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Will Mohawk (MHK) Surpass Estimates This Earnings Season?

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Zacks Equity Research
·5 min read
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Mohawk Industries, Inc. MHK is scheduled to report fourth-quarter 2020 results on Feb 11, after market close.

In the last reported quarter, the company’s adjusted earnings and net sales beat the Zacks Consensus Estimate by 41.1% and 2.9%, respectively. On a year-over-year basis, the metrics improved 18.5% and 2%, respectively. The company has been benefitting from robust U.S. housing market and repair & remodeling activities.

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has moved up to $2.88 per share from $2.85 over the past 30 days. The said figure indicates a 28% increase from the year-ago earnings of $2.25 per share. Also, the consensus mark for revenues is $2.50 billion, suggesting a 3.2% year-over-year increase.

Mohawk Industries, Inc. Price and EPS Surprise

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

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

Factors to Note

The company is expected to have registered improved sales and a strong order backlog across the enterprise during the fourth quarter. The company has even highlighted that during the third-quarter earnings call, residential remodeling and new home construction are likely to have been strong as the pandemic has turned living spaces into schools and offices as participation in other activities has drastically fallen.

The fourth quarter is usually slower for the industry due to normal seasonality, with expectations of lower growth in channel inventory levels. The company’s higher-margin commercial business will continue to record slow growth, with completed projects likely to outpace new starts. It has also been implementing restructuring plans and is on track to reduce costs.

Mohawk’s visibility continues to be limited by many uncertainties, including government restrictions. Assuming that the current economic trends will continue, it expects fourth-quarter EPS within $2.75-$2.87, with a non-recurring tax rate of approximately 5% for the period.

Overall, solid momentum in the residential market, Mohawk's ceramic tile and flooring businesses are likely to have gained from significant increase in volume in North American-end markets. Stronger volume, productivity and decrease in raw material cost are partially offset by unfavorable price and mix for the to-be-reported quarter.

Notably, commercial sales are likely to have improved during the fourth quarter. Meanwhile, owing to increased manufacturing, Mohawk has likely witnessed challenges in the business with respect to hiring, training and capacity. Selective price increase and cost-saving initiatives are likely to offset higher manufacturing, logistics and SG&A-related costs.

Global Ceramic (contributing 36.4% to net sales) is expected to have witnessed improved productivity, higher volume and lower energy costs, thereby aiding its performance in the quarter. The consensus mark for revenues from the Global Ceramic unit is pegged at $886 million, implying a 3.3% year-over-year increase.

The consensus estimate for the Flooring NA segment’s (contributing 38.6% to net sales) net sales is pegged at $946 million, indicating a rise of 1.1% from the year-ago figure.

The consensus mark for revenues from Flooring ROW (contributing 25% to net sales) is pegged at $658 million, suggesting a 4.4% increase from the year-ago quarter.

What the Zacks Model Unveils

Our proven model predicts an earnings beat for Mohawk this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

Earnings ESP: Mohawk has an Earnings ESP of +2.26%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks With Favorable Combination

Here are some other stocks from the Zacks Consumer Discretionary space that investors may also consider, as our model shows that these too have the right combination of elements to deliver an earnings beat this time around.

Under Armour, Inc. UAA has an Earnings ESP of +16.49% and a Zacks Rank #3.

MGM Resorts International MGM has an Earnings ESP of +3.54% and a Zacks Rank #3, at present.

Norwegian Cruise Line Holdings Ltd. NCLH has an Earnings ESP of +1.90% and a Zacks Rank #3.

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