The slowdown in housing activity and the rise in inflation combined this summer to pull the rug out from much of the residential market for the world’s biggest floorcovering company.
Mohawk Industries Inc. on Thursday took a $696 million impairment charge in the third quarter due to the softening market for carpet and floor tiles, which weakened sales more than what was expected. The Calhoun, Georgia-based floorcovering company reported a net loss of $534 million, or $8.40 per share, although ongoing operating earnings were in line with industry expectations.
Adjusted net earnings were $212 million, or $3.34 per share, excluding impairment and other non-recurring charges. That was down from the net earnings of $272 million, or $395 per share, a year ago from ongoing operations.
In response to the report, shares of Mohawk, which had already dropped to only half of their year-ago levels, fell further in after-hours trading.
“Our sales were weaker than we anticipated, as the retail channel softened across all regions and product categories,” Mohawk CEO Jeff Lorberbaum said in the company’s quarterly earnings report. “The strengthening U.S. dollar also negatively impacted our translated sales by $117 million or 4.1%.”
Loberbaum said floorcovering sales have slowed more in Europe “due to the unprecedented energy crisis and high inflation that has slowed the region’s economy.
“Our costs have continued to rise, and our pricing in Europe has not kept up with the recent material and energy inflation, which has compressed our margin,” Loberbaum said.
Net sales for the third quarter were up 3.6% from a year ago to $2.9 billion. Mohawk’s sales increased primarily from price increases and strength in the commercial sector, but Loberbaum said operating income declined as lower volume resulted in higher unabsorbed costs.
The Mohawk CEO said “it is challenging to predict either the duration of the current economic conditions or their impact” of the expected recession on the floorcovering industry.
“As central banks around the world continue to raise interest rates and inflation reduces discretionary expenditures, we expect our businesses to remain under pressure,” Lorberbaum said. “Residential remodeling drives a majority of our sales, and consumers are deferring purchases and trading down. In Europe, gas and electricity prices are reducing demand and increasing our manufacturing and material costs.”
— Compiled by Dave Flessner