Mohawk sees sales and earning growth despite "weaker industry conditions"
The company said the sales growth was driven by price increases and internal growth. It noted that the results were negatively impacted by the weather in some regions and the timing of the Easter holiday, which was in the first quarter this year versus the second quarter last year. Also, it said volume was impacted by declining consumer confidence which has resulted in slower retail replacement business.
The Mohawk segment saw net sales of just over $1.09 billion during the first quarter of 2005, a 6 percent gain from $1.03 billion. In the Dal-Tile segment, net sales reached $401,876,000 in the first quarter, a 12 percent gain from $359,283,000. It attributed the increase to internal growth and an improved product mix.
Commenting on the results, Jeffrey S. Lorberbaum, Chairman and CEO of Mohawk Industries, Inc said: ""I am pleased with our results and the way we have managed through this period of escalating costs.
"In spite of weaker industry conditions and rising raw material and energy costs, our first quarter gross margin as a percent of sales was 25.8% in 2005 versus 26.3% in 2004. The prior year comparisons were difficult due to the cyclical rebound that occurred during the first quarter of 2004 and is not repeating this year. Selling, general and administrative costs improved to 17.5% from 17.7% as a percent of sales due to better leveraging on higher sales dollars.
"Our new SmartStrand product introduction, made from Dupont Sorona polymer, is presently being shipped as planned. The timing is later than last years' introductions and will benefit our second quarter. Our raw material and energy costs for the Mohawk segment have continued to rise in the first quarter and we have announced a second carpet price increase to offset these changes.
"The lag between cost increases and implementation of the selling price increases will continue to impact our earnings. We believe these costs will stabilize over the long-term but the short-term trend of these costs remains uncertain. Home Product sales were down with some customers postponing introductions and reducing inventories. We have also dropped some imported Home products, which did not meet our return expectations.
"The Dal-Tile segment continued its growth driven by our investment in inventory availability, new products, additional selling efforts and updated sales service centers. Our floor tile and stone products are leading the growth. During the quarter we opened a new design gallery in Houston and our capacity expansions in Mexico and Muskogee are moving forward. When complete in 2006, the expansions will add approximately 20% to our capacity.
"The backing operation we acquired during the first quarter is progressing as planned. We have implemented cost reductions, reduced product complexity, increased asset utilization and transitioned to utilizing the production internally.
"Our leverage at 25% debt to capitalization provides opportunity for continuing investment in the business as well as other alternatives. We continue our disciplined approach to capital allocation with capital expenditures as the first priority, acquisitions being number two and stock repurchases third. We are constantly monitoring the allocation of capital among these alternatives."