Lower-margin rugs lead way for Mohawk

Tag : Polypropylene Rug
Amid “dramatic inflation costs”stemming from swelling energy, material and freight costs, Mohawk Industries ’ area rug lines performed “better” vs. some hardflooring and related products during the company’s secondquarter.
While margins are taking a hit, Mohawk expects the rug products tocontinue leading the business.
“Commercial and rug products are performing better, while thehard surface and cushion products are declining more thanresidential,” said chairman and ceo Jeffrey Lorberbaum on thesecond-quarter earnings call today.
The carpet business is running 65% to 75% of capacity, he said.Price increases on these categories are looming. The companyannounced two carpet price increases in June and July, totalingabout 10%, which are to be implemented during the third and fourthquarters.
Lorberbaum explained the basis for the coming price hikes.“Many of our raw materials are going up 30% to 50% from thefirst of the year. Polyester is increasing less than nylon andpolypropylene, making it a better value for the consumer.”
Customers of Mohawk-branded goods have been equally pressured byrising costs for food, gas and healthcare, forcing them to“trade down in quality,” Lorberbaum observed.
He elaborated on the direct effects of this on Mohawk-brandedcarpet products: “The middle part is the most affected, thehigher end is affected less than that, and the lower end has noplace to trade down to. Customers are trading down, and qualitywith it. We’re trying to make sure we have our products inright place and the right prices to satisfy the market as itgoes.”
He added that this “is impacting our margins.”
Mohawk reported quarterly net earnings of $89 million and dilutedearnings per share of $1.29, both 23% below last year. Net sales of$1.84 billion were down 7% from the year-ago period. Themanufacturer said it paid down $183 million in debt, improving itsdebt-to-capital ratio to 30%.
On the residential side of Mohawk’s business, the major focusgoing forward is on the retail replacement category throughindependent dealers, home centers and multi-family. In both thehome center and multi-family channels, “We’ve receivedadditional commitments, which will help us in the fall,”Lorberbaum said. “Our mid-season product launches are gettinginto the stores and will satisfy specific style and performanceneeds as well as fill some valued positions which have beenvacated.”