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The U.S. economy continues to slow and is being impacted by tightening credit, contracting residential home sales, declining consumer confidence, and increasing costs. The flooring industry is in a cyclical downturn; the residential remodeling category is typically one of the first to fall, but leads the rebound when the economy improves. Spending on commercial has remained positive, though it is expected to slow in the future. The U.S. credit problems have affected Europe, with growth expected to be flat to modest overall and good in Eastern Europe and Russia.
Commenting on the first quarter results, Jeffrey S. Lorberbaum, chairman and chief executive officer, said, “Our performance for the first quarter exceeded our guidance for the period in a very difficult environment. All of our business segments have managed through cyclical downturns in the past and are focused on improving productivity and quality, reducing infrastructure costs, passing along increased costs, controlling working capital, and investing in products and assets to enhance our future.
“The Dal-Tile segment sales in the first quarter declined 3.8%, which we believe outperformed the industry again. Strong growth in the commercial market is off-setting some of the weakness in the residential market. Our sales in Mexico and Canada have continued to expand as we increase our penetration in those markets. Our distribution system has been expanded with the opening of a new service center in Michigan, and we have planned three to four more this year. Our sales force and new introductions are focusing on the better-performing commercial, multi-family and higher-end remodeling categories. Our ceramic price increase initiated in the fourth quarter is substantially implemented. In April, we are executing additional price increases on selected products and raising the energy surcharge to pass along increased costs. Cost reduction initiatives remain a priority concentrated on SG&A, manufacturing productivity, inventory management, freight and raw materials. Dal-Tile’s new product, Metro Leather, won the Dealer’s Choice Award for the best new ceramic tile.”
Although seasonal improvements will benefit the second quarter, Mohawk expects to have many of the same challenges it faced during the first quarter. Weak demand and higher costs in the U.S. and Europe will weigh on the company’s future results. Mohawk will adjust its business as changes in customer demand and costs require. Lower debt levels, reduced tax rates and beneficial exchange rates will positively affect its results. Based on these factors, Mohawk’s guidance for the second quarter of 2008 is $1.36 to $1.45.
For more information, visit www.mohawkind.com.