Mohawk grows sales across all segments; implements action plan to reduce costs

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

Second quarter sales were $3.2 billion, an increase of 6.7% on the same period last year, with net income resulting at $280m. As for the half year review, total sales were $6.2 billion, an increase of 9.7%, while net income resulted at $526m for the six months ended 2 July 2022.

Commenting on Mohawk Industries’ second quarter performance, Jeffrey S. Lorberbaum, Chairman and CEO, said: “During the quarter, sales grew in all of our segments, with our top line results benefiting from price increases, enhanced product mix, improvements in commercial and contributions from our small acquisitions.

“As the quarter progressed, the global economic environment became increasingly challenging, and our organisation implemented additional actions to support our performance. Our operating income for the quarter was in line with our expectations, even as material, energy and transportation inflation remained a significant headwind and our translated results were impacted by the strengthening U.S. dollar.

“Over the past 18 months, all of our businesses have faced extraordinary inflation, and we have instituted multiple price increases to pass through these higher costs. We are also taking numerous operational actions, including cost controls, productivity improvements, mix and logistics enhancements.

“Across all our markets, inflation is causing changes in consumer discretionary spending. U.S. housing sales have been impacted more than our other markets as mortgage rates have risen faster. Unlike past economic cycles, housing demand exceeds available supply and foreclosures are not an issue. In Europe, interest rates have not risen as much as in the U.S., though consumer discretionary spending is being eroded by energy and other inflation, which is impacting demand. In most of our regions, investments in commercial new construction and remodeling remain solid. Both commercial projects that were deferred due to the pandemic and new projects are being initiated in greater numbers as the sector continues to strengthen.

“As we navigate near-term market dynamics, Mohawk’s strong balance sheet provides many options for investments, including internal expansion, acquisitions and stock buybacks. During the second quarter, we announced approximately $440 million in new acquisitions, with the largest being the agreement to acquire Vitromex, a leading ceramic manufacturer in Mexico. In early July, we completed the acquisition of Foss Floors, a leading U.S. needle punch flooring manufacturer.

“In Europe, we are making excellent progress in integrating our 2021 insulation and panels acquisitions, which are contributing to our results as expected. Our expansion projects remain on schedule, including laminate, LVT, quartz countertops and European high-end porcelain slabs, all of which will help us satisfy current and future demand.”

“To adapt to current conditions and improve our results, we are taking actions across the enterprise to restructure our costs. We are finalising plans to rationalise older, less efficient assets and optimise processes to lower our costs. The most significant actions will be in Flooring North America, including some fiber assets and reducing rug manufacturing capacity. In Flooring Rest of the World, we are consolidating insulation products and streamlining our organisation. In Ceramic Europe, we are simplifying our administrative and manufacturing organisations. We estimate these initiatives will reduce our costs by $35 to 40 million annually, with an estimated cash cost of $15 to 20 million and a total estimated cost of $90 to 95 million.

“During the first half of 2022, we delivered solid results despite the pressure of significant inflation, rising interest rates and geopolitical instability. In the U.S., rapidly rising interest rates are impacting housing sales, and inflation is causing changes in consumer discretionary spending. Residential remodeling is softening as consumers postpone upgrading their homes. New home and multifamily flooring channels remain strong, and the commercial sector continues to improve as new and deferred projects are initiated. Though interest rates are lower in Europe, dramatically higher natural gas prices and constrained supply are reducing economic growth. Given these factors, we anticipate softening demand and increased pressure on our margins going forward.

“We are taking targeted actions across the enterprise to adjust to these changing market conditions. Material and energy costs continue to rise, and we are implementing further price increases in response. We are introducing higher value products and enhancing our service levels to expand our sales. We are reducing expenses and initiating new process improvements. We will be implementing multiple restructuring projects across the company to reduce our costs. We also expect improvements in material supply and transportation as we go through the remainder of the year.

“Mohawk has successfully managed through economic cycles many times before. Over the long term, flooring grows at a faster rate than the overall economy. We have a strong balance sheet that supports growing the business through internal investments as well as acquisitions and stock buybacks. We will enhance the performance of our acquisitions and will continue to seek opportunities in new products and geographies. We remain optimistic about Mohawk’s future, and the actions we are taking today will increase our sales and improve our future results.”

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