Mohawk surges ahead

Don Hogsett, February 10, 2003

Building on the strength of last year's Dal-Tile acquisition, which put Mohawk Industries Inc. into the highly profitable hard flooring market, Mohawk drove its fourth-quarter profits up a heady 42.2 percent, to $84.2 million from $59.2 million.

Once again driven by the Dal-Tile deal, sales climbed higher by 34.3 percent, to $1.2 billion from $895.8 million last year.

Attesting to Mohawk's skills at rapidly and profitably assimilating the companies that it buys, the Dal-Tile acquisition, which took place in March, added about $0.12 to Mohawk per-share profits of $1.25 last year, accounting for roughly 15 percent of Mohawk's bottom line last year.

And that wasn't the only superlative that the quarter produced. With sales and margins both growing, operating profits jumped up by 66.9 percent, to $162.9 million from $97.6 million.

That strong performance generated for Mohawk an operating margin —operating profits measured as a percentage of sales — is virtually unheard of in the home textiles business — 13.5 percent, up from 10.9 percent a year ago. And return on sales — net income as a percentage of sales — also hit virtually unprecedented levels for a textiles producer — 7.0 percent vs. 6.6 percent a year ago.

Helping to fuel the earnings improvement, in addition to the stronger sales, Mohawk expanded its average gross margin by 390 basis points, or 3.9 percentage points, to 28.5 percent from 24.6 percent the preceding year. Gross margin dollars, a coefficient of stronger sales and wider margins, rocketed up by 55.8 percent, to $342.7 million from $220.0 million last year.

But acting as a partial offset, operating costs climbed higher as well, moving up by 120 basis points, to 14.9 percent from 13.7 percent, the result of Dal-Tile's higher cost structure.

Putting a modest dent in the bottom line, interest expense grew almost five-fold, by 363.8, to $26.6 million from $5.7 million last year, in part due to borrowings to finance the Dal-Tile acquisition. But also included in the interest expense, the company said, is a $10.7 million charge related to an interest-rate hedge on about $100 million principal amount of variable-rate debt.

Mohawk Industries Inc.

Qtr. 12/31/02 (x000) 2002 2001 % change
a-Fourth-quarter results include miscellaneous expenses of $6.6 million vs. $1.9 million last year. For the 12-month period, miscellaneous expenses totaled $6.5 million, compared with $6.0 million the preceding year.
Sales $1,203,476 $895,798 34.3
Oper. income (EBIT) 162,903 97,583 66.9
Net income 84,201a 59,193a 42.2
per share (diluted) 1.25 1.11 12.6
Average gross margin 28.5% 24.6%
SG&A expenses 14.9% 13.7%
12 months
Sales 4,522,336 3,445,945 31.2
Oper. income (EBIT) 519,112 327,157 58.7
Net income 284,489a 188,592a 50.8
Per share (diluted) 4.39 3.55 23.7
Average gross margin 27.4% 24.2%
SG&A expenses 15.9% 14.7%

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