Annual Report - May 2006


By Darius Helm

On the surface, 2005 seemed like an excellent year for the floorcovering manufacturing sector as sales rose a very respectable 6%, to a record $24.2 billion. In spite of a slight slowdown in home sales this year, the baby boomers continue to spend money on their homes and on their floors, and the commercial market is crackling along at levels we haven’t seen since 2000. By all accounts, though, much of the increase in sales last year came from increased prices, which in turn came from the dramatic increases in raw material costs that began in 2004 and accelerated at the end of last year.

As everyone in the floorcovering industry knows, most of the products the manufacturers make and sell are derived from oil. And so is the fuel that drives their plants and the trucks they use to deliver their products. While the raw material price increases of 2004 were precipitated by the war in Iraq and the increased demand for oil from developing countries, particularly China and India, two much less predictable elements were added to the mix last year: Hurricanes Katrina and Rita. Both hurricanes hit the Gulf Coast, where most of the country’s oil and gas infrastructure is located, and caused severe damage to oil and gas refineries and storage depots. That resulted in even more severe shortages at the end of last year.

The result of all this: retailers and contract dealers had to endure a series of price increases throughout the year, increases that seriously impacted the bottom lines of every retailer. The manufacturers suffered, too. Most were unable to raise their prices enough to cover all their raw material cost increases. As a result, profits were down for most players.

In the past, the U.S. floorcovering industry seldom had major concerns with the forces of nature or politics, but both are now becoming significant factors in the business. So far this year, price increases haven’t been an issue for the retail sector, but predictions of another strong hurricane season may change that toward the end of the year. Smart dealers should be looking for ways to cut unnecessary costs.

Another outside factor that impacted the U.S. floorcovering industry last year: the weakness of the dollar against the euro. Interestingly, the weak dollar caused exports to rise, but it did nothing to prevent imports from rising as well, as foreign manufacturers continue to see the U.S. as the most attractive consumer market on the planet. Today, imports account for more than 28% of the total U.S. flooring business. Much of those imports are now coming from Asia and Latin America, where the exchange rate is not as significant as it is between the U.S. and Europe. Some European players have made big investments here in an effort to capitalize on the disparity between the dollar and the euro, particularly in the laminate and ceramic sectors. In the past two years, six European manufacturers have either acquired or built new laminate plants in North America. The Belgian firm Unilin began the parade when it bought the Homanit fiberboard plant in Mount Gilead, North Carolina in 2003, then built its Quick-Step laminate flooring plant in nearby Thomasville the next year. The Austrian producer Kronotex broke ground on its South Carolina plant the same year. The output from that plant is now being sold under the renowned Formica brand name. Last year, sister company Kronospan laid out plans to build a plant in Alabama.

The parade continues this year. In January, the German coreboard manufacturer Pfleiderer bought Canada’s Uniboard, which will begin building a U.S. plant sometime this year. The high end Spanish producer Faus began production in a 500,000 square foot, Calhoun, Georgia plant two months ago, while a joint venture between Tarkett and the Chilean fiberboard producer Aconcagua Timber has begun construction on a plant in Pennsylvania. 

These new ventures will make the highly competitive and still rapidly growing laminate sector even more interesting in the future. Quick-Step, which was acquired by Mohawk last year, is already challenging the nation’s two largest laminate producers, Pergo and Shaw, for the number one position in that business.

The U.S. ceramic tile sector has always been dominated by foreign producers, most notably Italians and Spaniards, but the weak dollar has also managed to attract a few European ceramic producers to this country in the past two years. The Italian producer Marazzi has been successfully producing ceramic here under the name American Marazzi for 20 years, but that company was unique until Florim acquired the Tilecera plant in Tennessee five years ago. Two years ago, Dal-Tile started a joint venture with the Italian firm Emil Ceramica. Last year, GranitiFiandre opened a new plant in Crossville, Tennessee, and just three months ago, the Italian firm Panaria bought Florida Tile. 

By some accounts, this is only the beginning of foreign interest in building on U.S. soil. That interest, though, is likely to continue only as long as the euro is stronger than the dollar. At press time, the euro was valued at $1.21, which means that products made and sold here have more than a 20% price advantage over products imported from Europe. That’s a huge difference in the price-competitive floorcovering industry.

