Mohawk cites inflation, ‘softening’ floor demand for expected earnings slump

Local trends show surge in new home, apartment construction but slowdown in home sales

Inflation, a “softening” demand for residential flooring and the settlement of two suits likely will mean lower fourth-quarter earnings reports to be released in coming weeks by Calhoun-based Mohawk Industries.

For almost two years, home sales have climbed and residential sales prices soared across the country. But some pull back began in 2022 compared to the 2020-2021 boom.

Even so, there’s no slow down across Northwest Georgia as 2023 gets under way. Numerous singlefamily and multifamily projects are either under way or up for approval by area governments.

This week, both Rome and Floyd County commissions have reviewed projects which together represent more than 600 additional homes and apartments. That’s on top of a busy December for local building permits.

Cartersville and Bartow County are awash in new construction as well, especially along U.S. 411 west of the U.S. 41 merge and fronting Joe Frank Harris Parkway just above the Ga. 20 interchange.

But other areas are seeing at least a slowdown. Gildan Yard in Cedartown is closing as of Feb. 4, idling 107 workers there. Across the region, first-time jobless claims were up in December even as the overall workforce grew, in part because of Christmas sales. We’ll see local unemployment rates for December later this week.

As for Mohawk, several factors were cited in a release about the earnings/sales projections:

♦ A “global residential flooring business softening” has been attributed to recent rate hikes and overall inflation.

♦ In response, the company launched temporary plant shutdowns in some areas, “which further compressed margins and lowered quarterly results.” (We’ve not found any shutdowns in Northwest Georgia).

♦ Demand in Flooring North America weakened more than the other segments, which led to steps to reduce inventory.

“The combination of the lower volume, plant shutdowns and the consumption of higher cost carpet inventory decreased the segment’s financial performance for the quarter,” according to the Mohawk statement to investors. “Due to these factors, the company’s fourth quarter adjusted earnings per share is expected to be between $1.27 and $1.31, excluding any restructuring or other one-time charges.”

Fourth-quarter and 2022 results as well as a look into 2023 trends are due Feb. 7.

As for the court actions:

♦ Mohawk and several executive officers were named as defendants in a securities class action suit filed Jan, 3, 2020, in the U.S. District Court. “Mohawk believes that this Securities Class Action is without merit and that it has substantive defenses to the claims of liability and damages; however, Mohawk has concluded that further litigation would be protracted, burdensome and expensive.” In exchange for dismissal and a full release of claims, the parties settled for $60 million, “of which a significant portion is covered by insurance.”

♦ Mohawk also settled a previously disclosed dispute with the Belgian Tax Authority regarding the tax treatment of royalty income arising from intellectual property. In April 2022, the authority issued a tax assessment of approximately $203.2 million (including penalties but excluding interest) for the calendar years ending December 2013 through 2018. Although Mohawk believes its tax position in Belgium is correct, the company settled Nov. 24 for a one-time payment of $3.26 million.