CALHOUN, Ga., Feb. 09, 2023 (GLOBE NEWSWIRE) -- Mohawk Industries, Inc. (NYSE: MHK) today announced fourth quarter 2022 net earnings of $33 million and diluted earnings per share (EPS) of $0.52. Adjusted net earnings were $84 million and adjusted EPS was $1.32, excluding restructuring, acquisition and other charges. Net sales for the fourth quarter of 2022 were $2.7 billion, a decrease of 4.0% as reported and 1.3% on a constant currency and days basis. For the fourth quarter of 2021, net sales were $2.8 billion, net earnings were $189 million and EPS was $2.80. Adjusted net earnings were $199 million, and adjusted EPS was $2.95, excluding restructuring, acquisition and other charges.

For the twelve months ending December 31, 2022, net earnings and EPS were $25 million and $0.39, respectively. Adjusted net earnings excluding restructuring, acquisition and other charges were $823 million and adjusted EPS was $12.85. For the 2022 twelve-month period, net sales were approximately $11.7 billion, an increase of 4.8% versus prior year as reported or 8.8% on a constant currency and days basis. For the twelve-month period ending December 31, 2021, net sales were approximately $11.2 billion, net earnings were $1,033 million and EPS was $14.94; excluding restructuring, acquisition and other charges, adjusted net earnings and adjusted EPS were $1,027 million and $14.86, respectively.

Commenting on Mohawk Industries’ full year and fourth quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, stated, “After a strong beginning to 2022, the U.S. housing market declined under pressure from rising interest rates and high inflation. In Europe, energy and overall inflation escalated, and consumers reduced discretionary spending to pay for essentials. With lower home sales and residential remodeling in the second half of the year, our flooring volumes decreased. Throughout the year, commercial new construction and remodeling activity outperformed residential.”

Mohawk concluded 2022 with a strong balance sheet, low net debt leverage of 1.3 times EBITDA and available liquidity of approximately $1.8 billion to manage the current environment and optimize our long-term results. During 2022, we acquired 5 small bolt-on businesses that extend the scope of our product offering and distribution. This month, we completed the acquisition of Elizabeth, a leading Brazilian ceramic producer, and we are awaiting regulatory approval for our acquisition of Vitromex in Mexico. Both Vitromex and Elizabeth will almost double our local market positions, expand our customer base and product offering and improve our manufacturing capabilities.

Our fourth quarter revenues were driven by price increases and strength in the commercial channel, which continued to benefit from ongoing remodeling and new construction projects. Sales across our businesses were slower than we expected in the quarter as residential flooring sales contracted with rising interest rates, declining home sales and lower consumer confidence. As a consequence, our customers lowered their inventory levels, and consumers reduced spending for renovation. In response, we scaled back production rates and lowered our inventories, which increased unabsorbed overhead expenses. We curtailed spending across the enterprise, though inflation offset many of our initiatives. In both Flooring North America and Flooring Rest of the World, we are taking restructuring actions in specific areas to align our operations with the present market conditions. We have reduced our planned capital spending until we see greater certainty in our markets around the world. During the quarter, energy and material costs around the world began to decline, which should positively affect our future results.

For the fourth quarter, the Global Ceramic Segment delivered a 4.0% increase in net sales as reported, or 5.2% on a constant currency and days basis. The Segment’s operating margin was 7.0% as reported or 7.1% on an adjusted basis as a result of improved pricing and product mix as well as productivity gains, partially offset by inflation and lower volumes. As residential remodeling sales softened in the quarter, the Segment’s sales and earnings benefited from a higher mix of new residential construction and commercial sales than Mohawk’s overall business. The costs of energy and transportation are declining, which will benefit our margins as these costs flow through our inventory. In the U.S., ceramic sales and volumes both increased due to our premium product offering, price increases and growing countertop business. To support additional growth in our quartz countertop sales, we are adding manufacturing capacity by the end of this year. Our ceramic business in Europe remains under pressure with slowing demand, customer inventory reductions and inflation. Our costs in Europe were impacted by peak energy prices in the third quarter and reductions in plant volumes from temporary shutdowns. Natural gas prices have declined substantially, though disruptions could impact future costs. We are completing the expansion of our large porcelain slab manufacturing in Italy to support continued growth and enhance our styling. Sales in both Mexico and Brazil decelerated in the quarter as inflation and increasing interest rates reduced residential demand. We anticipate continued near-term weakness and have reduced production levels in both countries.

