Mohawk(MHK) - 2024 Q1 - Quarterly Results

Mohawk Industries Q1 2024 Earnings Release Financial Highlights The company reported a 4.5% year-over-year decrease in net sales to $2.7 billion but increased net earnings to $105 million Q1 2024 Key Financial Metrics | Metric | Q1 2024 | Q1 2023 | YoY Change | | :--- | :--- | :--- | :--- | | Net Sales | $2.7 billion | $2.8 billion | -4.5% | | Net Earnings | $105 million | $80 million | +31.3% | | EPS | $1.64 | $1.26 | +30.2% | | Adjusted Net Earnings | $119 million | $112 million | +6.3% | | Adjusted EPS | $1.86 | $1.75 | +6.3% | Management Commentary Management attributes improved Q1 results to restructuring and lower costs, which offset pricing pressures amid soft residential demand - Year-over-year earnings per share increased as a result of restructuring, productivity initiatives, and benefits from lower raw material and energy costs, which were partially offset by weaker pricing and product mix[3] - Market conditions show significant pricing and mix pressure, with the commercial channel outperforming the soft residential remodeling sector[4] - Strategic priorities include managing production levels to align inventories with demand, stimulating sales through new product introductions, and reducing the cost structure[5] Segment Performance All business segments saw sales declines, but operating income performance varied, with significant improvement in Flooring North America Q1 2024 Segment Net Sales and Operating Income | Segment | Net Sales (in millions) | Operating Income (in millions) | | :--- | :--- | :--- | | Global Ceramic | $1,044.8 | $48.8 | | Flooring NA | $900.2 | $45.0 | | Flooring ROW | $734.4 | $70.9 | Global Ceramic Segment The segment's net sales declined 1.4% to $1.04 billion, with adjusted operating margin impacted by unfavorable price and mix Global Ceramic Q1 Performance | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Sales | $1,044.8 M | $1,059.3 M | | Operating Income | $48.8 M | $63.3 M | | Adjusted Operating Margin | 5.0% | 6.3% | - The U.S. ceramic tile industry has filed an anti-dumping petition against India, with expected tariffs between 400-800% plus additional duties[6] Flooring Rest of the World Segment Net sales decreased 7.4% to $734.4 million, though volumes increased from prior-year lows and LVT restructuring showed positive results Flooring ROW Q1 Performance | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Sales | $734.4 M | $793.5 M | | Operating Income | $70.9 M | $75.2 M | | Adjusted Operating Margin | 10.1% | 12.6% | - Volumes increased from the prior year's low levels, which may indicate improving trends in the segment's categories[7] - The restructuring of the residential LVT program is complete, resulting in substantial growth in sales of rigid LVT, which is replacing discontinued flexible products[7] Flooring North America Segment Despite a 5.6% sales decline to $900.2 million, the segment's adjusted operating margin improved dramatically due to cost efficiencies Flooring NA Q1 Performance | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Sales (Loss) | $900.2 M | $953.4 M | | Operating Income | $45.0 M | ($2.0 M) | | Adjusted Operating Margin | 5.3% | 0.5% | - New residential product launches, including PetPremier carpet and award-winning PureTech resilient planks, are being embraced by retailers[9] - The West Coast LVT facility is increasing production, and restructuring initiatives for the Georgia LVT facility are being implemented[9] Business Outlook Management projects Q2 adjusted EPS of $2.68 to $2.78 and anticipates long-term growth from a housing market recovery - The company anticipates second quarter adjusted EPS to be between $2.68 and $2.78, excluding any restructuring or other one-time charges[10] - The company is completing major expansion projects for LVT, quartz countertops, and premium laminate to support products with the greatest growth potential when the market recovers[10] - Long-term catalysts for the flooring industry include the normalization of existing home sales, the need for substantial new home construction, and increased remodeling investments[11] Consolidated Financial Statements This section presents the unaudited condensed consolidated statements of operations and balance sheets for the first quarter of 2024 Statements of Operations Q1 net sales were $2.68 billion, with operating income increasing to $146.6 million and net earnings rising to $105.0 million Q1 2024 Condensed Consolidated Statements of Operations (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net sales | $2,679.4 | $2,806.2 | | Gross profit | $649.5 | $643.4 | | Operating income | $146.6 | $125.7 | | Net earnings attributable to Mohawk | $105.0 | $80.2 | Balance Sheets Total assets decreased to $13.53 billion as of March 30, 2024, with a corresponding decline in total liabilities to $5.88 billion Condensed Consolidated Balance Sheet Highlights (in millions) | Account | March 30, 2024 | April 1, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $658.5 | $572.9 | | Inventories | $2,527.7 | $2,729.9 | | Total assets | $13,531.5 | $14,763.5 | | Total liabilities | $5,883.7 | $6,657.8 | | Total stockholders' equity | $7,647.8 | $8,105.7 | Other Financial Information The company generated $183.7 million in operating cash flow and $96.9 million in free cash flow during the first quarter Q1 Cash Flow and Other Metrics (in millions) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $183.7 | $257.3 | | Capital expenditures | $86.8 | $128.5 | | Free cash flow | $96.9 | $128.8 | | Depreciation and amortization | $154.2 | $169.9 | Non-GAAP Reconciliations This section details the reconciliation of GAAP measures to non-GAAP figures to clarify core operating performance Reconciliation of Net Earnings and EPS Q1 GAAP net earnings of $105.0 million were adjusted to $118.8 million, resulting in an adjusted EPS of $1.86 Q1 2024 Reconciliation of Net Earnings to Adjusted Net Earnings (in millions) | Description | Amount | | :--- | :--- | | Net earnings attributable to Mohawk | $105.0 | | Restructuring, acquisition and other costs | $7.9 | | Legal settlements, reserves and fees | $8.8 | | Other adjustments & tax effects | ($3.9) | | Adjusted net earnings | $118.8 | Reconciliation of Segment Operating Income Adjusted operating income is presented for each segment after excluding restructuring and other non-recurring costs Q1 2024 Adjusted Segment Operating Income (in millions) | Segment | GAAP Operating Income | Adjustments | Adjusted Operating Income | | :--- | :--- | :--- | :--- | | Global Ceramic | $48.8 | $3.9 | $52.7 | | Flooring NA | $45.0 | $2.8 | $47.8 | | Flooring ROW | $70.9 | $3.1 | $74.0 | Reconciliation of EBITDA and Net Debt The company reported net debt of $1.97 billion and a Net Debt to Adjusted EBITDA ratio of 1.4x for the trailing twelve months - Net debt as of March 30, 2024 was calculated to be $1,967.5 million[23] - The Net Debt to Adjusted EBITDA ratio for the trailing twelve months ended March 30, 2024, was 1.4x[24]