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Dal-Tile sales drop at Mohawk Industries

02 Mar '10
5 min read

Dal-Tile sales for the fourth quarter were down 20% as reported or 21% with a constant exchange rate. Dal-Tile continues to outperform the market with our broad product offering and market saturation. The commercial industry decline is impacting our ceramic business more significantly than other segments. Dal-Tile's leading design, superior quality and extensive distribution infrastructure distinguish us from the market. We have introduced "Out Stand," a new technology for the commercial market, with a 60% recycled content, more durable surface, better stain resistance and anti-microbial protection. We have expanded our position in the Home Centers and the Mexican market with product innovation and superior service. We have increased our operational efficiency and lowered our costs through process innovation and consolidation initiatives, including the closing of our Dallas ceramic tile manufacturing operation.

Unilin sales increased 2% for the quarter as reported and decreased 7% on a constant exchange rate. Our operating margin for the quarter was 9% and the EBITDA margin was approximately 22%. Although business conditions are difficult for Europe and the U.S., we believe the category has reached the bottom of the cycle. It is our view that the European market could improve more rapidly than the U.S. since European consumers generally rely less on credit and housing has not contracted as severely. We are pursuing multiple strategies to maximize our laminate sales including, new product introductions at lower prices, additional technological innovation, geographic expansion and growth in the DIY channel. We plan to develop business through the local distribution we acquired in the U.K. in 2009, continued growth of our European wood flooring business with an expanded product offering and increased presence in Russia with local manufacturing. Unilin has implemented many cost reductions to lower SG&A, reduce manufacturing costs and manage inventory levels while further investing in product innovation.

The first quarter is seasonally the slowest quarter of the year. The residential category should improve during the year while the commercial category still faces significant headwinds. We are implementing a price increase on carpet and wood products to offset rising material costs but the lag in implementation will negatively impact the first quarter. Interest costs this year will be higher primarily due to rates increasing from our new agreement. Our first quarter guidance for earnings is $0.10-$0.20 per share excluding restructuring charges.

The economy improved in the fourth quarter and continued growth is expected throughout 2010. After our seasonally slower first quarter, future periods should improve as we move through the year. The improvements we have implemented throughout our business and the realization of price increases will benefit us in future quarters. Our business is financially strong, committed to ongoing process improvement and maximizing our long term results.

Mohawk Industries Inc

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