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Mohawk Industries announces Q2 earnings
Jul '08
Mohawk Industries Inc announced 2008 second quarter net earnings of $89 million and diluted earnings per share (EPS) of $1.29 (both 23% below last year). In the second quarter of 2007, net earnings and EPS were $115 million and $1.68 per share, respectively. Net sales for the quarter were $1,840 million, a decrease of 7% from 2007. The company generated cash flow from operations of $267 million. In addition, $183 million of debt was paid down improving the company's debt to capital ratio to 30%.

For the first six months of 2008, net earnings were $154 million and EPS was $2.25 (both 25% below last year). Net earnings and EPS were $206 million and $3.01 per share, respectively, in the first six months of 2007. Net sales for the first six months of 2008 were $3,578 million representing a 7% decrease from 2007. The sales decreases for both the quarter and the year to date are attributable to slowing U.S. residential housing and European demand.

In commenting on the second quarter results, Jeffery S. Lorberbaum, Chairman and CEO stated, "Our results for the second quarter were impacted by the slowing economies in the U.S. and Europe and rapidly increasing commodity costs. Declining new U.S. home construction and residential remodeling, slowing European demand and rising raw material and energy costs have contributed to the flooring industry cyclical decline. The rapidly increasing costs are impacting our margins even as we raise selling prices to offset these costs.

Our management team remains focused on improving our market position, increasing quality, introducing innovative products and providing excellent customer service. The team is relentlessly pursuing cost control, working capital management, and process improvement to manage the cycle. We believe these efforts will better position our company for growth when the market improves.

The Mohawk segment performance is under pressure with sales declining 13% below last year. The commercial and rug products are performing better while the hard surface and the cushion products are declining more than residential carpet. Higher energy, raw material and freight costs are causing dramatic cost inflation.

We have announced three carpet price increases since December to offset rising costs. We are increasing our commercial carpet tile offering with new value, performance and stylized options in our brands. We have re- engineered processes and improved manufacturing productivity, quality and yields.

Dal-Tile sales are down 5% during the quarter and are doing well in a very difficult environment. Commercial and Mexican sales growth continue to buffer the impact of the declining U.S. residential industry. In July, we purchased a stone center in North Carolina to continue expanding our national presence. The major factors affecting margins are rapidly rising energy and freight costs along with customers trading down.

In the second quarter we have increased product prices and energy surcharges to offset rising costs and more may be required in the future. Many cost initiatives are being executed to improve labor productivity, control expenses and reduce energy consumption. Freight costs are being reduced by utilizing lower cost transportation modes, increasing weight per load and making more direct shipments.

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