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Mohawk Q1 Profit Beats Forecast, Sorona Fiber Gains Momentum

Mohawk Industries Inc. exceeded expectations during its first quarter and saw its residential business – which includes carpet and rugs sales – improve, thanks in part to its SmartStrand Sorona-branded fiber products.

“Our earnings were higher than expected as the economic cycle has bottomed, and we had more favorable cost reductions and foreign exchange. Our first quarter sales were flat compared to the fourth quarter due to an improving residential business,” said Jeffrey Lorberbaum, chairman and ceo.

During the quarter, Mohawk boosted manufacturing and distribution processes and reduced its cost structure, he said.

“We purchased $200 million of our bonds in April that will save cash and improve earnings this year. Both rating agencies upgraded their outlook of Mohawk to stable, in recognition of our strong cash flow and the improving economy,” he added.

Net earnings were $21 million, or 30 cents per share, compared to a net loss in last year's first quarter of $106 million, or $1.55 per share. Results included a $4 million charge related to manufacturing infrastructure.

Revenue for the quarter was $1.35 billion, up 2% from 2009's adjusted sales of $1.21 billion, or a 1% increase with a constant exchange rate.

“In the quarter we had four more shipping days or about a 6% impact,” Lorberbaum noted. “Our cash position and liquidity remain strong with over $450 million in cash and a capital structure that supports our business.”

By segment, Mohawk – which includes area, accent and bath rug division Mohawk Home – saw its net sales increase by 2% compared to adjusted sales last year. The company said the industry is “lagging the overall economy as compressed housing prices reduced consumer remodeling.”

But Mohawk's consumer tests showed its SmartStrand Sorona-branded carpets and rugs “are the softest products available in the market place and are favored by our consumers.”

To build on the favorable response to polyester fibers and the SmartStrand Sorona fiber, the company has several new initiatives in place this year. One is to release new products earlier to retailers “to enhance our position” at the store level against competitors' goods, and new investments in additional extrusion capacity to answer for growing demand. The latter has begun this year and will be fully implemented by 2011.

Restructurings initiated in 2009 in both carpet and backing plants are substantially complete and are generating cost savings in the business, the company reported. The 4% to 6% carpet price increase announced in December will be fully implemented in by the third quarter but possibly as early as the second quarter.

Lorberbaum said prices for all of the company's raw material needs have increased “further than we anticipated in the first quarter with commodity and transportation costs continuing to rise.” Consistent with past changes in costs, Mohawk recently announced an additional carpet price increase of 5% to 7% to recover the change in material costs.

Mohawk expects its residential category to continue to improve through 2010, but is less hopeful about its commercial business, which is expected to remain difficult.

“The future periods should improve as we come out of our seasonally slower first quarter,” he said.

Mohawk Industries' second quarter guidance for earnings is 60 cents to 68 cents per share, which excludes the cost of purchasing its bonds.

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