Ceramic Industry News

Economy Continues to Trouble Mohawk; Dal-Tile Sales Down 20% (posted 5/1/09)

Dal-Tile is expanding its distribution and product line in the Mexican market, which is performing better than the U.S. market.

Mohawk Industries, Inc. recently announced 2009 first quarter sales of $1,208 million, a decrease of 30% from 2008, which includes two fewer days (or 3% less) than last year. The company had an operating loss of $146 million in the quarter. A charge of $122 million was recorded for a discontinued carpet tile backing, which included a $110 million sales allowance and a $12 million inventory reserve. Sales declined 20%, excluding the sales allowance, on a constant exchange rate with comparable days.

Operating income was $42 million, excluding the carpet tile charge, a $62 million FIFO inventory flow through and a $4 million restructuring cost. The company’s loss in the first quarter was $1.55 per share, or $106 million. Based on the current business environment, all segments anticipate positive operating income in the second quarter.

“In the quarter, we generated $38 million of operating cash flow, which is a $118 million improvement over first quarter 2008,” said Jeffrey S. Lorberbaum, chairman and chief executive officer. “Working capital improved, with inventories declining $183 million during the quarter. The balance sheet remains strong with a cash balance of $137 million and credit availability of more than $800 million. The economic conditions in both U.S. and Europe remain weak in all channels. Commercial construction and remodeling projects are being postponed due to the uncertainty in the economy. The government stimulus, low interest rates, and easing credit should improve the residential business. All segments continue to focus on cash generation by reducing infrastructure, operating costs, capital expenditures and working capital. During the quarter we reduced production units below sales levels to lower inventories, negatively impacting overhead absorption. We cut employment levels by almost 2000, shut down four operations and reduced warehousing space about one million square feet.”

Dal-Tile segment sales were down 20% during the quarter, or 16% on a constant exchange rate with comparable days. Commercial sales continue to decline as business investment deteriorated in the period. The company believes that its overall market position has improved as product distribution provided value to its customers. Higher unabsorbed overhead costs compressed margins as Dal-Tile reduced production and inventory. In addition, distribution and selling costs were deleveraged due to the lower volume. The company continues to reduce sales, marketing, administrative and distribution infrastructure, and is consolidating several low-volume service centers, reducing staffing and renegotiating rents in many locations. Dal-Tile has improved its manufacturing productivity, product yields and distribution costs. The company is introducing an engineered stone program for indoor and outdoor uses and a new wood program that architectural representatives will specify. It is also expanding its distribution and product line in the Mexican market, which is performing better than the U.S. market.

It is expected that seasonal improvements in volume should increase utilization rates and positively impact all of Mohawk’s business in the second quarter. All of the segments are expected to have positive operating income in the second quarter from cost reductions, lower infrastructure, and reduced material and energy costs. Based on these factors, Mohawk’s EPS guidance for the second quarter of 2009 is $.43 to $.52 per share. Excluded from this guidance is an estimated second quarter restructuring charge of approximately $15 million related to closing facilities.

Mohawk does not see a catalyst for a significant change in the overall flooring category in the near term. The company is maximizing sales opportunities while managing cost structure and working capital. It continues to reduce infrastructure based on industry conditions and maximize its cash position. When the recovery begins, the company expects to benefit from the restructurings, efficiency measures and cost reduction initiatives that have been implemented.

For additional information, visit www.mohawkind.com or www.dal-tile.com.


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