For more information, contact:
Mohawk Industries, Inc.
160 South Industrial Boulevard
Calhoun, Georgia 30703
www.mohawkind.com
(706) 624-2246
For more information about Mohawk's products, visit our websites:
For more information, contact:
Mohawk Industries, Inc.
160 South Industrial Boulevard
Calhoun, Georgia 30703
www.mohawkind.com
(706) 624-2246
For more information about Mohawk's products, visit our websites:
Enterprise Value* 1992–2015 (in millions)
Over the past two decades, Mohawk Industries has grown exponentially through 34 acquisitions and continuous re-investment in the business. Today, Mohawk is the world’s largest flooring company with a comprehensive product portfolio, manufacturing operations in 15 countries and sales in 140 countries. That commitment to profitable, sustainable growth reflects what Mohawk values and illustrates how the Company delivered its strongest performance ever in 2015.
During 2015, Mohawk realigned its reporting segments into a structure that reflects the Company’s increasingly international footprint and its comprehensive product offering.
Sales of ceramic tile, stone floors and stone countertops in all worldwide markets.
Sales of carpet, rugs, laminate, sheet vinyl, luxury vinyl tile and wood flooring in the North American market.
Sales of laminate, sheet vinyl, luxury vinyl tile, wood and boards in all markets outside North America.
In 2015, Mohawk delivered record annual sales of $8.1 billion, growing approximately 10% on a constant exchange rate basis, and achieved record adjusted earnings per share of $10.20. Our adjusted operating income exceeded $1 billion and improved 26% compared to 2014. With a constant U.S. dollar, 2015 net sales would have been $490 million higher — an impact of approximately 6% — and operating income would have been $74 million greater — an impact of 9%. Mohawk’s strong 2015 performance was the result of an aggressive growth strategy that the Company began in 2013. Since 2013, Mohawk has invested almost $5 billion, approximately $3.5 billion in nine acquisitions and approximately $1.5 billion in capital expenditures to create innovative products, enhance efficiencies and expand capacities.
Our business has evolved significantly over the past two decades. Today, in addition to being the world’s largest flooring company, we’re the world’s largest ceramic tile manufacturer. Ceramic sales constitute the largest percentage of our business, and we’re enhancing our ceramic position by increasing capacity and upgrading assets. We are a comprehensive flooring provider with leading positions in major markets around the world, and we are committed to aggressively growing our business.
The organization and infrastructure we’ve created provide us with unique category knowledge. We’ve shown that we can apply that knowledge to products and geographies related to our existing ones. That combination presents us with broad opportunities to continue growing the business both through acquisition and internal investment. For example, we applied our knowledge of the ceramics category to our KAI acquisition in Bulgaria, which will give us a foothold for future ceramic expansion into Eastern Europe while KAI’s low-cost manufacturing position will support our other existing markets.
Every market in the world could be an opportunity for growth. Where we have an existing business, we have the potential to leverage our knowledge, infrastructure and customer relationships to expand further and enter other flooring product categories. In markets where we do not participate, we prefer to acquire an established company, although we have also built businesses from the ground up. We tend to stay away from markets where we can’t compete on an equal basis due to competitive, political or legal reasons.
We must have a strong management group in place to drive our strategy in that market. When we have a strong team already, we can expand on our own. When we don’t, such as in a new geographic market or product category, then we look for a business with a management team that can serve as a foundation for future growth. We’ve passed on good businesses because we didn’t believe the current management team would stay with us. We don’t need to pay a premium for equipment. We know how to buy equipment. It’s the organization, people and relationships that we invest in.
All of our investments go through a disciplined ROI evaluation. Our return expectations go up or down depending on the amount of risk associated with the investment. For internal investments and acquisitions, we try to think in five- and 10- and 15-year periods so that we’re anticipating manufacturing advances and taking into consideration business cycles. A longer range outlook also aligns with the life of most assets in our category. You have to make sure those assets will remain competitive over time and do not become obsolete.
It’s a balanced approach. During the past three years, we have acquired nine companies in 12 countries. Subsequently, we have invested in those acquisitions to enhance performance and improve future results. Our growth from acquisitions is complemented by organic growth in our core businesses, which requires ongoing investment to expand capacity, improve productivity and facilitate product innovation. Since 2013, we have invested approximately $1.5 billion in capital expenditures, which has impacted our top and bottom line growth.
