Mohawk profits up, outlook tough
October 27, 2006-- Home Textiles Today,
Calhoun, Ga. -- Getting a big lift from a recent acquisition, deep cuts in capital spending and an $8.8 million refund from U.S. Customs, Mohawk Industries pushed third-quarter profits up by 10.3%, to $127.7 million from $115.8 million last year – but operating profits in the core unit fell by 9.4% to $110.5 million from $121.9 million a year ago.
Sales, similar to earnings, were lifted by this year's acquisition of Unilin, a European hard flooring operation. Sales climbed higher by 19.2%, to $2.0 billion from $1.7 billion last year. Sales in the core Mohawk business declined by 1.2%, to $1.2 billion.
Dal-Tile division sales grew by 11.5%, to $501.2 million from $449.4 million, but operating profits hit the wall, unchanged at $69 million.
The added growth from Unilin comes at a price. Mohawk paid down $168 million in debt during the period, but long-term debt still more than tripled to $2.4 billion from $700,000 last year. Interest expense on the debt more than quadrupled to $44.7 million from $10.8 million during last year's third quarter.
Jeffrey Lorberbaum, chairman and ceo, said, "As all levels of the industry try to stimulate consumer purchases, we see more promotional activity," squeezing margins and leading to slowdowns in its plants. "Production schedules have been reduced to reflect lower demand and control inventory levels."
Wall Street was miffed by what it heard from one of the few bright lights in the American textiles industry, and knocked the stock down in heavy trading by 3.8% at mid-day, or $2.98 a share, to $74.81. Leading the retreat, brokerage house USB cut its rating on Mohawk shares to 'neutral' from a prior 'buy' rating.
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