Mohawk CEO "highly optimistic" about carpet comeback

Jeffrey Lorberbaum
Jeffrey Lorberbaum

The head of the world's biggest floorcovering company said Wednesday he is "highly optimistic" that rising home starts this year will provide a belated boost to the carpet industry.

In a television interview from Chattanooga, Mohawk Industries CEO Jeffrey Lorberbaum said the floorcovering industry is finally benefiting from the improving economy.

"It really is surprising," Lorberbaum said. "Typically, we're a leading indicator of what happens as you come out of recession. In this one, we've been the tail of it because we think that housing prices are depressed."

Shares of Mohawk have been anything but depressed, however. Shares in the Calhoun, Ga.-based company rose Wednesday to another all-time high. Mohawk gained $2.38 per share, or 1.3 percent, to close at $185.89 -- up 19 percent so far this year and nearly 33 percent above Mohawk's year-ago stock price.

Since the company went public in 1992 with about $300 million in sales, Mohawk has grown more than 30-fold through 30 acquisitions, including its pending $1.2 billion purchase of the Belgium-based IVC Group.

"We're optimistic about what is going on and things seem to be in place for the industry to do better," Lorberbaum told CNBC's Squawk Box. "We have people working more; we have low interest rates; we have housing prices going up, and there is more activity going on in businesses, so we're really optimistic about the future."

Last year, Mohawk rolled up a record $532 million in profits on sales of $7.8 billion and the company could reach nearly $10 billion in sales this year through internal growth and its purchase of IVC.

The Chattanooga-based Dixie Group, which sells primarily high-end residential and commercial carpets, boosted its sales last year by 18.1 percent. But Dixie took a loss for the year from consolidations costs following its purchase of Atlas the previous year.

The sales gains for Mohawk and Dixie last year came despite relatively flat carpet sales for the industry as a whole. Hard surfaces were up about 3.5 percent, according to industry estimates.

"Last year, we were all somewhat disappointed, especially in the residential and replacement business, because the market never got as strong as we felt it would," said Kemp Harr, publisher of Floor Focus, which tracks the carpet and floorcovering industry. "Housing was a big part of the recent downturn and there has been a reluctance by many to invest so much in your home because there is more concern about whether you would get that back out. It looks like 2015 will be different, however."

The replacement market for carpet this year should benefit by what may be an all-time record year for home improvement spending, as well as the potential for 10 to 15 percent gains in the number and value of U.S. home starts.

Kermit Baker, a Harvard University economist who works at the Joint Center for Housing Studies, predicts home improvement spending in the U.S. this year could top the record $324 billion spent in 2007 before the Great Recession. Consumers are benefiting by cheaper gas, more jobs and higher wages this year, Baker told Floor Focus.

"The money people are not spending at the pump, they can spend at home and in putting in new floorcovering," he said.

Rising home values and consumer confidence also are encouraging homeowners to spend more money remodeling and upgrading their homes, Baker said.

Carpet and floorcovering sales typically lag home and building starts since such products are one of the last items bought and installed during construction.

"We're the last thing that goes into the home before it is finished -- usually about a month before it is finished," Lorberbam said. "We're putting in products now for homes that were started six to nine months ago."

Despite the improved domestic outlook, Mohawk sales could be hurt this year from the translation of overseas business into the stronger U.S. dollar. About 30 percent of Mohawk sales are international. While shipments and sales in local markets aren't suffering, Lorberbaum said as those sales in weaker foreign currencies are translated back to U.S. dollars there is some negative impact.

"If you look at 2014, and you use the current rates, it will have about a 5 percent sales impact," he said.

Contact Dave Flessner at dflessner@timesfreepress.com or at 757-6340

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