Recent Quotes View Full List My Watchlist Create Watchlist Indicators DJI Nasdaq Composite SPX Gold Crude Oil EL&P Market Index Markets Stocks ETFs Tools Overview News Currencies International Treasuries Mohawk Industries Reports Q3 Results By: Mohawk Industries, Inc. via GlobeNewswire October 26, 2023 at 16:15 PM EDT CALHOUN, Ga., Oct. 26, 2023 (GLOBE NEWSWIRE) -- Mohawk Industries, Inc. (NYSE: MHK) today announced a third quarter 2023 net loss of $760 million and a loss per share of $11.94 with the impact of non-cash impairment charges of $876 million. The Company’s current market capitalization along with continued challenging macroeconomic conditions and higher discount rates prompted a review of its goodwill and intangible asset balances, which resulted in the impairment charges. Adjusted net earnings were $174 million, and adjusted earnings per share (“EPS”) were $2.72, excluding impairment and other non-recurring charges. Net sales for the third quarter of 2023 were $2.8 billion, a decrease of 5.2% as reported and 8.1% on a legacy and constant currency and days basis versus the prior year. During the third quarter of 2022, the Company reported net sales of $2.9 billion, a net loss of $534 million and a loss per share of $8.40. Adjusted net earnings were $212 million, and adjusted EPS was $3.34, excluding impairment and other non-recurring charges. For the nine-month period ending September 30, 2023, the Company reported a net loss and loss per share of $579 million and $9.10, respectively. Adjusted net earnings were $462 million, and adjusted EPS was $7.23, excluding impairment and other non-recurring charges. For the first nine months of 2023, net sales were $8.5 billion, a decrease of 6.2% as reported and 8.7% on a legacy and constant currency and days basis versus the prior year. For the nine-month period ending October 1, 2022, the Company reported net sales of $9.1 billion, a net loss of $8 million and a loss per share of $0.13; adjusted net earnings were $739 million, and adjusted EPS was $11.56, excluding impairment and other non-recurring charges. Commenting on the Company’s third quarter results, Chairman and CEO Jeff Lorberbaum stated, “Our results for the quarter were in line with our expectations as our industry faced continued pressures across all regions, primarily due to constrained residential investments and further tightening of consumer discretionary spending. Our third quarter performance was seasonally impacted by vacations in Europe, which reduced our sales and earnings versus the prior quarter. Lower material and energy costs offset the decline in both price and mix. We also faced foreign exchange headwinds of approximately $20 million on operating income or $0.25 on EPS. Across the business, we benefited from cost reductions, productivity initiatives and lower input costs. We are managing our working capital and generated strong free cash flow of $385 million in the quarter and $660 million for the year to date. During the quarter, central banks around the world continued to raise interest rates to slow down their economies and reduce inflation. Their actions are affecting new construction and remodeling in both residential and commercial channels, postponing spending on new projects. In the U.S., mortgage rates have climbed to their highest level in more than two decades, which has suppressed the housing market and limited home renovation activity. In Europe, consumers are postponing large purchases like flooring as a result of higher energy costs, inflation and uncertainty due to the war in Ukraine. Our industry faces a greater impact from these pressures than other sectors given that most flooring purchases can be deferred. With the high fixed costs required to produce flooring, competition increases as the industry slows and participants attempt to increase their sales to maximize absorption. As a result, our average selling prices and mix have declined, with the impact offset by lower material and energy costs, restructuring benefits and process improvements. The predicted timing of the housing sector recovery continues to be postponed, and we are managing the business to optimize our results and cash flow until it occurs. We are taking actions to increase our volumes while managing margins and operating expenses. We have launched differentiated collections, selectively introduced promotions and expanded our participation in the new construction channel. To further enhance our competitive position, we will shut down older ceramic production in Italy, and we are converting our U.S. rigid LVT production to a direct extrusion process. These restructuring initiatives will result in a non-recurring charge of approximately $55 million, of which $50 million is non-cash. When completed, these initiatives should improve our profitability by $30 million annually by enhancing our productivity, lowering our manufacturing costs and optimizing our production flexibility. Our European expansions in insulation and porcelain slabs are currently in operation, and our U.S. premium laminate and LVT projects are continuing to start up. Expanded production in European laminate and U.S. quartz countertops should begin in the second half of 2024. As the integration of our acquisitions in Mexico and Brazil proceeds, we have consolidated general management, sales and administrative functions, while enhancing the companies’ product offering, operational efficiencies and customer base. While the Mexican and Brazilian markets are experiencing reduced demand and margins, we anticipate gaining additional benefits from our acquisitions as these markets recover. For the third quarter, the Global Ceramic Segment reported a 0.5% decline in net sales as reported, or a 6.0% decline on a legacy and constant currency and days basis. The Segment’s operating margin was negative 32.5% as reported, or 8.0% on an adjusted basis, as a result of unfavorable price and product mix, temporary plant shutdowns, lower volumes and foreign exchange headwinds, partially offset by productivity gains. Our U.S. ceramic business outperformed due to our innovative product introductions and higher service levels. With this, we expanded our positions in the new home construction and commercial channels. Our investments in new decorating technology, polishing and mosaics are providing domestic alternatives to premium imported ceramic. To further expand our quartz countertop sales, we are introducing more stylized collections made utilizing new technologies that provide greater value. In Europe, retail traffic and new construction are being affected by economic uncertainty. To gain sales, we are responding with specific price promotions by geography and channel. Natural gas prices have declined more than 80% from their peak, and we have reset our pricing to align with energy costs. Sales of our premium porcelain slabs continue to grow, and we are optimizing our recent capacity expansion. In Latin America, we have reduced our cost structures to adapt to slower, more competitive markets, with Mexico being less affected. As we integrate our acquisitions, we are gaining customer commitments to expand sales across all channels and price points using the combined product portfolio. During the third quarter, our Flooring Rest of the World Segment’s net sales decreased by 2.6% as reported, or 5.0% on a legacy and constant currency basis. The Segment’s operating margin was negative 22.4% as reported, or 10.9% on an adjusted basis, improving over prior year as it benefited from raw materials, energy and less downtime, offsetting unfavorable price, mix and foreign exchange. Sheet vinyl continues to outperform other flooring categories, and we have increased production to meet the higher demand. Our laminate and LVT sales are under pressure in the softer market, and we are introducing new products, merchandising and select promotions to optimize volumes. We have executed the restructuring to support the conversion of our residential LVT offering from flexible to rigid cores, which is positively impacting sales. Our panels business has slowed due to a decline in remodeling activity, construction projects and industrial demand. Sales of our higher margin HPL panel collections are growing as our customer base expands. Our insulation volume in the third quarter improved, and our margins were in line with last year. Insulation industry pricing has declined along with input costs, with regional variation caused by new plants coming online. In Australia and New Zealand, the industry slowed during the quarter, and our sales in both countries were down slightly. To increase sales and protect our margins, we are introducing enhanced collections across fiber categories, elevating the marketing of our high-end products and implementing targeted promotions to meet evolving demand. In the third quarter, our Flooring North America Segment sales declined 11.7% as reported or 12.2% on a legacy basis. The Segment’s operating margin was negative 17.4% as reported, or 8.1% on an adjusted basis, as a result of unfavorable pricing and product mix, reduced volume and lower productivity due to the underutilization of plant assets, partially offset by lower inflation. Competition increased across all product categories, and, to enhance sales, we continued to invest in new products and merchandising systems to expand our retail presence. We also increased our participation in the new home construction channel with regional and national builders. We are implementing many projects to reduce costs, improve efficiencies and maximize material