Mohawk's 2Q gets boost from recent acquisition

By Don Hogsett -- Home Textiles Today, 7/22/2002 12:00:00 AM

CALHOUN, GA —

Spurred on by wider margins and sharply higher sales — driven by a big acquisition that added almost $300 million to sales during the quarter — second-quarter profits at Mohawk Industries Inc. shot up by 62.5 percent, to $75.5 million from $46.5 million last year.

Sales rocketed up by 41.9 percent, to $1.2 billion from $864 million last year, boosted by the March acquisition of Dal-Tile, a floor tile producer that further diversifies the company from its base in carpeting and extends its reach into the hard floor coverings business. Dal-Tile brought in $289.3 million in sales during the period.

But it wasn't enough to assuage the fears of an antsy Wall Street, and anxious investors knocked the textiles producer's stock down by 14 percent, or $7.70 a share, to $47.50, when profits fell $0.01 short of expectations and the company voiced concern about rising raw material costs and a "less optimistic" outlook for the second half of the year and then sharply scaled back its earnings guidance for the third quarter.

Facing an order slowdown in carpeting and home fashions, as well as rising fiber prices, Mohawk warned investors that earnings in the third and fourth quarters will grow at a far slower pace than expected, by 4 percent to 6 percent, compared with earlier guidance to Wall Street of a 10 percent to 15 percent increase for the third quarter.

One brokerage firm, Raymond James, downgraded Mohawk shares from a "strong buy" to a "market perform," and other analysts jumped on the bandwagon, if not adjusting their rating, at least paring their earnings estimates for the balance of this year and next.

Credit Suisse First Boston analyst Dennis Rosenberg maintained his "buy" rating on the stock, saying he remains "optimistic about Mohawk's growth prospects as it leverages its distribution to substantially expand Dal-Tile's footprint." But with orders slowing down for residential replacement carpets and in home fashions, he whittled his earnings estimate for all of this year to $4.15 a share from an earlier forecast of $4.35.

Helping to fuel earnings growth during the second quarter, in addition to stronger sales, average gross margin widened strongly, by 260 basis points, or 2.6 percentage points, to 27.6 percent from 25.0 percent the prior year.

Mohawk Industries Inc.