Business News
Mohawk Industries, Inc. Announces Fourth Quarter Earnings
Tuesday 24. February 2009 - Mohawk Industries, Inc. (NYSE:MHK) today announced 2008 fourth quarter sales of $1,485 million, a decrease of 18% from 2007. Excluding charges, our operating income was $61 million for the quarter as we had anticipated.
Operating income including charges was a loss of $93 million. As we discussed the possibility in the third quarter call, the continuing decline in Mohawk’s stock price and deterioration of industry conditions during the fourth quarter resulted in a pre-tax non-cash impairment charge of $124 million for goodwill and other intangible assets. During the quarter, we recorded a $30 million pre-tax charge related to business restructuring as previously announced. The company generated cash flow from operations of $199 million and paid down debt of $100 million. A net loss of $128 million or $1.87 per share was reported including these charges.
Net sales for the year were $6,826 million representing a 10% decrease from 2007. Excluding charges, our operating income was $449 million for the year. Operating income including charges was a loss of $1,124 million. The net loss was $1,458 million or $21.32 per share including pre-tax non-cash charges for goodwill and intangibles of $1,543 million, and a deferred tax impairment of $253 million and a business restructuring charge of $30 million pre-tax. We generated $570 million of cash flow from operations and paid debt of $333 million during the year.
In commenting on the fourth quarter results, Jeffrey S. Lorberbaum, Chairman and CEO stated, “We are in an unprecedented time with the U.S. and World economies under great stress. Our category is suffering from the same issues as the entire economy including increasing unemployment, falling consumer confidence, limited credit availability and declining business investment. In addition, the housing contraction has had a significant impact on the purchase of flooring for our residential channels.
In this environment we are focused on cash flow and the balance sheet. Our balance sheet remains strong with over $850 million credit availability. All of our business units have a priority to maximize cash by reducing costs, improving working capital, limiting capital expenditures, and focusing on actions which positively impact sales and margins. All of our segments have taken aggressive steps and our capital structure and future cash flow will allow us to manage through the downturn.
The Mohawk segment sales declined 17% this quarter with both the residential and commercial businesses down. In the fourth quarter customer traffic in flooring retail stores dropped significantly and the commercial business declined as businesses reduced investments. Price increases announced in the third quarter were implemented but material costs escalated higher and remained longer than we had anticipated. Through the first quarter, we will see the affects of high cost material purchases with our FIFO inventory. We permanently closed a number of manufacturing and distribution assets in the fourth quarter to align with present conditions. Many cost initiatives to reduce infrastructure and improve productivity were implemented during the quarter. Our team was successful in reducing manufacturing and logistics costs as well as inventory levels. Our polyester carpet products are improving their position in the market as consumers favor more value oriented options. We completed the redesign and launch of our new wood product line and are broadening our customer base.
Dal-Tile sales were down 12% in the quarter compared to last year reflecting a slower commercial environment along with a continued decline in residential. Margins were impacted by a declining product mix and lower production levels creating unabsorbed overhead in the fourth quarter. We shut down several high cost production lines and moved the products to more efficient operations. We have executed many cost reductions including reduced sales, manufacturing and distribution staffing, lower alternative materials and improved transportation. Inventory levels were balanced with declining sales and should decrease as we go forward. Warehousing at the plants has been increased to ship more directly and reduce overall distribution expenses. We are increasing our penetration of the Mexican market with broader product offerings and increased distribution.
The Unilin sales during the quarter were down 26%, as reported, or 20% on a constant exchange rate basis. All products in both Europe and the U.S. declined from the prior year as the contraction in the global economy became more severe and our customers reduced inventory levels to align with demand. The Spanish and the U.K. markets were impacted most as home sales slowed while Eastern Europe and Russia continued to be less affected. Laminate flooring sales fell in both the U.S. and Europe resulting from a significant pullback in residential spending. Production schedules have been reduced and older equipment in the U.S. has been shut down. Cost reductions have been implemented including staff reductions, temporary shut downs, product and process reengineering, and freight optimization. Our roofing systems sales began to reflect the decline in the economy. Continuing the prior trends, our European board sales remain under both volume and pricing pressure which is forcing high cost industry capacity to be closed.”
The current environment is expected to remain challenging for the near term. We believe sales volume will continue to decline in the first quarter. The affect of lower carpet materials will not be realized until the second quarter. Carpet price increases did not cover the peak material increases which remained high into the fourth quarter. During the fourth quarter as sales declined, we significantly reduced inventory by curtailing production and material purchases leaving a larger proportion of higher cost inventory at year end. In the first quarter, the Mohawk segment is forecasted to have an operating loss resulting from the $60 million flow through of peak FIFO costs. Both our Dal-Tile and Unilin segments will continue to be impacted by the recession and lower consumer spending resulting in lower production volumes and a declining product mix. Based on these factors, our EPS guidance for the first quarter is a loss of $.80 to $.89 per share.
We will remain focused on managing our balance sheet and maximizing our cash generation across our businesses. We will continue to reduce infrastructure, capital expenditures, working capital and controllable costs. In the second quarter, margins will be positively impacted after the peak inventory costs flow through the first quarter and we have seasonal improvement in volume. Our industry has excellent long-term potential with demographics which will ultimately lead to continued growth when the economic recovery begins. As the largest floorcovering manufacturing company in the world, we have an industry leading position in each of our major floorcovering product categories. We remain positive about the long-term prospects for our company.
Certain of the statements in the immediately preceding paragraphs, particularly anticipating future performance, business prospects, growth and operating strategies and similar matters and those that include the words “could,” “should,” “believes,” “anticipates,” “expects,” and “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 costs and supply; timing and level of capital expenditures; integration of acquisitions; impairment charges; rationalization of operations; litigation and other risks identified in Mohawk’s SEC reports and public announcements.
Mohawk is a leading supplier of flooring for both residential and commercial applications. Mohawk offers a complete selection of carpet, ceramic tile, laminate, wood, stone, vinyl, and rugs. These products are marketed under the premier brands in the industry, which include Mohawk, Karastan, Ralph Lauren, Lees, Bigelow, Dal-Tile, American Olean, Unilin and Quick Step. Mohawk’s unique merchandising and marketing assist our customers in creating the consumers’ dream. Mohawk provides a premium level of service with its own trucking fleet and over 250 local distribution locations.