Mohawk Industries, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. Mohawk manufactures and sells flooring and related products through Global Ceramic, Flooring North America (NA), and Flooring Rest of the World (ROW). This unaudited quarterly report covers the three and nine months ended October 2, 2021; comparisons are with periods ended September 26, 2020.
Financial performance
| Metric | Q3 2021 | Q3 2020 | First nine months 2021 | First nine months 2020 |
|---|---|---|---|---|
| Net sales | $2,817.0 million | $2,574.9 million | $8,439.9 million | $6,910.4 million |
| Gross profit (margin) | $837.3 million (29.7%) | $706.2 million (27.4%) | $2,531.3 million (30.0%) | $1,692.6 million (24.5%) |
| Operating income (margin) | $360.0 million (12.8%) | $262.7 million (10.2%) | $1,081.9 million (12.8%) | $353.3 million (5.1%) |
| Net earnings attributable to Mohawk | $271.0 million | $205.1 million | $844.1 million | $267.4 million |
| Diluted EPS | $3.93 | $2.87 | $12.11 | $3.75 |
| Operating cash flow | Not reported for quarter alone | Not reported for quarter alone | $1,096.7 million | $1,362.0 million |
- Quarterly change: Sales rose 9.4%; operating income increased 37.0%. Price and mix, productivity, lower restructuring costs, foreign exchange and fewer manufacturing disruptions more than offset higher inflation and lower volumes.
- Nine-month change: Sales increased 22.1% and operating income rose 206.2%. The comparison was aided by recovery from pandemic-related demand declines and manufacturing disruptions in 2020; higher volumes, pricing/mix and productivity contributed to improvement.
- Segments, Q3: Sales were $998.4 million for Global Ceramic, $1,050.5 million for Flooring NA and $768.1 million for Flooring ROW. Operating income was $118.9 million, $118.6 million and $133.6 million, respectively. Flooring ROW operating margin declined to 17.4% from 19.0%, while the other two segment margins improved.
Cash, debt and liquidity
- At October 2, 2021, cash and cash equivalents were $1,128.0 million; current assets were $5,646.1 million and current liabilities $2,901.7 million. Cash included $276.3 million held outside the United States.
- Carrying value of total debt was $2,298.9 million, including $588.7 million current and $1,710.2 million long-term, compared with $2,734.1 million at December 31, 2020. Mohawk reported no floating-rate debt and no outstanding commercial paper at quarter-end.
- About $1,799.2 million was available under the senior credit facility. Management said cash, operating cash generation and facility availability should cover capital expenditure, working-capital and debt-service requirements for at least the next 12 months.
- Nine-month operating cash flow fell $265.3 million year over year, primarily due to working-capital changes despite higher earnings. Inventory increased to $2,215.6 million from $1,913.0 million at year-end. Capital expenditures were $375.2 million.
- Nine-month financing cash outflow was $835.0 million, including $473.3 million of share repurchases. The board authorized a new $500 million repurchase program; $463.8 million remained authorized at quarter-end.
Outlook, risks and notable items
- Mohawk planned $625–675 million of 2021 capital investment for capacity expansion, differentiated products and productivity improvements. It provided no specific earnings or revenue guidance in the filing.
- Management said 2021 inflation in materials, energy, packaging, transportation and labor pressured profitability. Pricing, improved product mix and productivity had mostly offset these pressures, but management did not expect near-term relief. European natural-gas prices rose sharply in Q3 and were reported as up to four times earlier-year levels by October; management expected this to affect Q4 2021 profitability and potentially later periods.
- COVID-19 continued to create demand, supply-chain and seasonality uncertainty. Management said fluctuating demand and departures from normal seasonal patterns could continue, with duration and impact difficult to predict.
- Prior cost-reduction actions were expected to generate $100–110 million in savings; about $105 million had been realized across 2020 and the first nine months of 2021, with associated costs of about $166 million over that span.
- After quarter-end, Mohawk redeemed the remaining €500 million principal of its 2.00% Senior Notes on October 19, 2021, at par using cash on hand. It also repaid €300 million of floating-rate notes in September.
- Contingencies include PFC-related claims, securities and investor litigation, derivative actions, ongoing U.S. government and SEC investigations, and Belgian tax disputes. The company says it intends to defend the matters and has accrued probable, estimable losses; it cannot estimate potential losses beyond accruals. It says outcomes could materially affect results, cash flows or liquidity in a particular period, though it does not expect a material adverse effect on financial condition.
Important facts for investors to verify
- Whether further pricing actions and productivity can keep pace with persistent input-cost inflation, particularly European natural-gas costs.
- How inventory and other working-capital movements affect operating cash flow and liquidity.
- The cash and debt impact of the October 2021 euro-note redemption and continued capital spending and repurchases.
- Progress on the legal proceedings, government investigations and Belgian tax disputes, including any change in potential exposure.
- Whether demand, supply-chain constraints and pandemic-related seasonality develop differently from management’s expectations.