utilization. In residential carpet, to improve our mix, we are expanding our premium collections, which provide superior styling and features. For value conscious homeowners, we are increasing our environmentally friendly recycled polyester offering. Our sheet vinyl collections continue to perform well with budget-oriented consumers. As an alternative to PVC-based LVT products, we introduced a new resilient polymer core that is more environmentally friendly and scratch resistant. We are continuing to ramp up our West Coast LVT production and the new extrusion process in Georgia, with both expected to be substantially operational in the first quarter of 2024. We are expanding distribution of laminate in the retail and builder channels, and our new laminate collections have been well received as consumers seek premium visuals at accessible price points. In the present industry downturn, we are managing the controllable aspects of our business while adjusting to regional market conditions. In all of our geographies, elevated interest rates and persistent inflation are restricting consumer discretionary spending, resulting in postponed remodeling projects and new home purchases. Similar pressures are beginning to reduce commercial investments as business sentiment declines. Competition for sales to utilize plant capacity is increasing in all of our markets, and lower input costs should offset the impact. With enhanced products and merchandising, selective promotions and expanding participation in the best performing sales channels, we are maximizing our volumes while managing our margins and operating expenses. Across the enterprise, we are implementing productivity, cost reduction and restructuring initiatives to lower our expenses and improve our results. We continue to manage our working capital to optimize our cash flow. We expect foreign exchange rates to continue to be an earnings headwind. Given these factors, we anticipate our fourth quarter adjusted EPS to be between $1.80 to $1.90, excluding any non-recurring charges. With this, our 2023 full year adjusted EPS should exceed $9.00. Historically, the flooring industry undergoes greater cyclical peaks and troughs than other building products due to its postponable nature. Our business fundamentals remain strong, and we will benefit from significant pent-up demand when the industry rebounds. Given the aging U.S. housing stock, more than 80% of homeowners who responded to recent JP Morgan surveys indicated they are planning renovation projects in the near term. In addition, after years of construction trailing demand, substantial new home building will be required for many years to come. Commercial activity will expand as the economic outlook improves. As the world’s largest flooring provider, Mohawk is well positioned to capitalize on these opportunities.” 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, Elizabeth, Feltex, GH Commercial, Godfrey Hirst, Grupo Daltile, IVC Commercial, IVC Home, Karastan, Marazzi, Mohawk, Mohawk Group, Mohawk Home, Pergo, Quick-Step, Unilin and Vitromex. 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, October 27, 2023, at 11:00 AM Eastern Time To participate in the conference call via the Internet, please visit http://ir.mohawkind.com/events/event-details/mohawk-industries-inc-3rd-quarter-2023-earnings-call. To participate in the conference call via telephone, register in advance at https://dpregister.com/sreg/4129026795/18d03660587a8 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 November 24, 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 #9747702. MOHAWK INDUSTRIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited) Three Months Ended Nine Months Ended(Amounts in thousands, except per share data) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net sales $2,766,186 2,917,539 8,522,837 9,086,390 Cost of sales 2,074,179 2,203,878 6,455,479 6,697,404 Gross profit 692,007 713,661 2,067,358 2,388,986 Selling, general and administrative expenses 549,641 523,479 1,646,156 1,510,076 Impairment of goodwill and indefinite-lived intangibles 876,108 695,771 876,108 695,771 Operating income (loss) (733,742) (505,589) (454,906) 183,139 Interest expense 20,144 13,797 60,138 37,337 Other (income), net (8,551) (1,242) (6,902) (1,622)Earnings (loss) before income taxes (745,335) (518,144) (508,142) 147,424 Income tax expense 14,954 15,569 70,657 155,193 Net earnings (loss) including noncontrolling interests (760,289) (533,713) (578,799) (7,769)Net earnings attributable to noncontrolling interests 170 256 205 440 Net earnings (loss) attributable to Mohawk Industries, Inc. $(760,459) (533,969) (579,004) (8,209) Basic earnings (loss) per share attributable to Mohawk Industries, Inc. $(11.94) (8.40) (9.10) (0.13)Weighted-average common shares outstanding – basic 63,682 63,534 63,648 63,923 Diluted earnings (loss) per share attributable to Mohawk Industries, Inc. $(11.94) (8.40) (9.10) (0.13)Weighted-average common shares outstanding – diluted 63,682 63,534 63,648 63,923 Other Financial Information Three Months Ended Nine Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022Net cash provided by operating activities $512,034 224,774 1,032,907 427,435 Less: Capital expenditures 127,419 150,044 372,565 430,084 Free cash flow $384,615 74,730 660,342 (2,649) Depreciation and amortization $149,570 153,466 476,112 436,449 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited) (Amounts in thousands) September 30, 2023 October 1, 2022ASSETS Current assets: Cash and cash equivalents $518,452 326,971 Short-term investments — 110,000 Receivables, net 1,943,147 2,003,261 Inventories 2,519,709 2,900,116 Prepaid expenses and other current assets 523,017 513,981 Total current assets 5,504,325 5,854,329 Property, plant and equipment, net 4,788,825 4,524,536 Right of use operating lease assets 404,477 400,412 Goodwill 1,125,434 1,827,968 Intangible assets, net 854,427 823,100 Deferred income taxes and other non-current assets 461,007 370,689 Total assets $13,138,495 13,801,034 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt and current portion of long-term debt $922,697 1,542,139 Accounts payable and accrued expenses 2,159,499 2,256,097 Current operating lease liabilities 106,378 106,511 Total current liabilities 3,188,574 3,904,747 Long-term debt, less current portion 1,675,590 1,019,984 Non-current operating lease liabilities 314,984 306,617 Deferred income taxes and other long-term liabilities 687,957 744,629 Total liabilities 5,867,105 5,975,977 Total stockholders' equity 7,271,390 7,825,057 Total liabilities and stockholders' equity $13,138,495 13,801,034 Segment Information Three Months Ended As of or for the Nine Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net sales: Global Ceramic $1,091,672 1,096,656 3,306,368 3,319,982 Flooring NA 962,222 1,089,634 2,917,337 3,261,082 Flooring ROW 712,292 731,249 2,299,132 2,505,326 Consolidated net sales $2,766,186 2,917,539 $8,522,837 9,086,390 Operating income (loss): Global Ceramic $(355,304) (559,706) (207,953) (305,099)Flooring NA (166,973) 64,672 (131,787) 260,026 Flooring ROW (159,569) 45,508 2,590 304,265 Corporate and intersegment eliminations (51,896) (56,063) (117,756) (76,053)Consolidated operating income (loss) $(733,742) (505,589) (454,906) 183,139 Assets: Global Ceramic $4,905,861 4,866,822 Flooring NA 3,911,708 4,490,502 Flooring ROW 3,857,628 4,036,675 Corporate and intersegment eliminations 463,298 407,035 Consolidated assets $13,138,495 13,801,034 Reconciliation of Net Earnings (Loss) Attributable to Mohawk Industries, Inc. to Adjusted Net Earnings Attributable to Mohawk Industries, Inc. and Adjusted Diluted Earnings Per Share Attributable to Mohawk Industries, Inc. Three Months Ended Nine Months Ended(Amounts in thousands, except per share data) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022Net earnings (loss) attributable to Mohawk Industries, Inc. $(760,459) (533,969) (579,004) (8,209)Adjusting items: Restructuring, acquisition and integration-related and other costs 47,081 34,460 120,732 38,118 Inventory step-up from purchase accounting (105) 1,401 4,476 1,544 Impairment of goodwill and indefinite-lived intangibles 876,108 695,771 876,108 695,771 Legal settlements, reserves and fees 43,464 45,000 92,476 45,000 Release of indemnification asset (1,890) — (2,850) 7,324 Income taxes – reversal of uncertain tax position 1,890 — 2,850 (7,324)Income taxes – impairment of goodwill and indefinite-lived intangibles (12,838) (10,168) (12,838) (10,168)Income tax effect of adjusting items (19,594) (20,487) (40,234) (23,291)Adjusted net earnings attributable to Mohawk Industries, Inc. $173,657 212,008 461,716 738,765 Adjusted diluted earnings per share attributable to Mohawk Industries, Inc. $2.72 3.34 7.23 11.56 Weighted-average common shares outstanding - diluted 63,934 63,534 63,883 63,923 Reconciliation of Total Debt to Net Debt (Amounts in thousands) September 30, 2023Short-term debt and current portion of long-term debt $922,697 Long-term debt, less current portion 1,675,590 Total debt 2,598,287 Less: Cash and cash equivalents 518,452 Net debt $2,079,835 Reconciliation of Net Earnings to Adjusted EBITDA Trailing Twelve Three Months Ended Months Ended(Amounts in thousands) December 31,2022 April 1,2023 July 1,2023 September 30,2023 September 30,2023Net earnings (loss) including noncontrolling interests $33,552 80,276 101,214 (760,289) (545,247)Interest expense 14,601 17,137 22,857 20,144 74,739 Income tax expense 2,917 28,943 26,760 14,954 73,574 Net (earnings) loss attributable to noncontrolling interests (96) (38) 