Global flooring firm sees half year decline

Global flooring manufacturer Mohawk has reported a decline in second quarter and half year sales.

According to its latest trading update, total Q2 sales were down 6.4% to $3bn from $3.2bn, while half year sales also declined 6.7% to %5.8bn from $6.2bn against the same period last year.

Net earnings for the respective Q2 and half year periods resulted at $101m and $181m.

Jeffrey S. Lorberbaum, Chairman and CEO, stated: “Our margins across the enterprise expanded sequentially due to seasonal improvements, increased production, productivity initiatives and lower input costs. We generated $147 million of free cash flow during the quarter, further strengthening our financial position.

“In the quarter, we initiated restructuring and integration actions that should save $35 million annually at a total cost of approximately $17 million. We anticipate half of the estimated savings should be realized in the current year, partially offsetting weak residential remodelling activity. In addition, we are limiting future capital investments to those delivering significant sales, margin and operational improvements.

“In all our regions, we are taking actions to increase sales, including promotions, retailer incentives and selective product launches. The integration of our recent acquisitions is progressing as we combine strategies and enhance their manufacturing and product offering.

“In Europe, energy prices have continued to decline, though persistent inflation in other categories is limiting consumer remodelling investments. In the quarter, we benefited from the lower energy prices that flowed through our P&L. Our investments in biomass, solar and wind energy production reduce our operational expenses and carbon footprint, positively impacting our performance.

“During the second quarter, our Flooring Rest of the World Segment’s net sales decreased by 11.4% as reported or 10.2% on a legacy and constant currency and days basis. The Segment continues to successfully manage a difficult environment. Consumer spending has not improved as we expected, with confidence remaining low given inflation, higher interest rates and the war in Ukraine. Though our flooring sales are under pressure, our sheet vinyl collections are outperforming as consumers trade down to lower-priced alternatives.

“We are aligning laminate and LVT production with present demand and introducing new products, merchandising and specific promotions to expand sales volumes. We have begun to transition our residential LVT offering from flexible to rigid cores and are executing the previously announced restructuring to support this conversion. In panels, fewer projects are being initiated and industrial use has decreased due to slower market conditions. While long-term prospects for our insulation business remain strong, demand is presently declining as residential and commercial investments are being deferred. The Australia and New Zealand housing markets have softened, and we are introducing new products and selective promotions to increase sales volume.

“Our new restructuring initiatives should save $35 million per year, and our recent acquisitions will add greater benefit to our results as we optimize their performance. In this competitive market, we expect continued pressure on pricing and mix, partially offset by the flow through of lower material and energy costs. Our third quarter seasonally weakens due to summer holidays, lower consumer spending and lower production in Europe. Given these factors, we anticipate our third quarter adjusted EPS to be between $2.62 to $2.72, excluding any restructuring, acquisition and other charges.

“At Mohawk, we are taking the necessary steps to manage today’s challenges while preparing for tomorrow’s opportunities. When central banks shift their focus to a more balanced approach, our business will accelerate as the industry recovers. In all our regions, housing is in short supply, aging homes are in need of remodelling and businesses will invest to grow in more favourable conditions. These factors will create higher growth for flooring, and our investments in capacity expansions and our recent acquisitions will further enhance our results.”

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