Mohawk 2Q Earnings Up 22% (continued)

The Unilin segment greatly improved margins from the previous quarter. This improvement was attributable to seasonally higher sales in Europe, better product mix and new patent licenses. Laminate sales in Europe were up and sales to our U.S. distributors were down as we had anticipated. U.S. distributors were able to substantially reduce their inventories because we now supply them from our U.S. factory instead of Europe. U.S. distributors reported that sales of our product to their customers were up versus the prior year. U.S. laminate sales should return to a more normalized level in the third quarter. The initial launch of Unilin products through the Mohawk channel has received favorable retailer reception. There will be additional laminate product introductions through the year. The company report continued: "We are managing our balance sheet with the debt to capitalization ratio improving to 48% after paying down $161 million of debt during the second quarter. The organization has many initiatives focused on improving inventory turns and working capital management. "We received a favorable ruling from the U.S. Supreme Court which vacated the lower court's prior ruling on the pending class action suit that alleged the company suppressed wages by hiring illegal aliens. The Supreme Court ruled on another case, which may have a positive bearing on ours. We expect it to take six to twelve months for the lower court to reconsider the case. We remain confident in our position and believe the allegations are unfounded." "We expect the Mohawk segment to realize benefit from earlier price increases and capital investments offset by continued weakness in the residential carpet business and rising material costs. Dal-Tile investments in sales and marketing should support future growth in market share. Unilin results will be more normalized in the third quarter as they move into the European vacation period when plant maintenance is performed. After considering these factors, the third quarter earnings forecast is from $1.76 to $1.85 EPS. This guidance does not include any future refunds from U.S. Customs. "There continues to be uncertainty in consumer demand, oil prices, interest rates and the flooring industry. Most economists are predicting slower GDP growth. We will manage our business through this environment as we have done in the past. Due to this uncertainty, we are approaching the end of the year cautiously.

Related Topics:Daltile, Mohawk Industries

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