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Mohawk (MHK) Q2 Earnings Beat, Stock Up on Record Profits

Mohawk Industries, Inc.’s MHK shares rose 2.6% in the after-hours trading session on Jul 29, post the announcement of second-quarter fiscal 2021 (ended Jul 3) results. The top and bottom lines surpassed the Zacks Consensus Estimate as well as improved significantly on a year-over-year basis.

Second-quarter results were driven by robust housing sales and remodeling investments across the world. Commercial projects are improving on the back of global economic recovery.

Inside the Numbers

Mohawk reported adjusted earnings of $4.45 per share, surpassing the consensus mark of $3.71 by 20%. Also, the metric increased a whopping 1,103% year over year. This marked the highest earnings in the company’s history.

Mohawk Industries, Inc. Price, Consensus and EPS Surprise

Mohawk Industries, Inc. Price, Consensus and EPS Surprise
Mohawk Industries, Inc. Price, Consensus and EPS Surprise

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

Net sales of $2.95 billion beat the consensus estimate of $2.77 billion by 6.8% and increased 44% from the year-ago figure of $2.05 billion. On a constant-currency and days basis, net sales were up 38% year over year. Second-quarter net sales marked the highest quarterly sales in the company’s history.

Operating Highlights

Adjusted gross profit of $907.7 million was up 106.5% year over year. Adjusted selling, general and administrative expenses — as a percentage of net sales — improved 290 basis points (bps) to 1.7%. Adjusted operating income totaled $411.4 million, which rose 1,049% year over year.

Segment Details

Global Ceramic: Sales in the segment totaled $1,039.5 million, up 38% year over year. Also, the metric improved 34% on a constant currency basis. Adjusted operating income increased to $137.2 million from $3.86 million a year ago. The segment’s operating margin also expanded 1,270 bps to 13.2% owing to higher volume, productivity, pricing and mix improvements along with fewer COVID-19 disruptions, partially offset by inflation.

Flooring North America: Net sales at the segment amounted to $1,081.2 million, up 35% year over year. The metric was up 35% on a constant currency basis. The segment registered adjusted operating income of $121.4 million for the quarter against operating loss of $17.3 million in the prior-year period. Operating margin was 11.2%. Improvement in productivity and increased volume were partially offset by inflation.

Flooring Rest of the World: Net sales in the segment increased 68% year over year to $833.1 million. On a constant-currency basis, sales were up 50% from the year-ago level. Adjusted operating income was $164.3 million, up 101.4% from a year ago. The segment’s operating margin expanded 780 bps to 19.7%. The upside can be attributed to strengthening volume and productivity, favorable price and product mix as well as limited COVID restrictions.

Financial Highlights

As of Jul 3, 2021, it had cash and cash equivalents of $753.7 million compared with $737.7 million on Jun 27, 2020.

Long-term debt — less current portion — at fiscal second quarter-end was $1.72 billion compared with $2.57 billion on Jun 27, 2020.

For the fiscal second quarter, the company generated free cash flow of $225.7 million, down from $487.9 million a year ago.

Third-Quarter Fiscal 2021 View

It anticipates strong sales to continue, with typical seasonal slowing from the second quarter. The company intends to introduce new products with additional features, and increase sales investments to enhance future sales and mix. Mohawk has been experiencing increased material, energy and transportation inflation. Hence, the company will continue raising prices in response. Meanwhile, the Global Ceramic and Flooring Rest of the World segments will observe their European vacation schedules, which will reduce production and increase costs in the period. Given the current situation, it expects third-quarter adjusted EPS to be $3.71-$3.81, excluding restructuring charges.

Zacks Rank

Mohawk — which shares space with Culp, Inc. CULP, Interface, Inc. TILE and Select Interior Concepts, Inc. SIC in the Zacks Textile - Home Furnishing industry — currently carries a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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