Flooring crawls back; Mohawk keeps profits, Dixie avoids loss

Daniel Guzman, a tufting fixer, keeps an eye on new carpet and looks for any imperfections in the weave. Workers at the Dixie Group carpet plant in Eton, Ga., produced, inspected and shipped carpet.

Photo by Jake Daniels.

The carpet industry's ups and downs continued as floor covering earnings reports showed mixed results Thursday. The steep declines of the early recession haven't reappeared, but neither has a solid recovery.

Chattanooga-based Dixie Group, which released its earnings Thursday morning, showed a jump in growth, while Calhoun, Ga.-based Mohawk Industries beat revenue expectations but let earnings slide from 2010.

Commercial sales to businesses such as hotels, hospitals and restaurants are leading the recovery, while residential sales continue to disappoint, said Dan Frierson, chairman and CEO of Dixie.

"If I had to anticipate where the in industry is, I'd say commercial is improving compared to a year ago, and residential is still challenged," Frierson said.

The housing market's stillborn recovery has opened up new lines of business, however, as sellers seeking to offload large numbers foreclosed houses have used carpet as a way to spruce up a property, industry officials said.

"U.S. economic growth was lower than expected in the second quarter with the U.S. residential business remaining soft and the commercial business continuing to grow," said Jeff Lorberbaum, chairman and CEO of Mohawk.

Mohawk posted $66 million in profit, or 95 cents per share, beating analyst expectations of 93 cents per share. A year ago, second-quarter profits for Mohawk were $68 million, or 95 cents per share.

Mohawk revenues in the second quarter were up 6 percent to $1.5 billion.

"Our second-quarter results were accomplished despite the weaker than expected economies in both the U.S. and Europe," Lorberbaum said.

The company has diversified in the United Kingdom, Russian and Australian markets to deliver better results in an uncertain domestic economy.

"Mohawk's strategies reflect our evolution from a North American carpet business into a larger, more diverse, total flooring company operating in the global market," said Lorberbaum.

Mohawk is building or has completed new flooring plants in the U.S., Mexico, Russia and Malaysia, and the company has closed or consolidated operations that still rely on its older stapled yarn technology this year.

"This is our highest operating margin since 2008 as a result of continuing cost reductions, selling price increases and productivity gains throughout the enterprise," Mohawk's chief said in a news release.

The only real bright spot in U.S. residential carpet sales continues to be the high-end market, Frierson said.

"The luxury or fashion end of the residential market continues to outperform the residential market in general," Frierson told conference call participants.

Dixie has completed six consecutive quarters of sales growth, but the rising cost of oil continues to plague carpetmakers, which have been forced to raise prices to cover raw materials.

For the year so far, Dixie has grown sales 23.4 percent despite two price increases.

Dixie sales in the first half of 2011 totaled $135 million with $1.4 million in earnings, compared to $109 million in sales and a $3.1 million loss for the same period in 2010.

Dixie's improving fortunes warrant increased capital investment, so the company is bulking up its production capacity with $6.2 million in upgrades, including $2.1 million spent already in the first two quarters.

"We continue to invest ... in new products and processes as we maintain our goal of being the fashion leader in the industry," Frierson said.

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