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Mohawk's (MHK) Q1 Earnings Beat Estimates, Revenues Miss

Zacks Equity Research

Mohawk Industries, Inc. MHK reported mixed first-quarter 2019 results, wherein earnings surpassed the Zacks Consensus Estimate, while revenues missed the same. Meanwhile, shares of the company fell 1.9% in the after-hour trading session.

The company’s adjusted earnings per share (EPS) of $2.13 topped the Zacks Consensus Estimate of $2.07 by 2.9%. However, the reported figure decreased 29.2% year over year. The results were negatively impacted by input cost inflation, a stronger dollar, softer market conditions in most of the regions served by the company and declining product mix. Also, uneven demand across the markets served added to the woes.

Net sales of $2.44 billion fell shy of expectations by 2% but increased 1.3% year over year. Net sales were up 6% on a constant-currency and days basis.

Mohawk Industries, Inc. Price, Consensus and EPS Surprise

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


To combat the above-mentioned headwinds, Mohawk has reduced the production rates to balance the inventory level with customers’ demand. Additionally, it has plans to boost prices to offset higher energy and material cost inflation, replace high-cost assets, enhance manufacturing processes, as well as reduce overhead expenses.

Operating Highlights

Adjusted gross profit of $663.1 million decreased 8% year over year. Adjusted selling, general and administrative (SG&A) expenses increased 6.5% from the prior-year quarter to $456.5 million.

Adjusted operating income of $206.6 million declined 29.2% year over year.

Segment Details

Global Ceramic: Net sales at the segment totaled $898.4 million, increasing 2.5% year over year, and 7% on a constant currency and days basis. However, the segment’s operating margin remained under pressure due to inflation, temporary shutdown costs and marketing investments, partially offset by productivity.

Flooring North America: Net sales from the segment totaled $922 million, down 3% year over year. The segment's operating margin was impacted by lower volume, inventory reductions, high material costs and LVT manufacturing variances.

Flooring Rest of the World: Net sales increased 6.3% year over year to $622.2 million. Sales improved 16% on a constant-currency and days basis. Operating margins also improved from the prior-year quarter, attributable to volume growth and lower inflation, partially offset by unfavourable price and mix, and productivity.

Second-Quarter View

Mohawk remains confident about its performance going forward as the U.S. housing market and material cost inflation are showing signs of improvement. The company has taken certain actions to improve LVT manufacturing, U.S. carpet and ceramic performance, as well as increase the utilization of its new investments. The company is focused on further increasing prices to offset inflation and restore margins.

Backed by the above-mentioned initiatives, Mohawk expects second-quarter 2019 earnings (excluding one-time charges) in the range of $2.81-$2.91 per share (versus $3.51 in the year-ago period).

Zacks Rank

Currently, Mohawk, which shares space with Leggett & Platt, Inc. LEG, Interface, Inc. TILE and Culp, Inc. CULP in the Zacks Textile - Home Furnishing industry, carries a Zacks Rank #4 (Sell).

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

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