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Mohawk Predicting Gloom

Don Hogsett, October 3, 2005

Calhoun, Ga. — With Hurricane Katrina disrupting the flow of oil and petrochemical products, pushing raw material prices sharply higher, Mohawk Industries Inc. hoisted a yellow caution flag and warned analysts and investors that third quarter profits will come in beneath expectation.

The large manmade fiber carpet producer said, “Katrina has severely disrupted the petrochemical industry, causing significant cost increases in carpet raw materials and possible supply disruptions.”

Mohawk said, “These constant increases reflect higher oil prices and shortages of refining capacity raising chemical costs used in our raw materials. At this point, these chemicals have not stabilized and may continue to escalate in price.”

Putting further pressure on profits, “energy costs have increased substantially in the third quarter, with natural gas going up more than 50 percent.” Creating even more pain are rising gas prices, which are adding to distribution costs. “Internal and external transportation cost increases have not been fully recovered in our price surcharges.”

Adding to its jitters, Mohawk said it's “concerned that Katrina and rising energy costs will have a short-term negative effect on consumer confidence and the overall economy,” triggering a pull-back in consumer spending which could put a crimp in sales.

Given its overall concerns, Mohawk said it is paring its third quarter earnings forecast to a range of $1.49 to $1.58 per fully diluted share, down from an earlier estimate of $1.60 to $1.63. Fourth quarter profits are forecast at $1.49 to $1.58.

It's too soon, Mohawk said, to gauge Katrina's impact on fourth quarter profits, which had been estimated at $1.49 to $1.59 per share.

Looking beyond the hurdle put up by Katrina, Wall Street appeared unfazed by the news. Indeed, the day the news came out, an otherwise down day for financial markets, Mohawk's share price rose by 1.1 percent, or 84 cents, to $78.84 per share.

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