European manufacturers aren’t the only ones interested in the U.S. floorcovering business. Last year, 26% of U.S. hardwood sales were imports. Most of those imports came from China and Brazil, with long time trading partner Canada slipping into third place. Much of those imports are base grade products big manufacturers like Shaw, Mohawk and Armstrong are sourcing from China, but there’s a growing number of importers that are establishing positions of prominence in the hardwood sector. The Swedish company Kahrs has been doing business here for years now, but newer players like Pinnacle Interior Elements, whose products are made in China, and the Brazilian firm BR-111 are establishing thriving businesses here that give floorcovering retailers much greater options than ever before. We feel that this trend will not only continue, but grow.

CHANGES WITHIN

While the influence of foreign players on the U.S. floorcovering business grows, so do the two largest players in the industry: Mohawk and Shaw. As you can see in the chart on page 36, both companies solidified their positions during the past year through a series of acquisitions and other moves aimed at increasing their shares of all the major product categories. Interestingly, the two leaders took different tacks in their quests to remain dominant. Shaw integrated backwards through its acquisition of the nylon fiber business of Honeywell and the backings business of SI Flooring, while Mohawk took a big step toward being a dominant player in the laminate sector through its acquisition of Quick-Step. It also integrated its carpet business by acquiring backings manufacturer Wayn-Tex and the Alabama plant of Propex, the world’s largest backings producer.

While Shaw and Mohawk continued to consolidate their holdings and gain marketshare, there was plenty of activity in other companies, as you can also see in the box on page 36. One of the more interesting acquisitions was Canada’s Kraus Carpets’ purchase of Orders, the big South Carolina distributor. The Orders acquisition is the sixth for Canada’s largest carpet manufacturer; the firm now has four sizable distribution points in the U.S. and two in Canada, making it the only other North American carpet manufacturer besides Shaw and Mohawk with its own distribution network.

This year, we decided to focus on the Top 10 players in each of the major product categories—Carpet, Area Rugs, Hardwood, Ceramic, Resilient and Laminate—since those players account for so much of total U.S. sales.

TOP 10 U.S. FLOORING MANUFACTURERS 2005
Firms ranked by U.S. Flooring Sales

 

U.S
Flooring Sales

N. American
Flooring
Sales

Foreign Flooring
Sales

Total
Flooring Sales

Total Non-Floor
Sales

Total
Company
Sales*

1.

MOHAWK (1)

5,802

5,918

241

6,159

1,292

7,451

2.

SHAW (2)

5,341

5,396

--

5,396

644

6,040

3.

ARMSTRONG (3)

1,574

1,666

568

2,234

1,324

3,558

4.

BEAULIEU OF AMERICA (4)

1,125

1,180

--

1,180

80

1,260

5.

MANNINGTON (5)

795

811

--

811

17

828

6.

TARKETT

544

572

1,465

2,037

42

2,079

7.

INTERFACE (6)

505

533

249

782

214

996

8.

ROYALTY

320

320

--

320

--

320

9.

SPRINGS GLOBAL US

312

312

--

312

2,185

2,497

10.

THE DIXIE GROUP

306

306

--

306

13

319

*All sales are in millions

Data compiled by Market Insights/Torcivia and Floor Focus Magazine

Here's a look at total 2005 sales for the ten largest U.S. floorcovering manufacturers, broken down according to where their products are sold. Total company sales may not be the same as reported sales due to acquisitions and divestitures, both of which are included or deducted for the full year 2005.

For a breakdown of sales according to product type, see the chart below. Here are explanations for the footnotes next to the company names:

(1) Mohawk's non-flooring sales include ceramic wall tile, throws and other textiles, fiber, etc.
(2) Shaw's non-flooring sales include revenues from its contract flooring network, Spectra, and from fiber/yarn and top of bed sales.
(3) Armstrong's non-flooring sales include ceiling components, cabinets and flooring accessories.

(4) Beaulieu's non-flooring sales include fibers and chemicals.
(5) Mannington's non-flooring sales include ceramic wall tiles and flooring accessories.
(6) Interface's non-flooring sales include revenues from its contract flooring network, Re:Source Americas, and fabrics.


MARKET VALUE

Last year was another good one for the U.S. floorcovering industry, as every sector except vinyl experienced topline growth.

