Academic journal article Journal of the International Academy for Case Studies

Mohawk Industries, Inc. (MHK): Assessing Financial Performance during a Period of Rapid Expansion

Academic journal article Journal of the International Academy for Case Studies

Mohawk Industries, Inc. (MHK): Assessing Financial Performance during a Period of Rapid Expansion

Article excerpt

CASE DESCRIPTION

The primary subject matter of this case concerns the financial performance of Mohawk Industries, Inc. a leading company in the floorcovering industry. Secondary issues include industry competitiveness, competition, and ways to maintain the company's continued growth and successful performance given their many recent acquisitions. The case has a difficulty level of three, appropriate for junior level students. The class is designed to be taught in 1.5 class hours and is expected to require two hours of outside preparation by students.

CASE SYNOPSIS

Headquartered in Calhoun, GA, Mohawk is a full-line flooring producer and manufactures carpet, rugs, ceramic tile, laminate flooring, vinyl, and other surfaces for commercial and residential customers. Mohawk Industries, Inc. is the leading floor covering producer in the world and second only to Shaw Industries, Inc. in the production of tufted carpet.

Mohawk acquired nineteen firms in thirteen years (1992-2005) as they continue their consolidation in the carpet industry while broadening their product line into hard surface flooring. Mohawk's 2005 acquisition of Unilin, a Belgian-based laminate floor covering manufacturer, followed their purchase of Dal-Tile in 2002; which combined, doubled the size of the company in three years from (2002-2005). Students are provided six years of Income and Balance Sheet data and asked to assess Mohawk's financial performance and present their rationale as to whether Mohawk can continue their pace of continued growth and successful financial performance given the many recent acquisitions.

Students are asked to examine the company as it becomes an even larger player in the rapidly consolidating carpet and floorcovering industry. Mohawk's sales have been boosted by a strong U.S. housing market and higher selling prices. However, Mohawk's share of carpet and vinyl flooring has fallen while laminate, wood, and ceramic flooring segments have grown. Laminate sales comprised only five percent of the U.S. floorcovering market but they were up nine percent in 2005. Industry-wide, carpet and rug sales continued to grow by seven percent from 2004 to 2005, wood flooring grew by eight percent, and all hard surfaces grew by five percent. The rise in the rug segment by five percent was a result of the growth in hard surface flooring since even with wood or laminate floors, consumers continue to decorate with area and scatter rugs (Floor Focus 2006 Annual Report).

INTRODUCTION

Can Mohawk maintain their rapid acquisition rate of nineteen firms in thirteen years and continue their consolidation of the carpet and floorcovering industry while maintaining their past record of financial performance? Mohawk's 2005 acquisition of Unilin, a Belgian-based laminate floor covering manufacturer, follows the 2002 purchase of Dal-Tile; which, combined doubled the size of the company in three years from (2002-2005).

Mohawk began in the carpet industry over 127 years ago. Today they are the leading producer and distributor of home and commercial flooring worldwide including all major flooring categories: carpet, rugs, hardwood, laminate, ceramic tile, and vinyl sheet flooring. They are also a leading producer of yarn, area rugs, and bath mats. While Mohawk has traditionally been a carpet manufacturer, the latest acquisitions are an attempt to diversify into the faster growing hard surface flooring (non-carpet) market segment.

Unilin had 2004 revenues of $1 billion and employed more than 2,400 people in Europe. The Unilin acquisition adds the European company's wood flooring, shelving, chipboard, and roofing products to Mohawk's range of products. Since their acquisition of Unilin, U.S. Mohawk's sales have been boosted by a strong U.S. housing market and higher floorcoverning selling prices as evidenced by eight percent gain in second quarter profits in 2005. However, Mohawk's share of carpet and vinyl flooring are falling while laminate, wood, and ceramic flooring segments are growing. …

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