Mohawk earnings hit by higher costs
The world’s biggest floorcovering manufacturer reported an unexpected drop in earnings in the second quarter, pushing the company’s stock down in aftermarket trading to its lowest level in two years.
Mohawk Industries Inc. reported adjusted net income in the second quarter of $263 million, or $3.51 per share. Those results were down 6 percent from last year’s profits and were nearly 10 percent below what Wall Street analysts had forecast for the spring period.
Although sales were up 5 percent in line with industry forecasts, Mohawk’s net income was well below the average earnings estimate of $3.88 per share among the seven analysts surveyed by Zacks Investment Research.
For the current quarter ending in October, the Calhoun, Georgia-based Mohawk Industries projected its earnings will range from $3.54 to $3.64, which is also below year-ago levels and up to 17 percent below what analysts had previously forecast.
“Our results fell short of our expectations, and we are taking actions to improve the performance of our U.S. businesses,” Mohawk CEO Jeff Lorberbaum said in the earnings announcement Wednesday night. “With the overall economy, our results were negatively impacted by input inflation, higher transportation costs, a stronger dollar and a tight labor market. We were also affected by changing product mix, timing of price increases, lower production units, start-up of new projects and the delayed Godfrey Hirst closing.”
Mohawk announced in November it was buying Godrey Hirst, Australia’s largest carpet manufacturer,
and the deal was originally expected to close in May. The purchase has since been put off to the third quarter of this year.
In response to the disappointing earnings, Lorberbaum said Mohawk is raising prices, expanding in growing channels and participating in new products and markets.
Rising costs for commodities and labor have already led Mohawk to make two carpet price increases this year and Lorberbaum said the company recently followed those with a third increase to offset additional material and freight inflation. Other price increases are planned in the hardwood flooring market.
“In the U.S. market, we also are increasing our LVT production and sourcing, as LVT continues gaining market share,” Lorberbaum said.
Mohawk did better outside the United States in the second quarter than it did in its domestic markets, Lorberbaum said.
“Although the economy in Europe slowed somewhat, the results in most of our non-U.S. businesses improved substantially with LVT, Russian ceramic, wood panels and insulation leading the growth,” he said.
Mohawk Industries shares have decreased 21 percent since the beginning of the year, while the Standard & Poor’s 500 index has risen 6.5 percent.
Mohawk, the biggest publicly traded company in the Chattanooga area with a market value of more than $16 billion, closed Wednesday at $217.37, a fall of almost 10 percent in the past 12 months. Shares plunged by more than 14 percent late Wednesday in aftermarket trading following the release of the earnings report after the close of trading on the New York Stock Exchange.