The biggest publicly traded company headquartered in the Chattanooga area shed more than $1.5 billion of market value on Friday after the company warned that energy, supply and labor shortages and cost increases will limit global earnings in the coming months.
Mohawk Industries, the world’s biggest floor covering company, said Friday that supply chain interruptions brought on by the lingering coronavirus pandemic are limiting some production, and higher natural gas prices in Europe will hurt profit margins in the fourth quarter.
In response, shares of Mohawk dropped Friday by nearly 11%, or $21.85 per share, to close at $177.21 per share.
Kenneth Leon, an equity analyst at CFRA Research who follows Mohawk Industries, downgraded his view of the company’s stock from “strong buy” to a “hold” and lowered his profit outlook for the company.
“Macro headwinds will hurt Q4 2021 results and 2022 outlook, as Mohawk confirmed higher European natural gas prices, global labor shortages and absenteeism, rising material costs, and higher transport costs,” he said.
Mohawk, based in Calhoun, Georgia, is still projected to boost sales next year, and company CEO Jeff Lorberbaum said Mohawk is working aggressively to meet stronger U.S. residential floor covering demand.
“In the [3rd quarter of 2021] period, COVID directly and indirectly impacted many economies, creating supply chain difficulties that disrupted production,” Lorberbaum said an earnings announcement Friday. “Even with greater external constraints, we ran most of our operations at high levels, and we successfully managed many interruptions across the enterprise.”
Despite supply interruptions and government lockdowns that forced plant and store closings in Australia, New Zealand and Malaysia, Mohawk still boosted both its sales and profits in the third quarter.
Mohawk said its adjusted net earnings rose by more than 21% in the third quarter compared with a year ago to $272 million, or $3.95 per share. Net sales for the third quarter of 2021 were $2.8 billion, up 9.4% as reported and 8.7% on a constant currency basis.
Lorberbaum said both labor and supply costs rose this summer as residential floor covering sales continued to grow with more home starts and remodeling activity while commercial flooring sales also showed improvement but at a slower pace.
“Tight chemical supplies, in particular, reduced the output of our LVT [luxury vinyl tile], carpet, laminate and board panels,” Lorberbaum said. “For the near term, we do not foresee significant changes in these external pressures. Due to supply shortages, government regulations and political issues, natural gas costs in Europe are presently about four times higher than earlier in the year. This adds a temporary challenge to our European businesses as the higher costs are reflected in gas, electricity and materials.”
With most businesses carrying significant order backlogs, Mohawk said it will run most plants at higher levels in the fourth quarter to improve both service and efficiency.
Lorberbaum said Mohawk’s board increased the company’s stock purchase program by an additional $500 million.
“Since the end of the second quarter, we have bought approximately $250 million of our stock at an average price of $193 per share,” he said.”With our current low leverage, we have the capital to pursue additional investments and acquisitions to expand our sales and profitability.”
Contact Dave Flessner at dflessner@timesfreepress.com.