3 (170) (301)Depreciation and amortization(1) 159,014 169,909 156,633 149,570 635,126 EBITDA 209,988 296,227 307,467 (575,791) 237,891 Restructuring, acquisition and integration-related and other costs 33,875 8,971 33,682 47,606 124,134 Inventory step-up from purchase accounting 1,218 3,305 1,276 (105) 5,694 Impairment of goodwill and indefinite-lived intangibles — — 876,108 876,108 Legal settlements, reserves and fees, net of insurance proceeds 9,231 990 48,022 43,464 101,707 Release of indemnification asset (89) (857) (103) (1,890) (2,939)Adjusted EBITDA $254,223 308,636 390,344 389,392 1,342,595 Net debt to adjusted EBITDA 1.5 (1) Includes accelerated depreciation of $15,915 for Q4 2022, $23,019 for Q1 2023, $7,978 for Q2 2023 and ($525) for Q3 2023. Reconciliation of Net Sales to Adjusted Net Sales Three Months Ended Nine Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022Mohawk Consolidated Net sales $2,766,186 2,917,539 8,522,837 9,086,390 Adjustment for constant shipping days 2,473 — 18,829 — Adjustment for constant exchange rates 11,230 — 61,566 — Adjustment for acquisition volume (97,312) — (306,349) — Adjusted net sales $2,682,577 2,917,539 8,296,883 9,086,390 Three Months Ended September 30, 2023 October 1, 2022Global Ceramic Net sales $1,091,672 1,096,656 Adjustment for constant shipping days 2,472 — Adjustment for constant exchange rates 19,362 — Adjustment for acquisition volume (82,571) — Adjusted net sales $1,030,935 1,096,656 Flooring NA Net sales $962,222 1,089,634 Adjustment for acquisition volume (5,233) — Adjusted net sales $956,989 1,089,634 Flooring ROW Net sales $712,292 731,249 Adjustment for constant exchange rates (8,132) — Adjustment for acquisition volume (9,509) — Adjusted net sales $694,651 731,249 Reconciliation of Gross Profit to Adjusted Gross Profit Three Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022Gross Profit $692,007 713,661 Adjustments to gross profit: Restructuring, acquisition and integration-related and other costs 42,663 30,422 Inventory step-up from purchase accounting (105) 1,401 Adjusted gross profit $734,565 745,484 Adjusted gross profit as a percent of net sales 26.6% 25.6% Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses Three Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022Selling, general and administrative expenses $549,641 523,479 Adjustments to selling, general and administrative expenses: Restructuring, acquisition and integration-related and other costs (4,420) (4,117)Legal settlements, reserves and fees (43,464) (45,000)Adjusted selling, general and administrative expenses $501,757 474,362 Adjusted selling, general and administrative expenses as a percent of net sales 18.1% 16.3% Reconciliation of Operating Income (loss) to Adjusted Operating Income Three Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022Mohawk Consolidated Operating earnings (loss) $(733,742) (505,589)Adjustments to operating earnings (loss): Restructuring, acquisition and integration-related and other costs 47,083 34,539 Inventory step-up from purchase accounting (105) 1,401 Impairment of goodwill and indefinite-lived intangibles 876,108 695,771 Legal settlements, reserves and fees 43,464 45,000 Adjusted operating income $232,808 271,122 Adjusted operating income as a percent of net sales 8.4% 9.3% Global Ceramic Operating earnings (loss) $(355,304) (559,706)Adjustments to segment operating income (loss): Restructuring, acquisition and integration-related and other costs 17,762 3,366 Impairment of goodwill and indefinite-lived intangibles 425,232 688,514 Inventory step-up from purchase accounting (105) — Adjusted segment operating income $87,585 132,174 Adjusted segment operating income as a percent of net sales 8.0% 12.1% Flooring NA Operating income (loss) $(166,973) 64,672 Adjustments to segment operating income (loss): Restructuring, acquisition and integration-related and other costs 27,323 20,223 Legal settlements and reserves 1,500 — Acquisitions purchase accounting, including inventory step-up — 1,401 Impairment of goodwill and indefinite-lived intangibles 215,809 1,407 Adjusted segment operating income $77,659 87,703 Adjusted segment operating income as a percent of net sales 8.1% 8.0% Flooring ROW Operating income (loss) $(159,569) 45,508 Adjustments to segment operating income (loss): Restructuring, acquisition and integration-related and other costs 1,836 10,950 Impairment of goodwill and indefinite-lived intangibles 235,067 5,850 Adjusted segment operating income $77,334 62,308 Adjusted segment operating income as a percent of net sales 10.9% 8.5% Corporate and intersegment eliminations Operating (loss) $(51,896) (56,063)Adjustments to segment operating (loss): Restructuring, acquisition and integration-related and other costs 162 — Legal settlement, reserves and fees 41,964 45,000 Adjusted segment operating (loss) $(9,770) (11,063) Reconciliation of Earnings (Loss) Including Noncontrolling Interests Before Income Taxes to Adjusted Earnings Including Noncontrolling Interests Before Income Taxes Three Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022 Earnings (loss) before income taxes $(745,335) (518,144)Net earnings (loss) attributable to noncontrolling interests (170) (256)Adjustments to earnings (loss) including noncontrolling interests before income taxes: Restructuring, acquisition and integration-related and other costs 47,081 34,460 Inventory step-up from purchase accounting (105) 1,401 Impairment of goodwill and indefinite-lived intangibles 876,108 695,771 Legal settlements, reserves and fees 43,464 45,000 Release of indemnification asset (1,890) — Adjusted earnings including noncontrolling interests before income taxes $219,153 258,232 Reconciliation of Income Tax Expense to Adjusted Income Tax Expense Three Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022Income tax expense $14,954 15,569 Income taxes – reversal of uncertain tax position (1,890) — Income tax effect on impairment of goodwill and indefinite-lived intangibles 12,838 10,168 Income tax effect of adjusting items 19,594 20,487 Adjusted income tax expense $45,496 46,224 Adjusted income tax rate 20.8% 17.9% 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; more or fewer shipping days in a period and the impact of acquisitions. 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 from purchase accounting, release of indemnification assets and the reversal of uncertain tax positions. Contact:James Brunk, Chief Financial Officer(706) 624-2239 Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. By accessing this page, you agree to the following Privacy Policy and Terms and Conditions.
Mohawk Industries Reports Q3 Results By: Mohawk Industries, Inc. via GlobeNewswire October 26, 2023 at 16:15 PM EDT CALHOUN, Ga., Oct. 26, 2023 (GLOBE NEWSWIRE) -- Mohawk Industries, Inc. (NYSE: MHK) today announced a third quarter 2023 net loss of $760 million and a loss per share of $11.94 with the impact of non-cash impairment charges of $876 million. The Company’s current market capitalization along with continued challenging macroeconomic conditions and higher discount rates prompted a review of its goodwill and intangible asset balances, which resulted in the impairment charges. Adjusted net earnings were $174 million, and adjusted earnings per share (“EPS”) were $2.72, excluding impairment and other non-recurring charges. Net sales for the third quarter of 2023 were $2.8 billion, a decrease of 5.2% as reported and 8.1% on a legacy and constant currency and days basis versus the prior year. During the third quarter of 2022, the Company reported net sales of $2.9 billion, a net loss of $534 million and a loss per share of $8.40. Adjusted net earnings were $212 million, and adjusted EPS was $3.34, excluding impairment and other non-recurring charges. For the nine-month period ending September 30, 2023, the Company reported a net loss and loss per share of $579 million and $9.10, respectively. Adjusted net earnings were $462 million, and adjusted EPS was $7.23, excluding impairment and other non-recurring charges. For the first nine months of 2023, net sales were $8.5 billion, a decrease of 6.2% as reported and 8.7% on a legacy and constant currency and days basis versus the prior year. For the nine-month period ending October 1, 2022, the Company reported net sales of $9.1 billion, a net loss of $8 million and a loss per share of $0.13; adjusted net earnings were $739 million, and adjusted EPS was $11.56, excluding impairment and other non-recurring charges. Commenting on the Company’s third quarter results, Chairman and CEO Jeff Lorberbaum stated, “Our results for the quarter were in line with our expectations as our industry faced continued pressures across all regions, primarily due to constrained residential investments and further tightening of consumer discretionary spending. Our third quarter performance was seasonally impacted by vacations in Europe, which reduced our sales and earnings versus the prior quarter. Lower material and energy costs offset the decline in both price and mix. We also faced foreign exchange headwinds of approximately $20 million on operating income or $0.25 on EPS. Across the business, we benefited from cost reductions, productivity initiatives and lower input costs. We are managing our working capital and generated strong free cash flow of $385 million in the quarter and $660 million for the year to date. During the quarter, central banks around the world continued to raise interest rates to slow down their economies and reduce inflation. Their actions are affecting new construction and remodeling in both