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Mohawk's (MHK) Shares Gain on Q4 Earnings & Revenue Beat

Zacks Equity Research

Mohawk Industries, Inc.’s MHK shares gained more than 5% in the after-hour trading session on Feb 7, following fourth-quarter 2018 results, wherein adjusted earnings and sales beat the respective Zacks Consensus Estimate.

The company’s adjusted earnings per share (EPS) of $2.53 (excluding restructuring, acquisition and other charges) in the quarter topped the consensus mark of $2.49 by 1.6%. The bottom line, however, decreased 26% year over year.

The company’s net sales of $2.45 billion surpassed analysts’ expectation by 0.3% and also increased 3% year over year, given higher contribution from Flooring Rest of the World segment. Further, net sales were up 5% on a constant-currency basis.

The fourth quarter had been a difficult period for Mohawk due to input cost inflation and softening market conditions for LVT. Meanwhile, in order to offset the rising material costs, the company executed price increases in many products. However, its businesses witnessed more pressures on pricing and mix due to the price increase. During the quarter, the company reduced its manufacturing production to adapt to market demand.

Meanwhile, Mohawk experienced higher-than-expected start-up costs during the quarter, with slower-than-anticipated improvement in LVT production.

Mohawk Industries, Inc. Price, Consensus and EPS Surprise

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

Operating Highlights

Adjusted gross profit of $663.5 million decreased 13.3% year over year. Adjusted selling, general and administrative (SG&A) expenses increased 4.1% from the prior-year quarter to $422.7 million.
Adjusted operating income of $240.7 million declined 32.9% year over year.

Segment Details

Global Ceramic: Net sales at this segment amounted to $861.2 million, increasing 4.5% year over year on a reported basis and 7% on a constant-currency basis. The company’s operating margins were pressured by inflation, price and mix, along with lower production. This was partly offset by higher productivity.

Flooring North America: The segment’s net sales totaled $973.7 million, down 3% year over year. Operating margin of the segment was impacted by inflation, lower-than-expected volume, productivity and higher start-up costs.

Flooring Rest of the World: Net sales increased 12% year over year to $613.7 million. Moreover, sales improved 16% on a constant-currency basis. Operating margins also marked an improvement, attributable to improved volume and productivity that offset inflation, start-up costs, as well as foreign currency headwinds.

Financials

Cash and cash equivalents were $119.1 million versus $84.9 million at 2017-end. Long-term debt (less current portion) amounted to $1.52 billion, down from $1.56 billion as of Dec 31, 2017.

2018 Highlights

Adjusted earnings came in at $12.33 per share in 2018 versus $13.61 a year ago. Net sales were $10 billion, reflecting an increase of 5% from 2017. Net sales grew 4% on a constant-currency basis.

2019 View

The company has a cautious stance for 2019, given slowing market conditions, oil volatility that is making its expenses unpredictable as well as pressing conditions in the housing markets in many regions. However, the company believes that the situation will improve going forward.

In the first quarter, Mohawk intends to reduce production rates due to softer demand in most of the markets served by the company. It continues to introduce innovative new collections, implement price increases and improve manufacturing processes. Taking all of this into account, EPS guidance for the first quarter of 2019 is $2.02-$2.12, excluding one-time charges.

Zacks Rank

Mohawk, which shares space in the Zacks Textile - Home Furnishing industry with Leggett & Platt, Incorporated LEG, Interface, Inc. TILE and Culp, Inc. CULP, currently 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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