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Mohawk’s record performance in 2016 is rooted in the company’s aggressive growth strategy. We continue to drive top and bottom line growth by investing in the business. We are increasing product innovation across all categories and in all markets to reinforce our position as the industry’s preferred provider. We are promoting that same spirit of innovation on the manufacturing floor where we are delivering greater productivity and more efficient processes. We are distinguishing ourselves in the marketplace with unique merchandising and marketing systems that showcase the differentiated style and performance of our products and help our retail partners transact more sales at higher margins. We are empowering our global sales teams with tools and resources that build successful relationships with customers across every channel. We continue to benefit from acquisitions that have broadened our product offerings and extended our geographic reach, and we are confident that our strategic mix of internal investments and acquisitions will accelerate our future growth.
While acquisitions garner significant attention, our internal investments are expanding our production capacity, enhancing efficiencies and yielding exciting new products that create consumer demand. Typically, we use acquisitions as bolt-ons or to enter new product categories or markets. We strengthen those acquisitions with internal investments, such as the modernization of our Italian ceramic tile plants that has lowered costs and upgraded our product offering. Internal investments also promote growth in mature product categories, such as introducing new indoor/outdoor rug and utility mat collections in the U.S. or aggressively entering the European carpet tile or Russian sheet vinyl markets. In 2016, we invested about $672 million in capital expenditures. In 2017, we anticipate escalating those internal investments to about $750 million. Combined with our ongoing process improvements, this $1.4 billion investment will improve our productivity in all of our regions, extend our industry-leading product innovation and increase our production capacity across all categories by approximately $1.4 billion.
Capital expenditures provide us with leading-edge equipment and information systems. Our strong organization transforms those assets into process improvements that enhance our productivity as well as new products with design and performance features that distinguish us in the marketplace. Whether we are introducing a new generation of super soft carpet, delivering fashion-forward 3D wall tiles, creating the first water-resistant laminate or revolutionizing luxury vinyl tile with embossed-in-register surfaces, our talented teams are stretching the limits of our technology to deliver products that fascinate the consumer and enhance our margins in the marketplace. On the plant floor, our investments in state-of-the-art manufacturing technology are complemented by the great ideas initiated by our employees. Their process improvements, product re-engineering and equipment modernization delivered a productivity benefit of $140 million in 2016 alone. We will continue to leverage operational knowledge from across the enterprise to improve throughput, reduce waste and lower our consumption of resources to further enhance our bottom line.
EBITDA – Trailing twelve months pro forma adjusted
The aggressive growth strategy we are executing is enabled by our strong balance sheet. As an example, during the second quarter of 2015, Mohawk completed two significant acquisitions — IVC and KAI — which increased the company’s net debt multiple to 2.4x EBITDA. In 2015 and 2016, the company generated roughly $1 billion of cash flow that was allocated to debt reduction, lowering our current net debt to 1.4x EBITDA. In addition to paying down debt, our capacity to borrow at favorable rates has been reinforced by our strong credit ratings. The three top credit rating agencies have all recently upgraded us to our strongest rating ever, the equivalent of BBB+ across all three. Solid cash flow — plus the ability to successfully execute expansion — allows us to invest in multiple projects at once and increase both profits and revenues. In 2017 and beyond, our de-leveraged position can facilitate investments of $3 billion or more.
Where does the world’s largest flooring company look for new growth? In every direction. Thanks to a fragmented global flooring market, we still have massive expansion potential. For example, the global ceramic market is roughly 131 billion square feet, and even though Mohawk is the world’s largest ceramic manufacturer, the company’s capacity is currently only 2 billion square feet. We are actively growing our ceramic business through acquisitions and increasing the capacity of our current facilities. We are also broadening our countertop business in the U.S. and Europe, entering the carpet tile business in Europe, the sheet vinyl business in Russia and the indoor/outdoor rug and utility mat businesses in the U.S. — just a few of the growth initiatives that are underway, accentuated by significant manufacturing capacity expansion of our core product categories.
Just over a decade ago, Mohawk’s operations were largely limited to two countries and two flooring categories. Today, we count manufacturing operations in 15 nations, sales distribution across more than 160 countries and leadership in every flooring product category. Each of these businesses provides an opportunity to leverage our knowledge, infrastructure and customer relationships to further expand into other product categories or adjacent markets. We have the financial leverage, technical expertise, management resources and local knowledge to build on our strong market positions and propel future growth.
While some public companies focus on meeting quarterly expectations or maximizing results in a given year, we focus on building a company that will last forever. It's a philosophy that has served our shareholders well, as Mohawk has outperformed the market for more than two decades. Over the past five, ten and 20 years, our compounded rates of return were 27.2 percent, 10.3 percent and 13.7 percent, respectively, surpassing the performances of the S&P 500 for those same periods by approximately 90 percent, 50 percent and 80 percent. We remain committed to a growth strategy that balances acquisitions with internal investments to drive growth and profitability. We believe that this strategy will continue to drive higher revenue and earnings and allow us to continue creating superior value for our shareholders.
For more information, contact:
Mohawk Industries, Inc.
160 South Industrial Boulevard
Calhoun, Georgia 30703
www.mohawkind.com
(706) 624-2246
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