residential and commercial channels, postponing spending on new projects. In the U.S., mortgage rates have climbed to their highest level in more than two decades, which has suppressed the housing market and limited home renovation activity. In Europe, consumers are postponing large purchases like flooring as a result of higher energy costs, inflation and uncertainty due to the war in Ukraine. Our industry faces a greater impact from these pressures than other sectors given that most flooring purchases can be deferred. With the high fixed costs required to produce flooring, competition increases as the industry slows and participants attempt to increase their sales to maximize absorption. As a result, our average selling prices and mix have declined, with the impact offset by lower material and energy costs, restructuring benefits and process improvements. The predicted timing of the housing sector recovery continues to be postponed, and we are managing the business to optimize our results and cash flow until it occurs. We are taking actions to increase our volumes while managing margins and operating expenses. We have launched differentiated collections, selectively introduced promotions and expanded our participation in the new construction channel. To further enhance our competitive position, we will shut down older ceramic production in Italy, and we are converting our U.S. rigid LVT production to a direct extrusion process. These restructuring initiatives will result in a non-recurring charge of approximately $55 million, of which $50 million is non-cash. When completed, these initiatives should improve our profitability by $30 million annually by enhancing our productivity, lowering our manufacturing costs and optimizing our production flexibility. Our European expansions in insulation and porcelain slabs are currently in operation, and our U.S. premium laminate and LVT projects are continuing to start up. Expanded production in European laminate and U.S. quartz countertops should begin in the second half of 2024. As the integration of our acquisitions in Mexico and Brazil proceeds, we have consolidated general management, sales and administrative functions, while enhancing the companies’ product offering, operational efficiencies and customer base. While the Mexican and Brazilian markets are experiencing reduced demand and margins, we anticipate gaining additional benefits from our acquisitions as these markets recover. For the third quarter, the Global Ceramic Segment reported a 0.5% decline in net sales as reported, or a 6.0% decline on a legacy and constant currency and days basis. The Segment’s operating margin was negative 32.5% as reported, or 8.0% on an adjusted basis, as a result of unfavorable price and product mix, temporary plant shutdowns, lower volumes and foreign exchange headwinds, partially offset by productivity gains. Our U.S. ceramic business outperformed due to our innovative product introductions and higher service levels. With this, we expanded our positions in the new home construction and commercial channels. Our investments in new decorating technology, polishing and mosaics are providing domestic alternatives to premium imported ceramic. To further expand our quartz countertop sales, we are introducing more stylized collections made utilizing new technologies that provide greater value. In Europe, retail traffic and new construction are being affected by economic uncertainty. To gain sales, we are responding with specific price promotions by geography and channel. Natural gas prices have declined more than 80% from their peak, and we have reset our pricing to align with energy costs. Sales of our premium porcelain slabs continue to grow, and we are optimizing our recent capacity expansion. In Latin America, we have reduced our cost structures to adapt to slower, more competitive markets, with Mexico being less affected. As we integrate our acquisitions, we are gaining customer commitments to expand sales across all channels and price points using the combined product portfolio. During the third quarter, our Flooring Rest of the World Segment’s net sales decreased by 2.6% as reported, or 5.0% on a legacy and constant currency basis. The Segment’s operating margin was negative 22.4% as reported, or 10.9% on an adjusted basis, improving over prior year as it benefited from raw materials, energy and less downtime, offsetting unfavorable price, mix and foreign exchange. Sheet vinyl continues to outperform other flooring categories, and we have increased production to meet the higher demand. Our laminate and LVT sales are under pressure in the softer market, and we are introducing new products, merchandising and select promotions to optimize volumes. We have executed the restructuring to support the conversion of our residential LVT offering from flexible to rigid cores, which is positively impacting sales. Our panels business has slowed due to a decline in remodeling activity, construction projects and industrial demand. Sales of our higher margin HPL panel collections are growing as our customer base expands. Our insulation volume in the third quarter improved, and our margins were in line with last year. Insulation industry pricing has declined along with input costs, with regional variation caused by new plants coming online. In Australia and New Zealand, the industry slowed during the quarter, and our sales in both countries were down slightly. To increase sales and protect our margins, we are introducing enhanced collections across fiber categories, elevating the marketing of our high-end products and implementing targeted promotions to meet evolving demand. In the third quarter, our Flooring North America Segment sales declined 11.7% as reported or 12.2% on a legacy basis. The Segment’s operating margin was negative 17.4% as reported, or 8.1% on an adjusted basis, as a result of unfavorable pricing and product mix, reduced volume and lower productivity due to the underutilization of plant assets, partially offset by lower inflation. Competition increased across all product categories, and, to enhance sales, we continued to invest in new products and merchandising systems to expand our retail presence. We also increased our participation in the new home construction channel with regional and national builders. We are implementing many projects to reduce costs, improve efficiencies and maximize material utilization. In residential carpet, to improve our mix, we are expanding our premium collections, which provide superior styling and features. For value conscious homeowners, we are increasing our environmentally friendly recycled polyester offering. Our sheet vinyl collections continue to perform well with budget-oriented consumers. As an alternative to PVC-based LVT products, we introduced a new resilient polymer core that is more environmentally friendly and scratch resistant. We are continuing to ramp up our West Coast LVT production and the new extrusion process in Georgia, with both expected to be substantially operational in the first quarter of 2024. We are expanding distribution of laminate in the retail and builder channels, and our new laminate collections have been well received as consumers seek premium visuals at accessible price points. In the present industry downturn, we are managing the controllable aspects of our business while adjusting to regional market conditions. In all of our geographies, elevated interest rates and persistent inflation are restricting consumer discretionary spending, resulting in postponed remodeling projects and new home purchases. Similar pressures are beginning to reduce commercial investments as business sentiment declines. Competition for sales to utilize plant capacity is increasing in all of our markets, and lower input costs should offset the impact. With enhanced products and merchandising, selective promotions and expanding participation in the best performing sales channels, we are maximizing our volumes while managing our margins and operating expenses. Across the enterprise, we are implementing productivity, cost reduction and restructuring initiatives to lower our expenses and improve our results. We continue to manage our working capital to optimize our cash flow. We expect foreign exchange rates to continue to be an earnings headwind. Given these factors, we anticipate our fourth quarter adjusted EPS to be between $1.80 to $1.90, excluding any non-recurring charges. With this, our 2023 full year adjusted EPS should exceed $9.00. Historically, the flooring industry undergoes greater cyclical peaks and troughs than other building products due to its postponable nature. Our business fundamentals remain strong, and we will benefit from significant pent-up demand when the industry rebounds. Given the aging U.S. housing stock, more than 80% of homeowners who responded to recent JP Morgan surveys indicated they are planning renovation projects in the near term. In addition, after years of construction trailing demand, substantial new home building will be required for many years to come. Commercial activity will expand as the economic outlook improves. As the world’s largest flooring provider, Mohawk is well positioned to capitalize on these opportunities.” 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, Elizabeth, Feltex, GH Commercial, Godfrey Hirst, Grupo Daltile, IVC Commercial, IVC Home, Karastan, Marazzi, Mohawk, Mohawk Group, Mohawk Home, Pergo, Quick-Step, Unilin and Vitromex. 