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Katrina's Wake Hits Mohawk

Hampered by rising raw material costs and increasing energy costs in the wake of Hurricanes Katrina and Rita, third quarter profits at Mohawk Industries Inc. slipped 3.6 percent, to $108.7 million from $112.7 million last year.

Helped by strong business as well as price increases, sales at the floor covering and home fashions supplier climbed 11 percent, to $1.7 billion from $1.5 billion during the prior-year period.

Putting the bite on the bottom line was a combination of lower margins and higher costs.

Hurt by higher raw material and energy costs, average gross margin contracted 190 basis points, or 1.9 percentage points, to 26.6 percent from 28.5 percent a year ago.

But with higher sales offsetting thinning margins, gross margin dollars still improved 3.6 percent, to $451.9 million from $436.1 million. Operating costs inched modestly higher, 20 basis points, or two-tenths of a percentage point, to 16.1 percent of sales, compared with 15.9 percent the preceding year.

Putting further pressure on the bottom line were additional ceramic tile introductions that were shifted from the second to the third quarter.

Jeffrey Lorberbaum, chairman and CEO, commented: “The effect of both Hurricanes Katrina and Rita has reduced our results in the third quarter as we previously reported. As our raw material supply chain has begun to bring production capacity back on line, we are seeing cost increases and some supply disruptions. Additionally, natural gas, diesel fuel and gasoline prices have substantially increased in the quarter.”

Easing some of the pain, said Lorberbaum, Mohawk increased the price of carpets 5 to 8 percent in early October, and also increased hard surface prices.

A similar price increase in carpets — 5 to 8 percent -- will take place in mid-November to offset continuing cost increases, he added.

Hardest hit by raw material costs was the core Mohawk carpet business, where operating profits dropped off 15.6 percent, to $110.8 million from $131.4 million, while sales shot up more than 10 percent, to $1.2 billion.

Less affected by turmoil in the petrochemical supply in the wake of Gulf hurricanes, operating profits in the Dal-Tile hard surface business climbed 10.2 percent on 12.3 percent growth in sales.

Lorberbaum said, “The petrochemical industry on the Gulf Coast continues to struggle with the aftermath.

Mohawk Industries Inc.

Qtr. 10/1 (x000) 2005 2004 % change
a. Third quarter results include miscellaneous income of $400,000, compared with miscellaneous expense of $2.5 million during the same period a year ago.
Nine month results include miscellaneous expense of $2.5 million, compared with $4.9 million during the prior-year third quarter.
Sales $1,697,634 $1,529,651 11.0
Oper. income (EBIT) 177,816 193,058 -7.9
Net income 108,652a 112,687a -3.6
Per share (diluted) 1.61 1.67 -3.6
Average gross margin 26.6% 28.5%
SG&A expenses 16.1% 15.9%
Nine months
Sales 4,815,548 4,405,273 9.3
Oper. income (EBIT) 461,935 462,770 -0.2
Net income 272,483b 266,152b 2.4
Per share (diluted) 4.03 3.94 2.3
Average gross margin 26.3% 27.4%
SG&A expenses 16.7% 16.8%


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