• Cecile Corral

Mohawk Taking Write-off, Closing Yarn Plants

Coming off a brutal third quarter amidst what the company described as "one of the most difficult periods in the history of our industry," Mohawk Industries Inc. announced last week that it is "adjusting to this environment" going forward with several cost cutting initiatives at the sales, manufacturing and administrative levels.

Among them is the closing in the fourth quarter of two staple yarn plants and several regional distribution centers, totaling more than 1 million square feet and both related to Mohawk's broadloom carpet business, as an effort "to right-size the business," explained Jeffrey Lorberbaum, chairman and ceo, during the quarterly call with analysts.

"This restructuring will benefit us with lower overhead and more efficient operations going forward," he continued. "In the fourth quarter we're reducing operating levels to adapt to slowing sales and have plans to idle more capacity to control inventory levels. We're carefully rationalizing all of our facilities to match needs for both the near and long term environment."

The company did single out its area rug category as an area of growth, one that was "performing better" than other Mohawk flooring products.

Due to its "declining stock price and deteriorating industry conditions," Mohawk took close to $1.5 billion in combined tax and "goodwill and other intangibles" impairments for the quarter. Mohawk shares, with a 52-week high of $83.70, had fallen from an October price above $65 to around $45, and headed below $35 following the news.

The company said this non-cash write-off turned what would have been earnings of $76 million or $1.10 per share into a net loss of $1.4 billion or $20.37 per share. Year-ago earnings were $122 million, or $1.78 per share.

Quarterly sales of $1.76 billion were down 9% from the same period one year ago.

For the first nine months of 2008, the loss was $1.24 billion, or $18.12 per share including the non-cash write off and deferred tax asset impairment. Excluding the non-cash write-offs, Mohawk recorded non-GAAP net earnings of $230 million, or $3.35 per share, in the first nine months. Net sales of $5.34 billion were down 8% from the year-ago period.

Lorberbaum said rug products have been more resilient to the economic downturn because they allow customers to "add new colors and design with a limited investment, and we've gained additional placement with our customer base."

Raw materials proved a thorny issue during the third quarter as prices "spiked more than we had anticipated, and chemical prices peaked following energy and oil," Lorberbaum said. But lately raw material prices are softening, he said, "and should impact our first and second quarters."

Lorberbaum added that polyester "continues to offer greater value to the consumer and is taking share from other fibers." Building on that momentum, new promotions under the Mohawk brand began running in October for the company's new eco-minded SmartStrand brands of polyester.

Cecile CorralCecile Corral | Senior Product Editor, Home & Textiles Today

Cecile B. Corral has been a product editor with Home Textiles Today since late 2000. She covers the area and accent rug, kitchen textiles, table linens, beach towels, decorative bath and decorative pillow categories, as well as some retail subjects.

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