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Mohawk posts modest decline in 2Q profits

Beats Wall St. expectations

With margins gaining strength and interest expense coming down, Mohawk Industries posted a modest 1.6 percent decline in second-quarter profits, to $46.5 million from $47.2 million last year, beating Wall Street expectations with a surprisingly strong performance.

Lifted by an aggressive stock buyback, earnings for the floor coverings and home textiles producer came in at 88 cents per share, easily beating a consensus Wall Street forecast of 75 cents a share.

Sales at the nation's fourth-largest home textiles producer slipped by 2.9 percent, to $828.3 million from $852.8 million last year.

Cheered by the unexpectedly strong performance, Wall Street rewarded the stock, driving Mohawk shares up by 13.8 percent in value, or $4.94 per share, to $40.77 from $35.83.

Spurred by the strong performance, Credit Suisse/ First Boston analyst Dennis Rosenberg upgraded Mohawk stock to a "buy" from a "hold" and lifted his full-year earnings estimate to $3.00 a share from an earlier forecast of $2.75. Rosenberg also hiked his 2002 forecast to $3.40 from $3.05. The analyst set a 12-month stock price target of $50 a share, more than 20 percent higher than the current trading level.

Driving the better-than-expected earnings performance, Mohawk pushed its average gross margin higher by 90 basis points, despite the softening in sales, to 26.2 percent from 25.3 percent a year ago.

Jeffrey Lorberbaum, Mohawk president and ceo, said, margin improvement resulted from "increased manufacturing efficiencies, cost containment and improvements in manufacturing utilization."

In another big lift to the bottom line, interest expense was pared by 14.9 percent, to $8.2 million from $9.7 million, a cash savings of $1.5 million. John Swift, cfo, told investors in a conference call that lower debt levels — to $555 million from $614 million, a 9.6 percent reduction — produced the savings in interest expense.

Honing in on the home textiles business, Lorberbaum told investors in a conference call Mohawk is completing the integration of the Crown Crafts woven products business it acquired, and is "expanding offerings of home products with new licenses." At the same time, he said, Mohawk is expanding two manufacturing plants to consolidate its rapidly growing home fashions operations.

Lorberbaum said he foresees "no immediate improvement in the economy," but looking further out sees some hopeful signs, including lower gas and oil costs, a sustained low interest rate environment, and a stronger-than-expected market for home sales.

Mohawk Industries Inc.

Qtr. 6/30 (x000) 2001 2000 % CHG
Sales $828,348 $852,808 -2.9
Oper. income (EBIT) 83,561 88,911 -6.0
Net income 46,466 47,203 -1.6
Per share (diluted) 0.88 0.87 1.1
Average gross margin 26.2% 25.3%
SG&A expenses 16.1% 14.9%
Six months
Sales 1,572,031 1,617,891 -2.8
Oper. income (EBIT) 137,166 154,617 -11.3
Net income 73,672 81,200 -9.3
Per share (diluted) 1.39 1.47 -5.4
Average gross margin 25.1% 25.1%
SG&A expenses 16.4% 15.6%

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