Mohawk 3Q profits get boost from Dal-Tile biz

Don Hogsett, Staff Staff, October 28, 2002

Lifted by sharply stronger sales, generated mostly by an earlier acquisition, and given a further assist by substantially wider margins, third-quarter profits at Mohawk Industries Inc. jumped up by 46.4 percent, to $81.6 million from $55.7 million last year.

Sales climbed higher by more than a third, rising by 34.9 percent, to $1.2 billion from $907.9 million the prior year, with most of the big gain from the buyout of floor tile producer Dal-Tile.

Sales in the core Mohawk products business grew by 2.0 percent, the company said, to $927.1 million, mostly on the strength of hard surface flooring products. The Dal-Tile business grew at a substantially faster pace of 9.0 percent, to $297.4 million.

Fueling the big gain in earnings, in addition to the stronger sales, average gross margin strengthened by 360 basis points, or 3.6 percentage points, to 27.8 percent from 24.2 percent the preceding year, due to the Dal-Tile segment's stronger profit margins. Gross margin dollars grew by 55.3 percent, to $340.7 million from $219.4 million a year ago.

But somewhat offsetting the wider margins, operating costs climbed higher as well, rising by 220 basis points, or 2.2 percentage points, to 16.2 percent of sales from 14.0 percent in 2001, due to Dal-Tile's higher cost structure, Mohawk reported.

"We are very pleased with the performance of Dal-Tile and its contribution to our results since the acquisition was completed," commented Jeffrey Lorberbaum, president and ceo. "The growth prospects for the Dal-Tile products are very good with the opportunity to increase their distribution through new residential channels. We successfully completed the first phase of the Dal-Tile integration during the third quarter. The company can now ship tile products carried in the Dal-Tile warehouses to customers through the Mohawk distribution channels using the existing Mohawk order-entry system. We are on schedule with our long-term plan to leverage our two businesses and provide additional value to our customers.

"Our strategic move to position our company as a leader in all floor covering products is progressing as planned, with approximately 30 percent of our total sales in hard-surface products. With our strong financial position, we are optimistic about our future when the economy fully recovers."

Looking ahead, Lorberbaum said, "There continues to be much uncertainty in the economy, which makes forecasting future periods very difficult. Based on the present economic conditions, we anticipate that the fourth-quarter earnings will be 5 percent to 10 percent above 2001."

Mohawk Industries Inc.

Qtr. 9/28 (x000) 2002 2001 % change
Sales $1,224,403 $907,850 34.9
Oper. income 142,878 92,408 54.6
Net income 81,560a 55,727a 46.4
Per share (diluted) 1.21b 1.05b 15.2
Average gross margin 27.8% 24.2%
SG&A expenses 16.2% 14.0%
Nine months
Sales 3,318,860 2,550,147 30.1
Oper. income (EBIT) 356,209 229,574 55.2
Net income 200,288a 129,399a 54.8
Per share (diluted) 3.13b 2.44b 28.3
Average gross margin 27.0% 24.0%
SG&A expenses 16.2% 15.0%
a-Third-quarter results include $888,000 in miscellaneous expense, compared with $1.1 million last year. For the nine months, the company recorded miscellaneous income of $109,000, compared with miscellaneous costs of $4.1 million in 2001.
b-Earnings per share in the third quarter and nine months were reduced by a greater number of average shares outstanding, 66.8 million shares during the quarter, up 27.5 percent form 52.4 million a year ago; for the nine months, the average number of shares rose to 64,086 from 53,021 a year ago.

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