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, October 27, 2023, at 11:00 AM Eastern Time To participate in the conference call via the Internet, please visit http://ir.mohawkind.com/events/event-details/mohawk-industries-inc-3rd-quarter-2023-earnings-call. To participate in the conference call via telephone, register in advance at https://dpregister.com/sreg/4129026795/18d03660587a8 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 November 24, 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 #9747702. MOHAWK INDUSTRIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited) Three Months Ended Nine Months Ended(Amounts in thousands, except per share data) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net sales $2,766,186 2,917,539 8,522,837 9,086,390 Cost of sales 2,074,179 2,203,878 6,455,479 6,697,404 Gross profit 692,007 713,661 2,067,358 2,388,986 Selling, general and administrative expenses 549,641 523,479 1,646,156 1,510,076 Impairment of goodwill and indefinite-lived intangibles 876,108 695,771 876,108 695,771 Operating income (loss) (733,742) (505,589) (454,906) 183,139 Interest expense 20,144 13,797 60,138 37,337 Other (income), net (8,551) (1,242) (6,902) (1,622)Earnings (loss) before income taxes (745,335) (518,144) (508,142) 147,424 Income tax expense 14,954 15,569 70,657 155,193 Net earnings (loss) including noncontrolling interests (760,289) (533,713) (578,799) (7,769)Net earnings attributable to noncontrolling interests 170 256 205 440 Net earnings (loss) attributable to Mohawk Industries, Inc. $(760,459) (533,969) (579,004) (8,209) Basic earnings (loss) per share attributable to Mohawk Industries, Inc. $(11.94) (8.40) (9.10) (0.13)Weighted-average common shares outstanding – basic 63,682 63,534 63,648 63,923 Diluted earnings (loss) per share attributable to Mohawk Industries, Inc. $(11.94) (8.40) (9.10) (0.13)Weighted-average common shares outstanding – diluted 63,682 63,534 63,648 63,923 Other Financial Information Three Months Ended Nine Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022Net cash provided by operating activities $512,034 224,774 1,032,907 427,435 Less: Capital expenditures 127,419 150,044 372,565 430,084 Free cash flow $384,615 74,730 660,342 (2,649) Depreciation and amortization $149,570 153,466 476,112 436,449 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited) (Amounts in thousands) September 30, 2023 October 1, 2022ASSETS Current assets: Cash and cash equivalents $518,452 326,971 Short-term investments — 110,000 Receivables, net 1,943,147 2,003,261 Inventories 2,519,709 2,900,116 Prepaid expenses and other current assets 523,017 513,981 Total current assets 5,504,325 5,854,329 Property, plant and equipment, net 4,788,825 4,524,536 Right of use operating lease assets 404,477 400,412 Goodwill 1,125,434 1,827,968 Intangible assets, net 854,427 823,100 Deferred income taxes and other non-current assets 461,007 370,689 Total assets $13,138,495 13,801,034 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt and current portion of long-term debt $922,697 1,542,139 Accounts payable and accrued expenses 2,159,499 2,256,097 Current operating lease liabilities 106,378 106,511 Total current liabilities 3,188,574 3,904,747 Long-term debt, less current portion 1,675,590 1,019,984 Non-current operating lease liabilities 314,984 306,617 Deferred income taxes and other long-term liabilities 687,957 744,629 Total liabilities 5,867,105 5,975,977 Total stockholders' equity 7,271,390 7,825,057 Total liabilities and stockholders' equity $13,138,495 13,801,034 Segment Information Three Months Ended As of or for the Nine Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net sales: Global Ceramic $1,091,672 1,096,656 3,306,368 3,319,982 Flooring NA 962,222 1,089,634 2,917,337 3,261,082 Flooring ROW 712,292 731,249 2,299,132 2,505,326 Consolidated net sales $2,766,186 2,917,539 $8,522,837 9,086,390 Operating income (loss): Global Ceramic $(355,304) (559,706) (207,953) (305,099)Flooring NA (166,973) 64,672 (131,787) 260,026 Flooring ROW (159,569) 45,508 2,590 304,265 Corporate and intersegment eliminations (51,896) (56,063) (117,756) (76,053)Consolidated operating income (loss) $(733,742) (505,589) (454,906) 183,139 Assets: Global Ceramic $4,905,861 4,866,822 Flooring NA 3,911,708 4,490,502 Flooring ROW 3,857,628 4,036,675 Corporate and intersegment eliminations 463,298 407,035 Consolidated assets $13,138,495 13,801,034 Reconciliation of Net Earnings (Loss) Attributable to Mohawk Industries, Inc. to Adjusted Net Earnings Attributable to Mohawk Industries, Inc. and Adjusted Diluted Earnings Per Share Attributable to Mohawk Industries, Inc. Three Months Ended Nine Months Ended(Amounts in thousands, except per share data) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022Net earnings (loss) attributable to Mohawk Industries, Inc. $(760,459) (533,969) (579,004) (8,209)Adjusting items: Restructuring, acquisition and integration-related and other costs 47,081 34,460 120,732 38,118 Inventory step-up from purchase accounting (105) 1,401 4,476 1,544 Impairment of goodwill and indefinite-lived intangibles 876,108 695,771 876,108 695,771 Legal settlements, reserves and fees 43,464 45,000 92,476 45,000 Release of indemnification asset (1,890) — (2,850) 7,324 Income taxes – reversal of uncertain tax position 1,890 — 2,850 (7,324)Income taxes – impairment of goodwill and indefinite-lived intangibles (12,838) (10,168) (12,838) (10,168)Income tax effect of adjusting items (19,594) (20,487) (40,234) (23,291)Adjusted net earnings attributable to Mohawk Industries, Inc. $173,657 212,008 461,716 738,765 Adjusted diluted earnings per share attributable to Mohawk Industries, Inc. $2.72 3.34 7.23 11.56 Weighted-average common shares outstanding - diluted 63,934 63,534 63,883 63,923 Reconciliation of Total Debt to Net Debt (Amounts in thousands) September 30, 2023Short-term debt and current portion of long-term debt $922,697 Long-term debt, less current portion 1,675,590 Total debt 2,598,287 Less: Cash and cash equivalents 518,452 Net debt $2,079,835 Reconciliation of Net Earnings to Adjusted EBITDA Trailing Twelve Three Months Ended Months Ended(Amounts in thousands) December 31,2022 April 1,2023 July 1,2023 September 30,2023 September 30,2023Net earnings (loss) including noncontrolling interests $33,552 80,276 101,214 (760,289) (545,247)Interest expense 14,601 17,137 22,857 20,144 74,739 Income tax expense 2,917 28,943 26,760 14,954 73,574 Net (earnings) loss attributable to noncontrolling interests (96) (38) 3 (170) (301)Depreciation and amortization(1) 159,014 169,909 156,633 149,570 635,126 EBITDA 209,988 296,227 307,467 (575,791) 237,891 Restructuring, acquisition and integration-related and other costs 33,875 8,971 33,682 47,606 124,134 Inventory step-up from purchase accounting 1,218 3,305 1,276 (105) 5,694 Impairment of goodwill and indefinite-lived intangibles — — 876,108 876,108 Legal settlements, reserves and fees, net of insurance proceeds 9,231 990 48,022 43,464 101,707 Release of indemnification asset (89) (857) (103) (1,890) (2,939)Adjusted EBITDA $254,223 308,636 390,344 389,392 1,342,595 Net debt to adjusted EBITDA 1.5 (1) Includes accelerated depreciation of $15,915 for Q4 2022, $23,019 for Q1 2023, $7,978 for Q2 2023 and ($525) for Q3 2023. Reconciliation of Net Sales to Adjusted Net Sales Three Months Ended Nine Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022Mohawk Consolidated Net sales $2,766,186 2,917,539 8,522,837 9,086,390 Adjustment for constant shipping days 2,473 — 18,829 — Adjustment for constant exchange rates 11,230 — 61,566 — Adjustment for acquisition volume (97,312) — (306,349) — Adjusted net sales $2,682,577 2,917,539 8,296,883 9,086,390 Three Months Ended September 30, 2023 October 1, 2022Global Ceramic Net sales $1,091,672 1,096,656 Adjustment for constant shipping days 2,472 — Adjustment for constant exchange rates 19,362 — Adjustment for acquisition volume (82,571) — Adjusted net sales $1,030,935 1,096,656 Flooring NA Net sales $962,222 1,089,634 Adjustment for acquisition volume (5,233) — Adjusted net sales $956,989 1,089,634 Flooring ROW Net sales $712,292 731,249 Adjustment for constant exchange rates (8,132) — Adjustment for acquisition volume (9,509) — Adjusted net sales $694,651 731,249 Reconciliation of Gross Profit to Adjusted Gross Profit Three Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022Gross Profit $692,007 713,661 Adjustments to gross profit: Restructuring, acquisition and integration-related and other costs 42,663 30,422 Inventory step-up from purchase accounting (105) 1,401 Adjusted gross profit $734,565 745,484 Adjusted gross profit as a percent of net sales 26.6% 25.6% Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses Three Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022Selling, general and administrative expenses $549,641 523,479 Adjustments to selling, general and administrative expenses: Restructuring, acquisition and integration-related and other costs (4,420) (4,117)Legal settlements, reserves and fees (43,464) (45,000)Adjusted selling, general and administrative expenses $501,757 474,362 Adjusted selling, general and administrative expenses as a percent of net sales 18.1% 16.3% Reconciliation of Operating Income (loss) to Adjusted Operating Income Three Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022Mohawk Consolidated Operating earnings (loss) $(733,742) (505,589)Adjustments to operating earnings (loss): Restructuring, acquisition and integration-related and other costs 47,083 34,539 Inventory step-up from purchase accounting (105) 1,401 Impairment of goodwill and indefinite-lived intangibles 876,108 695,771 Legal settlements, reserves and fees 