Lower-margin rugs lead way for Mohawk
July 22, 2008,
Dalton, Ga. – Amid “dramatic inflation costs” stemming from swelling energy, material and freight costs, Mohawk Industries’ area rug lines performed “better” vs. some hard flooring and related products during the company’s second quarter.
“Commercial and rug products are performing better, while the hard surface and cushion products are declining more than residential,” said chairman and ceo Jeffrey Lorberbaum on the second-quarter earnings call today.
The carpet business is running 65% to 75% of capacity, he said. Price increases on these categories are looming. The company announced two carpet price increases in June and July, totaling about 10%, which are to be implemented during the third and fourth quarters.
Lorberbaum explained the basis for the coming price hikes. “Many of our raw materials are going up 30% to 50% from the first of the year. Polyester is increasing less than nylon and polypropylene, making it a better value for the consumer.”
Customers of Mohawk-branded goods have been equally pressured by rising costs for food, gas and healthcare, forcing them to “trade down in quality,” Lorberbaum observed.
He elaborated on the direct effects of this on Mohawk-branded carpet products: “The middle part is the most affected, the higher end is affected less than that, and the lower end has no place to trade down to. Customers are trading down, and quality with it. We’re trying to make sure we have our products in right place and the right prices to satisfy the market as it goes.”
He added that this “is impacting our margins.”
Mohawk reported quarterly net earnings of $89 million and diluted earnings per share of $1.29, both 23% below last year. Net sales of $1.84 billion were down 7% from the year-ago period. The manufacturer said it paid down $183 million in debt, improving its debt-to-capital ratio to 30%.
On the residential side of Mohawk’s business, the major focus going forward is on the retail replacement category through independent dealers, home centers and multi-family. In both the home center and multi-family channels, “We’ve received additional commitments, which will help us in the fall,” Lorberbaum said. “Our mid-season product launches are getting into the stores and will satisfy specific style and performance needs as well as fill some valued positions which have been vacated.”