Mohawk 1Q Earnings Up 14% on Lower Sales

Calhoun, GA, April 19, 2007--Mohawk Industries in the first quarter reported net earnings of $90 million and diluted earnings per share (EPS) of $1.32, both were up 14% above last year. The 2007 first quarter net earnings include income of $5.8 million from a partially paid customs refund, net of taxes.

Analysts were expecting EPS of $1.07.

Net sales for the quarter were $1,864 million, a decrease of 3% from 2006. The company said it continues to generate strong cash flow during the quarter. Cash flow from operations was $89 million and EBITDA was $249 million during the quarter. In addition, debt of $84 million was paid down during the quarter.

In commenting on the first quarter results, Jeffrey S. Lorberbaum, Chairman and CEO, stated: "The first quarter results were better than we had anticipated and exceeded our estimate. The U.S. flooring business remains slow, however comparisons to the prior year, when the industry slowed down, will be easier in the second half of 2007. The residential business remains challenging in all product categories reflecting softness in both the new and remodeling businesses. Commercial sales are outperforming the rest of the business and are expected to continue throughout this year. In the U.S., we are managing our costs and improving productivity while still maintaining investments in products, marketing and assets. All businesses are managing their inventory levels, expenses and production schedules to adapt to the current industry downturn. The European economy maintained its positive trend and appears to have good momentum. The improved economic conditions in Europe allowed us to pass through rising material and energy costs.

The Mohawk segment sales were off 9% as they continue to be impacted by the downward trends in the industry. Industry sales declined more in the first quarter than in the fourth quarter. The commercial channel is stronger with the modular carpet category increasing its market share. Raw material costs remained stable from the fourth quarter. With the recent spike in oil prices, we are seeing an escalation in our costs from our suppliers and we are evaluating a price increase on our products to compensate. We have adjusted our plant production levels and reduced expenses to offset some of the lower volumes. In addition, we have multiple initiatives to improve productivity, efficiency and other costs.

The Dal-Tile segment sales were down 2% in the quarter. Our earlier investments are minimizing some of the declining sales trends affecting the entire industry. Commercial is still growing and is expected to be strong throughout the year. We are reducing our outsourced ceramic tile purchases to offset slower sales. We have opened new galleries in New York City and Chicago and a stone center in Atlanta to strengthen our position in these markets. All were favorably received by our customers.

Our Unilin segment continues to perform well with sales up 16% over last year. The European business showed improvement while the U.S. business slowed due to weakness in the residential category. In Europe operating margins were positively impacted by price increases in both laminate and other board products offsetting rising energy and raw material costs. Strong demand resulted in positive overhead absorption. Recent rulings in both the U.S. and Europe have bolstered the strength of our patents in the market place. We have signed a cross license agreement on profile patents with Valinge that allows us to pursue more aggressively companies that infringe on our technology. This settles much of our outstanding patent litigation. We still have a limited number of companies with which we have ongoing disputes and may require additional legal action."

In an internal review, the Company discovered that it had exchanged employee compensation information with its competitors while gathering market data. The Company has discontinued this activity and voluntarily disclosed the practice to the Department of Justice. This has no effect at all on the marketing or selling of our products. The Company believes that this matter will not be material to its financial condition.

The company does not expect substantial improvement in the operating environment during the second quarter. The management team is committed to maintaining the proper balance between cost cutting and being prepared for a future turn around. Based on these factors, the guidance for the second quarter of 2007 is $1.51 to $1.60 EPS.

Related Topics:Mohawk Industries, RD Weis