Mohawk drives profits up by 58%
By Don Hogsett -- Home Textiles Today, 4/22/2002 12:00:00 AM
CALHOUN, GA —
Rocket-hot home goods producer Mohawk Industries Inc. drove its first-quarter profits up a heady 58.8 percent, to $25.4 million from $16.0 million last year as it pushed sales higher at a double-digit pace, strengthened its gross margin and slashed its interest costs by more than a fourth.
Riding the crest of strong housing sales and a recently strong retail demand for home furnishings products, Mohawk pushed its sales ahead by 11.5 percent, to $866.7 million from $777.3 million last year.
Providing a lift to the top line was the recent acquisition of ceramic tile producer Dal-Tile, completed in the closing days of March, which contributed $28.5 million sales. But even without the Dal-Tile buyout, Mohawk's organic sales raced higher by 7.8 percent, to $838.2 million.
Cheered by the blowout performance, which breezed past Wall Street's earnings targets, investors responded by driving the price of Mohawk stock up by $4.88 a share, or 8.4 percent in value, to $63.27 a share. During the past 12 months, buoyed by progressively stronger results and a steady string of acquisitions, Mohawk stock has more than doubled in value, climbing by 122.0 percent from a 52-week low of $28.50.
In addition to the stronger sales, Mohawk's bottom line got another big lift from sharply stronger margins, which widened by 200 basis points, or 2.0 percentage points, to 24.8 percent from 22.8 percent the prior year. Margins, said Jeff Lorberbaum, president and ceo, benefited from "improvement in Mohawk product mix (1.5 percent) and the impact of Dal-Tile (0.5 percent)." Lifted by stronger sales and wider margins, gross margin dollars increased by 21.0 percent, to $214.6 million from $177.3 million a year ago.
In a further big boost to earnings, the company whittled down its interest expense by 27.1 percent, to $6.5 million from $9.0 million, generating a cash savings of $2.4 million.
Somewhat offsetting the improvement in margins and interest expense, operating costs climbed modestly higher, rising by 30 basis points, or 0.3 percentage points, to 16.2 percent of sales from 15.9 percent the previous year. The increase in costs, said Lorberbaum, was due primarily to the Dal-Tile acquisition.
Given the stronger sales and margins, Mohawk's operating profits jumped up by 38.5 percent, to $74.3 million from $53.6 million a year ago, generating an operating margin — operating profits measured as a percentage of sales — of 8.6 percent, compared with 6.9 percent the preceding year, due mostly to the Mohawk operations.
Even given the cost of the Dal-Tile acquisition, Mohawk managed to strengthen its balance sheet, improving its debt to capitalization ratio to 39.2 percent at the end of the first quarter, compared to 42.8 percent a year ago. "This reduction clearly demonstrates our commitment to maintaining an investment grade rating and managing the balance sheet for financial flexibility," said Lorberbaum.
Looking ahead, Mohawk forecast steadily strong earnings improvement throughout the year. "Although we believe that our industry is recovering from the economic recession and are cautiously optimistic about future quarters, the current environment of rising energy prices could have a dampening effect on the economy overall as well as our industry," said the company,
Mohawk said it anticipates that second-quarter earnings per share will climb by 20 percent to 25 percent above year-ago levels, while third-quarter earnings per share will be 10 to 15 percent above last year.
Mohawk Industries Inc.
|Qtr. 3/30/02 (x000)||2002||2001||% change|
|Oper. income (EBIT)||74,268||53,605||38.5|
|Per share (diluted)||0.77||0.51||51.0|
|Average gross margin||24.8%||22.8%||—|
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