- THE MAGAZINE
This compares to $84,201,000 in net earnings and $1.25 in EPS for the fourth quarter of 2002.
This improvement was the result of strong sales growth, increased operating income and lower interest costs. Net sales for the quarter increased 14% to $1,369,991,000 from $1,203,476,000 in 2002. This increase was primarily the result of strong internal growth of both Mohawk and Dal-Tile products and the Lees Carpet acquisition completed during the quarter end. Additionally, the fourth quarter of 2003 had one additional day when compared to 2002 which added approximately 2% to the sales growth.
The Mohawk segment net sales of $1,034,256,000 in the fourth quarter of 2003 were up 12% from $919,951,000 due to improving sales across all product categories as well as acquisitions. The Dal-Tile segment net sales of $335,735,000 in the fourth quarter of 2003 grew 18% from $283,525,000 primarily due to internal growth.
Net earnings for the year 2003 were $310,149,000 (9% above last year), or $4.62 in EPS (5% above last year), compared to $284,489,000 in net earnings, or $4.39 in EPS, for the year 2002. This improvement in net earnings is primarily attributable to sales growth and operating earnings growth in the second half of 2003 as well as the acquisition of Dal-Tile during the first quarter of 2002. Net sales for the year 2003 increased 11% to $5,005,053,000 from $4,522,336,000. This sales increase resulted primarily from internal growth in both the Mohawk and Dal-Tile segments, the acquisition of Dal-Tile in 2002 and three acquisitions in 2003.
In commenting on the fourth quarter results, Jeffrey S. Lorberbaum, President and CEO, stated, "We are very pleased to announce another record with our fourth quarter results. All of our product categories experienced internal revenue growth. The Dal-Tile segment growth was exceptionally strong continuing to support our strategy to grow all hard surface categories. We were especially happy with the annual results when compared to the prior year in light of the weak business conditions during first half of 2003. Our operating margin for the quarter was slightly down from 13.6% last year to 12.7% of sales in 2003. This decline results from a product mix shift which increased margin dollars but lowered the margin percentage, the impact of the higher euro cost on imported products, and higher oil and natural gas costs. Our balance sheet is very strong with 31% debt to capitalization at the end of the current quarter even after the Lees acquisition. In addition our working capital is favorably positioned for the recovering economy.
"The overall carpet industry continues to improve with the new home business leading other sectors. Our residential replacement business is still improving in response to favorable general economic conditions. The commercial segment is also beginning to show signs of improvement in the value price points and we expect the higher end business to follow later in the year.
"We continue to manage our costs and selling prices in view of high energy and raw material costs. Our fiber suppliers have announced cost increases effective during the first quarter. We have announced corresponding price increases to our carpet customers to offset the raw material increases. In addition, we have announced price increases in our various hard surface categories to offset other cost increases.
"The acquisition of Lees Carpet was completed in November 2003. We have integrated the financial and administrative systems into the Mohawk systems. Additionally, a team has been formed and is working to consolidate the operating systems in 2004. All functional groups are developing strategies to adopt the best practices between the two entities and maximize the combined value we bring to our customers. We believe the acquisition will be accretive in 2004. "Our new strategy of regional market meetings is being well received by our customers. The proximity to customers, availability of knowledgeable sales representatives who have relationships with customers, strong presence of senior management and our professional presentation are all providing higher value to customers. We believe these meetings will result in a more effective and timely roll out of new products and programs.
"Finally, I am proud to report that Mohawk received the 'Partner of the Year Award' from Sherwin Williams Company as recognition for our outstanding service, superior products and assistance in training and developing the sales staff of Sherwin Williams. In addition, Dal-Tile placed first in Hard Flooring category in Chain Store Age's first annual supplier of the year awards. These are additional indications of the strength of our organization as we strive to continue to provide superior value to our customers."
The earnings for the fourth quarter of 2002 included a charge of $10,700,000 related to the change in classification of an interest rate hedge on the company's variable rate debt.
The company believes the economy will continue to improve and our revenue growth should continue to outpace the prior years. However, high oil and natural gas prices will continue to put pressure on Mohawk's cost structure. Additionally, we are adjusting our fiscal calendar this year resulting in the first quarter of 2004 having four additional days and the fourth quarter of 2004 having four fewer days when compared to 2003. This adjustment will impact revenues in the first quarter and fourth quarter sales of 2004 when compared to 2003 by approximately 6%. After considering these factors, the first quarter of 2004 earnings forecast range is from $0.95 to $1.02 EPS.