costs.
Our Unilin net sales increased approximately 18% as reported and 7% on a constant exchange rate. Sales of our European products were positive with growth in our roofing systems and panels outperforming our flooring products and impacting the mix of our margins. In most of our European products, our price increases are beginning to catch up with the higher raw material costs. Our European flooring is gaining share in a challenging market by increasing our position in the European DIY channel and growing our presence in the UK, Russian and Australian markets. In the U.S., our Unilin flooring sales were impacted by low residential remodeling. Our wood sales continue to expand with an improved product mix and our wood plants have increased their productivity, yields and flexibility. We are growing our Russian customer base to support the new plant under construction near Moscow. In addition, the consolidation and expansion of our Malaysian wood manufacturing operations should be complete by first quarter 2012.
Our second quarter results were accomplished despite the weaker than expected economies in both the U.S. and Europe. During this challenging economic period, we have made many improvements throughout our business resulting in a leaner, more efficient organization. We are introducing innovative products and re-engineering existing ones to improve our sales mix and margins. We are continuing to reduce our cost structure, increase our productivity and invest in new products and geographies. We are increasing prices as needed in response to raw material and energy inflation. We are well positioned to leverage these changes into a more profitable business as residential remodeling and the economy improves. With these factors, our third quarter guidance for earnings is $0.82 to $0.91 per share, excluding any restructuring costs. Mohawk's strategies reflect our evolution from a North American carpet business into a larger, more diverse, total flooring company operating in the global market.
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, 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 local distribution. Mohawk's operational international presence includes 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; claims; litigation; and other risks identified in Mohawk's SEC reports and public announcements.
There will be a conference call Friday, August 5, 2011 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 # 82606045. A conference call replay will also be available until August 19, 2011 by dialing 855-859-2056 for US/local calls and +1-404-537-3406 for International/Local calls and entering Conference ID # 82606045.
