Analyst Sees Turn in Residential Carpet Sales

New York, NY, April 12, 2010--Stifel Nicolaus analyst John Baugh said multiple sources have confirmed that the residential carpet business has taken a turn for the positive in recent weeks, likely due to increased spending on remodeling.

For example, the home center chains have been aggressively promoting carpet with low installation promotions, he said

Baugh said that unit shipments of carpet fiber, carpet backing, and broadloom carpet itself are now tracking up from a year ago, the first time this has happened since second quarter of 2006.

He said much of the current growth is coming at lower price points and in the newer forms of polyester carpet and singled out Mohawk's position with SmartStrand as going "exceedingly well."

"Both Shaw and Mohawk are heavily vertically integrated in fiber extrusion and much of that capacity has been devoted to nylon historically," Baugh said.

"Nylon staple has all but disappeared from the marketplace and nylon filament is trying to hold onto its share of the carpet fiber market. Both Shaw and Mohawk are spending material capital spending dollars on newer extrusion equipment that can make both nylon and polyester with minimal set-up changes. That having been said, the investment required to switch an increasing percentage of equipment from nylon extrusion to polyester is enormous and not easily done."

Baugh noted that "there is no arguing the fact that polyester carpet fiber is changing the carpet landscape, particularly with nylon costs becoming increasingly expensive."

Rising raw material costs are still a problem for the industry, Baugh said. Spot polypropylene prices continue to climb and are up approximately 50% since the start of the year. Other input costs for nylon and polyester are tracking significantly higher as oil escalates in price.

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