Mohawk 3Q Earnings Up 10%
Calhoun, GA, October 26, 2006--Mohawk Industries in the third quarter reported net earnings of $127.7 million and earnings per share (EPS) of $1.88, both of which were up 10% above last year.
Net sales for the quarter were $2.0 billion, an increase of 19% from 2005. The sales growth resulted from the Unilin acquisition, hard surface sales growth, and price increases.
For the first nine months of 2006, net earnings were $326.3 million an increase of 14% over last year and earnings per share of $4.80, a 13% increase over last year.
In commenting on the quarter results, Jeffrey S. Lorberbaum, chairman and CEO, stated: "I am pleased with our results for the quarter in light of the current business environment. With 19% sales growth, higher gross margins and a 10% improvement in EPS over last year, our third quarter was positive. Our business is better balanced to minimize the impact of changing economic and industry cycles than in the past. The diversification of our product offering with a full line of soft and hard products, participation in all sales channels of residential and commercial, and our broader geographic exposure in Europe improve our position.
During the quarter the slowing U.S. economy impacted our business. Both residential replacement and new residential construction weakened through the quarter and the commercial business continued positive trends. Raw material costs increased in the third quarter and remained high even though oil costs declined. A stronger European economy and improved U.S. laminate sales have benefited our business. We see weaker industry demand levels with the postponement of new home purchases and redecorating projects in the near term. Recent changes in gasoline prices have positively affected consumers and some retail categories. This could improve large discretionary purchases and positively affect retail flooring sales. Interest rates should remain favorable, consumer confidence should recover, and the industry demand for flooring should improve in the long term.
The Mohawk segment sales results were disappointing as industry sales slowed substantially. Sales declined 1% with margins impacted by higher costs and lower volumes. We began implementing a price increase to offset higher raw material costs during the quarter. Both new and replacement residential carpet declined significantly from the prior year with commercial carpet continuing to grow. As all levels of the industry try to stimulate consumer purchases, we see more promotional activity. With the lower sales levels, cost reduction plans are being implemented to reduce manufacturing labor, SG&A and other discretionary spending. Production schedules have been reduced to reflect lower demand and control inventory levels. We could see improvement in our raw material costs if the worldwide demand for commodity chemicals doesn't impact prices and lower oil prices continue. During the third quarter, we closed a staple yarn facility incurring $500,000 of costs related to the closing. We will continue to review the business and adjust to the changing environment.
Our Dal-Tile segment sales had solid performance growing 11% during the quarter. Even with slowing industry growth, we anticipate increasing our share due to prior investments in sales, product, and distribution. Our margins were impacted by the start up expenses of our Oklahoma expansion and increased transportation costs. We anticipate transportation costs improving as gasoline costs decline. The start up phase of the Oklahoma facility is complete and the plant is expected to be operating near capacity by year-end. Our ceramic business is well positioned to grow faster than the industry.
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Related Topics:Daltile, Mohawk Industries
