Tags: Mohawk | housing | recovery | MHK

Mohawk Waiting On Weak Housing Recovery

By    |   Friday, 10 February 2012 08:25 AM

Mohawk Industries (MHK), a major manufacturer of carpeting and other types of floor coverings, is whittling costs while waiting on a weak U.S. housing recovery.

The Calhoun, Ga. company is a global leader in the production and sale of commercial and residential floor coverings. Mohawk also makes floor coverings made of natural stone, ceramic tile, porcelain tile, hardwood flooring and laminate.

Mohawk believes it is the second-largest manufacturer of carpets and rugs in the world, based on information from flooring trade publications, and that carpets and rugs account for a little more than half of all U.S. sales of floor coverings.

The company employs more than 20,000 workers, mostly in the United States but also in Canada, Europe, Malaysia and Mexico. Some of Mohawk's largest manufacturing facilities include its plant in Dalton, Ga., covering 2.1 million square feet, and plants measuring 1 million square feet or more in Belgium, Mexico and Thomasville, N.C.

Housing-sensitive Mohawk has a faced a downturn in sales that began in 2006 and has continued amid uncertainty over economic conditions in the United States, sovereign debt issues in Europe, volatile prices for raw materials, high unemployment and depleted consumer confidence.

Frank Nothaft, chief economist of Freddie Mac, one of the nation's biggest buyers of mortgage loans, wrote in a December forecast that "a full-fledged recovery in the housing sector will likely elude the U.S. in 2012, but new construction and home sales are expected to be greater than in 2011."

Apartment construction will push total housing starts "up slightly more than 10 percent in 2012," Nothaft said in his forecast. "Single-family starts may inch higher, too, but no significant bounce-back in single-family construction is likely in coming quarters."

Eleven analysts following Mohawk in early February give the stock neutral hold ratings, and three recommended investing in the company.

Mohawk's top-line shrank by a third in the five-year period ended in 2010, when annual net sales settled at $5.31 billion. The company earned net income of $189 million in 2010 after basically breaking even on the bottom line during the 2006-2009 period.

Cutting costs

Cost reductions have helped the company regain profitability. For example, Mohawk lowered its selling, general and administrative expenses by about a fifth from 2006 to 2010.

Net income in the first nine months of last year dropped to $131 million, down 6.2 percent from the prior comparable period, despite year-on-year net sales growth of 5.1 percent, to $4.26 billion, in the same period.

Financial results in the January to September period last year reflected $59 million of reduced manufacturing costs arising from actions that included facility consolidations and workforce reductions.

Mohawk will report its fourth-quarter earnings Feb. 23.

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