Last year, we invested about $500 million, which included the construction of a large porcelain plant in Tennessee that will increase our capacity to produce higher-value products. We’ve expanded our fiber manufacturing assets to differentiate our recycled polyester carpet and support continued growth. We built an LVT plant in Europe to expand our participation in the fastest-growing flooring category, and we purchased the IVC Group, acquiring state-of-the-art LVT facilities, as well as one of the best management teams in the category. We significantly upgraded the core manufacturing assets in our Italian ceramic and European panel businesses.
In 2016, we plan to further invest more than $600 million in our ceramic, LVT and engineered wood capacity, in advanced processes for our carpet and laminate businesses and in additional technologies to improve our efficiencies and product innovation.
Our long history of innovation extends to all of our product categories and is one of the hallmarks of our business. We have invested significantly in manufacturing technology to create the most beautiful products in the market, including industry-leading visuals in ceramic, laminate, LVT and sheet vinyl, as well as proprietary fiber technology that led to the introduction of super soft carpets with superior stain resistance. We continue to push the limits for performance and ease of installation to differentiate our products in the marketplace, including water-resistant laminate and durable LVT.
In every product category, we focus on bringing unique features and benefits to the market to provide value to the consumer. Our luxury and high-end product introductions have been very successful. However, we offer differentiated products that appeal to consumers at every price point. To do that, we complement our position as the industry’s innovation leader with investments in advanced manufacturing technology that improve our productivity and efficiency, increasing line speeds, better utilizing raw materials and enhancing the quality of our products.
Multiple ways. In some instances, we start with a geographic market where we want to participate and research the existing participants to identify an established company we could purchase as an entree into that market. In other cases, we want to expand our position in an existing market and look for a company that complements our business. We also find companies with strategies that we like and unique expertise, such as IVC with their innovative leadership in the LVT and sheet vinyl categories. And, we don’t rely solely on acquisitions. We also build greenfield projects using our internal expertise and support those projects with skilled local management when appropriate.
We don’t use a single template for anything. We don’t try to make well-run companies look like us. The companies that are successful have a strategy that works and have developed a proposition their customers like. We want to enhance that proposition, not change it.
Our due diligence process enables us to evaluate a management team’s strategies and their execution. Because we are evaluating businesses similar to our own, we have a very strong understanding of how they should operate. We know, for example, how a company must adapt to a changing, competitive environment, so we look at how the management team previously handled those situations. Our own past demonstrates this very well. When we’ve bought strong businesses, the management team at the time of the purchase is still leading the business today. When we’ve bought weaker businesses in need of a turnaround, we’ve brought in different management teams to dramatically change the strategy.
We intentionally have a very limited corporate structure. We don’t want a corporate bureaucracy that’s driving average solutions across the enterprise. Instead, we want the management closest to the market driving strategies and decisions. This organizational structure — strong local management teams driving growth in different product categories — allows us to take on multiple investments at the same time. Typically, each team handles only one at a time, but, with a decentralized approach, multiple teams can manage their individual projects simultaneously. This gives us the capacity to concurrently drive many opportunities so we can grow faster, without the management constraints that limit most other companies.
We purposefully give up some synergies across the business because having more flexibility to adapt to local markets helps us satisfy our customers better and react faster to local challenges. But, we still realize a great deal of synergistic opportunities. Our corporate management group may be small, but we understand the details and strategies of each individual business. We have a strong planning structure in place where we identify hundreds of opportunities and decide which ones to execute. We also identify individuals who are experts in their functional areas within a business to lead best practices across the entire enterprise.
As I mentioned, our business has changed a great deal during the past 20 years. We’ve transformed Mohawk from a niche carpet business to an international flooring giant. As we’ve grown, we’ve had to continually evolve our structure to optimize the business. With the latest round of acquisitions, it became evident that to capitalize on all products within a geography our historical structure of running the business by product categories across the world would not optimize synergies between businesses, such as leveraging customer relationships or logistics systems. To better achieve those synergies, we needed to organize more geographically.
We have well-defined strategies that provide focus for our organization. We have aggressive leaders who enjoy what they do. We give them resources to execute their strategies, and then we encourage them from the top down. Though we are decentralized, everyone understands that we’re all here as part of a single corporation. We have to help each other achieve the Company’s goals. When there’s a conflict the answer is always easy: Whatever creates the most value for Mohawk for the long term is always the right answer.
Mohawk Industries has been built largely on the process of bringing together assets and expertise to drive faster growth. It’s a dynamic that plays effectively across both our legacy businesses and recently acquired ones.
