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Despite challenges, Mohawk ups earnings

Don Hogsett -- Home Textiles Today, July 26, 2004

Even though rising oil and raw material costs put margins under mounting pressure, Mohawk Industries Inc. parlayed stronger sales into a 16.2 per increase in earnings, to $87.2 million from $75 million last year.

But largely because of the squeeze on margins, which more than offset lower costs, the acid test of earnings per share — the number Wall Street fixates on — came in beneath expectations, falling 2 cents shy of a consensus forecast of $1.31 per share. Disappointed stock watchers marked down the stock, the strongest in the U.S. textiles industry, but it recovered late Thursday, and ended the day down just 35 cents a share, or 0.49 percent.

Mohawk sales, bolstered by the acquisition of the Lees Carpet business from Burlington Industries, and strength in its core floor coverings businesses, raced ahead by 19.2 percent, to $1.5 billion from $1.2 billion a year ago.

Taking a bite out of the bottom line, average gross margin, pressured by rising raw material costs, narrowed 90 basis points, or nine-tenths of a percentage point, to 26.4 percent from 27.3 percent during the same period a year ago. Costs were whittled, but not enough to compensate for the pressure on margins, and declined 50 basis points, to 16.3 percent of sales.

"There continues to be costly pressures from natural gas and oil selling at or near historic highs," commented Jeffrey Lorberbaum, Mohawk chairman and CEO.

Looking to recoup some of its higher costs, Lorberbaum said Mohawk introduced multiple price increases for carpet prices during the first half, and is weighing "the timing and amount of selling price increases in the third quarter."

Looking forward, Mohawk said it anticipates the economy continuing to expand throughout the year. "We expect our revenue growth to moderate as comparisons with the prior year become more difficult in the second half. Future cost changes in natural gas, oil and commodity chemicals could impact our margins either positively or negatively in the second half."

Mohawk Industries Inc.

Qtr. 7/3 (x000) 2004 2003 % chg
Sales $1,486,916 $1,247,181 19.2
Oper. income (EBIT) 150,673 130,068 15.8
Net income 87,158a 74,985a 16.2
Per share (diluted) 1.29 1.12 15.2
Average gross margin 26.4% 27.3% --
SG&A expenses 16.3% 16.8% --
6 months 2004 2003 % chg
Sales 2,878,177 2,331,896 23.4
Oper. income (EBIT) 269,712 208,261 29.5
Net income 153,465b 116,625 31.6
Per share (diluted) 2.27 1.74 30.5
Average gross margin 26.0% 26.4% --
SG&A expenses 16.7% 17.4% --
a-First-quarter results include $991,000 in miscellaneous expense, compared with $2.1 million in miscellaneous income during the same period last year.
b-Six-month results include $2.4 million in miscellaneous expense, compared with $2.6 million in miscellaneous income a year ago.


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