U.S. markets closed

Mohawk's (MHK) Q4 Earnings to be Hurt by Margin-Related Woes

Zacks Equity Research

Mohawk Industries, Inc. MHK is scheduled to report fourth-quarter 2019 results on Feb 13, after market close.

In the last reported quarter, the company’s adjusted earnings and net sales topped the Zacks Consensus Estimate by 4.2% and 0.8%, respectively. However, on a year-over-year basis, both the metrics declined 16.4% and 1.1%, respectively, due to softness in retail demand, strong dollar and excess inventories. These headwinds might hurt its fourth-quarter 2019 results as well.

Key Projections

The Zacks Consensus Estimate for Mohawk’s fourth-quarter earnings is pegged at $2.20 per share, indicating a 13% decline from the prior-year reported figure of $2.53. The consensus estimate for net sales is pegged at $2.41 billion, suggesting a 1.7% decrease from the year-ago reported figure.

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 Impacting Results

Mohawk’s Flooring North America or NA and Global Ceramic businesses have been witnessing intense inflationary pressure. The U.S. ceramic market experienced a decline in product mix, soft retail demand, a stronger dollar, shifting of customers to LVT and excess inventories in the channel. Further, anti-dumping duties and China tariffs added to the woes. Although the company has started reducing inventory levels, expanding product offerings and entering new categories, the benefits of the same are not likely to reflect on fourth-quarter 2019 results.

The consensus estimate for the Flooring NA segment’s net sales is pegged at $917 million, indicating a decline of 5.9% from the year-ago reported figure and 8.5% sequentially. The consensus mark for revenues from Flooring ROW is pegged at $603 million, suggesting 1.8% fall from the year-ago quarter but 0.3% improvement from the third quarter.

The consensus mark for revenues from the Global Ceramic unit is pegged at $858 million, implying 0.3% year-over-year decrease and 6.3% fall from third-quarter 2019.

Coming to bottom-line projections, adjusted operating income from the Flooring NA and Global Ceramic units is expected to fall 20.9% and 9.5% on a year-over-year basis, respectively. Nonetheless, the same from the Flooring ROW business is likely to grow 5.1% year over year. Sequentially, the said metric is expected to decline 19%, 7.9% and 18.6% in Flooring NA, Flooring ROW and Global Ceramic segments, respectively.

Management expects fourth-quarter adjusted earnings in the range of $2.13-$2.23 per share, which indicates 11.6-15.8% decline from the year-ago reported figure. The lower projections were mainly due to higher costs and expenses related to labor, sales and marketing, along with excessive inflation and lower volumes.

That said, strengthening housing market, and strategic initiatives like aligning ceramic production with demand in the United States, realigning North American carpet operations, setting up of new plants and upgrading its LVT manufacturing might have positively impacted top-line growth in the to-be-reported quarter. Its foray into new product categories in Australia, New Zealand and Brazil, along with innovative extensions is commendable.

What Our Quantitative Model Predicts

Our proven model does not conclusively predict an earnings beat for Mohawk this time around. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that’s not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -3.42%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Mohawk currently carries a Zacks Rank #4 (Sell).

Stocks Worth a Look

Here are some companies in the Zacks Consumer Discretionary sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Mattel, Inc. MAT has an Earnings ESP of +850.00% and holds a Zacks Rank #3.

Crocs, Inc. CROX has an Earnings ESP of +30.00% and carries a Zacks Rank #3.

WW International, Inc. WW has an Earnings ESP of +13.98% and carries a Zacks Rank #2.

The Hottest Tech Mega-Trend of All

Last year, it generated $24 billion in global revenues. By 2020, it's predicted to blast through the roof to $77.6 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Mattel, Inc. (MAT) : Free Stock Analysis Report
 
Mohawk Industries, Inc. (MHK) : Free Stock Analysis Report
 
Crocs, Inc. (CROX) : Free Stock Analysis Report
 
WW International, Inc. (WW) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.