Business News

Mohawk Industries, Inc. Announces Fourth Quarter Earnings

Thursday 14. February 2008 - - 2007 Fourth Quarter EPS $5.53 with one-time tax benefit - 2007 Fourth Quarter EPS $1.57 excluding one-time tax benefit - $189 million of debt paid down in quarter - $875 million cash flow from operations for year - 27% improvement in Unilin annual operating profit

Mohawk Industries, Inc. (NYSE:MHK) today announced 2007 fourth quarter net earnings of $379.1 million and diluted earnings per share (EPS) of $5.53, including a one-time tax benefit. Net earnings and EPS for the quarter, excluding the tax benefit, were $107.5 million and $1.57, respectively. In the fourth quarter of 2006, net earnings and EPS were $129.5 million and $1.90 per share, respectively, and included a pre-tax benefit of $4.4 million ($.04 per share) related to a refund from U.S. Customs. As required under generally accepted accounting principles, a $271.6 million ($3.96 per share) tax benefit to earnings was recorded during the quarter which resulted from an international restructuring. Net sales for the quarter were $1,807.3 million, a decrease of 5% from 2006. Sales were impacted favorably by the Columbia wood flooring acquisition, exchange rates and growth in the Dal-Tile segment which partially offset other sales declines. Cash flow from operations continued strong at $273 million and an additional $189 million of debt was paid during the quarter.

For the year 2007, earnings were $706.8 million and EPS were $10.32, including the $271.6 million one-time tax benefit, a pre-tax benefit of $9.2 million ($.09 per share) related to a refund from U.S. customs and pre-tax charge of $14.2 million ($.13 per share) for plant closing costs. In 2006, net earnings and EPS were $455.8 million and $6.70 per share, respectively, and included a pre-tax benefit of $19.4 million ($.18 per share) related to a refund from U.S. Customs. Net sales for the year were $7,586.0 million, a decrease of 4% from 2006. Sales were favorably impacted by growth in the Unilin segment, exchange rate gains and the acquisition of the Columbia wood flooring business which partially offset other sales declines. For the year Unilin’s results improved substantially with operating profit increasing 27%. For the year we had cash flow from operations of $875 million and reduced our debt by $534 million.

In commenting on the fourth quarter and year results, Jeffrey S. Lorberbaum, Chairman and CEO, stated: “During 2007 we endured a difficult U.S. housing market and rising costs, while continuing the growth of our Unilin segment. Our management team in the U.S. handled the many challenges as the flooring market continued its decline. Our three segments are managing this cycle with many initiatives to improve revenues, reduce costs, increase prices, improve productivity, manage working capital and update our product portfolio.

The Mohawk segment has been impacted greater than our other segments with sales down 13% in the quarter and a 7.2% operating margin. The commercial channel outperformed the residential channel and this is expected to continue for the foreseeable future. Raw material costs have escalated and we announced a carpet price increase in December with further adjustments in January based on the changing environment. The announced increase should take four to six months to fully implement. We continue to right size the business by reducing costs. We are implementing many initiatives to improve efficiency and yields which we expect will have a favorable long term impact. Sales focus has been increased in the commercial, multi-family and higher-end residential channels which are expected to outperform other channels. We have discontinued production in our flat woven plant which will reduce sales about $40 million this year.

Our Dal-Tile sales were up 2% in the quarter compared to 2006 with operating margins of 13.2%. Dal-Tile is performing well with growth in the commercial and higher-end residential channels. We are implementing price increases to pass through rising energy, logistics and other costs. Earlier investments in our sales infrastructure have enabled us to outperform the market but are impacting our margins. The Mexican market continues to expand and Dal-Tile is growing our business by focusing on premium ceramic products. During the year we closed a high cost ceramic facility in the U.S. and reduced outside purchases of ceramic to increase utilization of our plants and control inventory levels. We have completed the introduction of a new exterior collection of porcelain and stone tiles. These products extend the interior living areas to the outdoors in both residential and commercial applications.

In the quarter the Unilin segment sales grew by 20% over last year with an operating margin at 15.0%. Without Columbia, Unilin’s sales growth was 7% and the operating margin was 18.3%. In the local currency Unilin had a sales decline of 3% without Columbia. The fourth quarter 2007 sales comparison was extremely difficult due to a 34% sales gain in the prior 2006 period. Our European laminate sales grew with the U.S. laminate and other sales declining on a constant exchange rate basis. Unilin is being impacted by the contracting U.S. residential industry along with slowing European building and remodeling sectors. Unilin has experienced cost increases and has implemented price increases in many product categories. Lower industry volumes are also reducing patent revenues. We are adding infrastructure to expand our penetration in Eastern Europe and Russia which are growing faster. The Columbia integration is progressing but volumes are being impacted by the slowing industry. The wood plants are improving productivity, quality and cost. New products are being introduced to replace outside purchased product, to fill in product voids and offer higher styled options. The U.S. management team is in place to execute our strategy and we are finalizing the European wood team to maximize the Malaysian sales.

In the first quarter, the company is expecting the U.S. flooring industry to continue its decline and the European building and remodeling sector to soften. Material costs are rising even though the industry volumes are falling. We have reduced production in the plants in the first quarter due to lower consumer demand and both our customers and Mohawk not building inventories as we have in prior years. With the current industry conditions, we are reducing our infrastructure costs further and increasing prices which will lag the rising costs. Based on these factors, earnings guidance for the first quarter of 2008 is from $.81 to $.90 EPS.

The second quarter earnings are expected to improve and be more in line with last year. We anticipate sales and earnings will benefit from higher seasonal sales rates, increases in selling prices, reduced infrastructure costs and favorable foreign exchange. Postponed flooring purchases by our customers during past cycles have resulted in an industry rebound when the economy improves. 2008 will also benefit from lower intangible asset amortization, interest expense and tax rate. We are focused on managing our business through this cycle.

Certain of the statements in the immediately preceding paragraphs, particularly anticipating future performance, business prospects, growth and operating strategies and similar matters and those that include the words “could,” “should,” “believes,” “anticipates,” “expects,” and “estimates,” or similar expressions constitute “forward-looking statements.” For those statements, Mohawk claims the protection of the safe harbor for forward- looking statements contained in the Private Securities Litigation Reform Act of 1995. There can be no assurance that the forward-looking statements will be accurate because they are based on many assumptions, which involve risks and uncertainties. The following important factors could cause future results to differ: changes in economic or industry conditions; competition; raw material and energy costs; timing and level of capital expenditures; integration of acquisitions; rationalization of operations; litigation and other risks identified in Mohawk’s SEC reports and public announcements.