Mohawk Industries, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended July 2, 2022; comparisons are with periods ended July 3, 2021. Mohawk manufactures and sells flooring and related building products through Global Ceramic, Flooring North America and Flooring Rest of the World (ROW).
Financial performance
| Metric | Q2 2022 | Q2 2021 | First half 2022 | First half 2021 |
|---|---|---|---|---|
| Net sales | $3,153.2m | $2,953.8m | $6,168.9m | $5,622.9m |
| Gross profit / margin | $873.2m / 27.7% | $902.2m / 30.5% | $1,675.3m / 27.2% | $1,694.0m / 30.1% |
| Operating income / margin | $367.9m / 11.7% | $404.4m / 13.7% | $688.7m / 11.2% | $721.9m / 12.8% |
| Net earnings attributable to Mohawk | $280.4m | $336.3m | $525.8m | $573.1m |
| Diluted EPS | $4.40 | $4.82 | $8.17 | $8.18 |
| Operating cash flow | — | $202.7m | $598.0m |
Q2 sales increased 6.8%, while operating income fell 9.0% and diluted EPS fell 8.7%. For the first half, sales rose 9.7%, but operating income declined 4.6%; EPS was nearly unchanged. Price and product mix supported revenue and partly offset sharply higher input costs. Management attributed the earnings pressure mainly to inflation, lower volume, manufacturing disruptions and foreign exchange effects.
Q2 segment sales and operating income were: Global Ceramic $1,158.6m and $154.3m; Flooring NA $1,099.5m and $100.0m; Flooring ROW $895.1m and $124.1m. Global Ceramic operating income improved year over year, while Flooring NA and ROW declined. ROW’s operating margin decreased to 13.9% from 19.7%.
Balance sheet, debt and liquidity
- At July 2, cash and cash equivalents were $224.0m and short-term investments were $265.0m. Cash included $194.9m held outside the U.S.; the company plans to permanently reinvest it.
- Total debt carrying value was $2,551.0m, including $888.9m of commercial paper. Current debt and commercial paper were $1,498.9m; long-term debt was $1,052.1m. The $600m 3.85% notes mature in February 2023.
- The $1.8bn senior credit facility had no direct borrowings; including commercial paper and letters of credit, $892.4m was available. The company said cash, operating cash generation and available facilities should cover requirements for at least 12 months.
- Current assets were $5,940.7m versus current liabilities of $3,924.4m. Inventory rose to $2,826.0m from $2,391.7m at year-end.
- First-half operating cash flow dropped $395.3m year over year, primarily due to working capital changes and lower earnings; receivables and inventory uses of cash were significant. Capital expenditures were $280.0m, versus $227.4m a year earlier.
Outlook, commentary and notable items
- No specific earnings or sales guidance is provided. Mohawk planned approximately $785m of 2022 investment for projects, productivity initiatives, upgrades and maintenance.
- Management cited inflation in materials, energy, transportation and labor, and said pricing, product mix and productivity had partly offset these pressures. It warned that cost recovery depends on market conditions and competition, and inflation may curb customer spending on deferrable purchases.
- Risks include the war in Ukraine, possible sanctions and supply disruptions, higher energy and raw-material costs, currency changes, COVID-19 effects and unpredictable demand. The company suspended new investment in Russia.
- On July 6, 2022, Mohawk completed its approximately $148m cash acquisition of Foss Floors. It also agreed to acquire Vitromex for approximately $293m cash, with closing expected in the second half of 2022 subject to approvals and other conditions.
- The board authorized a $500m repurchase program in February. First-half repurchases were $307.2m, with $229.6m remaining authorized at July 2. Management also disclosed no off-balance-sheet arrangements.
- Contingencies include PFC-related litigation; securities, investor and derivative lawsuits; ongoing SEC and U.S. Attorney investigations; and Belgian tax assessments of €186.7m for 2013–2018, with an additional 2019 assessment expected. The company disputes the claims and says it cannot estimate any loss beyond accrued amounts; it does not expect a material adverse effect on financial condition, but acknowledges possible material effects on a period’s results, cash flows or liquidity.
Key facts for investors to verify
- Whether pricing and productivity can continue to offset inflation, and whether lower volumes or manufacturing disruptions persist.
- Working-capital trends, particularly inventory and receivables, and the resulting effect on cash generation.
- Debt refinancing and liquidity needs around the February 2023 maturity of the $600m notes, alongside commercial-paper balances and planned capital spending.
- Progress, financing and integration of Foss Floors and the proposed Vitromex acquisition.
- Developments in the disclosed lawsuits, investigations and Belgian tax dispute, including any changes to exposures or required assurances.