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Mohawk Industries Gains on Acquisitions, Competition Rife

Zacks Equity Research

Mohawk Industries, Inc.’s MHK launch of innovative products and synergies from acquisitions are encouraging. However, a highly competitive flooring industry and negative currency translations continue to dent profits.

Key Growth Drivers

Being one of the largest flooring manufacturers in the global market, Mohawk holds a dominant position in the highly fragmented and competitive industry. Moreover, in order to enter new markets and enhance capacity, the company is continuously making internal investments. In fact, for 2017, the company plans to invest approximately $900 million to optimize long-term results by entering new product categories and expanding its market.

The company expects its combined capital expenditures in 2016 and 2017 to contribute about 1.4 billion to new capacity. By introducing differentiated products, the company expects productivity to improve in 2017 as compared to 2016.

Moreover, acquisitions form an integral part of Mohawk’s growth strategy. These buyouts have enhanced the company’s product portfolio and expanded its geographic footprint and market share. Since the beginning of 2017, the company has made four acquisitions. It has entered the European carpet tile and countertop market as well as the Russian sheet vinyl business. In April, Mohawk completed the acquisition of two small ceramic manufacturers in Europe and a carpet nylon polymerization plant in the United States.

Also, with the recovery in the housing market on historically low interest/mortgage rates, rising rentals, rapidly increasing household formation and a limited supply of inventory, Mohawk is expected to grow on higher revenues.

Meanwhile, the company’s pricing actions have successfully mitigated the effects of overall inflation and rising material costs in third-quarter 2017. In fact, in the said quarter, the company’s process improvements resulted in productivity gains of approximately $49 million. The company’s pricing strategies and improved productivity have helped the company drive earnings.

In fact, over the past 60 days, earnings estimates for the current quarter and year have increased 0.9% and 0.2%, respectively, reflecting analysts’ optimism over the stock’s prospects.

Concerns

Given Mohawk’s strong international presence, with higher net sales being generated outside the United States, the company is exposed to negative currency translation effects.

Notably, shares of Mohawk have gained as much as its industry’s on a year-to-date basis. The company’s stock has gained 38% compared with the industry’s 38.1%.

Nevertheless, by virtue of its industry-leading designs, patented technologies and brands, this Zacks Rank #3 (Hold) is slated for future growth.

Stocks to Consider

A few better-ranked stocks in the Consumer Discretionary sector are Deckers Outdoor Corp. DECK, Skechers U.S.A., Inc. SKX and Interface, Inc. TILE.

Deckers Outdoor and Skechers U.S.A flaunt a Zacks Rank #1 (Strong Buy). Interface carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Current-year earnings for Deckers are projected to grow 11.9%.

Skechers’ current-year earnings are expected to increase 8.6%.

Interface’s current-year earnings are likely to grow 11.9%.

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Skechers U.S.A., Inc. (SKX) : Free Stock Analysis Report
 
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