*Based on estimated free cash flow from operations
and debt capacity and investment-grade status
During the past year, we have optimized synergies among our businesses by organizing them on a geographic basis as opposed to product categories. Our new Flooring North America segment, for example, combines our carpet business with wood, laminate and vinyl flooring manufactured in the United States.
This combination enables our hard surface products to benefit from the extensive world-class infrastructure that our carpet business has built over several decades — transportation and logistics, sales and marketing operations and, most importantly, customer relationships. The result has been a higher growth rate with increased profitability for our hard surface products in North America since the reorganization.
Our hard surface categories in North America also are benefiting from our 2013 acquisition of Pergo. We’re leveraging our Pergo brand, one of the best known in flooring, into new product categories, such as wood and luxury vinyl tile, to further expand our hard surface penetration in the specialty retail channel.
Pergo is just one of many acquisition strategies that have included synergistic opportunities for one of our existing businesses. Our Global Ceramic segment enjoys a commanding market leadership in North America, and our 2013 acquisition of Marazzi has brought a twofold opportunity for that market based on enhanced scale.
First, in North America, the combination of Dal-Tile and Marazzi has provided us with enough volume of higher-end ceramic products to justify investment in constructing a new manufacturing facility in Tennessee. This new facility will provide additional production capacity, as well as technical capabilities to manufacture larger-format ceramic and porcelain tiles with more advanced aesthetic features.
A second benefit of the Marazzi acquisition has been new distribution opportunities for our American Olean brand. Marazzi and American Olean have product lines that complement one another and that are sold through independent distributors. In major markets where we have not had a strong independent distributor, primarily on the West Coast, we’ve combined the two brands to generate enough volume to support our own sales service centers. The 17 centers open to date will provide us an entirely new growth engine for both brands moving forward as they gain share in markets where we previously did not have a strong distribution channel.
Mohawk’s management philosophy has long been characterized by a decentralized approach that ensures our businesses are run by those closest to the market in which they operate. It’s an approach that is serving us well, in particular, as we expand into flooring markets around the world.
Mexico offers a case in point. With a smaller share than in the U.S., Dal-Tile is well-positioned to capitalize on a fast-growing ceramic market in Mexico. The brand’s presence there dates back to 1955 when Dal-Tile built a plant in Monterrey. The plant’s primary purpose was to supply the U.S. market, with a secondary intent to supply the north of Mexico.
In the mid-1990s, Dal-Tile ceased distribution in Mexico in order to ship more product to the U.S. where supply was constrained. More than a decade later, when the U.S. housing market entered a severe downturn, the situation reversed as we enhanced distribution in Mexico to absorb excess U.S. product. Thanks to a well-established local management team, we were able to capitalize on longstanding customer relationships and a well-recognized brand to quickly ramp up sales. We have been growing in Mexico ever since.
Three years ago, our management team constructed a new plant near Mexico City, Mexico’s largest market, and dramatically increased our business. Those investments in Mexico support our long-term commitment to that growing market. Today, with our strong sales growth in Mexico, the highly efficient plant is operating at capacity, and we will expand the facility to meet increased demand. This past year, we further leveraged our market knowledge to acquire a manufacturing facility in Mexicali, Mexico — the only ceramic plant on the west coast of North America. Thanks to Dal-Tile’s customer base in the western U.S., we’ve been able to bring enough volume to the plant to greatly enhance its competitiveness and profitability.
“Three years ago, our management team constructed a
new plant near Mexico City, Mexico’s largest market,
and dramatically increased our business.”
Our strategy is to replicate this local management approach as we seek to establish footholds in regions around the world. In the Pacific region, we entered Australia several years ago through the purchase of a wood distribution business with a strong management team in place. Since then, this team has switched previously third-party sourced product for wood supplied by our plant in Malaysia and laminate and vinyl supplied by our plants in Europe. This team also has expanded its management responsibilities to include New Zealand, where we acquired a hard surface distribution business in early 2015.
During 2015, we entered the Eastern European ceramic market through the purchase of KAI, the leading supplier in the Bulgarian and Romanian markets. With a strong local management team in place, we are providing KAI with the resources necessary to strengthen its capabilities and begin expanding into adjacent markets in the region.
Strong management teams usually translate into strong growth vehicles for Mohawk. When we pursue an acquisition, we’re investing in the talent, innovative ideas and customer relationships that can drive long-term growth. Our approach is to build advantages while providing them with the resources and new ideas to optimize the results of their business.
