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Mohawk Industries, Inc. recently announced 2008 fourth quarter sales of $1,485 million, a decrease of 18% from 2007. Excluding charges, operating income was $61 million for the quarter; including charges, it was a loss of $93 million. The continuing decline in Mohawk’s stock price and deterioration of industry conditions during the fourth quarter resulted in a pre-tax non-cash impairment charge of $124 million for goodwill and other intangible assets.
During the quarter, the company recorded a $30 million pre-tax charge related to business restructuring. Mohawk generated cash flow from operations of $199 million and paid down debt of $100 million. A net loss of $128 million, or $1.87 per share, was reported including these charges.
Net sales for the year were $6,826 million, representing a 10% decrease from 2007. Excluding charges, operating income was $449 million for the year; including charges, it was a loss of $1,124 million. The net loss was $1,458 million, or $21.32 per share, including pre-tax non-cash charges for goodwill and intangibles of $1,543 million, as well as a deferred tax impairment of $253 million and a business restructuring charge of $30 million pre-tax. Mohawk generated $570 million of cash flow from operations and paid debt of $333 million during the year.
“We are in an unprecedented time, with the U.S. and world economies under great stress,” said Jeffrey S. Lorberbaum, chairman and chief executive officer. “Our category is suffering from the same issues as the entire economy, including increasing unemployment, falling consumer confidence, limited credit availability and declining business investment. In addition, the housing contraction has had a significant impact on the purchase of flooring for our residential channels.
“In this environment, we are focused on cash flow and the balance sheet. Our balance sheet remains strong with over $850 million credit availability. All of our business units have a priority to maximize cash by reducing costs, improving working capital, limiting capital expenditures, and focusing on actions that positively impact sales and margins. All of our segments have taken aggressive steps, and our capital structure and future cash flow will allow us to manage through the downturn.
“The Mohawk segment sales declined 17% this quarter, with both the residential and commercial businesses down. In the fourth quarter, customer traffic in flooring retail stores dropped significantly and the commercial business declined as businesses reduced investments. Price increases announced in the third quarter were implemented but material costs escalated higher and remained longer than we had anticipated. Through the first quarter, we will see the effects of high-cost material purchases with our FIFO inventory. We permanently closed a number of manufacturing and distribution assets in the fourth quarter to align with present conditions. Many cost initiatives to reduce infrastructure and improve productivity were implemented during the quarter. Our team was successful in reducing manufacturing and logistics costs, as well as inventory levels. Our polyester carpet products are improving their position in the market as consumers favor more value-oriented options. We completed the redesign and launch of our new wood product line and are broadening our customer base.
Dal-Tile sales were down 12% in the quarter compared to last year, reflecting a slower commercial environment, along with a continued decline in residential demand. Margins were impacted by a declining product mix, and lower production levels creating unabsorbed overhead in the fourth quarter. We shut down several high-cost production lines and moved the products to more efficient operations. We have executed many cost reductions, including reduced sales, manufacturing and distribution staffing; lower alternative materials; and improved transportation. Inventory levels were balanced with declining sales and should decrease as we go forward. Warehousing at the plants has been increased to ship more directly and reduce overall distribution expenses. We are increasing our penetration of the Mexican market with broader product offerings and increased distribution.”
The current environment is expected to remain challenging for the near term, and Mohawk believes that sales volume will continue to decline in the first quarter. In the first quarter, the Mohawk segment is forecasted to have an operating loss resulting from the $60 million flow through of peak FIFO costs. The Dal-Tile and Unilin segments will continue to be impacted by the recession and lower consumer spending, resulting in lower production volumes and a declining product mix. Based on these factors, the company’s EPS guidance for the first quarter is a loss of $.80 to $.89 per share.
Mohawk will remain focused on managing its balance sheet and maximizing cash generation across its businesses. The company will continue to reduce infrastructure, capital expenditures, working capital and controllable costs. In the second quarter, margins will be positively impacted after the peak inventory costs flow through the first quarter and seasonal improvements are seen in volume.
Visit www.mohawkind.com for additional details.