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Margin-Related Woes to Hurt Mohawk (MHK) in Q3 Earnings

Zacks Equity Research

Mohawk Industries, Inc. MHK is slated to report third-quarter 2019 results on Oct 24, after market close.

In the last reported quarter, the company’s adjusted earnings topped the Zacks Consensus Estimate by 0.7% but net sales missed the same by 2.1%. However, on a year-over-year basis, its top line grew 0.3% while bottom line dipped nearly 18% due to softness across the markets served, and pressure on volumes and pricing.

These headwinds are likely to have impacted its performance in the to-be-reported quarter as well.

Which Way are Top and Bottom-Line Estimates Headed?

The Zacks Consensus Estimate for Mohawk’s third-quarter earnings is pegged at $2.65 per share, indicating a 19.5% decline from the prior-year reported figure of $3.29. The consensus estimate for net sales is pegged at $2.5 billion, suggesting a 1.6% decrease from the year-ago reported figure.

 

Mohawk Industries, Inc. Price and EPS Surprise

 

Mohawk Industries, Inc. Price and EPS Surprise

Mohawk Industries, Inc. price-eps-surprise | Mohawk Industries, Inc. Quote

Key Factors Impacting Results

Demand for Mohawk’s products is likely to have declined due to continued weakness in Flooring North America, and uncertain macro trends in Europe and Australia. Also, increasing material costs, escalating transportation and energy costs, along with constrained chemical supply are expected to have hampered its bottom line.

The consensus estimate for net sales in the company’s Flooring North America segment (accounting for 38% of net sales) is pegged at $995 million, indicating a decline of 5.1% from the year-ago reported figure. The consensus mark for revenues from Flooring ROW (accounting for 24.9% of net sales) is pegged at $595 million, suggesting a 2.8% fall from the year-ago quarter.

Nonetheless, the consensus mark for revenues from the Global Ceramic unit (accounting for 37.1% of net sales) is pegged at $926 million, implying a year-over-year increase of 4.5%. However, adjusted operating income from the respective segments is expected to fall 34.6%, 2.1% and 19.3% on a year-over-year basis.

Management expects third-quarter adjusted earnings in the range of $2.58-$2.68 per share, which indicates a decline from the year-ago reported figure of $3.29.

That said, the rebounding U. S. housing market fundamentals might have helped the company to offset the above-mentioned headwinds in the third quarter. Also, the company’s innovative products across its portfolio, price increases and improved manufacturing processes are likely to have offset the headwinds to some extent. Continued growth of LVT owing to noteworthy innovations is expected to have added to the bliss.

Here is What Our Quantitative Model Predicts:

Our proven model does not conclusively predict an earnings beat for Mohawk this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that’s not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -1.37%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Mohawk currently carries a Zacks Rank #4 (Sell).

Stocks Worth a Look

Here are some companies in the Zacks Consumer Discretionary sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Caesars Entertainment Corporation CZR has an Earnings ESP of +58.33% and holds a Zacks Rank #2.

Activision Blizzard, Inc. ATVI has an Earnings ESP of +22.64% and carries a Zacks Rank #2.

K12 Inc. LRN has an Earnings ESP of +9.44% and carries a Zacks Rank #2.

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