Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: energyplay who wrote (62436)	4/22/2005 10:51:39 AM
From: Slagle	Read Replies (1) of 74559

Energyplay, MHK just reported "lower than expected rise in quarterly earnings and warned of dissapointing results in the current quarter, citing higher raw material and energy costs". Should I short more? I don't buy the "higher energy costs" business. The gas and oil they burn is a tiny cost compared to yarn, backing, adhesives, labor, ect. I bet the biggie is the rise in yarn cost due to the $50 oil and they are probably just now getting hit by that. I intended to check that but haven't yet. Carpet is, or at least used to be real price sensitive in that the retail buyer will tend to go for the cheaper goods if the price of carpet rises. And the cheaper stuff is usually a lot less profitable. If yarn prices go up carpet prices will rise and sales will drop. Another thing, back in 2000 when Warren Buffet bought Shaw (the #1 carpet mill) MHK was about $25 but now MHK is over $75 and it is essentially the same company. They have made some aquisitions since then but they did it all with MHK stock. I don't think their carpet operation has changed much since then. And now they have an even more potent competitor with Shaw with the Berkshire takeover. That has gone real well too, from what I hear. MHK was real slow back in the summer of 2003, laying off lots of carpet workers. Bet that is happening again. Of the three big mills MHK is the more "loosey-goosey" of the three, both in sales approach and how the place is run. Shaw (#1 but very close in sales to MHK) is very conservative with a tightly run ship and very loyal long term employees. Belieu is the real low cost producer, just plain mean in lots of ways and very pushy in the European way. They are owned by a big Belgian company and have I am told unlimited resources. This is really the only carpet stock (there is Interface, IFSIA but they are a carpet tile company) and if housing goes down this will too. Slagle

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