43,464 45,000 Adjusted operating income $232,808 271,122 Adjusted operating income as a percent of net sales 8.4% 9.3% Global Ceramic Operating earnings (loss) $(355,304) (559,706)Adjustments to segment operating income (loss): Restructuring, acquisition and integration-related and other costs 17,762 3,366 Impairment of goodwill and indefinite-lived intangibles 425,232 688,514 Inventory step-up from purchase accounting (105) — Adjusted segment operating income $87,585 132,174 Adjusted segment operating income as a percent of net sales 8.0% 12.1% Flooring NA Operating income (loss) $(166,973) 64,672 Adjustments to segment operating income (loss): Restructuring, acquisition and integration-related and other costs 27,323 20,223 Legal settlements and reserves 1,500 — Acquisitions purchase accounting, including inventory step-up — 1,401 Impairment of goodwill and indefinite-lived intangibles 215,809 1,407 Adjusted segment operating income $77,659 87,703 Adjusted segment operating income as a percent of net sales 8.1% 8.0% Flooring ROW Operating income (loss) $(159,569) 45,508 Adjustments to segment operating income (loss): Restructuring, acquisition and integration-related and other costs 1,836 10,950 Impairment of goodwill and indefinite-lived intangibles 235,067 5,850 Adjusted segment operating income $77,334 62,308 Adjusted segment operating income as a percent of net sales 10.9% 8.5% Corporate and intersegment eliminations Operating (loss) $(51,896) (56,063)Adjustments to segment operating (loss): Restructuring, acquisition and integration-related and other costs 162 — Legal settlement, reserves and fees 41,964 45,000 Adjusted segment operating (loss) $(9,770) (11,063) Reconciliation of Earnings (Loss) Including Noncontrolling Interests Before Income Taxes to Adjusted Earnings Including Noncontrolling Interests Before Income Taxes Three Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022 Earnings (loss) before income taxes $(745,335) (518,144)Net earnings (loss) attributable to noncontrolling interests (170) (256)Adjustments to earnings (loss) including noncontrolling interests before income taxes: Restructuring, acquisition and integration-related and other costs 47,081 34,460 Inventory step-up from purchase accounting (105) 1,401 Impairment of goodwill and indefinite-lived intangibles 876,108 695,771 Legal settlements, reserves and fees 43,464 45,000 Release of indemnification asset (1,890) — Adjusted earnings including noncontrolling interests before income taxes $219,153 258,232 Reconciliation of Income Tax Expense to Adjusted Income Tax Expense Three Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022Income tax expense $14,954 15,569 Income taxes – reversal of uncertain tax position (1,890) — Income tax effect on impairment of goodwill and indefinite-lived intangibles 12,838 10,168 Income tax effect of adjusting items 19,594 20,487 Adjusted income tax expense $45,496 46,224 Adjusted income tax rate 20.8% 17.9% 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; more or fewer shipping days in a period and the impact of acquisitions. 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 from purchase accounting, release of indemnification assets and the reversal of uncertain tax positions. Contact:James Brunk, Chief Financial Officer(706) 624-2239
CALHOUN, Ga., Oct. 26, 2023 (GLOBE NEWSWIRE) -- Mohawk Industries, Inc. (NYSE: MHK) today announced a third quarter 2023 net loss of $760 million and a loss per share of $11.94 with the impact of non-cash impairment charges of $876 million. The Company’s current market capitalization along with continued challenging macroeconomic conditions and higher discount rates prompted a review of its goodwill and intangible asset balances, which resulted in the impairment charges. Adjusted net earnings were $174 million, and adjusted earnings per share (“EPS”) were $2.72, excluding impairment and other non-recurring charges. Net sales for the third quarter of 2023 were $2.8 billion, a decrease of 5.2% as reported and 8.1% on a legacy and constant currency and days basis versus the prior year. During the third quarter of 2022, the Company reported net sales of $2.9 billion, a net loss of $534 million and a loss per share of $8.40. Adjusted net earnings were $212 million, and adjusted EPS was $3.34, excluding impairment and other non-recurring charges. For the nine-month period ending September 30, 2023, the Company reported a net loss and loss per share of $579 million and $9.10, respectively. Adjusted net earnings were $462 million, and adjusted EPS was $7.23, excluding impairment and other non-recurring charges. For the first nine months of 2023, net sales were $8.5 billion, a decrease of 6.2% as reported and 8.7% on a legacy and constant currency and days basis versus the prior year. For the nine-month period ending October 1, 2022, the Company reported net sales of $9.1 billion, a net loss of $8 million and a loss per share of $0.13; adjusted net earnings were $739 million, and adjusted EPS was $11.56, excluding impairment and other non-recurring charges. Commenting on the Company’s third quarter results, Chairman and CEO Jeff Lorberbaum stated, “Our results for the quarter were in line with our expectations as our industry faced continued pressures across all regions, primarily due to constrained residential investments and further tightening of consumer discretionary spending. Our third quarter performance was seasonally impacted by vacations in Europe, which reduced our sales and earnings versus the prior quarter. Lower material and energy costs offset the decline in both price and mix. We also faced foreign exchange headwinds of approximately $20 million on operating income or $0.25 on EPS. Across the business, we benefited from cost reductions, productivity initiatives and lower input costs. We are managing our working capital and generated strong free cash flow of $385 million in the quarter and $660 million for the year to date. During the quarter, central banks around the world continued to raise interest rates to slow down their economies and reduce inflation. Their actions are affecting new construction and remodeling in both residential and commercial channels, postponing spending on new projects. In the U.S., mortgage rates have climbed to their highest level in more than two decades, which has suppressed the housing market and limited home renovation activity. In Europe, consumers are postponing large purchases like flooring as a result of higher energy costs, inflation and uncertainty due to the war in Ukraine. Our industry faces a greater impact from these pressures than other sectors given that most flooring purchases can be deferred. With the high fixed costs required to produce flooring, competition increases as the industry slows and participants attempt to increase their sales to maximize absorption. As a result, our average selling prices and mix have declined, with the impact offset by lower material and energy costs, restructuring benefits and process improvements. The predicted timing of the housing sector recovery continues to be postponed, and we are managing the business to optimize our results and cash flow until it occurs. We are taking actions to increase our volumes while managing margins and operating expenses. We have launched differentiated collections, selectively introduced promotions and expanded our participation in the new construction channel. To further enhance our competitive position, we will shut down older ceramic production in Italy, and we are converting our U.S. rigid LVT production to a direct extrusion process. These restructuring initiatives will result in a non-recurring charge of approximately $55 million, of which $50 million is non-cash. When completed, these initiatives should improve our profitability by $30 million annually by enhancing our productivity, lowering our manufacturing costs and optimizing our production flexibility. Our European expansions in insulation and porcelain slabs are currently in operation, and our U.S. premium laminate and LVT projects are continuing to start up. Expanded production in European laminate and U.S. quartz countertops should begin in the second half of 2024. As the integration of our acquisitions in Mexico and Brazil proceeds, we have consolidated general management, sales and administrative functions, while enhancing the companies’ product offering, operational efficiencies and customer base. While the Mexican and Brazilian markets are experiencing reduced demand and margins, we anticipate gaining additional benefits from our acquisitions as these markets recover. For the third quarter, the Global Ceramic Segment reported a 0.5% decline in net sales as reported, or a 6.0% decline on a legacy and constant currency and days basis. The Segment’s operating margin was negative 32.5% as reported, or 8.0% on an adjusted basis, as a result of unfavorable price and product mix, temporary plant shutdowns, lower volumes and foreign exchange headwinds, partially offset by productivity gains. Our U.S. ceramic business outperformed due to our innovative product introductions and higher service levels. With this, we expanded our positions in the new home construction and commercial channels. Our investments in new decorating technology, polishing and mosaics are providing domestic alternatives to premium imported ceramic. To further expand our quartz countertop sales, we are introducing more stylized collections made utilizing new technologies that provide greater value. In Europe, retail traffic and new construction are being affected by economic