Our 2015 acquisition of IVC is a case in point. IVC, headquartered in Belgium, is among the foremost producers in the world of vinyl flooring, commanding the number-one share of the European residential sheet vinyl and luxury vinyl tile, or LVT, markets and the number-two position in the North American sheet vinyl market. LVT represents the fastest-growing flooring category today, thanks to its realistic visuals, moisture resistance, sound suppression and simple installation.
Two years ago, our participation in the vinyl category was limited to third-party sourced product. Since then, we’ve invested in new state-of-the-art LVT plants in Belgium and the United States and acquired the expertise of IVC, whose management brings world-class knowledge of LVT product innovation and efficient manufacturing. With IVC, Mohawk gains instant leadership in flooring’s fastest-growing category, while IVC gains a well-developed distribution network and customer relationships in both North America and Europe.
From a management perspective, our priority has been to provide the IVC team with the resources necessary to realize the growth potential of the LVT category, while effectively integrating their products into our hard surfaces sales and marketing organizations.
One of our greatest strengths as an organization is managing our businesses on a decentralized basis while also capitalizing on the scale and shared expertise of the enterprise. This requires maintaining the flexibility to optimize performance in local markets as well as constantly identifying opportunities where success can be transferred from one business unit to another.
Although this dynamic occurs throughout the Company, it is perhaps most pronounced in our global ceramic business. Today, this segment’s operations span from the U.S. and Mexico to Western Europe, Eastern Europe and Russia. Strategies vary among markets, but good ideas are a common denominator. When we acquired Marazzi, for example, they had a unique business model in Russia where they manufactured their own product and controlled distribution through their own retail stores. We were able to bring in experts from the U.S., where a more mature ceramic business has evolved over the past several decades, to share best practices in supply chain, transportation and back-office retail operations. Conversely, Marazzi Russia was able to share their expertise in advertising and merchandising with their counterparts in our other ceramic markets, while Marazzi Italy has provided design and technical expertise across our Global Ceramic segment.
Sharing best practices does not always involve spanning oceans. Within the U.S., our carpet operations have developed expertise in domestic logistics, having managed a best-in-class network of warehouse and transportation assets for years. On the other hand, Dal-Tile’s global reach has provided them with knowledge in the area of overseas container shipping. As a result, both businesses routinely assist one another with the transportation needs of their respective products.
Finally, best practices and ideas are shared on an ongoing basis through the leadership of designated experts in the Company in areas such as innovation, production or logistics. Using a variety of communication forums, from intranet sites to annual gatherings, these experts bring together functional areas from across the Company to ask, “What’s working well in your business?” and then listening and learning from each other.
New technologies. New products. New value. That’s an algorithm in continual play throughout Mohawk as we innovate to differentiate our products in the marketplace. Like other functions within the Company, the innovation process is one that is managed on a decentralized basis, while capitalizing on the shared knowledge and expertise among our business units.
A great example can be found in our carpet business. Within the past few years, we have responded to the market’s shift toward polyester fibers through our proprietary Continuum™ technology, which yields a softer, higher-performance polyester fiber. Recently, we’ve leveraged that technology to reinvigorate the area rug category with the introduction of polyester collections, which deliver a deeper and richer look while providing exceptional durability. The result has been solid growth for Mohawk with improved product mix.
The past year also has seen a host of new innovations in our ceramic business, led by the debut of three-dimensional wall tiles. This technology enables an appealing visual effect of depth and pattern in a cost-effective manner that adds dimension aligned with the color application. These tiles build on an innovation trend in ceramics of re-creating unique and authentic visuals through our proprietary Reveal Imaging™ printing technology, previously used in ceramic tile planks that mimic wooden planks. Another similar innovation is porcelain pavers that are decorated with a realistic limestone or travertine finish. Marketed by Dal-Tile in a line called Distinguished™, these pavers provide the look of natural stone but with enhanced resilience to weather and staining.
Our laminate business in Europe continues to build on its historical reputation of category-leading development. The successful track record reflects a holistic approach to innovation that brings together the expertise of multiple functions involved in new product development, including design, production and intellectual property. This team has most recently developed a laminate product called Impressive™ that combines superior technical and visual features with new manufacturing processes to create an enhanced waterproof laminate product. Following its debut in Europe, this new technology has since been introduced in all of our laminate markets throughout the world.