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$MHK Form 4: On June 16, 2015, Frans G. De Cock, Director, exercised stock option to acquire 1,000 shares at $46.8 per share; 1,000 shares at $57.34 per share and 1,000 shares at $66.14 per share. On the same day, he sold 3,000 shares at $189.8771 per share. He owned 6,000 shares after the transaction.
$MHK has agreed to acquire Godfrey Hirst Group. Godfrey Hirst's sales were about US$334MM in their most recent fiscal year, which ended June 30, 2017. The transaction is expected to be completed during 1H18, pending customary conditions and approvals. $MHK expects the transaction to be accretive to EPS in the first twelve months.
$MHK reported a rise in 1Q17 earnings as volume, mix and productivity adding about $60MM to operating income. Net income rose to $200.55MM or $2.68 per share from $171.55MM or $2.30 per share last year. Sales grew to $2.22Bil from $2.17Bil. Adjusted EPS increased 14% to $2.72.
$MHK is putting in a significant amount of capacity into Mexico and it will first try to utilize it in the Mexican marketplace. The company will start developing new accounts and new business in the South American market. $MHK believes it would be a good opportunity to enter the marketplace and expand in Central and South America.
$MHK said in Europe, the GDP is increasing and there are opportunities for improvement. Russia has been in a recession and the GDP might stay flat. $MHK has a significant position in ceramic and laminate and the company is expanding in both in 2017 so that as the market improves, it will have more capacity to participate.
$MHK said it has a huge number of new projects and the company will get some incremental improvements in all its businesses from the $670MM that was invested last year. This will give the company more productivity and product differentiation and also improve sales. All these factors will help offset the operating income loss.
$MHK's Flooring North America segment sales increased 10% in 4Q16, with hard surface product sales substantially increasing and rug and carpet products performing well. Sales in the Flooring Rest of the World segment increased 14% with adjusted operating margins rising to 17%.
In 4Q16, sales in $MHK’s Global Ceramic segment increased 5% with adjusted margins rising to 14%. Sales in the North American ceramic business improved with new construction, commercial and home center channels outperforming during 4Q16. The European ceramic sales and margins improved despite market softness at the start of 4Q16.
$MHK believes that going into 2017, margins in the North American ceramics business will continue to improve. Excluding the IP business out of the Rest of the World segment, the margins in the remaining non-IP business will also continue to improve.
$MHK said in the ceramics business almost all the units are at capacity. The company has installed a new plant in Tennessee which is operating at around projected levels. $MHK will double the capacity of its plant in Mexico by the end of 2017. In Europe, the company is adding new capacity for a new product category.
$MHK's Flooring North America segment improved as expected in 3Q16, growing 6% as reported or 7% on an adjusted days basis. The Flooring Rest of the World segment performed well in 3Q16, delivering a 15% increase in sales as reported. The European flooring growth was led by LVT and wood, partially offset by lower sheet vinyl sales.
In 3Q16, $MHK’s Global Ceramic segment sales rose 4% as reported and 6% on a constant days and FX basis. In Russia, the company’s ceramic business is operating at capacity. During 3Q16, sales improved on a local basis as $MHK increased its participation in the new construction sector and expanded distribution.
$MHK is increasing its production capacity in the US and Europe. The company will invest around $650MM in additional capacity, more efficient assets and new products. $MHK continues to explore potential acquisitions from around the globe that complement its business and expand its geographic reach or product categories.
$MHK forecast 4Q16 EPS to be $3.16-$3.25, which represents a 12% to 15% increase over its 4Q15 EPS, excluding any restructuring charges. The company said it is presently exploring green field opportunities and acquisitions to broaden its geographic presence and product portfolio.
Scott Rednor of Zelman & Associates asks about $MHK's cash conversion in 2H16. CFO Frank Boykin said the company expects cash flow this year to continue to be strong as it moves into 2H16. He also stated that the company is going to continue to see good strong earnings and manage operating or working capital even with the elevated CapEx.
David MacGregor of Longbow Research wants to know about the impact of startup costs on $MHK's 2Q16 margins. CEO Jeff Lorberbaum replied that startup costs in 2Q16 were about $4MM and the company is estimating about another $3-5MM in startup through 2H16.