Mohawk Industries, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended April 2, 2022, compared with the three months ended April 3, 2021. Balance-sheet figures are as of April 2, 2022, compared with December 31, 2021. Dollar amounts below are in millions unless noted.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $3,015.7 | $2,669.0 | +13.0% |
| Gross profit / margin | $802.1 / 26.6% | $791.8 / 29.7% | Margin down 310 bps |
| Operating income / margin | $320.8 / 10.6% | $317.5 / 11.9% | Income +1.0%; margin down 130 bps |
| Net earnings attributable to Mohawk | $245.3 | $236.8 | +3.6% |
| Diluted EPS | $3.78 | $3.36 | +12.5% |
| Operating cash flow | $55.0 | $259.6 | Down $204.7 |
| Capital expenditures | $129.5 | $114.7 | Up $14.7 |
Sales growth reflected approximately $430 million of favorable price and product mix and $27 million of higher volume, partly offset by approximately $94 million of unfavorable foreign exchange and one fewer shipping day. Higher input-cost inflation largely absorbed pricing and productivity benefits: management attributed approximately $342 million of higher inflation to the operating-income comparison. Gross profit dollars rose modestly, but margins contracted.
Segments and liquidity
- Global Ceramic: Sales $1,064.8 million, up 14.5%; operating income $100.3 million, up from $87.8 million; margin 9.4%, flat.
- Flooring North America: Sales $1,071.9 million, up 10.6%; operating income $95.3 million, up from $81.3 million; margin improved to 8.9% from 8.4%.
- Flooring Rest of the World: Sales $879.0 million, up 14.2%; operating income fell to $134.7 million from $159.3 million; margin declined to 15.3% from 20.7%, principally reflecting inflation.
Cash and cash equivalents were $230.6 million; short-term investments were $310.0 million. Total debt was $2,634.9 million, versus $2,324.8 million at year-end. Current debt and commercial paper totaled $1,546.5 million, including $911.0 million of U.S. commercial paper, $24.9 million of European commercial paper and the current portion of long-term debt. The $1.8 billion senior credit facility had $844.4 million available, including the effect of commercial paper and letters of credit. Management said cash, operating cash generation and facility availability should cover needs for at least the next 12 months.
Working-capital investment contributed to weaker operating cash flow: receivables increased $225.9 million and inventories increased $141.3 million in the quarter. The company repurchased $306.6 million of shares. A new $500 million repurchase authorization was approved in February; $230.2 million remained at quarter-end.
Outlook, risks and unusual items
- Mohawk plans approximately $800 million of investment in 2022 for existing and new projects, including LVT, waterproof laminate, ceramic capacity and countertop expansion. The filing provides no earnings or revenue guidance.
- Management cited ongoing cost escalation in materials, energy, transportation and labor, as well as supply-chain disruption and manufacturing interruptions. Its ability to recover inflation through pricing depends on competitive and market conditions.
- Following Russia’s military actions in Ukraine, the company suspended new investments in Russia. It cited potential sanctions, disruption to supplies including Ukrainian clay, higher energy and input costs, and broader geopolitical uncertainty. Russia represented approximately 4% of 2021 net sales.
- COVID-19 disruptions had improved near term, but management said future effects, including those from variants, remained difficult to predict.
- Other expense included a $7.2 million release of an indemnification asset; the effective tax rate fell to 20.0% from 22.2%, partly reflecting an Italian uncertain-tax-liability benefit. These items affected period comparisons.
- Contingencies include securities and investor litigation, ongoing U.S. Attorney’s Office and SEC investigations, PFC-related claims, environmental matters and a Belgian tax dispute. The Belgian authority issued new assessments totaling €186.7 million for 2013–2018 and may assess 2019; Mohawk disputes the claims. The company says it cannot estimate losses beyond amounts accrued and that matters could affect results, cash flows or liquidity in a given period.
Important facts for investors to verify
- Whether pricing and productivity can keep pace with inflation, especially in Flooring ROW, where operating margin fell sharply.
- Whether working-capital needs continue to constrain operating cash flow and whether planned capital investment and share repurchases remain supportable.
- Debt maturities, commercial-paper refinancing needs and available credit as the $600 million 3.85% notes approach their February 2023 maturity.
- Developments in the Ukraine conflict, Russian operations, input costs and supply availability.
- Updates on the Belgian tax assessments and litigation or government investigations, including any change in accruals or estimated exposure.