Tabell’s Market Letter – November 27, 1964

Walston &Co. -…;.;……;,…;;Ic. Members New York Stock Exchange NEW YORK SAN FRANCISCO LOS ANGELES PHILADELPHIA CHICAGO TABELL'S MARKET LETTER …OFFICES COA.ST TO COAST AND OVERSEAS November 27,1964 MOHASCO INDUSTRIES, INC. Current Price Current Dividend 14 .60 If the average investor were asked to name Amer ica's growth industries, the carpet industry would be Current Yield 4. 30/0 well down around the bottom of the list. The reason Long Term Debt Pfd. Stk (100 par) Common Stock 15,250,000 64,413 shs. 3,774,028 shs. for this lies in the investor's orientation. When he thinks of growth he is liable to mean one thing — growth in earnings. This is an area where most carpet manufacturers have been notoriously deficient. Sales-1964-E 145, 000,000 . Yej;, 'paradoxicalJ,y,.on.the .record, the.carpetindus. Sales-196-3 . 107,780,000– try is-one' of the fastest growing in the country. For Earn. Per. Sh. 1964-E 1. 25 example, in 1963, 226 million square yards of car- Earn. Per Sh. 1963 Mkt. Range 1964-61 0.72 15 1/4-7 5/8 peting were shipped vs. 79.7 million in 1953, with. each intervening year showing an increase. Total value of carpet manufactured has more than doubled over the past decade. The average household now purchases 4.09 yards of carpet per year vs. 1. 72 yards ten years ago. And the industry is just on the verge of exploiting a huge commercial market by proving that, over the long run, carpet is the cheapest of all possible floor coverings even in such applications as schools., hospitals and kitchens. Mohasco Industries, Inc. is the largest factor in this burgeoning industry and yet, as noted above, except for a couple of good years, the Jtren relatively static. Any analysis of the company, therefore, hinges on finding t an t 0 questions. (1) Wh have company earnings failed to reflect industry groa ) is t any indication that they may more closely parallel such growth in the fu To answer the first question it is to at' ustry background. Carpeting is, after all, an old product. At the end of Wo r II st manufacturing facilities were – and Axminster weaves. Since t i of major shifts have taken place. First of all, the center of the in u the south, to modern, one-story plants. Secondly, wool is no longer it erial. It constitutes only 470/0 of current fiber consump tion vs. 630/0 in 1959. ,0 e other hand, has better than tripled its market share in the past five years, an th rylic fibers have been growing strongly. Even more startling has been the move awa om the traditional weaves which accounted for virtually 1000/0 of production at the end of the war. In 1963, the modern tufted carpet process accounted for 780/0 of all production, with knitted carpet, another relatively new product, comprising much of the remainder. Herein lies the explanation of Mohasco's recent rather spotty earnings record. Formed by a merger in 1956, it has, slowly, to be sure, gradually moved most of its operations south- ward. The newer facilities have quite naturally emphasized the production of tufted carpet, which now accounts for about 500/0 of the company's sales, and knitted carpet, of which Mohasc is the largest producer. It is also gradually lessening its dependence on wool and consequent exposure to flU,ctuations in price. Yet, this operation has taken time and has drastically penal- ized the company's ability to par.ticipate in.industry..wide.growth. It appears, however, that the period of change-over is now largely past. Capital expen- ditures for 1964 will be considerably less than depreciation. Debt has been sharply reduced and the company is now in a position to invest surplus cash, and this it did when it acquired Futorian Manufacturing Company for cash late last year. The acquisition added a major line of upholstered furniture to the product mix and broadened the scope of the company's opera- tions in the home decorating field. Under this stimulus earnings are expected to increase sharply to around 1. 25 this year vs. 72 in 1963. The recently raised dividend could again be increased and another goo earnings gain is expected for 1965. From a technical point of view, considerably higher levels re indicated over the longer term and the stock is again recommended for purchase in speculative accounts. ANTHONY W. TABELL Dow-Jones Ind. 882. 12 WALSTON & CO. INC. ow-Jones Rails 215.24 This market letter is not, And under circumstances IS to be construed 8S, an offer to Bell or a solicitation to buy any securities -referred to herem. The information contained herem Is not guaranteed as to accuracy or completeness and the furnishmg thereof is not, and under no circumstances is to be eonstrued as, a represenu hon by Wnlston & Co, Inc. All expressions of opmion are subject to change Without notloo. WAleton & Co., Inc., and Officers, Directors, Stockholders and thereof, purchase, sell and mny have nn interest in the securities mentIOned berein. ThJ8 market letter Ie Intended and presented merely 8& a general, Informal comm.mtary 011 day to day market news and not 88 a complete analysis. Additional mformatlOn with respect to any 8ecurlties referred to herein will be furnulhed upon request. WN 301