 

2005

2004

Change

 

$$ millions

 

AREA RUGS
BROADLOOM*
COMBINED***

CERAMIC TILE**
HARDWOOD
VINYL
LAMINATE
RUBBER
TOTAL MARKET***

2,870
12,440
15,310

2,199
2,636
1,796
1,286
993
24,220

2,735
11,611
14,346

2,126
2,448
1,797
1,176
960
22,853

4.9%
7.1%
6.7%

3.4%
7.7%
-0.1%
9.4%
3.4%
6.0%

* Includes carpet tile, artificial turf and airline and automotive carpet.
** Doesn't include wall tile sales of $955 million in 2005 and $709 million in 2004
*** 2004 sales revised in all categories.
Data compiled by Market Insights/Torcivia and Floor Focus.


2005 MARKETSHARE

For the first time in years, broadloom carpet gained marketshare in 2005. Ceramic, hardwood and laminate all gained marketshare, while vinyl and rubber both lost share.

 

2005

2004

BROADLOOM CARPET
AREA RUGS
HARDWOOD
CERAMIC FLOOR TILE
VINYL
LAMINATE
RUBBER

51.4%
11.8%
10.9%
9.1%
7.4%
5.3%
4.1%

50.8%
12.0%
10.7%
9.3%
7.9%
5.1%
4.2%

Data compiled by Market Insights/Torcivia and Floor Focus.


ACQUISITIONS AND TRANSITIONS

There were more acquisitions, startups and shutdowns in the North American floorcovering industry's manufacturing sector in the past 18 months than we've seen in a long time. Here's a look at all the changes that occurred since the beginning of 2005. They're listed in chronological order.

  • VPI's flooring division is sold to three company executives.

  • Don and Ken Kazarian, former owners of Camelot Carpets, start a new high end residential carpet manufacturer called Moda.

  • Mohawk acquires primary carpet backing producer Wayn-Tex.

  • Dalton, Georgia's US Floors buys Natural Cork.

  • Burlington Rug closes the doors to its Monticello, Arkansas plant.

  • The Austrian firm Kronospan signs an agreement to build a plant in Alabama.

  • Tarkett forms a joint venture with Chile's Aconcagua Timber to build a laminate plant in Pennsylvania.

  • Hong Kong's Tai Ping Carpet buys custom carpet maker Edward Fields.

  • GranitiFiandre opens its new American subsidiary, StonePeak Ceramics.

  • Tandus opens a carpet tile plant in China.

  • The Bacova Guild buys Lacey Rug.

  • Shaw Industries buys Dynea's North Carolina laminate paper overlay plant.

  • Kronotex opens its Snelling, South Carolina laminate plant.

  • Shaw Industries buys carpet backing producer SI Flooring.

  • Columbia Flooring acquires Malaysia Wood Industries.

  • Laminate producer Faus Floors buys a plan in Calhoun, Georgia.

  • Mohawk Industries buys Unilin Holdings.

  • Hunt Special Situations Group buys the Dalton, Georgia specialty flooring producer Edge Flooring.

  • Shaw acquires Honeywell's nylon fiber business.

  • Shaw acquires the yarn processor Modern Fibers.

  • Tarkett acquires rubber flooring manufacturer Johnsonite.

  • Faus Group opens its new shanghai laminate plant.

  • Florida Tile is bought by the Italian firm Panaria.

  • Mohawk Industries buys Propex Fabrics' Roanoke, Alabama carpet backing plant.

  • Armstrong World Industries buys two hardwood manufacturers--Capella Engineered Wood and HomerWood--and it forms a joint venture with a Chinese engineered hardwood manufacturer.

  • Shaw Industries converts a closed Tennessee yarn plant into a hardwood manufacturing plant.

  • Canada's Kraus Carpet buys the South Carolina distributor, Orders Distributing.


For an indepth look at the various flooring categories, see the May 2006 issue of Floor Focus.

Copyright 2006 Floor Focus Inc


Related Topics:Daltile, Beaulieu International Group, Tarkett, Crossville, HomerWood, Mannington Mills, Mohawk Industries, Spectra Contract Flooring, CERAMICS OF ITALY, Armstrong Flooring, Stonepeak Ceramics, The Dixie Group, Interface, Shaw Industries Group, Inc., Florim USA, Marazzi USA