Mohawk beats the Street, even as profits slide in Q1

By Don Hogsett -- Home Textiles Today, 4/21/2003 12:00:00 AM

CALHOUN, GA —

Hurt by weakened sales, a war with Iraq, rising costs and interest expense and higher raw material costs, first-quarter profits at Mohawk Industries slipped, as the company had earlier warned, by 3.6 percent, to $41.6 million from $43.2 million last year.

But even with the modest decline, the nation's fourth-largest producer of home fashions products still did better than analysts had been expecting, and managed to top Wall Street estimates by a penny, with earnings per share of $0.62 beating a consensus forecast of $0.61.

Sales, driven by last year's Dal-Tile acquisition, climbed by 25.2 percent, giving the big carpet and home producer its first-ever billion-dollar quarter. Sales climbed higher to $1.1 billion from $866.7 million last year. But as strong as that gain of more than 25 percent sounds, it was still a soft performance compared with a gain of more than 34 percent during the previous quarter.

Acting as a damper on sales, in addition to the war with Iraq, were a deteriorating U.S. economy and harsh winter weather across much of the nation, said Jeffrey Lorberbaum, president and ceo. "I believe we have delivered reasonable results in this difficult economic environment." Mohawk, said Lorberbaum, functions "as a leading indicator of the economy and many of our customers postpone purchases as consumer confidence falls."

Average gross margin actually gained during the period, rising by 50 basis points, or half a percentage point, to 25.3 percent from 24.8 percent. But costs climbed even faster, putting pressure on the bottom line. Expenses climbed by 190 basis points, or 1.8 percentage points, to 18.1 percent of sales from 16.2 percent a year ago.

Acting as a further drag on the bottom line, interest expense, while still relatively low, more than doubled in the period, rising by 100.8 percent, to $13.1 million from $6.5 million.

To help offset the weaker sales, Mohawk put in place price increases of 5 percent to 8 percent in its carpeting business.

And going forward, the price increases, along with "normal seasonal sales improvements and cost containment will improve the second quarter. Given that expected improvement, the company forecast second-quarter earnings per share in the range of $1.05 to $1.15. And looking out even further, "We anticipate improvements in sales and margins in the second half of 2003" based on higher selling prices and lower raw material costs.

Mohawk Industries Inc.