uncertainty. To gain sales, we are responding with specific price promotions by geography and channel. Natural gas prices have declined more than 80% from their peak, and we have reset our pricing to align with energy costs. Sales of our premium porcelain slabs continue to grow, and we are optimizing our recent capacity expansion. In Latin America, we have reduced our cost structures to adapt to slower, more competitive markets, with Mexico being less affected. As we integrate our acquisitions, we are gaining customer commitments to expand sales across all channels and price points using the combined product portfolio. During the third quarter, our Flooring Rest of the World Segment’s net sales decreased by 2.6% as reported, or 5.0% on a legacy and constant currency basis. The Segment’s operating margin was negative 22.4% as reported, or 10.9% on an adjusted basis, improving over prior year as it benefited from raw materials, energy and less downtime, offsetting unfavorable price, mix and foreign exchange. Sheet vinyl continues to outperform other flooring categories, and we have increased production to meet the higher demand. Our laminate and LVT sales are under pressure in the softer market, and we are introducing new products, merchandising and select promotions to optimize volumes. We have executed the restructuring to support the conversion of our residential LVT offering from flexible to rigid cores, which is positively impacting sales. Our panels business has slowed due to a decline in remodeling activity, construction projects and industrial demand. Sales of our higher margin HPL panel collections are growing as our customer base expands. Our insulation volume in the third quarter improved, and our margins were in line with last year. Insulation industry pricing has declined along with input costs, with regional variation caused by new plants coming online. In Australia and New Zealand, the industry slowed during the quarter, and our sales in both countries were down slightly. To increase sales and protect our margins, we are introducing enhanced collections across fiber categories, elevating the marketing of our high-end products and implementing targeted promotions to meet evolving demand. In the third quarter, our Flooring North America Segment sales declined 11.7% as reported or 12.2% on a legacy basis. The Segment’s operating margin was negative 17.4% as reported, or 8.1% on an adjusted basis, as a result of unfavorable pricing and product mix, reduced volume and lower productivity due to the underutilization of plant assets, partially offset by lower inflation. Competition increased across all product categories, and, to enhance sales, we continued to invest in new products and merchandising systems to expand our retail presence. We also increased our participation in the new home construction channel with regional and national builders. We are implementing many projects to reduce costs, improve efficiencies and maximize material utilization. In residential carpet, to improve our mix, we are expanding our premium collections, which provide superior styling and features. For value conscious homeowners, we are increasing our environmentally friendly recycled polyester offering. Our sheet vinyl collections continue to perform well with budget-oriented consumers. As an alternative to PVC-based LVT products, we introduced a new resilient polymer core that is more environmentally friendly and scratch resistant. We are continuing to ramp up our West Coast LVT production and the new extrusion process in Georgia, with both expected to be substantially operational in the first quarter of 2024. We are expanding distribution of laminate in the retail and builder channels, and our new laminate collections have been well received as consumers seek premium visuals at accessible price points. In the present industry downturn, we are managing the controllable aspects of our business while adjusting to regional market conditions. In all of our geographies, elevated interest rates and persistent inflation are restricting consumer discretionary spending, resulting in postponed remodeling projects and new home purchases. Similar pressures are beginning to reduce commercial investments as business sentiment declines. Competition for sales to utilize plant capacity is increasing in all of our markets, and lower input costs should offset the impact. With enhanced products and merchandising, selective promotions and expanding participation in the best performing sales channels, we are maximizing our volumes while managing our margins and operating expenses. Across the enterprise, we are implementing productivity, cost reduction and restructuring initiatives to lower our expenses and improve our results. We continue to manage our working capital to optimize our cash flow. We expect foreign exchange rates to continue to be an earnings headwind. Given these factors, we anticipate our fourth quarter adjusted EPS to be between $1.80 to $1.90, excluding any non-recurring charges. With this, our 2023 full year adjusted EPS should exceed $9.00. Historically, the flooring industry undergoes greater cyclical peaks and troughs than other building products due to its postponable nature. Our business fundamentals remain strong, and we will benefit from significant pent-up demand when the industry rebounds. Given the aging U.S. housing stock, more than 80% of homeowners who responded to recent JP Morgan surveys indicated they are planning renovation projects in the near term. In addition, after years of construction trailing demand, substantial new home building will be required for many years to come. Commercial activity will expand as the economic outlook improves. As the world’s largest flooring provider, Mohawk is well positioned to capitalize on these opportunities.” 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, Elizabeth, Feltex, GH Commercial, Godfrey Hirst, Grupo Daltile, IVC Commercial, IVC Home, Karastan, Marazzi, Mohawk, Mohawk Group, Mohawk Home, Pergo, Quick-Step, Unilin and Vitromex. 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, October 27, 2023, at 11:00 AM Eastern Time To participate in the conference call via the Internet, please visit http://ir.mohawkind.com/events/event-details/mohawk-industries-inc-3rd-quarter-2023-earnings-call. To participate in the conference call via telephone, register in advance at https://dpregister.com/sreg/4129026795/18d03660587a8 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 November 24, 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 #9747702. MOHAWK INDUSTRIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited) Three Months Ended Nine Months Ended(Amounts in thousands, except per share data) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net sales $2,766,186 2,917,539 8,522,837 9,086,390 Cost of sales 2,074,179 2,203,878 6,455,479 6,697,404 Gross profit 692,007 713,661 2,067,358 2,388,986 Selling, general and administrative expenses 549,641 523,479 1,646,156 1,510,076 Impairment of goodwill and indefinite-lived intangibles 876,108 695,771 876,108 695,771 Operating income (loss) (733,742) (505,589) (454,906) 183,139 Interest expense 20,144 13,797 60,138 37,337 Other (income), net (8,551) (1,242) (6,902) (1,622)Earnings (loss) before income taxes (745,335) (518,144) (508,142) 147,424 Income tax expense 14,954 15,569 70,657 155,193 Net earnings (loss) including noncontrolling interests (760,289) (533,713) (578,799) (7,769)Net earnings attributable to noncontrolling interests 170 256 205 440 Net earnings (loss) attributable to Mohawk Industries, Inc. $(760,459) (533,969) (579,004) (8,209) Basic earnings (loss) per share attributable to Mohawk Industries, Inc. $(11.94) (8.40) (9.10) (0.13)Weighted-average common shares outstanding – basic 63,682 63,534 63,648 63,923 Diluted earnings (loss) per share attributable to Mohawk Industries, Inc. $(11.94) (8.40) (9.10) (0.13)Weighted-average common shares outstanding – diluted 63,682 63,534 63,648 63,923 Other Financial Information Three Months Ended Nine Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022Net cash provided by operating activities $512,034 224,774 1,032,907 427,435 Less: Capital expenditures 127,419 150,044 372,565 430,084 Free cash flow $384,615 74,730 660,342 (2,649) Depreciation and amortization $149,570 153,466 476,112 436,449 MOHAWK INDUSTRIES, INC. AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited) (Amounts in thousands) September 30, 2023 October 1, 2022ASSETS Current assets: Cash and cash equivalents $518,452 326,971 Short-term investments — 110,000 Receivables, net 1,943,147 2,003,261 Inventories 2,519,709 2,900,116 Prepaid expenses and other current assets 523,017 513,981 Total current assets 5,504,325 5,854,329 Property, plant and equipment, net 4,788,825 4,524,536 Right of use operating lease assets 404,477 400,412 Goodwill 1,125,434 1,827,968 Intangible assets, net 854,427 823,100 Deferred income taxes and other non-current assets 461,007 370,689 Total assets $13,138,495 13,801,034 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt and current portion of long-term debt $922,697 1,542,139 Accounts payable and accrued expenses 2,159,499 2,256,097 Current operating lease liabilities 106,378 106,511 Total current liabilities 3,188,574 3,904,747 Long-term debt, less current portion 1,675,590 1,019,984 Non-current operating lease liabilities 314,984 306,617 Deferred income taxes and other long-term liabilities 687,957 744,629 Total liabilities 5,867,105 5,975,977 Total stockholders' equity 7,271,390 7,825,057 Total liabilities and