Mohawk beats Street, affirms outlook in Q3
July 21, 2003-- Home Textiles Today,
Calhoun, GA — Helped by modestly stronger sales and a deep cut in interest costs, which helped to offset weaker margins and higher costs, Mohawk Industries Inc. — the nation's second-largest carpet producer and fourth-largest home fashions supplier — held second-quarter profits relatively steady, down a slender 0.7 percent, to $75.0 million from $75.5 million last year.
Earnings per share beat analysts' forecasts, improving by 1.8 percent, to $1.12 from $1.10 last year, as the company reduced the number of shares outstanding as part of an ongoing stock buyback.
Buoyed by the news, investors drove Mohawk stock up by 8.3 percent, or $4.84 a share, to a 12-month high of $62.98 on July 17, the day after the news was reported.
Given a lift by double-digit sales growth in the Dal-Tile hard-flooring division, acquired acquired a year ago, overall Mohawk sales edged up by 1.6 percent, to $1.25 billion from $1.23 billion last year. Dal-Tile sales surged by 10.9 percent, to $320.4 million from $289.1 million last year. But excluding the strong assist from Dal-Tile, sales in the Mohawk and Mohawk Home units slipped by 1.3 percent, held in check by a weak economic environment and sluggish retail sales.
Tugging at the bottom line, average gross margin thinned by 40 basis points, or four-tenths of a percentage point, to 27.3 percent from 27.7 percent the prior year, pressured by rising raw material costs. Operating costs moved up to 16.9 percent of sales from 16.3 percent a year ago, a gain of 60 basis points, or six-tenths of a percentage point. Measured in raw dollars, operating expenses jumped up by 5.0 percent, or $9.9 million, to $210.0 million.
But providing considerable relief to the bottom line, Mohawk whittled down its interest expense by more than a fourth, or 27.5 percent, to $14.1 million from $19.4 million, generating a cash savings of $5.3 million.
Seeking of offset rising raw material costs, notably fibers and petroleum-derived products, subject to rising oil prices, Mohawk said it put in place a price increase in carpets during the second quarter.
"I am encouraged by the improving trend we saw in the residential and commercial carpet industry and the continued strength in hard surface products during the second quarter," said Jeffrey Lorberbaum, president and ceo. "During the last part of the quarter we began to experience improvements in both the carpet shipment and incoming order rates. We are encouraged by these trends but believe the economy still has significant room to improve."
Going forward, the company said, "Most economists are forecasting business conditions to show improvement in the fall of this year. As the economy improves, more consumer dollars are expected to be spend on home decoration, increasing sales of floor covering products." Based on these factors, the company forecast third-quarter earnings per share in the range of $1.25 to $1.35, up by three to 11 percent from $1.21 per fully diluted share a year ago.
Related Content By Author
New homes for Indo Count, Trident