Business News
Mohawk Industries, Inc. Announces First Quarter Earnings
Friday 18. April 2008 - Mohawk Industries, Inc. (NYSE:MHK) today announced 2008 first quarter net earnings of $65 million and diluted earnings per share (EPS) of $0.95 (both 28% below last year).
Last year a $9 million pre-tax refund ($6 million after tax) from U.S. Customs was received and we are still anticipating additional refunds. Net sales for the quarter were $1,738 million, a decrease of 6.7% from 2007. Our balance sheet remained strong during the quarter with debt to capitalization at 32% and debt to EBITDA at 2.3.
The U.S. economy continues to slow and is being impacted by tightening credit, contracting residential home sales, declining consumer confidence, and increasing costs. The flooring industry is in a cyclical downturn and the residential remodeling category is one of the first to fall but leads the rebound when the economy improves. Spending on commercial has remained positive though it is expected to slow in the future. The U.S. credit problems have affected Europe with growth expected to be flat to modest overall and good in Eastern Europe and Russia.
In commenting on the first quarter results, Jeffrey S. Lorberbaum, Chairman and CEO, stated: “Our performance for the first quarter exceeded our guidance for the period in a very difficult environment. All of our business segments have managed through cyclical downturns in the past and are focused on improving productivity and quality, reducing infrastructure costs, passing along increased costs, controlling working capital, and investing in products and assets to enhance our future.
“Our Mohawk segment has continued to slow with weak industry conditions resulting in sales declining 13.6%. Residential sales remain slow with new and existing home sales low and consumers postponing purchases. Our carpet price increases are being implemented during the quarter and should be substantially complete by the end of the second quarter. To better align with present volumes, additional reductions in infrastructure costs and production levels were made during the period. New residential introductions are being shipped earlier than prior years and are concentrated on fashion and value engineered products. Commercial product sales are stronger than residential. Carpet tiles continue to grow and our new Encycle tile with leading edge technology has benefits that make it more durable, environmentally friendly and economically advantageous. Raw material and energy costs are rising and may require future pricing action. Many initiatives to reduce energy and water consumption are being implemented in our operations. A new Mohawk consumer campaign is being launched that co-ordinates TV, print and digital marketing appealing to the design enthusiast with fashionable styling and superior selection.
“The Dal-Tile segment sales in the first quarter declined 3.8% which we believe outperformed the industry again. Strong growth in the commercial market is off-setting some of the weakness in the residential market. Our sales in Mexico and Canada have continued to expand as we increase our penetration in those markets. Our distribution system has been expanded with the opening of a new service center in Michigan and we have planned three to four more this year. Our sales force and new introductions are focusing on the better performing commercial, multi-family and higher end remodeling categories. Our ceramic price increase initiated in the fourth quarter is substantially implemented. In April, we are executing additional price increases on selected products and raising the energy surcharge to pass along increased costs. Cost reduction initiatives remain a priority concentrated on SG&A, manufacturing productivity, inventory management, freight and raw materials. Dal-Tile’s new product ‘Metro Leather’ won the Dealer’s Choice Award for the best new ceramic tile.
“The Unilin segment sales were up 14.7% in the first quarter as reported and up 4.7% using a constant exchange rate. Unilin sales were down 6.2% excluding our wood acquisition on a local basis. Both the European and U.S. markets slowed in the period with growth continuing in Eastern Europe and Russia. Sales grew in U.S. laminate and European roofing systems with the other products slowing compared to the prior year. Our costs increased due to plant start up expenses, rising energy and materials, higher costs for U.S. imports and lower overhead absorption. Price increases are being executed in some markets to offset rising costs and currency changes. Reductions in staffing and production levels are being made to further align with industry conditions. Our U.S. flooring expansion should begin production by the end of the second quarter and will reduce imports of higher cost products from Europe. Our wood flooring team continues to improve operational costs and quality as planned. Our wood production is operating at a loss and experiencing lower volumes with the industry. We are launching new distressed and antique looks as well as a patented installation system to enhance our position.”
Although seasonal improvements will benefit the second quarter, we expect to have many of the same challenges we faced during the first quarter. Weak demand and higher costs in the U.S. and Europe will weigh on our future results. We will adjust our business as changes in customer demand and costs require. Lower debt levels, reduced tax rates and beneficial exchange rates will positively affect our results. Based on these factors, our guidance for the second quarter of 2008 is $1.36 to $1.45. In spite of a difficult flooring market, Mohawk continues to modernize manufacturing facilities, create innovative products, and launch exciting advertising and promotional campaigns. We are positioned with a more dynamic and cost effective enterprise for the turn around that always occurs.
Certain of the statements in the immediately preceding paragraphs, particularly anticipating future performance, business prospects, growth and operating strategies, proposed acquisitions, and similar matters, and those that include the words “could,” “should,” “believes,” “anticipates,” “forecasts,” “estimates,” or similar expressions constitute “forward-looking statements.” For those statements, Mohawk claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. There can be no assurance that the forward- looking statements will be accurate because they are based on many assumptions, which involve risks and uncertainties. The following important factors could cause future results to differ: changes in economic or industry conditions; competition; raw material and energy prices; timing and level of capital expenditures; integration of acquisitions; introduction of new products; rationalization of operations; litigation and other risks identified in Mohawk’s SEC reports and public announcements.