stockholders' equity $13,138,495 13,801,034 Segment Information Three Months Ended As of or for the Nine Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022 Net sales: Global Ceramic $1,091,672 1,096,656 3,306,368 3,319,982 Flooring NA 962,222 1,089,634 2,917,337 3,261,082 Flooring ROW 712,292 731,249 2,299,132 2,505,326 Consolidated net sales $2,766,186 2,917,539 $8,522,837 9,086,390 Operating income (loss): Global Ceramic $(355,304) (559,706) (207,953) (305,099)Flooring NA (166,973) 64,672 (131,787) 260,026 Flooring ROW (159,569) 45,508 2,590 304,265 Corporate and intersegment eliminations (51,896) (56,063) (117,756) (76,053)Consolidated operating income (loss) $(733,742) (505,589) (454,906) 183,139 Assets: Global Ceramic $4,905,861 4,866,822 Flooring NA 3,911,708 4,490,502 Flooring ROW 3,857,628 4,036,675 Corporate and intersegment eliminations 463,298 407,035 Consolidated assets $13,138,495 13,801,034 Reconciliation of Net Earnings (Loss) Attributable to Mohawk Industries, Inc. to Adjusted Net Earnings Attributable to Mohawk Industries, Inc. and Adjusted Diluted Earnings Per Share Attributable to Mohawk Industries, Inc. Three Months Ended Nine Months Ended(Amounts in thousands, except per share data) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022Net earnings (loss) attributable to Mohawk Industries, Inc. $(760,459) (533,969) (579,004) (8,209)Adjusting items: Restructuring, acquisition and integration-related and other costs 47,081 34,460 120,732 38,118 Inventory step-up from purchase accounting (105) 1,401 4,476 1,544 Impairment of goodwill and indefinite-lived intangibles 876,108 695,771 876,108 695,771 Legal settlements, reserves and fees 43,464 45,000 92,476 45,000 Release of indemnification asset (1,890) — (2,850) 7,324 Income taxes – reversal of uncertain tax position 1,890 — 2,850 (7,324)Income taxes – impairment of goodwill and indefinite-lived intangibles (12,838) (10,168) (12,838) (10,168)Income tax effect of adjusting items (19,594) (20,487) (40,234) (23,291)Adjusted net earnings attributable to Mohawk Industries, Inc. $173,657 212,008 461,716 738,765 Adjusted diluted earnings per share attributable to Mohawk Industries, Inc. $2.72 3.34 7.23 11.56 Weighted-average common shares outstanding - diluted 63,934 63,534 63,883 63,923 Reconciliation of Total Debt to Net Debt (Amounts in thousands) September 30, 2023Short-term debt and current portion of long-term debt $922,697 Long-term debt, less current portion 1,675,590 Total debt 2,598,287 Less: Cash and cash equivalents 518,452 Net debt $2,079,835 Reconciliation of Net Earnings to Adjusted EBITDA Trailing Twelve Three Months Ended Months Ended(Amounts in thousands) December 31,2022 April 1,2023 July 1,2023 September 30,2023 September 30,2023Net earnings (loss) including noncontrolling interests $33,552 80,276 101,214 (760,289) (545,247)Interest expense 14,601 17,137 22,857 20,144 74,739 Income tax expense 2,917 28,943 26,760 14,954 73,574 Net (earnings) loss attributable to noncontrolling interests (96) (38) 3 (170) (301)Depreciation and amortization(1) 159,014 169,909 156,633 149,570 635,126 EBITDA 209,988 296,227 307,467 (575,791) 237,891 Restructuring, acquisition and integration-related and other costs 33,875 8,971 33,682 47,606 124,134 Inventory step-up from purchase accounting 1,218 3,305 1,276 (105) 5,694 Impairment of goodwill and indefinite-lived intangibles — — 876,108 876,108 Legal settlements, reserves and fees, net of insurance proceeds 9,231 990 48,022 43,464 101,707 Release of indemnification asset (89) (857) (103) (1,890) (2,939)Adjusted EBITDA $254,223 308,636 390,344 389,392 1,342,595 Net debt to adjusted EBITDA 1.5 (1) Includes accelerated depreciation of $15,915 for Q4 2022, $23,019 for Q1 2023, $7,978 for Q2 2023 and ($525) for Q3 2023. Reconciliation of Net Sales to Adjusted Net Sales Three Months Ended Nine Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022 September 30, 2023 October 1, 2022Mohawk Consolidated Net sales $2,766,186 2,917,539 8,522,837 9,086,390 Adjustment for constant shipping days 2,473 — 18,829 — Adjustment for constant exchange rates 11,230 — 61,566 — Adjustment for acquisition volume (97,312) — (306,349) — Adjusted net sales $2,682,577 2,917,539 8,296,883 9,086,390 Three Months Ended September 30, 2023 October 1, 2022Global Ceramic Net sales $1,091,672 1,096,656 Adjustment for constant shipping days 2,472 — Adjustment for constant exchange rates 19,362 — Adjustment for acquisition volume (82,571) — Adjusted net sales $1,030,935 1,096,656 Flooring NA Net sales $962,222 1,089,634 Adjustment for acquisition volume (5,233) — Adjusted net sales $956,989 1,089,634 Flooring ROW Net sales $712,292 731,249 Adjustment for constant exchange rates (8,132) — Adjustment for acquisition volume (9,509) — Adjusted net sales $694,651 731,249 Reconciliation of Gross Profit to Adjusted Gross Profit Three Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022Gross Profit $692,007 713,661 Adjustments to gross profit: Restructuring, acquisition and integration-related and other costs 42,663 30,422 Inventory step-up from purchase accounting (105) 1,401 Adjusted gross profit $734,565 745,484 Adjusted gross profit as a percent of net sales 26.6% 25.6% Reconciliation of Selling, General and Administrative Expenses to Adjusted Selling, General and Administrative Expenses Three Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022Selling, general and administrative expenses $549,641 523,479 Adjustments to selling, general and administrative expenses: Restructuring, acquisition and integration-related and other costs (4,420) (4,117)Legal settlements, reserves and fees (43,464) (45,000)Adjusted selling, general and administrative expenses $501,757 474,362 Adjusted selling, general and administrative expenses as a percent of net sales 18.1% 16.3% Reconciliation of Operating Income (loss) to Adjusted Operating Income Three Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022Mohawk Consolidated Operating earnings (loss) $(733,742) (505,589)Adjustments to operating earnings (loss): Restructuring, acquisition and integration-related and other costs 47,083 34,539 Inventory step-up from purchase accounting (105) 1,401 Impairment of goodwill and indefinite-lived intangibles 876,108 695,771 Legal settlements, reserves and fees 43,464 45,000 Adjusted operating income $232,808 271,122 Adjusted operating income as a percent of net sales 8.4% 9.3% Global Ceramic Operating earnings (loss) $(355,304) (559,706)Adjustments to segment operating income (loss): Restructuring, acquisition and integration-related and other costs 17,762 3,366 Impairment of goodwill and indefinite-lived intangibles 425,232 688,514 Inventory step-up from purchase accounting (105) — Adjusted segment operating income $87,585 132,174 Adjusted segment operating income as a percent of net sales 8.0% 12.1% Flooring NA Operating income (loss) $(166,973) 64,672 Adjustments to segment operating income (loss): Restructuring, acquisition and integration-related and other costs 27,323 20,223 Legal settlements and reserves 1,500 — Acquisitions purchase accounting, including inventory step-up — 1,401 Impairment of goodwill and indefinite-lived intangibles 215,809 1,407 Adjusted segment operating income $77,659 87,703 Adjusted segment operating income as a percent of net sales 8.1% 8.0% Flooring ROW Operating income (loss) $(159,569) 45,508 Adjustments to segment operating income (loss): Restructuring, acquisition and integration-related and other costs 1,836 10,950 Impairment of goodwill and indefinite-lived intangibles 235,067 5,850 Adjusted segment operating income $77,334 62,308 Adjusted segment operating income as a percent of net sales 10.9% 8.5% Corporate and intersegment eliminations Operating (loss) $(51,896) (56,063)Adjustments to segment operating (loss): Restructuring, acquisition and integration-related and other costs 162 — Legal settlement, reserves and fees 41,964 45,000 Adjusted segment operating (loss) $(9,770) (11,063) Reconciliation of Earnings (Loss) Including Noncontrolling Interests Before Income Taxes to Adjusted Earnings Including Noncontrolling Interests Before Income Taxes Three Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022 Earnings (loss) before income taxes $(745,335) (518,144)Net earnings (loss) attributable to noncontrolling interests (170) (256)Adjustments to earnings (loss) including noncontrolling interests before income taxes: Restructuring, acquisition and integration-related and other costs 47,081 34,460 Inventory step-up from purchase accounting (105) 1,401 Impairment of goodwill and indefinite-lived intangibles 876,108 695,771 Legal settlements, reserves and fees 43,464 45,000 Release of indemnification asset (1,890) — Adjusted earnings including noncontrolling interests before income taxes $219,153 258,232 Reconciliation of Income Tax Expense to Adjusted Income Tax Expense Three Months Ended(Amounts in thousands) September 30, 2023 October 1, 2022Income tax expense $14,954 15,569 Income taxes – reversal of uncertain tax position (1,890) — Income tax effect on impairment of goodwill and indefinite-lived intangibles 12,838 10,168 Income tax effect of adjusting items 19,594 20,487 Adjusted income tax expense $45,496 46,224 Adjusted income tax rate 20.8% 17.9% 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; more or fewer shipping days in a period and the impact of acquisitions. 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 from purchase accounting, release of indemnification assets and the reversal of uncertain tax positions. Contact:James Brunk, Chief Financial Officer(706) 624-2239