During the fourth quarter, our Flooring Rest of the World Segment’s net sales decreased by 9.9% as reported or 1.9% on a constant currency and days basis. The Segment’s operating margin was 5.0% as reported or 7.7% on an adjusted basis, as a result of favorable pricing and product mix offset by inflation, lower volumes and temporary plant shutdowns. Natural gas prices in Europe peaked at an unprecedented level in the third quarter, raising our material and production costs. Since the beginning of 2023, gas prices have declined substantially, and material costs should follow. We remain focused on optimizing volume with selective promotions as well as controlling costs until the business improves. During the quarter, our European flooring categories experienced significant volume declines, with many residential remodeling projects being postponed as inflation eroded consumer discretionary spending. Our sheet vinyl sales outperformed our other flooring categories as consumers chose lower-priced alternatives. We are expanding our rigid LVT offering as it takes share from flexible. We are increasing existing operations and adding new rigid production that makes smaller runs with additional patented features. We will phase out of the residential flexible LVT products and will close the supporting production. The total cost of this new restructuring initiative is approximately $45 million, with a cash cost of approximately $7.5 million, resulting in annualized cost savings of $15 million and significantly increased sales. Our insulation business is growing as conserving energy has become a higher priority and building requirements have increased. We are increasing our insulation sales and distribution in the U.K. as we start up our new plant. Our panels business has faced the same pressures as our other categories with softening demand and rising material prices. Our businesses in Australia and New Zealand are slowing with the local economies, as inflation and mortgage rates are impacting flooring sales. In this market, we have announced additional price increases and are initiating selective promotions and updating our product offering to maximize our sales.

In the fourth quarter, our Flooring North America Segment sales decreased 6.8%. The Segment had a negative operating margin of 3.1% as reported, or approximately breakeven on an adjusted basis, as a result of favorable pricing and product mix offset by inflation, temporary plant shutdowns and lower volumes. The Segment’s sales in the quarter slowed faster than we anticipated, primarily due to declines in residential channels, rug sales and customer inventory reductions. Earnings in the Segment were compressed due to lower sales, consumption of higher cost materials, reduced inventory levels and temporary plant shutdowns. In response to slower market conditions, we are completing our previously-announced restructuring actions, deferring capital projects and reducing discretionary spending. Reductions in energy and material costs should become a tailwind in the second quarter. Our commercial business remains solid as remodeling and new construction projects continue. The multifamily channel was the strongest residential performer, and we are re-aligning resources to focus more on this sector. Our resilient sales grew in the quarter as we leveraged our WetProtect and antimicrobial technologies to differentiate our collections. The first phase of our new West Coast LVT plant is operating at expected levels, and we are preparing new technologies that will improve costs and add differentiated features. Our premium laminate sales were impacted by slowing retail traffic and customer inventory adjustments. Our new laminate manufacturing line, which began last year, is operating at planned levels and will deliver our next generation of features.

The flooring industry is slowing due to higher interest rates, sustained inflation and low consumer confidence. Visibility of the depth and duration of this cycle is limited, and conditions differ across the world. Mohawk has a strong record of managing through these downturns by proactively executing the necessary actions. We are adjusting our business for the current conditions by reducing production levels, inventory, cost structures and capital expenditures. We are implementing restructuring actions in both Flooring North America and Flooring Rest of the World to streamline operations, reduce SG&A and rationalize higher cost assets. In the first quarter of 2023, we anticipate more pressure on our pricing and mix due to low industry volumes. Our inventory costs remain elevated in most product categories due to the higher material and energy costs that we incurred in earlier periods. Additionally, we will not raise production as normal in the first quarter to prepare for future demand, increasing our unabsorbed costs. The cost of energy has fallen and should benefit our global margins as our inventory turns. Our second quarter results should have sequentially stronger improvement, with seasonally higher sales, increased production and lower material costs. Significantly lower energy costs in Europe should enhance consumer spending, discretionary purchases and flooring demand. We are refocusing our sales teams on the channels that are performing better in the current environment. We are introducing innovative new collections and merchandising as well as utilizing targeted promotions to improve sales. Given these factors, we anticipate our first quarter adjusted EPS to be between $1.24 and $1.34, excluding any restructuring, acquisition and other charges.

