Mohawk Growth Slows

Calhoun, Ga. — Hampered by a broadly soft market, higher raw material and energy costs, a jump in inventories and a drop in its big home fashions business, Mohawk Industries Inc. reported that first quarter profits rose a lackluster 5.1 percent, while sales climbed 7.4 percent, both figures lagging the sharply faster pace of growth the company has set in recent years.

Earnings in the opening quarter advanced slightly more than 5 percent, to $70 million from $66.3 million last year, and per-share earnings rose to $1.03 from 98 cents.

That was an improvement over the fourth quarter of last year, when profits were virtually flat, inching up just 0.3 percent. But it was also well off the rapid earnings growth the company reported through most of last year — with profits up 58.1 percent in the first quarter; 16.2 percent in the second quarter; and 23.3 percent in the third quarter of 2004.

Sales advanced 7.4 percent, to $1.5 billion from $1.4 billion. But even that was slightly behind the 7.8 percent growth during the fourth quarter; the 25.6 percent of last year's first quarter; the 19.2 percent top-line growth of the second quarter; and the 17.5 percent of the 2004 third quarter.

Sales in the core Mohawk business — Mohawk floor coverings and Mohawk Home — rose 5.9 percent, to $1.1 billion, but lagged the 11.9 percent growth put up in the Dal-Tile hard flooring business. Dal-Tile operating profits shot up 18.4 percent, to $58.5 million, eclipsing a profit drop of 8.6 percent in the core Mohawk business.

Helping to prop up the bottom line were price increases that helped offset rising raw material costs; continued cost-cutting, which helped to offset weaker margins; and lower interest costs. But taking a big bite out of profits, inventories soared sharply higher in the period, by 27.7 percent — way ahead of the 7.4 percent increase in sales — to $1.1 billion from $897.5 million during the same period a year ago.

In a notable departure from past practice, Mohawk alluded to results in its big Mohawk Home business, even though it did not break out specific results for the segment. “Home product sales,” the company said, “were down, with some customers postponing introductions and reducing inventories. We have also dropped some imported home products, which did not meet our return expectations.”

Mohawk Industries Inc.

Qtr. 4/2 (x000) 2005 2004 % change
a. First quarter results include miscellaneous expenses of $2 million, compared with $1.4 million during the same quarter a year ago.
Sales $1,493,222 $1,389,725 7.4
Oper. Income (EBIT) 123,630 119,039 3.9
Net income 70,020a 66,307a 5.6
Per share (diluted) 1.03 0.98 5.1
Average gross margin 25.8% 26.3%
SG&A expenses 17.5% 17.7%

First Quarter Segment Results

Sales 2005 2004 % change
Mohawk $1,091,346 $1,030,442 5.9
Dal-Tile 401,876 359,283 11.9
Operating Income 2005 2004 % change
Mohawk 65,625 71,772 -8.6
Dal-Tile 58,470 49,402 18.4

Home & Textiles Today Staff | News & Commentary

 Home Textiles Today is the market-leading brand covering the home and textiles markets, offering a comprehensive package of print and online products. Home & Textiles Today provides industry news, product trends and introductions, exclusive industry research, consumer data, store operations solutions, trade show news and much more.

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