Calhoun, Ga.-based Mohawk Industries is the largest flooring manufacturer in the world.The world’s biggest floorcovering company – and the most valuable company in the Chattanooga area – has lost more than half of its market value this year.
The Calhoun, Georgia-based Mohawk Industries remains the biggest player in the carpet, tile and wood flooring industry, but investors have bid down the value of the company by nearly $10 billion this year, including a sell off Friday that cut the value of the company by nearly one-fourth in a single day.
Jeff Lorberbaum, the Chattanooga resident and company CEO who built the company his father started, Aladdin Mills, into an industry leader over the past four decades, said Mohawk profits will be down from a year ago in the fall and winter quarters. The company’s third quarter results also were down from a year ago and below industry expectations due to rising costs, currency fluctuations and a stagnating market for new flooring, especially for carpet and tile.
“Softening market conditions, significant inflation and declining product mix are hurting our results,” Lorberbaum said Friday in an call with industry analysts. “We expect sales to be slightly slower than the prior quarter in most markets and product categories. Even with price increases across the company, we will not offset inflation and our results will remain under pressure.”
Mohawk Industries Inc. said Thursday its adjusted net income in the third quarter was $246 million, or $3.29 per share – down 12 percent from a year ago. The results were 29 cents per share below the consensus estimate among analysts who follow the company.
Mohawk sales in the three months ended Sept. 30 were up 4 percent from a year ago to 2.5 billion. But much of that gain came from acquisitions and the sale increase was below what analysts had expected.
In response to the unexpected downturn in profits, Mohawk suffered the biggest drop of any company Friday on the New York Stock Exchange. Mohawk shares plunged by $36.04 per share, or 23.9 percent, to $115.03 per share.
So far in 2018, Mohawk shares have fallen by 58.3 percent from a price of $275.90 at the start of the year after the company’s best year in history in 2017.
Michael Wood, an industry analyst with Nomura Instinet, raised the question Friday if “the best days are behind” Mohawk in the face of a softening market and higher costs.
“It looks like 2017 was really as good as it gets with high profit margins because of an ideal portfolio mix and pricing power and stable input costs,” Wood said during an analyst call with Mohawk officials. “And now we’re in an era of these increased import competition, cost inflation and excess capacity and perhaps declining flooring demand outside of LVT (luxury vinyl tile).”
Lorberbaum said he expects the softening market and higher costs will continue to squeeze profit margins in the coming months. But the Mohawk CEO said the company continues to introduce new products and is preparing to open a quartz countertop manufacturing plant this fall in Dickson, Tennessee, to help offset tariffs and duties on quartz countertops from China.
“We are introducing new products and executing cost reductions to improve our performance,” he said. “We are expanding our internal transportation and optimizing our distribution strategy in the U.S.”
In the third quarter, Mohawk completed its acquisition of Godfrey Hirst, a privately held tile maker in Australia and New Zealand with sales of $334 million a year. Lorberbaum said the company is raising prices on nearly all flooring products and expects to improve productivity at companies it has acquired in recent years.
“Going forward, our results should improve as we align pricing and enhance our product offering,” Lorberbaum said. “It has taken longer to align our pricing with our cost structure than we expected.”
Mohawk said its board has approved a new plan to repurchase $500 million of the company’s stock, which Lorberbaum said ” represent an attractive opportunity.”
“We expect to be in the market Monday,” Lorberbaum said when asked about when the stock repurchases might begin in the wake of the drop in share prices this year.
Mohawk shares rose more than five-fold from the summer of 2011 until the end of last year as Mohawk diversified its product mix and grew along with the rebound in construction and remodeling activity around the globe. But Friday’s drop pushed Mohawk share prices to the lowest level in more than five years.
For Lorberbaum, who disclosed in the 2018 proxy statement that he was the beneficial owner of nearly 10.5 million shares, or 14 percent of the company, Friday’s sell off reduced the value of his company holdings by $376.9 million. So far this year, the value of Lorberbaum’s Mohawk shares have dropped by nearly $1.8 billion.
But Lorberbaum said Mohawk remains the industry leader “with low cost positions in all of our products.
“Mohawk’s organizational depth, innovative products and strong balance sheet provide competitive advantages to create long-term value for our shareholders,” he said.
Contact Dave Flessner at dflessner@timesfreepress.com or 423-757-6340.