Mohawk Adjusts as Profits Squeezed

Calhoun, Ga. — Soft and hard flooring, more so the latter, negatively affected the Mohawk segment of Mohawk Industries, pressing total company first quarter net earnings to $65 million, down 28% from the year ago period.

Net sales of $1.7 billion fell 6.7% from the 1Q 2007.

The $905 million in sales for the Mohawk segment, down 13.6% year over year, was "more impacted by residential declines than our other businesses, with both soft and hard surface products down, but hard surface impacted more," said cfo Frank Boykin on last week's earnings call.

Chairman and ceo Jeffrey Lorberbaum said the company "thinks we'll realize about a 4% price increase from the last one we just fully implemented" for the flooring division.

More details on specific cost increases, Lorberbaum told an analyst, "I can't give you."

Referencing the price increases already implemented earlier this year, "We thought it was going to cover it. The question is, given oil prices and chemical prices, we're evaluating daily what is going to happen to them. Our future estimates are really poor if you want to know the truth. I didn't think oil was going to be $115 a barrel, and we're re-evaluating what we have to do with pricing and how long or how sustainable these levels are. We haven't decided what to do next at this minute."

Noting overhead costs have been reduced, Lorberbaum added, "New residential introductions are being shipped earlier than prior years and are concentrated on fashion and valued engineered products."

With nylon staple sales dragging, Mohawk plans to close another one of its staple manufacturing facilities during the second quarter — but will also upgrade. "This year we're investing in additional filament extrusion capacity that can produce any fiber type," Lorberbaum said. "The first machine is beginning production and will replace older, higher cost assets."

Lorberbaum said Mohawk is not alone in its struggle, noting the overall U.S. flooring industry is entering its third consecutive year of decline, "with residential in a significant decline."

Nonetheless, he said that the company would consider acquisitions of competitors who might be forced to shut down as a result of the harsh economy.