Mohawk (MHK) Q2 Earnings Beat Estimates, Margins Fall Y/Y
Mohawk Industries, Inc. MHK reported better than expected results for second-quarter 2023, wherein its top and bottom lines surpassed the Zacks Consensus Estimate.
Although earnings and net sales declined on a year-over-year basis, the company exceeded its estimates for adjusted earnings of $2.56-$2.66 per share. This was driven by sequential margin improvement across the enterprise on the back of seasonal improvements, increased production, productivity initiatives and lower input costs.
Shares of this leading global flooring manufacturer plunged 3.49% in the after-hours trading session on Jul 27. The company noted that typical of housing recessions, higher interest rates and inflation are significantly impacting flooring sales around the world.
Inside the Numbers
Mohawk reported adjusted earnings of $2.76 per share, which topped the consensus mark of $2.64 by 4.6%. The metric plunged from $4.41 per share, reflecting a fall of 37.4% year over year. The decline was due to increased price competition, reduced industry volume, unfavorable mix and high input costs.
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 marginally topped the consensus estimate of $2.93 billion by 0.6% but decreased 6.4% from the year-ago figure of $3.15 billion. On a legacy and constant currency and days basis, net sales were down 9.6% year over year to $2.836 billion.
Adjusted gross margin was down 180 basis points (bps) year over year to 25.9%. Adjusted selling, general and administrative expenses, as a percent of net sales, increased 160 bps to 17.6% from the year-ago period. Adjusted operating margins contracted to 8.3% from 11.7% a year ago.
Segment Details
Global Ceramic: Sales in the segment totaled $1.155 billion, down 0.3% year over year and 6.7% on a legacy and constant currency and days basis. Adjusted net sales were $1.08 billion in the reported quarter. Adjusted operating income decreased to $99.1 million from $154.3 million a year ago. The segment’s adjusted operating margin was down 470 bps to 8.6%. Favorable pricing and product mix and productivity gains were offset by inflation, lower volumes and temporary shutdowns.
Flooring North America: Net sales at the segment amounted to $1,001.7 million, down 8.9% year over year on a reported basis and 12.1% on a legacy basis. The segment registered an adjusted operating profit of $60.6 million, down from $99.8 million reported in the prior-year period. Adjusted operating margin was 6% compared with 9.1% a year ago. Unfavorable pricing and product mix, along with reduced volumes and temporary shutdowns, were partially offset by lower inflation.
Flooring Rest of the World: Net sales in the segment decreased 11.4% year over year to $793.4 million. On a legacy and constant currency and days basis, sales were down 10.2% from the year-ago level. Adjusted net sales were $830.6 million in the reported quarter. Adjusted operating income was $96.3 million, down from $126.4 million reported a year ago. The segment’s adjusted operating margin was 12.1%, down 200 bps year over year. Lower volumes, transactional foreign exchange headwinds and temporary shutdowns offset productivity gains.
Financial Highlights
As of Jul 1, 2023, it had cash and cash equivalents of $570.9 million compared with $224 million on Jul 2, 2022. The long-term debt, less the current portion, was $2.013 billion compared with $1.052 billion at the end of second-quarter 2022.
For the second quarter, the company generated a free cash flow of $146.9 million versus a negative cash flow of $2.87 million a year ago.
Third-Quarter 2023 View
MHK expects continued pressure on pricing and mix, partially offset by the flow-through of lower material and energy costs. MHK’s third quarter is a seasonally weak period due to summer holidays, lower consumer spending and lower production in Europe.
Mohawk expects adjusted earnings to be $2.62-$2.72 per share, excluding restructuring, acquisition and other charges. This indicates a significant decline from the year-ago figure of $3.34.
Zacks Rank & Recent Consumer Discretionary Releases
Mohawk currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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