Around the world, the long-term demand for housing will require significant investments in new construction and remodeling. Mohawk is uniquely positioned with a comprehensive array of innovative products, industry-leading distribution and strength in all sales channels. We are currently implementing structural changes to navigate the industry’s challenges while optimizing our future results. While we are managing the present economic cycle, we operate with a long-term perspective and are expanding capacity in areas where we have the greatest growth potential when markets rebound, including LVT, laminate, quartz countertops, porcelain slabs and insulation. We anticipate coming out of this downturn in a stronger position as we benefit from our bolt-on acquisitions, enhanced market positions in Brazil and Mexico and strategic expansion of our high-growth product categories. Our balance sheet is well positioned to manage the current cycle and to drive future growth and profitability.

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, Daltile, Durkan, Eliane, Feltex, Godfrey Hirst, IVC, Karastan, Marazzi, Mohawk, Mohawk Group, Pergo, Quick-Step and Unilin. 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, Europe, Malaysia, Mexico, New Zealand, 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 and deflation in freight, raw material prices and other input costs; inflation and deflation in consumer markets; currency fluctuations; 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; taxes and tax reform; product and other claims; litigation; the risks and uncertainty related to the COVID-19 pandemic; regulatory and political changes in the jurisdictions in which the Company does business; and other risks identified in Mohawk’s SEC reports and public announcements.

Conference call Friday, February 10, 2023, at 11:00 AM Eastern Time
To participate in the conference call via the Internet, please visit https://ir.mohawkind.com/events/event-details/q4-2022-mohawk-industries-inc-earnings-conference-call. To participate in the conference call via telephone, register in advance at  https://dpregister.com/sreg/10174405/f5843bf1fd to receive a unique personal identification number or dial 1-833-630-1962 for U.S./Canada and 1-412-317-1843 for international/local on the day of the call for operator assistance. A replay will be available until March 10, 2023, by dialing 1-877-344-7529 for U.S./Canada calls and 1-412-317-0088 for international/local calls and entering access code #7424780.

Contact:  James Brunk, Chief Financial Officer (706) 624-2239

The Company supplements its condensed consolidated financial statements, which are prepared and presented in accordance with US GAAP, with certain non-GAAP financial measures. As required by the Securities and Exchange Commission rules, the tables above present a reconciliation of the Company's non-GAAP financial measures to the most directly comparable US GAAP measure. Each of the non-GAAP measures set forth above should be considered in addition to the comparable US GAAP measure, and may not be comparable to similarly titled measures reported by other companies. The Company believes these non-GAAP measures, when reconciled to the corresponding US GAAP measure, help its investors as follows: Non-GAAP revenue measures that assist in identifying growth trends and in comparisons of revenue with prior and future periods and non-GAAP profitability measures that assist in understanding the long-term profitability trends of the Company's business and in comparisons of its profits with prior and future periods.

The Company excludes certain items from its non-GAAP revenue measures because these items can vary dramatically between periods and can obscure underlying business trends. Items excluded from the Company's non-GAAP revenue measures include: foreign currency transactions and translation.

The Company excludes certain items from its non-GAAP profitability measures because these items may not be indicative of, or are unrelated to, the Company's core operating performance. Items excluded from the Company's non-GAAP profitability measures include: restructuring, acquisition and integration-related and other costs, legal settlements, reserves and fees, net of insurance proceeds, impairment of goodwill and indefinite-lived intangibles, acquisition purchase accounting, including inventory step-up, release of indemnification assets and the reversal of uncertain tax positions.