Mohawk comes out of downturn buying

Revenue, fiscal 2012: $5.7 billion

Net profit: $227 million

Employees in Georgia: 9,241

Recent acquisitions: Spano (chip board and melamine board), Marazzi (tile), Pergo (laminate), Columbia (hardwood flooring) Unilin (laminate)

You might be tempted to say Mohawk Industries is on a buying binge. But after two decades of acquisitions, it’s less a binge than a lifestyle.

The Calhoun-based flooring giant has emerged from the depths of a nasty recession with its signature strategy for growth - buy something - intact.

Well, not just anything. The company has branched out from carpeting to make itself a major player in a range of flooring markets around the world.

The bottom line suggests it’s working: Even with the U.S. housing market still hobbled, Mohawk in the past 12 months reported revenue of $5.7 billion and net profit of $227 million. Analysts expect 2013 fiscal year revenue to top $6.9 billion, with profit of $352 million.

In the past 12 months, company stock has soared 57 percent.

“We have been recommending their stock, and we continue to recommend it,” said John Baugh, analyst with St. Louis-based Stifel, Nicolaus & Company. “We like their prospects.”

Not too long ago, the outlook was decidedly dimmer.

The collapse of the housing bubble after 2007 pulled down industries that had served the real estate surge – from lawyering to bricklayers to carpet and rug-makers. Overall, Georgia’s carpet industry workforce fell 30 percent as the jobless rate in the Dalton area jumped from 6 percent in early 2008 to 12.3 percent a year later. It was still at that level a year ago, but has now dipped to 11.3.

Mohawk’s payroll fell about 2,000 jobs from its peak, although company officials said they have been doing selective hiring all along. The company now has 9,241 workers.

Coming out of the downturn, the company has moved to diversify its products and expand its reach. In the past five months alone Mohawk has pumped $1.82 billion into acquisitions.

“They really zeroed in. I think it’s very much their strategy,” Baugh said.

— In October, Mohawk announced the $150 million purchase of Pergo, a company that had been its prime competitor in laminate wood flooring.

— In December, Mohawk announced a bid for Marazzi Group, an Italian maker of ceramic tile, for $1.5 billion.

— Last month, Mohawk bought Spano Invest, a Belgian maker of chip board and melamine board, for an estimated $168 million.

“They have been aggressive in deploying capital and they now have a beachhead in ceramic tile – in Eastern Europe, in Russia, in Mexico, in the United States,” Baugh said.

Baugh said there are risks, too.

For instance, the Marrazzi purchase is a bet on a troubled regional economy.

“They hope that Europe is hitting near the bottom, but there are no guarantees of that,” he said.

The U.S. economy poses big questions, too. Growth has returned, but how strong will it be? How much of a rebound will housing provide? Will consumer spending power wax or wane in six months? A year?

While Mohawk’s recent string of deals may involve more money than in the past, the strategic path is familiar.

Founded in upstate New York in 1878 by the Shuttleworth family, the company merged with another in 1920 to become Mohawk Carpet Mills, a name derived from the surrounding Mohawk River Valley.

Mohawk came south in the 1950s, merging with another ex-New York firm to form Mohasco Industries.

A group of Mohasco executives in 1989 negotiated a buyout of the carpet manufacturing piece of the company, still called Mohawk. Within a couple years, the company started finding merger partners and acquisition targets.

Starting with Horizon Industries in 1992, there was a series of deals — all with carpet and rug companies. In 2001, the company broadened its identity with the $1.8 billion purchase of Dal-Tile, a Dallas-based leader in ceramic tile.

“In 1998, Mohawk was really just a carpet company,” said Kemp Harr, publisher of Floor Focus magazine, which covers the industry.

Other purchases included Columbia, a hardwood manufacturer, and laminate maker Unilin.

“I think you see a vision and the vision is that flooring is a necessary and successful business to be in,” Harr said. “It’s not like it’s some kind of Internet fad – flooring is something that is always going to be there.”

Company officials declined to be interviewed but agreed to answer questions in writing.

In an email, Mohawk Chairman and Chief Executive Jeff Lorberbaum said the company doesn’t mind buying its way to greater scope, but it doesn’t feel compelled to go that route either.

“Our goal is to avoid using a ‘cookie-cutter’ approach,” he wrote. “We have found a combination of internal growth and acquisitions provide the optimum value.”

Lorberbaum deflected questions about the company’s commitment to its Georgia headquarters as it becomes increasingly global.

“The location of our headquarters is largely irrelevant,” he wrote.

Not to residents of the area, said Jimmy Phillips, president of the Gordon County Chamber of Commerce.

“They are the number one employer in Gordon County. If they buy a big tile company or go to Belgian, it may not create a job but it may keep some (here).”

Mohawk has been generous in contributing to local causes, Phillips said, like donating to the purchase of property for the local technical college and supporting the arts center, he said.

The area’s economy has long depended on carpet companies, like nearby Shaw. When the national economy caught cold, the carpet region caught pneumonia: The region’s jobless rate virtually doubled in a year as carpet companies slashed roughly 30 percent of their workforce.

Now, with a modest recovery underway, the expansion of Mohawk’s reach has to be good for the area, even if the company’s is expanding elsewhere, said Harr of Floor Focus.

“They are a Georgia-based company, so there will be more headquarters promotion.”