The world’s biggest floor covering manufacturer earned less than half as much in the first three months of the year as it did a year ago as rising interest rates and slower economic growth curbed sales of carpets and tiles while inflation continued to push up production costs.
Mohawk Industries reported first-quarter adjusted earnings of $112 million, or $1.75 per share, which was down 53.7% from a year ago. Global sales of carpets and tiles for the Calhoun, Georgia-based company dropped by 5.9% to $2.8 billion, and Mohawk CEO Jeff Lorberbaum warned that industry sales are likely to be down throughout 2023 in response to a global slowdown.
“Our industry is operating in a completely different environment than a year ago,” Lorberbaum said in the company’s earnings report released after the market closed Thursday. “Around the world, central banks are raising interest rates to slow their economies and reduce inflation. These actions lower our industry volume as new home sales and residential remodeling are postponed.”
Lorberbaum said Mohawk is “adopting our strategies to a more challenging environment.” By managing its costs, the company was able to exceed industry expectations during the first quarter.
Mohawk’s adjusted earnings, excluding restructuring, acquisition and other charges, were nearly 37% better than the Zacks Consensus Estimate of $1.28 per share.
In response, Mohawk shares jumped in after-hours trading even after the company’s shares were up by 4.1% in trading Thursday. Shares of Mohawk are still down 3.4% so far this year and are down by 24.5% over the past year, however.
“All of our businesses are adapting our strategies to a more challenging environment,” Lorberbaum said. “We are managing our costs while investing in both our short- and long-term growth.”
Commercial floor covering sales are holding up better than residential carpet and tile sales, which are declining amid a slowdown in housing activity.
“We are continuing to reduce costs across the enterprise by enhancing productivity, streamlining processes and controlling administrative expense,” Lorberbaum said. “Our customers remained conservative with their inventory commitments, and our operations are running at lower utilization levels, creating higher costs from unabsorbed overhead.”
Lorberbaum, who has been CEO of Mohawk Industries for the past 22 years, said the industry downturn is unique, with plentiful jobs and businesses still continuing to invest even as the economy softens.
“Our strong balance sheet enables us to navigate the current downturn as we prepare for the industry rebound that follows,” he said. “Longer term, all of our regions require the updating of aging houses and significant new home construction to satisfy market needs.
— Compiled by Dave Flessner