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Mohawk Sharpens Game Plan

Calhoun, Ga. — Mohawk Industries' soft flooring segment, Mohawk, was not a strong performer for the company during its just-ended third quarter. “We didn't do as well as I'd like to do on the Mohawk side,” said chairman and ceo Jeffrey Lorberbaum on the analysts conference call. Lorberbaum cited a “challenging environment” for the division, with industry units off by about 20% from their peak.

But the unit has potential, he said, emphasizing the company is taking steps “to get it where we'd like it to be.” Elements of the plan include:

  • Carpet price increases. “There is a higher level of promotions and pressures on commodity products in the industry,” said Lorberbaum, noting, “Our raw material costs stabilized during the third quarter — and remain difficult to predict.”

  • Shutting facilities, including a staple yarn plant and a tufting plant — “because of shifts in demand and cost reductions.”

  • Accelerating introductions in key categories and focusing sales and promotions efforts on such promising areas as multi-family, higher-end replacement and commercial — in light of continued slowing of residential demand.

  • New trademarked Mohawk SmartStrand carpet featuring DuPont Sorona corn-based polymer — “an additional feature that adds value to the already successful Premium collection,” Lorberbaum said.

  • Exiting from its flat-weaving business, which was primarily used to make throws but also manufacture red decorative pillows, some blankets and other home textiles accessories.

On a related note, when asked by an analyst about the Mohawk segment's current yarn mix versus a year ago, Lorberbaum said, “The nylon filament and polyester categories are doing better, and polypropylene and staple nylon are doing worse.”

Mohawk Industries reported net earnings of $122 million for the third quarter, down 4.7% from $128 million from the same period one year ago. Sales fell 4% to $1.9 billion.

Year to date, earnings of $328 million were up slightly from $326 one year ago. Sales were off 4% to $5.8 billion.

The company's gross margins have held remarkably steady, while SG&A costs crept up 70 basis points to 17.8% in the third quarter from 17.1% a year ago; costs are up 50 basis points year to date.

Mohawk Industries

Qtr. 9/29 ($millions) 2007 2006 % CHANGE
(loss)
a. Net earnings and earnings per share in 2007 include a charge of $14.2 million before tax ($0.13 per share) related to plant closings in the Mohawk and Dal-Tile segments.
b. In the third quarter of 2006, net earnings and EPS included a benefit of $8.8 million before tax ($0.08 per share) related to a refund from U.S. Customs.
c. Net earnings and EPS in the first nine months 2006 included a benefit of $15.1 million before tax ($0.14 per share) related to a refund from U.S. Customs..
Sales $1,938 $2,024 (4.2)%
Oper. Income (EBIT) 201 223 (9.9)
Net income 122a 128b (4.7)
Per share (diluted) 1.79a 1.89b (5.3)
Average gross margin 28.1% 28.1%
SG&A expenses 17.8% 17.1%
NINE MONTHS
Sales $5,779 $6,007 (3.8)%
Oper. Income (EBIT) 570 610 (6.6)
Net income 328a 326c 0.6
Per share(diluted) 4.81a 4.82c
Average gross margin 28.1% 27.9%
SG&A expenses 18.3% 17.8%


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