Mohawk Lowers Estimates
Calhoun, GA, Mar. 17--Mohawk Industries has updated its first and second quarter 2003 earnings estimates. In its 2002 fourth quarter earnings release, the company indicated concern about weakening conditions in its markets. These concerns are more pronounced than was originally anticipated as demand declined due to geo-political circumstances and harsh winter weather conditions in the northeast and central U.S.
Mohawk's segment costs have been negatively affected by lower than expected soft surface plant utilization and unabsorbed overhead costs in the company's first quarter. Both the timing and magnitude of raw material price increases are more unfavorable than anticipated earlier. In addition, lower sales volume of about 5% and more aggressive product promotions have impacted operating margins. The Mohawk segment has one less day in the first quarter compared to the same period a year ago. The Dal-Tile segment sales improved approximately 5% on a comparable basis. As a result, the firm has revised its first quarter earnings forecast to $0.60 - $0.63 diluted earnings per share.
In order to improve its financial performance, the firm is implementing a price increase of 5% to 8% in carpet at the end of March. It's also reducing direct labor costs, selling, general and administrative expenses, as well as lowering capital expenditures. The firm said its balance sheet remains strong with a debt to capitalization ratio of approximately 30% and availability of approximately $700 million under its existing credit facilities.
Mohawk is anticipating that carpet price increases, normal seasonal improvements in sales and reductions in costs will improve in the second quarter. Due to lower sales, home product customers have reduced inventories and now are increasing orders to satisfy demand. Based on these factors, the firm's second quarter earnings forecast range is from $1.05 to $1.15 diluted earnings per share.
The firm expects current business conditions will improve in the fall of this year. Economists expect the overall economy to improve after the war threat subsides. It expects a rebound in demand similar to the one following the terrorist attack on September 11. In addition, expected contraction of oil prices combined with increased carpet prices should result in improvements in sales and operating margins in the second half of the year.
Over the past five years, Mohawk has become a total home flooring products supplier. Today about 30% of Mohawk's sales are from hard surface products, and market share continues to increase. As the U.S. economy overcomes today's uncertainties, the firm expects its diversification strategy to deliver solid results.
Related Topics:Mohawk Industries, Daltile
